ANALYTICAL REVIEW OF FINANCIAL STATEMENTS OF THE PAKISTAN TOBACCO COMPANY LIMITED FINAL PROJECT

PROJECT SUPERVISOR:
Mr. Fazal-ur-Rehman

SUBMITTED BY:
Waqar Abbas 01-299081-015 Shafqat Hameed Sahi 01-299081-012 PROGRAMME: EMBA
BAHRIA INSTITUTE OF MANAGEMENT AND COMPUTER SCIENCES ISLAMABAD

DEDICATION
Dedication is a devotion to whom we love, who our benefactors are, who pray for us and who made us capable of doing all these under this head, there are two personalities, which are our PARENTS, our TEACHERS. So we have devoted our report to our beloved parents and beloved teachers.

Acknowledgement
We would like to thank Almighty Allah who gave us the

patience and determination to complete this study.

We would like to thankful to Pakistan tobacco Company and its employees who provide the platform to make our project successfully, especially thanks to Corporate Finance Manager, Corporate Services Finance Manager and Financial Accounting Officers.

We

are

extremely

grateful

to

Mr.Fazal-ur-Rehman,

our

project supervisor. He spent a lot of valuable time with us and gave all the related information and expertise very generously about project.

EXECUTIVE SUMMARY
Tobacco industry sector is by one of the largest segments of our contributing huge amounts to the

industrial

national exchequer. Being responsible corporate citizens it plays a vital role for community development in the shape of afforestation, mobile dispensaries and learning resource centers etc. This report is based on analytical review of one of the best company in tobacco sector. In our study we have done financial statements analysis to measure their performance in the current scenario and gave those corrective measures and suggestions then how they can improve their growth in future. For this purpose we select trend analysis as a performance measurement tool which is the most easy and fastest way to understand the result. We did horizontal and vertical analysis of balance sheet and we took 2004 as a base year. Most of the critical factors which are creating performance gaps are; role export and of influence tobacco, of government, taxation and policies, political environment

shortage of electricity. The main objective of the of this study is of to analyze the

performance

major

company

Pakistan

tobacco

industry. Purpose of conducting this research is to draw conclusions and recommendations based on the analysis for making the role of the company more effective.

Table of Contents
1 INTRODUCTION.............................................7 1.1 Introduction of topic:......................................................................................................7 1.2 Industry Overview:.........................................................................................................7 2 ORGANIZATIONAL OVERVIEW.................................12 2.1 About Company..........................................................................................................12 2.2 History.........................................................................................................................12 2.3 Brands..........................................................................................................................13 2.3.1 Benson & Hedges..................................................................................................14 2.3.2 John Player Gold Leaf..........................................................................................14 2.3.3 Capstan..................................................................................................................14 2.3.4 Gold Flake.............................................................................................................15 2.3.5 Wills .....................................................................................................................15 2.3.6 Embassy................................................................................................................15 2.4 Environment, Health & Safety ..................................................................................15 2.5 Corporate Social Responsibility .................................................................................17 2.5.1 Youth Smoking Prevention...................................................................................18 2.5.2 Medical Doctor.....................................................................................................19 2.5.3 Afforestation.........................................................................................................19 3 LITRATURE REVIEW........................................21 4 HORIZONTAL & VERTICAL ANALYSIS..........................23 4.1 Purpose & Methodology..............................................................................................23 4.2 BALANCE SHEET ANALYSIS................................................................................24 4.2.1 Total Non Current Assets.....................................................................................24 4.2.2 Total Current Assets.............................................................................................25 4.2.3 Total Non Current Liabilities................................................................................26 4.2.4 Total Current Liabilities........................................................................................27 4.2.5 Equity....................................................................................................................28 4.3 PROFIT & LOSS ANALYSIS....................................................................................29 4.3.1 Sales......................................................................................................................29 4.3.2 Cost of Goods Sold (COGS).................................................................................29 4.3.3 Gross Profit...........................................................................................................30 4.3.4 Operating Profit.....................................................................................................30 4.3.5 Profit after Tax......................................................................................................31 5 RESEARCH METHODOLOGY....................................32 5.1 Problem Statement.......................................................................................................32 5.2 Broad Problem Area...................................................................................................32 5.3 Research Objective.......................................................................................................33 5.4 Data..............................................................................................................................33 5.5 Source of Data............................................................................................................33 5.6 Procedure....................................................................................................................34 5.7 Limitations.................................................................................................................34 6 FINANCIAL RATIOS ANALYSIS...............................35 6.1 Liquidity Ratios...........................................................................................................35 6.1.1 Current Ratio: Current Assets...............................................................................35

6.2 Profitability Ratios.....................................................................................................37 6.2.1 Gross Profit Margin: Gross Profit......................................................................37 6.2.2 Operating Profit Margin: Operating Profit.........................................................37 6.2.3 Net Profit Margin: Net profit after tax.............................................................37 6.2.4 Return on Assets: Net Profit After Tax..............................................................38 6.2.5 Return on Equity: Profit Before [IT]..................................................................38 6.2.6 Earnings per Share: Profit After Tax .................................................................39 6.2.7 Price Earning Ratio: Market Price Equity Share..................................................40 6.2.8 Dividend Payout Ratio: Dividend ........................................................................40 6.3 Activity Ratios............................................................................................................44 6.3.1 Inventory Turn Ratio: Costs of Goods Sold ................................................44 6.3.2 Total Assets Turn Over Ratio: Revenue ........................................................44 6.3.3 Fixed Assets Turn Over Ratio: Revenue .......................................................44 6.4 Leverage Ratios..........................................................................................................47 6.4.1 Debt to Assets Ratio: Debt..................................................................................47 6.4.2 Debt to Equity Ratio: Debt..................................................................................47 6.4.3 Interest Coverage Ratio: ......................................................................................48 Profit Before Int & Tax.................................................................................................48 7 CASH FLOW STATEMENT ANALYSIS............................50 7.1 Operating Activities.....................................................................................................50 7.2 Investing Activities......................................................................................................50 7.3 Financing Activities.....................................................................................................51 8 CONCLUSION AND RECOMMENDATIONS..........................52 9 ANNEXTURES..............................................55 9.1 Investor information....................................................................................................55 9.2 Horizontal Analysis.....................................................................................................57 9.2.1 Horizontal Analysis of Balance Sheet..................................................................57 9.2.2 Horizontal Analysis of Profit & Loss...................................................................59 9.3 Vertical Analysis.........................................................................................................60 9.3.1 Vertical Analysis of Balance Sheet......................................................................60 9.3.2 Vertical Analysis of Profit & Loss.......................................................................62 9.4 Profit & Loss Account.................................................................................................64 9.5 Balance Sheet...............................................................................................................65 10 References............................................66

1 INTRODUCTION 1.1 Introduction of topic:

Our topic is Analytical Review of Financial Statements of Pakistan Tobacco Company Limited. Financial position of the company is explained and done analysis of important ratios and there is separate analysis on cash flow statement also. We conclude it with few recommendations as well.

1.2

Industry Overview:
Pakistan's reliable crop in tobacco source the of business has been a traditionally some 1 60

government and

income, more

paying than

billion rupees per year. It has the largest yield of any country employs million Pakistanis. The area under tobacco farming increased by 30 per cent from 44,000 hectares to 57,000 hectares. The production has increased even more significantly by 145 per cent from 75,000 tones to 109,000 tones. The value-added sector, the cigarette production, depicted a far more un-proportionate increase of 72 per cent. Tobacco is the only crop grown in Pakistan whose yield is well above the world average and matches the per hectare yield in the US and other developed countries an average yield of 1,900 kilograms per hectare. Tobacco industry growing, manufacturing, distribution and retailing employ 7

over

one

million in the

persons full

directly

or

otherwise. of 312,500 35 per

This jobs cent

translates employs

time

equivalent of persons

supporting approximately 1.2 million persons. Manufacturing the highest number followed by 33 per cent by growing and 32 per cent in distribution and retail. (www.pakistaneconomist.com) In the last decade or so, there has been a large antismoking backlash in the United States. The recent out-ofcourt settlement of $360 billion between "Big Tobacco" and participants in a class action suit has spurred the development of anti-smoking coalitions in other parts of the world. (www.yespakistan.com) The decline in smoking in North America, especially the United States, has been offset by a strong push from the large tobacco companies to find converts in the developing world. As tobacco control is tightening in the West, transactional tobacco companies are becoming more active in developing countries. The result is that tobacco use is declining at the rate of 1.5% in the West but at the same time it is increasing at the rate of 1.7% in the developing countries. (www.docstoc.com) While the anti-tobacco movement in the USA helped lower cigarette sales, Big Tobacco, the largest US companies: Philip Morris, R.J. Reynolds and Brown and Williamson, as well as the British American Tobacco Co., have continue to expand overseas. They have flooded the markets in Asia and Eastern Europe with advertisements, promotional products and cut-price brands designed to encourage new smokers.

According to the Pakistan Pediatric Association, every day more than 1,000 children between the ages of six and 16, start smoking. It is estimated that more than a third of men and some four percent of women in the country are smokers. (www.yespakistan.com) Every year, the government spends some US$20,000 on antismoking messages but cigarette companies spend millions of dollars annually on advertising. (www.yespakistan.com) Anti-tobacco government is activists reaping say in that the whatever term benefits from the

short

tobacco-

related industries will be significantly offset by the long term health care problems of average Pakistanis devastated by smoking addictions. (www.yespakistan.com) Tobacco involves is a crop with many aspects. but Not only does it

scientific

treatment,

requires

special

attention by the producers during the growth, curing and marketing stages. This crop possesses substantial economic importance is quite and its impact In on the fiscal and monetary tobacco policies of major producing, exporting/importing countries prominent. Pakistan, although cultivation occupies a comparatively small area of 0.27% of the total irrigated land in the country, it is of great economic above value as a source were of revenue, to employment the and foreign exchange earnings to the country. During 2004-2005, Rs.28 billion contributed National Exchequer as Central Excise Duty and Sales Tax. Being a highly labour-intensive crop, about eighty thousand persons are involved in its cultivation, fifty thousands are engaged in 26 factories of the Tobacco Industry and another 9

one

million (US$ of

find 11.61

indirect of foreign million crop on

employment. exchange during not been

It

is

also for Had by

an the the the

important country Pakistan production

source

earnings developed lines, the

2004-2005).

tobacco Board

Tobacco

scientific

country

would have been importing raw material worth Rs.7-8 billion per annum. (www.docstoc.com) Pakistan Tobacco Board was established under an Ordinance (Ordinance No.1 of 1968, dated 8th February, 1968) for the promotion of the cultivation, manufacture and export of tobacco and tobacco Products and matters ancillary thereto. (www.docstoc.com) To regulate, control and promote the export of tobacco and tobacco products, and to fix grading standards; To and undertake generally and to assist take research in connected the with of

tobacco industry, impart training in tobacco testing measures interest tobacco industry; To render to assistance areas organize with for and and the development of special of new model

tobacco farms, connected

growing

establishment assist

research

tobacco cultivation and generally to

render assistance for improving tobacco production; To collect statistics on any matter relating to

tobacco and tobacco industry; and

10

To

perform

such may,

other from

functions time to

as

the

Federal direct.

Government

time,

(www.docstoc.com)

The

Pakistan

Tobacco

Board kept a close vigil over the

tobacco marketing operations through visits of its Senior Officers on daily basis and Governor's Inspection Teams in NWFP and also receipt of information of tobacco purchases/prices from the tobacco companies on daily basis so as to safeguard the interest of all the similar groups i.e. tobacco prices growers, and paid tobacco are well dealers above and those tobacco of the companies. It is heartening to note that to-date weighted average corresponding period of last years. (www.highbeam.com)

11

2 ORGANIZATIONAL OVERVIEW 2.1 About Company

Pakistan Tobacco Company Limited was incorporated in 1947 right away after partition, when it took over the business of the Imperial Tobacco Company of India, which had been working in the subcontinent since 1905. PTC is part of the British American Tobacco Group, which employs more than 90,000 people internationally and which has existence in more than 180 countries. British American Tobacco has a position of market leader in more than 50 countries selling over 300 brands there. PTC is the in largest the Rs.40 excise tax generator in the private In 2009 in alone, excise PTC and paid to the tax. Billion sales

sector

country.

government

(www.ptc.com.pk)

2.2

History
From being the first multinational to set up its business in Pakistan in 1947 and beginning operations out of a warehouse near Karachi Port, they have come a long way. From being just one factory operation to a company, which is involved in every aspect of cigarette production, from tobacco farming to packaging they have evolved and grown with Pakistan. However, what is important about these sixty two years is the effort that PTC has demonstrated in the growth of the country. By being active in the campaign for modern agricultural and industrial practices, they have

12

helped in the development and progress of the agricultural & industrial sector in the country. They have of been supporting & contributing Educating areas to different in a the few

causes and

national health

interest. in

growers are but

latest techniques and technology in farming, a forestation free care selected examples. (www.ptc.com.pk)

2.3

Brands
The Group's goal is to please consumers demands better and more profitably than its competitors do. British American Tobacco invests effort and care in understanding consumers preferences, and knows that adult smokers make informed choices about brands. British American Tobacco's brand approach differentiates it from its competitors and underpins its approach to product development. segmented and The Group continues brand to build a focused, allocates differentiated range and

resources to a full range of brands deployed in the key industry areas that offer the most robust source of volume and profit and growth. Adult They These Smokers are to the international, age of 30 in four premium (ASU30) drive cent. lights Under the

segments. have

continue

spend by

global 50 per

brands - Dunhill, Kent, Lucky Strike and Pall Mall, which grown collective volumes almost Rothmans, Kool, Benson & Hedges, State Express 555, Peter Stuyvesant, Viceroy and John Player Gold Leaf are also part of their international brand portfolio, playing a key

13

strategic

role

in

the

various

regions

where

they

do

business. (www.docstoc.com)

2.3.1
In 1873,

Benson & Hedges

Richard Benson & William Hedges started a

partnership in London. From the very start, the idea was to make Benson & Hedges a style statement, which is why the business started from Londons fashionable West End.

PTC launched Benson & Hedges in Pakistan in March 2003. Made with the finest hand picked golden Virginia tobacco from across three continents, the brand is packed with perfection to seal its freshness. (www.ptc.com.pk)

2.3.2

John Player Gold Leaf

The story of John Player Gold Leaf has to start from the story of its founder, John Player. An enterprising businessman, John Player started a small tobacco selling business in 1877 and turned it into a successful cigarette company, John Player and Sons. (www.ptc.com.pk)

With a distinct lifebuoy and sailor trademark, John Player Gold Leaf has an individuality entrenched in sailing and maritime adventure. Thus staying true to John Players very first big brand - Players Gold Leaf Navy Cut cigarettes. (www.docstoc.com)

2.3.3

Capstan

Capstan has a rich legacy, originating in Britain in the

14

19th century. The brand was created under the sponsorship of W.D. & H.O. WILLS at Bristol and London. (www.ptc.com.pk)

2.3.4

Gold Flake

Gold Flake, like many of brands, also boasts its origins at W.D. & H.O. WILLS where it was a premium brand around the end of the 19th century. Launched in 1982, in a 'soft cup' packaging, the brand took off when it was repositioned in the value for money segment and later a 'hinge lid' variant was introduced in 2000. (www.ptc.com.pk)

2.3.5

Wills

WILLS takes its name from the heritage of one of the original Imperial Tobacco Company families: the Wills Brothers of London. (www.scribd.com)

2.3.6

Embassy

Embassy, the third leading volume brand in Pakistan, is most popular in the Punjab where it enjoys a leading position due to its equity and loyalty. (www.scribd.com)

2.4
Pakistan

Environment, Health & Safety

Tobacco Company aims to apply the best

international standards of practice in all aspects of its operations which relate to the health and safety of its employees at work and non-company personnel on company premises and the conservation of the physical environment and to give a high priority to these activities.

15

As a major national marketer, manufacturer and distributor and as a good corporate citizen the Company is committed to: Providing and maintaining safe and healthy working environments including safe systems of work for all its employees and non-company personnel on company premises. Paying due regard to all impacts of its activities on the physical environment. Pakistan Tobacco Company requires to:
i)

Comply with all applicable national and international laws and regulations affecting their business activities.

ii)

Establish procedures for assessing and reviewing the environmental, health and safety impacts of its present and future activities on a regular basis.

iii)

Seek

frequently

to

identify

pro-active

and

cost

effective way which it can take to defend the health and safety of its employees and non-company personnel on company location, and, the physical environment. This is an obligation which the Company seeks to relate throughout its supply chain, from the application of high standards of farming training in tobacco growing and the specification and procurement of materials for its products to the upturn and removal of waste materials and postconsumer wrapping where this is suitable.

16

The Company expect all its employees and non-employees on company location to complete their part of these tasks by being alert at all times for any possible insecure or unacceptable acts or situations and ensuring directly or through others that they are eliminated. Pakistan Tobacco Companys has Director overall Operations and for

Information

Technology

responsibility

environmental, health and safety management.

2.5

Corporate Social Responsibility

Pakistan Tobacco Company aim to demonstrate responsible corporate conduct across all aspects of thier operations. The Company abides by this philosophy each step of the way: from appropriate human marketing tobacco and rights to and consumer our information from to supporting workplace work sensible regulation; reducing with their respecting

environmental to a

impact to contributing to local communities. They seek to continuously with the engage stakeholders, of balance their views and to align their business decisionmaking reasonable societal expectations modern tobacco company. They Tobacco product recognize products that Corporate pose real They, risks Social to Responsibility and that raise for

CSR) presents particular challenges for a tobacco company. health believe important questions about how best to define responsible stewardship. therefore, their business, the only meaningful approach to CSR is one based squarely on their products, on the issues around them

17

and on ways of responding to the sometimes strongly held views of their stakeholders. In reaching consensus on many of the issues that surround their operations, social to reporting objectively has and proven to be an effective mechanism robustly address

society's needs while embedding the idea of engagement into all areas of business. (www.ptc.com.pk)

2.5.1

Youth Smoking Prevention

Pakistan Tobacco Company strongly believes children should not smoke, and smoking should only be for adults who understand the risks associated with it. British American Tobacco Group companies support and run programmes concerns worldwide expressed tackling on youth underage smoking, smoking. Pakistan Due to Tobacco

Company has taken initiatives on several fronts such as voluntary withdrawal from electronic media, prohibiting the use of celebrities in marketing material and embedding a robust marketing code; the International Marketing Standards (IMS). PTC was the first company to pilot a retailer education programme their in 1999 and with and continue to do so. have Additionally, a voluntary packs advertising the materials

inscription age limit

legend under-age sale prohibited. to 18 through changes in tobacco

They have supported the Government in raising the minimum from 16 legislation. (www.ptc.com.pk)

18

2.5.2

Medical Doctor

PTCs dedicated mobile doctor teams take pride in providing health care in areas where there are no medical facilities. Since the early 1980s they have been running a mobile doctors program in the areas where health care facilities are lacking and basic health care needs are the most acute. The program has grown over the years and treats close to 7,000 patients on a monthly basis. The facilities provide free medical check-ups and diabetic screening as well as eye care and general health advice in the areas around their factories and the leaf growing regions which have poor or absent medical facilities. Given its localization and

2.5.3

Afforestation

Pakistan Tobacco Company is already well-known for its work in afforestation and at present plants four million trees every year. Bearing in mind the reality that only four percent of

Pakistan's land mass is covered by forest (preferably it should be at least 20 percent), they have instituted most likely the largest private sector afforestation programme in Pakistan. In order to encourage sustainable growth, Pakistan Tobacco Company has been at the front position of afforestation efforts in the country. Under this agenda, they have planted over 52 million trees since the project started in 1981. PTC is also looking into the option of increasing 19

this movement to other parts of Pakistan. They have also signed MoU with the National Highway Authority to solely plant years. PTC have been winning the annual Environmental Excellence Award, awarded by the National Forum for Environment and Health consecutively demonstrated for the some will years and now, and have to constantly sincere attempt 600,000 trees along the M-1 motorway between Islamabad and Peshawar, over the course of the next two

make a distinction to the communities they work with. In order to create awareness about afforestation efforts and the importance of sustainable development, they also spend in projects aimed at improving civic life. To this end, they have developed two quality parks in Ghourghushti (Attock) and another in Nowshera. (www.ptc.com.pk)

20

3 LITRATURE REVIEW
Tobacco industry in all over the world which is bounded

everyday by some controversial debates. As in other part of the world the tobacco industry is one the biggest industry in Pakistan. Big industry means big problems. Most of the tobacco companies are facing many law cases all over the world. This analytical the review will provide in the general some overview about tobacco industry Pakistan,

factors which affect this industry and key success factors. Tobacco exchequer only one industry of big is one of the major contributors has its in own

government company

treasury. exist

Tobacco

history since the independence of Pakistan and at that time named Imperial Tobacco Company. Taste is the main reason thats why people smoke specific brand. Every brand of cigarettes have its own taste in high tar, low tar, nicotine and some terms of menthol,

brands are in different flavors in all over world like dark chocolate and creamy mellow etc. The main factor and in other words we can say that most important factor which can control the tobacco industry is customers. Because the major sale of any brand is only depends on the taste of the cigarettes which attracts the customer, if major part customers in any area doesnt like the taste of specific brand of cigarettes, the sale of that specific brand will be affected. But customers dont have control on the prices of the cigarettes.

21

In

this

study

we

will

get

the

information

how

controversial industry take the effective measure and steps which will not create a negative impact in the society as we have already of discussed the in the Also Corporate how they Social prove Responsibility company.

themselves and play important role in helping the society. And they can prove themselves in contributing for welfare being important member of the society.

22

4 HORIZONTAL & VERTICAL ANALYSIS

4.1 Purpose & Methodology
In horizontal analysis we take a base year and then compare the values of each year with previous year to see the performance trend of the company accordingly year by year. Purpose of the vertical analysis is to compare the figures of balance sheet and profit & loss account by taking Total Assets, Total Liabilities and Sales of each year as a base and see its performance percentage according to that. We have taken the total assets of each year as base to analyze the figures of balance sheet and sales of each year as base to analyze the figures of profit and loss account of the company.

23

4.2
4.2.1

BALANCE SHEET ANALYSIS Total Non Current Assets

The total non current assets of Pakistan Tobacco Company show an overall increasing trend. The major element which is playing important role to keep the graph upward is continuous investment in Property, Plant and Equipments. If we see in 2005 the total non current assets increases with 6.75%, but after 2005 there was a huge change and in 2006 the non current assets increases with 19.03%.The reason behind this increase was the increase in Property Plant and Equipment which were Rs. 3.56 billion in 2004 and reaches up to Rs. 4.53 billion in 2006. In 2007 there is slight decrease in total non current assets verses 2006, which show decrease of nearly 13.67%. This decrease was only due to increase in long term deposits and prepayments. In 2008 we see a high decrease in the non current assets with respect to 2006 & 2007 but if we look from the point of view of base year then it is also showing an increase. The main reasons for decrease in total non current assets in 2008 is only high is increase due to in long term loans payment and for prepayments which advance rental

their new office after Marriott bomb explosion. In vertical analysis we find out that the non current

assets of the company is 48.94% of total assets and main factor is property, plant and equipment which is 48.68% out of 48.94% in 2009. We can also see in the annexure that PPE is increasing year by year.

24

4.2.2

Total Current Assets

As the figures shown in horizontal analysis of the balance sheet and there are up and downward trends from 2005 to 2009 but the total current year assets after of the If company we are continuously increasing year. analyse

these trends year by year then we come to know that in 2005 there was 13.43% increase in total current assets of the company with respect to year 2004, but after 2005 there is rapid decrease in total current assets of this company in 2006 with 9.61%. The main reasons of this decrease were due to significant analyzed in decrease further and in loans and advances main i.e. is of 62.65% and in absolute term decrease of Rs.20.5 million. We have to find out due the to reason decrease loans advances settlement major

amount of outstanding bills included in advances others. Similarly in 2007 there was a rapid increase in the other receivables in the and cash and bank balances the of the company, major heavy mainly to these two factors there is an increase of 12.50% total in current other assets of company. due The to increase receivables was mainly

increase in the balances, due from associated companies of Pakistan Tobacco Company. In 2008 the total current assets of the company increased by 5.79% as of compared total to 2007 but in absolute by term the balance current assets increased Rs.568.8

million And in 2009 it shows a big jump in percentage term as compared to 2008 which is mainly due to major increase in stocks in trade. The major factor which push up the balance of stock in trade upward is inflation by which

25

every

manufacturing there and is fuel.

concern high

is

get in

effected. prices of

Due the

to raw

inflation material

increase

If we analyze it in percentage term

there is high increase of 42.04% in stocks in trade which is ever high in comparison of last 5 years from 2005 to 2009. In vertical analysis we find out that the current assets of the company are 51.06% of total assets and main factor is stocks in trade which is 47.15% out of 51.06% in 2009. This also shows a strengthened liquidity of the company.

4.2.3

Total Non Current Liabilities

In Pakistan Tobacco Company there are only two accounts which represent which term the are in total balance of non and non current deferred current liabilities and absolute retirement the balance benefits of total

taxation. There is continuous increase in both percentage liabilities except 2009 which shows a decrease of 29.58% as compared to 2008. After the in depth analytical review and discussion come to balances sessions total with companys finance department we that the factor which is effects non current liabilities retirement our of conclusion

benefits. During discussion we found that the major balance of Rs.489 million arise in 2008 due the change in policy of retirement benefits & IAS. The PTC and Funds are separate entities then in on accounts. in 2009, After PTC actuarys paid and valuations amount of PTC provide the amount which was payable by PTC to funds and later Rs.789 million to funds. The policy change was advised by their

26

parent company British American Tobacco which is based in UK. The vertical analysis of non current liabilities of the company we see that there are only two factors. From 2005 to 2009 there is only two years in which the % is higher as compared to the previous years. In 2007 and 2008 the new liability arises in respect of retirement benefits due to change in policy of the company as advised by actuarial evaluation. The retirement benefits are 4.98% and 7.11% in 2007 and 2008 of the total liabilities of the company.

4.2.4

Total Current Liabilities

As Pakistan Tobacco Company Limited is also a company which was expanding their operations from 2005 to 2009 so if we look at the current liabilities of this company then we will again see an increasing trend in current liabilities. So in 2005 this company shows an increase of 13.43% and in 2006 it shows an increase of 9.61% and this increase were due to the increase of companys short term finances and the company also paid taxes in 2006 because income tax payable in 2005 was Rs.677 million. Another item is the short term borrowings the companys short term borrowings in 2005 was Rs.401 million but in 2006 company has a figure of Rs.1,293 million. So at last in 2008 the company shows a decrease in the short term finances with respect to 2007 but in 2009 the short term finances increases mainly due to payments to vendors and employees which considerably increase as a result of inflation.

27

The and

results 56.08%

of from

total 2004

current to

liabilities

after

vertical major

analysis of the company are 45.23%, 42.94%, 49.08%, 50.13% 2009 respectively. The contributor due to which there is an increasing trend year by year i.e. trade and other payable. In percentage term the trade and and other payable total is 31.57%, of 25.33%, total 36.11%, current 41.60% 41.20% percentages

liabilities as mentioned above.

4.2.5

Equity

If we look at the equity of this company than we come to know that there is no increase in the company has its share capital if we analyze it from 2004 till 2009 but company is increasing their revenue reserves year after year to meet the projected expansion in future. There was downtrend in 2007 and 2008, which were mainly due to increase in dividend payout ratio as compared to the previous years.

28

4.3 4.3.1

PROFIT & LOSS ANALYSIS Sales

We have also done the horizontal and vertical analysis of the income statement of this company so if we focus on the horizontal analysis then we come to know that in 2005 the sales of this company increased by 22.78% and in 2006 the sales increased with 18.19%, but in 2008 there was good increase in sales with respect to 2007. In 2008 we notice that the gross turnover of the company was increase with Rs.8.2 billion which is comparatively higher than 2005, 2006 and 2007 but the net turnover is not increasing with comparative ratio of gross turnover, this is mainly due to the increase in government duties and taxes on the raw materials and finished product. In vertical analysis, Sales are taken as base for each year as a base to compare the other important components of the profit and loss account.

4.3.2

Cost of Goods Sold (COGS)

If we look at the cost of goods sold figures which we obtained after the analysis then we conclude that the cost of goods sold is showing an increasing trend. We can see that in 2005 there was an increase of 30.06% of COGS with respect COGS to previous year. In 2006 due that COGS to as increases inflation sales with and 22.16% and in 2007 it increases with 17.75%, after 2007 the continuously volumes. increasing As we know production increases

definitely COGS automatically increase but if we critically examine then the figures we come to know that in 2008 and 29

2009 the COGS increases more with respect of increase in net turnover. It was actually due to the increase in taxes and the increase every in the raw material to get prices the into the from market. However, the supply chain department of the company played important role benefit economies of scale by taking some initiatives to control the cost of production. In vertical we and analysis found 62.04% above of profit and loss account of the COGS 2005 is to 61.46%, 2009 trend 60.16%, is only 59.39%, As to due respectively.

company, 61.44% mentioned

that from

this

increasing

inflation and production volumes.

4.3.3
From 2005

Gross Profit
to 2009 this company was showing continuous

increase in their gross profits, as we can see that in 2005 the gross profits of this company increased by 30.06%, in 2006 it increased by 22.16% as already mentioned above in horizontal analysis. In percentage term it shows decreasing trend as compared to last years profit year by year. The main reason of this decreasing trend is mainly due to inflation which effect the companys COGS.

4.3.4

Operating Profit

From 2005 to 2009 the operating profits of the company was showing an increasing trend and we can see that in 2005 the company operating profit increases with 93.2% and in 2006 it increases with 36.51% and this decrease was due to the

30

rapid starts

increase showing

in good

administrative, After 2006 increase with

selling respect

and to

other profit

operating

expenses.

these

operating

previous

years. In 2009 the company also has very good control on operating expenses as compared to the increasing trends of previous years.

4.3.5

Profit after Tax

In 2005 the company earned the huge profit that was 97.16% as compared to the previous year 2004 profit after tax. If we analyse that in the company the managed its and continuous political performance 2008 although economic

situation was not so good during the year. Most of the factors like inflation and higher fuel costs affect the companys performance but all these factors did not reduce the companys sales. In other words the companys sales touched a new higher point of Rs.49,054 million in 2008 as compared to the last year 2007 sale Rs.40,889 million. In fact there was a declining effect on the profitability of the company but it is up to a very nominal point. There are many factors which also have affected the companys profitability. Some of them are that there is increase in government levies, custom duties and also increase in sales tax, important factor is Federal Excise Duty. All tobacco products are getting more affected after announcement on FED to increase further in 1st quarter 2009.

31

5 RESEARCH METHODOLOGY
5.1 Problem Statement
Analytical review of the financial statements of Pakistan Tobacco Company Limited.

5.2

Broad Problem Area

Every thing political is going well but unfortunately there is in the country, there is a an

instability

increasing trend of inflation which affect every sector of industry in Pakistan inclusive of tobacco industry as well due to which cost of raw material and finished product are increasing year after year. Prices of all the ingredients of tobacco industry such as electricity, raw material are not only high in cost but also not easy to procure on time. Taxation on tobacco that was also very high was further increased. Due to the overall effect of these factors the profit of tobacco industry starts declining. The illicit trade is also very threatening for tobacco

industry in Pakistan and also required special attention by government to take effective measures which can help in collecting the taxes not paid by illicit trade sector.

32

5.3
The

Research Objective
main objective of the of this study is of to analyze the

performance to draw

major and

company

Pakistan based

tobacco on the

industry. The main purpose of conducting this research is conclusions recommendations analysis for making the role of the industry more effective in the built up sector. One of the main objectives is to compare the financial position of Pakistan Tobacco Company from 2005 to 2009 and carry out a trend analysis based on their respective financial statements

5.4

Data
The data used in this study is of secondary type, because the financial records of the companies are used to evaluate its performance. The data was comprised of the last fiveyear (2005-2009) financial data of Pakistan Tobacco Company Limited.

5.5
data annual our

Source of Data
The study design is a descriptive study, because source of are financial of All the those reports, company were balance from very 2005 sheet, to income The statements and cash flow statement. We get data from the reports 2009. in website and some company officials are the main source for project. helpful writing analytical review on companys financial statements.

33

5.6
Trend

Procedure
analysis and Vertical analysis was carried out selecting 2004 as the base year. But we compared the data of all financial statements in all years with same period last year data. Different ratios were also calculated to analyze the performance of the company.

5.7

Limitations
Followings are the limitations for this research.

The

amount

of

time

available

to

carry

out

this

research may limit the quality of findings. Some secondary data was not easily available and was very difficult to obtain. Limited experience in the field of research is also a factor. Some data is very confidential which we were not able to obtain to analyse it further.

34

6 FINANCIAL RATIOS ANALYSIS

6.1
6.1.1

Liquidity Ratios
Current Assets Current Liabilities

Current Ratio:

C urrent Ratio
1 0 .5 1 0 .0 0 0 .5 20 05 20 06 20 07 20 08 20 09 1 5 .1 1 1 .1 0 6 .9

0 1 .9

0 1 .9

Current Ratio

2005 1.15

2006 1.11

2007 0.96

2008 0.91

2009 0.91

Analysis: Pakistan Tobacco Company has maintained its current ratio above 1 in 2005 and 2006. After 2006 it is actually below 1 as compared to 2005 and 2006. This is only due to more cash outflow as compared to the companys cash inflow. The main factors are higher income tax, capital expenditures and payments of dividend. But this point to be noted that there is no significant increase in Current Assets of the company as compared to it current liabilities.

35

Current ratio may be defined as the relationship between current assets and current liabilities. So current ratio can be derived as by dividing current assets on current liabilities. This ratio is also known as working capital ratio. It measures the general liquidity and the most widely use to make the analysis for a short-term financial position of a firm. Company's current ratio in year 2005 was 1.15%. It means company's has 1.15 current assets to set off the liability of 1.0. It represented the current assets valued about Rs.4,136 million which included two major current assets one of that is Stocks and other is Stores and Spares. Stock of Rs.3,781 million which represented of 91% of total current assets. Second is Stores and Spares of about Rs.125 million, which represented 3% of total current assets, so these two assets were 94% of total current assets. In the same year current liabilities valued at Rs. 3,604 million which months. Liquidity ratio of Pakistan Tobacco Company is not so good in the year 2008. Because its current ratio in 2007, 2008 and 2009 is 0.96%, 0.91% and 0.91%. If we further analyse it we can find out that in 2007, 2008 and 2009 the current liabilities are more than the current assets of the company. The current liabilities are higher mainly due to trade and other payables and short term finances. Another important factor which we want to highlight here is that if analysis of current ratio of the company done during the year, it almost 1 or very near to 1. The company included liabilities which must be paid in six

36

avail the facility of short term borrowing in between July to December which is mainly required to purchase the leaf stock for next years production. The leaf buying season starts from July to September and then payments made to farmers for their crops.

6.2

Profitability Ratios

Gros , Operating and After Tax Profit (Rs million) s . 8,224 7,277 6,516 5,534 4,530 3,720 2,841 2,081 1,322 1,905 2,420 3,860 2,532 4,589 3,022

2005

2006 Gros Profit s

2007 Operating Profit

2008 Profit After Tax

2009

6.2.1

Gross Profit Margin:

Gross Profit Sales

6.2.2

Operating Profit Margin:

Operating Profit Sale

6.2.3

Net Profit Margin:

Net profit after tax Sales 37

16.00% 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00%

1 .8 % 4 0

1 .4 % 5 9

1 .9 % 5 3 1 .8 % 4 3 1 .2 % 4 9

8 9 .1 %

9 0 .3 %

1 .4 % 0 1 9 8 .0 % 9 2 .1 %

4 2 .3 %

5 3 .3 %

5 2 .9 % 5 6 .1 % 5 5 .2 %

Gross Profit Margin 2005 Operating Profit Magin Net Profit Marigin

2006

2007

2008

2009

GP, OP & Ne t P rofit M a rgin Gross P rofit Ma rgin Ope ra ting P rofit M a gin Ne t Profit M a rgin

2005 14.80% 8.19% 4.32%

2006 15.49% 9.30% 5.33%

2007 15.93% 10.41% 5.92%

2008 14.83% 9.08% 5.16%

2009 14.29% 9.12% 5.25%

6.2.4

Return on Assets: Net Profit After Tax

Assets

6.2.5

Return on Equity: Profit Before [IT]

Equity

38

80.00% 60.00% 40.00% 20.00% 0.00% 36.32% 30.32% 46.02%

65.33%

70.18%

70.94%

38.22%

48.37%

48.84%

56.28%

20 05

20 06

20 07

20 08

20 09

R eturn On As sets R eturn On E quity

Return On Assets & Equity Return On Assets Return On Equity

2005 30.32% 36.32%

2006 38.22% 46.02%

2007 48.37% 65.33%

2008 48.84% 70.18%

2009 56.28% 70.94%

6.2.6

Earnings per Share:

Profit After Tax Share Capital

ES P
1 .0 5 0 9 7 .4 1 .0 0 0 5 7 .1 5 0 .0 20 05 20 06 20 07 20 08 20 09 7 6 .4 9 1 .9 1 .8 1 3

Earnings pe r Share

2005 5.17

2006 7.46

2007 9.47

2008 9.91

2009 11.83

39

6.2.7

Price Earning Ratio: Market Price Equity Share

Earnings per Share

P rice E arningRatio
2 .0 0 0 1 .0 5 0 1 .0 0 0 5 0 .0 20 05 20 06 20 07 20 08 20 09 1 .3 3 3 9 6 .6 1 .4 6 2 1 .7 0 3 8 8 .8

Price Earning Ratio

2005 13.33

2006 9.66

2007 16.42

2008 10.73

2009 8.88

6.2.8

Dividend Payout Ratio:

Dividend Profit After Tax

R atios %

110.00 80.00 50.00 20.00 -10.00

71.56 73.75

104.50 97.38 80.73

2005

2006

2007

DividendPayout Ratio

2008

2009

Dividend Payout Ratio

2005 71.56

2006 73.75

2007 104.50

2008 97.38

2009 80.73

40

Analysis: The legitimate tobacco sector experienced decline in the profitability as we analyse it gross profit ratio and net profit margin during the year 2008 and 2009. It is also shown in our analysis that the gross profit ratio for 2007 is 14.83% and 14.29% respectively. According to our analysis the net profit margin for 2007 and 2008 is 5.16% and 5.25%. But if we examine the previous years then we will come to know that the profitability of this company had an increasing trend from 2004 to 2007. As the sale volume in of the tobacco margin companies is only increased due to but the in sale the revenue did not increase to an equal. The decreasing trend gross profit increase prices of raw material, increase in the duties on tobacco products, and in 2008 and 2009 all industries including tobacco industry in Pakistan not able to increase the gross profit margin mainly due to in crease in Cost of Goods Sold. After detailed analysis we come to conclusion the net

profit margin is also have downward trend due to increase in administration, marketing and distribution expenses and in 2008 the administration expenses increase by 26% as compared to 2007. If we further analyse the administration expenses of the company mainly consist of salaries, wages, fuel and powers costs which are quite higher as compared to the last years from 2004 to 2007. In 2008 the main portion of cost in administration category is PTCs Head Office relocation costs; this relocation was caused due to bomb blast in Marriott.

41

While

doing

analysis

on

Return

on

Assets

(ROA)

of

the

company, we find out that company is continuously investing a reasonable amount in procurement of latest machinery and up-gradation of plants to meet the requirement of industrys demand, which is increasing year by year. In 2007 the company increased its asset base by investing an amount of Rs.1.2 billion in tangible fixed assets. This continuous future. According to our analysis the Equity of the company shows a decline trend in 2007 and 2008. This is mainly due to decrease in the levels of revenue reserves of the company but in 2009 it shows again an upward trend. As we have already company discussed is not above that The by the share of the capital the factor of the is changing. ROE company investment its shows that to company face all is focusing on of strengthening position challenges

continuously

increasing

ignoring

revenue

reserves which were decreased in 2007 and 2008. In 2008 the ROE reached up to 70.2% as compared to 2006 in which the ROE was 65.1% and again increased till 71.0%. This shows company is planning very well to strengthen for future projects. Earnings per share of the company show a significant

increasing trend since 2005 as per data. As we analyse in the last five years of the company from 2005 to 2009, this upward trend in EPS is mainly due to inspiring growth in net margin of the company. The earnings per share of the company from 2005 to 2009 are Rs.5.17, Rs.7.46, Rs.9.47, Rs.9.91 and Rs.11.83 respectively.

42

After analysis of price to earning ratio which is shown above in graph and table, we come to this point that in 2005 it was 13.33 and then downturn in 2006 at 9.66. Again it went up to 16.42 in 2007 and turndown in 2008 to 10.73 and 8.88 in 2009. These decreasing trends mainly due to poor performance of all stock exchanges of Pakistan and this poor performance is due to political instability and poor law and order situation which is prevailing in the country during the year. The dividend payout ratio is high in 2007 and afterward this show a decreasing trend till 2009. These ratios are 71.56%, 73.75%, 104.50%, 97.38% and 80.73% from 2005 to 2009 respectively. This downward trend from 2007 to 2009 is mainly due to considerable increase in profit base.

43

6.3
6.3.1

Activity Ratios
Inventory

Inventory Turn Ratio: Costs of Goods Sold

InventoryTurnover Ratio
3.50 3.00 2.50 2.00 1.50 1.00 0.50 -

2 0 .2 1 1 .9

2 8 .3

2 6 .8 2 3 .3

20 05

20 06

20 07

20 08

20 09

In v e n to ry T u rn o v e r R a tio

2005 1 .9 1

2006 2 .2 0

2007 2 .3 8

2008 2.86

2009 2 .3 3

6.3.2

Total Assets Turn Over Ratio: Revenue

Total Assets

6.3.3

Fixed Assets Turn Over Ratio: Revenue

Total Fixed Assets

44

F ixed and Total Assets Turnover

16.00 14.00 12.00

8.06

7.89

7.93

8.76

9.67

R tios a

10.00 8.00 6.00 4.00 2.00 0.00

3.84

4.09

4.16

4.72

4.71

20 05

20 06
Total Assets Turnover

20 07
Fixed Assets Turnover

20 08

20 09

Fix e d Asse ts a nd Tota l Asse ts Turnove r Fix e d Asse ts Turnove r Tota l Asse ts Turnove r

2005 8.06 3.84

2006 7.89 4.09

2007 7.93 4.16

2008 8.76 4.72

2009 9.67 4.71

Analysis: The performance of Pakistan Tobacco Company in terms of asset management was so good and impressive and shown a increasing trend. The total asset turnover of the company in 2008 was 4.72, which is increased by 0.56 as compared to 2007 in which Total Asset Turnover was 4.16. This shows a best practices of the company with respect to effective and efficient management of assets which boost up the graph of total asset turnover, in other words this is all about the impressive till 2009 continuous and increase in sales of year after year & efficiently use property, plant

machinery and other assets as well. The major contributor factor in total assets is Fixed Asset which is 54% of the total assets of the company. In 2007 the company invested an amount of Rs.1.2 billion only in acquiring latest 45

machinery

and

up-gradation

of

other

plants

to

meet

the

future requirement, which is increasing year by year. As we discussed earlier that asset management of the company is admirable and the same is maintained by the company in 2009 as well. The companys asset management ratios shows upward trend which is due and to efficient and effective While management analyzing of the inventory credit policies.

inventory turnover, this shows a decreasing trend, this is mainly due to efficient utilization of inventory during the year and maintained the optimum level each year. Although, inventory turnover shown an increasing trend in 2007 but the operating cycle of the company has improved immensely.

46

6.4

Leverage Ratios

6.4.1

Debt to Assets Ratio:

Debt Total Assets

6.4.2

Debt to Equity Ratio: Debt

Equity

0.35 0.30 0.25 0.20 0.15 0.10 0.05 0.00

0 1 .3 0 6 .2 0 8 .2 0 1 .2 0 1 .1 0 9 .0 0 6 .1 0 1 .1 0 4 .2 0 1 .3

D to Ass ebt ets D to E ebt quity

20 05

20 06

20 07

20 08

20 09

Debt to Assets and Equity Ratio Debt to Assets Debt to Equity

2005 0.09 0.11

2006 0.26 0.31

2007 0.21 0.28

2008 0.11 0.16

2009 0.24 0.31

47

6.4.3

Interest Coverage Ratio:

Profit Before Int & Tax Interest Charges

160.00 140.00 120.00 100.00 80.00 60.00 40.00 20.00 R tios a 2005 2006 82.48 103.81

144.65

150.68

107.13

2007 Interes Covera e R tio t g a

2008

2009

Interest Coverage Ratio

2005 82.48

2006 103.81

2007 144.65

2008 150.68

2009 107.13

Analysis: While examining the debt management ratios of the company we found that the debt to asset ratio was increased in 2006 and reached at 0.26 from 0.09 which was in 2005 and later on continuously decreasing in 2007 and 2008 as 0.21 and 0.11 respectively. The same trend show in the analysis for debt to equity as well as shown above in the graph and table that debt to equity ratio increased in 2006 to 0.31 and later on decreased in 2007 and 2008. The debt to equity 48

from 2005 to 2009 is 0.11, 0.31, 0.28, 0.16 and 0.31. for both trends are mainly due to high growth in liabilities (current and non current) as compared to assets which are growing slowly and declining trend in equity as well. As we have mentioned above that the long term liability of the company benefits growing where and were the in main the contributor result of is retirement made in changes

actuarial projection. The Interest coverage ratio of the company show a

continuous improving trend except for the year 2009, in which it decrease to 107.13 from 150.68 in 2008. But from 2005 to 2008 144.65 cost the and with We interest 150.68 coverage ratios The were 82.48, 103.81, financial operating respectively. to like major to increasing in the

trends show that the company has the ability to pay its respect would improvement that margins. mention

companys dependency on debt is on average about 50% only because the debt of the company includes short term running finance.

49

7 CASH FLOW STATEMENT ANALYSIS

Summary of Cash Flow Statement

(Rs. million) Cash flow from Operating Activities Cash flow from Investing Activities Cash flow from Financing Activities Net Change in Cash and Cash Equivalents Beginning Cash and Cash Equivalents Ending Cash and Cash Equivalents Cash and Cash Equivalents comprise Cash and Bank Balances Short Term Borrowings 2009 2,545 (860) (2,435) (750) (503) (1,253) 2008 4,316 (978) (2,969) 369 (872) (503) 2007 3,546 (1,151) (2,036) 358 (1,230) (872) 2006 1,711 (1,201) (1,398) (887) (343) (1,230) 2005 2,273 (674) (985) 614 (957) (343)

48 (1,301) (1,253)

69 (572) (503)

167 (1,039) (872)

63 (1,293) (1,230)

58 (401) (343)

7.1
to

Operating Activities
The operating activities of shows positive trends from 2005 2009 which means the company is improving and strengthening its position in respect to cash inflows. The operating activities mainly comprises of cash receipt from customer, cash paid to government in form of duties and taxes and cash paid to customers as well. According to companys policy, they received 100% advance cash from the distributors and then execute the sale.

7.2
As we

Investing Activities
mentioned a and above in our of analysis in plants and to company of fulfill is the 50 investing machinery reasonable amount procurement latest

up-gradation

requirements

of

the

industry

demands

and

to

face

the

challenges of future. From 2005 till 2009 the company very well maintained and uses the certain level of cash, which provide the utmost satisfaction to creditors, financial institutions, share holders and investors as well.

7.3
PTC the

Financing Activities
The main factor which comprises the financial activities of is dividend payments, are no thats other why this creates a negative balance in this part of the cash flow statement of company. There factors financing activities which can convert the balance into positive. So this is not a bad indicator for the company to remain in the negative balance at the end of the year.

51

8 CONCLUSION AND RECOMMENDATIONS

Overall performance of Pakistan Tobacco Company Limited is significantly performance profits, impressive strengthen company. The Company is also putting tremendous efforts in expansion and installation of new plant and machinery which leads to technological policies advancement. the By efficient is and effective its implementation company strengthen in increasing. tobacco profits, trends PTC net shows The show really tremendous gross shows and the industry. which and companys profits of the

operating

operating

increasing financial

strong

position

performance

position in the market to meet the future challenges. In terms of sales volume, the company continuously is

maintaining the double digit growth year by year from 2005 to 2009. It is so hard and tough for any company or any industry in Pakistan to maintain and compete very well in prevailing adverse economic crises, high inflation, political instability, illicit trade, poor law and order situation and damage to the companys property in Marriott bomb blast and terrorism threats. All the above mentioned factors mark in were there of but not able to cut down the sales level, the performance level and also PTC set new bench terms volume growth, profit growth, capital investments, and smooth operations for tobacco industry.

52

As we mentioned already the major part of the tobacco is come from NWFP but due to volatile situation and terrorist activities in the province the growers are very upset and this is not easy task for tobacco companies to carry out procurement activities smoothly because many farmers in most part of the NWFP depend on the crop of tobacco. It is observed only that in the those company areas carried where its out own the CSR

activities

offices

located specially in leaf areas. The company should expand the CSR activities in other areas of the country as well, like afforestation, mobile dispensaries, learning resource centers, water filtration plants etc. These activities are currently being carried out in north and leaf areas specially; these should be expanded to interiors Punjab and other provinces. As we analyse that tobacco industry is main contributor in the exchequer of the government treasury. There are about 68% taxes on cigarettes. Due to illicit trade in tobacco industry the heavy amount in shape of taxes not transferred to government treasury. Being a major player of tobacco industry i.e Pakistan Tobacco Company and Lakson Tobacco Company should take initiative and propose effective measures to government which will help to control illicit trade at national level. Pakistan Tobacco Company should focus on improving the

current ratio by decreasing short term loan which will help in reducing the current liabilities of the company. All sales of the company are made on cash basis so the company

53

should

increase

cash

at

bank

which

will

help

more

in

strengthening the liquidity of the company. There are some other important factors on which the company should pay special attention like administration expenses, marketing and distribution expenses and up to some extent cost of sale. In result of reduction in the above mentioned expenses, the companys gross, operating and net profit margin will also increase.

54

9 ANNEXTURES
9.1 Investor information

INVESTOR INFORMATION Current Ratio Gross Profit Ratio Net Profit Margin Return on Assets Return on Equity Earnings per share After Tax Inventory Turnover Ratio Fixed Assets Turnover Ratio Total Assets Turnover Ratio Debt to Asset Ratio Debt to Equity Ratio Interest Cover Ratio Price-Earning Ratio Dividend payout ratio Dividend Per Share Rs % Rs % % % % Rs

2009 0.91 14.29 5.25 56.28 70.94 11.83 2.33 9.67 4.71 0.24 0.31 107.13 8.88 80.73 9.55

2008 0.91 14.83 5.16 48.84 70.18 9.91 2.86 8.76 4.72 0.11 0.16 150.68 10.73 97.38 9.65

2007 0.96 15.93 5.92 48.37 65.33 9.47 2.38 7.93 4.16 0.21 0.28 144.65 16.42 104.50 9.90

2006 1.11 15.49 5.33 38.22 46.02 7.46 2.20 7.89 4.09 0.26 0.31 103.81 9.66 73.75 5.50

2005 1.15 14.80 4.32 30.29 36.32 5.17 1.91 8.06 3.84 0.09 0.11 82.48 13.33 71.56 3.70

55

56

9.2 9.2.1

Horizontal Analysis Horizontal Analysis of Balance Sheet

Balance Sheet
2004 Non Current Assets Property Plant And Equipment Investment in Subsidiary Company at Cost Long Term Loans Long Term Deposits and Prepayments Current Assets Stocks in trade Stores and spares Trade debts Loans and advances Short term prepayments Other receivables Cash and bank balances Total Assets
3,074,052 121,464 12,486 32,273 36,003 119,126 39,197 3,434,601 7,024,765 3,780,931 125,232 2,894 32,676 31,987 104,791 57,605 4,136,116 7,968,453 3,790,853 140,008 2,406 12,205 72,235 92,360 62,883 4,172,950 8,734,400 3,998,181 140,777 2,386 38,580 64,887 229,891 166,666 4,641,368 9,826,232 4,059,063 190,646 2,666 65,917 105,728 246,675 69,172 4,739,867 10,395,041 5,765,367 218,375 1,684 48,598 72,483 88,147 47,874 6,242,528 12,226,861 100 100 100 100 100 100 100 100 100 23.00 3.10 (76.82) 1.25 (11.15) (12.03) 46.96 20.42 13.43 0.26 11.80 (16.86) (62.65) 125.83 (11.86) 9.16 0.89 9.61 5.47 0.55 (0.83) 216.10 (10.17) 148.91 165.04 11.23 12.50 1.52 35.42 11.74 70.86 62.94 7.30 (58.50) 2.12 5.79 42.04 14.54 (36.83) (26.27) (31.44) (64.27) (30.79) 31.70 17.62 3,564,407 5,000 16,324 4,433 3,798,190 5,000 17,782 11,365 4,529,366 5,000 18,660 8,424 5,154,326 5,000 12,513 13,025 5,599,758 5,000 9,244 41,172 5,952,108 5,000 7,310 19,915 100 100 100 100 6.56 8.93 156.37 19.25 4.94 (25.88) 13.80 (32.94) 54.62 8.64 (26.12) 216.10 6.29 (20.92) (51.63)

2005

2006

(Rs. '000) 2007

2008

2009

2004

Variance % 05 Vs 04 06 Vs 05 07 Vs 06 08 Vs 07 09 Vs 08

57

Share Capital & Reserve s Share Capital Revenue Reserves N on Curre nt Liabilities Retirement Benefits Deferred Taxation

2004
2,554,938 707,885 3,262,823 624,475 624,475

2005
2,554,938 1,084,476 3,639,414 724,673 724,673

2006
2,554,938 1,584,249 4,139,187 845,004 845,004

(Rs. '000) 2007

2,554,938 1,149,742 3,704,680 489,503 809,109 1,298,612

2008
2,554,938 1,053,393 3,608,331 739,133 836,939 1,576,072

2009
2,554,938 1,705,296 4,260,234 1,109,847 1,109,847

2004
100 100

Variance % 05 Vs 04 06 Vs 05 07 Vs 06 08 Vs 07 09 Vs 08
53.20 46.08 (27.43) (8.38) 61.89

100

16.05

16.60

100 (4.25)

51.00 3.44

(100) 32.61

Curre nt Liabilities Trade and other payables Accrued interest / mark-up accrued Short term finances Income tax payable

2,056,298 5,041 996,579 79,549 3,137,467

2,515,824 10,911 400,662 676,969 3,604,366 7,968,453

2,212,241 11,115 1,293,141 233,712 3,750,209 8,734,400

3,548,237 8,401 1,038,550 227,752 4,822,940 9,826,232

4,324,704 10,354 572,397 303,183 5,210,638 10,395,041

5,037,469 27,659 1,300,837 490,815 6,856,780 12,226,861

100 100 100 100 100 100

22.35 116.45 (59.80) 751.01 14.88 13.43

(12.07) 1.87 222.75 (65.48) 4.05 9.61

60.39 (24.42) (19.69) (2.55) 28.60 12.50

21.88 23.25 (44.88) 33.12 8.04 5.79

16.48 167.13 127.26 61.89 31.59 17.62

Total Equity and Libilitie s

7,024,765

58

9.2.2

Horizontal Analysis of Profit & Loss

Profit & Loss Account

2004 Gross turnover Excise duties Sales tax Net Turnover Cost of sales Gross Profit Selling and distribution expenses Administration expenses Other operating income Other operating expenses Operating profit Finance income Finance cost Profit before taxation Taxation Profit for the year Earnings per Share - basic and diluted (Rupees) 25,452,634 12,466,912 3,413,146 9,572,576 6,089,955 3,482,621 1,442,356 595,637 14,590 381,914 1,077,304 21,265 1,056,039 390,812 665,227 2005 30,615,062 14,758,558 4,103,324 11,753,180 7,223,576 4,529,604 1,578,656 573,285 8,100 304,462 2,081,301 26,317 25,554 2,082,064 760,145 1,321,919 2006 (Rs. '000) 2007 2008 2009 2004 Variance % 05 Vs 04 06 Vs 05 07 Vs 06 08 Vs 07 09 Vs 08

35,715,451 16,991,172 4,833,285

40,889,275 19,311,946 5,534,452

49,053,928 23,351,734 6,829,699

57,544,309 27,654,345 8,223,439

100 100 100 100 100 100 100 100 100 100 100 100 100 100 100

20.28 18.38 20.22 22.78 18.61 30.06 9.45 (3.75) (44.48) (20.28) 93.20 100 20.17 97.16 94.50 98.72

16.66 15.13 17.79 18.19 15.70 22.16 15.05 12.51 155.38 (17.25) 36.51 80.12 8.88 37.40 25.72 44.11

14.49 13.66 14.51 15.49 14.00 17.75 (1.12) 14.13 246.88 33.28 30.92 (34.86) (6.81) 30.20 36.49 27.05

19.97 20.92 23.40 17.64 21.71 11.68 7.66 26.11 (15.62) 83.30 3.78 93.02 0.33 4.54 4.37 4.63

17.31 18.43 20.41 14.80 15.92 13.02 16.17 18.58 274.06 (16.38) 18.89 72.53 68.39 19.38 19.44 19.35

13,890,994
8,357,474

16,042,877
9,527,306

18,872,495
11,595,736

21,666,525
13,442,066

5,533,520
1,816,198 644,981 20,686 251,932 2,841,095 47,402 27,824 2,860,673 955,685 1,904,988

6,515,571
1,795,793 736,147 71,756 335,763 3,719,624 30,878 25,928 3,724,574 1,304,367 2,420,207

7,276,759
1,933,364 928,358 60,551 615,458 3,860,130 59,600 26,013 3,893,717 1,361,422 2,532,295

8,224,459
2,246,014 1,100,814 226,499 514,665 4,589,465 102,826 43,802 4,648,489 1,626,083 3,022,406

2.6

5.17

7.46

9.47

9.91

11.83

100

98.85

44.29

26.94

4.65

19.37

59

9.3 9.3.1
Balance Sheet

Vertical Analysis Vertical Analysis of Balance Sheet

2004 Non Current Assets Property Plant And Equipment Investment in Subsidiary Company at Cost Long Term Loans Long Term Deposits and Prepayments Current Assets Stocks in trade Stores and spares Trade debts Loans and advances Short term prepayments Other receivables Cash and bank balances Total Assets
3,074,052 121,464 12,486 32,273 36,003 119,126 39,197 3,434,601 7,024,765

2005

2006

(Rs. '000) 2007

2008

2009

2004

2005

2006

2007

2008

2009

3,564,407 5,000 16,324 4,433

3,798,190 5,000 17,782 11,365

4,529,366 5,000 18,660 8,424

5,154,326 5,000 12,513 13,025

5,599,758 5,000 9,244 41,172

5,952,108 5,000 7,310 19,915

51 0 0 0

47.67 0.06 0.22 0.14

51.86 0.06 0.21 0.10

52.45 0.05 0.13 0.13

53.87 0.05 0.09 0.40

48.68 0.04 0.06 0.16

3,780,931 125,232 2,894 32,676 31,987 104,791 57,605 4,136,116 7,968,453

3,790,853 140,008 2,406 12,205 72,235 92,360 62,883 4,172,950 8,734,400

3,998,181 140,777 2,386 38,580 64,887 229,891 166,666 4,641,368 9,826,232

4,059,063 190,646 2,666 65,917 105,728 246,675 69,172 4,739,867 10,395,041

5,765,367 218,375 1,684 48,598 72,483 88,147 47,874 6,242,528 12,226,861

44 2 0 0 1 2 1 49 100

47.45 1.57 0.04 0.41 0.40 1.32 0.72 51.91 100.00

43.40 1.60 0.03 0.14 0.83 1.06 0.72 47.78 100.00

40.69 1.43 0.02 0.39 0.66 2.34 1.70 47.23 100.00

39.05 1.83 0.03 0.63 1.02 2.37 0.67 45.60 100.00

47.15 1.79 0.01 0.40 0.59 0.72 0.39 51.06 100.00

60

Contd.

Share Capital & Rese rves Share Capital Revenue Reserves Non Current Liabilities Retirement Benefits Deferred Taxation Curre nt Liabilitie s Trade and other payables Accrued interest / mark-up accrued Short term finances Income tax payable

2004
2,554,938 707,885

2005
2,554,938 1,084,476

2006
2,554,938 1,584,249

(Rs. '000) 2007

2,554,938 1,149,742

2008
2,554,938 1,053,393

2009
2,554,938 1,705,296

Variance % 2004 05 Vs 04 06 Vs 05 07 Vs 06 08 Vs 07 09 Vs 08
36.37 10.08 32.06 13.61 29.25 18.14 26.00 11.70 24.58 10.13 20.90 13.95

624,475

724,673

845,004

489,503 809,109

739,133 836,939

1,109,847

8.89

9.09

9.67

4.98 8.23

7.11 8.05

0.00 9.08

2,056,298 5,041 996,579 79,549 3,137,467

2,515,824 10,911 400,662 676,969 3,604,366 7,968,453

2,212,241 11,115 1,293,141 233,712 3,750,209 8,734,400

3,548,237 8,401 1,038,550 227,752 4,822,940 9,826,232

4,324,704 10,354 572,397 303,183 5,210,638 10,395,041

5,037,469 27,659 1,300,837 490,815 6,856,780 12,226,861

29.27 0.07 14.19 1.13 44.66 100

31.57 0.14 5.03 8.50 45.23 100

25.33 0.13 14.81 2.68 42.94 100

36.11 0.09 10.57 2.32 49.08 100

41.60 0.10 5.51 2.92 50.13 100

41.20 0.23 10.64 4.01 56.08 100

Total Equity and Liabilities

7,024,765

61

9.3.2

Vertical Analysis of Profit & Loss

Profit & Loss Account

2004 Gross turnover Excise duties Sales tax Net Turnover Cost of sales Gross Profit Selling and distribution expenses Administration expenses Other operating income Other operating expenses Operating profit Finance income Finance cost Profit before taxation Taxation Profit for the year
25,452,634 12,466,912 3,413,146 9,572,576 6,089,955 3,482,621 1,442,356 595,637 14,590 381,914 1,077,304 21,265 1,056,039 390,812 665,227

2005
30,615,062 14,758,558 4,103,324 11,753,180 7,223,576 4,529,604 1,578,656 573,285 8,100 304,462 2,081,301 26,317 25,554 2,082,064 760,145 1,321,919

2006
35,715,451 16,991,172 4,833,285 13,890,994 8,357,474 5,533,520 1,816,198 644,981 20,686 251,932 2,841,095 47,402 27,824 2,860,673 955,685 1,904,988

(Rs. '000) 2007

40,889,275 19,311,946 5,534,452 16,042,877 9,527,306 6,515,571 1,795,793 736,147 71,756 335,763 3,719,624 30,878 25,928 3,724,574 1,304,367 2,420,207

2008
49,053,928 23,351,734 6,829,699 18,872,495 11,595,736 7,276,759 1,933,364 928,358 60,551 615,458 3,860,130 59,600 26,013 3,893,717 1,361,422 2,532,295

2009
57,544,309 27,654,345 8,223,439 21,666,525 13,442,066 8,224,459 2,246,014 1,100,814 226,499 514,665 4,589,465 102,826 43,802 4,648,489 1,626,083 3,022,406

2004

2005

2006

Variance % 2007

2008

2009

100 63.62 36.38 15.07 6.22 0.15 3.99 11.25 0.00 0.22 11.03 4.08 6.95

100 61.46 38.54 13.43 4.88 0.07 2.59 17.71 0.22 0.22 17.71 6.47 11.25

100 60.16 39.84 13.07 4.64 0.15 1.81 20.45 0.34 0.20 20.59 6.88 13.71

100 59.39 40.61 11.19 4.59 0.45 2.09 23.19 0.19 0.16 23.22 8.13 15.09

100 61.44 38.56 10.24 4.92 0.32 3.26 20.45 0.32 0.14 20.63 7.21 13.42

100 62.04 37.96 10.37 5.08 1.05 2.38 21.18 0.47 0.20 21.45 7.51 13.95

62

63

9.4

Profit & Loss Account

PROFIT & LOSS ACCOUNT

GROSS SALES Excise Duties Sales tax Sales (net of sales tax) Cost of sales GROSS PROFIT Marketing and distribution expenses Administration expenses Other income Other expenses OPERATING PROFIT

2009

2008

2007

2006

2005

57,544,309 27,654,345 8,223,439 21,666,525 13,442,066 8,224,459 2,246,014 1,100,814 226,499 514,665 4,589,465

49,053,928 23,351,734 6,829,699 18,872,495 11,595,736 7,276,759 1,933,364 928,358 60,551 615,458 3,860,130

40,889,275 19,311,946 5,534,452 16,042,877 9,527,306 6,515,571 1,795,793 736,147 71,756 335,763 3,719,624

35,715,451 16,991,172 4,833,285 13,890,994 8,357,474 5,533,520 1,816,198 644,981 20,686 251,932 2,841,095

30,615,062 14,758,558 4,103,324 11,753,180 7,223,576 4,529,604 1,578,656 573,285 8,100 304,462 2,081,301

Finance income Finance cost PROFIT BEFORE TAXATION Tax charge PROFIT AFTER TAXATION

102,826 43,802 4,648,489 1,626,083 3,022,406

59,600 26,013 3,893,717 1,361,422 2,532,295

30,878 25,928 3,724,574 1,304,367 2,420,207

47,402 27,824 2,860,673 955,685 1,904,988

26,317 25,554 2,082,064 760,145 1,321,919

Earnings per share (basic and diluted)

11.83

9.91

9.47

7.46

5.17

64

9.5

Balance Sheet
2009 2008 2007 2006 2005

BALANCE SHEET
PROPERTY PLANT AND EQUIPMENT INVESTMENT IN SUBSIDIARY COMPANY AT COST LONG TERM LOANS LONG TERM DEPOSITS AND PREPAYMENTS CURRENT ASSETS Stocks Stores and spares Trade debts Loans and advances Prepayments Other receivables Cash and bank balances LESS: CURRENT LIABILITIES Trade and other payables Interest accrued Short term finances Interim dividend payable Income tax payable

5,952,108 5,000 7,310 19,915

5,599,758 5,000 9,244 41,172

5,154,326 5,000 12,513 13,025

4,529,366 5,000 18,660 8,424

3,798,190 5,000 17,782 11,365

5,765,367 218,375 1,684 48,598 72,483 88,147 47,874 6,242,528 5,037,469 27,659 1,300,837 490,815 6,856,780 (614,252) 5,370,081

4,059,063 190,646 2,666 65,917 105,728 246,675 69,172 4,739,867 4,324,704 10,354 572,397 303,183 5,210,638 (470,771) 5,184,403

3,998,181 140,777 2,386 38,580 64,887 229,891 166,666 4,641,368 3,548,237 8,401 1,038,550 227,752 4,822,940 (181,572) 5,003,292

3,790,853 140,008 2,406 12,205 72,235 92,360 62,883 4,172,950 2,212,241 11,115 1,293,141 233,712 3,750,209 422,741 4,984,191

3,780,931 125,232 2,894 32,676 31,987 104,791 57,605 4,136,116 2,515,824 10,911 400,662 676,969 3,604,366 531,750 4,364,087

NET CURRENT ASSETS

FINANCED BY: SHARE CAPITAL Authorised capital 300,000,000 ordinary shares of Rs 10 each

3,000,000

3,000,000

3,000,000

3,000,000

3,000,000

Issued, subscribed and paid-up capital REVENUE RESERVES SHAREHOLDERS' EQUITY DEFERRED TAXATION DEFERRED LIABILITIES

2,554,938 1,705,296 4,260,234 1,109,847 5,370,081

2,554,938 1,053,393 3,608,331 836,939 739,133 5,184,403

2,554,938 1,149,742 3,704,680 809,109 489,503 5,003,292

2,554,938 1,584,249 4,139,187 845,004 4,984,191

2,554,938 1,084,476 3,639,414 724,673 4,364,087

COMMITMENTS AND CONTINGENCIES

65

10 References
The analysis and use of financial statements (third edition) by Geral I. White, Ashurinpaul C. Sondhi, Dov Fried. Search for industry overview. (www.pakistaneconomist.com) (www.yespakistan.com) (www.docstoc.com) (www.highbeam.com) Search for organizational overview. (www.ptc.com.pk) (www.scribd.com)

66