financial statement-analysis-of-Pakistan-tobacco-company

Pakistan Tobacco Company | Final Project
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ACKNOWLEDGEMENT
fazilkhan3749@gmail.com , muhammadfazil333@gmail.com

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TABLE OF CONTENTS
S. No. Topic Page Number
SECTION 1 4
1 Introduction to Report 4
2 Scope of Study 4
3 Significance of Study 4
SECTION 2 6
4 Introduction and History of
Pakistan Tobacco Company
6
5 Vision 6
6 Mission Statement 6
7 Strategic Objectives 7
8 Company’s Brands 7
SECTION 3 9
9 Financial Analysis 2009-
2010
9
2011
15
2012
18
2013
21
SECTION 4 24
13 Ratio Analysis 2009-2013 24
14 Liquidity Ratios 24
15 Activity Ratios 27
16 Profitability Ratios 33
17 Financial leverage Ratio 37
18 Interpretation of Analysis 40
19 Trend Analysis 2009-2013
(PTC VS PMPKL)
43
20 Tobacco Industry in
Pakistan
43
21 Philip Morris Pakistan
Limited (PMPKL)
43
SECTION 5 51
22 Conclusion 51
23 RECOMMENDATIONS 53
24 REFERENCES 53

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SECTION-1
Introduction to Report
Ratio analysis is a widely used tool of financial analysis. It is defined as
the systematic use of ratio to interpret the financial statements so that
the strength and weaknesses of a firm as well as its historical
performance and current financial condition can be determined. The
term “ratio” refers to the numerical or quantitative relationship between
two variables.
Scope of Study
The reader can have a brief introduction to the Pakistan tobacco
company Complex form this report. It encompasses the financial
statement analysis of Pakistan tobacco company Complex, their
processes and procedures the various policies adopted by PTC. It also
encompasses the financial ratios analysis of the company, and
recommendations.
Significance of Study
It Helps In Evaluating The Firms Performance:
With the help of ratio analysis conclusion can be drawn regarding
several aspects such as financial health, profitability and operational
efficiency of the undertaking. Ratio points out the operating efficiency of
the firm i.e. whether the management has utilized the firm’s assets
correctly, to increase the investor’s wealth. It ensures a fair return to its
owners and secures optimum utilization of firms assets.

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It helps in inter-firm comparison:
Ratio analysis helps in inter-firm comparison by providing necessary
data. An interim comparison indicates relative position. It provides the
relevant data for the comparison of the performance of different
departments. If comparison shows a variance, the possible reasons of
variations may be identified and if results are negative, the action may
be intiated immediately to bring them in line.
It simplifies financial statement:
The information given in the basic financial statements serves no useful
Purpose unless it s interrupted and analysed in some comparable terms.
The ratio analysis is one of the tools in the hands of those who want to
know something more from the financial statements in the simplified
manner.
It helps in determining the financial position of the concern:
Ratio analysis facilitates the management to know whether the firms
financial position is improving or deteriorating or is constant over the
years by setting a trend with the help of ratios The analysis with the help
of ratio analysis can know the direction of the trend of strategic ratio may
help the management in the task of planning, forecasting and controlling.
It is helpful in budgeting and forecasting:
Accounting ratios provide a reliable data, which can be compared,
studied and analysed. These ratios provide sound footing for future
prospectus.The ratios can also serve as a basis for preparing budgeting
future line of action.
It is helpful in determining Liquidity position:
With help of ratio analysis conclusions can be drawn regarding the
Liquidity position of a firm. The liquidity position of a firm would be
satisfactory if it is able to meet its current obligation when they become

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due. The ability to met short term liabilities is reflected in the liquidity
ratio of a firm.
It is helpful in determining Long term solvency:
Ratio analysis is equally for assessing the long term financial ability of
the Firm. The long term solvency is measured by the leverage or capital
structure and profitability ratio which shows the earning power and
operating efficiency, Solvency ratio shows relationship between total
liability and total assets.
SECTION 2
Introduction and History of
Pakistan Tobacco Company
Pakistan Tobacco Company Limited (PTC) is a part of British American
Tobacco - the world's most international tobacco group - with brands
sold in 180 markets aroundthe world.PakistanTobacco's operations in
Pakistan began in 1947, making it one of Pakistan's first foreign
investments.
The company produces high quality tobacco products to meet the
diversepreferencesof millionsof consumers,and it works in all areas of
the business - from seed to smoke.
The company provides a number of reputed brands of cigarettes to
consumers inPakistan,including Benson and Hedges, Embassy, Gold
Flake, Capstan and Gold Leaf.
Vision

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“Like a lighthouse in a dark, stormy sea... Our vision serves as a beacon
of light and hope, helping us navigates the waters”
Mission Statement
“Transform PTC to perform responsibly with the speed, flexibility and
enterprising spirit of an innovative, consumer focused Company”
Strategic Objectives
“Our strategy reflects our vision of being the champions of Growth,
Productivity, Responsibility and a Winning Organisation”
Company’s Brands
“We have always considered ourselves a consumer focused company. We aim
to offer a product that excels in all aspects and exceeds the expectations of
our consumers”
Pakistan Tobacco Company investsin trying to understand the consumers’
preferencesand ensuresthatadultsmokersmake informed choicesabout
differentbrandsavailable in the market. We have putin particular effortin
promoting two of our GlobalDrive Brands, Dunhilland Pall Mall; and two of
our greatvalue for money brands, John PlayerGold Leaf and Gold Flake.
Dunhill
Dunhill, a premium global brand, celebrated its centenary in 2007.
2008 was an exceptional year for Dunhill in Pakistan as the brand witnessed
exponential growth; fuelled by its re-launch in July. Going forward, Dunhill is
poised to strengthen its foothold in the premium segment.

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Benson & Hedges
In 1873, Richard Benson & William Hedges started a partnership in London.
Benson & Hedges was launched in Pakistan in March 2003 and has since been
able to build strong brand loyalty among its consumers showing excellent year
on year growth.
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 thriving cigarette company, John
Player and Sons.
John Player Gold Leaf has become an institution in itself, becoming one of the
most recognisable cigarette brands in the country. John Player Gold Leaf has
recently been declared the largest Urban Brand in Pakistan, beating out
products across the F.M.C.G. spectrum.
Capstan
Capstan has a rich heritage, originating in Britain in the 19th century. The
brand was created under the auspices of W.D. & H.O. WILLS at Bristol and
London.
Gold Flake
Gold Flake has grown tremendously as a brand since 2004, making it the
largest volume brand in Pakistan, and the second largest brand in British
American Tobacco's Asia Pacific region. The key to Gold Flake’s success has
been its novel engagement schemes which have fuelled growth over the years.
Through consumer relevant initiatives, Gold Flake has established itself as a

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fresh and modern offering in the VFM segment and is all set to consolidate its
position as the major volume driver for Pakistan Tobacco Company.
Embassy
Embassy, is a leading volume brand in Pakistan, and is most popular in Punjab
where it enjoysa leading position. Having built its heritage over a number of
years, Embassy thrives on its brand loyalty and locally tailored taste
characteristics.
SECTION 3
INTRODUCTION TOFINANCIAL
STATEMENT ANALYSIS
In financialmanagement, one of the planned and technical basis on which firm
decisions are made quickly and secure is the financialstatement analysis. Drake
(2010) defined that financial statement analysis is the process of selection,
evaluation and interpretation of financial data. Further, he stated that it also
shows other pertinent information which help in investment and financial
decision making. In addition, it is also the process of identifying financial
strengths and weaknesses of the firm by properly establishing the relationship
between balance sheet and income statement items.
The basic tool in financial statement analysis is financial ratio analysis. As we
know that financial statements are generally lengthy, therefore finance and

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accounting scholars developed predefined formulas which are more efficient
and strategic in evaluating the overall financial condition of a corporation or
other organization.
Financial Ratios
The result of financialratio is obtained by dividing one financial data with other
and is applied to indicate the relationship of different financial variables.
Calculating ratios balance sheet and income statement are the most common
and important sources of financial information. Woo & Baker (2005) studied
that unseen and ignore data when examined individually would be showed by
the financial ratios through the appearance of many data’s as ratios. Financial
ratio analysis includes the calculation and analysis of ratios that use data from
one, two or more financial statements.
Liquidity Ratios
Liquidity is the capability of a firm to sell assets at a sound price to meet its
short term financial debts. Liquidity ratios verified that a particular firm has
sufficient resources to meet its current liabilities, which are payable within a
year.
Current Ratio
current ratio is the ability of a company to meet its debts requirements as they
come payable. Current assets are used as the numerator, whereas current
liabilities are used as the denominator of the ratio to signify the most urgent
debts, requiring due within one year.
Quick Ratio
Quick or acid test ratio is the ability of a company to meet its current liabilities
as they come due immediately. Quick ratio eliminates the liquidation of
inventories from the numerator, measured the leastliquid current assets. Quick

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ratio confirmed that the firm has sufficient quick assets to pay its short term
debts.
Activity Ratios
Activity or turnover ratio represents the firm’s ability to obtain the highest
income by using its resources correctly. Baruch (1974) said that calculating
turnover ratios sales revenue remains as the numerator whereas assets,
account receivables, inventory etc are used as the denominator.
Accounts ReceivableTurnover
The accountsreceivable turnover ratio measures how many times, on average,
accounts receivable are collected in cash during the year.
Accounts PayableTurnover
The accounts payable turnover ratio measures how many times, on average,
accounts payable are paid during the year.
Fixed Assets Turnover
Fixed assets turnover is extremely important for a capital intensive company
and considers only the company’s investment in fixed assets.
Inventory Turnover
Inventory turnover ratio is employed to represent the number of times
inventory is sold or used in the company during the financial era. All of the
firm’s prefer a beneficial rate of inventory turnover, which is neither too high
nor too low.
Total Assets Turnover
Total assets turnover shows that how many times the annual sales crosses the
total assets (Sharma 2012). It measures the efficiency of managing all of a
company’s assets (Fraser & Ormiston 2004).
Leverage Ratios

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leverage ratios involves the debt obligations a company holds along with the
shareholder’s equity. It is used to show the firm’s ability to meet its financial
obligations.
Debt to Assets Ratio
The ratio of total debt to total assets measures the percentage of funds
provided by creditors. Further, Fraser & Ormiston (2004) shows that it is the
percentage of all assets that are financed with debt.
Debt to Equity
That the debt to equity ratio measures the riskiness of the company’s capital
structure in terms of the relationship between the funds supplied by creditors
and investors.
Profitability Ratios
Profitability ratios indicate the overallefficiency and performanceof firm.
Some of the major profitability ratios are discussed as under.
Gross Profit Margin
Gross Profit Margin shows the total increase between Cost of Goods
Sold and sales revenue. It also reflects the efficiency with which the
management produces each unit of product (Brealey& Myers 1984).
Net Profit Margin
Net Profit Margin signifies the overall measure of a company’s ability to turn
each rupee sales into net profit. It also establishes relationship between sales
and net profit. Further, it indicates management’s efficiency in administering,
manufacturing and selling the products (Brealey& Myers 1984).
Return on Assets
Return on assets ratio shows that how competently total assets has been
utilized by the company. It also indicates the overall rate of return on total
assets of the firm. To determine return on total assets net income is compared
with total assets of the company.
Return on Equity

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Return on Equity ratio demonstrates that how efficiently firms utilize common
stock holder’s equity in company. It also indicates the amount of net income a
common shareholder receives for a dollar of his/her equity.
Financial Analysis 2009-2010
Balance Sheet (Horizontal Analysis)
ITEMS 2009 2010 Horizontal Analysis
NON CURRENT
ASSETS
Property plant and
Equipment
5,952,108 5,823,688 5,823,688- 5,952,108÷
5,952,108
(2.16)%
Investment in
Subsidiary
Company
5,000 5,000 5000 – 5000 ÷ 5000 ---
Long term Loans 7,310 3,417 3,417– 7,310 ÷ 7,310 (53.26)%
Long Term Deposits 19,915 15,375 15,375– 19,915 ÷ 19,915 (22.80)%
CURRENT
ASSETS

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Stock in Trade 5,765,367 6,002,823 6,002,823– 5,765,367 ÷
5,765,367
4.12%
Stores and Spares 218,375 199,207 199,207– 218,375 ÷
218,375
(8.78)%
Trade Debts 1,684 1,597 1,597– 1,684 ÷ 1,684 (5.17)%
Loans and Advances 48,598 48,267 48,267– 48,598 ÷ 48,598 (0.68)%
Short term
Payments
72,483 118,329 118,329– 72,483 ÷ 72,483 63.25%
Other Receivables 88,147 93,546 93,546– 88,147 ÷ 88,147 6.12%
Cash and Bank 47,874 51,945 51,945– 47,874 ÷ 47,874 8.50%
Total Current Assets 6,242,528 6,530,920 6,530,920– 6,242,528 ÷
6,242,528
4.38%
Total Assets 12,226,861 12,363,196 12,363,196– 12,226,861 ÷
12,226,861
1.12%
Balance Sheet
SHARE CAPITAL
AND RESERVES
Share Capital 2,554,938 2,554,938 2,554,938 – 2554938 ÷
2554938
---
Revenue Reserves 1,705,296 1,047,149 1,047,149– 1,705,296 ÷
1,705,296
(38.59)%
NON CURRENT
LIABILITIES
Retirement Benefits --- --- ---
Deferred Taxation 1,109,847 1,137,581 1,137,581– 1,109,847 ÷
1,109,847
2.50%

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CURRENT
LIABILITIES
Trade and other
payables
5,037,469 5,339,725 5,339,725– 5,037,469 ÷
5,037,469
6.00%
Accrued Interest 27,659 46,789 46,789– 27,659 ÷ 27,659 69.16%
Short term running
finance
1,300,837 2,252,218 2,252,218– 1,300,837 ÷
1,300,837
73.14%
Income tax liability 490,815 (15,206) (15,206)– 490,815 ÷ 490,815 (103.10)%
Total Current
Liabilities
6,856,780 7,623,526 7,623,526– 6,856,780 ÷
6,856,780
11.18%
Total Liabilities 12,226,861 12,363,196 12,363,196– 12,226,861 ÷
12,226,861
1.12%
Profit and Loss Account
Gross turnover 57,544,309 60,195,535 60,195,535– 57,544,309÷
57,544,309
4.61%
Excise Duties 27,654,345 30,476,421 30,476,421– 27,654,345÷
27,654,345
10.20%
Sales Tax 8,223,439 8,766,485 8,766,485– 8,223,439÷ 8,223,439 6.60%
Net Sales 21,666,525 20,952,629 20,952,629– 21,666,525÷
21,666,525
(3.29)%
Cost of Sales 13,442,066 14,747,717 14,747,717– 13,442,066÷
13,442,066
9.71%
Gross Profit 8,224,459 6,204,912 6,204,912– 8,224,459÷ 8,224,459 (24.56)%

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Selling and
distribution
2,246,014 3,279,390 3,279,390– 2,246,014÷ 2,246,014 46.01%
Administrative
Expenses
1,100,814 1,233,165 1,233,165– 1,100,814÷ 1,100,814 12.02%
Other Operating
Income
226,499 46,610 46,610– 226,499÷ 226,499 (79.42)%
Other Operating
Expense
514,665 208,211 208,211– 514,665÷ 514,665 (59.54)%
Operating Profit 4,589,465 1,530,756 1,530,756– 4,589,465÷ 4,589,465 (66.65)%
Finance Income 102,826 36,933 36,933-102,826÷ 102,826 (64.08)%
Finance Cost 43,802 149,680 149,680– 43,802÷ 43,802 241.72%
Profit Before
Tax
4,648,489 1,418,009 1,418,009– 4,648,489÷ 4,648,489 69.50)%
Income Tax
Expense
1,626,083 492,909 492,909– 1,626,083÷ 1,626,083 (69.69)%
Profit of the
Year
3,022,406 925,100 925,100– 3,022,406÷ 3,022,406 (69.39)%
Financial Analysis 2009–2010
Balance Sheet (Vertical Analysis)
ITEMS 2009 2010 Vertical Analysis
NON CURRENT
ASSETS
Property plant and
Equipment
5,952,108 5,823,688 5,823,688÷ 12,363,196 47.11%
Investment in
Subsidiary
Company
5,000 5,000 5,000÷ 12,363,196 0.04%

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Long term Loans 7,310 3,417 3,417÷ 12,363,196 0.03%
Long Term Deposits 19,915 15,375 15,375÷ 12,363,196 0.12%
CURRENT
ASSETS
Stock in Trade 5,765,367 6,002,823 6,002,823÷ 12,363,196 48.55%
Stores and Spares 218,375 199,207 199,207÷ 12,363,196 1.61%
Trade Debts 1,684 1,597 1,597÷ 12,363,196 0.01%
Loans and Advances 48,598 48,267 48,267÷ 12,363,196 0.39%
Short term
Payments
72,483 118,329 118,329÷ 12,363,196 0.96%
Other Receivables 88,147 93,546 93,546÷ 12,363,196 0.76%
Cash and Bank 47,874 51,945 51,945÷ 12,363,196 0.42%
Total Current Assets 6,242,528 6,530,920 6,530,920÷ 12,363,196 52.70%
Total Assets 12,226,861 12,363,196 12,363,196÷ 12,363,196 100.00%
Balance Sheet
SHARE CAPITAL
AND RESERVES
Share Capital 2,554,938 2,554,938 2,554,938÷12,363,196 20.67%
Revenue Reserves 1,705,296 1,047,149 1,047,149÷12,363,196 8.47%
NON CURRENT
LIABILITIES

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Retirement Benefits --- --- ---
Deferred Taxation 1,109,847 1,137,581 1,137,581÷12,363,196 9.20%
CURRENT
LIABILITIES
Trade and other
payables
5,037,469 5,339,725 5,339,725÷12,363,196 43.19%
Accrued Interest 27,659 46,789 46,789÷12,363,196 0.38%
Short term running
finance
1,300,837 2,252,218 2,252,218÷12,363,196 18.22%
Income tax liability 490,815 (15,206) (15,206) ÷12,363,196 (0.12)%
Total Current
Liabilities
6,856,780 7,623,526 7,623,526÷12,363,196 61.66%
Total Liabilities 12,226,861 12,363,196 12,363,196÷12,363,196 100.00%
Gross turnover 57,544,309 60,195,535 60,195,535÷ 20,952,629 207.29%
Excise Duties 27,654,345 30,476,421 30,476,421÷ 20,952,629 145.45%
Sales Tax 8,223,439 8,766,485 8,766,485÷ 20,952,629 418.40%
Net Sales 21,666,525 20,952,629 20,952,629÷ 20,952,629 100.00%
Cost of Sales 13,442,066 14,747,717 14,747,717÷ 20,952,629 70.39%

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Gross Profit 8,224,459 6,204,912 6,204,912÷ 20,952,629 29.61%
Selling and
distribution
2,246,014 3,279,390 3,279,390÷ 20,952,629 15.65%
Administrative
Expenses
1,100,814 1,233,165 1,233,165÷ 20,952,629 5.89%
Other Operating
Income
226,499 46,610 46,610÷ 20,952,629 0.22%
Other Operating
Expense
514,665 208,211 208,211÷ 20,952,629 0.99%
Operating Profit 4,589,465 1,530,756 1,530,756÷ 20,952,629 7.31%
Finance Income 102,826 36,933 36,933÷ 20,952,629 0.18%
Finance Cost 43,802 149,680 149,680÷ 20,952,629 0.71%
Profit Before
Tax
4,648,489 1,418,009 1,418,009÷ 20,952,629 6.77%
Income Tax
Expense
1,626,083 492,909 492,909÷ 20,952,629 2.35%
Profit of the
Year
3,022,406 925,100 925,100÷ 20,952,629 4.42%
Balance Sheet
ITEMS 2010 2011 Horizontal
Analysis
Vertical
Analysis
NON CURRENT
ASSETS

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Property plant and
Equipment
5,823,688 6,099,879 4.74 46.05
Investment in
Subsidiary Company
5,000 5,000 -- 0.04
Long term Loans 3,417 1,260 63.13) 0.01
Long Term Deposits
and Payments
15,375 22,640 47.25 0.17
CURRENT ASSETS
Stock in Trade 6,002,823 6,462,330 7.65 48.78
Stores and Spares 199,207 190,110 (4.57) 1.44
Trade Debts 1,597 1,202 (24.73) 0.01
Loans and Advances 48,267 64,310 33.24 0.49
Short term Payments 118,329 94,052 (20.52) 0.71
Other Receivables 93,546 196,249 109.79 1.48
Cash and Bank
Balances
51,945 109,631 111.05 0.83
Total Current Assets 6,530,920 7,117,884 9.24 53.73
Total Assets 12,363,196 13,246,663 7.15 100.00
Balance Sheet
Analysis
Vertical
Analysis
SHARE CAPITAL
AND RESERVES
Share Capital 2,554,938 2,554,938 --- 19.29

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Revenue Reserves 1,047,149 778,997 (25.61) 5.88
NON CURRENT
LIABILITIES
Retirement Benefits --- ---
Deferred Taxation 1,137,581 1,082,038 (4.88) 8.17
CURRENT
LIABILITIES
Trade and other
payables
5,339,725 7,075,299 32.50 53.41
Accrued Interest 46,789 51,187 9.40 0.39
Short term running
finance
2,252,218 1,783,623 (20.81) 13.46
Income tax liability (15,206) (79,419) 422.29 (0.60)
Total Current
liability
7,623,526 8,830,690 15.83 66.66
Total Liabilities 12,363,196 13,246,663 7.15 100.00
Analysis
Vertical
Analysis
Gross turnover 60,195,535 67,491,816 12.12 294.08
Excise Duties 30,476,421 34,719,661 13.92 151.28

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Sales Tax 8,766,485 9,822,181 12.04 463.55
Net Sales 20,952,629 22,949,974 9.53 100.00
Cost of Sales 14,747,717 16,709,273 13.30 72.81
Gross Profit 6,204,912 6,240,701 0.58 27.19
Selling and
distribution
3,279,390 3,129,938 (4.56) 13.64
Administrative
Expenses
1,233,165 1,321,713 7.18 5.76
Other Operating
Income
46,610 53,967 15.78 0.24
Other Operating
Expense
208,211 1,182,363 467.87 5.15
Operating Profit 1,530,756 660,654 (56.84) 2.88
Finance Income 36,933 39,160 6.03 0.17
Finance Cost 149,680 140,539 (6.11) 0.61
Profit Before Tax 1,418,009 559,275 (60.56) 2.44
Income Tax
Expense
492,909 195,490 (60.34) 0.85
Profit of the Year 925,100 363,785 (60.68) 1.59
Balance Sheet

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Analysis
Vertical
Analysis
NON CURRENT
ASSETS
Property plant and
Equipment
6,099,879 5,694,961 (6.64) 41.02
Investment in
Subsidiary Company
5,000 5,000 --- 0.04
Long term Loans 1,260 457 (63.73) ---
Long Term Deposits
and Payments
22,640 20,286 (10.40) 0.15
CURRENT ASSETS
Stock in Trade 6,462,330 7,225,301 11.81 52.04
Stores and Spares 190,110 341,855 79.82 2.46
Trade Debts 1,202 1,073 (10.73) 0.01
Short term Payments 94,052 99,509 5.80 0.72
Cash and Bank
Balances
109,631 139,030 26.82 1.00
Total Assets 13,246,663 13,883,800 4.81 100.00
Balance Sheet

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Analysis
Vertical
Analysis
SHARE CAPITAL
AND RESERVES
Share Capital 2,554,938 2,554,938 99.29 18.40
Revenue Reserves 778,997 1,552,462 23.20 11.18
NON CURRENT
LIABILITIES
Retirement Benefits ---
Deferred Taxation 1,082,038 1,090,892 0.82 7.86
Deferred Liabilities 96,024 --- .69
CURRENT
LIABILITIES
Trade and other
payables
7,075,299 6,991,911 (1.18) 50.36
Accrued Interest 51,187 40,880 (20.14) 0.29
Short term running
finance
1,783,623 1,237,772 (30.60) 8.92
Lease Liability 50,009 --- .36
Income tax liability (79,419) 268,912 (438.60) 1.94
Total Current
liability
8,830,690 8,589,484 (2.73) 61.87

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Analysis
Vertical
Analysis
Gross turnover 67,491,816 75,531,228 11.91 219.85
Excise Duties 34,719,661 38,854,830 11.91 150.13
Sales Tax 9,822,181 10,796,089 9.92 41.72
Net Sales 22,949,974 25,880,309 12.77 100.00
Cost of Sales 16,709,273 17,434,790 4.34 67.37
Gross Profit 6,240,701 8,445,519 35.33 32.63
Selling and
distribution
3,129,938 3,516,601 12.35 13.59
Administrative
Expenses
1,321,713 1,381,918 4.56 5.34
Other Operating
Income
53,967 90,400 67.51 0.35
Other Operating
Expense
1,182,363 908,888 (23.13) 3.51
Operating Profit 660,654 2,728,512 313.00 10.54
Finance Income 39,160 65,057 66.13 0.25
Finance Cost 140,539 138,533 (1.43) 0.54
Profit Before Tax 559,275 2,655,036 374.73 10.26
Income Tax
Expense
195,490 926,578 373.98 3.58
Profit of the Year 363,785 1,728,458 375.13 6.68

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Balance Sheet
Analysis
Vertical
Analysis
NON CURRENT
ASSETS
Property plant and
Equipment
5,694,961 7,084,521 24.40 40.65
Investment in
Subsidiary Company
5,000 5,000 - 0.03
Long term Loans 457 75 (83.59) --
Long Term Deposits
and Payments
20,286 21,478 5.88 0.12
CURRENT ASSETS
Stock in Trade 7,225,301 9,166,367 26.86 52.59
Stores and Spares 341,855 488,213 42.81 2.80
Trade Debts 1,073 764 (28.80) ---
Short term Payments 99,509 78,889 (20.72) 0.45
Cash and Bank
Balances
139,030 60,128 (56.75) 0.34
Total Assets 13,883,800 17,430,069 25.54 100.00

27
Balance Sheet
Analysis
Vertical
Analysis
SHARE CAPITAL
AND RESERVES
Share Capital 2,554,938 2,554,938 --- 14.66
Revenue Reserves 1,552,462 2,857,270 84.05 16.39
NON CURRENT
LIABILITIES
Retirement Benefits
Deferred Taxation 1,090,892 1,014,118 (7.04) 5.82
Deferred Liabilities 96,024 293,044 205.18 1.68
CURRENT
LIABILITIES
Trade and other
payables
6,991,911 7,724,746 10.48 44.32
Accrued Interest 40,880 27,048 (33.84) 0.16
Short term running
finance
1,237,772 2,436,445 96.84 13.98
Lease Liability 50,009 92,559 85.08 0.53
Income tax liability 268,912 429,901 59.87 2.47
Total Current
liability
8,589,484 10,710,699 24.70 61.45

28
Analysis
Vertical
Analysis
Gross turnover 75,531,228 89,928,975 19.06 283.87
Excise Duties 38,854,830 46,110,971 18.68 150.57
Sales Tax 10,796,089 13,195,201 22.22 43.09
Net Sales 25,880,309 30,622,803 18.32 100.00
Cost of Sales 17,434,790 20,012,587 14.79 65.35
Gross Profit 8,445,519 10,610,216 25.63 34.65
Selling and
distribution
3,516,601 4,022,635 14.39 13.14
Administrative
Expenses
1,381,918 1,716,314 24.20 5.60
Other Operating
Income
90,400 129,129 42.84 0.42
Other Operating
Expense
908,888 397,959 (56.21) 1.30
Operating Profit 2,728,512 4,602,437 68.68 14.99
Finance Income 65,057 136,487 109.80 0.45
Finance Cost 138,533 72,019 (48.01) 0.24
Profit Before Tax 2,655,036 4,666,905 75.78 15.24
Income Tax
Expense
926,578 1,542,596 66.48 5.04
Profit of the Year 1,728,458 3,124,309 80.76 10.20

29
SECTION 4
Ratio Analysis 2009-2013
Liquidity Ratios
1. Current Ratio
(Rs. ‘000)
𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑹𝒂𝒕𝒊𝒐 =
𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑨𝒔𝒔𝒆𝒕𝒔
𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑳𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒊𝒆𝒔
Years Current Assets Current Liabilities Current Ratio
2009 6,242,528 6,856,780 0.91
2010 6,515,716 7,623,526 0.85
2011 7,117,884 8,830,690 0.81
2012 8,163,096 8,589,484 0.95
2013 10,318,995 10,710,699 0.96

30
2. Quick Ratio
(Rs. ‘000)
𝑸𝒖𝒊𝒄𝒌 𝑹𝒂𝒕𝒊𝒐 =
𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑨𝒔𝒔𝒆𝒕𝒔 − 𝑰𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚
Years Current Assets Current Liabilities Quick Ratio
2009 4,77,161 6,856,780 0.07
2010 512,892 7,623,526 0.07
2011 655,554 8,830,690 0.07
2012 937,795 8,589,484 0.11
2013 1,152,628 10,710,699 0.11
0.7
0.75
0.8
0.85
0.9
0.95
1
2009 2010 2011 2012 2013
Current Ratio

31
3. Interest Coverage Ratio
(Rs. ‘000)
𝑻𝒊𝒎𝒆𝒔 𝑰𝒏𝒕𝒆𝒓𝒆𝒔𝒕 𝑬𝒂𝒓𝒏𝒆𝒅 =
𝑷𝒓𝒐𝒇𝒊𝒕 𝑩𝒆𝒇𝒐𝒓𝒆 𝑻𝒂𝒙𝒂𝒕𝒊𝒐𝒏
𝑰𝒏𝒕𝒆𝒓𝒔𝒕 𝑬𝒙𝒑𝒆𝒏𝒔𝒆𝒔
Years Profit Before
Taxation
Interest Expense Times Interest Earned
2009 4,648,489 1,626,083 2.86
2010 1,418,009 492,909 2.88
2011 559,275 195,490 2.86
0
0.02
0.04
0.06
0.08
0.1
0.12
2009 2010 2011 2012 2013
Quick Ratio

32
2012 2,655,036 926,578 2.87
2013 4,666,905 1,542,596 3.03
Activity Ratios
1. Inventory Turnover
(Rs. ‘000)
𝑰𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚 𝑻𝒖𝒓𝒏𝒐𝒗𝒆𝒓 =
𝑪𝒐𝒔𝒕 𝒐𝒇 𝑺𝒂𝒍𝒆𝒔
𝑰𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚
Years Cost of Sales Inventory Inventory Turnover
2.75
2.8
2.85
2.9
2.95
3
3.05
2009 2010 2011 2012 2013
Times Interest Earned

33
2009 13,442,066 5,765,367 2.33
2010 14,747,717 6,002,824 2.46
2011 16,709,273 6,462,330 2.59
2012 17,434,790 7,225,301 2.41
2013 20,012,587 9,166,367 2.18
2. (a)Account Receivables Turnover
(Rs. ‘000)
𝑨𝒄𝒄𝒐𝒖𝒏𝒕𝒔 𝑹𝒆𝒄𝒊𝒆𝒗𝒆𝒂𝒃𝒍𝒆𝒔 𝑻𝒖𝒓𝒏𝒐𝒗𝒆𝒓 =
𝑪𝒓𝒆𝒅𝒊𝒕 𝑺𝒂𝒍𝒆𝒔
𝑨𝒄𝒄𝒐𝒖𝒏𝒕𝒔 𝑹𝒆𝒄𝒊𝒆𝒗𝒆𝒂𝒃𝒍𝒆𝒔
1.9
2
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2009 2010 2011 2012 2013
Inventory Turnover

34
Years Credit Sales
Account
Receivables
A/R Turnover
2009 158,528 1,684 94.14
2010 95,399 1,597 59.74
2011 102,703 1,202 85.44
2012 91,447 1,073 85.23
2013 147,359 764 192.88
3. (b)Account Receivables Collection Period
0
50
100
150
200
250
2009 2010 2011 2012 2013
A/R Turnover

35
𝑨𝒄𝒄𝒐𝒖𝒏𝒕𝒔 𝑹𝒆𝒄𝒊𝒆𝒗𝒆𝒂𝒃𝒍𝒆𝒔 𝑪𝒐𝒍𝒍𝒆𝒄𝒕𝒊𝒐𝒏 𝑷𝒆𝒓𝒊𝒐𝒅
=
𝟑𝟔𝟓
𝑨𝒄𝒄𝒐𝒖𝒏𝒕𝒔 𝑹𝒆𝒄𝒊𝒆𝒗𝒆𝒂𝒃𝒍𝒆𝒔 𝑻𝒖𝒓𝒏𝒐𝒗𝒆𝒓
Years Days in a Year A/R Turnover Collection Period
2009 365 94.13777 4 days
2010 365 59.73638 6 days
2011 365 85.44343 4 days
2012 365 85.22554 4 days
2013 365 192.8783 2 days
0
1
2
3
4
5
6
7
2009 2010 2011 2012 2013
Collection Period in days

36
4. Account Payable Turnover
(Rs. ‘000)
𝑨𝒄𝒄𝒐𝒖𝒏𝒕𝒔 𝑷𝒂𝒚𝒂𝒃𝒍𝒆𝒔 𝑻𝒖𝒓𝒏𝒐𝒗𝒆𝒓 =
𝑪𝒓𝒆𝒅𝒊𝒕 𝑷𝒖𝒓𝒄𝒉𝒂𝒔𝒆𝒔
𝑨𝒄𝒄𝒐𝒖𝒏𝒕𝒔 𝑷𝒂𝒚𝒂𝒃𝒍𝒆𝒔
Years Credit Purchases
Account
Payable
A/P Turnover
2009 712,765 37,469 19.02
2010 302,256 39,725 7.61
2011 1,735,574 75,299 23.05
2012 83,388 1,911 43.64
2013 732,835 24,746 29.61
0
5
10
15
20
25
30
35
40
45
50
2009 2010 2011 2012 2013
A/P Turnover

37
4. (b)Account Payable Payment Period
𝑨𝒄𝒄𝒐𝒖𝒏𝒕𝒔 𝑷𝒂𝒚𝒂𝒃𝒍𝒆𝒔 𝑷𝒂𝒚𝒎𝒆𝒏𝒕 𝑷𝒆𝒓𝒊𝒐𝒅 =
𝟑𝟔𝟓
𝑨𝒄𝒄𝒐𝒖𝒏𝒕𝒔 𝑷𝒂𝒚𝒂𝒃𝒍𝒆𝒔 𝑻𝒖𝒓𝒏𝒐𝒗𝒆𝒓
Years Days in a Year A/P Turnover Payment Period
2009 365 19.02 19 days
2010 365 7.61 48 days
2011 365 23.05 15 days
2012 365 43.64 8 days
2013 365 29.61 12days
0
10
20
30
40
50
60
2009 2010 2011 2012 2013
Payment Period

38
5. Assets Turnover Ratio
(Rs. ‘000)
𝑨𝒔𝒔𝒆𝒕𝒔 𝑻𝒖𝒓𝒏𝒐𝒗𝒆𝒓 =
𝑵𝒆𝒕 𝑺𝒂𝒍𝒆𝒔
𝑻𝒐𝒕𝒂𝒍 𝑨𝒔𝒔𝒆𝒕𝒔
Years Sales Total Assets Assets Turnover
2009 21,666,525 12,226,861 1.77
2010 20,952,629 12,363,196 1.69
2011 22,949,974 13,246,663 1.73
2012 25,880,309 13,883,800 1.86
2013 30,622,803 17,430,069 1.76

39
1. Gross Profit Margin
(Rs. ‘000)
𝑮𝒓𝒐𝒔𝒔 𝑷𝒓𝒐𝒇𝒊𝒕 𝑴𝒂𝒓𝒈𝒊𝒏 =
𝑮𝒓𝒐𝒔𝒔 𝑷𝒓𝒐𝒇𝒊𝒕
Years Gross Profit Net Sales Gross Profit Margin
2009 8,224,459 21,666,525 38%
1.6
1.65
1.7
1.75
1.8
1.85
1.9
2009 2010 2011 2012 2013
Assets Turnover

40
2010 6,204,912 20,952,629 30%
2011 6,240,701 22,949,974 27%
2012 8,445,519 25,880,309 33%
2013 10,610,216 30,622,803 35%
2. Net Profit Margin
(Rs. ‘000)
𝑵𝒆𝒕 𝑷𝒓𝒐𝒇𝒊𝒕 𝑴𝒂𝒓𝒈𝒊𝒏 =
𝑵𝒆𝒕 𝑶𝒑𝒆𝒓𝒂𝒕𝒊𝒏𝒈 𝑷𝒓𝒐𝒇𝒊𝒕
Years Net Operating
Profit
Net Sales Net Profit Margin
0%
5%
10%
15%
20%
25%
30%
35%
40%
2009 2010 2011 2012 2013
Gross Profit Margin

41
2009 4,589,465 21,666,525 21%
2010 1,530,756 20,952,629 7%
2011 660,654 22,949,974 3%
2012 2,728,512 25,880,309 11%
2013 4,602,437 30,622,803 15%
3. Return on Assets
(Rs. ‘000)
𝑹𝒆𝒕𝒖𝒓𝒏 𝑶𝒏 𝑨𝒔𝒔𝒆𝒕𝒔 =
𝑵𝒆𝒕 𝑰𝒏𝒄𝒐𝒎𝒆
0%
5%
10%
15%
20%
25%
2009 2010 2011 2012 2013
Net Profit Margin

42
Years Net Income Total Assets Return on Assets
2009 3,022,406 12,226,861 25%
2010 925,100 12,363,196 7%
2011 363,785 13,246,663 3%
2012 1,728,458 13,883,800 12%
2013 3,124,309 17,430,069 18%
4. Return On Equity
(Rs. ‘000)
0%
5%
10%
15%
20%
25%
30%
2009 2010 2011 2012 2013
Return on Assets

43
𝑹𝒆𝒕𝒖𝒓𝒏 𝒐𝒏 𝑬𝒒𝒖𝒊𝒕𝒚 =
𝑻𝒐𝒕𝒂𝒍 𝑺𝒕𝒐𝒄𝒌 𝑯𝒐𝒍𝒅𝒆𝒓𝒔 𝑬𝒒𝒖𝒊𝒕𝒚
Years Net Income Equity Return on Equity
2009 3,022,406 7,271,828 42.08%
2010 925,100 9,550,928 10.91%
2011 363,785 1,499,568 25.68%
2012 1,728,458 2,485,098 70.94%
2013 3,124,309 4,485,098 70.18%
Financial leverage Ratios
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
2009 2010 2011 2012 2013
Return on Equity

44
1. Debt To Total Assets Ratio
(Rs. ‘000)
𝑫𝒆𝒃𝒕 𝒕𝒐 𝑨𝒔𝒔𝒆𝒕 𝑹𝒂𝒕𝒊𝒐 =
𝑻𝒐𝒕𝒂𝒍 𝑫𝒆𝒃𝒕𝒔
Years Total Debts Total Assets Debt to Assets Ratio
2009 7,966,627 12,226,861 0.65
2010 8,761,107 12,363,196 0.71
2011 9,912,728 13,246,663 0.75
2012 9,776,400 13,883,800 0.70
2013 12,017,861 17,430,069 0.69
0.6
0.62
0.64
0.66
0.68
0.7
0.72
0.74
0.76
2009 2010 2011 2012 2013

45
2. Debt To Equity Ratio
(Rs. ‘000)
𝑫𝒆𝒃𝒕 𝒕𝒐 𝑬𝒒𝒖𝒊𝒕𝒚 𝑹𝒂𝒕𝒊𝒐 =
𝑻𝒐𝒕𝒂𝒍 𝑬𝒒𝒖𝒊𝒕𝒚
Years Total Debts Total Equity Debt to Equity Ratio
2009 7,966,627 7,271,828 1.10
2010 8,761,107 9,550,928 0.92
2011 9,912,728 1,499,568 6.61
2012 9,776,400 2,485,098 3.93
2013 12,017,861 4,485,098 2.68
0
1
2
3
4
5
6
7
2009 2010 2011 2012 2013
Debt to Equity Ratio

46
3. Debt To Total Capitalization Ratio
(Rs. ‘000)
𝑫𝒆𝒃𝒕 𝒕𝒐 𝑻𝒐𝒕𝒂𝒍 𝑪𝒂𝒑𝒊𝒕𝒂𝒍𝒊𝒛𝒂𝒕𝒊𝒐𝒏 𝑹𝒂𝒕𝒊𝒐 =
𝑻𝒐𝒕𝒂𝒍 𝑫𝒆𝒃𝒕𝒔 + 𝑻𝒐𝒕𝒂𝒍 𝑬𝒒𝒖𝒊𝒕𝒚
Years Total Debts Total Debts +
Total Equity
Debt to
Capitalization Ratio
2009 7,966,627 15,238,455 0.52
2010 8,761,107 18,312,035 0.48
2011 9,912,728 11,412,296 0.87
2012 9,776,400 12,261,498 0.80
2013 12,017,861 16,502,959 0.73
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
2009 2010 2011 2012 2013
Debt to Capitalization Ratio

47
Interpretation of Analysis
Liquidity Ratios
The analysis of Pakistan Tobacco Company’s financial statement shows that it
has a high tendency to pay its debts and to convert assets into liquid form
within short intervals of time.
 The current ratio of PTC remained between 0.81 – 0.96 in the last five
years and it shows its ability to pay short term liabilities.
o 𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑹𝒂𝒕𝒊𝒐 =
𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑨𝒔𝒔𝒆𝒕𝒔
 The quick ratio of PTC ranged between 0.07– 0.11 from 2009 to 2013. It
shows the company’s ability to convert its current assets into liquid form
(cash form) in order to meet current liabilities.
𝑸𝒖𝒊𝒄𝒌 𝑹𝒂𝒕𝒊𝒐 =
𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑨𝒔𝒔𝒆𝒕𝒔 − 𝑰𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚
 The average value of Times interest earned of PTC is approximately 2.8
for previous five years. IT PROVIDES COMPANY’S ABILITY TO MEET
interest payments as they come due. Times interest earned
(TIE) or interest coverage ratio is a measure of a company's ability to
honour its debt payments. The times interest earned lets the creditor
understand whether or not a company has sufficient income to cover its
interest payments requirements. It is calculated by taking a company's
earnings before interest and taxes (EBIT) and dividing it by the total
interest payable on bonds and other contractual debt.
𝑻𝒊𝒎𝒆𝒔 𝑰𝒏𝒕𝒆𝒓𝒆𝒔𝒕 𝑬𝒂𝒓𝒏𝒆𝒅 =
𝑷𝒓𝒐𝒇𝒊𝒕 𝑩𝒆𝒇𝒐𝒓𝒆 𝑻𝒂𝒙𝒂𝒕𝒊𝒐𝒏
𝑰𝒏𝒕𝒆𝒓𝒔𝒕 𝑬𝒙𝒑𝒆𝒏𝒔𝒆𝒔
Activity Ratios

48
 On yearly basis from the year 2009 – 2013, we observed that the
number of times the total inventory or stock of the company was sold on
the average of 2.59 times/year. It shows the sales of the company are
on a very large scale and also gives rise to the company opportunity to
generate huge profits in the long run.
𝑰𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚 𝑻𝒖𝒓𝒏𝒐𝒗𝒆𝒓 =
𝑪𝒐𝒔𝒕 𝒐𝒇 𝑺𝒂𝒍𝒆𝒔
𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝑰𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚
 Account Receivables Turnover shows that how many times a company
is able to recover the amount of credit sales to people. PTC has shown
a high Accounts Receivables turnover rate which shows its high liquidity
transformation rate.
𝑨𝒄𝒄𝒐𝒖𝒏𝒕𝒔 𝑹𝒆𝒄𝒊𝒆𝒗𝒆𝒂𝒃𝒍𝒆𝒔 𝑻𝒖𝒓𝒏𝒐𝒗𝒆𝒓 =
𝑪𝒓𝒆𝒅𝒊𝒕 𝑺𝒂𝒍𝒆𝒔
𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝑨𝒄𝒄𝒐𝒖𝒏𝒕𝒔 𝑹𝒆𝒄𝒊𝒆𝒗𝒆𝒂𝒃𝒍𝒆𝒔
 Account Payable Turnover shows that how many times a company is
able to pay the amount of credit purchases to people. PTC has shown a
high Accounts Payable turnover rate which shows its high liquidity
transformation rate.
𝑨𝒄𝒄𝒐𝒖𝒏𝒕𝒔 𝑷𝒂𝒚𝒂𝒃𝒍𝒆𝒔 𝑻𝒖𝒓𝒏𝒐𝒗𝒆𝒓 =
𝑪𝒓𝒆𝒅𝒊𝒕 𝑷𝒖𝒓𝒄𝒉𝒂𝒔𝒆𝒔
𝑨𝒄𝒄𝒐𝒖𝒏𝒕𝒔 𝑷𝒂𝒚𝒂𝒃𝒍𝒆𝒔
 Assets turnover of the company ranges between 1.69 - 1.86 times per
year. It shows the generation of huge sales from the worth of assets of
the company and in the case of Pakistan Tobacco Company, it shows
the firm's efficiency at using its assets in generating sales or revenue -
the higher the number the better.
𝑨𝒔𝒔𝒆𝒕𝒔 𝑻𝒖𝒓𝒏𝒐𝒗𝒆𝒓 =
𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝑻𝒐𝒕𝒂𝒍 𝑨𝒔𝒔𝒆𝒕𝒔

49
Pakistan Tobacco Companies Profitability ratios clearly reflect it’s great ability
to generate huge profits and of generating dividends for its shareholders.
 The gross profit margin of PTC lies between 27% - 38% in previous five
years. It measures the percentage of each dollars of sales that results in
net income. A higher profit margin indicates a more profitable company
that has better control over its costs compared to its competitors.
𝑮𝒓𝒐𝒔𝒔 𝑷𝒓𝒐𝒇𝒊𝒕 𝑴𝒂𝒓𝒈𝒊𝒏 =
𝑮𝒓𝒐𝒔𝒔 𝑷𝒓𝒐𝒇𝒊𝒕
 The return on assets of PTC ranges among 0.03 to 0.25 according to
preceding five years record. An overall measure of profitability is return
on assets. ROA gives an idea as to how efficient management is at
using its assets to generate earnings. This number tells you what the
company can do with what it has, i.e. how many rupees of earnings they
derive from each rupee of assets they control.
𝑹𝒆𝒕𝒖𝒓𝒏 𝒐𝒏 𝑨𝒔𝒔𝒆𝒕𝒔 𝑻𝒖𝒓𝒏𝒐𝒗𝒆𝒓 =
 Return on equity of PTC varies between 10% –70% between the years
2009 to 20013. Another widely used profitability ratio is return on
common stockholder’s equity. It measures profitability from common
stockholder’s point of view. Return on equity measures a corporation's
profitability by revealing how much profit a company generates with the
money shareholders have invested. Averaging ROE over the past 5-10
years can give you a better idea of the historical growth.
𝑹𝒆𝒕𝒖𝒓𝒏 𝒐𝒏 𝑬𝒒𝒖𝒊𝒕𝒚 =
𝑻𝒐𝒕𝒂𝒍 𝑺𝒕𝒐𝒄𝒌 𝑯𝒐𝒍𝒅𝒆𝒓𝒔 𝑬𝒒𝒖𝒊𝒕𝒚
SOLVENCY RATIOS
Solvency ratios measure the ability of a company to survive over a long period
of time. It provides a measurement of how likely a company will be to
continue meeting its debt obligations. Different countries use different

50
methodologies to calculate the solvency ratio, and have different
requirements.
 Debt to total assets ratio measures the percentage of total assets that
creditors provide. A metric used to measure a company's financial risk
by determining how much of the company's assets have been financed
by debt. If the ratio is less than one, most of the company's assets are
financed through equity. If the ratio is greater than one, most of the
company's assets are financed through debt. Calculated by adding
short-term and long-term debt and then dividing by the company's total
assets.
Trend Analysis 2009-2013
Financial Performance of
Pakistan Tobacco Company (PTC) and
Philip Morris Pakistan Limited (PMPKL)
Through Ratio Analysis
Tobacco Industry in Pakistan
Tobacco Industry has played a vital role in development of Pakistan economy. It is
considered a dominant and revenue generator industry. The market is dominated by
two major players Pakistan Tobacco Company (PTC) and Philip Morris Pakistan
Limited (PMPKL – previously known Lakson Tobacco Company). Pakistan Tobacco
Company (PTC) having an approximately 50% market shares and Philip Morris
Pakistan Limited (PMPKL) having 32% market shares.
While the remaining 18% market share consists of small home players (usually out
of tax bracket sold in interiors) and therefore their prices are lower than the regulated
segment.

51
Philip Morris Pakistan Limited (PMPKL)
Philip Morris Pakistan Limited (PMPKL) is an affiliate of Philip Morris International
(PMI). Formerly it was known as Lakson Tobacco Company, which started it
business in 1969 as a public limited company. However, the name was changed in
2011 to Philip Morris Pakistan Limited (PMPKL) and acquired a majority shareholder
in local business in 2007. Currently, PMPKL has a tobacco leaf threshing plant, three
cigarette manufacturing factories and sale offices across the country and employs
around 2500 people (www.philipmorrispakistan.com.pk).
Objectives
Financial performance of Pakistan Tobacco Company (PTC) and Philip Morris
Pakistan Limited (PMPKL) through ratio analysis” has been planned to accomplish
the following objectives;
 To compare the financial performance of PTC and PMPKL through ratio
analysis.
4. Current Ratio
(Rs. ‘000)
Years Pakistan
Tobacco
Company
Philips Morris
Pakistan Ltd
2009 0.91 1.98
2010 0.85 1.99
2011 0.81 1.72
2012 0.95 1.07
2013 0.96 1.1

52
1. Quick Ratio
(Rs. ‘000)
Years Pakistan
Tobacco
Company
Philips Morris
Pakistan Ltd
2009 0.07 0.15
2010 0.07 0.16
2011 0.07 0.2
2012 0.11 0.12
2013 0.11 0.15
PTC
0
0.5
1
1.5
2
2009 2010 2011 2012
2013
PTC
PMPKL
PTC
0
0.05
0.1
0.15
0.2
2009 2010 2011 2012 2013
PTC
PMPKL

53
2. Inventory Turnover
(Rs. ‘000)
Years Pakistan
Tobacco
Company
Philips Morris
Pakistan Ltd
2009 2.33 1.36
2010 2.46 1.11
2011 2.59 1.33
2012 2.41 1.32
2013 2.18 1.22
6. Account Receivables Turnover
Years Pakistan
Tobacco
Company
Philips Morris
Pakistan Ltd
2009 94.14 91.44
2010 59.74 52.32
2011 85.44 38.51
PTC
PMPKL0
1
2
3
2009 2010 2011 2012
2013
PTC
PMPKL

54
2012 85.23 54.26
2013 192.88 63.88
7. Account Payable Turnover
PTC
0
50
100
150
200
2009 2010 2011 2012
2013
PTC
PMPKL
Years Pakistan
Tobacco
Company
Philips Morris
Pakistan Ltd
2009 19.02 6.97
2010 7.61 7.54
2011 23.05 8.47
2012 43.64 4.66
2013 29.61 5.77

55
8. Assets Turnover Ratio
9. Gross Profit Margin
PTC
0
20
40
60
2009 2010 2011 2012 2013
PTC
PMPKL
PTC
PMPKL0
0.5
1
1.5
2
2009 2010 2011 2012 2013
PTC
PMPKL
Years Pakistan
Tobacco
Company
Philips Morris
Pakistan Ltd
2009 1.77 1.27
2010 1.69 1.04
2011 1.73 1.03
2012 1.86 0.99
2013 1.76 1.12
Years Pakistan
Tobacco
Philips Morris

56
10. Net Profit Margin
PTC
PMPKL0%
10%
20%
30%
40%
2009 2010 2011
2012
2013
PTC
PMPKL
Company Pakistan Ltd
2009 38% 37 %
2010 30% 33 %
2011 27% 25 %
2012 33% 28%
2013 35% 30%
Years Pakistan
Tobacco
Company
Philips Morris
Pakistan Ltd
2009 21% 7%
2010 7% 4%
2011 3% -4 %
2012 11% -4%

57
11. Return on Assets
PTC
PMPKL
-10%
0%
10%
20%
30%
2009 2010 2011 2012 2013
PTC
PMPKL
2013 15% 3%
Years Pakistan
Tobacco
Company
Philips Morris
Pakistan Ltd
2009 25% 9%
2010 7% 4%
2011 3% -4%
2012 12% -4%
2013 18% 2%

58
12. Return on Equity
PTC
PMPKL
-5%
0%
5%
10%
15%
20%
25%
2009 2010 2011 2012 2013
PTC
PMPKL
PTC-20.00%
0.00%
20.00%
40.00%
60.00%
80.00%
2009 2010 2011 2012 2013
PTC
PMPKL
Years Pakistan
Tobacco
Company
Philips Morris
Pakistan Ltd
2009 42.08% 14%
2010 10.91% 8%
2011 25.68% -7%
2012 70.94% -1%
2013 70.18% 1.8%

59
13. Debt to Total Assets Ratio
14. Debt to Equity Ratio
PTC
PMPKL0
0.2
0.4
0.6
0.8
2009 2010 2011 2012
2013
PTC
PMPKL
Years Pakistan
Tobacco
Company
Philips Morris
Pakistan Ltd
2009 0.65 0.36
2010 0.71 0.44
2011 0.75 0.46
2012 0.70 0.57
2013 0.69 0.61
Years Pakistan
Tobacco
Company
Philips Morris
Pakistan Ltd
2009 1.10 0.55
2010 0.92 0.79
2011 6.61 0.87
2012 3.93 1.31
2013 2.68 1.98

60
Interpretation of Analysis
(PTC VS PMPKL)
Liquidity Ratios
Current Ratio
 It has been found that the average current ratio of PTC and PMPKL
were 0.886 and 1.742 respectively. As a rule of thumb, the current ratio
ideal is 2:1, which mean that a company is in good position. As average
current ratio of five years, PTC had 0.886 in current assets for every
dollar/rupees of current liabilities, whereas PMPKL had 1.742 in current
assets for every dollar/rupees of liabilities. Further, it showed that
PMPKL was better than PTC to meet its short term debt obligation from
current assets. So, in term of current ratio it can be concluded that
financial position of PMPKL was better than PTC. The PMPKL and PTC
were given two points and one point, respectively.
Quick Ratio
it has been found that the average quick ratio of PTC and PMPKL were
0.06 and 0.16 respectively. The rule of thumb for quick ratio is that it
PTC
PMPKL0
2
4
6
8
2009 2010
2011
2012
2013
PTC
PMPKL

61
should be at least 1:1, which mean that a company is able to meet their
short term liabilities. As average quick ratio of five years, PTC had 0.06
in liquid assets for every dollar/rupees of current liabilities, whereas
PMPKL had 0.16 in liquid assets for every dollar/rupees of current
liabilities. This showed very lower ratio, because both the companies
were relies too heavily on inventory to meet its obligations. So, in term
of quick ratio it can be concluded that financial position of PMPKL was
better than PTC. The PMPKL and PTC were given two points and one
point, respectively.
Accounts ReceivableTurnover
It has been found that the average accounts receivable turnover ratio of
PTC and PMPKL were 148.436 and 85.12 respectively. As a rule of
thumb, a high accounts receivable turnover ratio is preferred, which
indicates that firm’s management is more effective. It also evaluates the
effectiveness of the company in managing its accounts receivable. This
study found that as average accounts receivable turnover of five years,
PTC had 148 times turned over its receivables, whereas PMPKL had 85
times turned over its receivables during the year. So, in term of
accounts receivable turnover ratio it can be concluded that PTC was
performing better than PMPKL. The PTC and PMPKL were given two
points and one point, respectively
Accounts Payable Turnover
It has been found that the average accounts payable turnover ratio of
PTC and PMPKL were 2.592 and 6.68 respectively. As a rule of thumb,
the lower accounts payable turnover is preferred, which indicates that
the company is taking longer to repay its payables. It also evaluates the
effectiveness of the company in managing its payables. This study
revealed that as average accounts payable turnover of five years, PTC
had 3 times turned over its accounts payable, whereas PMPKL had 7
times turned over its accounts payable during the year. So, in term of
accounts payable turnover ratio it can be concluded that PTC was
performing better than PTC. The PTC and PMPKL were given two
points and one point, respectively.
Inventory Turnover

62
It has been found that the average inventory turnover ratio of PTC and
PMPKL were 2.432 and 1.274 respectively. As a rule of thumb, a high
value of inventory turnover is preferred, which indicates the
enhancement in performance, whereas a low value of inventory
turnover indicates inefficiency in controlling inventory level. This study
found that as average inventory turnover of five years, PTC had nearly
3 times turned over its inventory, whereas PMPKL had 1 time turned
over its inventory during the year. So, in term of inventory turnover ratio
it can be concluded that PTC was performing better than PMPKL. The
PTC and PMPKL were given two points and one point, respectively.
Total Assets Turnover
It has been found that the average total assets turnover ratio of PTC
and PMPKL were 1.77 and 1.106 respectively. As a rule of thumb, the
higher total assets turnover is preferred, which indicates more effective.
It also shows that how efficiently a company uses its total assets to
generate revenue. This study revealed that as average total assets
turnover of five years, PTC had 2 times turned over its total assets,
whereas PMPKL had 1 time turned over its total assets during the year.
So, in term of total assets turnover ratio it can be concluded that PTC
was performing better than PMPKL. The PTC and PMPKL were given
two points and one point, respectively.
It has been found that the average debt to asset ratio of PTC and
PMPKL were 0.692 and 0.44 respectively. As a rule of thumb, a lower
debt ratio is preferred since higher debt ratio means that higher portion
of company assets are financed through debts, which indicates higher
risk in operations. If a company debt ratio is less than 0.5, most of its
assets are financed through equity, whereas if it is greater than 0.5,
most of its assets are financed through debts. This study revealed that
as average debt to assets ratio of five years, PTC had financed 69% of
its assets through debts whereas PMPKL had financed 44% of its
assets through debts. So, in term of debt to asset ratio it can be
concluded that PMPKL was performing better than PTC. The PMPKL
and PTC were given two points and one point, respectively.
Debt to Equity

63
It has been found that the average debt to equity ratio of PTC and
PMPKL were 2.312 and 0.818 respectively. As a rule of thumb, a debt
to equity ratio should be 1:1, which means that a company is
considered safer. In general, debt should be between 50 to 80 percent
of equity. So, in term of debt to equity ratio it can be concluded that
PMPKL was performing better than PTC. The PMPKL and PTC were
given two points and one point, respectively
Gross Profit Margin
it has been found that the average gross profit ratio of PTC and PMPKL
were 0.334 and 0.332 respectively. As a rule of thumb, a higher gross
profit is preferred, which mean that a company keeps more on each
dollar/rupees of sales to meet its other costs and obligations. The study
revealed that as average gross profit margin of five years, PTC had
spent 66% of its sales on cost of goods sold, whereas PMPKL had
spent 67% of its sales on cost of goods sold. So, in term of gross profit
margin it can be concluded that financial position of PTC was better
than PMPKL. The PTC and PMPKL were given two points and one
point, respectively.
Net Profit Margin
it has been revealed that the average net profit ratio of PTC and PMPKL
were 0.08 and 0.026 respectively. As a rule of thumb, the common
range of net profit margin is around 5%, however around 10% is
considered more excellent. The study found that as average net profit
margin of five years, PTC had net profit of 8% on its sales, whereas
PMPKL had net profit of 3% on its sales.
Return on Assets
It has been found that the average return on assets ratio of PTC and
PMPKL were 0.142 and 0.034 respectively. As a rule of thumb, a higher
return on assets is preferred this indicates that a company has efficient
management. The study revealed that as average return on assets of
five years, PTC had 14% of return on assets, whereas PMPKL had 3%
of return on assets. So, in term of return on assets ratio it can be
concluded that financial position of PTC was better than PMPKL. The
PTC and PMPKL were given two points and one point, respectively.

64
Return on Equity
It has been found that the average return on equity ratio of PTC and
PMPKL were 0.44 and 0.046 respectively. As a rule of thumb, a higher
return on equity is preferred, which indicates that management
performance is better. Usually, return on equity measures will be higher
than return on assets due to leverage. This study found that as average
return on equity of five years, PTC had 44% of return on equity,
whereas PMPKL had 5% of return on equity. This indicates that PTC
had generated 0.44 of profit for every 1 dollar/rupees of shareholders
equity, whereas PMPKL had generated 0.05 of profit for every 1
dollar/rupees of shareholders equity. So, in term of return on equity ratio
it can be concluded that financial position of PTC was better than
PMPKL. The PTC and PMPKL were given two points and one point,
respectively.
SECTION 5
CONCLUSION
The sample period for this study is from 2009-2013 for 5 years. Four
ratios will be used. The data collected is based on secondary data.
During 1Q2013, company’s net revenue and hence profitability
increased by 28%YoY and 200% respectively due to hoarding on
expectation of increase in government taxes in upcoming budget
FY14.
The company is a closely held manufacturing concern with 95%
of the ownership held by parent company, British American
Tobacco (BAT). With only 5% of the free float available to
common stock holders (12.75mn shares only).

65
Compare the financial performance of PTC and PMPKL through ratio
analysis for time period of 2009-2013. Financial performance is a major
standard to measure a company operational and financial efficiency.
Although analyzing financial performance of PTC and PMPKL, this study
was included analysis of liquidity ratios, profitability ratios, activity ratios,
leverage ratios and market ratios.
RECOMMENDATIONS
 Reductionintobacco wastages mustbe addressed.
 Growthof brands and volumes.
 Productivity enhancement and reduction in stoppages
 Lowbrand margins.
 Low skill level of master technicians
 Low education and skill level of employees for advanced
machinery
 Unstable inventory level because of before time and pending
deliveries
 Service level of local suppliers for PTC must be improved in order
to reduce the problems related to quality.
REFERENCES
 PTC 2009-2013, Annual Reports.
 PMPKL 2009-2013, Annual Reports.
 Website:
 www.kse.com.pk
 www.pakistantobacco.com.pk
 www.yespakistan.com
 www.pakistanecnomist.com

66
 www.investorguide360.com
 www.businessmonitor.com.
 www.pmi.com
For further detail contact; fazilkhan3749@gmail.com ,
muhammadfazil333@gmail.com

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