Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.
Upcoming SlideShare
Loading in โฆ5
×

# General Tyres FInancial Analysis Report

2,364 views

Published on

• Full Name
Comment goes here.

Are you sure you want to Yes No
Your message goes here
• Be the first to comment

### General Tyres FInancial Analysis Report

1. 1. Finance Project Submitted to: Sir Ramzan 12/16/2013 Hira Saeed 111144 BBA 5th Air University Multan Campus
2. 2. Contents Introduction of General Tyres:......................................................................................................................3 Vision:............................................................................................................................................................3 Mission:.........................................................................................................................................................3 Liquidity Ratios:.............................................................................................................................................4 Current Ratio:............................................................................................................................................4 Quick Ratio:...............................................................................................................................................5 The quick ratio is a measure of a company's ability to meet its short-term obligations using its most liquid assets (near cash or quick assets). Quick assets include those current assets that presumably can be quickly converted to cash at close to their book values. Quick ratio is viewed as a sign of a company's financial strength or weakness; it gives information about a companyโs short term liquidity. The ratio tells creditors how much of the company's short term debt can be met by selling all the company's liquid assets at very short notice......................................................................................5 Financial Leverage Ratio: ..............................................................................................................................5 Debt-to-Equity Ratio:................................................................................................................................6 Debt to total Assets: .................................................................................................................................7 Debt to assets ratio is a ratio that indicates the proportion of a company's debt to its total assets. It shows how much the company relies on debt to finance assets. The debt ratio gives users a quick measure of the amount of debt that the company has on its balance sheets compared to its assets. The higher the ratio, the greater the risk associated with the firm's operation. A low debt ratio indicates conservative financing with an opportunity to borrow in the future at no significant risk......7 Debt to Total Capitalization:.....................................................................................................................7 Activity Ratio:................................................................................................................................................8 Total Asset Turnover:................................................................................................................................8 Receivable Turnover and Average Collection Period:...............................................................................9 Inventory Turnover:................................................................................................................................10 Payable Turnover (PT) and Payable turnover in Days.............................................................................11 Coverage Ratio:...........................................................................................................................................11 Interest Coverage:...................................................................................................................................12 Profitability Ratios:......................................................................................................................................12 Gross Profit Margin:................................................................................................................................13 Net Profit Margin:...................................................................................................................................14 Return on Investment:............................................................................................................................14 Return on Equity:....................................................................................................................................15
3. 3. Cash Cycle: ..................................................................................................................................................15 Common size Analysis:................................................................................................................................15 Sources and Uses: .......................................................................................................................................16 Introduction to the Competitor:.................................................................................................................17 Hino Pak:.....................................................................................................................................................17 Current Ratio:..........................................................................................................................................17 Net Working Capital:...................................................................................................................................19 Total Asset Turnover:..................................................................................................................................19 Comparison of Ratios of last year (2013) of both the Firms:......................................................................21 Current Ratio:..........................................................................................................................................21 Acid Test Ratio: .......................................................................................................................................21 Debt to equity Ratio:...............................................................................................................................21 Debt to total assets ratio: ...........................................................................................................................21 Total Capitalization Ratio:.......................................................................................................................21 Total Asset Turnover:..............................................................................................................................22 Receivable Turnover: ..............................................................................................................................22 HinoPak has higher value of receivable turnover as compare to General Tyres and it is more efficient in the management of debtors or debtors are more liquid, HinoPak is also better in terms of collecting their accounts receivables. .....................................................................................................................22 Accounts Payable Turnover Ratio:..........................................................................................................22 Gross Profit Margin:................................................................................................................................23 Net Profit Margin:...................................................................................................................................23 Conclusion:..................................................................................................................................................23
4. 4. Write Up For the Excel Sheet Introduction of General Tyres: The General Tyre and Rubber Company of Pakistan Limited (Gentipak) is Pakistanโs premier industry. It was established in 1963 by General Tire USA and has been in production since 1964. Gentipak has a Technical Services Agreement (TSA) with CONTINENTAL AG (Germanyโs largest tyre manufacturer) which enables it to produce tyres of โGENERALโ brand and provides the latest technology for production of tyres based on Continentalโs, R&D. The Plant and the Offices are located in suburb of Karachi. Initial production capacity was only 120,000 tyres per annum but is now around 2,000,000 tyres per annum. Our plant is constantly upgraded and is equipped with the most modern technology in tyre manufacturing. Vision: To be the leader in tyre technology by building the Companyโs image through quality improvement, competitive prices, customersโ satisfaction and meeting social obligations. Mission: โข To endeavor to be the market leader by enhancing market share, consistently improving efficiency and the quality of our products. โข To offer quality products and after sale services to our customers at competitive prices. โข To improve performance in all operating areas, improve profitability thereby ensuring growth for the company and increasing return to the stakeholders. โข To create a conducive working environment leading to enhanced productivity, job satisfaction and personal development of our employees.
5. 5. โข To enhance productivity and continue discharging its obligation to society and environment by contributing to social welfare and adopting Liquidity Ratios: Liquidity ratios are the ratios that measure the ability of a company to meet its short term debt obligations. These ratios measure the ability of a company to pay off its short- term liabilities when they fall due. Generally, the higher the liquidity ratios are, the higher the margin of safety that the company possesses to meet its current liabilities. Liquidity ratios greater than 1 indicate that the company is in good financial health and it is less likely fall into financial difficulties. Types of liquidity ratios are ๏ท Current Ratio ๏ท Acid Test Ratio Current Ratio: Current ratio is balance-sheet financial performance measure of company liquidity. Current ratio indicates a company's ability to meet short-term debt obligations. The current ratio measures whether or not a firm has enough resources to pay its debts over the next 12 months. ๐ช๐๐๐๐๐๐ ๐น๐๐๐๐ = ๐ช๐๐๐๐๐๐ ๐จ๐๐๐๐๐ ๐ช๐๐๐๐๐๐ ๐ณ๐๐๐๐๐๐๐๐๐๐ Year 2009 2010 2011 2012 2013 Current Ratio 0.86762065 0.975670979 1.028560826 1.037493713 1.135736036 Hence, from the following calculations it can be seen that in the years 2011, 2012 and 2013 company is more able to meet short term debt obligations. In the years 2011, 2012 and 2013 the firm has enough resources to pay its debt. The reason for this is as follows As the ratio value is more than 1 and if liquidity ratio has a value more than 1 than it indicates that the company is in good financial health and it is less likely fall into
6. 6. financial difficulties. And as the current ratio is a liquidity ratio, which is why the following 2 years (2012 and 2013) have their ratio value greater than 1. Secondly, it is the obvious reason that the assets value in the years 2011, 2012 and 2013 are more than the current liabilities in the same years. Quick Ratio: The quick ratio is a measure of a company's ability to meet its short-term obligations using its most liquid assets (near cash or quick assets). Quick assets include those current assets that presumably can be quickly converted to cash at close to their book values. Quick ratio is viewed as a sign of a company's financial strength or weakness; it gives information about a companyโs short term liquidity. The ratio tells creditors how much of the company's short term debt can be met by selling all the company's liquid assets at very short notice. ๐จ๐๐๐ ๐ป๐๐๐ ๐น๐๐๐๐ = ๐ช๐๐๐๐๐๐ ๐จ๐๐๐๐๐ โ ๐ฐ๐๐๐๐๐๐๐๐๐๐ ๐ช๐๐๐๐๐๐ ๐ณ๐๐๐๐๐๐๐๐๐๐ Year 2009 2010 2011 2012 2013 Quick Ratio 0.711 0.856 0.931 0.929 1.020 The calculation shows that the company is financially strongest in year2013 because of the value of the most current asset that is stores and spares taken as inventory, is relatively high as compare to the last preceding years. If company would have suffered loss in year 2009 and 2010 it would hardly pay its short term debt by selling its most liquid asset. But in the years 2011 and 2012 scenario has changed a bit the value of the most liquid assets has relatively increases as compare to the last 2 years. At that time the company could easily pay its short term debt by selling its stores and spares. And in year 2013 the quick ratio has a value greater than 1 that is 1.020 that means General Tyres can sell its liquid asset and used the amount to pay short term debts. Financial Leverage Ratio: The ratios used to determine about the companiesโ financing methods, or the ability to meet the obligations. There are many ratios to calculate leverage but the important factors include debt, interest expenses, equity and assets.
7. 7. The most important leverage ratio is the debt to equity ratio that gives you an idea about the debt one company is in and the equity it has at its disposal. Leverage ratios also determine the companyโs cost mix and its effects on the operating income. Companies with high fixed cost earn more income because after the break-even point, with the increase in output the income increases as the cost has already been incurred. On the other hand a company with higher variable cost seems to earn little operating income because with the increase in output the variable cost increases too. Types of leverage ratio are as follows: ๏ท Debt to equity ratio ๏ท Debt to total assets ratio ๏ท Total Capitalization Ratio Debt-to-Equity Ratio: Debt-to-equity ratio is the key financial ratio and is used as a standard for judging a company's financial standing. It is also a measure of a company's ability to repay its obligations. When examining the health of a company, it is critical to pay attention to the debt/equity ratio. If the ratio is increasing, the company is being financed by creditors rather than from its own financial sources which may be a dangerous trend. Lenders and investors usually prefer low debt-to-equity ratios because their interests are better protected in the event of a business decline. Thus, companies with high debt- to-equity ratios may not be able to attract additional lending capital. ๐ซ๐๐๐ ๐๐ ๐ฌ๐๐๐๐๐ = ๐ป๐๐๐๐ ๐ซ๐๐๐๐ ๐ป๐๐๐๐ ๐ฌ๐๐๐๐๐ Year 2009 2010 2011 2012 2013 Debt to equity ratio 2.565658645 2.617255217 2.922622365 2.593428643 2.338654508 As per above table the ratio is increasing from year 2009-2011, this means that the company General Tyres is finance by other creditors in these three years rather than from its own financial sources. It was seen that the debt to equity ratio declined in year 2012 and then the trend continues to 2013 which means that the company started using its own financial sources which means that the company has generated enough cash to
8. 8. satisfy its debt obligations but at the same time the company is not taking advantage of the increased profit that the financial leverage may bring. Debt to total Assets: Debt to assets ratio is a ratio that indicates the proportion of a company's debt to its total assets. It shows how much the company relies on debt to finance assets. The debt ratio gives users a quick measure of the amount of debt that the company has on its balance sheets compared to its assets. The higher the ratio, the greater the risk associated with the firm's operation. A low debt ratio indicates conservative financing with an opportunity to borrow in the future at no significant risk. ๐ซ๐๐๐ ๐๐ ๐ป๐๐๐๐ ๐จ๐๐๐๐๐ = ๐ป๐๐๐๐ ๐ซ๐๐๐๐ ๐ป๐๐๐๐ ๐จ๐๐๐๐๐ Year 2009 2010 2011 2012 2013 Debt to total assets ratio 0.719546906 0.723547292 0.745068501 0.721714246 0.700478142 Hence the company general Tyres has got highest debt to total assets ratio in year 2011 due to which it has greater risk with respect to the analyzed 5 years and assets are financed with debt. In the years 2009,2010, 2012 and 2013 the ratio although indicates that although the assets are financed by debt but it is less as compare to the ratio calculated in 2011 which means that lower risk is associated with operations of the firm. Debt to Total Capitalization: The capitalization ratio compares total debt to total capitalization (capital structure). The capitalization ratio reflects the extent to which a company is operating on its equity. Capitalization ratio is also known as the financial leverage ratio. It tells the investors about the extent to which the company is using its equity to support its operations and growth. This ratio helps in the assessment of risk. The companies with high capitalization ratio are considered to be risky because they are at a risk of insolvency if they fail to repay their debt on time. Companies with a high capitalization ratio may also find it difficult to get more loans in the future. ๐ซ๐๐๐ ๐๐ ๐ป๐๐๐๐ ๐ช๐๐๐๐๐๐๐๐๐๐๐๐๐ = ๐ป๐๐๐๐ ๐ซ๐๐๐๐ ๐ป๐๐๐๐ ๐ช๐๐๐๐๐๐๐๐๐๐๐๐๐ Year 2009 2010 2011 2012 2013 Debt to total capitalization 1.795977843 1.916610167 2.20974954 2.083422783 1.715585151
9. 9. A high capitalization ratio is not always bad; however, higher financial leverage can increase the return on a shareholderโs investment because usually there is tax advantages associated with the borrowings. In year 2011 the company is at high risk due to high debt to capitalization ratio but at the same year the company has generate high returns on shareholderโs investment as the company has tax advantage. The company general tyre, in the years 2009, 2010 and 2013 has less tax advantage and it has using less of its equity in the operation. In the year 2012 the company has relative high debt to capitalization ratio as compare to the other years that are 2009, 2010, 2013. But it has less debt to total capitalization ratio as compare to the year 2011. In the current period, company needs to get debts and use it in its operations but it also needs to be careful about the risk of insolvency. Activity Ratio: Activity ratios, sometimes referred to as operating ratios or management ratios, measure the efficiency with which a business uses its assets, such as inventories, accounts receivable, and fixed (or capital) assets. The more commonly used operating ratios are the average collection period, the inventory turnover, the fixed assets turnover, and the total assets turnover. Following are the types of activity ratios: ๏ท Total Asset turnover ๏ท Receivable turnover ๏ท Average Collection Period ๏ท Inventory Turnover ๏ท Inventory Turnover in days ๏ท Payable turnover ๏ท Payable turnover in days Total Asset Turnover: The assets turnover ratio measures how intensively a firm's assets such as land, buildings, and equipment are used to generate sales. A low assets turnover implies that a firm has too much investment in fixed assets relative to sales; it is basically a measure of productivity.
10. 10. ๐ป๐๐๐๐ ๐จ๐๐๐๐๐ ๐ป๐๐๐๐๐๐๐ = ๐ต๐๐ ๐บ๐๐๐๐ ๐ป๐๐๐๐ ๐จ๐๐๐๐๐ Year 2009 2010 2011 2012 2013 Total Asset Turnover 1.348753819 1.32034085 1.297043598 1.426382728 1.359879595 High asset turnover ratios are desirable because they mean that the company is utilizing its assets efficiently to produce sales. The higher the asset turnover ratios, the more sales the company is generating from its assets. In the 5 years analysis of General tyres the total assets turnover ratio is almost same that means the company has used its assets in generating revenues in the same way. But in the year 2012 the company has effectively generated more sales with respect to the assets the company had. The company had \$ 5,472,914 assets and the sales generated in the year were \$7,806,470. Receivable Turnover and Average Collection Period: The receivable turnover ratio indicates the velocity of a company's debt collection, the number of times average receivables are turned over during a year. This ratio determines how quickly a company collects outstanding cash balances from its customers during an accounting period. It is an important indicator of a company's financial and operational performance and can be used to determine if a company is having difficulties collecting sales made on credit. The receivables included are the sum of trade debts, loans and advances, deposits and prepayments and other receivables. Receivable turnover ratio indicates how many times, on average, account receivables are collected during a year (sales divided by the average of accounts receivables). A popular variant of the receivables turnover ratio is to convert it into an Average collection period in terms of days. The average collection period (also called Days Sales Outstanding (DSO)) is the number of days, on average, that it takes a company to collect its accounts receivables, i.e. the average number of days required to convert receivables into cash. ๐น๐๐๐๐๐๐๐๐๐๐ ๐ป๐๐๐๐๐๐๐ = ๐ต๐๐ ๐บ๐๐๐๐ ๐น๐๐๐๐๐๐๐๐๐๐
11. 11. Year 2009 2010 2011 2012 2013 Receivable Turnover 7.027222296 6.78587727 8.027110584 7.620767146 6.390046123 ๐จ๐๐. ๐ช๐๐๐๐๐๐๐๐๐ ๐ท๐๐๐๐๐ = ๐ซ๐๐๐ ๐๐ ๐ ๐๐๐๐ ๐น๐๐๐๐๐๐๐๐๐๐ ๐ป๐๐๐๐๐๐๐ In the year 2011, General Tyre was more efficient in the management of debtors or more liquid the debtors were, and the company was better in terms of collecting their accounts receivables. Similarly, low debtors turnover ratio implies inefficient management of debtors or less liquid debtors. With respect to the average collection period the General Tyre, it takes 57 days to collect amount of receivables and it is the highest number of days that firm takes in the 5 year analysis. Inventory Turnover: Inventory turnover is a measure of the number of times inventory is sold or used in a given time period such as one year. It is a good indicator of inventory quality (whether the inventory is obsolete or not), efficient buying practices, and inventory management. This ratio is important because gross profit is earned each time inventory is turned over. ๐ฐ๐๐๐๐๐๐๐๐ ๐ป๐๐๐๐๐๐๐ = ๐ช๐ฎ๐บ ๐ฐ๐๐๐๐๐๐๐๐ Year 2009 2010 2011 2012 2013 Inventory Turnover 12.8152854 15.12978599 17.40857104 17.64636372 16.75853551 Year 2009 2010 2011 2012 2013 Average Collection Period 51.94086435 53.78818176 45.47090714 47.89544058 57.12008849
12. 12. In year 2011 and 2012 the company had a greater sales efficiency. This means that a company needs to sell a lot of items to maintain an adequate return on the capital invested in the company. Payable Turnover (PT) and Payable turnover in Days Accounts payable turnover ratio is an accounting liquidity metric that evaluates how fast a company pays off its creditors (suppliers). The ratio shows how many times in a given period (typically 1 year) a company pays its average accounts payable. An accounts payable turnover ratio measures the number of times a company pays its suppliers during a specific accounting period. The payable turnover for general tyres is varying year by year which means that sometimes the company pays quickly to its suppliers while sometimes it takes time to pay amount to its suppliers. ๐ท๐๐๐๐๐๐๐ ๐ป๐๐๐๐๐๐๐ ๐๐ ๐ซ๐๐๐ = ๐ซ๐๐๐ ๐๐ ๐ ๐๐๐๐ ๐ท๐๐๐๐๐๐ ๐ป๐๐๐๐๐๐๐ ๐ท๐๐๐๐๐๐ ๐ป๐๐๐๐๐๐๐ = ๐ท๐๐๐๐๐๐๐๐ ๐จ๐๐๐๐๐๐๐ ๐ท๐๐๐๐๐๐๐ The payable turnover for General tyres is highest in 2010 but the difference of ratio of the years 2009, 2010 with that of 2011 is very less which means that General tyres that there was short time between the purchase of raw materials and providing the service to the customers as compare to the years 2012 and 2013. Coverage Ratio: Coverage ratio is the measure of a company's ability to meet its financial obligations. In broad terms, the higher the coverage ratio, the better the ability of the enterprise to fulfill its obligations to its lenders. Common coverage ratios include the interest coverage ratio. Year 2009 2010 2011 2012 2013 Payable Turnover 4.100943033 4.336646351 4.176001694 3.177067853 3.637218608 Payable Turnover in Days 89.00391862 84.16642042 87.4041791 114.8858057 100.3514057
13. 13. Interest Coverage: The interest coverage ratio (ICR) is a measure of a company's ability to meet its interest payments. Interest coverage ratio is equal to earnings before interest and taxes (EBIT) for a time period, often one year, divided by interest expenses for the same time period. The interest coverage ratio is a measure of the number of times a company could make the interest payments on its debt with its EBIT. It determines how easily a company can pay interest expenses on outstanding debt. ๐ฐ๐๐๐๐๐๐๐ ๐ช๐๐๐๐๐๐๐ = ๐ฌ๐ฉ๐ฐ๐ป ๐ฐ๐๐๐๐๐๐๐ ๐ช๐๐๐๐๐๐ Year 2009 2010 2011 2012 2013 Interest Coverage Ratio 0.527075092 2.574685668 2.23817056 1.648456393 2.999941221 General Tires better able to cover Interest charges in year 2010, 2012 and 2013. While in year 2009 and 2012 interest expense is high. The EBIT is less in year 2009 in comparison to interest expense. The year 2012, has more interest expense relative to its EBIT. An interest coverage ratio below 1.0 indicates the business is having difficulties generating the cash necessary to pay its interest obligations (i.e. interest payments exceed its earnings (EBIT)). In the year 2009 the company General Tyres was facing difficulties to generate cash to pay its interest amount. The high ICR may suggest a company is "too safe" and is neglecting opportunities to magnify earnings through leverage. Therefore, company in the last 4 years is considered to be safe. Profitability Ratios: A type of measurement that help to determine the ability of a company to generate earnings in comparison to its costs and expenses over a certain time period.
14. 14. The company with a higher profitability ratio than their competitors is considered to be doing well. Following are the types of profitability Ratios: ๏ท Gross Profit Margin ๏ท Net Profit Margin ๏ท Return on investment ๏ท Return on Equity ๏ท Operating Profit Margin ๏ท DuPont ๏ผ Net Profit Margin ๏ผ Total Asset turnover ๏ผ Return on Investment ๏ผ Equity Multiplier ๏ผ Return on Equity Gross Profit Margin: It is the percentage by which gross profits exceed production costs. Gross margins reveal how much a company earns taking into consideration the costs that it incurs for producing its products or services. Gross margin is a good indication of how profitable a company is at the most fundamental level, how efficiently a company uses its resources, materials, and labor. It is usually expressed as a percentage, and indicates the profitability of a business before overhead costs; it is a measure of how well a company controls its costs ๐ฎ๐๐๐๐ ๐ท๐๐๐๐๐ ๐ด๐๐๐๐๐ = ๐ฎ๐๐๐๐ ๐ท๐๐๐๐๐/๐ต๐๐ ๐บ๐๐๐๐ Year 2009 2010 2011 2012 2013 Gross profit Margin 11.25258904 15.18949638 13.34773617 12.78935293 16.26771164 The company is efficient in its operations but somehow its efficiency reduces in year 2011 and 2012 as compare to other years in last five years. But it tackles the problem and their last year gross profit margin is 16.26%
15. 15. Net Profit Margin: Net profit margin (or profit margin, net margin, return on revenue) is a ratio of profitability calculated as after-tax net income (net profits) divided by sales (revenue). Net profit margin is displayed as a percentage. It shows the amount of each sale rupees left over after all expenses have been paid. ๐ต๐๐ ๐ท๐๐๐๐๐ ๐ด๐๐๐๐๐ = ๐ต๐๐ ๐๐๐๐๐๐ ๐ต๐๐ ๐บ๐๐๐๐ Year 2009 2010 2011 2012 2013 Net Profit Margin -2.052984589 3.435341219 3.458284939 2.597012478 4.840894292 The firm was not profitable in the year 2009, it suffered loss but after 2009 the company showed a very good progression but there is still a space for more progression. Improvements are needed. Return on Investment: Return on investment (ROI) is performance measure used to evaluate the efficiency of investment. It compares the magnitude and timing of gains from investment directly to the magnitude and timing of investment costs. It is one of most commonly used approaches for evaluating the financial consequences of business investments, decisions, or actions. ๐น๐๐๐๐๐ ๐๐ ๐ฐ๐๐๐๐๐๐๐๐๐ = ๐ต๐๐ ๐ท๐๐๐๐๐ ๐๐๐๐๐ ๐ป๐๐/ ๐ป๐๐๐๐ ๐จ๐๐๐๐๐ Year 2009 2010 2011 2012 2013 Return On Investment -2.768970806 4.535821346 4.485546342 3.704333742 6.58303337 Due to the loss, General tyres suffered in year 2009, it did not have good ROI in that particular period. Otherwise, the company strives for good ROI in last 4 years except for the year 2012 in which total assets as well as Net Profit after taxes were low.
16. 16. Return on Equity: Return on equity (ROE) is the amount of net income returned as a percentage of shareholders equity. It reveals how much profit a company earned in comparison to the total amount of shareholder equity found on the balance sheet. ๐น๐๐๐๐๐ ๐๐ ๐ฌ๐๐๐๐๐ = ๐ต๐๐ ๐ท๐๐๐๐๐ ๐๐๐๐๐ ๐ป๐๐ ๐บ๐๐๐๐๐๐๐๐๐๐๐ ๐ฌ๐๐๐๐๐ Year 2009 2010 2011 2012 2013 Return on Equity -9.873204692 16.40722343 17.5951044 13.31125897 21.97847404 The company, โGeneral Tyresโ has very good return on equity except for year 2009 and 2012. In 2009 company suffered loss and in year 2012 the net profit after taxes was less. Cash Cycle: The cash cycle for all the analyzed years is negative which means that the company has strong market position and can dictate purchasing terms to suppliers (i.e. can postpone its payments). Year 2009 2010 2011 2012 2013 Cash Cycle -8.581441227 -6.253640989 -20.96658841 -46.30621702 -21.45137108 Common size Analysis: It is the analysis of percentage of financial statements, where all balance sheet items are divided by total assets and all income statement items are divided by net sales or revenues. Year 2009 2010 2011 2012 2013 Current Assets Analysis 52.00140486 69.88047683 68.17575987 67.80976277 67.20118846
17. 17. In case of general tires the common size analysis varies from year as the total assets of the 5 years are different. Total assets are highest in 2013 so therefore the percentage of the contents of 2013 balance sheet items are highest as compare to other years. While in the case of income statement, the interest expense analysis percentage is lowest for year 2013 because of high revenue generated and less interest expense. Year 2009 2010 2011 2012 2013 EBIT Analysis 2.96402641 10.5298371 9.537096659 8.059571099 10.62354431 The EBIT percentage analysis for the year 2009 is lowest because company suffered loss and the revenue generated in that year is low as well. Sources and Uses: From year 2009 to 2010 the cash and bank balance decrease and becomes a source of 46,582. Same happened with stores and spares they decrease and become the source 14,210. Stocks, trade debts, deposit and prepayments as well as taxation increased and become a use. As a whole, in year 2009-2010 the sources and uses were equal at amount 1,141,196. There were more sources than the uses. In the years 2011- 2012 the sources and uses were equal at the value of 1,235,541. Most of the companyโs current and non-current assets were the use. Whereas, in the following years; 2011-2012 the liabilities and ownerโs equity were the source. In the Year 2012 and 2013 the sources and uses of the General tyre became equal at the value of 853,674. The companyโs current and non-current assets in that period were majorly use and liabilities and ownerโs equity were the source for General Tyre.
18. 18. Chapter 8 Ratios: Introduction to the Competitor: Hino Pak: Hinopak Motors Limited assembles, manufactures and markets world renowned Hino diesel trucks and buses in Pakistan. The Company has held the top position in the domestic market for medium and heavy-duty vehicles for 17 consecutive years and is highly acclaimed for quality and technological excellence. Backed by Hino's expertise Hinopak has achieved standard of quality and excellence that rival the best in the region. With over 60,000 vehicles on road, Hinopak has gained 50% market share making it the largest manufacturer in medium and heavy-duty truck and bus industry in Pakistan. HinoPak's product range has been designed and built in Hino's traditions of automotive excellence to be the leader in its category and the main emphasis has been given to passengers' safety & comfort. Current Ratio: Hinopak Year Current Assets Current Liabilities Current Ratio Current Assets/Current Liabilities 2009 4,034,443 3,018,002 1.336792686 2010 4,793,612 3,885,809 1.233620078 2011 2,752,862 1,903,967 1.445855942 2012 4,894,546 4,001,509 1.223175057 2013 3,321,870 2,382,377 1.394351104
19. 19. General Tyres Year Current Assets Current Liabilities Current Ratio Current Assets/Current Liabilities 2009 2,062,500 2,377,191 0.86762065 2010 2,923,361 2,996,257 0.975670979 2011 3,930,458 3,821,318 1.028560826 2012 3,711,170 3,577,053 1.037493713 2013 4,035,930 3,553,581 1.135736036 When comparing both the firms the current ratio of the HinoPak is relatively high than the General Tyres which means that Hinopak is more liquid than the General Tyre and HinoPak is better able to meet the liabilities as compare to the General tyres. HinoPak Year Current Assets Inventory Current Liabilities Acid Test Ratio (CA-Inventory)/CL 2009 4,034,443 2,431,914 3,018,002 0.530990039 2010 4,793,612 2,975,470 3,885,809 0.467892786 2011 2,752,862 1,697,319 1,903,967 0.554391436 2012 4,894,546 2,429,876 4,001,509 0.615935138 2013 3,321,870 2,183,453 2,382,377 0.477849224 General Tyres Year Current Assets Inventory Current Liabilities Acid Test Ratio (CA-Inventory)/CL 2009 2,062,500 370,458 2,377,191 0.711 2010 2,923,361 356,248 2,996,257 0.856 2011 3,930,458 372,207 3,821,318 0.931 2012 3,711,170 385,806 3,577,053 o.929 2013 4,035,930 408060 3,553,581 1.020 The higher the quick ratio, the better the position of the company. As compare to Hinopak , General tyres has better position in the market. In the year 2013, general tyres have made a very strong position in the market, relative to the previous years.
20. 20. Net Working Capital: Hinopak Year Current Assets Current Liabilities Net working Capital Current Assets-Current Liabilities 2009 4,034,443 3,018,002 1,016,441 2010 4,793,612 3,885,809 907,803 2011 2,752,862 1,903,967 848,895 2012 4,894,546 4,001,509 893,037 2013 3,321,870 2,382,377 939,493 General tyres as compare to has relatively less working capital than HinoPak. In the years 2009 and 2010 the net working capital is negative for General Tyres which means that it had more liabilities than assets. Although the company increased the assets, the net working capital was still less than the HinoPak. Therefore, HinoPak was more successful expanding and carrying its operations as compare to General Tyres. Total Asset Turnover: Hinopak Year Net Sales Total Assets Total Asset Turnover Net Sales/ Total Assets 2009 12,151,021 5,007,046 2.426784375 2010 11,127,551 5,743,371 1.937459899 2011 9,281,822 4,552,944 2.038641811 General Tyres Year Current Assets Current Liabilities Net working Capital Current Assets-Current Liabilities 2009 2,062,500 2,377,191 -314,691 2010 2,923,361 2,996,257 -72,896 2011 3,930,458 3,821,318 109,140 2012 3,711,170 3,577,053 134,117 2013 4,035,930 3,553,581 482,349
21. 21. 2012 8,766,997 6,693,898 1.309699819 2013 7,528,140 5,060,978 1.487487201 General Tyres Year Net Sales Total Assets Total Asset Turnover Net Sales/ Total Assets 2009 5,349,480 3,966,239 1.348753819 2010 6,355,293 4,813,373 1.32034085 2011 7,477,695 5,765,184 1.297043598 2012 7,806,470 5,472,914 1.426382728 2013 8,167,086 6005742 1.359879595 The higher the value of asset turnover ratio, the better it is for the firm. If there is a low turnover, it may be an indication that the business should either utilize its assets in a more efficient manner or sell them. But it also indicates pricing strategy: companies with low profit margins tend to have high asset turnover, while those with high profit margins have low asset turnover. HinoPak as compare to the General Tyres had high asset turnover in the analysed five years it means that Hinopak had less profit margin than General Tyres.
22. 22. Comparison of Ratios of last year (2013) of both the Firms: Current Ratio: Current ratio of General tyre is lesser than HinoPak which means that HinoPak was better able to meet its liabilities and when it comes to investing, investors also prefer to invest in the firm which has high current ratio. HinoPak General Tyres 1.135736036 1.394351104 Acid Test Ratio: HinoPak General Tyres 0.477849224 1.020 The position of General Tyre in year 2013 is comparatively strong than HInoPak in the Pakistanโs market. It is seemed that HinoPak is not able to pay its current liabilities and losing its potential investors. Debt to equity Ratio: General Tyres HinoPak 2.338 0.973126224 A high debt-to-equity ratio indicates that a company may not be able to generate enough cash to satisfy its debt obligations. Therefore, General Tyres is not able to generate enough cash to overcome the liabilities. Debt to total assets ratio: General Tyres HinoPak 0.7 0.493190051 Most of the assets of the General tyres are financed with debt and on the other hand most of the assets of HinoPak are financed with equity of the firm. Total Capitalization Ratio: General Tyres HinoPak
23. 23. 1.715585151 0.931838673 Low debt and high equity levels in the capitalization ratio indicates good quality of investment. HinoPak has low debt and high equity as compare to the General Tyre which means that it has good quality of investments. Total Asset Turnover: General Tyres HinoPak 1.359 1.487487201 General Tyres has low asset turnover as compare to the HinoPakโs turnover. Therefore, General Tyres should utilize its assets efficiently. Receivable Turnover: General Tyres HinoPak 6.390046123 7.800615499 HinoPak has higher value of receivable turnover as compare to General Tyres and it is more efficient in the management of debtors or debtors are more liquid, HinoPak is also better in terms of collecting their accounts receivables. Accounts Payable Turnover Ratio: General Tyres HinoPak 3.637218608 3.315090484 A high ratio means there is a relatively short time between purchase of goods and services and payment for them. Conversely, a lower accounts payable turnover ratio usually signifies that a company is slow in paying its suppliers. Therefore, General tyres extend the period of credit turnover (i.e. lower accounts payable turnover ratios) getting extra liquidity.
24. 24. Gross Profit Margin: General Tyres HinoPak 16.26 10.726 General Tyres is more efficient in controlling costs as compare to HinoPak due to which it had High gross margin in the year 2013. Net Profit Margin: Net profit margin is a key ratio of profitability. It is very useful when comparing companies in similar industries. A higher net profit margin means that a company is more efficient at converting sales into actual profit. General Tyres HinoPak 4.84 0.359756859 Although General tyres did not have enough assets and it had more liabilities as compare to HinoPak but when it comes to earn profit it has relatively high sales than HinoPak. Conclusion: As per above analysis it is concluded that as per balance sheet items HinoPak is more strong and efficient but the income statement of general tyres are strong and it knows how to overcome expenses and generate more profit. General Tyres need to focus on its operation although it has high market share as compared to HinoPAk but it needs to reduce its liabilities and increase its assets in order to become more liquid firm.