ANALYSIS OF FINANCIAL REPORT

LETTER OF TRANSMITTAL

May 26, 2008

Mrs. Shumaila Israr

Teacher, Financial Management

Bahria University
Karachi.

Madam:

We herewith present our “Term Report” authorized by you as a requirement for this course.
In this report, we have tried to provide analysis of financial statements of Atlas Batteries Ltd.

We hope we have covered all that was required for the report.

If there be any clarification demanded, we would appreciate a call from you to our group
members.

Sincerely,

Bilal Razzak

Faris Hafeez

Maaz Khalid

Umair Zafar

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 ANALYSIS OF FINANCIAL REPORT

ACKNOWLEDGEMENT

In the name of “Allah”, the most beneficent and merciful who gave us strength and knowledge
to complete this report. This report is a part of our course “Financial Management”. This has
proved to be a great experience. This report is a combine effort of Bilal Razzak, Maaz Khalid and
Umair Zafar.

We would like to express our gratitude to our Finance teacher Ms. Shumaila Israr; who gave us
this opportunity to fulfill this report. We would also like to thank our colleagues who
participated in a focus group session. They gave us many helpful comments which helped us a
lot in preparing our report.

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 ANALYSIS OF FINANCIAL REPORT

VISION STATEMENT AND MISSION STATEMENT OF

ATLAS BATTERIES LTD.

VISION STATEMENT

A manufacturer and supplier of

high quality lead acid automotive
and motorcycle batteries in
domestic and international
market.

MISSION STATEMENT

To achieve market leadership

through technological edge,
distinguished by quality service
and customers’ satisfaction,
emphasis on employees’ long
term welfare and ensure
adequate return to shareholders.
Be a good corporate citizen of the
society and country through
harmonized endeavor.

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 ANALYSIS OF FINANCIAL REPORT

COMPANY PROFILE

Atlas Battery Limited pioneered the manufacture of dry charged Hard Rubber batteries in
Pakistan. Now the company manufactures a complete range of Polypropylene and hard rubber
batteries which caters to the needs of passenger cars of varied capacities, trucks, tractors,
heavy vehicles, construction and road building equipment, as well as host of stationary and
industrial applications. Motorcycle batteries have also been added to this range. The company
has always been at the vanguard of development in the automotive industry in Pakistan making
great strides in the fields of research and development. The brand has, over the years,
earned a solid reputation as a product of latest Japanese technology with consistently high
levels of performance and reliability.

The sustained and continued high level of quality is ensured by ABL’s Quality Department with
its exacting standards and state-of-the-art lab facilities manned by highly trained professionals
monitoring the quality of batteries being produced .The entire process is overseen by a
Technical Advisor from Japan Storage Battery Company Limited stationed at Karachi. He is
attached to the factory and monitors and guides the technical Division in ensuring and meeting
the international standards of quality.

The focal point of the company’s philosophy is customer satisfaction through continued
product excellence. Atlas Battery Limited aims at maintaining its lead in technology with the
help of its in-house research and development program, interfacing with Japan Storage Battery
Company Limited.

ABL’s technological superiority is matched by its vast national network of over 600 dealers and
retail outlets ensuring availability and prompt delivery of its products. All our regional and zonal
offices are equipped with service center and are staffed with trained to provide technical
personnel to provide an efficient service backup. The technical personnel also regularly tour
their sales and territories monitoring service needs, problem and trouble-shooting. Our
associates are ably supported by a steady supply of instruments and equipment imported and
supplied by us, to enable them to carry out testing and repairing services with prompt attention
and efficient resolution of operational complaints.

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 ANALYSIS OF FINANCIAL REPORT

COMPANY’S PRODUCTS
• Automotive Batteries
• Motorcycle Batteries

AUTOMOTIVE BATTERIES
There are three types of batteries produced by Atlas Batteries Ltd.

• Light Batteries
• Medium Batteries
• Heavy Batteries

CUSTOMERS FOR MEDIUM AND HEAVY BATTERIES

1. Honda Atlas Cars (Pakistan) Ltd.

2. Pak Suzuki Motor Company Ltd.

3. Indus Motor Company Ltd.

4. Dewan Farooque Motors Ltd.

5. Sigma Motors (Pvt.) Ltd.

6. Ghandhara Nissan Ltd.

7. Master Motor Corporation Ltd.

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 ANALYSIS OF FINANCIAL REPORT

CUSTOMERS FOR LIGHT BATTERIES

1. Atlas Honda Ltd.

2. Dawood Yamaha Ltd.

3. Delta Innovations Ltd.

4. Fateh Motors Ltd.

5. Sindh Engineering (Pvt.) Ltd.

6. Super Asia Motors Ltd.

7. D.S. Motors

8. N.J. Auto Industries (Pvt.) Ltd.

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 ANALYSIS OF FINANCIAL REPORT

RATIO ANALYSIS

A statistic has little value in isolation. Hence, a profit figure of Rs.100 million is meaningless
unless it is related to either the firm’s turnover (sales revenue) or the value of its assets.
Accounting ratios attempt to highlight the relationships between significant items in the
accounts of a firm.

Financial ratios are the analyst’s microscope; they allow them to get a better view of the firm’s
financial health than just looking at the raw financial statements

Ratios are used by both internal and external analysts

Internal uses

• Planning
• Evaluation of management

External uses

• Credit granting
• Performance monitoring
• Investment decisions
• Making of policies

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 ANALYSIS OF FINANCIAL REPORT

CATEGORIES OF FINANCIAL RATIOS

The accounting ratios can be grouped in to five categories:

1. Liquidity Ratios shows the extent to which the firm can meet its financial obligations.

2. Asset Management Ratios shows that how effectively the firm is managing its assets.

3. Debt Management Ratios shows the extent to which a firm uses debt financing or
financial leverages.

4. Profitability Ratios relates profits to sales and assets.

5. Market Value Ratios are a measure of the return on investment.

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 ANALYSIS OF FINANCIAL REPORT

LIQUIDITY RATIOS

Current Ratio:
Current Ratio shows a firm’s ability to meet current liabilities with its current assets.

Formula:

 

  
 

 




2006
 Current Ratio

  
 
 2

  
  . 
.
1.5

1
2007 Current Ratio
 0.5

  
 
 0

  
  . 
.
2006 2007

Analysis:

The current ratio is lower in 2007 as compared to 2006.There is an increase in all the current assets
except other receivables which decreased in 2007. The net current assets increased by 121 million in
2007 and at the same time the net current liabilities increased by 148 million in 2007.

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 ANALYSIS OF FINANCIAL REPORT

Acid Test Ratio:

Acid Test Ratio or Quick Ratio shows a firm’s ability to meet current liabilities with its most
liquid assets.

Formula:

  !"



  
 

 




2006
#$%$&#'''()$*'$)'''

  
  )'*')'''
Quick Ratio

  
  . 
. 6

4
2007
 + 2 Quick Ratio

  
 

0


  
  . 
. 2006 2007

Analysis:

We have seen that the company had a lower current ratio in 2007 and was unable to meet its short term
obligations as compared to 2006. Where as the quick ratio identifies the role played by the inventories
in this context. Therefore the ratio shows that in year 2007 it has decreased as compared to 2006 due to
the fact that the investment in inventories is increased by 88 million only and current liabilities have
increased by 148 million. The company is still not able to meet its short term obligations.

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 ANALYSIS OF FINANCIAL REPORT

ASSET MANAGEMENT RATIO

Inventory Turnover Ratio:
Formula:
:7;/<
,-./-0123 452-1./2 67081 9
,-./-0123

2006
1209033000 Inventory Turnover
,-./-0123 452-1./2 67081 9
218012000 Ratio
,-./-0123 452-1./2 67081 9 5.55 5.6
5.4
Inventory
2007 5.2
1585648000
Turnover
,-./-0123 452-1./2 67081 9 Ratio
306171000
5
2006 2007
,-./-0123 452-1./2 67081 9 5.2

Analysis:

The inventory turnover ratio in the year 2006 was 5.55 which indicate that 5.55 times in a year the
inventory of the firm is converted into receivables or cash. However, in 2007, the inventory turnover
ratio slightly decreased to 5.2. This was due to the fact that the company, in 2007, invested more then
1.4 times the inventory in 2006.

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 ANALYSIS OF FINANCIAL REPORT

Days Sales Outstanding:

Formula:
6/K8/.7L;/<
G73< :7;/< H50<07-I8-J 9 M 365
:7;/<

2006
45864000 N 365000
G73< :7;/< H50<07-I8-J 9 M 365
1209033000

G73< :7;/< H50<07-I8-J 9 13.96 I73<

2007
51834000 N 26000
G73< :7;/< H50<07-I8-J 9 M 365
1585648000

G73< :7;/< H50<07-I8-J 9 11.9 DSO

15
14
13
12 DSO
11
10
2006 2007
Analysis:

DSO in year 2006 was 13.96 days which has now decreased to 11.9 days which shows that the
company is more effective in collecting receivables now in comparison of previous year, even
the sales has increased by 376 million on the other hand receivables decreased which resulted
Lower DSO.

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 ANALYSIS OF FINANCIAL REPORT

Fixed Asset Turnover:

Formula:
:7;/<
O8P/I Q<</0 452-1./2 9
O8P/I Q<</0

2006
1209033000
O8P/I Q<</0 452-1./2 9
239712000

O8P/I Q<</0 452-1./2 9 5.04 Fixed Asset Turnover

5.12
2007 5.1
1585648000
O8P/I Q<</0 452-1./2 9 5.08
310995000 5.06 Fixed Asset
5.04
O8P/I Q<</0 452-1./2 9 5.1
Turnover
5.02
5
2006 2007

Analysis:

According to the calculations above the productivity of fixed assets in year 2007 is better than it was in
previous years. In 2006, it was 5.04 times and now it has been slightly increased to 5.1 times. This
change was brought about by increase in total sales by 31%, where as the fixed assets increased only by
29.7%.

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 ANALYSIS OF FINANCIAL REPORT

Total Asset Turnover:

Formula:
:7;/<
4107; Q<</0 452-1./2 9
4107; Q<</0

2006
1209033000
4107; Q<</0 452-1./2 9
562887000

4107; Q<</0 452-1./2 9 2.15

2007 Total Asset Turnover

1585648000
4107; Q<</0 452-1./2 9
755242000 2.16
2.14
4107; Q<</0 452-1./2 9 2.1 2.12
2.1 Total Asset
Turnover
2.08
2.06
2006 2007

Analysis:

According to the calculations above the productivity of assets in year 2007 is not as good as it was in
previous years. In 2006, it was 2.15 times and now it has been decreased to 2.1 times. This change was
brought about by increase of 34% in the total assets, where as the total sales only increased by 31%.

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 ANALYSIS OF FINANCIAL REPORT

DEBT MANAGEMENT RATIO

Debt Ratio:

Formula:
4107; G/L0<
G/L0 67081 9
4107; Q<</0<

2006
208020000 N 50517000 N 40000000
G/L0 67081 9
562887000

G/L0 67081 9 53%

2007
Debt Ratio
62881000 N 356363000 0.555
G/L0 67081 9
755242000 0.55
0.545
G/L0 67081 9 55% 0.54
0.535 Debt Ratio
0.53
0.525
0.52
2006 2007

Analysis:

The debt ratio in 2006 was 0.53 which shows that 53% of the firms assets are debt financed and 47% are
by equity finance. In 2007 the debt ratio increased to 0.55 which means that 55% of the firms assets are
debt financed and 45% are equity financed. The company assets are already in more debt finance
however the ratio of debt financing has increased in 2007.

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 ANALYSIS OF FINANCIAL REPORT

Times Interest Earned Ratio:

Formula:
TU,4
48S/< ,-0/2/<0 T72-/I 67081 9
,-0/2/<0 VW72J/<

2006
84101000
48S/< ,-0/2/<0 T72-/I 67081 9
17877000

48S/< ,-0/2/<0 T72-/I 67081 9 4.70

2007
144299000
48S/< ,-0/2/<0 T72-/I 67081 9
22042000

48S/< ,-0/2/<0 T72-/I 67081 9 6.5

TIE Ratio
7
6
5
4
3 TIE Ratio
2
1
0
2006 2007
Analysis:

Times Interest Earned ratio was 4.7 in 2006 which have increased to 6.5 in 2007 therefore the company
is able to cover the interest expense at a higher margin of safety. This was due to the fact the company
increased the short term borrowing and decreased its long term borrowing from 40 million to zero. As a
result the net profit increased by 46 million whereas the interest charges only increased by 4.2 million.
Thus it shows an intelligent move made by the company to borrow less and depend more on the
investment through other financing techniques.

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 ANALYSIS OF FINANCIAL REPORT

EBITDA Ratio:

Formula:
TU,4 N G/X. NQSS1208Y7081- N Z/7</ [73S/-0
TU,4GQ 67081 9
,-0/2/<0 VW72J/< N [28-K8X7; [73S/-0 N Z/7</ [73S/-0

2006
84101000 N 25250000 N 0 N 0
TU,4GQ 67081 9
17877000 N 56000000 N 0

TU,4GQ 67081 9 1.48

2007
144299000 N 33896000 N 0 N 0
TU,4GQ 67081 9
22042000 N 0 N 0

TU,4GQ 67081 9 8.1

EBITDA Ratio
10
8
6
4 EBITDA Ratio
2
0
2006 2007
Analysis:

In 2006 EBITDA ratio was 1.48 times. In 2007 EBITDA increased drastically to 8.1 times, the
reason for this is the repayment of principal leaving zero long term debts in 2007.

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 ANALYSIS OF FINANCIAL REPORT

PROFITABILITY RATIO

Profit Margin:

Formula:
^/0 ,-K1S/ Q.78;7L;/ 01 V1SS1- :01K_ `1;I/2
[21\80 ]72J8- 9
:7;/<

2006
41323000
[21\80 ]72J8- 9
1209033000

[21\80 ]72J8- 9 3.42%

2007
Profit Margin
87510000 0.6
[21\80 ]72J8- 9
1585648000 0.5
0.4
[21\80 ]72J8- 9 5.5 0.3
0.2 Profit Margin
0.1
0
2006 2007

Analysis:

The profit margin has increased from 3.42% in 2006, to 5.5% in 2007. According to the figures, company
has been successful in raising their Sales by 31% in 2007 but the increases in net income available
common stock holders was 111% which leaded to a increase in the profit margin.

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 ANALYSIS OF FINANCIAL REPORT

Basic Earning Power:

Formula:
TU,4
UT[ 9
4107; Q<</0<

2006
84101000
UT[ 9
562887000

UT[ 9 14.94%

2007
BEP
144299000 0.25
UT[ 9
755242000 0.2
0.15
UT[ 9 19.1%
0.1 BEP
0.05
0
2006 2007

Analysis:

The BEP has increased from 14.94% in 2006, to 19.1% in 2007. This increase was due to increase
in EBIT by 71.6% and the total assets increased by just 34.17% which leaded to increase in the
BEP.

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 ANALYSIS OF FINANCIAL REPORT

Return on Asset:

Formula:
^/0 ,-K1S/
6HQ 9
4107; Q<</0<

2006
41323000
6HQ 9
562887000

6HQ 9 7.34% ROA

0.8
2007
87510000 0.6
6HQ 9
755242000 0.4
ROA
6HQ 9 11.5% 0.2

0
2006 2007

Analysis:

The Return on Assets gradually rose in year 2007, to 11.5% from 7.34%, in year 2006. This was due to
the fact as the Net income by 111.7% whereas total asset only increased by 34.17%. Atlas Batteries has
been able to use its total assets more efficiently over these years and have been successful in raising net
profit as well.

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 ANALYSIS OF FINANCIAL REPORT

Return on Equity:

Formula:
^/0 ,-K1S/
6HT 9
V1SS1- Ta5803

2006

6HT 9


6HT 9 15.62% ROE

0.3
2007
87510000 0.25
6HT 9
339858900 0.2

6HT 9 26%
0.15
ROE
0.1
0.05
0
2006 2007

Analysis:

According to the figures, Atlas Batteries shows a favorable trend to the shareholders, initially being at
15.62% and then rising by 10.38% to 26%. This again has been due to 111.7% increase in Net income.
Though shareholders equity has also increased as the company is increase debt financing, but the
increase in shareholders equity is lower relative to the increase in net profit.

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 ANALYSIS OF FINANCIAL REPORT

MARKET VALUE RATIO

Price Earning Ratio:

Formula:
[28K/ [/2 :W72/
[28K/ T72-8-J 67081 9
T72-8-J [/2 :W72/

2006
73.9 Price Earning Ratio
[28K/ T72-8-J 67081 9
7.8 14
12
[28K/ T72-8-J 67081 9 9.5 10
8
2007 6 Price Earning
167.8 4 Ratio
[28K/ T72-8-J 67081 9
14.4 2
0
[28K/ T72-8-J 67081 9 11.7 2006 2007

Analysis:

The ratio shows how much the investors are willing to pay per Rupee of reported profits. It can be seen
from calculations that in year 2007 the ratio has increased from 9.5 to 11.7. This was due to the fact that
the earnings per share over the year is increased with great difference due to which the market price
increased as a result of demand of shares. However a higher Price Earning ratio shows high growth
prospects due to which the income has therefore increased in the year 2007.

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 ANALYSIS OF FINANCIAL REPORT

Price Cash Flow Ratio:

Formula:
[28K/ [/2 :W72/
[28K/ V7<W O;1b 67081 9
V7<W O;1b [/2 :W72/

2006
73.9
[28K/ V7<W O;1b 67081 9
29.93

[28K/ V7<W O;1b 67081 9 2.46

Price per Cash Flow
2007 6
167.8
[28K/ V7<W O;1b 67081 9 5
34.8 4

[28K/ V7<W O;1b 67081 9 4.82 3 Price per Cash

2 Flow
1
0
2006 2007

Analysis:

It can be seen from calculations that in year 2007 the ratio is increased from 2.46 to 4.82. This was due
to the fact that the price per share over the year has increased with great difference of 93.9 per share
where as cash flow per share increased by just 16.3%.

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 ANALYSIS OF FINANCIAL REPORT

Market per Book Ratio:

Formula:
[28K/ [/2 :W72/
[28K/ U11_ 67081 9
U11_ c7;5/ [/2 :W72/

2006
73.9
[28K/ U11_ 67081 9
102.76

[28K/ U11_ 67081 9 0.72

2007 Market per Book Ratio

167.8
[28K/ U11_ 67081 9
114.8 2

[28K/ U11_ 67081 9 1.46

1.5

1 Market per
Book Ratio
0.5

0
2006 2007

Analysis:

It can be seen from calculations that in year 2007 the ratio is more than doubled from 0.72 to 1.46. This
was due to the fact that the price per share over the year has increased with great difference of 93.9 per
share where as book value per share increased by just 11.7%.

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 ANALYSIS OF FINANCIAL REPORT

ADDITIONAL FUNDS NEEDED

Company is working on the capacity of 76% and its sales are having growth rate of 31%.

Formula for AFN:

Qd Zd
QO^ 9 M ∆: f M ∆: f ] M : g1 f G[Hh
: :

Where

A*= Spontaneous Assets

L*= Spontaneous Liabilities
So= Sales of previous year
S1= Sales of Current Year
∆S= Change in sales
M= Profit margin
DPO= Dividend payout ratio

440235 156154
QO^ 9 i M 376615 f M 376615 f 0.055 M 2077199g1 f 0.417hj M 1000
1585648 1585648

QO^ 9 868000

For Fixed Assets

V522/-0 :7;/<
:7;/< @ 100% K7X7K803 9
V7X7K803 l</I

1585648
:7;/< @ 100% K7X7K803 9
0.76

:7;/< @ 100% K7X7K803 9 2086379

Analysis:

By the information from above calculation it can be said that the company only required Rs.
868000 as an additional funds to fulfill its growth of sale. The company do not require
additional funds for its fixed assets because its expected sales is less than the sales @ 100%
capacity

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 ANALYSIS OF FINANCIAL REPORT

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 ANALYSIS OF FINANCIAL REPORT

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 ANALYSIS OF FINANCIAL REPORT

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