financial statement analysis 1
BALANCE SHEET ANALYSIS OF JOINT STOCK COMPANIES LISTED ON THE KARACHI STOCK EXCHANGE (2003-2008) STATE BANK OF PAKISTAN STATISTICS AND DWH DEPARTMENT C o n t e n t s Page No. Introduction i Methodology ii - x Executive Summary xi – xv Key Performance Indicators xvi Analytical Tables and Profiles: I. Sectors (a) Overall 1 – 2 (b) Private 3 - 4 (c) Public 5 - 6 II. Economic Groups 1. Textile & Other Textiles (a) Textiles 7 - 252 (b) Other Textiles 253- 288 2. Chemicals 289 – 345 3. Engineering 346 – 408 4. Sugar & Allied Industries 409 – 466 5. Paper & Board 467 – 485 6. Cement 486 – 520 7. Fuel & Energy 521 – 565 8. Transport & Communication 566 – 586 9. Other (a) Tobacco 587 – 596 (b) Jute 597 – 609 (c) Vanaspati & Allied Industries 610 – 623 (d) Miscellaneous 624 – 712 III. Appendix:1 714 - 717 Appendix:2 718- 719 Statistics & DWH Department Corporate Division Team Members Dr. Ishaque Ahmed Ansari Sr. Joint Director ishaque.ahmed@sbp.org.pk Sajjad Hussain Joint Director sajjad.hussain@sbp.org.pk Muhammad Jaweed Akhtar Jr. Joint Director muhammad.jaweed@sbp.org.pk Muhammad Suhail Jr. Joint Director suhail.laghari@sbp.org.pk Supervisor Dr. Azizullah Khattak Director aziz.khattak@sbp.org.pk Introduction I. Preliminaries The analysis is based on the published balance sheets of non-financial companies listed at the Karachi Stock Exchange during the year 2008. For the purpose of comparison, the analysis of the previous five years is also included in the publication. The number of companies included in the statistical analysis varied from year to year. All the listed companies (except financial sector) during 2008 have been classified into economic groups. Tobacco, Jute, Vanaspati & allied and Other groups have been included into the miscellaneous group. The year-wise distribution of companies classified according to the respective economic group is as under: - Table: 1 Distribution of companies by economic groups. Economic Groups Years 2003 2004 2005 2006 2007 2008 Cotton and Other Textiles Chemicals Engineering Sugar and Allied Industries Paper and Board Cement Fuel and Energy Transport Miscellaneous Total: 199 38 44 37 13 22 24 7 79 463 189 36 42 35 12 22 25 13 77 451 182 34 41 35 12 22 28 15 74 443 181 34 41 35 10 22 28 12 73 436 180 34 41 36 10 20 27 12 77 437 182 35 40 35 10 21 27 12 74 436 During 2008, three companies were added whereas nine companies were excluded from the analysis. Five companies, which are in the default counter of KSE, were also included in the analysis (due to the availability of audited annual reports of the current year and consecutive previous years).Annual reports of thirty four companies (mostly on default counter of KSE) were not available at the time of the analysis therefore, to present a comparable and consolidated picture the last available data in respect of these companies have been repeated. The sum of Assets and Liabilities of a company may exhibit minor differences due to rounding off separate items. Ratios and percentages have been worked out after rounding off the figures in thousands, which may, therefore, slightly differ from ratios obtained from actual amount of balance sheet. The symbol ‘ – ‘ appearing in the analytical tables stand for Not applicable or Not available. The publication is based on the two sets of analysis: (a) Overall summary: This gives the consolidated financial analysis of companies listed at KSE. (b) Company-wise analysis: This provides financial analysis of the individual companies. II. Methodology A. Capital Structure 1. Ordinary Share Capital This represents the total paid-up capital against issue of ordinary shares. These are amounts of capital actually paid by the shareholders to the institution for acquiring its shares. It includes shares paid in cash (subscribed/right issued), issued as bonus shares and shares issued for considerations other than cash (eg. for settlement of receivables/debts or debts redeemable into stock etc.). 2. Reserves It is evaluated by aggregating all kinds of reserves except depreciation reserve and reserve for bad and doubtful debts plus the balance of profit and loss account and subtracting there from intangible or fictitious assets (e.g., goodwill, preliminary expenses, exploration accounts, patents, trade mark) and adverse balance of profit and loss figures. The reserves entering into the calculation are: - (i) General (ii) Capital (iii) Development (iv) Dividend equalization (v) Proposed issue of bonus shares (vi) Profit on re-issue of forfeited shares (vii) Premium on shares (viii) Capital profit arising from the sale of fixed assets (ix) Special reserves under relevant provision of Income Tax Act (x) Raw material price equalization (xi) Tax equalization (xii) Contingency (xiii) Leave passage (xiv) Workmen‟s compensation fund (xv) Gratuity, pension or provident fund (xvi) Investment depreciation but not including provision for actual shortfall of market value as compared with book value (xvii) Publicity (xviii) Employees‟ housing and welfare fund (xix) Charities (xx) Deferred liabilities (xxi) Taxation reserves including deferred taxation reserves, but not including provision for tax assessed or estimated on actual or part of profits. 3. Shareholders’ Equity This item purports to represent the total stake of the shareholders in the business and has been obtained by adding the ordinary share capital to the surplus. 4. Preference Shares As the name indicates these are ordinary shares of a company and pays a fixed dividend (whether the company is earning profit or making loss during operation), but its shareholders have no voting privilege. In case of liquidation of the company its status is normally considered prior to the status of ordinary shareholders. The difference between ordinary shares and preference shares is as follows: ii a) Ordinary shareholder will receive dividend, which varies according to the prosperity of the company but preference shareholder will receive a fixed amount dividend every year. b) Ordinary shareholder has a right of voting in the company‟s annual general meeting while the preference shareholder has no voting right. c) Ordinary shareholders have to claim on the net assets of the company in case of liquidation, while the claim of the preference shareholders is paid earlier. 5. Debentures / TFC’s These are bonds/certificates issued by a company to raise funds for long-term period (generally more than one year) for a specific purpose, sometimes convertible into stock. At present, debentures have been replaced by TFC‟s (Term Finance Certificates). 6. Other Fixed Liabilities The liabilities, which are required to be discharge after a period of more than one year from the date of balance sheet, are termed as other fixed liabilities or loan capital. They may consist of the following items: (i) Loans from financial institutions. (ii) Loans from non bank financial institutions. (iii) Loans from specialized financial institutions (iv) Foreign loans (v) Vendors‟ account 7. Total Fixed Liabilities It is the sum of the preference shares, debentures and other fixed liabilities. 8. Total Capital Employed It is the sum of shareholders‟ equity and total fixed liabilities. B. Liquidity 1. Current Assets An asset is to be a current asset, which can be readily convertible into cash or equivalent without any significant loss in value. The current assets comprise of liquid assets, inventories and other current assets. a) Liquid Assets Broadly speaking, liquid assets comprise of all assets like cash, bank balance, marketable security, etc., which are easily realisable almost at book value. While there can not be two opinions regarding the status of cash, current accounts and government securities in this context, the treatment of savings and fixed deposits and of shares of joint stock companies not quoted on stock exchange leaves the analyst in doubt. The classification of borderline cases had therefore, to be made partly in keeping with the iii objective of the analysis and partly on one‟s own subjective judgment. For this study, liquid assets that are also sometimes referred to as liquid capital have been bifurcated as cash and investments and comprise of the following items: - (i) Cash in hand (ii) Cash in transit (iii) Current deposits (iv) Saving deposits (v) Call deposits (vi) Fixed deposits (vii) Deposits held abroad (viii) Government and corporate securities (ix) Savings and Unit Trust Certificates (x) Debentures stock of local or foreign companies b) Inventories It comprises of stocks of raw material in hand, work in progress and finished goods at the closing date c) Other Current Assets The following items are taken as other current assets: (i) Book debts including bad and doubtful debts (ii) Stores (iii) Work in progress(current) (iv) Advances, prepayments, etc. 9. Current Liabilities All liabilities, which are required to be discharge within one year, are termed as current liabilities. Alternatively, these cover those obligations whose liquidation is expected to be made out of current assets. They are usually incurred in the normal course of business and are required to be paid at fairly definite dates. The current liability consists of the following items. (a) Sundry Creditors (i) Income tax payable (ii) For expenses (iii) For other finance (iv) Bills payable (v) Advances from customers against orders (b) Payment become due but outstanding (i) Income tax payable (ii) Proposed, unpaid and unclaimed dividends (iii) Estimated liabilities in respect of outstanding claims whether due or intimated (iv) Gratuities becoming payable (v) Provident Fund becoming payable (vi) Current installment and interest payable on fixed liabilities (vii) Provision for taxation estimated on current profits (viii) Workers profit participation fund iv (c) Loans, Deposits and Advances (i) Loans secured by stock or other current assets (ii) Bank overdrafts and other unsecured loans (iii) Short term loans acquired against the security of fixed assets (iv) Unsecured loan from directors, parent company, and subordinate loan (v) Due to managing agents (vi) Advances by directors (vii) Guarantee and security deposits of customers and staff 10. Total Liabilities This item pertains to sum of total fixed liabilities and current liabilities except shareholder‟s equity. 11. Net Current Assets It has been obtained by deducting the amount of current liabilities from current assets. 12. Contractual Liabilities This item pertains to all secured debentures, long-term loans, finance lease, short term secured loans and bank overdraft (Interest bearing secured loans). 13. Net Liquid Assets This is the difference of liquid assets and the current liabilities. C. Fixed Assets 1. Fixed Assets at Cost In contra distinction to current assets, fixed assets consist of items, which are not readily convertible into cash during the course of normal operations of an enterprise. These items are not subject to periodical exchange through sales and purchases. Fixed assets are of permanent nature and are not normally liquidated or intended to be turns into cash except in the form of depreciation, which is added to the cost of goods sold. The following balance sheet items are included in the category of fixed assets: - (a) Real Estate (i) Freehold and leasehold land (ii) Factory and office buildings (iii) Residential buildings (iv) Capital projects in progress at cost (b)Plant, Machinery and Rolling Stock (i) All types of plant and machinery used for production and not for sale (ii) Crockery, cutlery, silverware and enamelware in hotels (iii) Construction tools (iv) Livestock in farming company (v) Cars, lorries, trucks, ships, launches etc. (vi) Railway siding and trolley lines (vii) Computers and other electronic equipments. v (c) Furniture, Fixtures, Fittings and Allied Equipment (i) Electric fans, refrigerators, air conditioners, electric heating, sanitary and other fittings. (ii) Laboratory equipment (iii) All types of office furniture‟s and equipment (iv) Advertising, fixtures and fittings. 2. Fixed Assets After Deducting Accumulated Depreciation Deducting the accumulated depreciation from the fixed assets of the company gives this item. 3. Depreciation for the year It includes all the depreciation charges to the profit and loss account during the year. Owing to the absence of uniform accounting standards, depreciation is a subjective item and very from company to company. It is important for the analyst to know what effect such variation could have on the net profit. 4. Total Assets This item is sum of fixed assets at cost after deducting accumulated depreciation, and current assets. D. Operations 1. Gross Sales This item represents the sale proceeds of the company. Sales revenue is classified as local sales and export sales. 2. Gross Profit Subtracting cost of sales from sales revenue arrives at gross profit. 3. Overhead and Other Expenses These are total expenses that are incurred on the operational activities of a company except financial expenses and include: (i) Cost of sales (ii) Administrative and general expenses (iii) Selling and distribution expenses (iv) Other expenses 5. Operating Profit Subtracting overhead and other expenses from gross sales and adding thereto-non-operating income gives operating profit. 6. Financial Expenses These are interest expense incurred on borrowing of long and short terms loans. 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