Fin A, Project
Fin A, Project
Fin A, Project
ABSTRACT
I did ratio analysis of
Pakistan oxygen Limited
from the data of last three
years i.e 2017,2018,2019 to
know about its financial
position.
FINANCIAL ANALYSIS Arslan Qadir
OF PAKISTAN OXYGEN Financial Management
MAC3833
LIMITED Registration No:
L1F19BSAF0054
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Vision
“Oxygen for Life & Sustainable Growth”
Mission
“Sustained fast growth to lead the market in safe, reliable and innovative
solutions for industrial and medical gases, products and engineering services”
Code of Ethics
At Pakistan Oxygen, we live and work by a set of principles and values which
encompass our foundational principles of safety, integrity, sustainability and respect
and core values of Commit to Achieve, Collaborate to Succeed, Innovate to Grow,
Passion to Excel and People to Perform.
we have developed a Code of Ethics which provides guidance to all employees on:
Dealings with our customers, suppliers and markets encompassing competition
and international trade
Dealing with governments, our product development, ethical purchasing and
Advertising.
Dealings with stakeholders, financial reporting and communication, insider
dealing, protecting company secrets and protecting company assets.
Dealings with our employees, conflicts of interest, avoidance of bribery, gifts
and
entertainment, data protection, human rights and on dealings with each other.
Dealings with communities and the public with regard to our corporate
responsibilities and on restrictions to provide support for political activities.
All employees of Pakistan Oxygen undergo training on the Code of Ethics and are
expected to comply with the standards laid out in the Code.
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40,000,000 (2018: 40,000,000) Ordinary shares of Rs. 10 each 400000 400000 400000
Issued, subscribed and paid-up capital
32,550,336 (2018: 25,038,720) Ordinary shares of Rs. 10 each 325503 250387 132933
Non-current liabilities
Long term deposits 193516 184818 270000
Lease liabilities 29530 186384
Deferred liabilities 282803 317812 356990
505049 502630 813374
Current liabilities
Trade and other payables 1059883 1024246 1181846
Short term borrowings 1330865 978568 739700
Un-claimed dividend 20145 22814 12438
Current portion of lease liabilities 2588 3499 12688
Current maturity of long term financing 220971 270000 385000
2413481 2295620 2306546
Total equity and liabilities 7063069 6697230 5,087,282
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Interpretation:
The current ratio is a liquidity ratio that measures a company’s ability to pay its short term
obligations. It shows how much assets are able to pay how much liabilities. Current ratio
decreases between two years 2017-2018. This decline can be attributable to an increase in
short term debt, a decrease in current assets of combination of bath. Regardless, of these
reasons, Pakistan Oxygen Limited might be facing difficulty in generating cash.
Usage:
The acid-test, or quick ratio, compares a company's most short-term assets to its most short-
term liabilities to see if a company has enough cash to pay its immediate liabilities, such as
short-term debt. The acid-test ratio disregards current assets that are difficult to liquidate
quickly such as inventory.
Formula: Acid-Test (Quick) Ratio= Current assets less inventory/ current liabilities
Year Current Assets Current Liabilities Invenories. Current Assets -Inventories Quick Ratio
2017 2056656 2306546 264728 1791928 78%
2018 2035484 2295620 406146 1629338 71%
2019 2407070 2413481 604481 1802589 75%
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Interpretation:
Acid test ratio also called quick ratio, it measures the ability of a company to use its near cash
or quick assets to extinguish its current liabilities.. Acid-test ratio decreases continuously
between three years. This means that the liquidity position of Pakistan Oxygen Limited is not
good which means Pakistan Oxygen Limited do not have enough liquid assets to pay their
current liabilities and should be treated with caution.
DEBT-TO-TOTAL-ASSETS Ratio:
Definition:
Interpretation:
The debt to total assets ratio is an indicator of a company’s financial leverage.
Debt to total assets ratio continue to increase which is very unfavorable for a company, as it indicates
that a higher percentage of assets are financed through debt. This means that the creditors have more
claims on the company’s assets. This would also increase the insolvency risk.
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The total debt to capitalization ratio is a solvency measure that shows the proportion of debt a
company uses to finance its assets, relative to the amount of equity used for the same
purpose. A higher ratio result means that a company is more highly leveraged, which carries
a higher risk of insolvency.
Usage:
The total debt-to-capitalization ratio is a tool that measures the total amount of outstanding
company debt as a percentage of the firm’s total capitalization.
Formula: Debt to Total capitalization = Total Debt/ Total capitalization
Year Total Debt Share Holder Equity Total Debt + Share Holder Equity Dept to Total Capitalization.
2017 3119920 1967362 5087282 61%
2018 2798250 3898980 6697230 42%
2019 2918530 4144539 7063069 41%
Interpretation:
This ratio shows the proportion of debt a company uses to finance its assets, relative to the
amount of equity used for the same purpose. This ratio also increases which is not a good
sign. The debt to total capitalization ratio is a solvency measure that shows proportion of debt
a company uses to finance its assets, relative to the amount of equity used for the same
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purpose. A high ratio means that a company is more leveraged which carries a higher risk of
insolvency.
Coverage Ratio:
A coverage ratio, broadly is a metric intended to measure a company's ability to service its debt and
meet its financial obligations, such as interest payment.
Interpretation:
The interest coverage ratio measures how many times a company can covers its current interest
payments with its available earnings. Interest coverage ratio of Pakistan Oxygen Limited fluctuates
between the three years. It has increased by large percentage in 2017 which is a good sign . The ratio
decreases in 2019 which indicate that less operating profits are available to meet interest payments
and that the company is more vulnerable to volatile interest ratio. However, this ratio improves in
2018 by a higher percentage which indicates stronger financial health of Pakistan Oxygen Limited in
2018, the company is more capable of meeting interest obligations.
Interpretation:
Receivable turnover ratio is an accounting measure used to measure the effectiveness of a
company in extending credit as well as collecting debts. Receivable turnover ratio decrease
from 13.65% to 17.96%between 2017 and 2018. This might be due to company having poor
collection process, bad credit policies or customers that are not financially viable or
creditworthy. However, this ratio increases in 2019 by 13.65% which means company’s
successful in collecting cash from its customers. Company might have conservative credit
policy. This policy can be beneficial since it could help the company avoid extending credit
to customers who may not be able to pay on time.
Interpretation:
The average collection period is amount of time it takes for a business to receive payments
owed by customers in terms of account receivable. This means company is not collecting
cash from credit customers at fast rate. However, it decreases in 2018 by 13.65 i.e. 26.74 days
which generally more favorable. It indicates that the organization collects payments faster.
Customers may seek suppliers on service providers with more lenient payment terms.
Year Annual Net Credit Purchases Accounts Payable Payable turn over ratio
2017 35143197 3351230 10.49
2018 22837318 2549428 8.96
2019 17282711 1437417 12.02
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Interpretation:
The account payable turnover ratio measures how quickly a business make payments to
creditors and suppliers that extend lines of credit. The payable turnover ratio of Pakistan
Oxygen Limited decreases by 8.96% percent in 2018 which means that company do not have
plenty of cash available to pay off its short term debts in a timely manner. By 2019, this ratio
increase, This increases accounts payable turnover ratio could be an indication that the
company is managing its debts and cash flow effectively.
Interpretation:
This shows the average number of days that a payable remains unpaid. The number of
days increases between 2017 and 2018 by 8.96 i.e. 40.75 days which indicates that Pakistan
Oxygen is paying its suppliers more slowly and may be an indicator of worsening financing
condition .
Interpretation:
This ratio shows the number of times inventory is sold or used in a specific time period. Inventory
turnover ratio is high in 2017 but decreases gradually in 2018 and 2019. The higher inventory
turnover ratio i.e in 2017 is a good indicator for Pakistan Oxygen Limited. It is better for company’s
future. This means company is having high sales and company have good liquidity of its inventory.
However, Inventory turn over ratio decreases gradually in 2018 and 2019.Low inventory turnover
means low sales, too much inventory or overstocking and poor liquidity of its inventory.
Year 365 Days Inventory Turnover Ratio Inventory turn over in days
2017 365 12.92 28.2
2018 365 9.23 39.5
2019 365 5.96 61.3
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Interpretation:
Inventory turnover in days show the average time a company can turn its inventory
into sales. This ratio is high in 2017 and gradually decreases in 2018 and 2019. This means
Pakistan Oxygen Limited is efficient in 2017 but weak in 2018 and 2019 as it is taking
much more days to convert its inventory into sales which is not a good sign for the business.
This means sales are low.
Year Net Sales Total Assets Total Asset Turn Over Rtaio.
2017 4412652 5087282 87%
2018 4860059 6697230 73%
2019 4666590 7063069 66%
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Interpretation:
The assets turnover ratio measures the value of a company’s sales or revenues relative
to the value of its assets. This ratio increases in 2017 by 87% which means Pakistan Oxygen
Limited is more efficient at generating revenue from assets.
However, Total assets turnover ratio of Pakistan Oxygen decreases gradually by 73%
in 2018 and 66% in 2019 which is not a good indicator, this means company is not efficient
at generating revenue from its assets.
Profitability Ratios:
Profitability ratios are metrics that assess a company's ability to generate income relative to its
revenue, operating costs, balance sheet assets, or shareholders' equity. Profitability ratios show how
efficiently a company generates profit and value for shareholders.
Interpretation:
Gross Profit margin is the difference between revenue and cost of goods sold divided by revenue.
Gross profit margin of Pakistan Oxygen is high in 2019 but slightly decreases between three years. It
had decreases by 22.83% by 2018 and by 22.47% by 2017 which means company is underpricing.
The company is losing competitiveness in the market. Pakistan Oxygen Limited needs to increase
sales without increasing cost of goods sold per unit.
Year Net Sales Net Profit After Taxes Net Profit Margin
2017 4412652 240033 5%
2018 4860059 398695 8%
2019 4666590 300585 6%
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Interpretation:
Net profit margin is a measure of profitability of the business. This ratio increases by
8% in 2018 which is a positive indicator. This means that company is more efficient at
converting sales into actual profit. However, this ratio decreases in 2019 by 6% and 5% in
2017 which is greater decrease. This is not a good indicator for Pakistan Oxygen Limited.
This means that a company uses an inefficient cost structure or poor pricing strategies. This is
as a result of poor or inefficient management or high costs.
Return on Investment:
Definition:
Return on Investment (ROI) is a performance measure used to evaluate the efficiency
of an investment or compare the efficiency of a number of different investments. ROI tries to
directly measure the amount of return on a particular investment, relative to the investment’s
cost.
Usage:
As a performance measure, ROI is used to evaluate the efficiency of an investment or
to compare the efficiencies of several different investments.
Formula: Return on Investment = Net Profit After Taxes/ Total Assets
Interpretation:
Return on investment is a performance measure used to evaluate the efficiency of an
investment or compare the efficiency of a number of different investments. Return on
investment of Pakistan Oxygen Limited is 5 % in 2017 and there is a increase in 2018 i.e 6%
but it reduces in 2019 by 4%. This means a company is ineffectively utilizing an investment
and produces losses. Investors would be reluctant to invest in Pakistan Oxygen Limited.
Return on Equity:
Definition:
Return on equity (ROE) is a measure of financial performance calculated by
dividing net income by shareholders' equity. Because shareholders' equity is equal to a
company’s assets minus its debt, ROE is considered the return on net assets. ROE is
considered a measure of the profitability of a corporation in relation to stockholders’ equity.
Usage:
Return on Equity is an important measure for a company because it compares it
against its peers.
Formula: Return on Equity = Net Profit After Taxes/ shareholder Equity
Year Share Holder Equity Net Profit After Taxes Return on Equity
2017 1967362 240033 12%
2018 3898980 398695 10%
2019 4144539 300585 7%
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Interpretation:
This is the measure of the profitability of a business in relation to the equity. This
ratio increases by 12% in 2017 which means Pakistan Oxygen Limited is increasing its profit
generation without needing as much capital, but profit is increasing at lower rate as return on
equity only increases by 12%. However, this ratio decreases by 7% by 2019 which is a matter
of concern. This means Pakistan Oxygen Limited is becoming less efficient at creating
profits and increasing shareholder value.
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Non-current liabilities
Long term deposits -31.55% 4.71%
Lease liabilities -89.58% 52.05%
Deferred liabilities -10.97% -11.02%
-38.20% 0.48%
Current liabilities
Trade and other payables -13.34% 3.48%
Short term borrowings 32.29% 36.00%
Un-claimed dividend 83.42% -11.70%
Current portion of lease liabilities -72.42% -26.04%
Current maturity of long term financing -29.87% -18.16%
-0.47% 5.13%
Total equity and liabilities 31.65% 5.46%
Interpretation
With a Horizontal Analysis, also, known as a “trend analysis,” you can spot trends in your
financial data over time. In Horizontal Financial Analysis of Pakistan Oxygen Limited,
the comparison is made between an item of financial statement, with that of the base
year's corresponding item. Further, it is also noticed that the operating income moves in
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tandem with the revenue growth which is a good sign. A horizontal balance sheet uses
extra columns to present more detail about the assets, liabilities, and equity of a business.
Interpretation:
A vertical analysis is used to show the relative sizes of the different accounts on a financial
statement. Vertical analysis of Pakistan Oxygen limited is the comparison of various line
items within a single period. It compares each line item to the total and calculates what the
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percentage the line item is of the total. A vertical balance sheet is prepared in case when only
one balance sheet is required as in the case of a small entity which operates at lower scales,
whereas horizontal balance sheet is an additional balance sheet prepared by organizations that
work on a bigger scale having different departments, branches etc.
Horizontal Analysis
2017 2018 2019
Gross Sales 9.79% -4.17%
Trade discount and Sales tax -0.83% 0.64%
Net Sales 8.96% -3.53%
Interpretation:
With a Horizontal Analysis, also, known as a “trend analysis,” you can spot trends in
your financial data over time. Horizontal analysis compares account balances and ratios over
different time periods. The analysis of Pakistan Oxygen Limited computes the percentage
change in each income statement account at the far right. The first number you might
consider is the change in profit.
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Vertical Analysis
2017 2018 2019
Gross Sales 100.00% 100.00% 100.00%
Trade discount and Sales tax -11.66% -11.38% -11.20%
Net Sales 88.34% 88.62% 88.80%
Interpretation:
Vertical analysis is used to show the relative sizes of the different accounts on a financial
statement. vertical analysis of Pakistan Oxygen Limited is done on an income statement, it
will show the top line sales number as 100%, and every other account will show as a
percentage of the total sales number.
Vertical analysis makes it easier to understand the correlation between single items on
a balance sheet and the bottom line, expressed in a percentage. Vertical analysis can become
a more potent tool when used in conjunction with horizontal analysis, which considers the
finances of a certain period of time. Vertical Analysis refers to the analysis of the Income
Statement where all the line item which are present in company's income statement are listed
as a percentage of the sales within such statement and thus helps in analyzing the company's
performance by highlighting that whether it is showing upward or downward trend.
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