Financial analysis of packages limited

Financial Analysis

The purpose of this project is to analyses the financial position of the company through various ratios and then provides a final decision about the financial condition of the company.

Submission date:

2/15/2013

PROJECT ON PACKAGES LIMITED

In the name of Allah, the most Merciful

& Beneficial,

The Master of Liberality & Beneficence,

The Gracious & Obligor,

The Granter of Peace & Security,

The Holy & above all Defects,

The Master of Wisdom & Manifestation,

The Master of Mercy & Satisfaction,

The Master of Argument & Proof,

The Master of Grandeur & Royalty,

The Kind & Helpful,

The Pardoner & Forgiver.....

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UNIVERSITY OF THE PUNJAB GUJRANWALA CAMPUS


TITEL:

Project on Packages Limited

SUBJECT:

Managerial Finance

PRESENTED TO:

Sir Hafiz Muhammad Imran

PRESENTED BY:

NAME:

Sana Suleman

ROLL NO:

MC12137

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PROJECT OUTLINE

INTRODUCTION HISTORY VISSION STATEMENT MISSION STATEMENT PRODUCT LINE MANAGERIAL HIERARCHY FINANCIAL ANALYSIS

Liquidity analysis Solvency Analysis Activity Analysis Profitability Analysis Market Analysis

CRITICAL ANALYSIS SWOT ANALYSIS

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ACKNOWLEDGEMENT

All the Acclimations and Appreciation are for Almighty ALLAH, the Compassionate; the Benevolent. That knows the mysteries & secrets of universe.

I would like to show the special gratitude to SIR HAFIZ IMRAN AKRAM who provided me knowledge Vision about the managerial FINANCE.

At the end, I would like to thank all who directly or indirectly help me in making the project.

DEDICATION

First of all I would like to thanks ALLAH ALMIGHTY for giving me opportunity to study in such a good institution. I feel pleasure to dedicate this project on PACKAGES LIMITED to my beloved PARENTS, then my respected teacher SIR HAFIZ IMRAN and at the last to my university that is PUGC.

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PROJECT ON PACKAGES LIMITED INTRODUCTION:

A packages limited is a public limited company and it is listed in three main stock exchanges of the country. It is mainly engaged to produce packages, paper, paperboards, and tissue products according to growing packing demand of industry. They are providing multi products for packing solutions to its customers involved in manufacturing concerns. They also have made many diversifications in their product line. It is the only company which provides the complete packing solutions to its consumers. Their main clients are Uniliver Pakistan and Tobacco Company; they are serving them since 50 years. Currently it is the market leader in terms of total capacity installed.

The business partners of packages limited are Nestle limited, Tri-Pack films limited, Packages Lanka private limited, First international bank limited, DIC limited, IGI Pakistan and coca-cola beverages Pakistan limited. It is also have a strong investment portfolio. Most of the companies are buyers of their products and some companies provide them raw material in this way the risk of bargaining reduces.

Their preference is to provide quality products to the customers for this purpose they are continuously increasing the quality of products and management system in all business process. They have set their quality objectives and for the achievement of these objectives they have properly make policies.

They are rated by (PACRA) Pakistan credit rating agency limited.

Rating as on June 2011:

Long –Term AA

Short –Term A1+

According to AA they have a very good capacity to pay long term finance. They have a very high credit quality and according to A1+ obligations supported by the highest capacity for timely repayment.

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PROJECT ON PACKAGES LIMITED HISTORY:

Packages Limited was established in 1957. It is a joint venture between Ali Group of Pakistan and Akerlund & Rausing of Sweden for the purpose of making packing products.

OVERVIEW OF PAST YEARS:

1957 to 1968:

In 1957 the company was formed as a joint venture. They are working from many years to enhance the quality of the products. In 1968 Packages established paper and pulp mill with IFC Corporation which has the capacity to produce 24,000 tons per year. They are using based on agriculture By-products i.e. wheat, straw and river grass. In the same year the company decided to increases the production capacity of paper and paper boards to 65,000 tons per year and conversion capacity to 56,000 tons per year. The said expansion will be completed in 1998.

1981 to 1986:

Packages modify a paper machine to produce tissues with the brand name of Rose Patel Tissues with high increasing demand of consumers .They are producing kitchen rolls, toilet paper, and table napkins.

In 1986 they establish a flexible packing unit for food industry packing demand. They also improve quality of products and pollution control to meet the guideline of World Bank.

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1993 to 1998:

In 1993 Packages Limited owns 33% of share capital of Tri-Pack Films Limited. In 1994 Packages commenced the production and sale of printing inks with DIC Pakistan Limited in which Packages Limited owns 55% shares.1995 packages start the project which they have signed with Tri-Pack Limited. In 1996 Packages entered into a joint venture agreement with Print care Limited to start production in Sri Lanka in which Packages owns 79% ownership and start this project in 1998.

2000 to 2007:

In 2000 Packages successfully complete expansion of flexible packaging line by installing a Rotogravure machine and in 2001 they installed a new 8 color Flexo Graphic printing machine. In 2002 Packages started production of corrugated boxes and established its new plant for paper and paper board expansion near Kasur in 2005 which is completed in two phases.

2008 to 2011:

According to growing demand in 2008 the company installed a new machine for tissue paper expansion with expansion capacity of 33,000 tons per year. In 2011 Packages installed Pakistan’s first high speed automatic machine in flexible packaging and also upgrade corrugation machine which results in 14% increase in production. Packages re-build the paper machine (M-6) with additional capacity to produce liquid packaging board and bleached board.

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VISSION STATEMENT

To become a business and production model by providing quality products to the consumers and industry.

To keep introducing latest machines and technology. Develop strong position of the company to face challenges. Develop ethical culture in the organization.

MISSION STATEMENT

To provide quality products and services to our customers. To be a company that continuously enhances its technologies and competes the

market. To be a company that promotes innovative culture and attracts customers. To achieve a profitable growth by providing fair returns to the investors. To set the highest standard in corporate ethics in serving the society.

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PROJECT ON PACKAGES LIMITED PRODUCT LINE:

Packages are providing a wide range of packages for different segments of the market according to packing demand of various industries. The followings are the products of Packages limited.

1) PAPER AND BOARD:

Paper:

Packages limited are producing high quality paper from many years with the help of environment friendly processes. They are producing printing paper of various types and colors and also making stationary products according to growing market demand like

Note books Registers Not pads Writing pads etc.

Boards:

In present life style boards are become the essential part of life. Packages are providing a wide range of boards for various consumer products. Boards are used for various packing solutions which include:

Tea and food cartons Confectionary Match Boxes Paper Cups Paper Plates Liquid Packaging Cigarette Packing Pharmaceuticals etc.

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2) CONSUMER PRODUCTS:

In consumer product line they are providing a wide range of Rose Patel Tissue papers for disposable cleaning purposes which include:

Facial Tissues Tissue Roll Kitchen Roll Rose Patel Hand Towel Rose Patel Pocket Packs Rose Patel Party Products Wet Tissues etc.

3) FOLDING CARTONS:

Packages produce white color boards and then color or print them into packing demand of various companies. They are making these cartons for following industries:

Food and Beverages Soap and Detergents Electronics Shoe Tobacco Pharmaceuticals Paper Cups etc.

4) CORRUGATED BOXES:

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Packages are making corrugated boxes for the various industries which include: Fruits and Vegetables Dairy and Ice Cream Rubber Sports Goods Biscuits etc.

5) FLEXIBLE PACKING SOLUTIONS:

Packages provide a cost effective and a flexible quality packing range to various industries and valuable customers according to growing demand. They are providing packing solutions to the following industries which include:

Oil and Ghee Laminates for Milk Powders Shampoo Bottles Paint Bottles Cone Ice Cream Wrappers Toffee Wrappers Laminated Bags for Chemicals Laminates for Detergents

MANAGERIAL HIERARCHY

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BOARD OF DIRECTORS: Towfiq Habib Chinoy (chairman) Syed Haider Ali (Chief Executive & Managing Director) Khalid Yacob Matti IImar Nakkaa Muhammad Aurangzab Shahid Aziz Siddiqui Shamim Ahmad Khan Syed Aslam Mehdi Syed Shahid Ali Wazir Ali Khoja Ali Aslam (alternate to Matti IImar Nakkaa)

COMPANY SECTORY:

ADI. J CAWASJI

ADVISOR:

Syed Badar Ali

AUDITORS

A.F Ferguson and co. (chartered accountants)

BANKS:

Allied Bank ,Askari Bank

National Bank, Habib Bank

Alfalah Bank, Tamir Bank

Khushhali Bank,Investment Bank

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PROJECT ON PACKAGES LIMITED FINANCIAL ANALYSIS:

Financial analysis is the process of evaluating businesses, projects, budgets and other finance related entities to determine their suitability for investment. Financial analysis is used to analyze whether an entity is stable, solvent, liquid, or profitable enough to be invested in. when looking at a specific company the financial analyst will often focus on the income statement, balance sheet, and cash flow statement. In addition, one key area of financial analysis involves extrapolating the company’s past performance into an estimate of the company’s future performance.

To know about the financial position of the company following types of analysis will be made with the help of various ratios:

Liquidity Analysis Solvency Analysis Activity Analysis Profitability Analysis Market Analysis

LIQUIDITY ANALYSIS:

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The ability of a business to pay its short term debts is

Called liquidity. OR

The convertibility of an item into cash is called liquidity.

Five ratios are included in liquidity analysis:

Current Ratio Quick Ratio Absolute Liquid Ratio Working Capital

CALCULATIONS:

Sr. No Ratios 2011 2010 % Change

Results

1 Current Ratio 2.56 3.52 72.72% favorable

2 Quick Ratio 1.25 2.00 62.5% favorable

3 Working Capital 5398283 6112699 88.3% Un favorable

4 Absolute Liquid Ratio

0.47 0.03 15.6% favorable

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INTERPRETATION OF LIQUIDITY RATIO:

The current ratio shows that the ability of the business to meet its short term liabilities. Its standard is 2:1. The company’s present condition is better than 2010 because its answer is near to the standard and the company has funds to pay its short term debts. But in 2010 it is not good because excessive assets show the mismanagement of the company.

The quick ratio is the important ratio which shows the true position of the liquidity position of the company. Its standard is 1:1. So, in 2011 it is better because it is close to the standard. This ratio shows that the firm has cash to pay its external expenses.

The working capital of the company is not satisfactory because it is less in 2011. This shows company has not suffient funds to meet its routine expenses of the business.

Absolute liquid ratio shows cash & Cash equivalents position of the Co. which is improved considerably as compare to last year and near to standard ratio. It shows that Company is capable to pay about half of its current liabilities without referring to its other receivable, stocks and non liquid current assets.

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SOLVENCY ANALYSIS:

The ability of a business to pay its long term or total debts is called

Solvency analysis.

Two types of analysis are made under solvency analysis:

1: Periodic payment Paying ability Time Interest Earned Ratio Fixed Payment Coverage Ratio

2: Ability to pay original debt Debt Ratio Equity Ratio Debt To Equity Ratio Debt To Tangible Net Worth Ratio

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PROJECT ON PACKAGES LIMITED CALCULATIONS:

Sr. No Ratios 2011 2010 %Change Results

1 Time interest earned (0.30) (0.08) 375% Un favorable

2 Debt Ratio 0.32 0.32 100% favorable

3 Equity Ratio 0.67 0.67 100% favorable

4 Debt to Equity Ratio 0.29 0.29 100% favorable

5 Debt to Tangible Net Worth

0.29 0.29 100% favorable

INTERPRETATION OF SOLVENCY RATIO:

Operating Losses of the company has increased from last year hence, The EBIT

of the company is in negative position from the last year to 2011. So, it is not good for the company because cost of borrowed capital is also increasing which becomes burden on the business.

The debt position of the company is satisfactory because company has more

equity than debt. Debt to Equity ratio is constant showing that company has not increased its borrowings. Further company is complying with Standard of Debt/Equity ratio of 60:40

The equity position is also maintained and it is greater than debts so it is favorable

for the company.

Equity ratio is greater than debt ratio so it is favorable.

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ACTIVITY ANALYSIS:

The effectiveness of the management towards utilization of resources to generate sales and manage its collection system.

Two types of analysis are made under activity analysis:

1: Turnover Analysis

Total Asset Turnover Fixed Asset Turnover Current Asset Turnover Working Capital Turnover Inventory Turnover Receivable Turnover

2: Period Analysis

Collection Period Payment Period Age of Inventory

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CALCULATIONS:

Sr. No

Ratios 2011 2010 %Change Results

1 Total Asset Turnover 0.44 times 0.46 times 96% Un favorable

2 Fixed Asset Turnover 0.55 0.59 93.22% unfavorable

3 Current Asset Turnover 2.19 2.17 100% favorable

4 Working Capital Turnover

3.58 3.03 118% favorable

5 Inventory Turnover 4.19 4.83 87% Un favorable

6 Receivable Turnover 42.62 69.85 61% Un favorable

9 Age of Inventory 87.11 75.56 115% Un favorable

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INTERPRETATION OF ACTIVITY RATIO:

Activity Ratios are showing overall a declining trend and less efficiency in utilization of company’s resources as compared to previous years. It may be due to high operational cost, change in company policies and reduction in production due to energy crises of the country.

However current asset Turnover and working capital Turnover ratios are favorable, showing that company is utilizing its current assets more efficiently than of its fixed assets.

Inventory Turnover and receivable Turnover is unfavorable, further average age of inventory has also increased from 75 days to 87 days. It shows that company has to bear more expenses for storage of inventory. All these unfavorable inventory turnover ratios contribute to less efficiency and reduction in profits from operations.

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PROFITABILITY ANALYSIS:

The ability of the business to generate return for the owner is called profitability analysis.

Profitability analysis is divided into two types for calculation:

1: General Analysis

Gross Profit Ratio Net Profit Ratio Operating Profit Ratio EPS Ratio

2: Return Analysis Return on Assets Return on Equity Return on Investment

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CALCULATIONS:

Sr. No Ratios 2011 2010 %Change Results

1 Gross Profit Ratio 1.9% 4.3% 44% Un favorable

2 Net Loss Ratio (8.09)% (1.79)% (451)% Un favorable

3 Operating Loss Ratio

(2.57)% (5.62)% (45)% Un favorable

4 LPS (18.58) (3.94) (471)% Un favorable

5 Return on Assets (3.58)% (8.3)% (43)% Un favorable

7 Return on investment

(5.7)% (1.21)% (471)% Un favorable

INTERPRETATION OF PROFITABILITY RATIO:

Company was suffering losses in year 2010 which has further increased in year 2011 as well.

Gross position of the company is showing profit in current year but with a large negative gap of 2.44% as compared to previous year.

Increase in operational losses as compare previous year is due to increase in operational cost. Net Loss ratio was 1.79% in year 2010 but has increased considerably to 8.09% in 2011.

Overall profitability of the company is negative for last two years hence paying less to its stakeholders in from of return on equity and investments.

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MARKET ANALYSIS:

The strength of the business in the market both internal and external.

Following ratios will be calculated under market analysis:

Dividend Yield Ratio Dividend payout Ratio Price Earnings Ratio Market to Book Ratio

CALCULATIONS:

Sr. No

Ratios 2011 2010 % change Results

1 Dividend Yield Ratio 0 0 - -

2 Dividend Payout Ratio 0 0 - -

3 Price Earned Ratio 4.45 32.64 13.63% Un favorable

4 Market to Book Ratio 236.34 925.25 25.54% unfavorable

INTERPRETATION OF MARKET RATIOS:

The market ratio of the company is UN favorable because the market price of shares decreases by 14.94 which is not good for the reputation of the company.

As the company is suffering loss from the past years so its market worth of shares is deduces which is harmful for the company.

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PROJECT ON PACKAGES LIMITED CRITICAL ANALYSIS:

Packages Limited is an old player of the Market and is maintaining its competitive position since its establishment. However, as per given financial data of last two years company‘s profits are showing reducing trend.

Even after net losses company is still in position to meet its manufacturing cost and is maintaining some gross profit margin but unable to cover its operational cost. Hence facing net losses.

Company’s Long term and current assets are also showing some inefficiency on part of management e.g. unfavorable receivables and inventory turnover ratio and increase in aging of inventory. These inefficiencies contribute to high operational cost and less profitability. To conclude we may say that company’s assets are not used effectively enough to generate desired profit levels.

On the other hand besides losses, liquidity position of the company is showing positive position. As per given Data company is capable enough to pay its short obligations without any difficulty and can run its asset conversion cycle without any hurdle.

Further Debt Equity position is satisfactory and constant in both years. No increase in debts is not observed in both years. But company’s profits are not sufficient to pay the existing financial cost of the borrowed funds. Due to losses company is paying less to its stakeholders.

CONCLUSION:

To conclude we may say that Company’s Liquidity and Equity Position is satisfactory. All to do is to reduce its operational/variable cost and enhance its profitability;

Increase in efficiency of current assets To find alternative sources of energy if production is reduced due to energy crises. Introducing cost effective processes. Change in company policies. Run different market campaigns to increase demands of products being produced

by the company. Further reduction in debt burden to avoid financial cost and interest.

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PROJECT ON PACKAGES LIMITED SWOT ANALYSIS:

STRENGHTS:

The strengths can be considered anything that is favorable for the business. The following are the strengths of packages limited.

Packages has a good market worth Skilled and educated labor force Technical engineers are hired to handle various technical matters of the business. ISO 9001 certified Enjoys the benefits of large scale economies because its business is divided into

number of units due to this fixed cost reduces. Packages limited are using advanced technology to meet the quality requirements

of its customers. Packages limited is using imported machinery which is imported from Germany,

USA, Switzerland etc. Organized training programs are conducted to enhance the skills and abilities of

the employees. Packages limited deals in payment of advance system in case of new customers

which reduces the risk of payment recovery in future.

WEAKNESSES:

The information flow system in packages limited is not sophisticated and also the factories which are located in different cities receive delayed information due to in efficient means of communications.

Packages limited received large orders from various companies and reject the small orders.

Packages deserve to charge high prices for its quality products but in Pakistan it is not possible for those companies who are not financially sound to purchase its products.

Workload increases which reduces the performance of employees and satisfaction.

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OPPORTUNITIES:

The trend or awareness about packing of products increasing day by day which might help to increase number of customers for packages.

Business activities are increasing day by day which is a good opportunity for the whole packing industry.

Consumers are now preferred to buy those products which are nicely packed which increases packing demand.

Companies are now conscious about the packing of their products because of customer’s demand which is also a good sign for packing industry.

Demand of flexible products increases. Usage of sachet increases day by day.

THREATS:

Packing materials are negatively influencing the environment which becomes a threat for packages.

Facing a strong competition from cottage industry in the production of corrugated boxes.

Located in defense area where people set a campaign to shift the set up which is not possible for packages to shift the whole business unit.

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