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History of the Company:
Pak Suzuki Motor Company Limited (PSMC) is a public limited company with its shares quoted on Stock Exchanges in Pakistan. The Company was formed in August 1983 in accordance with the terms of a joint venture agreement concluded between Pakistan Automobile Corporation Limited (representing Government of Pakistan) and Suzuki Motor Corporation (SMC) - Japan. The Company started commercial production in January 1984 with the primary objective of progressive manufacturing, assembling and marketing of Cars, Pickups, Vans and 4 x 4 vehicles in Pakistan.
The foundation stone laying ceremony of the company's existing plant located at Bin Qasim was performed in early 1989 by the Prime Minister then in office. By early 1990, on completion of first phase of this plant, in-house assembly of all the Suzuki engines started. In 1992, the plant was completed and production of the Margalla Car commenced. Presently the entire range of Suzuki products currently marketed in Pakistan are being produced at this Plant. Under the Government's privatization policy, the Company was privatized and placed directly under the Japanese management in September 1992. At the time of privatization, SMC increased its equity from 25% to 40%. Subsequently, SMC progressively increased its equity to 72.8% by purchasing remaining shares from PACO. The total foreign investment brought in by SMC- Japan since inception stands at Rs. 1026.36 million. The Suzuki Management immediately after privatization started expansion of the Bin Qasim Plant to increase its installed capacity to 50,000 vehicles per year. The expansion was completed in July 1994. Keeping this in view, the company's long term plans inter-alia includes tapping of export markets. The company has acquired additional land measuring about 30 acres from Pakistan Steel Mills Corporation in proximity to its Bin Qasim Plant to set up production facilities for manufacture of some local components.
The Company continues to be in the fore-front of automobile industry of Pakistan. Over a period of time, the company has developed an effective and comprehensive network of sales, service and spares parts dealers who cater to the needs of customers and render effective after sale service country wide. PSMC is serviced by over 180 active vendors who are engaged in the local manufacture and supply of automotive parts to the company.
1
COMPANY INFORMATION BOARD OF DIRECTORS
Yasuo Suzuki Chairman & Chief Executive. Capt. (Retd) Bashir Ahmed Deputy Managing Director Katsuichiro Ota Director Sokichi Nakano Director Yoshio Saito Director Tariq Iqbal Khan Director Koki Imamura Director
COMPANY SECRETARY
Abdul Harold Bhombal AUDITORS
Sidat Hyder Qamar & Co. Chartered Accountants
COMPANY KEY”S OBJECTIVE:
To provide automobiles of international quality at reasonable prices.
To provide automobiles of international quality at reasonable prices.
To improve skills of employees by imparting training and by inculcating in them a sense of participation.
To abide by the deletion policy of the Government, achieve maximum indigenization and promote the automobile vending industry.
2
Pak Suzuki Motor Company LtdBalance Sheet
AS AT JUNE 30, 2000, 2001, 2002
Rupees in Thousands 2000 2001 2002SHARE CAPITAL AND RESERVES Authorized share capital 150,000,000 (2000: 150,000,000) ordinary shares of Rs.10/- each 1,500,000 1,500,000 1,500,000
=========
==========
= ========Issued, subscribed and paid-up share capital 491,312 491,312 491,312Reserves 1,316,528 1,268,820 1,285,840 ---------- ---------- -------------LIABILITIES 1,807,840 1,760,132 1,777,152Deferred taxation 99,000 97,000 97,000Current liabilities Bills payable 926,032 644,480 725,690Short term running finances ………. 1,290,619 --Security deposits 60,316 61,703 65,240Creditors, accrued and other liabilities 393,545 316,666 326,265Advances from customers 515,122 241,325 495,321Provision for customs duties and sales tax 152,770 155,770 156,960Proposed dividend 39,305 -- 45,320 ---------- ---------- ---------- 2,087,090 2,710,563 1,814,796COMMITMENTS ---------- ---------- -------------Total share holders' equity and liabilities 3,993,930 4,567,695 3,688,948
=========
==========
= ASSETS Tangible fixed assets 1,185,857 1,353,158 1,411,1234Long-term investments 30,075 35,675 42,260Long-term loans, deposits and prepayments 9,292 10,226 10,450Deferred costs -- 15,797 16,240 Current assets Stores, spares and loose tools 29,279 41,122 46,332Stocks 1,535,836 1,913,050 1,965,120Trade debts 44,456 577,264 587,966Loans, advances and prepayments 47,217 57,591 59,756Advance income tax - net 325,351 305,250 350,420Sales tax adjustable 32,165 6,635 36,821Accrued income and other receivables 25,159 19,974 26,468Cash and bank balances 729,243 231,953 988,250 ---------- ---------- --------- 2,768,706 3,152,839 4,061,133 ---------- ---------- Total assets 3,993,930 4,567,695 5,541,206
3
Pak Suzuki Company LtdIncome Statement
FOR THE YEAR ENDED JUNE 30, 2000 2001, 2003
Rupees In Thousands 2000 2001 2002
Net sales 7,976,122 6,889,145 8,213,245
Cost of sales 7,599,439 6,578,898 7,853,909
---------- ---------- -----------
Gross profit 376,683 310,247 359,336
Selling and administration expenses 201,729 234,790 210,540
---------- ---------- ----------
Operating profit 174,954 75,457 148,796
Other income 27,688 74,180 56,570
---------- ---------- -----------
202,642 149,645 205,366
Financial and other charges 72,480 221,971 85,921
Reversal of provision for diminution in market value
of WAPDA Bonds -- -74250 --
Provision for diminution in the value of investments 5,600 -- --
---------- ---------- --------
Profit before taxation 78,080 147,721 85,921
124,562 1,924 119,445
Taxation 37,549 28,524 28,985
---------- ---------- ----------
Profit/(loss) after taxation 87,013 -26600 90,460
Unappropriated profit brought forward -- 1,418 --
---------- ---------- -------
Profit/(Loss) available for appropriation 87,013 -25182 90,460
Appropriations
Transfer to/(from) general reserve 47,000 -25182 49,000
Proposed cash dividend @ 8% (2005: Nil) 39,305 -- 41,455
---------- ---------- ---------
86,305 -25182 90,455
---------- ---------- --------
Unappropriated profit carried forward 708 -- 918
========== ========== =========
4
Pak Suzuki Company LtdCash Flow Statement
FOR THE YEAR ENDED JUNE 30, 2000, 2001, 2002
Rupees In Thousands 2000 2001 2002
Cash flow from operating activities
Cash generated from operations 1,672,861 1,406,705 1,782,254
Financial charges paid -88213 -241507 -75981
Taxes paid -55651 -197003 -60875
Long-term loans (net) -299 541 -345
Long-term deposits and prepayments - net 1,233 -1780 2,120
---------- ---------- ---------
Net cash inflow from operating activities 1,529,931 966,956 1,647,173
Cash flow from investing activities
Fixed capital expenditure -35645 -262651 -36456
Investment in shares -- -29175 --
Sale proceeds on disposal of fixed assets 4,148 8,500 4,680
Sale proceeds of WAPDA Bearer Bonds -- 450,000 --
Sale proceeds of investment -- 2,923 --
Mark-up on cash deposits, advances to
suppliers and income from investment 15,757 68,692 25,689
---------- ---------- ---------
Net cash (outflow)/inflow from investing activities (15,740) 238,289 (6,087)
Cash flow from financing activities
Advances from customers - net 273,797 73,873 275,854
Dividends paid -79 -181997 -82
---------- ---------- ---------
Net cash inflow/(outflow) from financing activities 273,718 -108124 275,772
---------- ---------- ----------
Net increase in cash and cash equivalents 1,787,909 1,097,121 1,789,963
Cash and cash equivalents at beginning of the year -1058666 -2155787 -1010720
---------- ---------- ----------
Cash and cash equivalents at end of the year 729,243 -1058666 779,243
========== ========== ========
5
6
Common Size Analysis of Pak-Suzuki Motor Company Ltd.
Balance Sheet:
Vertical Analysis for the years 2000, 2001 and 2002:
While doing the vertical analysis of Pak-Suzuki Motor co. we have taken the total assets as a base.
Share Capital and reserves share:
If we look at the analysis we come to know that percentage of share capital in total assets has constant over the years. So the vertical analysis of 2000, 2001 and 2003 has different percentages which shows that in year 2001 it has decreased by 5% while the next year mean 2002 jump or increased 40.66% as compared to the last year of the firm. This suggests that the firm suffered from losses during 2001 years which reduced its total assets.
In the case of reserves the reserves for the firm are classified as capital and revenue. The reserves amount of three years are the same as Rs. 491,312 respectively in thousands. While calculating the vertical percentage of the reserves we have gradual increase in the percentage of vertical.
Liabilities:
The firm has different liabilities in three years. However the firm relied heavily on loans to fulfill its financing needs. The year 2000 has a heavy bills payable but this decrease year by year. The over all liabilities of the firm is increasing constantly with the percentage of 52.26%, 59.34% but last year has a low liability as compared to other years with 49.20.
The firm’s long term liabilities increased due to the following effect on the ratio. The denominator total assets decreased due to losses suffered by the firm in these
years, which increased the ratio. The increase in the amount of loan i-e increase in the numerator of the ratio,
which also increased the ratio.
ASSETS:
Fixed Assets:
The fixed assets of the firm show a gradual decrease year by year from 200, 2001
to 2002. This slight decrease may be due to the decrease in the net assets of the firm due
to the losses rather than due to any capital expenditure done on the fixed assets. The long
term investment show a slight increase in the percentage but long term loans, deposits
7
and repayments of the firm is decreasing with a slight percentage. This mainly show to
improve the cash flow situation of the firm. This also suggests that the firm is facing cash
shortage problems.
Current Assets:
In current assets the firm stores, spares and loose tools are increasing slightly with
the percentage of 0.73, 0.90 and 0.84 respectively but in the year 2002 it decreases.
Stocks increased in 2000 and 2001 but it decrease in year 2002 with the percentage of
38.45%, 41.88% and 35.46 respectively of total assets., showing great increase and
causing severe cash shortage problem to the firm in that year. Short term investments of
the firm are also showing a continuous decrease both in monetary terms and as
percentage to total assets. They also reflect the losses and the cash shortage problems
faced by the firm in these years. The trade debts show a mixed picture during the years in
the year 2000 it has less amount with less percentage as compare to other years. In year
2001 it has an increased in the trade debts but also decrease in 2002. The over all current
assets of 2000 and 2001 are the same percentage but it is slightly high in 2002 as
compare to other years of 2000 and 2001.
Horizontal Analysis for the years 2000, 2001 and 2002:
In the analysis year 2000 as the base year and horizontal analysis is done taking the
values of 1996 as a base.
Share Capital and reserves:
The share capital of the firm remains constant in the three years of analysis. They
remain at 100% in the years that is the share capital neither decreased nor increased
during these years.
The capital reserves show a slight increase in the year 2001 by only 96.38 and in
2001 it is 97.67 which is slightly high as compare to the previous data. This shows the
commitment of the organization to expand in the future as the firm constantly maintains
8
this reserves and even increased it a little even though that the firm suffered heavy losses
in these years.
Liabilities:
In liabilities side the bills payable is increased from 96.60% to 78.37%. There
were no debentures in the years 1997 and 1998. The long term loans show a great
increase in the years of analysis. This show a great increase in the long term debt of the
firm. It also reflects that the firm is relying on debt to fulfill its capital requirements
rather than any other source of finance.
The tax provision was also increase in the year 2002 than 2001 and 1998.
Fixed Assets:
They show a constant increase over the years, it shows that capital investment is
done in fixed assets, it also shows that the long term investment was increased year by
year with new capital of the firm. The firm long term loans, deposits and repayments
slightly increase with the percentage of 110.05% to 112.46% it means that the firm makes
further investment in their operations.
Current Assets:
Same situation with the current assets it shows an increasing trend in the year
2001 with 140.45% and 158.24% in 2002. Trade debts and stocks also increase slightly,
it means the over all current assets of the firm is slightly increasing year by year. The
main considering issue of the business is the cash and bank balances but it shows a
different percentage as we compare to the year. In year 2001 it was 31.81% which is not
enough as compare to the 2002 where it is 135.52% which is a huge difference and in
year 2001 the firms also get loss.
9
Common Size Analysis with Horizontal Analysis
Income Statement
The net sales of income statement of 2004 analysis of horizontal is same because we over all divide the each amount with each other the result would be the same. So analyzing the income statement the net sales increases from 86.37% to 102.97% in 2001 and 2002, it shows an increase in volume of sales.Same situation the gross profit margin increased which represented managerial and production efficiency in this year. But in 2001 the gross profit decrease again due to high cost of production in this year as compare to 2000 year and 2001.The selling and administration expenses decrease slightly in 2001 and 2002 from 116.39% to 104.37%, less expenses shows high operating profit.The other income also decrease in 2001 and 2002 from 267.91% to 204.31%. The increase in the year shows more efficient production as compare to 2002.Financial charges also decreases in 2002 but high in 2001 which reflects the long term debts. And taxation increased 2002 with 77.19% as we compare with the previous record that is 75.96%.
Vertical Analysis.
Vertical analysis gives a more insight of the cost and revenue structure of the firm during the years
The gross profits of the firm decreases from 4.72% to 4.50% in 2000 and 2001 and in 2002 it also decreases with 4.38%. This represents production efficiency or reduced cost of inputs in the year. The decrease also shows high percentage of cost of sales in the year.
The selling and administration expenses it increases in 2001 with 3.41% but low in 2000 and 2001 with 2.53% to 2.56%, but it does not create severe effect on the operating profit of the firm and a similar trend of operating profits was observed in years as that gross profit.
Operating profit of the firm slightly decreases in 2001 and 2002 from 1.10% to 1.81% because in these tow years we have higher expenses as compare to the 2000, that is why it show less operating profit in these two years.
Other income of the firm increases in 2001 with 1.08% and in 2002 it is 0.69 is higher than year 2000.
10
Financial charges only highly increase in year 2001 as compare to the 2000 and
2002 that may be the high debts of the firm for expending their operation.
Taxation decreases in 2002 with the percentage of 0.35 and in 2001 it is 0.41 as
compare to its previous year
11
FINANCIAL RATIO ANALYSIS
We will analyze the firms performance by calculating and interpreting 4 basic types of Financial Ratios but here we calculate according to the chapter topic. Usually we have these four basic types of fianancial ratios
1. Activity Ratios
2. Debt Ratios
3. Profitability Ratios
4. Market Ratios
According to the Book chapter we have different ratios in different according to the topic,
so each ratio is calculated to the chapter ratios, here we have four different chapter of the
book.
1. Chapter 7: (Liquidity Of Shot Term Assets; Related Debt Paying Ability)
2. Chapter 8: (Long Term Debt Paying Ability)
3. Chapter 9: (Analysis of Profitability)
4. Chapter 10: (Analysis For Investor)
According to this chapter we calculate each ratios of Pak Suzuki Motor Company limited
for year 2004, 2005 and 2006.
12
13
All ratio formulae regarding this chapter And Solution
Gross Receivables Days Sales In Receivables = ----------------------------------------------- Net Sales / 365
44,456 2000 =--------------------- = 2.03
7,976,122 / 365
577,2642001 =------------------------- = 30.58
6,889,145 / 365
587,9662002 =---------------------------- = 26.13
8,213,245 / 365
Net Sales Accounts Receivables Turnover =----------------------------------------
Average Gross Receivables
7,976,1222000 =--------------------------- = 25.66
310,860
6,889,1452001 =---------------------------- = 11.82
582,615
Average Gross Receivables Accounts Receivables Turnover in Days =------------------------------------------
14
Net Sales / 365
310,8602000 =-------------------------------- = 14.23
7,976,122 / 365
582,6152001 =------------------------------ = 30.86
6,889,145 / 365
Ending Inventory Day’s Sales In Inventory =----------------------------------------
Cost of Goods Sold / 365
1,535,8362000 =--------------------------------- = 73.76
7,599,439 / 365
1,913,0502001 =------------------------------ = 106.14
6,578,898 / 365
1,965,1202002 =---------------------------- = 82.03
7,853,909 / 365
Cost of Goods Sold Inventory Turnover =------------------------------------
Average Inventory
15
7,599,4392000 =----------------------------- = 4.41
1,724,443
6,578,8982001 =-------------------------- = 3.39
1,939,085
Average Inventory Inventory Turnover in Days =-----------------------------------------
Cost of Goods Sold / 365
1,724,4432000 =------------------------------ = 82.82
7,599,439 / 365
1,939,0852001 =---------------------------- = 107.58
6,578,898 / 365
Operating Cycle = Accounts Receivables Turnover + Inventory TurnoverIn Days in Days
2000 = 14.23 + 107.58 = 109.05
2001 = 30.86 * 107.58 = 138.44
Current Assets Current Ratio =-------------------------------------
Current Liabilities
16
2,768,7062000 =--------------------------- = 1.33
2,087,090
3,152,8392001 =---------------------------- = 1.16
2,710,563
4,061,1332002 =---------------------------- = 2.24
1,814,796
Cash Equivalents + Marketable Securities + Net Receivables
Acid Test Ratio =----------------------------------------------------------------------Current Liabilities
Cash Equivalents + Marketable Securities Cash Ratio =--------------------------------------------------------------
Current Liabilities
Sales Sales To Working Capital =-----------------------------------------------------
Average Working Capital
7,976,1222001 =------------------------ = 14.19
561,946
6,889,1452001 =-------------------------- = 5.12
1,344,307
17
Solved Calculation of All above Ratio formulae
Ratios 2000 2001 2002
Day's Sales In Receivables 2.03 30.58 26.13
Account Receivables Turnover 25.66 11.82
Account Receivables Turnover in Days 14.23 30.86
Day's Sales in Inventory 73.76 106.14 82.03
Inventory Turnover 4.41 3.39
Inventory Turnover in Days 82.82 107.58
Operating Cycle 109.05 138.44
Current Ratio 1.33 1.16 2.24
Acid-Test Ratio
Cash Ratio
Sales to Working Capital 14.19 5.12
Interpretation And Analysis of Each Ratio
Day's Sales In Receivables: This shows that how firm is efficient in collection of receivables. While looking the ration of this it shows with huge difference in three years. In 2000 it is 2.03% which shows efficiency of the management that how they manage their receivable. In 2001 it is 30.58% it may shows a high volume of sales on account and same situation in year 2002 it is 26.13%. It means the over receivable in days are quite in year 2000 as compare to 2001 and 2002.
Account Receivables Turnover: Computation at the end of 2000 and 2001. The turnover of receivables slightly decreases between 2000 and 2001 form 25.66% per year to 11.82% times per year. Which indicates the liquidity of the receivables. In this situation the firm tends to overstate it account receivable turnover, thus overstating its liquidity.
Account Receivables Turnover in Days: It expressed in terms of days instead of times per year. The computation of this ratio shows an increase as compare to the previous data like in 2000 it is 14.23% and 30.86% in 2001, basically it shows range of net sales in a days, which is obviously fine as compare to the previous year.
18
Day's Sales in Inventory: The days sales in inventory estimates the number of days that it will take to sell the current inventory. While analyzing the ratio it shows slightly increase in the year 2000 and 2002 but there is an high increase in 2001 with 106.14% it means in this year the inventory is not controlled properly as compare to other years.
Inventory Turnover: It indicates the liquidity of the inventory. The calculation shows a slight decrease in 2000 and 2001 from 4.41% to 3.39%. In this situation the firm tends to overstate inventory turnover due to liquidity of its inventory.
Inventory Turnover in Days: It shows the number of days instead of times per year. The computation of this ratio shows an increase in inventory turnover. In 2000 its ratio is 82.82% and 107.58% in 2001.
Operating Cycle: This computation consists of combination of days sales in ending receivables and the number of days in sales in ending of inventory. The calculation of this ratio shows that an increase in 2001 with 138.44% as compare to the previous data of 2000 it is 109.05% this indicates moderate liquidity at the end of the year.
Current Ratio: It determines the short term debt paying ability. It increase slightly in 2000 and 2001 from 1.33% to 1.16% and in 2002 it shows 2.24%.
Acid-Test Ratio:
Cash Ratio:
Sales to Working Capital :
19
20
All ratio formulae regarding this chapter and solution
Operating Income Times Interest Earned =------------------------------------------------------
Interest Expense + Capitalized Interest
174,9522000 =---------------------- = 2.41
72,480
75’4572001 =-------------------- = 0.34
221,971
148,7962002 =---------------------- = 1.73
85,921
Operating Income Fixed Charge Coverage =------------------------------------------------------
Interest Expense + Capitalized interest + Interest Portion of Rentals
Its calculation is same because we have not any interest portion of rentals in our financial report of the company so, that is why calculating without rental our result would be the same as above.
Total Liabilities Debt Ratio =-----------------------------------------
Total Assets
99,000+2,087,090
21
2000 =--------------------------------- = 0.55 3,993,930
97,000+2,710,5632001 =---------------------------------- = 0.61
4,567,69597,000+1,814,796
2002 =---------------------------------- = 0.35 5,541,206
Total Liabilities Debt / Equity Ratio =------------------------------------------
Shareholder’s Equity
99,000+2,087,0902000 =------------------------------------ = 1.21
1,807,840
97,000+2,710,5632001 =----------------------------------- = 1.61
1,760,132
97,000+1,814,7962002 =----------------------------------- = 1.08
` 1,777,152
Total Liabilities Debt To Tangible Net Worth =----------------------------------------------------------
Shareholder’s Equity – Intangible Assets
Debt to tangible net worth also show same result while calculating the ratio because, the firm has not any intangible assets in its financial report that is why its results same as the debt / equity ratio shows.
Solved Calculation of All above Ratio formulae
Ratios 2000 2001 2002
Times Interest Earned 2.41 0.34 1.73
Fixed Charge Coverage 2.41 0.34 1.73
22
Debt Ratio 0.55 0.61 0.35
Debt / Equity Ratio 1.21 1.61 1.08
Debt to Tangible Net Worth 1.21 1.61 1.08
Interpretation And Analysis of Each Ratio
Times Interest Earned: Time earned ratio indicates a Suzuki long term paying ability from the income statement. Suzuki have very low time interest earned ratio. In 2001 time interest ratio is high as compare to 2002 because in 2001 company is in profit and have a fund to meet the debt obligation. But in 2002 Suzuki’s time interest earned ratio is low because in 2002 Suzuki was in loss.
Fixed Charge Coverage: Suzuki has no fixed asset on lease so they haven’t any interest portion of rentals. So ratio of time interest earned and fixed charge coverage will be the same.
Debt Ratio: Debt ratio indicate the Suzuki long term debt ability from it balance sheet. In 2000 and in 2001 debt financing is more then 50%. It shows that financial institution have confidence on Suzuki. Because of lose in 2001 debt ratio is decline. Company have borrow to fulfill the gap of lose in 2001. so ratio is higher as compare to previous year.
Debt / Equity Ratio: Debt equity ratio is very high in all three years. But it is more high in 2001. its indicates that out side financing is higher then share holder equity provide.
Debt to Tangible Net Worth:
23
It is more conservative approach to analyses the outsider financing and shareholder equity. But Suzuki has no intangible asset so this ratio is same to debt equity ratio.
24
All ratio formula regarding this chapter
Net Income before Minority ShareOf Earnings and Nonrecurring items
Net Profit Margin =-----------------------------------------------------------------Net sales
87,0132000 =-------------------------------------- = 0.01
7,976,122
(26,600)2001 =--------------------------------------- = -0.004
6,889,145
90,4602002 =---------------------------------------- = 0.011
8,213,245
25
Net sales Total Asset Turnover =------------------------------------------
Average Total Assets
7,976,1222000 =-------------------------------------- = 1.86
4,280,812.5
6,889,1452001 =-------------------------------------- = 1.36
5,054,450.5
Net Income before Minority shareof earnings and non recurring items
Return on Assets =-------------------------------------------------------------Average Total Assets
87,0132000 =-------------------------------------- = 0.02
4,280,812
(26,600)2001 =-------------------------------------- = -0.0052
5054450.5
Du Pont Return on Assets = Net Profit Margin * Total Asset Turnover
2000 = (0.01)(1.86) = 0.0186
2001 = (-0.004) (1.36) = -0.00544
Operating Income Operating Income Margin =-------------------------------------------
Net Sales
26
174,9542000 =---------------------------------- = 0.0219
7,976,122
75,457 2001 =---------------------------------- = 0.0109
6,889,145
148,7962002 =----------------------------------- = 0.0181
8,213,245
Net Sales Operating Asset Turnover =--------------------------------------------
Average Operating Assets
7,976,1222000 =--------------------------------- = 3.25
2,450,667.5
6,889,1452001 =------------------------------------ = 1.37
5,015,483
Operating Income Return on Operating Assets =-------------------------------------
Average Operating Assets
174,9542000 =------------------------------------ = 0.071
2,450,667.5
75,4572001 =------------------------------------ = 0.015
5,015,483
27
Du Pont Return On = Operating Income * Operating Asset Operating Assets Margin Turnover
2000 = (0.0219)(3.25) = 0.071
2001 = (0.0109)(1.37) = 0.015
Net Sales Sales to Fixed Assets =---------------------------------------------------
Average Net Fixed Assets (Exclude Construction in Progress)
7,976,1222000 =---------------------------------------- = 6.28
1,269,507.5
6,889,1452001 =-------------------------------------- = 4.98
1,382,140.5
Net Income before Minority ShareOf earnings and non recurring items +[(Interest Expense) * (1—Tax Rate)]
Return on Investment =--------------------------------------------------------------Average (Long-Term Liabilities + Equity)
87,013+ (72,480) (0.65)2000 =------------------------------------------- = 0.071
1,890,496
-26600+ (221,971) (0.65)2001 =----------------------------------------- = 0.063
1865642
28
Net Income before Non recurring items --Dividends on Redeemable Preferred Stock
Return on Total Equity =-----------------------------------------------------------Average Total Equity
870,0132000 =------------------------------------------ = 0.048
1,783,986
(26,600)2001 =------------------------------------------ = -0.015
1,768,642
Net Income before Non recurring items --Preferred Dividends
Return on Common Equity =-----------------------------------------------------Average Common Equity
87,013 + 72,4802000 =-------------------------------------------- = 0.003
4,280,812.5
(26,600) + 221,9712001 =------------------------------------------- = 0.038
5,054,450.5
Gross Profit Gross Profit Margin =---------------------------------
Net Sales
376,683
29
2000 =---------------------------------------- = 0.0477,976,122
310,2472001 =--------------------------------------- = 0.045
6,889,145
359,3362002 =---------------------------------------- = 0.043
8,213,245
Solved Calculation of All above Ratio formulae
Ratios 2000 2001 2002
Net Profit Margin 0.01 -0.004 0.011
Total Asset Turnover 1.86 1.36
Return on Assets 0.002 0.0052
Du Pont Return on Assets 0.0186 -0.00544
Operating Income Margin 0.0219 0.0109 0.0181
Operating Asset Turnover 3.25 1.37
Return on Operating Assets 0.071 0.015
Du Pont Return on Operating Assets 0.071 0.015
Sales to Fixed Assets 6.28 4.98
Return on Investment 0.071 0.063
Return on Total Equity 0.048 0.015
Return on Common Equity 0.003 0.038
Gross Profit Margin 0.047 0.045 0.043
Interpretation And Analysis of Each Ratio30
Net Profit Margin: This ratio gives the measure of net income dollars generated by each dollars of sales. Every firm try to increase it net profit margin ratio. This ratio show that in 2000 Suzuki’s net profit margin is very low; in 2001 it is also shows that its profit margin is in negative. And next year is in positive that shows that company is gradually increasing its profits.
Total Asset Turnover:
This ratio shows how Suzuki have ability to generate sale through its assets. This is indicating that total asset turnover is decreasing. It is decreasing because in 2001 company was in lose.
Return on Assets:
This ratio shows that how much Suzuki asset is producing profits. Suzuki return on assets ratio shows that company is not using its asset properly because it is not is producing much profit.
Operating Income Margin:
Operating income margin of Suzuki shows the significant decrease in 2001. and small increase in 2002. operating income has less portion in its sale. Its shows that Suzuki cost of goods sold is very high.
Operating Asset Turnover: In 2000 company OAS was 3.25 time per year but is decrease in 2001. this ratio shows that company operating asset is generating a 3.25 time per year profits.
Return on Operating Assets: Return on operating asset is decreasing in 2001.this show Suzuki operating asset is not generating enough operating income.
Sales to Fixed Assets:
31
This ratio shows that how Suzuki fixed asset is producing its sale. Suzuki is fixed asset incentive firm. So this ratio is show that Suzuki fixed asset is producing 6.28 and in next year it is gradually decrease.
Return on Investment:
It ratio shows earning performance of the Suzuki without regard to the way the investment is financed. It shows how Suzuki utilize its asset. This ratio is decrease substiantly. Because company has faced the lose in 2001.
Return on Total Equity: This ratio shows that how Suzuki is utilizing its total equity. Suzuki is ROE is 4.8 that is decreasing in next year.
Return on Common Equity:
This ratio shows that how Suzuki is utilizing its total equity. Suzuki’s return on common equity is increasing gradually.
Gross Profit Margin: Gross profit of Suzuki is gradually declining. That shows that Suzuki gross profit has less part in its sales. Company cost of buying is increasing. And Suzuki selling price is decreasing due to great competition with imported car.
32
33
All ratio formulae regarding this chapter
Earnings before Interest and Tax Degree of Financial leverage =----------------------------------------------------
Earnings before Tax
Earnings before interest, tax, Minority Share of Earnings, Equity Income,
And Nonrecurring items All-Inclusive Degree of =------------------------------------------------------------- Financial Leverage Earnings before Tax, Minority Share of
Share of Earnings, Equity Income, and Nonrecurring items
Net Income – Preferred Dividends Basic Earnings =-----------------------------------------------------------
Per Common Share Weighted Average Number of CommonShare Outstanding
Market Price per Share Price / Earnings Ration =-------------------------------------------
Diluted Earnings per Share
Net income – all dividend
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Percentage of Earnings Retained =----------------------------------------------------Net Income
87,013-39,3052000 =----------------------------- = 0.55
87,013
-26,600-02001 =---------------------------- = 1
-26,600
90,460-41,4552002 =---------------------------- = 0.54
90,460
Dividend per Common Share Dividend Payout =--------------------------------------------------
Diluted Earnings per Share
Dividend per Common Share Dividend Yield =-----------------------------------------------------
Market Price per Common Share
Total Stockholder’s Equity – Preferred Stock Equity Book Value per Share =-----------------------------------------------------------------
Number of Common Shares Outstanding
1,807,8402000 = ----------------------------- = 0.012
150,000,000
1,760,1322001 = ------------------------------ = 0.011
150,000,000
1,777,152
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2002 = ----------------------------- = 0.011150,000,000
Stock Options Outstanding Materiality of Options =---------------------------------------------------
Number of Shares of Common Stock Outstanding
Solved Calculation of All above Ratio formulae
Ratios 2000 2001 2002
Degree of Financial Leverage
All-Inclusive Degree of Financial leverage
Basic Earnings per Common Share
Price / Earnings Ratio
Percentage of Earnings Retained
Dividend Payout
Dividend Yield
Book Value per Share
Materiality of Options
Interpretation And Analysis of Each Ratio
Degree of Financial Leverage:
All-Inclusive Degree of Financial leverage:
Basic Earnings per Common Share:
Price / Earnings Ratio:
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Percentage of Earnings Retained:
This ratio indicates that how much cash company retained for the future investment. In year 2000 company retained more then 50% of the amount. But in next year Suzuki can’t retained because in 2001 company was in lose. And in 2002 company retained more then 54% of its profits. And 46% distribute in share holder.
Dividend Payout:
Dividend Yield:
Book Value per Share:
This ratio indicates the amount of stockholder equity that relate to each share of outstanding common stock. This ratio shows that Suzuki book value is same in all years.
Materiality of Options:
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Operating cash flow / current Operating cash flow
38
Maturities of long term debt and =-----------------------------------------Current notes payable . current maturities of long term
Debt and current notes payable
Note: The ration can not be solved because there is no portion of long term debts in our current notes payables.
Operating cash flow Operating cash flow/ total debt =----------------------------------------
Total debt
1,529,9312000 =----------------------------- = 0.73
2,087,090
966,9562001 =---------------------------- = 0.36
2,710,563
1,647,1732002 =--------------------------- = 0.91
1,814,796
operating cash flow – preferred dividends Operating cash flow per share =------------------------------------------------------------
Common shares outstanding
1,529,931 - 02000 =----------------------------- = 10.19
150,000
966,9562001 =------------------------- = 6.44
150,000
1,647,1732002 =------------------------ = 10.98
150,000
operating cash flow Operating cash flow / cash dividends =------------------------------------
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Cash dividends
1,529,9312000 =------------------------ = 19366.22
79
966,9562001 =---------------------- = 5.31
181,997
1,647,1732002 =----------------------- = 20,087.47
82
Solved Calculation of All above Ratio formulae
Ratios 2000 2001 2002Operating cash flow / total debt 0.73 0.36 0.91Operating cash flow per shares 10.19 6.44 10.98Operating cash flow / cash dividend 19,336.22 5.31 20,087.47
Operating cash flow / total debt:This ratio indicates that how much the firm ability to pay debt in a year. The 2001 is low as compare to 2000 and 2002 from 73% to 93% which is a very good paying ability of debt in these two years.
Operating cash flow per shares:This ratio tells us about the share that in one share how much cash receive against the share. The computation of this ratio indicates low ratio in year 2001 but high in 2000 and 2002 from 10.19 to 10.98 which show positive cash against the share.
Operating cash flow / cash dividend:This ratio tell us that how much cash dividend pay on cash flow, in 2000 it has very good paying ability of dividend with a very good amount as compare to year 2001. And same situation of paying dividend in year 2002 was also good paying ability of dividend.
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