Financial Silverstone
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Financial
Analysis
Silverstone
Chapter 6
FINANCIAL ANALYSIS
This chapter is based on the financial analysis of the company. First the accounting polices of the company is given, and then the financial analysis of the company is explained by using different financial ratios.
6.1
Significant Accounting Policies
The company follows the following accounting policies.
6.1.1
Accounting Convention
These accounts have been prepared under the historical cost convention in accordance with the schedule “ v” of the companies ordinance, 1984.
6.1.2
Fixed Operating Assets
These are stated at cost less accumulated depreciation, except land leasehold which is stated at cost. Depreciation has been charged by applying reducing balance method at the normal rates. Full depreciation will be provided on additions, irrespective of the date of additions.
6.1.3
Stock and Stores
These are valued as under: a.
Raw material:
At annual average cost.
b.
Finished goods:
At lower of cost or net realizablevalue.
c.
Stores and spares:
At moving average cost.
Financial
Analysis
Silverstone
6.1.4
Turn Over Tax
In the light of the decision of supreme court dated 04-06-1997, the units enjoying the tax holiday period under clause 118-C are exempted from the payment of turn over lax u/s 80-D, hence the provision for turn over tax has not bee made in these accounts.
6.1.5
Figures
Have been rounded off to the nearest rupee. Of the previous year have been re-arranged and regrouped.
6.2
Ratios Analysis
The financial analysis Silverstone (Pvt) limited is based upon the company’s annual audited report. There are different financial analysis procedures that can be adopted to measure the financial strength of a company. A couple of these procedures are financial ratios calculated from the annual balance sheet and statement or cost of goods sold statement, to measure and locate the exact causes of variation in income in two successive years. The financial ratios upon which the for-going analysis is going to be based can be categorized in three broad categories.
a.
Profitability Ratios
b.
Asset Utilization Ratios
c.
Liquidity Ratios
Financial
Analysis
Silverstone
BALANCE SHEET (Rs.) Share Capital
2001
2000
40,000,000
40,000,000
1. Authorized 4000000 ordinary Shares of RS: 100 / each
2.
Issued subscribed and paid up
3.
Unappropriated profit
4.
Log term loans
457,667
690,667
5.
Log term deposits
1,290,000
4,031,911
6.
Lease many payable
60,000
900,000
3,116,000
31,160,000
16,196,038
12,337,078
CURRENT LIABILITY 1. Current portion of long term loans
2,323,000
6,332,668
payable
30,000
30,000
3.
Short term borrowings
18,606,962
429,556
4.
Accruals and other liabilities
7,675,895
5,591,812
2. Current portion of lease money
PROPERTY AND ASSETS 1.
Fixed operating Assets
48,499,991
42,749,333
2.
Intangible Assets
4,500
4,500
3.
Long term deposits
1,153,425
666,645
CURRENT ASSETS 1.
Store and spares
19,509
98,148
2.
Stock in trade
1,129,296
13,419,871
3.
Trade debtors
13,624,107
6,672,698
4.
Advances deposits, prepayments
Financial
Analysis
Silverstone and other accruals
63,337,773
5,887,1333
Financial
Analysis
Silverstone
INCOME STATEMENT (Rs.) 2001
2000
Sale
103,967,467
8,748,227
COGS
(87,666,934)
(72,895,970)
Gross profit
16,900
14,584,317
Administrative
(8,704,462)
(8,035,515)
Selling & distribution
(1,473,124)
(1,442,475)
Financial
(2,998,884)
(2,526,870)
OPERATING PROFIT
37224064
2579,457
Other income
1975,38
280,954
Profit before taxation
3,921,642
2608411
Taxation
62,882
379,628
Profit After Taxation
3,858,960
2,928,039
12,337,078
9,409,039
16,196,038
12,337,078
OPERATING EXPENSES
Unappropriated brought toward profit Unappropriated carried forward
Financial
Analysis
Silverstone
6.2.1 1.
Profitability Ratios Profit Margin
=
Net Income Sales
2000
=
2,928 ,039 = 3.34 % 87 ,480 ,227
2001
=
3,858 ,960 =3.71 % 103 ,967 ,467
PROFIT MARGIN 0.04
3.71% 3.34%
0.035 0.03 0.025 0.02
Series2 Series1
0.015 0.01 0.005 0
0 1 2000
2 2001
Source: Silverstone Annual Report, 2001.
As obvious the profit margin has increased from 3.34% to 3.71. This is due to the increased income in 2001.
Financial
Analysis
Silverstone
2.
Return on Asset
=
Net Income Total Assets
2000
=
2,328 ,039 =10 .67 % 27 ,428 ,219
2001
=
3,858 ,960 =11 .939 % 32 ,341 ,651
RETURN ON ASSETS 12.50% 11.94%
12.00% 11.50% 11.00%
10.67%
10.50% 10.00% 2000
Source: Silverstone Annual Report, 2001.
2001
Financial
Analysis
Silverstone
3.
Return on equity
=
Net Income Equaity
2000
=
292 ,8039 =0.0673 % 43 ,497 ,078
2001
=
3858 ,960 =0.081 % 42 ,356 ,038
RETURN ON EQUITY 0.09 0.08 0.07 0.06 0.05 0.04 0.03 0.02 0.01 0
0.081% 0.0673%
0 2000
2001
Source: Silverstone Annual Report, 2001.
Return on Equity has increased from 0.067% to 0.08%. this is due to the more income in 2001 as compared to 2000.
Financial
Analysis
Silverstone
6.2.2 1.
Asset Utilization Ratios Receivable Turnover
=
Sale (Credit ) Re ceivables
2000
=
87 ,480 ,227 =13 .1 Times 6672 ,692
2001
=
103 ,967 ,462 = 7.63 Times 13 ,624 ,102
RECEIVABLES TURNOVER 0.14 13.10
0.12 0.1
7.63
0.08 0.06 0.04 0.02 0
0 1
2 2000
3 2001
Source: Silverstone Annual Report, 2001.
The Receivable Turnover ratio has been decreased during the financial year 2001 as compared to that of financial year 2000. The net change observed is 5 times, which shows that the conversion of receivables into cash has been decreased for the year.
Financial
Analysis
Silverstone
Average Collection Period
=
Average
A/ R daily Credit
Sale
2000
=
667 ,2692 = 27 Days 239672
2001
=
13 ,624 ,107 =47 Days 284892
AVERAGE COLLECTION PERIOD 47 50 40
27
30 20 10 0
1 2000
2 2001
Source: Silverstone Annual Report, 2001.
The average collection period has been prolonged by 20 days in the financial year 2001 as compared to that in 2000. This is due to the decreased in receivables turnover.
Financial
Analysis
Silverstone
3.
Inventory turnover
Sale Inventory
=
2000
=
87 ,480 ,227 =6.51 Times 13 ,419 ,871
2001
=
103 ,967 ,467 =7.63 Times 13 ,624 ,107
INVENTORY TURNOVER
7.8 7.6 7.4 7.2 7 6.8 6.6 6.4 6.2 6 5.8
7.63
6.51
2000
2001
Source: Silverstone Annual Report, 2001.
The inventory turnover ratio has been increased during the year 2001. Net change is 1 times, which shows the greater efficiency of the organization.
Financial
Analysis
Silverstone
4.
Fixed Asset Turnover
=
Sale Fixed Asset
2000
=
87480 ,227 = 2.046 Times 42 ,749 ,333
2001
=
103967467 = 2.14 Times 48 ,499 ,991
FIXED ASSET TURNOVER 0.025 2.05
2.14
0.02 0.015
Series2 Series1
0.01 0.005 0
0 2000
2001
Source: Silverstone Annual Report, 2001.
The fixed assets turnover has been increased slightly during the year 2001 as compared to that in 2000, which is a good sign for the organization.
Financial
Analysis
Silverstone
5.
Sale Total Asset
Total Asset Turnover
=
2000
=
87 ,480 ,227 =1.23 Times 20 ,848 ,692
2001
=
103 ,967 ,467 =1.26 Times 81 ,999 ,567
TOTAL ASSETS TURNOVER 0.014 0.012 0.01
1.23
1.26
0.008 0.006 0.004 0.002 0
2000
2001
Source: Silverstone Annual Report, 2001.
The total assets turnover of the organization has also been slightly increased during the financial year 2001 as compared to that in financial year 2000. The total assets turnover ratio for the period is 1.26 times, which was 1.23 times in 2000, which shows the better performance for the year.
Financial
Analysis
Silverstone
6.2.3 1.
2.
Liquidity Ratios Current
Current ratios = Current
Assets Liabilitie s
2000
=
27 ,428 ,219 =1.68 Times 16 ,249 ,041
2001
=
321 ,341 ,651 =1.12 Times 28 ,635 ,862
Quick Ratio =
Current Asset − Inventory Current Lialities
2000
=
2001
=
29428 ,219 ,13419 ,871 = 00 .86 Times 16 ,249 ,041
32341 ,651 ,13 ,624 ,102 =0.65 Times 28635 ,862
QUICK RATIO 0.01
0.86
0.008 0.65 0.006
Series1 Series2
0.004 0.002 0
0 2000
2001
Source: Silverstone Annual Report, 2001.
Financial
Analysis
Silverstone The quick ratio of the organization has been decreased for the year 2001. The net change is 0.21 times, which shows that the most liquid assets of the organization has been decreased for the year.
6.3
Explanations to the Ratios Determined
In the coming paras explanation has been given to the all above determined ratios.
6.3.1
Asset Utilization Ratio
Analyzing the Income Statement and Balance Sheet of the company for the year 2000 and 2001. We see a drop on the receivable turnover ratio from 13.1 to 7.63. The sale and receivables to increased but not in that proportion as in 2000. This is due to the increases rate on credit , which has caused the receivables to increase. The same thing is pronounced by the average collection periods, which is 27 days in 2000 but has increased to 47 days in 2001, which means that the company should improve its receivables channels. The inventory turnover, has increased from 0.51 763 the figures shows that the sale has been increased but at the same time the inventory has increased and is not maintained in that efficient manner as were in the year 2000. Fixed asset turnover has increased from 2.01 to 214, which shows in forced asset evolution. This is because of the fact total asset turnover has also increased from 1.23 to 1.26 again the fact in the increase in the sale in 2001.
6.3.2
Profitability Ratio
Profit margin shows increase from 3.34% to 3.71. The figure shows a high increase in the sale, but at the same tine the company has increases its profit
Financial
Analysis
Silverstone margin this is because that sale has increases and increased sale means high production and high promotion means, low manufacturing cost, and low manufacturing cost means high net income and high net income means high profit margin. The same thing is pronounced by the ratios of return on asset, and return on equity. In both the cases at has increased in 2001 as compared to 2000, which is as stated above is because of the improvement net income.
6.3.3
Liquidity Ratios
As the Calculations shows that current and quick ratio has been decreased. The current ratio is decreased from 1.68 to 1.12 and which ratio has been decreased from 0.86 to 0.65. This is because that current liabilities has increased and the reason for increase in current liabilities is due to the use of increased raw materials on credit, which was required for the high production as needed for increased sale in the year 2001.
Analysis
Silverstone
Chapter 6
FINANCIAL ANALYSIS
This chapter is based on the financial analysis of the company. First the accounting polices of the company is given, and then the financial analysis of the company is explained by using different financial ratios.
6.1
Significant Accounting Policies
The company follows the following accounting policies.
6.1.1
Accounting Convention
These accounts have been prepared under the historical cost convention in accordance with the schedule “ v” of the companies ordinance, 1984.
6.1.2
Fixed Operating Assets
These are stated at cost less accumulated depreciation, except land leasehold which is stated at cost. Depreciation has been charged by applying reducing balance method at the normal rates. Full depreciation will be provided on additions, irrespective of the date of additions.
6.1.3
Stock and Stores
These are valued as under: a.
Raw material:
At annual average cost.
b.
Finished goods:
At lower of cost or net realizablevalue.
c.
Stores and spares:
At moving average cost.
Financial
Analysis
Silverstone
6.1.4
Turn Over Tax
In the light of the decision of supreme court dated 04-06-1997, the units enjoying the tax holiday period under clause 118-C are exempted from the payment of turn over lax u/s 80-D, hence the provision for turn over tax has not bee made in these accounts.
6.1.5
Figures
Have been rounded off to the nearest rupee. Of the previous year have been re-arranged and regrouped.
6.2
Ratios Analysis
The financial analysis Silverstone (Pvt) limited is based upon the company’s annual audited report. There are different financial analysis procedures that can be adopted to measure the financial strength of a company. A couple of these procedures are financial ratios calculated from the annual balance sheet and statement or cost of goods sold statement, to measure and locate the exact causes of variation in income in two successive years. The financial ratios upon which the for-going analysis is going to be based can be categorized in three broad categories.
a.
Profitability Ratios
b.
Asset Utilization Ratios
c.
Liquidity Ratios
Financial
Analysis
Silverstone
BALANCE SHEET (Rs.) Share Capital
2001
2000
40,000,000
40,000,000
1. Authorized 4000000 ordinary Shares of RS: 100 / each
2.
Issued subscribed and paid up
3.
Unappropriated profit
4.
Log term loans
457,667
690,667
5.
Log term deposits
1,290,000
4,031,911
6.
Lease many payable
60,000
900,000
3,116,000
31,160,000
16,196,038
12,337,078
CURRENT LIABILITY 1. Current portion of long term loans
2,323,000
6,332,668
payable
30,000
30,000
3.
Short term borrowings
18,606,962
429,556
4.
Accruals and other liabilities
7,675,895
5,591,812
2. Current portion of lease money
PROPERTY AND ASSETS 1.
Fixed operating Assets
48,499,991
42,749,333
2.
Intangible Assets
4,500
4,500
3.
Long term deposits
1,153,425
666,645
CURRENT ASSETS 1.
Store and spares
19,509
98,148
2.
Stock in trade
1,129,296
13,419,871
3.
Trade debtors
13,624,107
6,672,698
4.
Advances deposits, prepayments
Financial
Analysis
Silverstone and other accruals
63,337,773
5,887,1333
Financial
Analysis
Silverstone
INCOME STATEMENT (Rs.) 2001
2000
Sale
103,967,467
8,748,227
COGS
(87,666,934)
(72,895,970)
Gross profit
16,900
14,584,317
Administrative
(8,704,462)
(8,035,515)
Selling & distribution
(1,473,124)
(1,442,475)
Financial
(2,998,884)
(2,526,870)
OPERATING PROFIT
37224064
2579,457
Other income
1975,38
280,954
Profit before taxation
3,921,642
2608411
Taxation
62,882
379,628
Profit After Taxation
3,858,960
2,928,039
12,337,078
9,409,039
16,196,038
12,337,078
OPERATING EXPENSES
Unappropriated brought toward profit Unappropriated carried forward
Financial
Analysis
Silverstone
6.2.1 1.
Profitability Ratios Profit Margin
=
Net Income Sales
2000
=
2,928 ,039 = 3.34 % 87 ,480 ,227
2001
=
3,858 ,960 =3.71 % 103 ,967 ,467
PROFIT MARGIN 0.04
3.71% 3.34%
0.035 0.03 0.025 0.02
Series2 Series1
0.015 0.01 0.005 0
0 1 2000
2 2001
Source: Silverstone Annual Report, 2001.
As obvious the profit margin has increased from 3.34% to 3.71. This is due to the increased income in 2001.
Financial
Analysis
Silverstone
2.
Return on Asset
=
Net Income Total Assets
2000
=
2,328 ,039 =10 .67 % 27 ,428 ,219
2001
=
3,858 ,960 =11 .939 % 32 ,341 ,651
RETURN ON ASSETS 12.50% 11.94%
12.00% 11.50% 11.00%
10.67%
10.50% 10.00% 2000
Source: Silverstone Annual Report, 2001.
2001
Financial
Analysis
Silverstone
3.
Return on equity
=
Net Income Equaity
2000
=
292 ,8039 =0.0673 % 43 ,497 ,078
2001
=
3858 ,960 =0.081 % 42 ,356 ,038
RETURN ON EQUITY 0.09 0.08 0.07 0.06 0.05 0.04 0.03 0.02 0.01 0
0.081% 0.0673%
0 2000
2001
Source: Silverstone Annual Report, 2001.
Return on Equity has increased from 0.067% to 0.08%. this is due to the more income in 2001 as compared to 2000.
Financial
Analysis
Silverstone
6.2.2 1.
Asset Utilization Ratios Receivable Turnover
=
Sale (Credit ) Re ceivables
2000
=
87 ,480 ,227 =13 .1 Times 6672 ,692
2001
=
103 ,967 ,462 = 7.63 Times 13 ,624 ,102
RECEIVABLES TURNOVER 0.14 13.10
0.12 0.1
7.63
0.08 0.06 0.04 0.02 0
0 1
2 2000
3 2001
Source: Silverstone Annual Report, 2001.
The Receivable Turnover ratio has been decreased during the financial year 2001 as compared to that of financial year 2000. The net change observed is 5 times, which shows that the conversion of receivables into cash has been decreased for the year.
Financial
Analysis
Silverstone
Average Collection Period
=
Average
A/ R daily Credit
Sale
2000
=
667 ,2692 = 27 Days 239672
2001
=
13 ,624 ,107 =47 Days 284892
AVERAGE COLLECTION PERIOD 47 50 40
27
30 20 10 0
1 2000
2 2001
Source: Silverstone Annual Report, 2001.
The average collection period has been prolonged by 20 days in the financial year 2001 as compared to that in 2000. This is due to the decreased in receivables turnover.
Financial
Analysis
Silverstone
3.
Inventory turnover
Sale Inventory
=
2000
=
87 ,480 ,227 =6.51 Times 13 ,419 ,871
2001
=
103 ,967 ,467 =7.63 Times 13 ,624 ,107
INVENTORY TURNOVER
7.8 7.6 7.4 7.2 7 6.8 6.6 6.4 6.2 6 5.8
7.63
6.51
2000
2001
Source: Silverstone Annual Report, 2001.
The inventory turnover ratio has been increased during the year 2001. Net change is 1 times, which shows the greater efficiency of the organization.
Financial
Analysis
Silverstone
4.
Fixed Asset Turnover
=
Sale Fixed Asset
2000
=
87480 ,227 = 2.046 Times 42 ,749 ,333
2001
=
103967467 = 2.14 Times 48 ,499 ,991
FIXED ASSET TURNOVER 0.025 2.05
2.14
0.02 0.015
Series2 Series1
0.01 0.005 0
0 2000
2001
Source: Silverstone Annual Report, 2001.
The fixed assets turnover has been increased slightly during the year 2001 as compared to that in 2000, which is a good sign for the organization.
Financial
Analysis
Silverstone
5.
Sale Total Asset
Total Asset Turnover
=
2000
=
87 ,480 ,227 =1.23 Times 20 ,848 ,692
2001
=
103 ,967 ,467 =1.26 Times 81 ,999 ,567
TOTAL ASSETS TURNOVER 0.014 0.012 0.01
1.23
1.26
0.008 0.006 0.004 0.002 0
2000
2001
Source: Silverstone Annual Report, 2001.
The total assets turnover of the organization has also been slightly increased during the financial year 2001 as compared to that in financial year 2000. The total assets turnover ratio for the period is 1.26 times, which was 1.23 times in 2000, which shows the better performance for the year.
Financial
Analysis
Silverstone
6.2.3 1.
2.
Liquidity Ratios Current
Current ratios = Current
Assets Liabilitie s
2000
=
27 ,428 ,219 =1.68 Times 16 ,249 ,041
2001
=
321 ,341 ,651 =1.12 Times 28 ,635 ,862
Quick Ratio =
Current Asset − Inventory Current Lialities
2000
=
2001
=
29428 ,219 ,13419 ,871 = 00 .86 Times 16 ,249 ,041
32341 ,651 ,13 ,624 ,102 =0.65 Times 28635 ,862
QUICK RATIO 0.01
0.86
0.008 0.65 0.006
Series1 Series2
0.004 0.002 0
0 2000
2001
Source: Silverstone Annual Report, 2001.
Financial
Analysis
Silverstone The quick ratio of the organization has been decreased for the year 2001. The net change is 0.21 times, which shows that the most liquid assets of the organization has been decreased for the year.
6.3
Explanations to the Ratios Determined
In the coming paras explanation has been given to the all above determined ratios.
6.3.1
Asset Utilization Ratio
Analyzing the Income Statement and Balance Sheet of the company for the year 2000 and 2001. We see a drop on the receivable turnover ratio from 13.1 to 7.63. The sale and receivables to increased but not in that proportion as in 2000. This is due to the increases rate on credit , which has caused the receivables to increase. The same thing is pronounced by the average collection periods, which is 27 days in 2000 but has increased to 47 days in 2001, which means that the company should improve its receivables channels. The inventory turnover, has increased from 0.51 763 the figures shows that the sale has been increased but at the same time the inventory has increased and is not maintained in that efficient manner as were in the year 2000. Fixed asset turnover has increased from 2.01 to 214, which shows in forced asset evolution. This is because of the fact total asset turnover has also increased from 1.23 to 1.26 again the fact in the increase in the sale in 2001.
6.3.2
Profitability Ratio
Profit margin shows increase from 3.34% to 3.71. The figure shows a high increase in the sale, but at the same tine the company has increases its profit
Financial
Analysis
Silverstone margin this is because that sale has increases and increased sale means high production and high promotion means, low manufacturing cost, and low manufacturing cost means high net income and high net income means high profit margin. The same thing is pronounced by the ratios of return on asset, and return on equity. In both the cases at has increased in 2001 as compared to 2000, which is as stated above is because of the improvement net income.
6.3.3
Liquidity Ratios
As the Calculations shows that current and quick ratio has been decreased. The current ratio is decreased from 1.68 to 1.12 and which ratio has been decreased from 0.86 to 0.65. This is because that current liabilities has increased and the reason for increase in current liabilities is due to the use of increased raw materials on credit, which was required for the high production as needed for increased sale in the year 2001.
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