Financial Statement

Analysis - Atlas Battery

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Executive Summary
For the purpose of my Financial Statement Analysis project , I chose Atlas Battery. The purpose
of this project and the whole analysis is to look at the direction of the progress of the company
by comparing and compiling its past five years data. The project starts off by looking at the basic
statements of the company such as Profit and Loss Accounts, Balance Sheets and Cash Flow
Statements. Later on in the project, some important ratios such as cash flow ratios, liquidity
ratios, solvency ratios, returns on capital ratios and profit ratios will be used to get a more
detailed insight of the operations of the company. In the end the report will discuss the decisions
that should be taken by banker as well as an investor by keeping in mind the performance of the
company for the last five years.
Two important facts should be kept in mind regarding the performance of the company for the
last five years. Firstly, Pakistan has been facing energy crisis and due to that there has been a
tremendous increase in the demand of UPS and batteries that power these UPS. Secondly, the
number of vehicles on the road have also increased partly due to imports from Japan and China
and partly due to the general needs of the people. This increase in demand for vehicles has
increased the demand for its complimentary goods which includes batteries as well.
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Contents
CC.2 Profit and Loss ...................................................................................................................................... 4
CC.3 Balance Sheets ...................................................................................................................................... 5
CC.4 Statements of Cash Flows ..................................................................................................................... 7
CC.5 Five Year Growth Rates ....................................................................................................................... 10
CC.6 Common-Size Profit and Loss ............................................................................................................. 11
CC.7 Common-Size Balance Sheets ............................................................................................................. 12
CC.8 Trend Index of Selected Accounts(Year 2008=100%) ......................................................................... 15
CC.9 Per Share Results ................................................................................................................................ 17
CC.10 Common-Size Statements of Cash Flows ......................................................................................... 19
CC.11 Analysis of Cash Flow Ratios ............................................................................................................. 20
CC. 12 Short-Term Liquidity Analysis .......................................................................................................... 21
CC. 13 Common-Size Analysis of Current Assets and Current Liabilities .................................................... 24
CC. 18 Capital Structure and Solvency Ratios ............................................................................................. 25
CC. 19 Return on Invested Capital Ratios ................................................................................................... 26
CC. 20 Asset Utilization Ratios .................................................................................................................... 27
CC. 21 Analysis of Profit Margin Ratios ....................................................................................................... 28
CC. 22 Analysis of Depreciation .................................................................................................................. 29
CC.23 Analysis of Discretionary Expenditure .............................................................................................. 30
CC. 28 Market Measures ............................................................................................................................. 31
Conclusion ................................................................................................................................................... 32
As an Investor ......................................................................................................................................... 32
As a Banker.............................................................................................................................................. 32
References .................................................................................................................................................. 33
Appendix(Financial Statements of 2012 and Rough Work) ........................................................................ 34


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CC.2 Profit and Loss


By looking at the profit and loss accounts of the company over the last five years we can see that
the company has shown a steady increase in sales. But on the other hand its cost of sales has also
shown an increasing trend but still the company managed to obtain an increasing gross profit in
absolute terms over the last five years. Another important point over here is the gradual increase
in the total comprehensive income of the company from 2007 to 2012, which means that despite
the increase in the expenses in this time period the management of the company was able to
efficiently increase its total income over the years. Lastly, the earning per share value has also
shown an increasing trend for the company.
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CC.3 Balance Sheets

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By looking at the balance sheet of the company for the last five years we can safely conclude that
the company has continued to increase its total assets over the years. This trend showed a greater
increase in 2011 and 2012 which can primarily be attributed to huge changes in the current assets
part of the balance sheet.
Coming to the equity part of the company, the company increased its authorized share capital
from 100,000 to 500,000 in 2011. Apart from that the issued and paid up capital part of the
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statement also shows a growing trend which points to the fact that the demand of its shares has
increased over time. Another important thing that should be noted over here is that the company
has continued to increased its reserves as well as the unappropriated profit over the course of five
years.
All of the previously mentioned things point to the financial stability of the company. But as I
examined the liability part of the statement, I noticed that the liabilities have also continued to
increase. However, this increase in total liabilities is set off due to the increase in the companys
current assets, reserves and profits. Apart from that the company increased its investment not
from an increase in the long term debt but by increasing its authorized share in the equity part.
CC.4 Statements of Cash Flows

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Analysis of statements of cash flow for Atlas battery for the years 2008 till 2012 reveal that
operating cash flow from operations in the first two years were fluctuating; cash flow from
operations in the first year was quite low as compared to the rest of the years and in 2009 it
increased by a great proportion. After these two years there was a noticeable decrease in the cash
generated from operations in 2010 after which the company shows a growing and steady source
of cash from operations. This low cash from operations can be attributed primarily to large cash
outflow from deposits and prepayments in the first year. This simply implies that a large chunk
of cash was drained from the changes in working capital of the company.
Coming to the net cash used in investing activities, we can see clearly that this value remained
negative throughout the time frame of five years. The only difference was the fact that it
continued to become more negative in the later years and the value jumped to a more negative
side especially in 2009 and 2011. This can be attributed to a huge increase in the outflow from
fixed capital expenditure in the subsequent years. This means that the company was expanding
and restructuring. Another important value is the huge amount in 2012 of investment acquired.
However, the impact of this value was reduced due to an increase in the value of sale proceeds
from disposal of investments in the same year.
The net cash generated from financing activities depict a fluctuating trend; it had a relatively
large negative value in 2009 as compared to a big positive value in 2011 and 2008 respectively.
A deeper study of financing activity of Atlas Battery shows that the company continued to give
dividends in an increasing trend over the time frame. So, the main reason for the fluctuations in
the net cash generated from financing activities is due to changes in short term borrowings of the
company.
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Lastly, by looking at the increase/decrease in cash and cash equivalents for each year, we can see
a negative values in 2012 and 2009 respectively. This negative value might indicate to the fact
that the company was growing and investing at the same time.
CC.5 Five Year Growth Rates


The growth rate of sales per share of Atlas Battery over the five years show that its sales have
been increasing by almost 10 percent which in practical terms is quite good. Net Income per
share growth rate of the company over the 5 year period is also a positive figure which indicates
that the company is enjoying increasing rates of profits every preceding year.
The dividend and Equity per share over a 5 years period also shows has a positive value of nearly
10 percent and 14 percent respectively.. This means that the firm payment of dividends in
increasing every year at a good rate which is very attractive for investors and its equity is also
increasing at a decent rate.
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CC.6 Common-Size Profit and Loss


The common size is created by taking the averages of each of the component of the profit and
loss statements and then dividing it by the total sales of the year.
By looking at the statement we can see that there is no big fluctuations in either the costs or the
profits of the company over the five years. The cost of sales took nearly 83 to 85 percent of the
total sales. The gross profit of Atlas Battery relative to sales was highest in the year 2012 and
2009. From 2010 onwards the company continued to maintain a steady and growing profit from
operations.
Profit after taxation of the company also showed a growing trend over the last five years. In case
of total comprehensive income, we can notice that the income relative to sales fell a bit between
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2008 to 2009, however after this the company was able to increase its total comprehensive
income in the later years.
CC.7 Common-Size Balance Sheets

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The common size balance sheets help us analyze and interpret the portion each component of the
sheet contributes to the sum of total assets or total liabilities and equity.
Looking at the table we can see that non-current assets contribute to about 40 percent of the total
assets except for the years 2009 and 2010. In these two years the portion of non-current assets to
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total assets rose to nearly 50 percent. This was mainly due to increases in property, plant and
equipment of Atlas Battery.
In current assets portion of the company, the main item that contributed to its value was stock in
trade which remained around 30 percent for the company. Apart from that the company also
increased its investments part of the current assets tremendously over the years.
Coming to the equity and liability part, the most prominent thing that one can notice here is the
increase in the total equity as part of the total equity and liability. This is mainly due to the
increases brought by the company in the ratio of its unappropriated profit over the years. The
ratios of other components in equity part remained mostly same.
In the current liability part of the statement, the component that showed the most fluctuating
figures was the value of short term borrowings which meant that the company was constantly
taking as well as giving back its short term loans. In 2011 short term borrowing contributed to
more than half of the total liabilities as a ratio of total assets and liabilities. However this ratio
was brought down in 2012 which indicates that the management of the company is trying to get
rid of borrowings.
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CC.8 Trend Index of Selected Accounts(Year 2008=100%)


For the purpose of observing the trend of the few selected accounts from Balance Sheet and
Income Statement I considered the values of year 2008 as base year values.
The most important value in this table is of sales. The table shows if we keep the 2008 value of
sales as the base than the value of sales increased by nearly 270 percent in 2012. This is mainly
because of an increase in the demand of battery due to energy crisis and an increased number of
vehicles on the road. Sales of the company increased, but at the same time the cost of sales of the
company also increased by nearly the same percentage, which means that the company wasnt
able to manage and bring down its production cost.
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Another important value is of working capital of the company, which increased by a huge
amount of nearly 450 percent over the past five years. This again points to the fact that the
company has been facing an increase in the demands and keeping this in mind the company has
increased its working capital continuously.
An interesting portion of this analysis is the value in the column of finance cost. It can be seen
from the table that the company was able to decrease its finance cost to nearly half in 2010.
However, after that the company must have increased its borrowing due to which its finance cost
continued to increase in the next two years.
Apart from that the values of total assets as well as total liabilities showed a small decrease in
2009 but after that they continued to increase at a steady rate.
Finally, the total comprehensive income for the company also shows an increasing trend.
Overall, all of the components have increased in the last five years. To conclude, it is safe to say
that in the last five years the company has been on its road of expansion in sales as well as
capital.
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CC.9 Per Share Results


Looking at the per share values of the company, we can see that the sales per share of the
company has shown an increasing trend from 2008 till 2012 and it increased significantly in
2011. This great increase can be contributed to a large increase in the number of sales in that
particular year.
Net income per share also shows an increasing trend which indicates that though the company
has been able to increase sales but at the same time it has also been able to generate an increasing
net income per share too.
Dividends paid per share also increased over the years, however it remained constant in 2010 and
2011 respectively. The reason for this is that even though average shares outstanding increased
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but the company decided to give out more dividend in 2011 due to which the ratio of divided to
share remained the same in these two years.
The book value per share depicts the value of a share of the common stock which as we can see
from the table showed an increasing trend. Lastly coming to the average shares outstanding of
Atlas Battery, we can say that the company has continued to issue new shares after 2009.
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CC.10 Common-Size Statements of Cash Flows


From common size of cash flow we can see what each cash flow contribute as a percentage of all
the positive cash flows in the given year. From the analysis of this table we can see that net
2012 2011 2010 2009 2008
Cash flow from operating activities
Profit before taxation 0.54 0.49 0.46 0.43 0.14
Adjustments for non -cash charges and other items
Depreciation of operating fixed assets 0.07 0.06 0.07 0.07 0.03
Amortisation of intangible assets 0.00 0.01
Unrealized gain on remeasurement of investments -0.01 0.00 0.00
Net change in fair value of investments at fair value through profit or loss -0.02
Gain on sale of investments -0.01 0.00 0.00 0.00 0.00
Interest expense 0.03 0.07 0.03
Interest income 0.00 0.00
Finance cost 0.06 0.04
Loss/(Gain) on sale of operating fixed assets 0.00 0.00 0.00 0.00 0.00
Operating fixed assets written off 0.01
Provision for gratuity 0.01 0.01 0.00 0.00 0.00
Provision for compensated leave absences 0.01 0.01 0.01 0.01 0.00
Operating profit before working capital changes 0.68 0.61 0.57 0.58 0.21
Working capital changes:
(Increase)/decrease in current assets
Stores, spares and loose tools -0.01 -0.01 -0.01 0.00 0.00
Stock-in-trade -0.07 -0.17 -0.13 -0.04 -0.09
Trade debts -0.02 0.01 -0.02 -0.02 -0.02
Loans and advances 0.00 0.00 0.00 0.00 0.00
Deposits and prepayments 0.00 0.00 0.00 0.11 -0.61
Other receivables 0.00 0.00 0.00 -0.01 0.00
Sales tax - net 0.03 -0.04
-0.11 -0.14 -0.19 0.04 -0.17
Increase/(decrease) in current liabilites
Trade and other payables 0.11 -0.01 0.05 0.23 0.02
Sales tax payable - net 0.01
Special excise duty payable - net -0.01 0.01
0.11 0.00 0.05 0.23 0.02
Cash generated from operations 0.68 0.46 0.43 0.84 0.06
Common Size Statements of Cash Flows
for year 2008 through year 2012
( Rupees in '000)
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operating cash flows before working capital is the main contributor of common size cash flow.
Further analysis show that income tax paid takes a huge portion of outflow from the company.
The important thing to be noted here is that the company has been able to maintain a steady level
of outflow in the form of dividend. Apart from that there are minor fluctuations in cash generated
from operations over the last five years of the company.
CC.11 Analysis of Cash Flow Ratios


The cash flow adequacy ratio provides insight into whether Atlas Battery generates sufficient
cash from operations to cover capital expenditures, investments in inventories, and cash
dividends. This ratio for Atlas Battery is nearly 0.8, which indicates that funds generated from
operations are insufficient to cover capital expenditures, investments in inventories and cash
dividends. Furthermore, the company should get external financing to cover its cash flow
adequacy ratio. But we have to keep in mind that this is the combined average for the five years
and the case might be different if we look at these ratios in each separate year.
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The cash reinvestment ratio provides insight into the amount of cash retained and reinvested into
the company for both asset replacement and growth. This ratio is negative for the company in
2008 which is because of the negative cash provided by the operations in that year. Secondly,
this ratio was highest in 2009 and 2012 mainly due to a high cash from the operations of the
company.
Coming to the industrial average in this table, we can see that the adequacy ratio as well as the
cash reinvestment ratio of Atlas Battery has remained above that of the average of the company
for all the years except 2008. This points to the fact that the company has performed better than
most of the companies in the same industry.
CC. 12 Short-Term Liquidity Analysis


The current ratio of the company is above the average requirement. Secondly, this ratio is
increasing constantly over the years which means that the increase in its current assets is greater
than its increase in current liabilities. Apart from that the values in each respective year is greater
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than the current ratio of the industry, which points towards the better average performance of the
company as compared to other companies in the same industry.
The asset test ratio also show improvement over the years and depict an increasing trend.
Furthermore, the acid test ratio of the company was slightly lower than the average in first four
years of the analysis but in the latest year the company was able to bring the ratio above the
average value of the industry. One reason for this increase is the fact that the sales of the
company has grown more as compared to the increases in stock in trade, which means that the
company has started a better stock and inventory management.
Coming to the accounts receivable turnover ratios of the company, these ratios show an
increasing trend which indicates an efficient business operation or that the company is perusing a
tighter credit policy in each subsequent year. Furthermore, it is safe to assume after looking at
the trend of the accounts receivable turnover that the company is efficiently using its assets.
Secondly, the turnover of Atlas Battery is better than the average of the industry which means
that company is more efficient in dealing with its debtors.
The inventory turnover also shows a favorable value for the company partly because its value is
showing an increasing trend and partly because each year value is bigger than the value of the
average of the industry. This means that not only the company in question is selling more but
over the years it has been able to increase the number of sales turn in a year.
The days sales in receivables show a decreasing trend in general which means that the company
is becoming more successful in collecting revue after a credit sale has been made. Since the
value is becoming smaller it means that the company takes fewer days to collect its accounts
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receivables. Furthermore, the company is performing much better in this case when we compare
its year values with average of the industry.
Days sales in inventory are also decreasing which means that the company is managing its
inventory much better and it takes lesser time for the company to turn its inventory. But more
important is that the value of each year is lesser than the average of the industry. Apart from that
the value of conversion period is also decreasing in the span of the last five years.
Cash to current assets and cash to current liabilities show the liquidity of the company keeping
cash as the base. In both the cases the percentages are increasing over time which indicates that
the company is holding a larger percentage of cash in each subsequent year. Besides this increase
the companies percentage is also greater than the average of the industry.
The working capital of the company has been constantly increasing over the last five years which
means that company has been keeping a check on its current assets and also it indicates that the
company is investing as well as growing.
The average net trade cycle decreased in 2009 but after that it started to increase steadily. Lastly
cash provided by operations to average current liabilities have shown a fluctuating trend,
negative in first year and then increasing substantially in the next year.
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CC. 13 Common-Size Analysis of Current Assets and Current Liabilities


The table shows that a large portion of current assets was contributed by investments in 2012 and
2011, but before that it only contributed a small portion to current assets in 2010 and 2009
whereas in 2008 there was no investment at all. Another variation was in deposits and
prepayments which had a huge value of almost 11 percent in 2008 but it decreased sharply in the
next year and continued to decrease in later years. This means that the company is now focusing
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more on prompt and upfront payments. However, the main contributor in current assets were the
inventories which consumed more than half of the current assets.
Trade and other payables and short term borrowings as a percentage of the total current liabilities
were the main component of current liabilities of the company. Both showed a varying
percentage in the last five years. However, in the last three years the company has continued to
increase its short term borrowings which means that the company is relying more on borrowings
in short term.
CC. 18 Capital Structure and Solvency Ratios


Total debt to equity ratio was the highest in the first year of analysis after which the ratio
dropped and then showed a fluctuating trend. But the plus point to the company is that its values
are lesser than that of industry on an average. The total debt ratio of the company has been fairly
low as compared to that of the industry.
Atlas battery has no long term debt, which points to the fact that the company relies solely on its
earnings, short term borrowings and finance from issuance of stocks. The fixed assets to equity
of the company is also lower than that of the industry. Furthermore, it was even below 1 which
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meant that some of the fixed ratio were financed by liabilities which is not a good sign for the
company. The current liability to total liability ratio if lower is better and in this case the
company has been able to maintain this ratio to almost 0.80 and its ratios are lesser than that of
the industry in all of the years.
Earnings to fixed charges show the amount of earnings available to pay the fixed charges and in
this case this value shows an increasing trend till 2010 after which is decreased.. The last ratio
cash flows from operations to fixed charges which shows a fluctuating trend and even a negative
value in 2008. However in later years this values has remained above industrial average.
CC. 19 Return on Invested Capital Ratios


Return on assets in all of the years has remained positive and have stayed above industrial
average which means that the company is utilizing its assets efficiently. This return decreased
initially in 2009 but after that it showed a sign of good and healthy recovery. The return on
common equity has not only remained positive but has also shown an increasing trend over the
years. A further analysis in the disaggregation of return on common equity shows that the main
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reason for the increase in the return is the steady increase in total asset turn over which means
that the company is not only increasing sales but is efficiently using its assets for this purpose.
Return on long term debt and equity also remained above industry average for Atlas Battery.
Lastly, the growth rate of equity shows an increasing trend. This indicates that the company will
continue its growth in sales and earnings.
CC. 20 Asset Utilization Ratios


Sales to cash and equivalents have shown an improvement from 2008 till 2012 which a sharp dip
in 2011 which was due to smaller cash in bank. However, sales to cash and equivalents remained
higher than the average of the industry in 3 out of 5 years. Sales to receivables show an
increasing trend which points to improvement in cash collections from debtors. Sales to
inventories have not only improved but have remained higher than the average of the industry in
all of the past five years.
Sales to working capital have decreased over time which means that company is trying to better
utilize its assets. However this ratio has remained well above the average of the industry which
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means that the company should improve its asset utilization rate and work on using its idle
assets.
Sales to fixed assets and sales to total assets both have shown signs of improvement over the
years. Furthermore they have remained above the industrial average as well.
Lastly, before coming to sales to short term liabilities it is better to remind that the company has
not taken any long term loans and relies on its short term borrowings, internal finances and
equity finances. So, the increase in this ratio was expected. Nevertheless, the company should
work on improving this ratio in the future.
CC. 21 Analysis of Profit Margin Ratios


The gross profit margin of Atlas Battery continued to fluctuate between 14 and 16 percent in the
last 5 years. Considering the economic conditions of the country and the financial as well as
energy crisis, this margin is very good. Furthermore, the industrial average were just around 10
percent which means that the company was able to enjoy good profits.
The operating profit margin also showed a fluctuating trend which is primarily attributed to the
conditions of the country, however since the economy is improving from the last quarter of 2011,
the financial situation of most of the companies in the automobile business have improved. The
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net profit margin of Atlas Battery was way better than the average of the industry and it has also
shown an increasing trend.
CC. 22 Analysis of Depreciation


The analysis of depreciations as a percentage of gross plant assets show that the company has
been able to decrease this percentage. However, we have to keep in mind that this has not
affected the net profit margins of the company.
The annual depreciation expense as a percentage of gross plant have remained constant for most
of the years expect 2010 in which it decreased because the company had sold some of its
depreciable assets. Lastly, annual depreciation as a percentage of sales value show an increasing
trend, which means that annual deprecation is increasing at a much higher rate than that of sales.
Furthermore, it might also mean that the assets, especially equipments and machinery of the
company is getting old and hence they incur more depreciation expense.
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CC.23 Analysis of Discretionary Expenditure


Maintenance and repair have continued to increase over the years for the company, which points
to the fact that the company is growing and employing more factors of production. Atlas Battery
has also increased its advertising expenses which means that it has opened its target market and
is spending more to promote its brand. Maintenance and repairs to sales and well as maintenance
and repairs to plant have shown a fluctuating trend over the last five years. They increased
initially but due to more sales of the company and more assets being employed they have
decreased in the later years. Lastly the relationship of advertising and sales show that advertising
has resulted in more sales of the company. This ratio has remained constant expect in 2009.
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CC. 28 Market Measures

The average share prices of the company has increased over the years with a small decrease in
2009. Price to earnings ratio for Atlas Battery dropped in 2009 but after that it remained stable.
Furthermore, this ratio has been very close to the average of the industry which means that the
company is doing an average business. The Price to book ratio is also very much below the
average value of the industry showing that the stock is very much undervalued compared to other
firms. The earning yield have continued to increase over the last five years and is much higher
than average of the industry even at its lowest value. Dividend payout ratio has shown some
fluctuations but overall it shows a decreasing trend.
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Conclusion
As an Investor

After the analysis of all the ratios calculated, I have reached a conclusion that investing in the
company can be an option because compared to other industries it has managed its assets quite
well. Also the increasing trend of ROCE and return on long term debt and equity has shown a
growth and is also above the industrial average which makes it a better option for investing.
The financial leverage index has remained above 1 and also above the industrial average for all
the analyzed years shows that a proper debt management is taking place. The only thing not
good about the firm was its P/E ratio which showed a downward trend showing that firm growth
prospects as slowing down but keeping all other good aspects in mind I will invest in the
company.
As a Banker

I would definitely give loan to Atlas battery. This is due to a number of reasons. Firstly, the
company has shown an increasing number of sales over the years. The company is very stable
and has good profit margins. Secondly, its financial position is very strong, both from debt as
well as assets point of view. Apart from that it has no long term loans and the company analysis
show that it is efficient in returning short term loans. Thirdly, the market analysis depict that the
company share prices are increasing over the years and that it has a good dividend as well as
earnings ratio. Lastly, the profitability and the solvency ratio are in favor of this company both in
terms of industrial average in terms of historical perspective. All in all the company has good
future growth and profit prospective, thus I will be in favor of lending loan to Atlas Battery.
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References

http://www.atlasbattery.com.pk/
http://www.brecorder.com/
http://www.atlasbattery.com.pk/about_us/financial_statment.php
http://www.brecorder.com/market-data/karachi-stocks/


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Appendix(Financial Statements of 2012 and Rough Work)