Analysis of Financial Statements

Name : Tooba Fatima

Class : BBA(6)
Roll no : 1723106044
Company : Pel (Pak Electron Limited)
 Pak Electron Limited
Introduction:
Pak Electron Limited is a Pakistani engineering corporation which manufactures major home
appliances and electrical equipment. PEL was founded in 1956 through technical
collaboration with AEG. In 1978, PEL was acquired by Saigol Group and was taken public a
decade later.

Vision:
To Provide quality products and services to the complete satisfaction of our customers and
maximize returns for all stake holders through optimal use of resources. To promote good
governance corporate values and safe working environment with strong sense of social
responsibility.

Mission:
To provide quality products and services to the complete satisfaction of our customers and
maximize returns for all stakeholders through optimal use of resources. To promote good
governance, corporate values and safe working environment with strong sense of social
responsibility.

Organizational Behavior:
Organizational culture at PEL is based on strongly held and widely shared set of values and
beliefs that are supported by our strategy and structure. Our culture sets the context for
everything we do and is driven by our core values.
 Financial Statements
Income Statement
2018 2017 2016 2015 2014
Revenue 38,990,247 42,346,753 34,123,972 29,323,348 24,125,716
Sales tax, excise duty and
discounts -10,544,936 -11,346,711 -7,289,655 -4,201,081 -3,607,686
Net revenue 28,445,311 31,000,042 26,834,317 25,122,267 20,518,030
Cost of sales -21,448,040 -21,883,842 -18,550,387 -17,688,038 -14,208,775
Gross Profit 6,997,271 9,116,200 8,283,930 7,434,229 6,309,255
Other income 17,977 17,793 37,311 35,868 32,483
Distribution cost -2,207,445 -2,683,532 -1,627,796 -1,331,075 -1,089,521
Administrative and general
expenses -1,081,326 -1,118,844 -884,095 -758,487 -689,570
Other expenses -63,376 -176,194 -193,714 -187,582 -113,604
-3,352,147 -3,978,570 -2,705,605 -2,277,144 -1,892,695
Operating profit 3,663,101 5,155,423 5,615,636 5,192,953 4,449,043
Finance cost -2,103,343 -1,546,604 -1,496,503 -1,665,305 -1,892,828
1,559,758 3,608,819 4,119,133 3,527,648 2,556,215
Share of loss of associate -2,456 -5,354 309 -13,485 -10,924
Profit before taxation 1,557,302 3,603,465 4,119,442 3,514,163 2,545,291
Taxation -185,833 -295,211 -449,502 -634,142 -303,822
Profit after taxation 1,371,469 3,308,254 3,669,940 2,880,021 2,241,469

Horizontal Analysis
2018 2017 2016 2015
Revenue -7.926 24.097 16.371 21.544
Sales tax, excise duty and
discounts -7.066 55.655 73.519 16.448
Net revenue -8.241 15.524 6.815 22.440
Cost of sales -1.991 17.970 4.875 24.487
Gross Profit -23.244 10.047 11.430 17.831
Other income 1.034 -52.312 4.023 10.421
Distribution cost -17.741 64.857 22.292 22.171
Administrative and general
expenses -3.353 26.552 16.560 9.994
Other expenses -64.031 -9.044 3.269 65.119
-15.745 47.049 18.816 20.312
Operating profit -28.947 -8.195 8.140 16.721
Finance cost 35.998 3.348 -10.136 -12.020
-56.779 -12.389 16.767 38.003
Share of loss of associate -54.128 -1832.686 -102.291 23.444
Profit before taxation -56.783 -12.525 17.224 38.065
Taxation -37.051 -34.325 -29.117 108.722
Profit after taxation -58.544 -9.855 27.428 28.488
 Interpretation of Horizontal Analysis:
Revenue:
Decline in sales revenue is attributable to lower per capita disposable income and slow
ordering for the Company’s power products by WAPDA Discos. Sales revenue registered a
growth of 109% over the last years, on account of higher increase in business volume and
selling prices. Cost of sales has increased by since 2014. The lower rate of increase in cost of
sales in comparison with increase in revenue is attributable to cost efficiencies, improved
productivity and improved product design.

Distribution Cost:
Distribution cost has increased by since 2015 due to increase in revenues over the 4 years
period. Administrative and general expenses have also increased since 2014, with almost
similar %age to sales @ 4% over the last 6 years span.

Profit:
Profit margins decreased due to increase in interest rates and depreciation of Rupee.

Interest:
Interest rate has increased over past years. Due to increase in interest profit has been
decreased.

Vertical Analysis
2018 2017 2016 2015 2014
Revenue 100 100 100 100 100
Sales tax, excise duty and
discounts -27.05 -26.79 -21.36 -14.33 -14.95
Net revenue 72.95 73.21 78.64 85.67 85.05
Cost of sales -55.01 -51.68 -54.36 -60.32 -58.89
Gross Profit 17.95 21.53 24.28 25.35 26.15
Other income 0.046 0.042 0.109 0.122 0.135
Distribution cost -5.662 -6.337 -4.770 -4.539 -4.516
Administrative and general
expenses -2.773 -2.642 -2.591 -2.587 -2.858
Other expenses -0.163 -0.416 -0.568 -0.640 -0.471
-8.597 -9.395 -7.929 -7.766 -7.845
Operating profit 9.395 12.174 16.457 17.709 18.441
Finance cost -5.395 -3.652 -4.385 -5.679 -7.846
4.000 8.522 12.071 12.030 10.595
Share of loss of associate 0.023 0.047 -0.004 0.321 0.303
Profit after taxation 5.475 11.624 15.351 13.988 12.405
Taxation 0.866 1.349 2.423 3.585 2.138
Profit after taxation 19.600 36.290 44.302 38.740 35.527
Interpretation of Vertical Analysis:
Profit Margins:
Profit margins decreased due to increase in interest rates and depreciation of Rupee.

Cost of Sales:
Cost of sales has been increases over past five years.

Operating Profit:
There is minor decrease in operating profit compared to past years.
 Balance Sheet
2018 2017 2016 2015 2014
Assets
Current Assets

Stores spares and loose tools 859,145 746,408 812,915 793,379 462,140
Stock in trade 10,786,157 8,149,848 7,845,800 6,181,986 6,140,170
Trade debts 10,181,739 10,727,632 8,433,424 7,700,373 6,025,103
unsecured, considered good 1,535,735 1,393,185 1,127,996 1,023,647
Short term advances 1,039,505 845,826 954,881 913,881 1,256,100
Short term deposits and prepayments 1,105,179 1,109,232 1,258,874 1,331,229 853,209
Other receivables 360,962 311,090 480,244 390,118 187,730
Short term investments 22,071 21,824 23,106 85,524 21,596
Advance income tax 1,985,785 1,227,912 769,907 432,838 387,963
Cash and bank balances 471,258 484,194 552,210 577,687 287,935
Total Current Assets 28,347,536 25,017,151 22,259,357 19,430,662 15,621,946
Non-Current Assets
Property, plant and equipment 21,957,015 17,405,713 16,442,378 15,509,612 14,466,890
Intangible assets 313,352 315,525 323,656 338,321 344,008
Long term investments 6,985 8,848 26,341 8,906 63,990
Long term deposits 365,957 371,936 266,353 289,784 192,808
Long term advances 1,109,094 796,843 1,008,799 571,991
Total Non-Current Assets 23,752,403 18,898,865 18,067,527 16,718,614 15,067,696
Total Assets 52,099,939 43,916,016 40,326,884 36,149,276 30,689,642
Liabilities
CURRENT LIABILITIES
Trade and other payables 922,850 980,030 915,100 815,179 817,486
Unclaimed dividend 18,650 12,766
Accrued interest/mark-up 390,172 165,579 159,422 260,904 500,528
Short term borrowings 12,843,848 7,227,368 4,981,662 4,668,901 4,240,947
Current portion of non-current liabilities 1,814,311 2,027,692 1,788,450 1,976,655 1,523,155
Total Current Liabilities 15,989,831 10,413,435 7,844,634 7,721,639 7,082,116
Non-Current Liabilities
Redeemable capital 68,750 3,151,594 3,879,209 4,826,469
Long term finances 2,646,032 3,958,767 1,406,092 2,186,511 2,442,807
Liabilities against assets subject to finance
lease 59,778 22,406 46,384 61,349 74,715
Deferred taxation 3,087,822 2,413,351 2,326,193 2,261,892 2,048,938
Deferred income 36,781 38,717 40,755 42,900 45,158
Total Non-Current Liabilities 5,830,413 6,501,991 6,971,018 8,431,861 9,438,087
Total Liabilities 21,820,244 16,915,426 14,815,652 16,153,500 16,520,203

Owner's Equity
Authorized capital 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000
Issued. subscribed and paid-up capital 5,426,392 5,426,392 5,426,392 4,431,029 4,431,029
Capital reserve 4,279,947 4,279,947 4,279,947 1,293,858 1,293,858
Accumulated profit 13,994,307 13,020,232 11,134,131 7,891,437 3,876,195
SURPLUS ON REVALUATION OF 6,579,049 4,274,019 4,670,762 4,804,200 4,568,357
PROPERTY,
PLANT AND EQUIPMENT
TOTAL EQUITY 30,279,695 27,000,590 25,511,232 18,420,524 14,169,439
Total liabilities and equity 52,099,939 43,916,016 40,326,884 34,574,024 30,689,642

Horizontal Analysis
Assets 2018 2017 2016 2015
Current Assets
Stores spares and loose tools 15.10 -8.181 2.462 71.68
Stock in trade 32.35 3.875 26.91 0.68
Trade debts -5.089 27.20 9.520 27.80
unsecured, considered good 10.23 23.51 10.194
Short term advances 22.90 -11.42 4.486 -27.24
Short term deposits and prepayments -0.365 -11.89 -5.435 56.03
Other receivables 16.03 -35.22 23.10 107.8
Short term investments 1.132 -5.548 -72.98 296.0
Advance income tax 61.72 59.49 77.87 11.57
Cash and bank balances -2.672 -12.32 -4.410 101
Total Current Assets 13.31 12.39 14.56 24.38
Non-Current Assets
Property, plant and equipment 26.15 5.859 6.014 7.208
Intangible assets -0.689 -2.512 -4.335 -1.653
Long term investments -21.06 -66.41 195.8 -86.08
Long term deposits -1.608 39.64 -8.086 50.30
Long term advances 39.19 -21.01 76.37
Total Non-Current Assets 25.68 4.601 8.068 10.96
Total Assets 18.64 8.900 11.56 17.79
Liabilities
CURRENT LIABILITIES
Trade and other payables -5.83 7.095 12.258 -0.282
Unclaimed dividend 46.09
Accrued interest/mark-up 135.64 3.862 -38.896 -47.87
Short term borrowings 77.71 45.079 6.699 10.09
Current portion of non-current liabilities -10.52 13.377 -9.521 29.77
Total Current Liabilities 53.55 32.746 1.593 9.030
Non-Current Liabilities
Redeemable capital -100.00 -97.819 -18.757 -19.63
Long term finances -33.16 181.544 -35.692 -10.49
Liabilities against assets subject to finance
lease 166.79 -51.695 -24.393 -17.89
Deferred taxation 27.95 3.747 2.843 10.39
Deferred income -5.00 -5.001 -5.000 -5.00
Total Non-Current Liabilities -10.33 -6.728 -17.325 -10.66
Total Liabilities 29.00 14.173 -8.282 -2.22

Owner's Equity
Authorized capital 0.00 0.000 0.000 0.00
 Issued, subscribed and paid-up capital 0.00 0.000 22.463 0.00
Capital reserve 0.00 0.000 230.790 0.00
Accumulated profit 7.48 16.940 41.091 103.59
SURPLUS ON REVALUATION OF
PROPERTY, PLANT AND EQUIPMENT 53.93 -8.494 -2.778 5.16
TOTAL EQUITY 12.14 5.838 38.494 30.00
Total liabilities and equity 18.64 8.900 16.639 12.66

Interpretation of Horizontal Analysis

Non-Current Assets:
Non-current assets have increased as compared to 2017 primarily on the back of acquisition
of property, plant and equipment to support the increasing range of products offered by the
Company. Non-current assets of the Company including property, plant and equipment,
intangible assets, long term investments and other long term assets have increased by Rs.
4,700 million over the last 6 years. Property plant and equipment has increased by Rs. 3,595
million due to procurement of plant and machinery, and construction of new buildings.
Current Liabilities:
Similarly, a visible increase in current liabilities is to cater to the increasing working
requirements for smooth running of operations.

Current Assets:
Current assets had decreased in 2017 as compared to previous years. But company invested
in its current assets in 2018. Current assets include inventories, trade debts short term
advances, deposits, prepayments and other receivables, short term investments, current tax
assets and cash and bank balances. With an aggregate balance of Rs. 25,017 million at the
close of 2017, the current assets recorded an increase of Rs. 14,001 million since 2014 mainly
on account of increase in stock in trade and trade debts due to increase in business volume in
past years.

Shareholder’s Equity:
Shareholders' Equity The equity of the Company has grown almost six times over the past 6
years, and has also registered a YOY increase of 9.05% compared to last year. The paid-up
share capital stands increased to Rs. 3,758 million as a result of issue of 120% right ordinary
shares in 2013, 35% right ordinary shares and 10% bonus ordinary shares in 2014 and 25%
right ordinary shares in year 2016. Capital Reserves increased by 4,116 million due to
premium on issue of right ordinary shares in 2013, 2014 and 2016. Accumulated profits, at
the close of 2017, stood at Rs. 13,020 million due to mile stone achievements in business
volumes and cost economies.
 Vertical Analysis
2018 2017 2016 2015 2014
Assets
Current Assets
Stores spares and loose tools 1.649 1.700 2.016 2.195 1.506
Stock in trade 20.70 18.56 19.46 17.10 20.01
Trade debts 19.54 24.43 20.91 21.30 19.63
unsecured, considered good 2.948 3.172 2.797 2.832 0.000
Short term advances 1.995 1.926 2.368 2.528 4.093
Short term deposits and prepayments 2.121 2.526 3.122 3.683 2.780
Other receivables 0.693 0.708 1.191 1.079 0.612
Short term investments 0.042 0.050 0.057 0.237 0.070
Advance income tax 3.811 2.796 1.909 1.197 1.264
Cash and bank balances 0.905 1.103 1.369 1.598 0.938
Total Current Assets 54.41 56.97 55.20 53.75 50.90
Non-Current Assets
Property, plant and equipment 42.14 39.63 40.77 42.90 47.14
Intangible assets 0.601 0.718 0.803 0.936 1.121
Long term investments 0.013 0.020 0.065 0.025 0.209
Long term deposits 0.702 0.847 0.660 0.802 0.628
Long term advances 2.129 1.814 2.502 1.582 0.000
Total Non-Current Assets 45.59 43.03 44.80 46.25 49.10
Total Assets 100 100 100 100 100
Liabilities
CURRENT LIABILITIES
Trade and other payables 1.771 2.232 2.269 2.358 2.664
Unclaimed dividend 0.036 0.029 0.000 0.000 0.000
Accrued interest/mark-up 0.749 0.377 0.395 0.755 1.631
Short term borrowings 24.65 16.46 12.35 13.50 13.82
Current portion of non-current liabilities 3.482 4.617 4.435 5.717 4.963
Total Current Liabilities 30.69 23.71 19.45 22.33 23.08
Non-Current Liabilities
Redeemable capital 0
Long term finances 5.079 9.014 3.487 6.324 7.960
Liabilities against assets subject to finance
lease 0.115 0.051 0.115 0.177 0.243
Deferred taxation 5.927 5.495 5.768 6.542 6.676
Deferred income 0.071 0.088 0.101 0.124 0.147
Total Non-Current Liabilities 11.19 14.81 17.29 24.39 30.75
Total Liabilities 41.88 38.52 36.74 46.72 53.83

Owner's Equity
Authorized capital 11.52 13.66 14.88 17.35 19.55
Issued, subscribed and paid-up capital 10.42 12.36 13.46 12.82 14.44
Capital reserve 8.215 9.746 10.613 3.742 4.216
Accumulated profit 26.86 29.65 27.61 22.82 12.63
SURPLUS ON REVALUATION OF PROPERTY, 12.63 9.73 11.58 13.90 14.89
PLANT AND EQUIPMENT
TOTAL EQUITY 58.12 61.48 63.26 53.28 46.17
Total liabilities and equity 100 100 100 100 100

Interpretation of Vertical Analysis

Owner’s Equity:
The ratio of equity decreased due increase in short term borrowings to fund the working
capital requirements of the expanding operations of the Company.

Non-Current Assets:
Non-current assets have increased to 45% in the year 2018 as compared to 43% in the
corresponding period due to the Company's additional investment in property, plant and
equipment.

Current Assets:
Company has more current assets than non-current assets. If compared to previous year
current assets are increasing gradually.

Liabilities:
Company has worked to pay off its liabilities. There in an apparent decrease in liabilities
from 2015 to 2017. But there is an increase in liabilities in 2018. We can say that company is
taking debts for smooth running of business or for investing in new projects.

Ratio Analysis
 2018 2017 2016 2015 2014
Liquidity Ratio
Current Ratio 1.77 2.4 2.84 2.52 2.44
Quick Ratio 1.04 1.55 1.73 1.61 1.49

Activity Ratios
Inventory
turnover 2.27 2.74 2.64 2.83 2.79
Average Collection Period 98 83 86 92 95
Average payment period 14 13 15 15 21
Total Asset
Turnover 0.55 0.71 0.67 0.69 0.63

Debt Ratio
Debt Ratio 0.419 0.385 0.367 0.447 0.538
Debt to equity
Ratio 13.87 18.82 10.82 29.71 36.64
Times Interest Earned Ratio -1.742 -3.333 -3.753 -3.118 -2.350

Profitability
Ratios
Gross Profit
Margin 17.9 21.5 24.3 25.4 26.2
Operating Profit Margin 9.39 12.17 16.46 17.71 18.44
Net Profit Margin 3.52 7.81 10.75 9.82 9.29
Earnings per
Share 2.67 6.56 7.51 6.61 6.13
Return on Total Assets 2.63 7.53 9.10 7.97 7.30
Return on Equity 4.53 12.25 14.93 14.4 14.37

Market Ratios
Price/Earnings
Ratio 9.33 7.24 9.49 9.46 6.68
Market/Book
Ratio

Interpretation of Ratio Analysis

Profitability Ratio:
Gross profit has decreased by 23% as compared to the previous year 2017 primarily due to
increase in input cost mainly affected by Pak Rupee depreciation of 25.8% and decrease in
Sales due to prevailing economic conditions in the country. Net profit also decreased by 59%
as compared to 2017 mainly due to increased Finance cost. As a result return on equity and
capital employed also decreased by 60% and 59% against the previous year of 2017.

Liquidity Ratios:
Current ratio as at close of 2018 has decreased by 26% as compared to the year 2017 mainly
due to increase in short term borrowings. This also caused a slight decrease in cash to current
liabilities and cash flow from operations to sales ratio.

Activity/ Turnover Ratios:

Inventory days increased in current year by 28 days as compared to previous year 2017.
mainly due to bulk buying and receivable days increased by 15 days. There is a slight
improvement in payment days to creditors.

Investment / Market ratios:

As a result of decrease in earning in current year EPS has also decreased to 2.67 as compared
to 6.56 in the previous year. Economic uncertainty on the political front resulted in an
oscillate price trend exhibited by the company's share throughout the year. However, investor
confidence is resuming in the light of improved fundamentals like price earnings ratio which
is 9.33 in 2018 as compare to 7.24 in year 2017.

Debt Ratio:
Financial leverage improved in 2018 to 0.57 which is reduced as compared to the year 2014
when it was 0.84 time. As a result of increased Finance cost and low earnings recorded in
year under review interest cover declined to 2.3 times as compared to 4.5 times in year 2017.