business finance ratio abbot

8/10/2019 Business Finance Ratio Abbot

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FINAL REPORT

BUSINESS FINANCE

BUSINESS FINANCE REPORT PAGE


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SUBMITTED TO

MS ANNAM AHSAN



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GROUP THE EXAGERATORS

ADEEL HABIB BHATTI

USMAN AZIZ

KHAWAR AZIZ

WAQAS AHMED

RABIA MANZOOR

ZAID AHMED KHAN JADOONCLASS: MBA 2(A)

SUBMITTED TO

MS ANNAM AHSAN

DATE: 17-12 -2012



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DEAR ALLAH, t!"# $%& '% *+". & /t t+ .'t %' #"%/*+.+

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The report under consideration outlines a detailed Ratio Analysis of

Abbott Pakistan, one of the renowned Pharmaceutical Companies of

Pakistan. Later in this report, dierent nancial ratios for the year

!!" and !#! will be calculated. $oreo%er, a brief comparison of

the current and pre%ious year ratios will be &i%en so as to &i%e the

in'depth knowled&e about the company(s performance o%er the past

year.

RATIO ANALYSIS 7



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Ratios Compaiso!s7

I!t"!a# Compaiso!

7E$t"!a# Compaiso! %

ABOUT ABBOTT &AKISTAN %

Compa!'s (isio!)Compa!'s Missio!)

CORE (ALUES *+

&io!""i!, *+Cai!, *+A-.i"/i!, *+E!01i!, *+

&HILOSO&HY **

ABBOTTS &RODUCTS **

&.ama-"1ti-a# &o01-ts

**2"!"a# H"a#t. Ca" &o01-ts*3Dia,!osti- &o01-ts*3N1titio!a# &o01-ts*3Dia4"t"s Ca" &o01-ts*3

BOARD O5 DIRECTORS *3

TOTAL SHARES AND SHAREHOLDERS 6AS AT DEC 8*9 3+*+:*8

CONTACTS *8

RATIO ANALYSIS O5 ABBOTT &AKISTAN *8

LIQUIDITY RATIOS *8

C1"!t Ratios *;A!a#'sis *;

Q1i-< Ratio*=



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A!a#'sis> *?

ASSET MANA2EMENT RATIOS*?

I!/"!to' T1!o/" i! Da's*?

A!a#'sis *75i$"0 Ass"t T1!o/" *%

A!a#'sis *%Tota# Ass"ts T1!o/" *)

A!a#'sis *)

&RO5ITABILITY RATIOS>3+

N"t &o@t Ma,i! o! Sa#"s3+

A!a#'sis 3*2oss &o@t Ma,i!

3*A!a#'sis 33

R"t1! o! I!/"stm"!t 33

A!a#'sis 38R"t1! o! E1it'38

A!a#'sis 3;

DEBT MANA2EMENT 65INANCIAL LE(ERA2E: RATIOS3;

D"4t to E1it' Ratio3=

A!a#'sis 3=D"4t to Tota# Ass"t Ratio

3?A!a#'sis 37

2"ai!, Ratio 37A!a#'sis 3%

MARKET (ALUE RATIOS3%

Ea!i!,s p" S.a"3%

A!a#'sis 3)Boo< (a#1" p" S.a" 3)

A!a#'sis 8+Co/"a," Ratio 8+



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A!a#'sis 8*

RECOMMENDATIONS 8*



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IMPORTANCE OF RATIO ANAL9SIS

To evaluate companys financial condition and performance, the

financial analyst needs to perform checkups on various aspects of a companysfinancial health. A tool frequently used during these checkups is Financial Ratio

Analysis which relates two pieces of financial data by dividing one quantity by the

other.

arious ratios are calculated which gives a comparison that may prove more useful

than the raw numbers of themselves.

!et us consider an e"ample that a company had a net profit figure this

year #$ billion. That looks pretty profitable. %ut what if the company has #&''

million invested in total assets. The companys return on total assets is '.''(. This

means that each dollar of assets invested in the company earns one)half percent

return. *n a nutshell, the ratio has given more detailed information than the single

figure of net profit alone.

There are different kinds of ratios that are frequently used by different

stakeholders of the company to decide upon the performance and financial position of

the company and subsequent decision whether to invest the money in the company or

not.

RATIO;S COMPARISONS

There are two types of comparisons involved in the Ratio Analysis. These are as

follows+

INTERNAL COMPARISON

The internal comparisons of financial ratios involve the comparison of

current year ratios with the ratios of the previous year to udge the performance of thecompany over a period of time.



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EXTERNAL COMPARISON

*n contrast to internal comparison, ratios of one company can be

compared with the ratios of the other companies in the same industry to udge itsperformance with respect to other companies operating in the same industry.

-oreover, the ratios can also be compared with the industry average to

determine its deviation from any applicable industry average. uch a comparison

gives tremendous insight into the financial condition and performance of the

company.

6E ARE TA


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Abbott started operations in 4akistan as a marketing affiliate in $789:

the company has steadily e"panded to comprise a work force of over $('' employees.

5urrently two manufacturing facilities located at !andhi and ;orangi in ;arachi

continue to use innovative technology to produce top quality pharmaceutical products.

Abbott 4akistan has leadership in the field of 4ain -anagement,

Anesthesia, -edical une &7, &''( Abbott 4akistan Achieved 5lass 3A3 accreditation

against the =liver 0ight A%5? 5heck list. This was an outstanding achievement,

which puts Abbott 4akistan amongst some of the best global companies in terms of

operational e"cellence.

A continuous process of innovation, research and development at

Abbott3s worldwide facilities enables Abbott 4akistan to offer effective solutions for

various healthcare challenges, with products and services that are well focused, within

the customer3s reach and contribute to improved health care of the people of 4akistan.

Abbott believes that 5orporate ocial Responsibility is fundamental to

earning and deepening the trust of the people it serves, an integral part of its

commitment to improve lives has contributed to a number of humanitarian causes and

supported various institutions in various fields including health and education.

The promise of this company is in the promise that our work holds for health and for

life.

COMPAN9;S =ISION

To be a premier healthcare company in 4akistan

COMPAN9;S MISSION

To deliver consistently superior products and services which contribute significantly

to improve the quality of the consumers@



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CORE =ALUES

PIONEERING

!eading)edge science and commercialiation

0e lead with solutions that address human needs by pioneering

innovative treatments and products, lifesaving medical devices, and new approaches

to managing health. At Abbott, pioneering means leading)edge science and innovative

e"ecution.

CARING

-aking a difference in peoples lives

5aring is central to the work that we do to help people live healthier

lives. 0e have tremendous respect for the lives of everyone touched by our company.

=ur respect for people is demonstrated in what we do and how we act.

ACHIE=ING

5ustomer)focused outcomes and world)class e"ecution

0e drive for meaningful results)demanding of ourselves and each

other because our work impacts peoples lives. 0e are committed to working together

to deliver solutions that are effective and profitable. =ur focus on e"ecution and

collaboration ensures that we keep our promises to each other and to those we serve.

ENDURING

5ommitment and purpose

Bnduring means both honoring our history and maintaining our

commitment to the future. 0e will always be here to help keep people healthy. 0e

keep our promises, acting in accordance with all of our values. 0e grow through our

intellectual curiosity and a desire to continuously lean and improve.



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PHILOSOPH9

All precautions of Abbott are derived from the culmination of

e"periences any one person has with our company. *t is through our 4romise and

alues that these e"periences are shaped. Bvery employee strives to deliver on all the

values in their day)to)day work.

=ur commitment to patient and consumer protection is shared by all

Abbott 4akistan employees and by the even greater number of people working on

behalf of our partners and suppliers. 0e hold all of them to high ethical and

performance standards and maintain effective management systems to review andaudit them.

=ur quality management system is supported by policies, processes,

procedures and resources that ensure our products are designed and manufactured to

be safe and effective. All our processes are regularly monitored, and our products are

assessed against approved specifications before distribution.

0e are redefining the concept of responsibility. %eyond 4hilanthropy,

we apply our sciences, e"pertise and technology to address critical health care needs

through innovative collaborations and partnerships.

ABBOTT;S PRODUCTS

Abbott is currently manufacturing a broad array of products in the

following categories+

PHARMACEUTICAL PRODUCTS

Abbott 4akistan manufactures over $(' different pharmaceutical and

general health care products for the local and e"port markets. Abbott medicines are

used to treat some of the worlds most serious and prevalent diseases. *t also continues



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to pursue new therapeutic indications for e"isting medications that offer patients and

physicians important treatment options.

GENERAL HEALTH CARE PRODUCTS

!ike pharmaceutical products, Abbott 4akistan is also manufacturing

Ceneral Dealth 5are products by using its state of the art manufacturing technology.

DIAGNOSTIC PRODUCTS

Abbott 4akistan drives innovation in the fast)paced medical technology

market. *ts ?iagnostic 4roducts are addressing disease diagnosis, management and

treatment monitoring.

NUTRITIONAL PRODUCTS

Abbott 4akistan has pioneered the nutritional care with its pediatric and medical

nutrition ranges. *t is delivering the promise for life by providing nutritional support,

with its wide range of products for infants, children, mothers and adults.

DIABETES CARE PRODUCTS

Abbott 4akistan is committed to improve the lives of people with diabetes through its

research and innovation.

BOARD OF DIRECTORS

-r. yed Anis Ahmed

-r. hamim Ahmad ;han

-r. -unir A. haikh

-r. Asif >ooma



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-r. Angelo ;ondes

-r. ;amran E. -ira

-r. adi yed

TOTAL SHARES AND SHAREHOLDERS (AS AT DECEMBER >1, 2010)

Total hareholders+ &,988

Total hares+ 71,7'',2''

CONTACTS


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CURRENT RATIOS:

CURRENT ASSETS

CURRENT LIABILITIES

9+! 2010 9+! 200@

2,9(G,G12,'''

$,1G&,1'','''251

2,&(7,$9(,'''

$,G'G,897,'''2502

ANAL9SIS

5urrent Ratio shows the ability of the company to pay its short term

bills etc. The higher the current ratio, the greater the ability of the company to pay its

bills. The liquidity ratio of the company is higher than the previous year which shows

that the companys liquidity condition has been improved over the last year. 5urrently,

it is in a better position to pay its short term liabilities than it was in year &''7.

5urrent Ratio of Abbott 4akistan reveals that its cash and cash)

equivalents are &.$9 times its current liabilities, seems quite good.



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Dowever, the current ratio does not give the e"act liquidity information

of the company as it is considering *nventories as current asset while it may take long

to convert *nventories to cash or cash)equivalents. Therefore, in order to take a more

in)depth look of the liquidity condition, we have to calculate Iuick Ratio.

?UIC< RATIO:

CURRENT ASSETS IN=ENTOR9

CURRENT LIABILITIES

9+! 2010 9+! 200@

2,9(G,G12,''' /

J1&,82','''K&,'G7,G22,'''L

$,1G&,1'','''

05@7

2,&(7,$9(,''' /

JG7,'71,'''K$,G1(,''','''

$,G'G,897,'''

05@

ANAL9SIS

Iuick ratio of the year &'$' is '.71 while in year &''7, it was '.78.This means that the company has been improving its liquidity conditions since &''7.



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5urrently, the company can pay its 71M of current liabilities with the help of its cash

or cash)equivalents. *n the year &''7, it was in a position to pay only 78M of its short

term liabilities.

5urrently, even after the removal of inventories on hand, the company

has satisfactory cash or cash)equivalents that it can use to pay its short term liabilities.

*f we compare current and quick ratios of Abbott 4akistan, we can

conclude that it keeps a large amount of inventory in hand before converting it into

accounts receivable through sales. This is the reason why current ratio is &.$9 while

the quick ratio is quite low i.e. '.71.

ASSET MANAGEMENT RATIOS

Asset -anagement Ratios are also called Activity Ratios. They

measure how effectively a company is using its assets. 5



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1,2'9,GG2,''' G,$&9,791,'''

ANAL9SIS

*nventory Turnover Ratio shows how quickly the inventories of the

companies are turned into accounts receivable through sales. *n the year &''7, Abbott

4akistan was taking $'2.9G days to convert its inventory into accounts receivable

through sales. *n contrast, currently i.e. in &'$', number of days to convert inventory

to accounts receivable though sales have increased to $'G.71 days. This means that

the sales department of the company is not as efficient as it was in &''7.

Recommendation to improve this ratio is given under the title of Recommendations 5

FIXED ASSET TURNO=ER:

SALES

NET FIXED ASSETS



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9+! 2010 9+! 200@

$',77(,1'$,'''

$,911,(7G,'''5

9,82$,'9','''

$,GG&,19(,'''507

ANAL9SIS

Fi"ed Asset Turnover Ratio in &''7 was (.'1 which means that Abbott

4akistan was generating a revenue of Rs.(.'1 per Re. of the Fi"ed Asset. *n the year

&'$', this ratio has increased to (.9 which mean that the company is now generating a

sales revenue of Rs.(.9 per Re. of the fi"ed asset investment. This is the indication of

the fact that the company is efficiently using its 4roperty, 4lant and Bquipment to

generate sales revenues. -oreover, this ability has improved over the last year. To

further improve this ratio, company must improve its operations and make the use of

plant and equipment efficient.

TOTAL ASSETS TURNO=ER:



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ANNUAL SALES

TOTAL ASSETS

9+! 2010 9+! 200@

$',77(,1'$,'''

(,17',8&$,'''15@

9,82$,'9','''

8,7G8,(1G,'''15@

ANAL9SIS

Total Asset Turnover Ratio shows how efficiently the company is using

its overall assets to generate sales revenue. The ratio of the year &'$' is higher than

&''7 which shows that Abbott 4akistan has improved its processes and is more

efficiently using its overall assets to generate sales revues. *n simple words, it is

generating Rs.$.97 ales revenue per Re. of the total assets investment.

PROFITABILIT9 RATIOS

4rofitability Ratios are of two types / those showing profitability in

relation to sales and those showing profitability in relation to investment.



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The 4rofitability Ratios of Abbott 4akistan are being calculated as follows+

NET PROFIT MARGIN ON SALES:

NET INCOME (PROFIT AFTER TAX)

SALES

9+! 2010 9+! 200@

$,$1G,788,'''

$',77(,1'$,'''0510

G'7,'1&,'''

9,82$,'9','''0507

ANAL9SIS


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simple words, it means that currently the company has a net profit of Rs.$' per

Rs.$'' of the sales.

GROSS PROFIT MARGIN:

NET SALES CGS

NET SALES

9+! 2010 9+! 200@

2,G91,'29,'''

$',77(,1'$,'''05>>

&,2&$,$2$,'''

9,82$,'9','''0527

ANAL9SIS

Cross 4rofit -argin of the company in &''7 was '.&1( while in &'$',

it has increased to '.22(. This means that the companys gross profit is 22.(M of its

sales for &'$'. *n other words, Abbott 4akistan is earning a Cross 4rofit of Rs.22.(

per Rs.$'' of the sales. This is a positive indication since Abbott 4akistan has

drastically decreased its cost of goods sold. Furthermore, it can also be because of the

decrease in scrap and an effective price determination system.



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0hen we compare the


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ANAL9SIS

The Return on *nvestment for the year &''7 was '.$&& which means

that the company was generating a net income of, in simple words, Rs.$&.& per

Rs.$'' of the total assets. This ratio has increased to '.&'2 in &'$'. This a clear

indicator of the fact the R=* has almost doubled during the last year. 5urrently,Abbott 4akistan is more efficiently using its assets to generate net income. For the

sake of simplicity, we can say that it is earning a net income of Rs.&'.2 per Rs.$'' of

the total asset investment.

RETURN ON E?UIT9:

NET PROFIT AFTER TAX PREFERRED DI=IDEND

COMMON E?UIT9

9+! 2010 9+! 200@

$,$1G,788,''' ) '

27$&(27

05>00G'7,'1&,''' / '

2,&29,8G','''

051



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ANAL9SIS

Return on Bquity of Abbott 4akistan was '.$99 in the year &''7 which

means that it was generating net income of Rs.$9.9 per Rs.$'' of the common

shareholders equity. This ratio has increased to '.2''9 which indicates that the

company is efficiently managing its e"penses. -oreover, it also attracts stronginvestment opportunities as the return to common shareholders is quite high compared

to previous year. 5urrently, the company is generating net income of Rs.2'.'9 per

Rs.$'' of common equity.

All the profitability ratios of the company i.e.


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DEBT TO E?UIT9 RATIO:

TOTAL DEBT

SHAREHOLDERS; E?UIT9

9+! 2010 9+! 200@

'

2,7$&,(27,'''0100

'

2,&29,8G','''0100

ANAL9SIS

Analysis of the ?ebt to Bquity Ratio reveals astonishing insights: the

company is being totally operated on hareholders Bquity and no debt is being used

to finance the company. This situation prevailed in &''7 as well as it is prevailing

currently. This in a nutshell means that the company is being $''M financed by

shareholders equity.



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*f in case the company needs debt, the creditors will be more than

happy to finance such a company. This can be one of the reasons why the companys

profitability ratios are so high.

DEBT TO TOTAL ASSET RATIO:

TOTAL DEBT

TOTAL ASSETS

9+! 2010 9+! 200@

'

(,17',8&$,'''0100

'

8,7G8,(1G,'''0100

ANAL9SIS



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?ebt to Total Asset also reveals the same facts i.e. the companys all

the assets are fully being financed by shareholders equity and the share of debt

financing is 'M

GEARING RATIO:

LONG TERM DEBT

TOTAL CAPITALIATION

9+! 2010 9+! 200@

'

' K 2,7$&,(27,'''0100

'

' K 2,&29,8G','''0100

ANAL9SIS



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The above mentioned analysis is also applicable in case of this ratio as

well i.e. the companys all the assets are fully being financed by shareholders equity

and the share of debt financing is 'M.

MAR


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Barnings per hare of the company in the year &''7 were Rs.G.&& per

share. *n the year &'$', it has increased to Rs, $&.'&. This means that currently, the

company is giving more earnings per share as compared to the last year. *n &'$', the

company is giving Rs.$&.'& per share to all its shareholders. This can be attributed tothe efficient processes, efficient sales, effective pricing, decrease in cost of goods,

decrease in selling, general and administrative e"pense, effective use of assets etc.

Digh Barning per share tends to attract investors.

BOO< =ALUE PER SHARE:

COMMON E?UIT9

NUMBER OF COMMON SHARES OUTSTANDING

9+! 2010 9+! 200@

717,''2,'''

71,7'',2''10

717,''2,'''

71,7'',2''10

ANAL9SIS



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As per the rules, the par value or %ook value of the shares of Abbott

4akistan is Rs. $' like any other company in 4akistan. This means that all the shares

were issued at a price of Rs. $' per share.

CO=ERAGE RATIO:

EBIT

INTEREST CHARGES

9+! 2010 9+! 200@

$,188,191,'''

2,(2'@527

919,('2,'''

&,(&(>75@2

ANAL9SIS



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*nterest charges of the company in comparison to Barnings before

*nterest and Ta" for Abbott 4akistan are very low. B%*T is 878.&1 times more than its

interest charges. This ratio is even more than the year &''7. As we analyed

previously, the company is solely being financed by owners equity and no debts havebeen taken from anywhere. ?ue to this, there is no high interest charges payable by

the company.

Ratio for &'$' reveals that the company can pay its interest charges

878 times. Dence, there are no visible chances of the company being bankrupt.

RECOMMENDATIONS

From the ratio analysis, we can see the Abbott 4akistan has been

improving its operations, controlling its e"penses and efficiently using its fi"ed and

overall assets to generate income. This has led to the increase in almost all the ratios,

with the e"ception of only few. This indicates that the companys financial position

and performance was good during the year &'$'.

Dowever, from the analysis we have done, we conclude that despite the

good performance, there are some loop)holes that the company may focus on to avoid

future problems. They are as follows+

=ne such area is the liquidity condition of the company in light of Iuick

Ratio. Iuick ratio reveals that the company can pay its 71M of current

liabilities with the help of its cash and cash)equivalent assets. This seems to be

satisfactory but if the company could make it $''M, it would be ideal. This

can be improved by making the sales department more efficient in converting

its inventory in accounts receivables through sales.

The current ratio of the company is &.$9 while the quick ratio is '.71 which

means that there are a lot of inventories on hand before they are converted into

receivables through sale. *t is recommended that Abbott 4akistan should work



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to make its sales department more efficient so as to increase the sales of

inventories in a shorter time period. This can be done through motivating sales

personnel and pointing out weak areas in the sales department. -oreover, the

remuneration of the sales personnel can be increased to achieve the same goal.Also, it is advisable to spend more on advertisements and promotion activities

to increase the sales. Dowever, these activities may increase the cost as well

but if the increase in sales to increase in cost is disproportionate, it will serve

the purpose.

Another weak area that is pointed out in Ratio Analysis is the *nventory

Turnover ratio. The inventory turnover in days has increased from $'8 to $'1

during the last year. This means the time to convert inventories into accounts

receivables has increased. This problem can be attributed to the sales

department of the company. For Abbott 4akistan, it is advisable to improve the

efficiency of its sales department because this is not only affecting inventory

turnover but the quick ratio as well.

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