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Table of ContentsPAKISTAN STATE OIL (PSO)4INTRODUCTION OF THE ORGANIZATION:4HISTORY OF PSO:4VISION STATEMENT:5MISSION STATEMENT:5CORE AREA OF BUSINESS:5CORE VALUES:5LOCATION:6HEAD OFFICE:6DIVISION OFFICES:7HONDA ATLAS CARS (PAKISTAN) LIMITED8INTRODUCTION OF COMPANY:8HISTORY OF HONDA ATLAS CARS (PAKISTAN) LIMITED:8VISION STATEMENT:9MISSION STATEMENT:9CORE AREA OF BUSINESS:9CORE VALUES:9LOCATION:10FACTORY / HEAD OFFICE:10REGISTERED OFFICE:10BALANCE SHEET OF PSO11INCOME STATEMENT OF PSO13RATIO ANAYSIS OF PSO:151.Liquidity Ratios:152.Activity Ratio:163.Solvency Ratio:184.Profitability Ratios:20BALANCE SHEET OF HONDA ATLAS (CARS)23INCOME STATEMENT HONDA ATLAS (CARS)25RATIO ANALYSIS OF HONDA ATLAS (CARS):261.Liquidity Ratios:262.Activity Ratios:273.Solvency Ratios:284.Profitability Ratios:30QUESTIONS?32REFRENCES:39

PAKISTAN STAE OIL (PSO) AND HONDA ATLAS RATIO ANALYSIS AND DECISION FOR PORTFOLIO INVESTMENT

PAKISTAN STATE OIL (PSO)INTRODUCTION OF THE ORGANIZATION:Pakistan State Oil (PSO), the largest oil marketing company in Pakistan (with a market share of 80%), was formed in 1976 through the merger of Pakistan National Oil, Premiere Oil, and Essos operates 3,600 retail outlets, including more than 1,600 New Vision Retail Outlets that offer, besides the usual gas-station services, an Internet kiosk, car wash. The company additionally sells a full range of petroleum and related products, including fuel oil, industrial oils, and petrochemicals. The Government of Pakistan controls a majority stake in the publicly traded PSO.HISTORY OF PSO:Pakistan State Oil (PSO) was established in year 1974, when on 1st January the government took over and merged Pakistan National Oil (PNO) and Dawood Petroleum Limited (DPL) as Premiere Oil Company Limited (POCL). After that, on 3rd June 1974, Petroleum Storage Development Corporation (PSDC) came into existence. PSDC was then renamed as State Oil Company Limited (SOCL) on August 23rd 1976. At the end of that year that is 30th December 1976 Premier Oil Company Limited and State Oil Company Limited merged with each other Pakistan state Oil (PSO) was formed.After PSOs formation the corporate culture underwent a comprehensive renewal program which was fully implemented in 2004. This program over the years included the revamping of the organizational architecture, rationalization of staff, employee empowerment and transparency in decision making through cross functional teams. This new corporate renewal program has divided the companys major operations into independent activities supported by legal, financial, informative and other services. In order to reinforce and monitor this structural change. Human Resource Development became one of the main priorities on the companys agenda under this corporate reform. It is due to this effective implementation of corporate reform and consistent application of the best industrial practices and business development strategies, that PSO has been able to maintain its market leadership in a highly competitive business environment.VISION STATEMENT:To excel in delivering value to customers as an innovative and dynamic energy company that gets to the future first.MISSION STATEMENT:We are committed to leadership in energy market through competitive advantage in providing the highest quality petroleum products and services to our customers based on: Lowest cost operations and assured access to long-term and cost effective supply sources. Sustained growth in earnings in real terms. Highly ethical, safe environment friendly and socially responsible business practices.CORE AREA OF BUSINESS:PSO is the market leader in Pakistans energy sector. The company has the largest network of retail outlets to serve the automotive sector and is the major fuel supplier to aviation, railways, power projects, armed forces and agriculture sector. PSO also provides Jet Fuel to Refueling Facilities at 9 airports in Pakistan and ship fuel at 3 ports. The company takes pride in continuing the tradition of excellence and is fully committed to meet the energy needs of today and rising challenges of tomorrow. It also provide lubricants like engine oils for the automobiles. Some core products Motor Gasoline, High Speed Diesel, Furnace Oil, Jet Fuel, Kerosene, LPG, CNG, Petrochemicals, Lubricants.CORE VALUES: Excellence We believe that excellence in our core activities emerges from a passion for satisfying our customers' needs in terms of total quality management. Our foremost goal is to retain our corporate leadership. Cohesiveness We endeavor to achieve higher collective and individual goals through team. This is inculcated in the organization through effective communication.

Respect We provide Opportunity for attracting and recruiting the finest people from around the country. We value contribution of individuals and teams. Individual contributions are recognized through our reward and recognition program. Integrity We uphold our values and Business Ethics principles in every action and decision. Professional and personal honesty, dedication and commitment are the landmarks of our success. Open and transparent business practices are based on ethical values and respect for employees, communities and the environment. Innovation We are committed to continuous improvement, both in new product and processes as well as those existing already. We encourage Creative Ideas from all stakeholders. Corporate Responsibility We promote Health, Safety and Environment culture both internally and externally. We emphasize on Community Development and aspire to make society a better place to live in.

LOCATION:HEAD OFFICE:Address: PSO House, Khayaban-e-Iqbal, Clifton,P.O.Box 3983, Karachi 75600, PakistanUAN: 021-111 111 PSO (776)

DIVISION OFFICES:

IslamabadZTBL Building ,Zero Point G-/1,IslamabadTel #: (051) 9252651Fax:(051) 9252652Lahore8-Edward Road,LahoreTel #: (042) 37353984Fax: (042) 37312484Multan2nd Floor Park Lane TowerOffice Colony Khanewal RoadMultanTel #: (061) 6510686-7Fax: (061) 6510694

Sahiwal63/C, Farid TownTel # (040) 99200193-4Fax : (040) 99200195Faisalabad3rd Floor,Statelife Building, Liaqat Road,Faisalabad.Tel # (041) 99201276Fax: (041) 99201278Hyderabad7th Floor, State Life BuildingThandi Sarak,HyderabadTel #: (022) 9200784Fax: (022) 9200879

PeshawarHouse # 25/III/ABJamrod LaneUniversity TownPeshawarTel #: (091) 9216812Fax: (091) 99216814BahawalpurPSO Divisional Office,8/2-B Tipu Shahed RoadModel Town-A, BahawalpurTel #: (062) 99255284Fax: (062) 99255286D.I.KState Life BuildingCircular Road,D.I.KTel # (0966) 711774Fax: (0966) 731284

Jehlum3 A/1 . Aziz Bhutti RoadJehlum CanttJehlumTel # (0544) 9270022Fax: (0544) 9270359Sukkur138 Sindhi Housing SocietyAirport RoadSukkurTel # (071) 5630327Fax: (071) 5630935GujranwalaSuper Asia Building No.4G.T RoadGujranwalaTel #: (055) 4555423fax: (055) 4555422

HONDA ATLAS CARS (PAKISTAN) LIMITEDINTRODUCTION OF COMPANY:Honda Atlas Cars Pakistan Limited is a joint venture between Honda Motor Company Limited Japan, and the Atlas Group of Companies, Pakistan. The company was incorporated in 1992 and joint venture agreement was signed in 1993. The ground breaking ceremony was held on April 17, 1993 and within a record time of 11 months, construction and erection of machinery was completed.The first car rolled off the assembly line on May 26, 1994. The company is listed on Karachi, Lahore and Islamabad Stock Exchanges. On July 14, 1994, car bookings started at six dealerships in Karachi, Lahore, and Islamabad. Since then the Dealerships Network has expanded and now the company has sixteen 3S (Sales, Service and Spare Parts) and thirty 2S (Service and Spare Parts) Pit stops network in all major cities of Pakistan. Honda Atlas Cars (Pakistan) Limited has Dealership Network covering all of Pakistan, and Dealership are equipped with all the facilities a modern dealership should have. The facilities include Sale, Service and Spare parts.HISTORY OF HONDA ATLAS CARS (PAKISTAN) LIMITED:Honda Atlas Cars Pakistan Limited is a joint venture between Honda Motor Company Limited Japan, and the Atlas Group of Companies, Pakistan. The company was incorporated on November 04, 1992 and joint venture agreement was signed on August 05, 1993. The ground breaking ceremony was held on April 17, 1993 and within a record time of 11 months, construction and erection of machinery was completed. The first car rolled off the assembly line on May 26, 1994. Official inauguration was done by then President of Pakistan, Sardar Farooq Ahmad Khan Leghari, Mr.Kawamoto, President of Honda Motor Company Limited Japan was also present to grace the occasion. The company is listed in Karachi, Lahore and Islamabad Stock Exchanges.On July 14, 1994, car bookings started at six dealerships in Karachi, Lahore, and Islamabad. Since then the Dealerships network has expanded and now the company has Twenty One 3S (Sales, Service and Spare Parts), Eighteen 2S (Service and Spare Parts) and Five 1S (Spare Parts) authorized dealerships network in all major cities of Pakistan.Since the commencement of production in 1994, the company has produced and sold more than 200,000 cars till July 12, 2012.All dealerships are constructed in accordance with the standards defined by Honda World over.Honda always strive to give outstanding service to valued customers. In addition to providing regular service to customers, the company also regularly conducts Service Campaigns, to facilitate customer's need for service. This has given our customers absolute confidence in our cars, clearly evident from the ever increasing sale volumes. Currently, HONDA is offering Honda Accord, Honda CR-V, Honda CR-Z, Honda Civic (four models) and Honda City (four models) in wide range of colors with advanced technological features.VISION STATEMENT:Striving to be a company that society wants to exist by sharing joys with people throughout the world creating products that maximize the joy of customers, with speed, affordability and low carbon dioxide.MISSION STATEMENT:In our culture buying a car is the most important decision after purchasing a house. Many since their childhood fanaticize about buying their dream car one day. When the time comes, we at Honda Centre help them fulfill their lifelong dream. Therefore, we not only have, The Power of Dreams but we go beyond to Turning Dreams into Reality. This is the mission we go by everyday by striving to help our clients achieve their dreams and happiness.CORE AREA OF BUSINESS:Honda Atlas core business is automobile and motorcycle manufacturing however aside from its core business Honda Altas is also involved in manufacturing of garden equipment, marine engines, and power generators.CORE VALUES: InitiativeInitiative means not to be bound, but to think creatively and act on your own initiative and judgment, while understanding that you must take responsibility for the results of those actions.

EqualityEquality means to recognize and respect individual differences in one another and treat each other fairly. TrustThe relationship among associates at Honda should be based on mutual trust. Trust is created by recognizing each other as individuals, helping out where others sharing our knowledge, and making a sincere effort to fulfill our responsibilities.LOCATION: FACTORY / HEAD OFFICE:43 km, Multan RoadManga Mandi, LahorePh: (042) 35384671-80Fax: (042) 35384691-92 E-mail: [email protected] REGISTERED OFFICE:1-Mcleod Road, LahorePh: (042) 37225015-17Fax: (042) 37233518REGIONAL OFFICES:Lahore OfficeKarachi Office: 1-XX, Phase III, DHA C-16, KDA Scheme. Ph: (042) 35694851-3 No. 1, Karsaaz Road

BALANCE SHEET OF PSO

201220112010

Rupees in 000

ASSETS

Non- Current Assets

Property, plant and equipment 58319936084731637523

Intangibles2999912882236250

Long term investments196807323141682019270

Long term loans, advances and receivables 385497324554317889

Long term deposits and prepayments 123740148748125951

Deferred tax1202316957487

963161098585108874593

Current Assets

Stores, spare parts and loose tools134431115339113863

Stock-in-trade885237949537839358598668

Trade debts218022292124721832117501074

Loans and advances526118430716409987

Deposits and short term prepayments25284061027381367378

Other receivables2122166225202814557542

Taxation net5314752631195146580

Cash and bank balances162402523090061778056

337795984252814896193373148

Net Assets in Bangladesh---

total Assets347427594262673406202247741

EQUITY AND LIABILITIES

Share Capital171519017151901715190

Reserves 482447184018779527620868

499599084190298529336058

Non-Current Liabilities

Long term deposits11760781023531948476

Retirement and other service benefits251850222337171887751

369458032572482836227

Current liabilities

Trade and other payables246767460191851017156035716

Provisions688512688512688312

Accrued interest / mark-up5444854321333330213

Short term borrowings457726492454151113021015

293773106217513511170075456

INCOME STATEMENT OF PSO

201220112010

Rupees in 000

Sales - net of trade discounts and allowances1199927907974917064877173254

Less:

- Sales tax-163861410-137969158-118563577

- Inland freight equalization margin-11642892-16417542-15851726

-175504302-154386700134415303

Net sales1024423605820530364742757951

Cost of products sold-990101083-786250059-713591707

Gross profit243225223428030529166244

Other operating income213399418159511479054

Operating costs

Transportation costs -1205394-810423-631849

Distribution and marketing expenses-5863170-5178233-4055238

Administrative expenses-1659530-1514532-1125891

Depreciation-1127587-1120999-1137637

Amortization-15491-18210-44752

Other operating expenses-9272048-2239725-2416518

-19143220-10879122-9411885

Profit From Operations173132962521713421233413

Other Income755058141437106095348

Finance costs-11658928-11903162-9882010

132049491745768217446751

Share of profit of associates469468516752516401

Profit before taxation136744171797443417963152

Taxation-46183623195120-8913556

Profit for the year9056055147793149049596

Earnings per share - basic and diluted52.886.1752.76

RATIO ANAYSIS OF PSO:1. Liquidity Ratios:Ratios201220112010

Current Ratio1.141.161.14

Quick Ratio0.840.720.79

I. Current Ratio = Current Assets Current Liabilities i. Current Ratio for 2012 =337795984 = 1.14 293773106 ii. Current Ratio for 2011 =252816896 = 1.16217513173 iii. Current Ratio for 2010 = 193373148 = 1.14 170075456 Interpretations:The Ratio tells the ability to full fill its short term obligation Company data shows that for every one rupees of liability there is 1.14 rupees of asset in 2012. The ratio was 1.16, 1.14 in the year 2011, 2010. Company can improve its current ratios by increasing its accounts receivables and by decreasing the account payables.II. Quick Ratio = Current Assets Inventory Current Liabilitiesi. Quick Ratio for 2012 = 337795984-88523794 = 0.84293773106 ii. Quick Ratio for 2011 = 252814896-95378393 = 0.72217513173iii. Quick Ratio for 2010 = 193373148-58598668 = 0.79 170075456

Interpretations:The Ratio tells more precisely and accurately companies the ability to full fill its short term obligations. This ratio is more precisely because in this ratio we subtract the inventory; it is difficult to convert the inventory into the cash. To pay the 1 rupee current liability there is only 0.84 rupees of assets in 2012, while in 2011 to pay the 1 rupee liability there is only 0.72 rupees of assets, to pay the liability of 1 rupee in 2010 there is only 0.79 rupees of assets company can increase its quick ratio by maximum utilization of inventory.2. Activity Ratio:Ratio 201220112010

Inventory Turnover Ratio11.57 8.6011.57

Total Asset Turnover3.453.714.3

Fixed Asset Turnover106.383.283.6

I. Inventory Turnover Ratio = Net Sales Inventory i. Inventory Turnover Ratio for 2012 =1024423605 = 11.57 88523794ii. Inventory Turnover Ratio for 2011 = 820530364 = 8.60 95378393iii. Inventory Turnover Ratio for 2010 = 742757951 = 11.57 58598668Interpretations:Inventory Turnover Ratio measures company's efficiency in turning its inventory into sales. Its purpose is to measure the liquidity of the inventory. The company shows the greatest efficiency in 2010 where the company inventory turnover was 11.57 which shows good liquidity of inventory but later in following year it shows descending values in 2011 a slite improvement in 2012. Company can improves its inventory turnover by avoiding over stocking and steps should be taken to increases in sales to consume more inventory.II. Total Assets Turnover = Net Sales Total Assetsi. Total Assets Turnover for 2012 = 1024423605 = 2.9 347427594 ii. Total Assets Turnover for 2011 = 820530364 = 3.1 262673406iii. Total Assets Turnover for 2010 = 742,757,951 = 3.6 202247741Interpretations:The total asset turnover ratio measures the ability of a company to use its assets to efficiently generate sales The company total asset turnover ratio is not declining in every year which is not satisfactory. Low asset turnover ratio suggests problems with excess production capacity, poor inventory management, or lax collection methods. The company should have to utilizes it all resources and plants to increase it sales.it should increase the sale by maximum utilization of its resources e.g. inventory.III. Fixed Assets Turnover = Net Sales Total Fixed Assetsi. Fixed Assets Turnover for 2012 = 1024423605 = 106.3 9631610ii. Fixed Assets Turnover for 2011 = 820530364 = 83.2 9858510iv. Fixed Assets Turnover for 2010 = 742,757,951 = 83.68874593 Interpretation: The sales to fixed assets ratio is often called the asset turnover ratio. A low sales to fixed assets ratio means inefficient utilization of fixed assets, which may be caused by excess capacity or interruptions in the supply of raw materials. The ratio is increasing year by year which means that company is utilizing its assets efficiently. So we can say that this ratio is favorable for the company. The ratio is increasing year by year which means that company is utilizing its assets efficiently. So we can say that this ratio is favorable for the company.3. Solvency Ratio:Ratios201220112010

Debt Ratio0.850.840.85

Debt to Equity Ratio6.05.25.9

Times Interest Earned Ratio2.172.52.81

I. Debt Ratio = Current Liabilities + Non-current Liabilities Total Assetsi. Debt Ratio for 2012 = 293773106 + 3694580 = 0.85347427594 ii. Debt Ratio for 2011 = 217513173 + 3257248 = 0.84 262673406 iii. Debt Ratio for 2010 = 170075456 + 2836227 = 0.85 202247741 Interpretations:Debt Ratio Measures what proportion of debts a company has as compared to its assets? Thus it shows the measure of debt of a company. It helps investors determine the level of risk of an organization. Now we consider the present scenario, in 2012 the ratio was 0.856 which indicates that assets were greater than liabilities ensuring a safe side for investors. While in the previous years the ratio was greater than 1 which indicates that companys loans were more than assets. The values for 2011, 10 are 0.85 and 0.84.II. Debt to Equity Ratio = Total Debt Equityi. Debt Ratio for 2012 = 3694580 + 293773106 = 6.049959908ii. Debt Ratio for 2011 = 3257248 + 217513511 = 5.241902985iii. Debt Ratio for 2010 = 2836227 + 170075456 = 5.929336058Interpretations:A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders equity. It indicates what proportion of equity and debt the company is using to finance its assets. A high debt/equity ratio generally means that a company has been aggressive in financing its growth with debt. If this were to increase earnings by a greater amount than the debt cost (interest), then the shareholders benefit as more earnings are being spread among the same amount of shareholders. This ratio indicates that almost the company take 6.0 of financing for assets by taking debt in 2012.III. Times Interest Earned Ratio = Earnings before interest and taxInterest(As in the balance sheet, interest has already been deducted before taxation so we will add the value of tax as well in the below ratios) i. Times Interest Earned Ratio for 2012 = 13674417 + 11658928 = 2.17 11658928 ii. Times Interest Earned Ratio for 2011 = 17974434 + 11903162 = 2.5 11903162iii. Times Interest Earned Ratio for 2010 = 17963152 + 9882010 = 2.81 9882010Interpretations:It indicates the companys ability to meet its debt obligations or interest obligations. Or simply we can say that it indicates that for how much times the net operating profit covers the interest payment. Usually a value of 2 and greater is considered to be acceptable. So the Condition was quite acceptable for 2012, 11 and 10 with values 2.17, 2.5 and 2.81.4. Profitability Ratios:Ratios201220112010

Gross Profit Margin2.9%3.5%3.3%

Operating Profit Margin1.4%2.6%2.4%

Net Profit Margin0.75%1.52%1.03%

Return on Total assets2.6.%5.6%4.4%

I. Gross Profit Margin = Gross Profit Salesi. Gross Profit Margin for 2012 = 34322522 = 2.9% 1199927907ii. Gross Profit Margin for 2011 = 34280305 = 3.5% 974917064iii. Gross Profit Margin for 2010 = 29166244 = 3.3% 877173254Interpretations:The gross profit Margin shows the margin of profit after excluding the cost of goods sold from sales. A higher gross profit margin is estimated. Now we consider the PSOs financial position, in 2010 the ratio was 3.3% which means that for each rupee of sales generated 0.033 rupee is retained for further operating expenses, interest payment, taxation and distribution of shares which is very low. Companies usually have much greater gross profit margin (depending upon the type of company). This may be explained in terms of high value of cost of goods sold which is almost 81% of sales. The reason behind higher COGS can be explained in terms of increasing prices of petroleum. We can see improvement 3.5% in 2011 respectively. Yet again the margin declined in 2012 which is 2.9.II. Operating Profit Margin = Operating Profit Sales

i. Operating Profit Margin for 2012 = 17313296 = 1.4% 1199927902ii. Operating Profit Margin for 2011 = 25217134 = 2.6% 974917064iii. Operating Profit Margin for 2010 = 21233413 = 2.4% 877173254Interpretations:Operating profit margin gives an estimate of how much PSO generates on each rupee of sales before interest, taxation and distribution of shares. It determine the pricing strategy and operating efficiency of PSO. Usually a high or increasing operating margin is expected.In the present scenario, the margin is low because of low gross profit. The Margin is 1.4% for 2012, 2.6% for 2011, 2.4% for 2010. III. Net Profit Margin = Net Profit Salesi. Net Profit Margin for 2012 = 9056055 = 0.75%1199927907ii. Net Profit Margin for 2011 = 14779314 = 1.52% 974917064iii. Net Profit Margin for 2010 = 9049596 = 1.03% 877173254Interpretations:Net Profit Ratio indicates how much of Sales PSO has secured as profit or in other words it is the actual earning of PSO. The margin is 0.75% in 2012 which is less than that of 2011 i.e. 1.52%. Similarly 2011 can be compared with 2010s value that is 1.03%. The lower values are due to higher COGS which is due to increasing prices of petroleum. The lower value indicates the less efficient operations and thus leads to lesser reserves and low earning available for stockholders.IV. Return on Total Assets = Net income Total Assetsi. Return on Total Assets for 2012 = 9056055 = 2.6% 347427594ii. Return on Total Assets for 2011 = 14779314 = 5.6% 262673406iii. Return on Total Assets for 2010 = 9049596 = 4.9% 202247741 Interpretations:This indicates how effectively a company is using its assets. The values for 2012 is 2.6% which is low as compared to 5.6% of 2011. This indicates that in 2012 the total assets are not used effectively as compared to 2011, although total assets were more in 2012. Higher COGS is one of the major reason for this result. Similarly the later years can be compared relatively.

BALANCE SHEET OF HONDA ATLAS (CARS)

Regular (in Thousands)

ASSETS 2010 2011 2012

property, plant and equipment4,082,9553,864,5275,190,535

intangible asses65,90364,636195,830

capital work-in-progress191,84280,74619,226

long term loans, advance and deposits32,19633,14135,545

deferred taxation251,008338,165571,214

TOTAL NON-CURRENT ASSETS4,623,9044,381,2156,012,350

stores and spares50,31683,101101,942

stock-in-trade2,704,9461,612,6962,954,091

trade and other receivables706,092507,852853,218

cash and bank balances219,859231,88020,487

TOTAL CURRENT ASSETS3,681,2132,435,5293,929,738

TOTAL ASSETS8,305,1176,816,7449,942,088

authorized capital750,0002,000,0002,000,000

issued, subscribed and paid up capital714,0001,428,0001,428,000

reserves1,991,0001,727,0001,801,500

unappropriated profit-264,33274,678-401,655

SHARE CAPITAL AND RESERVES2,440,6683,229,6782,827,845

TOTAL NON-CURRENT LIABILITIES1,958,334500,0001,500,000

current portion of long term finances583,333

short term borrowings2,151,601

mark up accrued on loans and other payables39,62732,02975,048

trade and other payables3,283,1553,055,0373,387,594

TOTAL CURRENT LIABILITIES3,906,1153,087,0665,614,243

TOTAL EQUITY AND LIABILITIES8,305,1176,816,7449,942,088

INCOME STATEMENT HONDA ATLAS (CARS)

Regular (in Thousands)

Income Statement 2010 2011 2012

Sales17,055,11514,715,49514,149,646

Cost of Sales16,955,18114,088,00113,973,144

Gross Profit99,934627,494176,502

Less: Distribution and Marketing Costs214,889209,677190,088

Less: Administrative Expenses147,274139,163139,749

Add: Other Operating Income150,58523,58964,844

Less: Other Operating Expenses64,5144,975311,025

Profit/Loss from Operations176,158297,268399,516

Less: Finance Cost305,491233,651222,769

Profit/Loss before taxation481,64963,617622,285

Taxation217,10911,393220,452

Profit/Loss after taxation264,54075,010401,833

Earnings per Share (rupees)2.080.552.81

RATIO ANALYSIS OF HONDA ATLAS (CARS):1. Liquidity Ratios:Ratios201020112012



I. Current Ratio = Current Assets Current Liabilities i. Current Ratio for 2012 = 3,929,738 = 0.70 5,614,243 ii. Current Ratio for 2011 = 2,435,529 = 0.80 3,087,066iii. Current Ratio for 2010 = 3,681,213 = 0.94 3,906,115 Interpretation:Its current ratio has been less than one for three years which shows that its current liabilities are greater than its current assets. Apparently it looks that its liquidity position is very weak but actually it is not true because of the nature of its current liabilities. In its current liabilities one main portion is its trade payables, as it purchases its raw material from parent company Honda Japan so it can get a lot of relaxation in making payment to its parent company.II. Quick Ratio = Current Assets InventoryCurrent Liabilitiesi. Quick Ratio for 2012 = 3,929,738 - 2,954,091 = 0.17 5,614,243 ii. Quick Ratio for 2011 = 2,435,529 - 1,612,696 = 0.26 3,087,066 iii. Quick Ratio for 2010 = 3,681,213 - 2,704,946 = 0.24 3,906,115Interpretation:Its quick ratio is very low as most of the current assets consist of inventory, other assets like receivables and cash are very low. Its receivables are very low or are nil as it makes sales on cash even gets money in advance which further increases its current liabilities. 2. Activity Ratios:Ratios201020112012

Inventory Turnover 6.39.14.7

Total Asset turnover2.052.161.42


I. Inventory Turnover Ratio = Net Sales Inventory i. Inventory Turnover Ratio for 2012 = 14,149,646 = 4.7 2,954,091ii. Inventory Turnover Ratio for 2011 = 14,715,495 = 9.11,612,696iii. Inventory Turnover Ratio for 2010 = 17,055,115 = 6.32,704,946Interpretation:Its inventory turnover increased showing that it took longer for the company to sell its stock in trade. It has increased from 43 to 78. Its basic reason is decrease in overall demand of cars due to bad financing condition. The company has to make big batches of each model to reduce set up cost but this over production takes time in selling as demand has decreased due to due to high interest rates.II. Total Asset turnover = Net Sales Total Assetsi. Total Assets Turnover for 2012 = 14,149,646 = 1.42 9,942,088ii. Total Assets Turnover for 2011 = 14,715,495 = 2.16 6,816,744iii. Total Assets Turnover for 2010 = 17,055,115 = 2.05 8,305,117Interpretation:The total asset turnover ratio has decreased showing that the assets are not being used efficiently as it has been discussed that capacity is much higher than production and sales.III. Fixed Asset turnover = Net Sales Fixed Assetsi. Fixed Assets Turnover for 2012 = 14,149,646 = 2.35 6,012,350ii. Fixed Assets Turnover for 2011 = 14,715,495 = 3.35 4,381,215iii. Fixed Assets Turnover for 2010 = 17,055,115 = 3.68 4,623,904Interpretation:The ratio is decreasing year by year which means that company is not utilizing its assets efficiently. So we can say that this ratio is unfavorable for the company. As shown above 3.68 for year 2010 and 3.35, 2.35 for years 2011 and 2010.3. Solvency Ratios:Ratios201020112012



Times Interest Earned (Times)0.581.271.79

I. Debt Ratio = Current Liabilities + Non-current LiabilitiesTotal Assets

i. Debt Ratio for 2012 = 1,500,000 + 5,614,243 = 0.71 9,942,088ii. Debt Ratio for 2011 = 500,000 + 3,087,066 = 0.53 6,816,744 iii. Debt Ratio for 2010 = 1,958,334 + 3,906,115 = 0.70 8,305,117Interpretation:A ratio that indicates what proportion of debt a company has relative to its assets. The measure gives an idea to the leverage of the company along with the potential risks the company faces in terms of its debt-load. Debt Ratio is also financial ratio that indicates the percentage of a company's assets that are provided via debt. It is the ratio of total debt (the sum of current liabilities and long-term liabilities) and total assets (the sum of current assets, fixed assets, and other assets such as 'goodwill')II. Debt to Equity Ratio = Total Debt Equityiv. Debt Ratio for 2012 = 1,500,000 + 5,614,243 = 2.522827845v. Debt Ratio for 2011 = 500,000 + 3,087,066 = 1.113229678vi. Debt Ratio for 2010 = 1,958,334 + 3,906,115 = 2.402440668Interpretation:The total liabilities of the company have almost doubled during 2011. Its major reason is that it long term debt has doubled. A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders equity. It indicates what proportion of equity and debt the company is using to finance its assets. A high debt/equity ratio generally means that a company has been aggressive in financing its growth with debt. This can result in volatile earnings as a result of the additional interest expense. If a lot of debt is used to finance increased operations (high debt to equity), the company could potentially generate more earnings than it would have without this outside financing.III. Times Interest Earned Ratio = Earnings before interest and taxInterest i. Times Interest Earned Ratio for 2012 = 399516 = 1.79 222,769ii. Times Interest Earned Ratio for 2011 = 297,268 = 1.2 233,651iii. Times Interest Earned Ratio for 2010 = 176,158 = 0.58 305,491It indicates the companys ability to meet its debt obligations or interest obligations. Or simply we can that it indicates that for how much times the net operating profit covers the interest payment. Usually a value of 2 and greater is considered to be acceptable. TIE ratio is too low in 2010. But its increasing as through 2011 and 2012 i.e 1.2 and 1.79.4. Profitability Ratios:Ratios201020112012


Gross Profit Margin 0.58%4.2%1.2%

Operating Profit Margin0.88%0.16%.45%

Return on Asset3.1%1.1%4.0%

I. Net Profit Margin = Net Income Salesi. Net Profit Margin for 2012 = 401,833 = 2.8% 14149646ii. Net Profit Margin for 2011 = 75,010 = 0.51% 14,715,495iii. Net Profit Margin for 2010 = 264,540 = 1.55% 17,055,115

Interpretation:As the company has low profitability ratios in beginning however it get improved in 2012. Actually in this type of business big fixed cost is involved which can only be recovered if production is done at large scale but due to low demand it is very difficult to recover and which converts the contribution generated from sale into loss. A low profit margin indicates a low margin of safety: higher risk that a decline in sales will erase profits and result in a net loss. Profit margin is an indicator of a company's pricing strategies and how well it controls costs.

II. Gross Profit Margin = Gross Profit Salesi. Gross Profit Margin for 2012 = 176,502 = 1.2%14,149,646

ii. Gross Profit Margin for 2011 = 627,494 = 4.2%14,715,495iii. Gross Profit Margin for 2010 = 99,934 = 0.58%17,055,115Interpretation:The gross profit Margin shows the margin of profit after excluding the cost of goods sold from sales. A higher gross profit margin is estimated. A high gross profit margin indicates that a business can make a reasonable profit on sales, as long as it keeps overhead costs in control. However if we look at the Honda atlas ratios the gross profit margin is very low in 2010 that is 0.58% however is increases in 2011 to 4.2 % but in 2012 there is a downfall to 1.2%.III. Operating Profit Margin = Operating Profit Salesi. Operating Profit Margin for 2012 = 64,844 = 0.45% 14,149,646ii. Operating Profit Margin for 2011 = 23,589 = 0.16% 14,715,495

iii. Operating Profit Margin for 2010 = 23,589 = 0.88% 17,055,115Interpretation:Operating profit margin gives an estimate of how much Honda generates on each rupee of sales before interest, taxation and distribution of shares. It determine the pricing strategy and operating efficiency of Honda. Usually a high or increasing operating margin is expected. In the present scenario, the margin is low like 0.88 in 2010 0.16 in 2011 and 0.45 in 2012. Higher operations tend to have higher sales.IV. Return on Total Assets = Net Income Total Assetsi. Return on Total Assets for 2012 = 401,833 = 4.0% 9942088

ii. Return on Total Assets for 2011 = 75,010 = 1.1% 6,816,744iii. Return on Total Assets for 2010 = 264,540 = 3.1% 8305117Interpretation:An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. Calculated by dividing a company's annual earnings by its total assets, ROA is displayed as a percentage. Percentage shows company profitable a company's assets are in generating revenue but it is not much consistent and vary from year to year. And it is also declining as compare to previous years. So improvement needs in this part.QUESTIONS?Q1. Provide a detailed description of your investment strategy, based upon the goal of maximizing your portfolio value?As our goal is maximizing the portfolio value but we can maximize it by investing in the firms which are safe for investment through our better investment strategy so first of all we must know the position and situation of companies that we can know through the ratio analysis comparison of both companies.1. Liquidity Ratio:Ratios PSO201220112010



Ratios Honda Atlas201020112012



Liquidity ratio of PSO include current ratio and quick ration same is the case with the Honda Atlas but here if we compare the current ratios of PSO with Honda Atlas you will notice that current ratio of PSO is more than 1 for three years which show that the company has sufficient assets to fulfill its short term debts, but in case of Honda Atlas the value of the current ratio is less than 1 and its decreasing year by year which means that the company do not have the sufficient assets to fulfill its short term obligation. Now take a look at Quick ratio of PSO and Honda Atlas the quick ratio of PSO is not better but its improving year by year like 0.72 to 0.84 but still its quite better than the Honda Atlas whos ratio is decreasing as shown 0.26 then 0.17. So from the above ratios we can conclude that the PSO condition is better from liquidity point of view and is less risker then Honda Atlas which is more risker.2. Activity Ratio:Ratio PSO201220112010

Inventory Turnover Ratio 11.57 8.6011.57

Total Asset Turnover3.453.714.3


Ratios Honda Atlas201020112012

Inventory Turnover 6.39.14.7

Total Asset turnover2.052.161.42


As the activity ratio tells about how efficiently an organization is using its assets either fixed or current assets. If first of we observe inventory turnover ratio of PSO its good a little down fall in second year but then it get maintained as shown 11.7, 8.6, 11.5. in case of Honda Atlas this ratio is better but not above the PSO scenario, we can say in both the cases risk is low. Now we take a look at the total asset turnover ratio again PSO lead however its value decline year by year. In case of Honda its value also decreases year by year which show inefficient utilization of assets. In case of fixed asset turn over Honda is quite improving year by year but still PSO values are better which show PSO is more efficiently utilizing its assets and more better production as compared to Honda. So PSO leads here too that PSO is less risker then Honda.

3. Debt Ratio: Ratios of PSO201220112010


Debt to Equity6.05.25.9

Times Interest Earned Ratio2.172.52.81

Ratios of Honda Atlas201020112012



Times Interest Earned (Times)0.581.271.79

In case of Debt ratio of PSO and Honda Atlas before we go into detail we must know that debt ratio it tells that the business is also funded by the creditors but how much of the total investment is of debt. If we look at the table of the debt ratios of Honda and PSO the values are quite near to each other, and less than 1 which show that the assets of companies are more than its debt so both the companies have low risk in this case but the values of Honda show its more safe. Now if we look at the Debt to equity ratio it show how much debt the company is using as compared to equity. In case of PSO and Honda Atlas the ratios of Honda Atlas is lower then PSO that is 2.4, 1.1 2.52 but in case of PSO values are 6.0, 5.2, 5.9 so its values must be lower so in this case Honda Atlas is less risker then PSO.If we look at the Time Interest Earned ratio the values lower than 1 is not good but values higher then 1 are better, in case of PSO the values are good i.e. 2.17, 2.5, 2.81 as compared to the values of Honda Atlas 0.58, 1.27, 1.79 but still values of Honda Atlas are increasing so we can say that PSO and Honda Atlas are booth safe, and less risk is involved.4. Profitability Ratios:Ratios of PSO201220112010


Gross Profit Margin2.9%3.5%3.3%


Return on Total assets2.6.%5.6%4.4%

Ratios of Honda Atlas201020112012


Gross Profit Margin 0.58%4.2%1.2%


Return on Total Asset3.1%1.1%4.0%

First of all know that Profitability ratio it measure a companys ability to generate earnings relative to sales, assets and equity. Profitability ratio include net profit margin, gross profit margin, operating profit margin and return on asset. Now in case PSO and Honda Atlas Net Profit Margin the values of PSO are fluctuating year by year that is first it increase and then decrease to 0.75% same case happened with Honda Atlas the value decrease and then increase but the values of Honda Atlas are better than PSO.Now in case of Gross Profit Margin the values of PSO are quite stable and good as compared to the values of the Honda Atlas as shown in the above table. So risk associated with PSO is low as compared with Honda Atlas.The values of Operating Profit Margin of PSO show PSO position is better and is generating more operating profit then the Honda Atlas because the values of Honda Atlas are lower and it is generating low operating profit the PSO.Now if look in the table at the values of the return on total assets the values of both companies that is PSO and Honda Atlas are better and show that company is low risky. There is a decline in the value of the PSO in year 2012 however the value of Honda Atlas increases. But both the companies are safe.Q2. Explain how you executed your investment strategy?We will invest 65% in PSO Company and 35% in Honda Atlas Company because the Ratio analysis show the health of both organizations but Ratio analysis of PSO company show the stronger position in previous years and the ratio analysis of Honda also show the better position of company but the PSO progress is rapid and good as compared to Honda Atlas. The ratio Comparison above is evidenced for our investment strategy.Q3. Discuss the risk characteristics of your investment strategy?Investment risk is generally defined as the probability that an actual return on an investment will be lower than the investor's expectations. Fear of losing some money is probably one reason why people may choose conservative investments, even for long-term savings. While investment risk does refer to the general risk of loss, it can be broken down into more specific classifications.Performance:This is the risk associated with investment. If you buy a stock or other security, it might gain or lose value, creating a gain or loss for you. Of course, the aim of investment management is to minimize this risk through the selection of diversified investments. Through a well-planned diversification strategy, you can ensure that no particular security's performance will threaten your overall portfolio performanceMarket Risk:Also known as systematic risk, market risk is the likelihood that the value of a security will move up and down with its overall market. For example, if the stock market is experiencing a decline, the stock mutual funds in your portfolio may decline as well. Decline occur in both companies securities like oil prices increase this will also affect the cars usage.Interest-Rate Risk:It is the most often associated with fixed-income investments, this is the risk that the price of a bond or the price of a bond fund will fall with rising interest rates. The relationship between interest rates and the prices of fixed-rate securities, such as bonds, can expose your portfolio to risk. As interest rates fall, the prices of fixed-rate securities generally rise. Conversely, the prices of fixed-rate securities usually fall as interest rates rise. Investment management strategy can balance this risk by adjusting the term of the fixed-rate securities you hold. Inflation Risk:As your investments gain and lose value in their individual markets, the rupees gains and loses purchasing power. The rate of inflation can decrease the value of your portfolio. Your investment management strategy must weigh bonds, and long-term investments and risk of inflation against the risks of individual investments that may have rates of return higher than inflation.

REFRENCES:http://www.psopk.com/http://www.honda.com.pk/index.htmlhttp://www.psopk.com/investors/financial_reports.phphttp://www.honda.com.pk/financial/http://www.slideshare.net/BabasabPatil/investment-analysisandportfoliomanagementhttps://us.axa.com/retirement/reducing-risk-in-your-portfolio.htmlhttps://us.axa.com/retirement/reducing-risk-in-your-portfolio.htmlhttps://www.key.com/html/risk-management-planning.html

Download - Portfolio Analysis of PSO and HONDA Cars

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