pia - financial analysis

Functions of Finance Department

The duties of a typical finance department can be classified into two generic

categories. The first category is planning and the second function is controlling.

These activities are inter-related and inseparable because if there is no planning

there will not be any control. Therefore planning and control move together.

Planning refers to the activities which bridge the gape from the starting point to

the terminal point. Planning in the finance department under review refers to the

activities of Cash Flow and Budget preparation.

PLANNING

Planning is fundamental to the management process, a process of sensitizing an

organization to external opportunities and threats, of determining the desirable

and possible objectives, and of deploying the resources to match the objectives.

Without planning there is no basis for controlling as planning provides the

foundation upon which the control function operates. The planner should be able

to visualize the proposed pattern of activities individually and collectively,

internally and externally.

Budgets

The budget is not only the most important plan of an enterprise, but also the

basic link of accounting with management. The use of budgets, particularly in

connection with the control phase of management, has been termed as

“budgetary control”. A company’s organizational chart and its chart of accounts

form the basic framework on which to build a coordinated and efficient system of

Institute Of Business Administration 97

managerial planning and budgetary control. The organization chart defines the

functional responsibilities of executives and thereby justifies their budgets.

Although final responsibility for the budgets rests with executive management, all

managers are responsible for the preparation and execution of their departmental

budgets. If a budgetary control system is to be successful, these managers must

fully cooperate and must understand their role in making the budget system

successful.

Budget precedes the cash flow or cash budget. Budgeting process is usually

directed by a budget committee. The budget committee review, decides, suggest

and approve various policy matters and then all the work is submitted to the

Managing Director/ Chairman for the final consideration and approval. In

performing these functions, the budget committee becomes a management

committee. It is a powerful forces in coordination the various activities of the

business and in controlling the operations.

Budget-Development and Implementation

The procedure used in developing a budget may be as important as its content

and should include these fundamental principles;

Provides adequate guidance so that all management levels are working

on the same assumptions, targeted objectives, and agenda. All managers

should understand the limitations and constraints of their participation and

the bounds of their decision making. Participants should be told, prior to

the time.

Encourage participation in the budgeting process at each level within the

organization. Structure the activity of developing the budget by involving

the people who will be responsible for the implementation of the budget

and who will be rewarded accordingly to its accomplishments.


Structure the climate of budget preparation to eliminate the anxiety and

defensiveness. Individuals should have the freedom and authority to

influence and accept their own performance levels, and should assume

the responsibility for the accomplishment. Budget preparation should be

oriented to the problems and opportunities of the participants.

Structure the preparation of the budget so that there is a reasonably high

probability of successful attainment of the objectives. When challenging

the attainable objectives achievement, feeling of success, confidence, and

satisfaction are produced and aspiration levels are raised. A careful

distinction should be made between controllable factor for which

individuals should be responsible and for uncontrollable factor for which

they are not.

Proper budget implementation requires adherence to the following principles:

Establish reward and reward contingencies that will lead to achieving the

organizational objectives. Too often, the budgeting process does not

provide the sufficient rewards to induce employees to accomplish

organizational objectives.

The organization should focus on rewarding the achievement rather than

punishing the failure. Feelings of success and failure largely determine

attitudes towards the budget and the level of performance to which

employees will aspire.

Provide rapid feedback on the performance of each work team or

individual. This principle necessitates the use of reports and reporting

procedures that are understandable to workers and supervisors at the

department level, so that they can analyze their results and initiate

corrective action.


Cash Flow or Cash Budget

Cash flow statement the actual inflow/ outflow of cash during a period generally

of one year. I accounting practice there are some transactions which do not

involve cash like depreciation, are not taken into consideration while preparing

cash flow.

A cash budget or cash flow involves detailed estimates of anticipated cash

receipts and disbursements for the budget period or some other specific period. It

has generally been recognized as an extremely useful essential management

tool. Planning and controlling cash is basic to good management. Even if a

company does not prepare extensive budgets for the sales and production. It

should setup a budget or estimate of cash receipts and disbursements as an aid

to cash management.

Nature and purpose of cash budget

A cash budget of cash flow:

Indicate the effect on the cash position of seasonal requirements large

inventories, unusual receipts and slowness in collecting account

receivable.

Indicate the cash requirements needed for a plant or equipment expansion

program.

Show the need for additional funds from sources such as bank

loans/overdraft or sale of securities and the time factors involved. In this


connection, it might exert a cautionary influence on plans for plan

expansion, leading to a modification of capital expenditure decisions.

Indicates the availability of cash for taking advantages of discounts.

Assists in planning the financial requirements of bond retirements, income

tax and payments to pension and retirement.

Shows the availability of excess funds for short-term or long term

investments.

Serves as a basic for evaluating the actual cash management

performance of responsible individuals, using measurement criteria such

as the target average daily balance as compared with the actual average

daily balance in each cash account.

Cash flow is followed by the Projected Profit and Loss Account which is

also a part of the Profit planning and estimated or projected profit/ loss can

be examined. It summaries of sales, manufacturing and operating

expenses. It projects net income, the goal towards which all efforts are

directed, and it offers management the opportunity to judge the accuracy

of the budget work and investigate causes for variances. No new

estimates are actually made; figures taken from various budgets are

merely arranged in the form of an income statement.

The sales budget gives the expected sales revenue; the manufacturing

budget furnishes manufacturing costs and cost of goods sold which, when

deducted from sales give the estimated gross profit. Estimates from the

marketing and administrative budgets are subtracted from the estimated

gross profit to arrive at income from operations. Finally provision for

income tax is deducted to determine net income.


Purpose of cash flow

Total cash availability - inflow

Total cash availability - outflow

Cash required for FMR

Cash required for capital investment

Cash required for repairs

Cash required for short/ long term investment

Source for cash - short term and long term

CONTROLLING

This function of the finance department is carried out in the light of standards set

in the planning stage. The actual performance is compared with the preplanned

objectives and standards, which lead to rectification of any deviation and

improvement suggestions which will assist in future planning.

Management control is the systematic effort by the business management to

compare performance with plans. The control function is of prime importance in

the accomplishment of objectives. The need for control increases with the size

and complexity of the organization. Continuous supervision of an activity, task or

job is required to keep it within previously defined boundaries. These boundaries

are termed as budgets in the planning phase, are set up for manufacturing,


marketing, finance and all other activities. Actual results are measured against

plans; and if significant differences are noted, remedial actions are taken.

Generally in this phase the actual performance is derived from the preparation of

the monthly Profit and Loss Account and is compared with the projected profit

and loss account in order to observe the actual variance. When the variance is

detected then it is analyzed to know the reasons/ causes resulted in the variance.

If these causes or reasons are controllable then corrective measures are taken to

rectify it. The difference is projected and actual performance (surplus or deficit) is

taken to the next period and adjusted accordingly.

Monthly Profit and Loss Account – tool of control

Comparison of actual Vs projected or judicial figures which leads to variance.


Department of finance

Out of the nine divisions in the department Revenue Division is the most

important division. Some of the important divisions are described below in detail.

REVENUE DIVISION:

Airline sells space and services and these are measured in terms of money. The

revenue In terms of money is controlled by the revenue division. It is further

subdivided into three sections:

a) Passenger (PAX) Revenue

b) Cargo Revenue

c) Interline Revenue

d) Pricing

For each type of revenue stream there is an independent unit. So Revenue

Division is discussed in units:

a) PASSENGER (PAX) REVENUE:

1) Sales: revenue function starts from printing of tickets.

Tickets of airline contain few coupons with a jacket

(bearing instruction on it). Tickets are sold at station and at

agents’ offices. Sales of tickets may be:

i. Direct sale or

ii. Indirect sale


Direct sales mean sales at stations of PIAC, whereas indirect Sales are by

agents.

i. Direct sales

There are 46 locations for direct sales all over the network of PIA. Two types

of ticketing are practiced i.e. manual ticketing and auto ticketing. Manual

ticketing involves procedures of pencil paper work on printed tickets. Whereas

auto ticketing involves advance system of computerized ticketing and on the

spot computerized ticket printing. Regarding direct sales following four

documents are important:

a) Passenger Revenue/ Extra Baggage Carrier Ticket:

The ticket has four/ three coupons. First is audit coupon, second is

issue coupon, third is the flight/ lift coupon and fourth the revenue

coupon. Flight coupons are arranged for one/ two or four sectors. Audit

coupon and flight are the most important coupons. Because flight

coupon is the only coupon to be used either for the lift or for refund /

reissue / travel on non- PK carrier, etc. whereas audit coupons is

meant for PIA’s revenue record. Audit coupons are sent to head office

with sales statements from each station. Accounting to entry is based

on audit coupon.

b) Miscellaneous charges order (MCO):

These documents contain, audit issue office and exchange coupons.

These are meant for exchange if for the time being you don’t want to

block a seat.


c) Prepaid ticket advice (PTA):

This is for sponsoring the tickets of the relatives, friends, etc. from any

other country/ destination. The money paid by the person sponsoring

the ticket in advance and after the checking of the documents of the

nominee of the sponsorer sponsoree is issued this ticket. The

responsible stations communicate through telexes.

TAX

In the fare charged from passenger following taxes are included:

a) Domestic:

1) Rs. 40 % sector to CAA (Airport Tax).

2) 10% of the central Exercise Duty to central government of Pakistan.

b) International

1) Economy class Rs. 200 Airport Tax

2) Club/ executive class Rs.300 Aviation

Authority

3) 1st class Rs.300 (CAA)

c) Foreign Tax


Rs. 280 per ticket as foreign travel if ticket is issued in Pakistan.

AGENCY SALES

There are three types of agents selling tickets of PIA. IATA approved agents,

general sales agents (GSAs) and non-IATA agents. Agents are paid commission

on domestic 5% and on international 9% and sometimes paid 3% above the

normal rates. Agents as well as stations are required to submit the sales

statements. These may be daily/ weekly/ monthly as the case may be.

Life unit:

This unit is further subdivided into lift control and life automation sub units.

Domestic ticket is directly treated as revenue but international tickets are treated

as unearned revenue which is liability. Unearned revenue is treated as earned

when the passengers are actually lifted. Lift unit is concerned with checking of

flight tickets according to schedules of flights for the passengers actually lifted.

Domestic tickets are treated as revenue directly because experience tells that

people on domestic routes rarely miss travel. But to international due to non-

completion of document people miss the flights and refunds occur unusually.

International flights are 20% to 30% over booked for covering the seats of

passengers not traveling.

Domestic coupons are directly recorded in accounts by sales unit. But

international tickets coupons are fed in computer for matching of list with lifted

passenger’s record. No matter when the ticket was sold and where it was sold.

This unit gets all required documents from sales unit and that gets these from

stations concerned.


Refund unit:

Persons who do not report 72 hours before the flight the seat is automatically

canceled. In case of international tickets the unused tickets are fully refunded.

Jacket covering the coupons of the ticket bears instructions and procedure of

cancellation charges with specified rates.

Accounting units:

Disks/ information received from all stations, sometimes enables this unit to

monitor accounting and prepare floppies and transmit them to main frame. In

PIAC accounting is fully automated and computerized. Few stations have on line

systems too however manual work is not totally eliminated due to non- availability

of the on line systems at some stations.

b) CARGO REVENUE SECTION

Before going into details it will be helpful to look at the organization set up of this

section.

Manager

Cargo

Revenue

Assistant

Manager

Sales

Unit

Assistant

Manager

Lift Unit


Accounts

Officer

R-2

Accounts

Officer

R-3

Accounts

Officer

R-11

Account

s Officer

Mail

Revenue

Accounts

Officer

Miscellaneou

s

In the hierarchy above R-2 stands for revenue generated by PIA’s own counters

where there is no commission on sales, R-3 is concerned with FOB payments by

consignee, in which commission factor is involved. R-11 stands for a document

regarding the agent’s sales revenue and remittance report. Whereas

miscellaneous includes refunds, handling charges, etc.

Sales Unit

Sales may be of two types, sales on PIA’s own counters and sales by agents.

When cargo sales are made airway bills are prepared by stations/ agents.

Stations are responsible for reports to head office about airway bills, both of

agents and stations. Agent reports to stations and stations to H.O. cargo sales

may be domestic or international R-2 is statement regarding domestic cargo

sales and international cargo sales for PIA counters whereas R-11 is a statement

for agent’s cargo sales. R-3 is collection report. R’s are returns are a statement

for agent’s cargo sales. R-3 is collection report. R’s are returns prepared by the

stations and sent to lift unit. Lift unit keeps the tracks of the cargo sales revenue

and monitors the preparation and collection made by the stations.

Lift units:

When cargo sales are made a liability is created until the cargo is actually lifted.

From the statements and airway bills from stations lift unit prepares original

accounting entry. When sales are made entry passed is books of accounts looks

like:

Cash Rs. ______


Unearned cargo revenue Rs. ______

And when the cargo is actually lifted unearned revenue is converted from liability

account to earned revenue account a revenue account and entry like

Unearned cargo revenue Rs. _______

Revenue earned Rs. _______

This accounting is function of the unit under discussion. Different sources are

also prepared by this unit to feed the accounting data in main ledgers in main

frame computer system.

Source 20 – prepaid (PIA) airway bills

Source 21 – PIA and other airlines airways bills

Source 23 – other airlines payments and receipts of airway bills

Source 24 – prepaid other airway bills

These sources are prepaid by the lift section and sent to DPC. This unit has been

divided into two more cells one is mail ad other miscellaneous.

Mail cell is concerned with revenues and accounting of the revenues from mail

carried by PIA carriers. Every year there was dealing and carrying of mail at

national and international levels through with agencies. Mail may be of following

types:

Domestic mail

International mail

PIA is earning about Rs. 12 crore revenue yearly from all types of mails carried at

national and international levels. Instead of cargo airway bills this cell is

concerned with mail way bills on the basis of which accounting are done.


Miscellaneous revenue cell deals with return R-4 which consists of handling

charges (credit and cash) transactions and refunds etc. through cash clearance

account and total advances account. Cash receipts and invoices and disks along

with lists are attached R-4. Data is arranged, checked and sent to DPC in a form

to be fed in computer system. Stations send return’s summary on monthly basis

to Head Office.

c) INTERNATIONAL REVENUE SECTION

All airlines render services and these are measured in terms of money. Revenue

decision is responsible to keep the tracks of all the revenue. Interline revenue

has two aspects:

Receivable – when ticket is purchased by passenger from any other

airline but lifted by PIA.

Payable – when tickets is purchased by passengers from PIA but are

lifted by some other carrier.

These transactions are settled through IATA clearance house. IATA clearance

house has its member airlines. These airlines have their accounts with IATA. But

non – IATA member airlines are dealt according to the standing agreements with

them. As IATA regulates the airline industry in the world most of the settlements

are through IATA.

Sometimes revenue is divided according to sectors carried. These types of the

settlements are on the basis of mileage. This is called peroration. For settlement

there are three currencies in which payments are receipts are made:

European currency


US Dollar

Pound Sterling

d) PRICING

This section of the revenue division was established in 1975. It acts as regulating

authority of the airline.

According to IATA rules approved fare written on the face of the tickets should be

charged as that fare is approved. But the airlines undercut their fare especially in

other than the base country. This section monitors these underground unethical

violations of the IATA rules.

When other airlines undercut fares and PIA feels that it must also undercut, the

station managers prepares proposals about fare expected to be charged and

sends these proposals to marketing department. Marketing department analysis

the proposals and approve them after comparing with last year’s figures. Final

approval is made by the “director sales”.

Functions of this section are to:

Monitor the sales and undercutting

Provide funds through secret accounts

Check whether the undercutting is made according to approval or not

Do accounting for this commission item

Make reconciliation of secret accounts, with undercutting and special

incentive commission

Account with statements received from stations and GSAs.


IATA keeps regular check on undercut, collect evidences from people

passengers, explore the records of suspected stations and agents but still

undercut is rapidly growing.

Financial Services Division

Payroll section:

Financial services division consists of three sections:

Payroll/ taxes section

Disbursement section: and

Other departmental finance sections

Here, we are concerned with payroll/ taxes section which is headed by manager.

Payroll/ taxes section has further been divided into two units:

Salary and taxes unit

Reimbursements and foreign salaries unit

a) Salary and taxes unit

Domestic salary and taxes to be deducted at source are the responsibility of this

unit. Disbursements of the salaries are made through banks this function is

watched by unit under discussion. Attendance account of each employee is dept

by the computer system. Casual leaves, sick leaves, medical leaves, accident

leaves, and others are recorded in this account and if employee exceeds the

extended limits of leave, the deductions are made from the salary.


Allowances/ funds including house rent allowance, provident fund, medical

allowance, qualification allowance and others are calculated and deducted/

added. Payroll of each employee is calculated on the basis of the previous

months recorded. Salary preparation system is computerized and payments are

made by cheques through employee’s bank accounts.

b) Reimbursement unit:

All expenses and payments made by the employees on behalf of the corporation

are reimbursed and paid back to them. Besides this travel, entertainment, taxi

fare, car allowance, etc. are also paid to employees. Following are the sources

for the recording all information regarding on employees salary.

Source 50: sent by the manager employment contains basic information about

employees.

Source 51: prepared by this section to make deduction from the salary.

Source 52: any single change in the salary. It is called salary structure change

adjustment advice.

Source 53: for miscellaneous recoveries of loans and advances this source is

not concerned with salary but with loans and advances.

Source 54: master taps statistical data change advice.

Source 55: master tape amount adjustments/ change. Regarding salary/ loans

refund.

Source 56: salary structure change adjustment advice for multiple changes on

multiple dates in the salary and its structure.


Source 57: attendance form.

Source 58: no more in use.

Source 59: termination advice.

Taxes:

Taxes are under control of the assistant manager salary and taxes, who is

responsible to deduct tax at source form taxable salaries of the employees

according to current tax rates by the federal government.

Insurance and terminal benefits

The division is headed by a qualified GM. The division consists of:

I. Insurance

II. Terminal benefits

I. Insurance section

PIAC enters into contract with some insurance companies to insure its aircraft,

passengers and baggage etc. Insurance section purchases policies on behalf of

the PIAC and claims compensations on behalf of PIAC whenever loss occurs.

Group insurance scheme is major scheme of the PIAC.

Premium of insurance is certain percentage of sum assured, paid by this section.

Nowadays PIAC has about 20 policies. Cases come from different departments

and sections and are sent by this section to insurance companies. Negotiations

are made for determination of amount of loss by this section. In case of heavy


insurance policies corporations insuring the sum get reinsurance from

international market of insurance in the world.

II. Terminal benefits section:

Employees of PIAC have some rights on PIAC after retirement/ termination/

resignation as the case may be. This section is responsible to discharge those

responsibilities of PIAC. Under the control of GM and manager insurance and

terminal benefits, an assistant manager is responsible for these benefits.

Provident fund is the major amount to be kept and paid data the time of

termination to employees. An employee can be separated by following ways from

his/ her normal functions.

If he reaches his age of retirement

If he resigns, or

If he is terminated by PIAC administration on disciplinary grounds

Rules of gratuity and pension in all three cases are different. In case of pension,

he will be paid pension according to the salary section declaration and order.

Provident fund both employees and employer’s contribution is paid to him along

with gratuity.

In case of resignation, resignee gets only own contribution of provident fund and

same is applicable to the person who has been terminated on disciplinary

grounds.


Organizational Chart

PIA Finance Department Lahore

Finance

Manager Punjab

Assistant manager

payments

Assistant manager

receipts

A. O. Disbursement A. O. Revenue

A. O. refund A. O. Agency Sales

A. O. Payroll

A. O. Document

Control

A. O. Bank

Reconciliation


A. O. Automation

A. O. = Accounts Officer

All PIA sales counters cash at Lahore is controlled by Accounts

Officer Revenue.

Function of PIA Finance Department Lahore

Following are the main functions of finance department.

Arrange funds when required

As PIA is a commercial organization. It is very important to control the different

types of sales and purchase.

Different accounting reports help management in decision making.

Periodical accounting reports are helpful indicating the profitable routes.

As PIA is a commercial organization. Its main function is to carry passenger from

one place to other place. One country to another country. One continent to

another continent. Cargo taking is second function of PIAC. As the PIA business

is a different type of business from a routine business. That is why its accounting

system is some what different and accounting reports are different from the

routine reports.


As PIA is a very large organization and its business operates all over the world

and its offices as well as finance office are located all over the world that is why it

difficult to cover or to elaborate whole of the PIA’s financial structure within the

limit of my internship report that is why I am going to give the accounting get up

and account system in Lahore.

Graphical representation of facts and figures


Financial Analysis

THE COMPANY’S PERFORMANCE

TOOLS OF ANALYSIS

Ratio Analysis

Trend Analysis


Common Size Analysis

BALANCE SHEET AS AT DECEMBER 31, 2001

Note 2001 2000 2001 1999

Rupees in thousand(US$ in

thousand)

Shareholders’ Equity (Restated)

Share capital 3 3,884,618 3,884,618 64,744 3,884,618

Reserves 4 4,130,712 4,130,712 68,845 4,130,712

Accumulated loss (12,859,266) (11,078,273) (214,321) (5,779,450

)

(4,843,936) (3,062,943) (80,732) 2,235,880

SURPLUS ON REVALUATION

OF FIXED ASSETS

5 2,300,308 4,841,306 38,338 4,858,652

REDEEMABLE CAPITAL 6 4,863,330 2,371,575 81,056 3,461,242

LONG TERMS LOANS 7 268,739 391,353 4,479 504,270

OBLIGATION UNDER FINANCE

LEASES

8 3,125,133 5,922 52,085 7,717


OBLIGATION UNDER HIRE

PURCHASE

9 2,503,792 3,986,944 41,730 5,889,343

DEFERRED DEPOSITS &

OTHER LIABILITY

10 2,557,211 2,621,706 42,620 2,161,511

LONG-TERM DEPOSITS AND

OTHER LIABILITY

11 328,308 403,348 5,472 817,395

CURRENT LIABILITIES

Current maturities 12 2,604,337 4,827,785 43,406 4,262,621

Short-term loans 13 7,654,147 5,452,591 127,569 5,934,849

Creditors, accrued expenses and

other liabilities

14 18,148,502 16,324,065 302,475 11,323,319

Provision for taxation-net

advance tax

76,784 18,622 1,280 21,520,789

28,483,770 26,641,063 474,730

CONTINGENCIES &

COMMITMENTS

15

39,586,655 38,200,274 659,778 41,456,799

FIXED ASSETS

Operating fixed assets 16 23,591,762 23,337,393 393,196 24,142,667

Capital work-in-progress 17 45,185 94,987 753 48,644

23,636,947 23,432,380 393,949 24.191,311

LONG-TERM INVESTMENTS 18 215,862 215,862 3,598 215,862

LONG-TERM ADVANCES 19 3,483,007 3,230,392 58,050 2,725,196

LONG TERM DEPOSITS AND

OTHER RECEIVABLES

20 413,680 452,092 6,895 427,844

DEFERRED COSTS 21 494,077 972,516 8,235 1,447,386

CURRENT ASSETS

Stores and spares 22 3,669,636 3,575,666 61,161 3,807,939

Aircraft held for disposal 23 11,613 236,637 194 236,637

Short-term investments 24 27,023 27,023 450 3,198,436

Trade debts 25 3,053,980 3,285,609 50,900 3,681,749

Advances, deposits &

prepayments

26 533,163 451,530 8,886 386,549

Other receivables 27 1,881,214 573,641 31,353 4,246

Cash and bank balances 28 2,166,453 1,746,926 36,107 1,133,644

11,343,082 9,897,032 189,051 12,449,200


39,586,655 38,200,274 659778 41,456,799

The annexed notes 1 to 39 form an integral part of these financial statements.

These financial statements were authorized for issue in the Board of Directors Meeting held on May 24,

2002.


PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED DECEMBER 31, 2001

Note 2001 2000 2001 1999

Rupees in thousand(US$ in

thousand

)

(Restated)

REVENUE 29 43,608,371 39,227,700 726,806 35,491,988

COSTS AND

EXPENDITURE

30 43,242,160 42,188,837 720,702 35,869,818

366,211 (2,961,137) 6,104 (377,830)

FINANCIAL

CHARGES

31 (2,600,574) (2,437,162) (43,343) 2,332,357

OTHER

PROVISIONS &

ADJUSTMENTS

32 (206, 153) (616,550) (3,436) 847,195

OTHER INCOME 33 558,672 713,224 9,311 (2,104,448)

LOSS BEFORE

TAXATION

(1,881,844) (5,301,625) (31,364) 1,075,104)

TAXATION 34

Current (234,992) (232,416) (3,917) (305,930)

Prior (88,698) (56,907) (1,478) (13,250)

Deferred -- 280,000 -- (280,000)

(323,690) (9,323) (5,395) (599,180)

LOSS AFTER

TAXATION

(2,205534) (5,310,948) (36,759) (2,052,114)


ACCUMULATED

LOSS BROUGHT

FORWARD AS

PREVIOUSLY

REPORTED

(10,922,604) (5,779,450) (182,043)

Depreciation

relating to prior

period on

reinstatement of

grounded aircraft

(155,669) -- (2,595) --

Accumulated loss

brought forward as

restated

(11,078,273) (5,779,450) (184,683) (3,727,336)

Surplus on

revaluation of fixed

assets realized

35 424,541 12,125 7,076 --

Loss carried

forward

(12,859,266) (11,078,273) (214,321) (5,779,450)

Loss per share (Rs/

US$)

36 (5.91) (14.22) (0.10) (5.49)


RATIO ANALYSIS

BALANCE SHEET RATIOS

LIQUIDITY RATIOS

Liquidity ratios are used to measure a firm’s ability to meet short term obligations.

They compare short-term obligations to short term current) resources available to

meet these obligations from these ratios, much insight can be obtained into the

present cash solvency of the firm and the firm’s ability to remain solvent in the

event of adversity.

CURRENT RATIO

Current assets divided by current liabilities. It shows a firm’s ability to cover its

current liabilities with its current assets.

Standard For C.R 2:1

Assets liabilities

YEAR CALCULATION CURRENT RATIO

1999 12,449,200

21,520,789

0.58

2000 9,897,032

26,649,062

0.37

2001 11,343,082

28,483,770

0.40

INTERPRETATION

Comparing internally for three year PIA current ratio has gradually decreased

from 1999 then there is slightly increase in 2001. this improvement is considered

nominal. So we can say that PIA is maintained its bad liquidity position. This

gradual decrease is due to gradual incurrent maturities, creditors accused


expenses and other liabilities. On the assets since there was a decrease in

stores and spases from 1999 to 2000. then there is improvement in current

assets. Overall, it present management deficiency and co’d less ability to pay its

current liabilities.

ACID-TEST (QUICK) RATIO

Current assets less inventories divided by current liabilities. It shows a firm’s

ability to meet current liabilities with its most liquid (quick) assets.

Acid-test ratio = Current Assets – inventories

Current Liabilities

Standard for Quick Ratio 1:1

Assets Liabilities


1999 12,315, 040

21,520,789

0.57

2000 9,821,872

26,641,062

0.37

2001 11,224,042

28,483,770

0.39

INTERPRETATION

This ratio serves as a supplement, to the current ratio is analyzing liquidity. This

ratio concentrates primarily on more liquid current assets cash, marketable

securities and receivables in relation to current obligations. PIA’s acid test is

gradually decreasing since 1999. and then there is little bit improvement in 2001.

the whole situation was a result of change in sale policy and RTD.


FINANCIAL LEVERAGE (DEBT) RATIOS

These ratios answered the question.

How the firm has financed its assets (sources of finance in % age)?

First question is answered by balance sheet leverage ratio.

DEBT-TO-EQUITY RATIO

Ratio that show the extent to which the firm is financed by debt

Debt-to-equity ratio = Total Debt

Shareholder’s Equity


1999 39,220,919

2,235,880

17.54: (1)

2000 41,263,217

(3,062,943)

13.47: (1)

2001 44,430,591

4,843,936

9.17: (1)

INTERPRETATION

To assess the extent to which the firms is using borrowed money this ratio is

used of capital (owner’s equity). It means that creditors are not providing more

loans to the PIA because of losses and loss in shareholder’s equity. The ratio of

external finance is consistently declining from 1999 to 2001.


DEBT-TO-TOTAL ASSETS RATIO

The debt-to-total assets ratio is derived by dividing a firm’s total debt by its total

assets.

Total debt

Total assets


1999 39,220,919

41,456,799

0.95

2000 41,263,217

38,200,274

1.08

2001 44,430,591

39,586,655

1.12

INTERPRETATION

This ratio highlights the relative importance of debt financing to the firm by

showing the %age of the firm’s assets that are supported by debt finagling. Thus

in 1999, 95% of the firms assets are financed with debt (of various types). While

the remaining 5% of the financing comes from shareholder’s equity. And 2000

108% from financed with debt and now 2001 112% financed with debt. It is due

to continuous losses suffered by the company and it is covering the loss through

creditor’s fund. Here the financial risk is very high and the cushion of protection

afforded the firms creditors are very large. It was not in the favor of the co.

LONG TERM CAPITALIZATION

Long term capitalization is derived by dividing a firm’s total long term debt by its

total capitalization.

Long Terms Debt

Total capitalization



= Long term Debt and shareholder’s Equity


1999 1,770,0136

19,936,010

0.89

2000 14,622,154

11,559,211

1.26

2001 15,946,821

11,102,885

1.44

INTERPRETATION

This ratio tells us the relative importance of long-term debt to the capital structure

(long term financing of the firm). Where total capitalization represents all long-

term and shareholder’s equity. The share of creditors in long term financing is

consistently increasing. The mimesis ligure of ratio is greater than one (1)

because the company is in the situation of coniferous losses.


INCOME STATEMENT AND INCOME STATEMENT /

BALANCE SHEET RATIOS COVERAGE RATIOS

Ratios that relate the financial charges of a firm to its ability to service, or cover

tham.

One of the most traditional of the coverage ratios is the interest coverage ratio, or

times interest earned.

INTEREST CHARGES RATIO

Earning before interest and taxes divided by interest charges. It indicates a firms

ability to cover interest charges.

Earning before interest and taxes (EBIT)

Interest expense


1999 (377,830)

2,332,357

(0.16)

2000 (2,961,137)

2,437,162

(1.21)

2001 366,211

2,600,574

0.14

INTERPRETATION

This ratio is designed to relate the financial charges of a firm to its ability to serve

or cover them. This ratio serves as one measure of the firm ability to meet its

interest payment and thus avoid barlosupty. In general, higher the ratio, greater


the livelihood that the company could cover its interest payments without

difficulty. In 1999 the ratio is (0.16). it means that company has no sufficient

income to meet its financial charges. It has very alarming situation in 2000 with

ratio (1.21). in 2001, there is little bit improvement to meet the charges.

ACTIVITY (PERFORMANCE) RATIOS

These ratios, also known as efficiency or turnover ratios. How effectively the firm

is using its assets. Some aspects of activity analysis are closely related to

liquidity analysis. Activity ratios primarily focus on how effectively the firm is

managing two specific assets groups. Receivables and inventories and its total

assets, in general. It includes three ratio giving below.

RECEIVABLES ACTIVITY

The receivable turnover (RT) ratio provides insight into the quality of the firm’s

receivables and how successful the firm is in its corrections. This ratio is

calculated by dividing receivable into annual credit sales.

Receivables Turnover Ratio

= Annual not credit

Receivables

Receivable Turnover Days (RTD)

= Days in the year

Receivable Turnover

YEAR RTR RTD

1999 11.10 33 Days

2000 11.94 31 Days

2001 14.28 16 Days


INTERPRETATION

Receivable turnover ratio tells us the number of times accounts receivable have

been turned over (turned into cash) during the year. The higher the turnover, the

shorter the time between the typical sale and cash collection. Since 1999, there

is greater fluctuation in this ratio. Upto 2001, it increased too much. This change

was due to reduction in receivables.

PAYABLE ACTIVITY

This ratio tells when firm wants to study its own prompted of payment to suppliers

or that of potential credit customer.

Payable Turnover Day (PTD)

= Days in the year

Payable turnover ratio

YEAR RTR P.T.D

1999 4.02 90 Days

2000 3.18 114 Days

2001 0.79 39 462 Days

INTERPRETATION

In 1999 the co payable ratio is very low. But it increased in 2000 & 2001. and its

payable days are also decreased.

INVENTORY ACTIVITY


Inventory turnover Ratio (I.T.O.R)

= Cost of Goods sold

Inventory

= Inventory Turnover days (ITD)

Days in the year

Inventory turnover ratio

YEAR I.T.O.R I.T.D

1999 8.87 41

2000 11.80 30

2001 11.75 31

INTERPRETATION

To determine how effectively the firm is managing inventory and an indication of

the liquidity of inventory, this ratio is computed PIA should a some fluctuation in

inventory turnover from 1999 to 2000 it increased to 11.80 time but in 2001, it

decreased this change was, basically, due to change in inventory turnover is

decreasing, which is a good sign for company.

Operating Cycle:


The length of time from the commitment of cash for purchases until the collection

of receivables resulting from the sale of goods or services.

Operating Cycle = Inventory Turnover Days

+ Receivable Turnover Days

Year 1999 2000 2001

Operating

Cycle74 61 57

Interpretation:

A direct result of both liquidity and efficiency ratios is the concept of firm’s

operating cycle. A firm’s operating cycle is the length of time from the

commitment of cash for purchases until the collection of receivables resulting

from the sale of goods or services. As the length of operating cycle is an

important factor in determining a firm’s current assets needs. PIA’s operating

cycle shows a fluctuation in 1999, it was high but in 2000, it decreased. This

change was due to decrease in receivables as well as in inventory level, which

resulted in low RTD and ITD. Although a short operating cycle is considered

better for a firm but it does not prove so in case of PIA.

PROFITABILITY RATIOS

Profitability ratios are of the types. These showing profitability in ratio to sales

and those showing profitability in sedation to investment. Together, these ratios

indicate the firms overall effectiveness of operation.

PROFITABILITY IN RELATION TO SALES


Gross profit (loss) margin

= Gross Profit (Loss) x 100

Net Sales

Net profit (Loss) Margin

= Net Profit (Loss) after taxes x 100

Net Sales

YEAR I.T.O.R I.T.D

1999 (1.06 %) (5.78%)

2000 (7.54%) (13.54%)

2001 (0.84%) (5.06%)

INTERPRETATION

Gross profit (Loss) margin ratio tells us the profit of the firms relative to sale, after

defecting, the cost of producing the goods. It is a measure of the efficiency of the

firm’s operation, as well as indication of how products are preced PIA’s gross

profit (loss) margin shows a fluxion but still it is in loss.

On 2001 the G.P is positive which shows the little bit improvement. The net profit

(loss) margin is a measure of the firm’s profitability of sales after taking account

of all expenses and income taxes. This ratio shows the same fluctuation as in

case of gross profit margin.

Here PIA is bear very high level of loss.


PROFITABILITY IN RELATION TO INVESTMENT

Return on investment (ROI)

= Net profit (Loss) after taxes x 100

Total Assets

Return on equity (ROE)


Shareholder’s equity

YEAR I.T.O.R I.T.D

1999 (4.95 %) (91.78%)

2000 (13.9%) (13.39%)

2001 (5.57%) (45.53%)

INTERPRETATION

ROI reflects profitability on these assets. PIA is maintaining loss on assets. It

does not go in its favor.

It presents a bad situation ROE us the earning shows very drastic and alarming

situation about continuous losses.


DU PONT ANALYSIS

ROI and the Du Pont approach

Earning power

= Sales profitability

x Assets Efficiency

ROI = Net Profit (loss) Margin

x total assets turnover

N.I after taxes

Net sales

x Net sales

Total assets

In 1999

ROI = (5.78) x 0.86 = (4.97)

In 2000

ROI = (13.54) x 1.30 = (13.94)

In 2001

Not = (5.06) x (1.10) = (5.56)

ROE and Du pont analysis

ROE = Net Total Equity

Profit x assists x multiplier

Margin turnover

Net Profit


= After taxes x Net sales x Total assets

Net sales Total Assets Shareholder’s

Equity

On 1999

ROE = (5.78) x 85.61. 18.54

In 2000

ROE = (14.96) x 102.69 x (12.47)

In 2001

ROE = (5.08) x (110.16) x (8.17)


Common size Analysis (Vertical Analysis)

INTERPRETATION:

Common size analysis express the various component of a balance sheet as %

age’s of the total assets of the company. In addition, this can be done for the for

the income statement, but here items are related to net sales. The expression of

individual financial statement items as %age of totals helps to spot trend with

respect to the relative importance of these items over time.

To illustrate, common size balance sheet income statement are shown alongside

regular statement in table above for PIA. The %age of owner’s equity decreased

from 1999 to 2001 that is due to heavy losses. In 2001, there is improvement in

redeemable capital. Long term loans have declining trend. The huge amount is

financed by lease in 2001. current liabilities have increasing trend and decrease

in long-term financing.

On the assets side, fixed assets and investments have almost same

percentages. There is % age decrease in differed cost which is an improvement.


BALANCE SHEET

1999 2000 2001


Share capital 9.37% 10.17% 9.81%

Reserves 9.96% 10.81% 10.43%

Accumulated losses (13.94%) (29.00%) (32.49%)

5.39% (8.02%) (12.24%)

Surplus on revaluation of fixed

assets

11.72% 12.67% 5.81%

Redeemable capital 8.35% 6.21% 12.29%

Long term loans 1.22% 1.02% 0.68%

Obligation under Finance lease 0.02% 0.02% 7.89%

Obligation under higher purchase 14.21% 10.44% 6.32%

Deffered liabilities 5.21% 6.86% 6.46%

Long term deposits and other

liabilities

1.97% 1.06% 0.83%

Current liabilities

Current maturities 10.28% 1.28% 6.58%

Short term loans 14.32% 2.64% 19.34%

Creditors accrued esp.& other

liab.

27.31% 42.78% 45.85%

Provision for taxation net of adv.

Tax

0.05% 0.19%

51.91% 69.74% 71.95%

Contingencies comments 100% 100% 100%

zFixed Assets

Operating Fixed Assets 58.24% 61.09% 59.60%

Capital W.I.P. 0.12% 0/25% 0.11%

58.35% 61.34% 59.71%

Long term 0.52% 0.57% 0.55%

Long term advances 6.57% 8.46% 8.80%

Long terms deposit and other

receivable

1.03% 1.18% 1.04%

Deffered cost 3.49% 2.55% 1.25%


Current assets

Stores and spares 9.19% 9.36% 9.27%

Aircraft held for disposal 0.57% 0.62% 0.03%

Short term 7.72% 8.3% 7.71%

Trade debts 8.38% 8.60% 7.79%

Advances deposits and

prepayments

0.93% 1.18% 1.35%

Other receivable 0.01% 1.50% 4.75%

Cash and balance 0.03% 4.57% 5.47%

30.03% 25.91% 28.65%

100% 100%` 100%


INCOME STATEMENT:

1999 2000 2001

Revenue 100% 100% 100%

Cost and

expenditure

(43.81%) 144.34% 99.16%

(9.6%) 10.13% 0.34%

Financial

charges

8.34% 8.34% 5.96%

Other provision 2.11% 2.11% 0.47%

Other income (2.44%) (2.44%) 1.28%

Loss before

taxation

(17.61)% 18.14% 4.32%

Taxation

Current (0.80%) 0.80% 0.54%

Prior (0.19%) (0.19%) 0.20%

Deffered 0.96% 0.96% --

(0.03%) (0.03%) (0.74%)

Loss after

taxation

(17.64%) (18.17%) (5.06%)

In current assets the air craft for disposal has decreased in 2001. there is

improvement in advances, deposits, prepayments, cash balance and other

receivables.

In income statement there is significant decrease in expenditure from 2000 to

2001. there is also decline in financial charges and other provisions from 2000 to

2001. the amount of loss carried forward in reduced from 2000 to 2001.


INDEX ANALYSIS (HORIZONTAL ANALYSIS)

INTERPRETATION:

In index analysis in balance sheet at the side of owner’s equity the share capital

and reserves are some in 3 years loss are increased in huge amount in 2000 and

some loss decline in 2001 surplus. On revaluation of fixed assets suddenly

decreased in 2001. in 2000 redeemable capital decreased and highly increased

in 2001. in 2000 long terms loans decreased in 2001= it increased. The cause of

the losses in 2000 long term deposits other liabilities decreased after all in 2001 it

improved. In current liabilities side in 2000= current maturities increase and in

2001 it decreased.

In asset side in 2000 capital work in progress is highly increased and in 2001

suddenly highly decreased. Long term investment is the same in three years long

term advances, long term deposits and other receivables increased in 2000 and

decrease in 2001. deffred cost is also decreased. At


BALANCE SHEET

1999 2000 2001


Share capital 100% 100% 100%

Reserves 100% 100% 100%

Accumulated losses (100%) (191.68%) (116.08%)

(100%) 136.99% 158.15%


assets

100% 99.64% 47.51%

Redeemable capital 100% 68.52% 205.07%

Long term loans 100% 72.94% 52.58%

Obligation under Finance lease 100% 67.70% 62.80%

Obligation under higher purchase 100% 121.29% 97.54%

Deffered liabilities 100%


liabilities

100% 49.35% 81.40%

Current liabilities

Current maturities 100% 113.21% 53.94%

Short term loans 100% 91.87% 140.38%

Creditors 100% 144.82% 111.05%

Provision for taxation net of

advance tax

100% -- 24.25%

100% 123.79% 106.92%

Contingencies comments 100% 92.14% 103.63%

Fixed Assets

Operating Fixed Assets 100% 96.66% 109.66%

Capital W.I.P. 100% 195.27% 47.57%

100% 96.86% 100.87%

Long term 100% 100% 100%

Long term advances 100% 118.54% 107.82%

Long terms 100% 10567% 91.50%

Deffered cost 100% 67.19% 50.80%


Current assets

Stores and spares 100% 93.90% 102.63%

Aircraft held for disposal 100% 100% 4.91%

Short term 100% 636.43% 100%

Trade debts 100% 102.72% 92.95%

Advances 100% 12.20% 118.08%

Other receivable 100% 148.40% 327.94%

Cash and balance 100% 154.10% 124.02%

100% 79.50% 114.61%

100% 92.14% 103.63%

INCOME STATEMENT


1999 2000 2001

Revenue 100% 110% 111.17%

Cost and

expenditure

100% 117.18% 102.50%

100% 742.52% 12.37%

Financial

cheeses

100% 104.49% 106.71%

Other provision 100% (72.78%) (33.44%)

Other income 100% (33.89%) (78.33%)

Loss before

taxation

100% (354.18%) 35.50%

Taxation

Current 100% 75.97% 101.11%

Prior 100% (429.49%) 155.86%

Deffered 100% 100% --

100% (1.56%) (347.95%)

Loss after

taxation

100% (251.22%) (41.53%)

The side of current assets short term investment is suddenly increased. Other

receivable, cash to bank balance is also increased.

Income statement side revenue, cost to expenditure increased in 2000 and 2001.

In 2000 G.P suddenly increased but in 2001 decreased other provisions,

adjustments to other income are also decreased. Taxation is also increased. At

last net loss in increased.

TREND ANALYSIS


1999 2000 2001

Liquidity

Current ratio 0.58 0.37 0.40

Acid test ratio 057 0.37 0.39

Leverage

Debt-to-equity ratio 17.54:1 13.47:(1) 9.17: (1)

Total debt to assets ratio 0.95 1.08 1.12

Long term capitalization 0.89 1.26 1.44

Overage

Interest coverage ratio (0.16) (1.21) (0.14)

Activity

Average collection period 33 Days 31 Days 26 days

Inventory turnover in dap 41 30 31

Total assets turnover 0.86 1.03 1.10

Profitability

Gross profit margin (1.06%) (7.54%) (0.84%)

Net profit margin (5.78%) (13.54%) (5.06%)

Return on investment (4.95%) (13.9%) (5.57%)

Return on equity (91.78%) (173.39%) (45.53%)

OVERALL ANALYSIS

Comparing internally for the three year we can say that PIA is maintained its bad

liquid position. PIA’s acid-test ratio is gradually decreasing. In the financial side

creditors are not providing more loans to the PIA because of losses and loss in

shareholder’s equity. And the financial ratio is very high and the cushion of


protection afforded the firm’s creditors are very large. In long term capitalization

the numeric figure of ratio is greater than one. Because the company is in the

situation of continuous losses. In the case of losses company has no sufficient

charges. The company’s activity position is little bit good. In the profit side PIA is

bear very high level of loss. PIA is intimating loss on assets. It does not go in as

favor. It present a bad situation.


SIX YEAR SUMMARY

2001 2000 1999 *1998 1997 1996

OPERATION

Route kilometers 265,643 317,213 332,417 359,608 336,230 310,205

Revenue

kilometers flown

(000)

70,958 76,212 75,483 109,403 78,796 74,288

Revenue Hours

Flow

121,860 134,066 135,136 199,699 143,686 138,014

Available Tonne

Kilometers (000)

2,540,547 2,631,392 2,559,740 3,694655 2,648,842 2,525,900

Available Seat

Kilometers (000)

17,755,558 18,691,763 17,839,306 24,682,856 17,528,336 16,572,919

TRAFFIC

Revenue

passengers

Carried (000)

4,877 5,297 4,914 8,102 5,883 5,399

Revenue

pasenagers KM

(000)

11,652,295 12,055,619 10,653,462 16,470,037 11,660,447 10,592,399

Passenger Load

Factor

65.6% 64.5% 59.7% 66.7% 66.5% 63.9%

Revenue Freight

Tonne Kilometers

(000)

371,304 340,384 327,330 574,318 425,758 430,027

Kgs. Of Excess

Baggage & Cargo

(000)

111,526 107,798 101,017 171,878 121,209 121,151

Kgs. Of Mail (000) 1,914 1,930 1,460 2,212 1,602 1,709

Revenue Tonne

KM (000)

1,438,303 1,452,094 1,306,518 2,084,938 1,494,808 1,402,311


Revenue Load

Factor

56.6% 55.2% 51,0% 56.4% 56.4% 55.6%

Avg. Pax Stage

Distance (Statute

KM)

2,389 2,276 2,168 2,033 1,982 1,962

FINANCIAL

Operating

revenue (Rs. in

million).

43,608,37 39,227.70 35,491.99 52,308.14 32,732.16 27,504.68

Operating

Expenses(Rs. in

million).

43,242,16 42,033.17 36,394.65 48,453.69 32,809.05 27,150.39

Operating Profit

(loss) (Rs. in

million).

366,21 (2,805.47) (902.67) 3,854.45 76.89 354.29

Profit (loss) after

Tax (Rs. in

million).

(2,205.53) (5,155.28) (2,052.11) 2,159.19 4,794.96 65.17

Fixed assets (Rs.

in million).

23,205.53) (23,155.28) 24,191.31 25,158.80 26,710.28 20,0,35.07

Current assets

(Rs. in million).

11,343,08 9,969.13 12,469.91 11,590.70 7,002.58 7629.41

Current liabilities

(Rs. in million).

28,483.77 26,724.43 20,614.48 18,353.96 12,165.40 9286.71

Long term debts

(Rs. in million).

10,760,99 6,755.79 9,854.86 9,478.42 13,223.29 1,1077.12

Net Worth (Rs. in

million).

(4,843.94) (2,907.27) 2,235.88 6,047.30 3,888.10 8683.07

Jet Fuel Prices

(Rs. per US

Gallon ).

51.88 50.94 29.06 26.69 30.93 24.35

Cost Per A.T.K. 17.02 15.97 14.22 13.11 12.38 10.75


(Rs).

RATIOS .

Earnings per

Share

(5.91) (13.80) (5.49) 5.78 (12.84) 0.17

Net Assets per

share

29.73 31.14 55.80 61.35 65.53 54.12

Debt Equity Ratio (5.00) 6.00 2.00 1.33 3.10 1.45

Current Ratio 0.40 0.40 0.60 0.60 0.57 0.82

Share prices (Rs. 10 shares).

High 7.50 13.15 18.25 8.35 15.50 11.25

Low 2.45 5.00 3.50 3.00 6.45 7.75

Closing 2.85 5.00 8.60 3.85 9.00 7.75

PERSONNEL

Average No. of

Employees

17.170 17,663 17,854 18,946 21,671 21,181

Revenue per

Employee (Rs).

2,539,800 2,220.897 1,987,901 2,760,907 1,510,413 12,985,54

A.T.K. per

Employee

147,964 148,978 143,371 195,010 122,230 119,253

*1998 figures are for July 97-Dec 98 period (18 months).

RATIO ANALYSIS


As a comparison of half years ending June 2001 and June 2002

BALANCE SHEET RATIOS

LIQUIDITY RATIOS

Liquidity ratios are used to measure a firm’s ability to meet short term obligations.

They compare short-term obligations to short term (current) resources available

to meet these obligations from these ratios; much insight can be obtained into the

present cash solvency of the firm and the firm’s ability to remain solvent in the

event of adversity.

CURRENT RATIO

Current assets divided by current liabilities. It shows a firm’s ability to cover its

current liabilities with its current assets.

Standard For C.R 2:1


December 2001 11,343,082

28,483,770

0.40

June 2002 11,176,434

27,036,987

0.41

INTERPRETATION


Comparing internally for half year PIA current ratio has gradually increased

slightly in 2002, this improvement is considered nominal. So we can say that PIA

has maintained its bad liquidity position. This bad position is due to current

maturities, creditors, accrued expenses and other liabilities however current

liabilities have decreased now. On the assets side since there was a decrease in

cash in 2002 then there is slight improvement in stores and spares and in

investment. Overall, it presents management deficiency and less ability to pay its

current liabilities.

ACID-TEST (QUICK) RATIO

Current assets less inventories divided by current liabilities. It shows a firm’s

ability to meet current liabilities with its most liquid (quick) assets.

Acid-test ratio = Current Assets – inventories

Current Liabilities

Standard for Quick Ratio 1:1

Assets Liabilities


June 2002 7,325,095

27,036,987

0.27

December 2001 7,673,446

28,483,770

0.27

INTERPRETATION

This ratio serves as a supplement, to the current ratio in analyzing liquidity. This

ratio concentrates primarily on more liquid current assets cash, marketable

securities and receivables in relation to current obligations. PIA’s acid test was

gradually decreasing since 1999, now it is same on June 2002 as it was on


December 2001 the whole situation was a result of change in sale policy and

RTD.

FINANCIAL LEVERAGE (DEBT) RATIOS

These ratios answered the question.

How the firm has financed its assets (sources of finance in % age)?

First question is answered by balance sheet leverage ratio.

DEBT-TO-EQUITY RATIO

Ratio that show the extent to which the firm is financed by debt

Debt-to-equity ratio = Total Debt



June 2002 42,314,945

(4,190,606)

10.10: (1)

December 2001 44,430,591

(4,843,936)

9.17: (1)

INTERPRETATION

To assess the extent to which the firms is using borrowed money this ratio is

used of capital (owner’s equity). It means that creditors are not providing more

loans to the PIA because of losses and loss in shareholder’s equity. The ratio is


still bad but because of the profit in this half year negative equity is reducing and

liabilities have also reduced because of the reduction in obligation under finance

lease and hire purchase.

DEBT-TO-TOTAL ASSETS RATIO

Total debt

Total assets


June 2002 42,314,945

38,124,339

111%

December 2001 44,430,591

39,586,655

112%

INTERPRETATION

This ratio highlights the relative importance of debt financing to the firm by

showing the %age of the firm’s assets that are supported by debt financing. Thus

in 2001 debt is 112% of the assets this position is improving in 2002 and now

percentage is 111% , but still it is very bad. It is due to continuous losses suffered

by the company and it is covering the loss through creditor’s fund. Here the

financial risk is very high and the cushion of protection afforded by the creditors

is very large. It is not in the favor of the company.

LONG TERM CAPITALIZATION

Long-term capitalization is derived by dividing a firm’s total long term debt by its

total capitalization.

Long Terms Debt



Total capitalization = Long term Debt and shareholder’s Equity


2002 15,277,958

11,087,352

1.38

2001 15,946,821

11,102,885

1.44

INTERPRETATION

This ratio tells us the relative importance of long-term debt to the capital structure

(long term financing of the firm). Where total capitalization represents all long-

term and shareholder’s equity. The share of creditors in long term financing was

consistently increasing but in this half year it is increasing but still now it is not so

good. The figure of ratio is greater than one (1) because the company is in the

situation of excessive accumulated losses and heavy burden of debt.

INCOME STATEMENT AND INCOME STATEMENT / BALANCE

SHEET RATIOS COVERAGE RATIOS

Ratios that relate the financial charges of a firm to its ability to service or cover

them.

One of the most traditional of the coverage ratios is the interest coverage ratio, or

times interest earned ratio.

INTEREST CHARGES COVERAGE RATIO


Earning before interest and taxes divided by interest charges. It indicates a firms

ability to cover interest charges.

Earning before interest and taxes (EBIT)

Interest expense


June 2002 1,671,329

1,118,360

1.49

June 2001 (1,064,668)

1,220,004

(0.87)

INTERPRETATION

This ratio is designed to relate the financial charges of a firm to its ability to serve

or cover them. This ratio serves as one measure of the firm ability to meet its

interest payment. In general, higher the ratio the greater the likelihood that the

company could cover its interest payments without difficulty. In 2001 the ratio

(0.87). it means that company had no sufficient income to meet its financial

charges. It had very alarming situation in 2001 but there is good improvement in

2002 that now the company can meet the financial charges.

ACTIVITY (PERFORMANCE) RATIOS

These ratios are also known as efficiency or turnover ratios. How effectively the

firm is using its assets. Some aspects of activity analysis are closely related to

liquidity analysis. Activity ratios primarily focus on how effectively the firm is


managing two specific assets groups that are receivables, inventories and its

total assets, in general. It includes three ratios giving below.

RECEIVABLES ACTIVITY

The receivable turnover (RT) ratio provides insight into the quality of the firm’s

receivables and how successful the firm is in its corrections. This ratio is

calculated by dividing receivable into annual credit sales.

Receivables Turnover Ratio = Credit sales

receivables

Receivable Turnover Days (RTD)

= Days in the year

Receivable Turnover ratio

YEAR RTR RTD

June 2002 21,202,454 =6.79

3,123,011

27 Days

June 2001 21,966,254 =7.19

3,053,980

25 Days

INTERPRETATION

Receivable turnover ratio tells us the number of times accounts receivable have

been turned over (turned into cash) during the year. Higher the turnover the

shorter the time between typical sale and cash collection. In 2002 it decreased

0.4 point. This change was due to increase in receivables.


PAYABLE ACTIVITY

This ratio tells when firm wants to study its own promptness of payment to

suppliers or that of potential credit customer.

Payable Turnover Ratio = Credit purchases

Creditors

Payable Turnover Day (PTD)

= Days in the year

Payable turnover ratio

YEAR RTR P.T.D

June 2002 19,431,925 =1.04

18,723,098

173 Days

June 2001 23,296,710 =1.28

18,148,502

140 Days

INTERPRETATION

In 2002 payable ratio improved and its payable days have decreased.

INVENTORY ACTIVITY

Inventory turnover Ratio (I.T.O.R)

= Cost of Goods sold

Inventory


Inventory Turnover days (ITD)

= Days in the year

Inventory turnover ratio

YEAR I.T.O.R I.T.D

June 2002 19,431,925 =5.05

3,851,339

36 days

June 2001 23,296,710 =6.35

3,669,636

28 days

INTERPRETATION

To determine how effectively the firm is managing inventory and an indication is

the liquidity of inventory, this ratio is computed for PIA. It showed some

fluctuation in inventory turnover from 2001 to 2002 it decreased by 1.30 point in

2002, which is mainly due to decrease in costs.

Operating Cycle:

The length of time from the commitment of cash for purchases until the

collection of receivables, resulting from the sale of goods or services

Operating Cycle = Inventory Turnover Days

+ Receivable Turnover Days

Year June 2002 June 2001

Operating

Cycle27+36=63 25+28=53


INTERPRETATION:

A direct result of both liquidity and efficiency ratios is the concept of firm’s

operating cycle. A firm’s operating cycle is the length of time from the

commitment of cash for purchases until the collection of receivables resulting

from the sale of goods or services. As the length of operating cycle is an

important factor in determining a firm’s current assets needs. PIA’s operating

cycle shows a fluctuation, it increased by 10 days. Short operating cycle is

considered better for a firm.

PROFITABILITY RATIOS

Profitability ratios are of the types, showing profitability in ratio of sales and those

showing profitability in sedation to investment. Together, these ratios indicate the

firms overall effectiveness of operation.

PROFITABILITY IN RELATION TO SALES

Gross profit (loss) margin

= Gross Profit (Loss) x 100

Net Sales

Net profit (Loss) Margin

= Net Profit (Loss) after taxes x 100

Net Sales


YEAR G.P.Ratio N.P.Ratio

June 2002 1,770,529 *100 =8.35%

21,202,454

446,957 *100=2.11%

21,202,454

June 2001 (1,330,456)

*100=(6.06)%

21,966,254

(2,394,503)

*100=(10.9)%

21,966,254

INTERPRETATION

Gross profit (Loss) margin ratio tells us the profit of the firms relative to sale, after

defecting, the cost of producing the goods. It is a measure of the efficiency of the

firm’s operation. PIA’s gross profit (loss) margin shows a fluxion but now it is in

profit.

In 2002 the G.P is positive which shows the very good improvement after many

years. The net profit (loss) margin is a measure of the firm’s profitability of sales

after taking account of all expenses and income taxes. This ratio shows the same

fluctuation as in case of gross profit margin, though it is not too much but any

how it is very good performance.

PROFITABILITY IN RELATION TO INVESTMENT

Return on investment (ROI)


Total Assets


Return on equity (ROE)


Shareholder’s equity

YEAR R.O.I. R.O.E.

June 2002 446,957 *100=1.17%

38,124,339

446,957*100=10.67%

(4,190,606)

June 2001 (2,394,503)*100=(6.05)%

39,586,655

(2,394,503)*100=(49.43)%

(4,843,936)

INTERPRETATION

ROI reflects profitability on these assets. PIA was maintaining loss on assets. It

did not go in its favor; during current year due to positive profit ROI is positive

and improving.

PIA was presenting a bad situation in ROE on account of heavy losses which

made its equity negative though equity is still negative but now position is

improving on account of profit.


DU PORT ANALYSIS

RETURN ON ASSETS = NET PROFIT MARGIN X ASSETS TURNOVER

Net profit after tax = Net profit after tax X sales

Total assets sales total assets

June

2002

446,957 =0.0117

38,124,339

446,957 X 21,202,454 =.021X.556 =0.0117

21,202,454 38,124,339

June 2001

(2,394,503)

=(0.0605)

39,586,655

(2,394,503) X 21,966,254 =.109X.555 =0.0605

21,966,254 39,586,655

]

COMMON SIZE ANALYSIS (VERTICAL ANALYSIS)

Common size analysis express the various component of a balance sheet as %

age’s of the total assets of the company. In addition, this can be done for income

statement, but here items are related to net sales. The expression of individual

financial statement items as %age of totals helps to spot trend with respect to the

relative importance of these items over time.


BALANCE SHEET

June 2002 December 2001


Share capital 10.19% 9.81%

Reserves 10.83% 10.43%

Unrealized loss on measurement

of investments

(0.47)%

Accumulated losses (31.55)% (32.49%)

(10.99)% (12.24%)

Advance against equity 1.31%


assets

6.03% 5.81%

Redeemable capital 12.76% 12.29%

Long term loans 0.53% 0.68%

Obligation under Finance lease 7.472% 7.89%

Obligation under higher purchase 3.89% 6.32%

Deffered liabilities 7.22% 6.46%


liabilities

0.87% 0.83%

Current liabilities

Current maturities 7.16% 6.58%

Short term loans 14 .64% 19.34%

Creditors accrued esp.& other

liab.

49.11% 45.85%

Provision for taxation net of adv.

Tax

0.01% 0.19%

70.92% 71.95%

TOTAL 100% 100%

zFixed Assets

Operating Fixed Assets 58.79% 59.60%

Capital W.I.P. 0.07% 0.11%

58.86% 59.71%

Investments 0.92% 0.55%


Long term advances 9.38% 8.80%

Long terms deposit and other

receivable

0.86% 1.04%

Deffered cost 0.67% 1.25%

Current assets

Stores and spares 10.10% 9.27%

Aircraft held for disposal 0.03% 0.03%

Short term investments 0.46% 0.07%

Trade debts 8.19% 7.79%

Advances deposits and

prepayments

2.20% 1.35%

Other receivable 3.92% 4.75%

Cash and balance 4.42 % 5.47%

29.32% 28.65%

TOTAL 100%` 100%

INTERPRETATION:

Common size balance sheet is shown in table above for PIA. The %age of

owner’s equity increased from 2001 to 2002 it is still negative but has improved

by 1.25 %age points that is due to current period profit. Long term loans have

declining trend. The huge amount was financed by lease in 2001 now it is

decreasing. Current liabilities are decreasing that is due to repayment of short

term loans .

On the assets side, fixed assets and investments have almost same

percentages. There is % age decrease in differed cost, which is an

improvement.There is improvement in advances, deposits, prepayments and

other receivables.


INCOME STATEMENT:

June 2001 June 2002

Revenue 100% 100%

Cost and

expenditure

106.06% 91.65%

G.P. (6.06)% 8.35%

Financial charges (5.55)% (5.28)%

Other provision (0.46)% (0.75)%

Other income 1.67% 0.28%

Profit/

(loss)before

taxation

(10.40)% 2.61%

Taxation (0.50)% (0.50)%

Profit/(loss)after

taxation

(10.90)% 2.11%

INTERPRETATION:

In income statement there is significant decrease in expenditure from 2001 to

2002. There is also decline in financial charges. There is net profit in current half

year of 2.11% as compared to the loss of 10.90% of respective half of last year.

INDEX ANALYSIS (HORIZONTAL ANALYSIS)

In Horizontal Analysis we measure %age increase or decrease in each item of

balance sheet and profit and loss statement with respect to the base(previous)

period.


BALANCE SHEET

December 2001 June 2002


Share capital 100% 100%

Reserves 100% 100%

Unrealized loss on measurement

of

Investment

0% (100)%

Accumulated losses (100%) (93.54%)

(100%) (86.51)%

Advance against equity 0% 100%


assets

100% 100%

Redeemable capital 100% 100%

Long term loans 100% 75.19%

Obligation under Finance lease 100% 91.14%

Obligation under higher purchase 100% 59.21%

Deffered liabilities 100% 107.59%


liabilities

100% 100.59%

Current liabilities

Current maturities 100% 104.81%

Short term loans 100% 72.91%

Creditors 100% 103.17%

Provision for taxation net of

advance tax

100% 5.01%

100% 123.79%

TOTAL 100% 96.31%

Fixed Assets

Operating Fixed Assets 100% 95%

Capital W.I.P. 100% 59.55%


100% 94.93%

Long term INVESTMENT 100% 113.64%

Long term advances 100% 102.64%

Long terms DEPOSITES AND

other receivables

100% 102.14%

Deffered cost 100% 51.57%

Current assets

Stores and spares 100% 104.95%

Aircraft held for disposal 100% 100%

Short term investment 100% 644.57%

Trade debts 100% 102.26%

Advances 100% 157.39%

Other receivable 100% 79.36%

Cash and balance 100% 77.74%

100% 98.53%

TOTAL 100% 96.31%


INCOME STATEMENT

June 2001 June 2002

Revenue 100% 96.52%

Cost and

expenditure

100% 83.41%

G.P. (100)% 133.08%

Financial

cheeses

(100)% (91.67)%

Other provision (100)% (157.97)%

Other income 100% 16.15%

Profit(Loss)

before taxation

(100)% 24.20%

Taxation (100)%

Profit(Loss)after

taxation

(100)% 18.67%

INTERPRETATIONS:

At the side of owner’s equity the share capital and reserves are same for both

half years. Some loss declined in 2002 due to current period profit. There is no

change in redeemable capital and long terms loans decreased. Obligation under

finance lease and hire purchase has decreased. In current liabilities in 2002

short-term loan decreased.

In asset side in 2002 capital work in progress decreased. Long-term investment

increased and deferred cost decreased. In current assets short term investment


is suddenly increased to 645% of last period . Other receivable and cash & bank

balance is decreased.

In Income statement revenue is less as compared to the respective last period

but cost and expenditures are much controlled. In 2002 G.P suddenly increased

in positive and financial charges are less so net profit increased in positive

i.e.18% of loss of the respective period of last year.


pia - financial analysis

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