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Atlas Battery

FINANCIAL MANAGEMENT
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Atlas Battery

Preface

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Atlas Battery

Acknowledgement

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Atlas Battery

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Executive Summary

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Introduction

Company information:

Atlas Battery Limited pioneered the manufacture of dry charged Hard Rubber batteries

in Pakistan. Now the company manufactures a complete range of Polypropylene and hard rubber

batteries which caters to the needs of passenger cars of varied capacities, trucks, tractors, heavy

vehicles, construction and road building equipment, as well as host of stationary and industrial

applications. Motorcycle batteries have also been added to this range. The company has always

been at the vanguard of development in the automotive industry in Pakistan making great strides

in the field’s research and development. The brand has, over the years, earned a solid reputation

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as a product of latest Japanese technology with consistently high levels of performance and

reliability.

The sustained and continued high level of quality is ensured by ABL’s Quality Department with

its exacting standards and state-of-the-art lab facilities manned by highly trained professionals

monitoring the quality of batteries being produced.

The focal point of the company’s philosophy is customer satisfaction through continued product

excellence. Atlas Battery Limited aims at maintaining its lead in technology with the help of its

in-house research and development program, interfacing with Japan Storage Battery Company

Limited.

ABL’s technological superiority is matched by its vast national network of over 600 dealers and

retail outlets ensuring availability and prompt delivery of its products. All our regional and zonal

offices are equipped with service center and are staffed with trained to provide technical

personnel to provide an efficient service backup. The technical personnel also regularly tour

their sales and territories monitoring service needs, problem and trouble-shooting. Our

associates are ably supported by a steady supply of instruments and equipment imported and

supplied by us, to enable them to carry out testing and repairing services with prompt attention

and efficient resolution of operational complaints.

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Project information:

This is the project of my course “Financial Management” in this project I have required

to analysis the financial position of atlas battery to analysis the position I need to calculate the

following requirement.

• Comparison of book value and market value of share price

• Trend change in net income of the firm in last 3 year

• Firms tax bracket and average tax that firm pays

• Analyzing ratio analysis

• Analyzing firm Dividend policy, Retention rate, Growth rate, Market share, industry

position.

• Firms capital structure

• Required rate of return

• Last year yield

• Suggest whether to invest in stock or not

Comparison of book value and market value of share price:

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2008 2007

Market value per


Annexure 1
share /June 31 154.88 167.8
Book value per share
Annexure 4 (xvi)
58.11 55.26

The market value of 2008 (154.88) is greater than the book value of 2008(58.11) it shows that

the company position is better in 2008.

The market value of 2007 (167.8) which is also greater than the book value of 2007 (55.26) it

shows that the company position is also better in 2007 and its shows that company maintaining

its position in the market.

Trend change in net income of the firm in the last 3 years:

2008 2007 2006


RUPEES IN '000'

Net income for the 106,7 87,51 41,32


year 97 0 3

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Trend change in 2008 from


2007 = 22.04%

Trend change in 2008 from 158.44


Annexure 2
2006 = %

Trend change in 2007 from 111.77


2006 = %

The net income of 2006 which is 41,323 is lower than the net income of 2007 and 2008 but from

2006 to 2007 the net income increased by 111.77% which clearly shows that company double

his profit but from 2007 to 2008 it will increased by 22.04% only which lower than 2007 but

still company getting profit which is good sign for stockholders.

Firms tax bracket and average tax that firm pays:

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Atlas Battery

2008 2007 2006


Rupees in '000'

122,2 66,22
Profit before taxation 164,131 57 4

- -
Taxati 34,74 24,90
on -57,334 7 1
106,79 87,51 41,32
Profit after taxation 7 0 3

Tax Bracket = 35.00%

Average tax in
2008 = 34.93%
Average tax in
Annexure 3
2007 = 28.42%
Average tax in
2006 = 37.60%

Tax bracket for the firm is 35% but in 2006 the firm actually pays 37.60% of its net income for

tax. In 2007 it pays 28.42% and in 2008 it pays 34.93% of its net income for tax.

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RATIO ANALYSIS

A statistic has little value in isolation. Hence, a profit figure of Rs.100 million is meaningless

unless it is related to either the firm’s turnover (sales revenue) or the value of its assets.

Accounting ratios attempt to highlight the relationships between significant items in the

accounts of a firm.

Financial ratios are the analyst’s microscope; they allow them to get a better view of the firm’s

financial health than just looking at the raw financial statements Ratios are used by both internal

and external analysts

Internal uses

• Planning

• Evaluation of management

External uses

• Credit granting

• Performance monitoring

• Investment decisions

• Making of policies

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CATEGORIES OF FINANCIAL RATIOS

The accounting ratios can be grouped in to five categories:

1. Liquidity Ratios shows the extent to which the firm can meet its financial obligations.

2. Asset Management Ratios shows that how effectively the firm is managing its assets.

3. Debt Management Ratios shows the extent to which a firm uses debt financing or financial

leverages.

4. Profitability Ratios relates profits to sales and assets.

5. Market Value Ratios are a measure of the return on investment.

LIQUIDITY RATIOS

1. Current Ratio:

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Current
Current Assets
ratio = current
Liabilities

The current ratio is lower in 2008 as


2008 1.21254
= 2
Annexur
compared to 2007 it indicate that
e 4 (i)
company current liability is more
2007 1.23535
= 6
than as compare to 2007 so the

company liquidity position in 2008 is

week as compare to 2007.

2. Quick ratio

Current Assets -
Quick Inventories
ratio =
Current liabilities

2008 0.4854
= 51 If we compare quick ratio to current ratio
Annexur
e 4 (ii)
2007 0.3762 its clearly indicate that company holding
= 01
lot of inventory which is not good sign but

if we compare the quick ratio of 2007 which is 0.38 to 2008 which is 0.49 that shows in 2008

the company manage its inventory which is good indication .

But my evaluation suggests that Atlas battery’s liquidity position currently is fairly poor.

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ASSET MANAGEMENT RATIOS

3. Inventory turnover ratio

Inventory NET SALE


turnover Avg
ratio = Inventory

2008 7.08280 Each item of Atlas battery’s inventory is


= 9
Annexur
e 4 (iii) sold out and re-stocked turned over ratio in
2007
= 5.28243 2008 is 7.08 times per year which is higher

than the 2007 turned over ratio which is

5.28 which indicate that Atlas battery very effectively control its inventory as compare to

previous year.

4. Days sales Outstanding

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Receivab
Days sale
les
outstandin
Average
g=
sales

2008 1
= 1 days
Annexur DSO in year 2007 was 12 days which has
e 4 (iv)
2007 1 now decreased to 11 days in 2008 which
= 2 days
shows that the company is more effective in

collecting receivables now in comparison of previous year. It also shows that the credit policy of

Atlas battery is very effectively working.

5. Fixed Assets turnover Ratios

Fixed Net Sale


Assets Avg net
turnover fixed The fixed assets turnover ratio clearly
ratio = assets
shows that the company using its fixed
2008 6.2 Tim
assets very efficiently as compare to
= 8 es
Annexur
e 4 (v) previous year. According to the
2007 5.6 Tim
= 8 es
calculations above the productivity of

fixed assets in year 2008 is better than it

was in previous years. In 2007, it was 5.68 times and now it has been increased to 6.28 times.

6. Total Asset Turnover Ratios

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Total Net sale
assets
turnover Avg total
ratio= assets If we compare the total assets turnovers

2008 2.6
2007 to 2008 it increased 2.41 times to
= 8
Annexur 2.68 times which is slightly increased .but
e 4 (vi)
2007 2.4
= 1 Times the company is not generating sufficient

volume of business given its investment in total assets company need to increase its sale to get

more benefit from its total assets.

DEBT MANAGEMENT RATIOS

7. Debt Ratio

Debt Total debt


ratio = Total assets

200
8 = 0.52 Annexu The debt ratio in 2007 was 0.55 which shows
51.93 re 4
% (vii) that 55.51% of the firm’s assets are debt
200
7 = 0.56 financed and 44.49% are by equity finance. In
55.51
% 2008 the debt ratio decreased to 0.5193 which

means that 51.93% of the firm’s assets are debt financed and 48.07% are equity financed. It

shows clearly that the company managing it debt against its assets .

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8. Times interest earned Ratio

Time EBIT
-interest-
earned interest
ratio= charge The time interest ratio in 2008 is 4.95

2008 4.9 which is decreased as compare to 2007


= 5
Annexur which is 6.55 it shows that in 2007
e 4 (viii)
2007 6.5
= 5 Times company covering its interest expense by

relevant high margin of safety. But In

2008 the company is covering its interest expense by relatively low margin of safety.

9. EBITDA coverage ratio

EBITDA+lease
EBITDA
payments
coverage
intrest+principal+
ratio = In 2007 EBITDA is 8.08 times, the reason
leas payments

2008 5.8 for this is the repayment of principal


= 1
Annexur leaving zero long term debts in
e 4 (ix)
2007 8.0
= 8 Times 2007.However, in 2008 the fixed financial

charge by 5.81 which is decreased as

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Atlas Battery
compare to previous year and there is also no repayment and principal. It decreased because this

year net income is decline as compare to previous year.

PROFITABILITY RATION

10. Profit margin on sale

Profit Net income


margin on
sale = Net sale

2008 4.06
= % The profit margin has decreased from
Annexur
e 4 (x) 5.52% in 2007, to 4.06% in 2008.
2007 5.52
= %
According to the figures, company’s sale

in 2008 is low as compare in 2007 because costs are high and the company is using heavy debt.

11. Basic earning power

Basic EBIT
earning Avg total
power = assets

2008 20.97
= %
Annexu
re 4 (xi)
2007 21.89
= %

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The BEP has decreased from 21.89% in 2007, to 20.97% in 2008. This decrease was due to

decrease in EBIT as compare to last year net income.

12. Return on total assets

Return Net income


on total Avg total
assets = assets
The Return on Assets gradually decreased
2008 10.89
= % in year 2008, to 10.89% from 13.28%, in
Annexur
e 4 (xii) year 2007. This was due to the fact as the
2007 13.28
= %
Net income which is increased only 22.04

%( explains in annexure 2) as compare to 2007.

13. Return on common equity

Return Net income


on
common common
equity= equit According to the figures, Atlas Batteries

200 26.28 shows a favorable trend to the shareholders,


8 = % Annexu
re 4 initially being at 26.04% and then rising by
200 26.04 (xiii)
7 = % 0.24% to 26.28%. This has been due to 22%

increase in Net income. Though shareholders

equity has also increased as the company is increase debt financing, but the increase in

shareholders’ equity is lower relative to the increase in net profit.

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Atlas Battery

MARKET VALUE RATION

14. Price earnings ratio

Price per
Price
share
earning
Earnings
s ratio = The ratio shows how much the investors are
per share

200 10. Tim Annexu willing to pay per Rupee of reported profits. It
8 = 14 es re 4
(xiv) can be seen from calculations that in year 2008
200 11. Tim
7 = 66 es the ratio has decreased from 11.66 to 10.14.

This was due to the fact that the earnings per

share over the year are increased with great difference but in 2008 this will not increased much.

15. Price cash flow

price per
Price cash share
flow = cash flow
per share In year 2008 the ratio is decreased from 8.40

2008 7.6 times to 7.60 times. This was due to the fact
= 0 Annexu
re 4 that the price per share in 2007 better than
2007 8.4 time (xv)
= 0 s 2008 price per share .

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16. Market price ratio

Market
Market
price
price ratio
Book value
= The market price ratio is decrease in 2008
per share

from 3.31 to 3.14. it decrease because


2008 3.1
= 4 Annexur book value per share is increased in 2008
e4
2007 3.3 Time (xvii) and the market value is decrease as
= 1 s
compare to 2007 .

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Analyzing firm Dividend policy, Retention rate, Growth rate, Market share,
industry position

Dividend Policy:

2008
RUPEES IN '000'

Final Dividend in respect of financial year @ Rs.6/- per


share 36,483

Bonus share @ of 15% 9,121


Total 45,604
Anexure 5 (i)
Dividend in percentage 42.70%
Total dividend per share 6.52

2007
RUPEES IN '000'

Final Dividend in respect of financial year @ Rs.3/- per


share 15,862

Bonus share @ of 15% 7931


Total 23,793
Anexure 5 (ii)
Dividend in percentage 27.19%
Total dividend per share 3.91

2006
RUPEES IN '000'
Final Dividend in respect of financial year 2006 11,494
Bonus share @ of 15% 6,897
Total 18,391

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From last 10 year company pays annually dividends to its shareholders but my analysis is just

based on last three years. In 2006 company pays 18,391 Rs. in thousands. In 2007 it pays 23,793

Rs. In thousand at the rate of 3.91 Rs/- per share and in 2008 it pays 42,604 Rs In thousands at

the rate of 6.52 Rs. /- per share. It shows that company has constantly growing in the market.

Retention Rate:

Retention rate Retained Earning


= Total proft

Retained earnings for 2008


= 61,193
Anexure 5 (iii)
Retained earnings for 2007
= 63,717

Retained earnings for 2006


= 22,932

2008 2007 2006


Retention rate
0.57 0.73 0.55
=
Anexure 5 (iv)
57.30% 72.81% 55.49%

After paying the dividend the company still have 57.30% of its net income to retained in 2008

this rate is less than as compare to 2007 rate which is 72.81% .However, most important thing is

company is retaining half of its net income every year based on last year.

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Growth Rate:

Growth Rate
Retention rate * ROE
=

2008 2007 2006


Growth Rate
0.15 0.19 0.09
=
15.06 18.96
Annexure 5 (v)
% % 8.67%

Avg Growth
0.119
Rate =
11.87
Annexure 5 (vi)
%

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The growth rate in 2008 which is 15.06% and 2007 which is 18.96% if we compare them we can

say that the growth rate of 2008 is normal growth but if we compare 2007 growth which is

18.96% to 2006 growth which is 8.67% the 2007 growth is super normal growth.

Market Share

Industry Position

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