Final Project : Ratio Analysis

of Pakistan Paper Products

Ltd

Course: Financial Accounting

Instructor: Sir Shafa Attaullah
Submitted by: Bibi Javeria
ID: BUS-24S-209
COMPANY PROFILE
NAME: PAKISTAN PAPER PRODUCTS LTD.
Overview
Pakistan Paper Products Ltd came into existence in 1951. At that time, our newly founded
country had to import all its paper products which were resulting in the drain of valuable foreign
Exchange. Realizing the need of the times, Mr. Hashim B. Sayeed (Late), founder and former
Chairman of Pakistan Paper Products Limited, armed with machinery and technical know how
from Germany decided to set up a paper converting unit in Pakistan.

In 1962, Pakistan Paper Products became a Private Limited Company. In 1964, it became a
Public Limited company and was quoted on the Karachi Stock exchange and till today it is one
of the oldest listed companies at Pakistan Stock Exchange (PSX).

From the very start, the company has strived to modernize, expand, and diversify to meet the
challenges of the changing times and today is one of the largest and most modern paper
converting company in the country.
  Key Information
 Headquarter: D/58 S.I.T.E, Estate Avenue Karachi
 Stock Exchange Listing: PPP
 Ticker Symbol: Pakistan Paper Products Ltd
 Industry: Paper, Packaging

Products and Services

 Pro-labels
 Exercise books
 Ammonia paper
 Plain paper
 Printing
 Sensitized machine parts
 Waste paper

 Contact Information
 Address: D/58 S.I.T.E, Estate Avenue Karachi
 .Phone: +0092 21 32560134
 Email: [email protected]
 Website: www.pakpaper.com

RATIOS ANALYSIS
 A. PROFATIBILITY RATIOS
 Profitability ratios assess a company's ability to earn profits
from its sales or operations, balance sheet assets, or
shareholders' equity.
 These ratios are used to assess a company's current
performance compared to its past performance, the
performance of other companies in its industry, or the
industry average.
G⋅P
Gross profit(Margin) × 100
Net Sales
160812885
2021
1092961922
×100 = 14.71%
189156698
2022
1234186382
×100 = 15.32%
291317376
2023
1745900810
×100 = 16.68%
Interpretation and Comparison
The company's gross profit margin has steadily increased from 14.71% in 2021 to 16.68% in 2023,
indicating improved efficiency in managing production costs relative to sales.

G⋅ P
Gross profit (Markup) ×100
COGS
160812885
2022
932149037
× 100 = 17.25%
189156692
2022
1045029690
×100 = 18.10%
291317376
2023
14545833434
× 100 = 20.02%
Interpretation and Comparison
The Gross Profit Markup Ratio experienced an increase from 17.25% in 2021 to 20.02% in 2023,
indicating improved pricing strategy or cost management efficiency over the period.

PAT
Net Profit (Margin) × 100
SALES
 70551538
2021
1092961922
×100 = 6.45%
61743628
2022
1234186382
×100 = 5%
89032440
2023
1745900810
×100 = 5.09%
Interpretation and Comparison
The net profit margin declined slightly from 6.45% in 2021 to 5% in 2022, and showed a marginal
improvement to 5.09% in 2023, reflecting stable profitability with minor fluctuations over the three-year
period.

NET INCOME
Return On Equity (ROE) SHAREHOLDERS EQUITY

70551538
2021
999014967
= 7%
61743628
2022
1016557905
= 6%
89032440
2023
1107474280
= 8%
Interpretation and Comparison
The Return on Equity (ROE) for the company improved from 7% in 2021 to 8% in 2023, with a dip to 6%
in 2022, indicating varying profitability relative to shareholders' equity over the three-year period.

PBIT
Return On Capital Employed (ROCE)
CAPITAL EMPLOYED
112529719
2021
1126608568
= 9%
109987627
2022
1202904670
= 9%
185780680
2023
1269040147
= 14%

Interpretation and Comparison

 The Return on Capital Employed (ROCE) remained steady at 9% in 2021 and 2022, but significantly
improved to 14% in 2023, indicating enhanced profitability relative to the capital invested in the
business over the three-year period.

NET CFFOA
Cah flow from operating Activities to Sales NET SALES
(7492587)
2021 = (-6.85%)
1092961922
41756950
2022
1234186382
= 0.03%
(7544074 )
2023 = (-4.32)%
1745900810

Interpretation and Comparison

The Cash Flow from Operating Activities to Sales ratio fluctuated significantly, moving from -6.85% in
2021 to a slight positive 0.03% in 2022, and then back to -4.32% in 2023, indicating inconsistent cash
flow generation relative to sales over the three-year period.

PBIT
Interest Coverage Ratio INTEREST EXPENSE
112529719
2021
15515933
= 7.25 Times
109987627
2022
19560678
= 5.62 Times
185780680
2023
53163434
= 3.49 Times
Interpretation and Comparison
The Interest Coverage Ratio declined from 7.25 times in 2021 to 5.62 times in 2022 and further to 3.49
times in 2023, indicating a decreasing ability to cover interest expenses with operating profits over the
three-year period.

Solvency Ratios
  A solvency ratio examines a firm's ability to meet its
long-term debts and obligations.
 Solvency ratios are often used by prospective lenders
when evaluating a company's creditworthiness as well
as by potential bond investors.
 Solvency ratios and liquidity ratios both measure a
company's financial health but solvency ratios have a
longer-term outlook than liquidity ratios.
DEBENTURE+ PS + LONGTERM LIABILITIES
Gearing Ratio LONGTERM LIABILITIES + EQUITY
127593601
2021
1011774328
= 12%
184764361
2022
1202904670
= 15%
161565867
2023
1269040147
= 12%
Interpretation and Comparison

The Gearing Ratio increased from 12% in 2021 to 15% in 2022 before returning to 12% in 2023,
reflecting a temporary rise in financial leverage relative to long-term liabilities and equity during
2022.

LONGTERM LIABILITIES
Debt to equity EQUITY
180924319
2021
999014967
= 1.81%
313228138
2022
1016557905
= 0.30%
336381699
2023
1107474280
= 0.30%
Interpretation and Comparison
The Debt to Equity Ratio improved from 0.0181:1 in 2021 to 0.0308:1 in 2022 and remained relatively
stable at 0.0304:1 in 2023, indicating a consistent and low level of financial leverage with a significant
reduction in debt relative to equity starting from 2022.

EQUITY
Equity Ratio TOTAL ASSETS
 999014967
2021
1398431366
= 29:71
1600646334
2022
1016557905
= 37:63
1107474280
2023
1757357215
= 37:63
Interpretation and Comparison

In 2021, the equity ratio was 48%, indicating that nearly half of the
company's total assets were financed by shareholders' equity. In 2022, the
ratio dropped significantly to 12%, showing a sharp decrease in equity
financing. By 2023, the equity ratio further declined to 8%, suggesting an
increased reliance on debt to finance the company's assets and a potential
decrease in financial stability.

Liquidity Ratios
 Liquidity ratios are an important class of financial metrics
used to determine a debtor's ability to pay off current debt
obligations without raising external capital.
 Liquidity ratios determine a company's ability to cover short-
term obligations and cash flows.
CURRENT ASSETS
Current Ratio CURRENT LIABILITIES
594242063
2021
271822798
= 2.18 Times
705869763
2022
399324068
= 1.76 Times
891815936
2023
488317068
= 7.82 Times
Interpretation and Comparison
The Current Ratio decreased from 2.18 times in 2021 to 1.76 times in 2022, indicating a reduced liquidity
position, but then dramatically improved to 7.82 times in 2023, reflecting a significant enhancement in
the company's ability to cover short-term liabilities with its short-term assets.

CURRENT ASSETS−PROPOSED STOCK

Acid test Ratio CURRENT LIABILITIES
 331773763
2021
271822798
= 1.22 Times
407133175
2022
399324068
= 1.01 Times
489880019
2023
488317068
= 1 Times
Interpretation and Comparison

The Acid Test Ratio decreased from 1.22 times in 2021 to 1.01 times in 2022, and then slightly
to 1.00 times in 2023, indicating a steady decline in the company's ability to cover its current
liabilities with its most liquid assets over the three-year period.

CASH∧CASH EQUILENTS
Super QUICK Ratio CURRENT LIABILITIES
4729141
2021
271822798
= 0.01 Times
6141564
2022
399324068
= 0.01 Times
5151351
2023
488317068
= 0.01 Times
Interpretation and Comparison
The Super Quick Ratio remained consistently low at 0.01 times from 2021 to 2023, indicating that the
company's cash and cash equivalents were only able to cover a small fraction of its current liabilities
throughout the period.

Turnover Ratios
 A turnover ratio measures the efficiency with which a company
utilizes its assets to generate revenue.
  A high turnover ratio indicates that a company is effectively using its
assets to generate revenue, while a low ratio suggests inefficiency.
COST OF GOODS SOLD
Stock turnover Ratio AVERAGE INVENTORY
932149037
2021
246142000
= 3.78 Times and 100 Days
1045029960
2022
280602444
= 3.72 Times and 98 Days
1454583434
2023
350336252
= 4.15 Times and 88 Days

Interpretation and Comparison

The Stock Turnover Ratio improved from 3.78 times (100 days) in 2021 to 4.15 times (88 days) in 2023,
indicating a more efficient inventory management and faster turnover of stock over the three-year
period.

NET CREDIT PURCHASES

Creditors turnover Ratio
AVERAGE ACCOUNT PAYABLE
964801636
2021
153997685
= 6.26 Times and 59 Days
1081297978
2022
131653424
= 8.21 Times and 45 Days
1557782763
2023
99707694
= 15.62 Times and 24 Days
Interpretation and Comparison
The Creditors Turnover Ratio improved significantly from 6.26 times (59 days) in 2022 to 15.62 times (24
days) in 2023, indicating that the company paid off its suppliers more frequently and in shorter periods
over the two-year span.

NET CREDIT SALES

Debtors turnover Ratio
AVERAGE ACCOUNT RECEIVABLES
211451703
2021
213020085
= 0.99 Times and 368 Days
 255865910
2022
138503806
= 1.84 Times and 198 Days
340095787
2023
297980848
= 1.14 Times and 320 Days
Interpretation and Comparison
The Debtors Turnover Ratio improved from 0.99 times (368 days) in 2021 to 1.84 times (198 days) in
2022, indicating more efficient collection of receivables, but then declined to 1.14 times (320 days) in
2023, suggesting a slowdown in the collection process compared to 2022.

NET SALES
Assets Turnover Ratio AVERAGE TOTAL ASSETS
1092961922
2022
1386756822
= 0.78 Times
1234186382
2022
1499538850
= 0.82 Times
1745900810
2023
1679001775
= 1.03 Times
Interpretation and Comparison
The Assets Turnover Ratio increased from 0.78 times in 2021 to 0.82 times in 2022 and further to 1.03
times in 2023, indicating a progressively more efficient use of assets to generate sales over the three-
year period.

NET INCOME−DIVIDENDS
Earning Per Share
TOTAL SHARES
70565192
2021
8000000
= 8.82 Rupees
61743628
2022
8000000
= 7.72 Rupees
8903244
2023
8000000
= 11.13 Rupees

Interpretation and Comparison

Earnings Per Share decreased from 8.82 Rupees in 2021 to 7.72 Rupees in 2022 but then significantly
increased to 11.13 Rupees in 2023, indicating fluctuating profitability with a notable improvement in
2023.
 NET INCOME
Dividend Cover
DIVIDEND PAID
89032440
2021
32000000
= 2.78
61743628
2022
20000000
= 3.08
70565192
2023
40000000
= 1.76
Interpretation and Comparison
The Dividend Cover Ratio decreased from 2.78 times in 2021 to 1.76 times in 2023, with a peak of 3.08
times in 2022, indicating a declining ability to cover dividends from net income over the three-year
period, despite a temporary improvement in 2022.

Suggestions and Conclusion

1. Improve Cash Flow Management: The company should
focus on stabilizing and improving its cash flow from
operating activities to ensure consistent cash generation
relative to sales.
2. Enhance Interest Coverage: To improve the Interest
Coverage Ratio, the company may need to manage its
interest expenses more effectively or boost its operating
profits.
3. Maintain Efficient Inventory Management: Continue the
current strategy that led to improved stock turnover,
ensuring inventory levels are optimal and turnover remains
efficient.
4. Monitor Receivables and Payables: Enhance collection
processes to improve the Debtors Turnover Ratio and
maintain strong relationships with suppliers to sustain the
improved Creditors Turnover Ratio.
5. Leverage Profitability: With increasing gross profit
margins and ROE, the company should leverage these
strengths to improve overall financial health, focusing on
sustainable profitability.
6. Maintain or Improve Liquidity: While the Current Ratio
showed improvement in 2023, maintaining this level of
 liquidity is crucial to ensure the company can meet its short-
term obligations without difficulty.

Conclusion

The company shows signs of improving profitability and efficient asset

utilization over the period analyzed. However, there are areas for
improvement, particularly in cash flow management and interest
coverage. By focusing on these areas, the company can ensure sustained
financial health and stability.