Assignment # 3
Corporate Reporting
Last 3 years Ratio Analysis of Abbot Laboratories Pakistan Ltd.
Submitted To.
Sir. Ghayas ul Hassan
Prepared and Submitted By:
Mohammad Hammad Qureshi
FA18-MBAP-0030
To:
The Management
(Abbot Laboratories Pakistan Ltd.)
From:
Mohammad Hammad Qureshi
FA18-MBAP-0030
Date: Jan 08th, 2021
Subject:
Explanation of Financial Ratio of Last 3 years of Abbot Laboratories
Pakistan Ltd.
This report is completed as part of my Master's degree program in Corporate
Reporting. The report is based on the company's three-year annual financial
statements from 2018 to 2020. In this report I will present Abbot company`s ratio
analysis.
Ratio Analysis
By examining financial accounts such as the balance sheet and income statement,
ratio analysis is a quantitative approach of acquiring insight into a company's
liquidity, operational efficiency, and profitability.
Ratio analysis can be used to track a company's progress over time and compare
it to other companies in the same industry or sector.
While ratios provide useful information about a company, they should be used in
conjunction with other measures to provide a more complete view of its financial
health.
Various Kind of Ratio Analysis
Based on the data sets they supply; the various types of financial ratios can be
broadly classified into the following categories.
Liquidity Ratio
The ratio shows the extent to which the firm can meet its financial obligations. Used to
gauge a company's ability to pay off its debts in short term.
a- Current Ratio
b- Quick Ratio
Profitability Ratio
It is a measure of a company's ability to produce a profit, and a profit is the amount of
money left over after all costs and expenses have been eliminated. These ratios relate to
profits to sales and assets.
a- Gross Profit Ratio
b- Operating Profit Ratio
c- Net Profit Ratio
d- Return on Capital Employed
Solvency Ration
A solvency ratio assesses a company's ability to cover long-term debt with cash flow.
a- Debt Equity Ratio
b- Interest Coverage Ratio
Turnover Ration
The turnover ratios are used to assess a company's efficiency in terms of how it uses its
assets to generate income. The assets are compared to the sales figure (different
assets). This metric determines how much of the assets are utilized to produce sales.
a- Fixed Asset Turnover Ratio
b- Inventory Turnover Ratio
c- Receivable Turnover Ratio
Leverage Ratio
A set of statistics known as a leverage ratio highlights a company's financial leverage in
terms of assets, liabilities, and equity. They show how much of a company's capital comes
from debt, which is a useful indicator of whether it will be able to meet its financial
obligations.
Below are 4 most common used leverage ratios.
a- Debt-to-Assets Ratio = Total Debt / Total Assets
b- Debt-to-Equity Ratio = Total Debt / Total Equity
c- Debt-to-Capital Ratio = Today Debt / (Total Debt + Total Equity)
d- Asset-to-Equity Ratio = Total Assets / Total Equity
Table of Accounting Data of Abbott Laboratories Pakistan Ltd.
Accounts Heads
2020
000
2019
000
2018
000
Current Assets
15,701,737
12,337,862
12,998,131
Current Liabilities
Inventory
GP
Revenue / net sales
Operating Profit
Net Profit
EBIT
Total Assets
Total Liabilities
Total Equity
6,833,822
4,981,489
12,221,851
35,283,377
6,320,464
4,535,249
6,320,464
24,915,744
9,325,492
15,590,252
5,787,320
6,049,215
8,527,740
30,155,875
2,563,831
1,299,885
2,563,831
20,752,680
7,380,287
13,372,393
5,961,423
4,428,893
9,801,442
29,719,279
4,359,375
2,694,333
4,359,375
20,281,257
7,046,246
13,235,011
Capital Employed
Total Equity and Liabilities
Cash and cash equivalents at the
end of the year
18,081,922
24,915,744
14,965,360
20,752,680
14,319,834
20,281,257
7,488,881
2,757,519
5,678,136
Calculation of Ratios
S.No. Ratio
1 Liquidity Ratio
1.1 - Current Ratio
1.2 - Quick Ratio
1.3 - Cash to Current Liabilities
2 Profitability Ratio
2.1 - Gros profit margin
2.2 - Operating Profit ratio
2.3 - Net Profit Ratio
- Return on Capital
2.4 Employed
3 Leverage Ratio
3.1 - Debt-to-Assets Ratio
3.2 - Debt-to-Equity Ratio
3.3 - Debt-to-Capital Ratio
3.4
- Asset-to-Equity Ratio
Formulae
2020
2019
2018
Current assets / Current Liabilities
(Current Assets-Inventory) / Current
Liabilities
Cash and Equivalent / Current Liabilities
2.298
2.132
2.180
1.57
1.10
1.09
0.48
1.44
0.95
Gross Profit / Sales
Operating Profit / Net sales *100
Net profit / revenue
34.6%
17.9%
12.9%
28.3%
8.5%
4.3%
33.0%
14.7%
9.1%
EBIT/capital employed
35.0%
17.1%
30.4%
Total Debt / Total Assets
Total Debt / Total Equity
Total Debt / (Total Debt + Total Equity)
0.374
0.598
0.374
0.356
0.552
0.356
0.347
0.532
0.347
Total Assets / Total Equity
1.598
1.552
1.532
COMMENTS ON FINANCIAL RATIOS
1-LIQUIDITY RATIOS
Operating cash inflows increased compared to the previous year, owing to higher profitability
and favorable working capital improvements. The Corporation has as of 31 Dec 2021, there was
Rs. 7,488.88 million in cash and cash equivalents.
To accomplish its investment and operational cash requirement, the company must meet the
deadline of December 31, 2020.
Current ratio (2020: 2.30, 2019: 2.13), quick / acid test ratio (2020: 1.57, 2019: 1.09) and cash to
current liabilities (2020: 1.10, 2019: 0.48) have improved versus last year mainly on account of
higher cash and bank balances.
Current ratio (2019: 1.80, 2018: 1.96), quick / acid test ratio (2019: 0.92, 2018: 1.30) and cash to
current liabilities (2019: 0.40, 2018: 0.86) have declined versus last year mainly on account of
lower cash and bank balances.
2-PROFITABILITY RATIOS
Profitability ratios of the Company, in general, have improved versus last year
In 2020, Gross profit margin improved to 34.6% versus 28.3% last year. Net profit margin
increased to 12.9% versus 4.3% last year in line with the reasons mentioned above.
In 2019, Profitability ratios of the Company, in general, have declined versus 2018.
Gross profit margin declined to 28.3% versus 33% last year. Net profit margin declined to 4.3%
versus 9.1% during 2018.
3-Leverage Ratio
Here you can see that debt to asset ratio is increasing gradually in every year which is not a good
sign. A high ratio also indicates that a company may be putting itself at risk of defaulting on its
loans if interest rates were to rise suddenly.
A high percentage of debt-to-equity ratio also suggests that if interest rates rise quickly, a
company may be at risk of defaulting on its loans.
As you can see that debt to capital Ratio in increasing. If all other factors are equal, a corporation
with a higher debt-to-capital ratio is riskier. This is because the higher the debt-to-equity ratio,
the more the company is supported by debt rather than equity, implying a higher obligation to
repay the debt and a higher risk of loan forfeiture if the debt is not paid on time.
A high asset to equity ratio can indicate that a business can no longer access additional debt
financing, since lenders are unlikely to extend additional credit to an organization in this position.