INTRODUCTION TO BUSINESS FINANCE

ASSIGNMENT NO 1

Days Sales Outstanding

25.0
20.0
15.0
Days sales ratio

10.0
5.0
0.0

2015

2014

2013

2012

2011

Years

Day Sales Outstanding is worsen from 2011 to 2015 as shown in the graph above.
One of the reason for it could be that sales figure of 2011 and 2015 is drastically
different, 2011 sales were much higher than 2015 sales. Moreover, in period of
2011 to 2015 recording of account achievable has change. Initially account
receivable were recorded at invoice value but now they are recorded at amortized
cost using the effective interest method, less provision for impairment, which means
that less debtor amount is recorded which is showing downfall in DSO.

Inventory Turnover
25.0
20.0
15.0
Inventory Turnover Ratios

10.0
5.0
0.0

2015

2014

2013
Years

2012

2011

INTRODUCTION TO BUSINESS FINANCE

ASSIGNMENT NO 1

Inventory Turnover:
Inventory turnover is decreasing from 2011 to 2015, it was highest in 2014. This
shows that it is taking more time to sell a stock which supports the result which
showed that sales are decreasing.
Inventory turnover and DSO ratio indicates that company can have liquidity problem
which cause in extreme case that shell might relay more heavily on external funds.

Total Asset Turnover

Total Asset Turnover Ratios

8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0

2015

2014

2013

2012

2011

Years

Total Asset Turnover (TAT):

TAT is improving over time. Thats means that Shell Pakistan is better utilizing its
assets and generating more sales. In 2015 $1 of total assets is resulting in 6.5
times of sales compared to in 2011 $1 of total assets is resulting in 5 times of sales.
Which clearly shows that TAT ratio has improved over time.

INTRODUCTION TO BUSINESS FINANCE

ASSIGNMENT NO 1

Fixed Asset Turnover

50.0
40.0
30.0
Fixed Asset Turnover ratio

20.0
10.0
0.0

2015

2014

2013

2012

2011

Years

FIXED ASSETS TURNOVER:

It follows different pattern compared to Total Assets turnover. It shows that from
2011 to 2015 fixed assets turnover is decreasing that mean efficiency to generate
sales has decrease over time. Fixed assets has lost its efficiency which might be
resulting in cost of goods sold to increase. Moreover, it is doesnt have different.
Although it was highest in 2013 but it dropped in 2014 and further dropped in 2015.
It is alarming situation for company because it indicates that companys efficiency is
declining.

INTRODUCTION TO BUSINESS FINANCE

ASSIGNMENT NO 1

Net Profit Margin

1.4%
1.2%
1.0%
0.8%
Net Proft Margin %

0.6%
0.4%
0.2%
0.0%

2015

2014

2013

2012

2011

Years

Return On Total Assets

4.0%
3.0%
2.0%
1.0%
Percentages

0.0%
-1.0%

2015

2014

2013

2012

2011

-2.0%
-3.0%
-4.0%
-5.0%
Years

NET PROFIT MARIN:

Net Profit Margin is drastically changed over the year. From graph we can clearly
see that there is significant differences in net profit margin. In 2012, where net

INTRODUCTION TO BUSINESS FINANCE

ASSIGNMENT NO 1
profit margin is lowest because interest expenses in highest which is 0.8% of sales
that is because company increase their non-current liabilities. After 2012, Company
paid off its non-current liabilities, therefore interest expenses is much less, which
results in improving net profit margin in future years.
Return on Total Assets (ROTA)
Return on Total Assets shows that returns on assets are not satisfactory because
they are fluctuating drastically. ROTA has significance differences in 5 years. By
seeing Total Assets Turnover ratio of 5 years we can analyses that company is able
to generate sales by using its assets, however they are able to generate return from
their assets. This indicates that firms needs to manages and control its all type of
cost and expenses to reach to net income which provide stable ROTA.

Return on Equity
30.0%
20.0%
10.0%
Percentages

0.0%
-10.0%

2015

2014

2013

2012

2011

-20.0%
-30.0%
-40.0%
Years

RETURN ON EQUITY (ROE)

There is drastic changes in ROE over 5 years. In 2012 ROE is lowest which is -30%
and 2013 it has managed to improve and it was highest in 2013 which is 18%. The
reason why ROE was negative in 2012 was because of negative net income which
was due to many reasons. This graphs shows that companys ROE is not stable
which is not a good indication and it might loss out their investor because they will
be uncertain about companys future.

GROSS PROFIT MARGIN: Gross Profit constitutes a very small percentage of sales.
It is not fluctuating or changing drastically. In 2014 the gross profit margin was

INTRODUCTION TO BUSINESS FINANCE

ASSIGNMENT NO 1
lowest and 2011 gross profit margin was highest. In 2015 the company has manage
to control cost of goods sold. But Gross profit margin follows almost same trend.

Gross Profit Margin

Percentages

6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%

2015

2014

2013
Years

2012

2011

INTRODUCTION TO BUSINESS FINANCE

ASSIGNMENT NO 1

Operating Profit Margin

2.0%
1.5%
Percentages 1.0%
0.5%
0.0%

2015

2014

2013

2012

2011

Years

Operating Profit Margin:

Operating Profit Margin is drastically. It is fluctuating over time. It is fluctuating not
only because operating expenses are increasing drastically over time but also gross
profit margin is decreasing which is eventually resulting in operating profit margin
to decrease. It is highest in 2011, which is 1.8% and lowest in 2014, which is 0.1%.
As we have stated above that from 2014 to 2015 company has shown improvement
not because it had control its operating expenses by significant different but
company control over its cost of production.

INTRODUCTION TO BUSINESS FINANCE

ASSIGNMENT NO 1

Current Ratio
0.92
0.90
0.88
0.86
current ratio values

0.84
0.82
0.80
0.78

2015

2014

2013

2012

2011

Years

CURRENT RATIO:
The Shell Company has throughout the 5 years has low current ratio as the ratio is
less than 1 which is alarming situation for the company. That means that for every
$1 current liability, company has less current assets to fund it. In 2012, current
ratio is declining and one of the reason of it is that company is repaid its loan which
is reducing cash which is resulting in current ratio to decrease. There is no major
fluctuating in current ratio over 5 years.

Quick Ratio
0.50
0.40
0.30
quick ratio values

0.20
0.10
0.00

2015

2014

2013

2012

2011

Years

Quick Ratio:
The shell company is able to maintain its quick ratio over 5 years. There is no major
fluctuating in quick ratio in five years. And approximately 50% of current assets

INTRODUCTION TO BUSINESS FINANCE

ASSIGNMENT NO 1
comprises of inventory which is resulting in quick ratio to be half than current ratio.
This indicates that company is having liquidity issue because there is more liabilities
fund by less assets.

Debt to Total Assets

0.88
0.86
0.84
debt to total assets values

0.82
0.80
0.78

2015 2014 2013 2012 2011

Years

Debt to Total
Assets:
Debt to total assets is not changing drastically. Shell Company is maintaining is debt
ratio to an extent. In 2012, debt ratio was 0.87 which was highest and in 2013 debt
ratio was lowest which was 0.82. So there is no significant change. In 2013 debt was
lowet because in 2013 company paid back some amount of its loan.

Times Interest Earned

8.00
7.00
6.00
5.00
times interest earned values 4.00
3.00
2.00
1.00
0.00

2015 2014 2013 2012 2011

Years

TIME INTEREST EARNED (TIE):

INTRODUCTION TO BUSINESS FINANCE

ASSIGNMENT NO 1
TIE ratio tells that for $1 of interest how much EBIT is there. As graphs indicates
that TIE ratio is fluctuating because over the 5 years companys non-current
liabilities are changing that due to that changes interest rates are changes which is
resulting in significant difference in TIE ratio. In 2012, non-current liabilities has
increased from 0.4% of total liabilities and equity to 0.8% thats means it has
doubled. Therefore, interest expense in 2012 has increased in 2012 which resulted
TIE ratio to decrease. Similarly in 2015 TIE ratio is better than 2014 because in 2015
company has repaid their loan and due to that interest expenses is low which
results in higher TIE ratio.