SECTION 1 COMPANY INFORMATION

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COMPANY PROFILE
Corporate Office Address:
Pakistan Engineering Company limited 6/7 Ganga Ram Trust Building Shahrah-e-Quaid-e-Azam, Lahore Pakistan

Location of Plant:
PAKISTAN ENGINEERING COMAPNY Kot Lakhpat Works, Lahore Pakistan

Regional Offices:
Karachi Islamabad

Type of Firm:
Public Limited company under the control of Ministry of Industries & Production, Government of Pakistan

Website:
www.peco.com.pk

E-mail Address:
peco@gmail.com

Ministries of Industries and Production:

Pakistan Engineering Company works under Ministries of Industries and Production, under its wing State Engineering Corporation.

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CORPORATE INFORMATION
Board of Directors:
Mr. Ghulam Rasool Aphan (Chairman) Mr. Khawaja Shoukat Ali (Chief Executive) Mr. Khizar Hayat Khan Mr. Muhammad Arif Habib Mr. Liaqat Muhammad Mr. Rashid Ali Khan Mr. Mirza Mehmood Ahmed Mr. Muhammad Shabbir Malik Mr. Muhammad Iqbal

Board Audit Committee:

Mirza Mahmood Ahmed (Chairman) Mr. Liaqat Muhammad Mr. Muhammad Shabbir Malik

Board Receivable Committee:

Mr. Liaqat Muhammad (Chairman) Mr. Khawaja Shoukat Ali Mr. Muhammad Iqbal Mr. Muhammad Shabbir Malik 3|Page

CFO & Company Secretary:

Mian Muhammad Anwar Aziz

External Auditors:
M / s Fazal Mehmood & Co. Chartered Accountants

Share Registrar:
M / s Scarlet IT System (Pvt) Ltd.

Bankers:
National Bank of Pakistan United Bank Limites Summit Bank Limited

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History of the Company

A very most size industry called Batala Engineering Company (BECO), was set up in Batala, India to produce chaff cutters and simple agricultural implements. Six years later this agrarian based industry added Machine Tools in its production line, and just before partition of India, it was ranked among the top three manufacturers of machine tools in India. After partition in August, 1947, the company migrated to Pakistan and made a fresh start in Lahore. Here in Pakistan it started re-building the engineering set up, under a corporate status and got it registered in the year 1951 as company listed on stock exchange. The company entered into technical collaboration with world renowned organizations from Germany, Holland, Japan, United Kingdom and USA, to lay the foundations of a modern engineering enterprise. The company developed very rapidly under the entrepreneurship of a family group migrated from India. In twenty years time it was capable to manufacture Machine tools , Diesel Engines, Pumps and Tube well Accessories, electric Motors, Textile Looms, Bicycles, Agricultural implements, steel structure, Concrete Mixers, General Engineering supported by Steel melting, Steel Rolling, Steel Foundry, Cast Iron & Non ferrous castings, Central Tool room, Forging, Electroplating, Galvanizing, Materials Testing & Research Laboratories, Engineering and Design Departments. The company rapidly developed into a key industry of Asia. The government of Pakistan took over its management in the year 1972, under economic reforms policy. After nationalization, under government control the company performance during most of the years was unsatisfactory. The Government decided in the year 2002to reorganizes and re-structure the company. The main feature of restructuring scheme was to qualitative manpower. The Government subsequently in the year 2003 under privatization policy offloaded some shares, through stock exchange. Resultantly private share holding is now 67% and 33%. The composition of board has accordingly changed with six private share holders elected Directors out of nine Directors. This private/ Government partnership has helped in bringing change for efficient decision making, liberty to ground management in managing operations, modernize production facilities and better working conditions. The company has become vibrant after the above actions, thus making profit and is continuously on growth path. The share price has also increased manifold. In view of disturbances in the country and uncertainty affecting business and Government projects, marketing efforts are being directed to export Electricity Transmission and Telecommunication Towers to Middle East and Africa.

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Vision Statement
A sustainable growth oriented company and market leader in steel towers for Electricity Towers for Electricity Transmission and Telecommunication.

Mission Statement
To replace old machines and equipment with most modern, efficient machines leading towards automation. To produce quality products at higher efficiency and consistent quality with lower cost. To bring the company on sound financial footings. Market leader with technological edge, services and customer satisfaction.

Objectives
The Company has started Pump manufacturing, along with Electric Motors & Foundry. Presently we shall confine to concentrate on the old range of our products i.e. Centrifugal Pumps, Submersible Pumps, Non Clogging Pumps, Deep well Turbine Pumps, Tube well accessories etc. Foundry which is mother shop is planned to be up graded not only to produce quality casting for self requirement, but also to meet requirement of tractor parts, and other automotive parts. There is a bright prospect of foundry products locally as well as export, because developed countries are shedding this industry due to pollution concerns and its dirty nature. Proper study is under progress for gradual up-gradation of Foundry equipments, to produce good quality and economical castings. Machining center for customized machining of the casted parts is also under study, and most of the machines are available with us. In order to utilize idle facilities of closed bicycle plant, efforts are in progress to utilize these for manufacturing of motor cycle parts for Chinese version motor cycle manufactures.

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Objectives from Mission Statement

Replacement of technology; Leading towards automation; Quality products; Consistent quality with lower cost; Achievement of sound financial footings; To be market leader; &, Customers satisfaction.

Quality Policy
We are committed to maintain our customers satisfaction by delivering the qualitative products and services in accordance with their needs and requirements. Customer feedback is continuously reviewed for quality improvement to have a continued customers confidence & trust in our products.

Corporate Strategy
To accomplish excellent results through increased earnings in the best interest of all stake holders To be a responsible employer to take care of the employees in their career planning and reward Being a good corporate citizen, contributing to the development of society through harmony in all respects

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Statement of Ethics & Business Practices

1. The Companys policy is to conduct business with honesty and integrity and be Ethical in all its dealings showing respect for the interest of those with whom it has relationship. 2. The Company complies with all laws and regulations. All employees are expected to familiarize themselves with laws and regulations governing their individual areas of responsibility, and not to transgress them. In case of any doubt the employees are expected to seek necessary advice. The Company believes in fair competition and supports appropriate competition laws. 3. The Company does not support ant political part nor contribute to the funds of groups whose activities promote party interests. 4. The company is committed to provide services, which consistently offer, value in terms of price and quality and satisfy customer needs and expectations. 5. The Company is committed to run its business in an environment that is sound and sustainable. As a good corporate entity, the Company recognizes its social responsibilities and will endeavor to contribute to community activities as a whole. 6. The Company believes in and fully adheres to the principles of reliability and Credibility in its financial reporting and in transparency of business transaction. 7. The Company is an equal opportunity employer. Its employee recruitment and promotional policies are free of any gender basis and are merit and excellence oriented. It believes in providing its employees safe and healthy working conditions and in marinating good channels of communication. 8. The Company expects its employees to abide by certain personal ethics whereby Company information and assets are not used for any personal advantage or gain. Any conflict of interests should be avoided, where it exists it should be disclosed and guidance sought.

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SECTION 2 PRODUCTION FACILITIES

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Production Facilities
Rolling Mills:
Four semi-automatic and manual Re-Rolling mills are installed which produce 30,000 ton of rolled products of grade 40 & 60 per annum. All grades of re-rolled steel conform to International standards i.e. B.S., A.S.T.M., S.A.E. and D.I.N. standards under the strict supervision of qualified and experienced Engineers.

Fabrication:
Fabrication Division has modern computerized Numerically Controlled Machines (CNC) for Shearing, Punching and Marking Steel Angles and Steel Plates in addition to Mechanical & Hydraulic presses of different capacities for different types of Fabrication Work. The annual capacity of this Division is 30,000 M/Tons of Steel Structure on 8 hours single shift basis.

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Galvanizing:
Three galvanizing Plant is available, where cleaning, pickling & Hot Dip Galvanizing is carried out to ensure smooth zinc deposit on structural members. Galvanized tower members are inspected individually and in batch for defect free Galvanizing layer of Uniform thickness prior to dispatch. Tower members are stored in a vast area in a wellplanned way to ensure smooth loading and unloading.

Pumps & Turbines:

This division was established in 1953 in collaboration with German firm M/S KSB to manufacture Centrifugal Pumps and Deep Well Turbines Pumps. In 1959, an agreement for technical collaboration with Jacuzzi bros Inc of USA was concluded for deep well submersible Pumps. The division has necessary testing facilities and employs qualified mechanical, hydraulic engineers. The machines and equipment are sufficient to produce centrifugal, turbine and Submersible Pumps for various depths and discharge head as per requirement of valued customers. Pumps line also includes non clogging/industrial pumps of various capacities for sugar/chemical industry.

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Bottlenecks (Problems)
Bottlenecks on production methods are:

Lack of Modernization and Replacement:

Although Pakistan Engineering Company is using computer aided machines like CNC machine for shearing, punching and marking steel angles, but it was installed in 1983 and now it ahs become very old and its spares are also not available. Most of the machines are 40-50 years old. At the same time most of the rolling machines are manual or semi-automatic. This has caused low production than capacity, as more days are required to complete the order. Less technical staff is available to check uniform and required thickness of zinc on towers. This cause zinc wastage which is too much costly to waste. Moreover, import duty on such chemicals is too much expensive so that their wastage should be stopped.

Lack of Proper Utilization of Plants:

Pakistan engineering company is in the business of Towers and Electric Motors & Pumps. But, the company has many other units and divisions. All other divisions are utilized much less than their capacity. These divisions that are underutilized include bicycle, electric motors, steel ingots, concrete mixture. The main reason for production below capacity is due to closure of production division other than Steel fabrication division known as Structure.

Operation Discontinuation of Divisions:

All divisions of the company such as Structure, Machine Tool, Power Loom, Pumps, Electric Motor, Bicycle, Furnace and rolling Mills had been closed during the period 2000-2003, as per instructions of the Government. The plant and Machinery of two divisions, machine Tool and Power loom, has been transferred to Assets held for sale, in the year 2001. Discontinuation caused heavy losses and the companys financial position during this period remains shaky. All the liabilities are now recovering through revenues. Closed down operations of stores and spare caused loss of Rs. 27,241 million.

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Badami Bagh Works:

A land of 260.495 kanals of Badami Bagh Works has been closed down. Fair value of the land is Rs. 2,214 million. The plant has un-installed equipments and machines. The company has to bear great losses by having no production at Badami Bagh.

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Product Mix in Pakistan Engineering Company

PAKISTAN ENGINEERING COMAPNY is basically a manufacturing company, so following are the products that the company is manufacturing: 1. Towers 2. Electric Motors 3. Pumps AND Turbines 4. Safes, Storing Room Doors and Lockers

1. Towers:
PAKISTAN ENGINEERING COMAPNY is manufacturing following types of towers: Transmission Line Towers Telecommunication Towers

Types of Transmission Line Towers:

500 KV towers SGM(SUSPENAION TOWER) AGM(ANGLE TOWER) DGM(DEAD END TOWER) TGM(TRANSPOSITION TOWRER) RC(RIVER CROSSING) DS-3(DOUBLE CIRCUIT SUSPENAION TOWER) DA-3(DOUBLE CIRCUIT ANGLE TOWER) DD-3(DOUBLE CIRCUIT DEAD END TOWER)

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220KV Towers:
EA(SUSPENSION TOWER) EB(RIVERCROSSING TOWER) ED(DEGREE TOWER(20-30 DEGREE) ED(DEGREE TOWER(30-60 DEGREE)

Types of Telecommunication Towers:

GREEN FIELD LATTICE STEEL TOWERS ROOF TOP LATTICE STEEL TOWERS GREEN FIELD TUBULAR TOWERS ROOF TOP TUBULAR TOWERS GUY SUPPORTED TOWERS

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1KV Steel Structure:

LT(30-8) HT(34-8) HT(40) HT(45)

132KV Towers:
ZM-1 DEGREE (SUSPENSION TOWER) ZM-30 DEGREE(ANGLE TOWER(20-30 DEGREE) ZM-60 DEGREE(ANGLE TOWER(30-60 DEGREE)TBA1 DEGREE(SUSPENSION TOWER)

TYD-30DEGREE(ANGLE TOWER) TM-60 DEGREE(ANGLE TOWER)

2. Electric Motors:
Following are the types of electric motors: Horizontal Foot-Mounted Drip Proof Motors Totally Enclosed Fan Cooled 3 Phase Squirrel Cage Induction Motors Flange Mounted 3 Phase Squirrel Cage Induction Motors Totally Enclosed Naturally Cooled Loom Motors Vertical Hollow Shaft Motor Drip Proof And Totally Enclosed Fan Cooled

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3. Pumps & Turbines:

This Division was established in 1953 in collaboration with German Firm M/S KSB to manufacture Centrifugal and Deep Well Turbine Pumps. The division has complete testing facilities and qualified mechanical and hydraulic engineers. Pumps division produces Centrifugal, Turbines and Submersible Pumps for various depth and discharge heads as per requirement of our valued customers. Pump line also includes non clogging/industrial pumps of various capacities for sugar / chemical industry. Total components are being manufactured in house.

4. Safes, Storing Room Doors and Lockers:

Steel safes of -30,60,72 are currently being produced moreover Strong room doors and Steel Lockers for Banks are also in production.

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SECTION 3 SWOT ANALYSIS

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SWOT Analysis
Introduction of SWOT:
SWOT Analysis is a strategic planning tool used to understand the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business. It involves specifying the objective of the business or project and identifying the internal and external factors that are supportive or unfavorable to achieving that objective.

SWOT is an abbreviation for Strengths, Weaknesses, Opportunities and Threats SWOT analysis is an important tool for auditing the overall strategic position of a business and its environment. Once key strategic issues have been identified, they feed into business objectives, particularly marketing objectives. SWOT analysis can be used in conjunction with other tools for audit and analysis, such as PEST analysis and Porter's Five-Forces analysis. It is also a very popular tool with business and marketing students because it is quick and easy to learn. Stanford Universitys Albert Humphrey led a research project in the 1960s-1970s based upon the United States Fortune 500. Humphrey lead a research project which ultimately developed his Team Action Model (TAM) which is a management concept that enables groups of executives to manage change. SWOT was to have originated from his Stakeholders Concept and SWOT Analysis. However, if one proceeds to find out more about the author in academic libraries there is nothing accredited to him. It is unusual for such a prolifically cited piece of research not to have an original definitive publication as its centrepiece. The TAM approach is one of a number that are used by trainers around the World, although for us the crediting to Humphrey as the creator of SWOT cannot be supported.

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Categories of SWOT Analysis:

SWOT analysis groups key pieces of information into two main categories:

Internal factors evaluation External factors evaluation

Internal Factor Evaluation of PECO

Strengths:
Price strategy is good enough to win major tender notices ISO 9001 certification for quality product Quality assurance & Control Department where mechanical & chemical testing are available PECO has its own steel making & re-rolling facilities Product development according to need & demand of customer Monopoly in the production of 220 KV towers & 500 KV towers Capture international market like Afghanistan, Bangladesh, Bahrain etc. Employees benefits are given Mechanical & hydraulic presses for fabrication work Computerized numerically controlled machines for sheering, punching, & marking steel angles. Control over union powers Has its own foundry for spare parts

Weaknesses:
Many divisions are now closed Low sales growth 20 | P a g e

 No control over expenses resulting in low net income Low salaries HR activities are not effective causing dissatisfaction of employees Lack of technical & skilled people EPS is negative resulting no interest of creditors Low production than capacity Computer illiteracy Out dated machinery & lot of manual work Marketing strategies are not up to the mark No Research & Development (R& D) centers

Comments:
As internal factors represents strengths and weaknesses of the company. No company internally strong can compete externally. These strengths and weaknesses cover functional areas of business, including management, and management information system. Relationships among these areas in PECO are examined. PECO is struggling to utilize its strengths to overcome weakness. The example of this struggle is, it has turned its negative profits to positives one. Other steps are taken to improve its internal environment.

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External Factor Evaluation of PECO

Opportunities:
Target international markets Mergers with local companies Establishment of R & D centers Diversification

Threats: Intense local & international competition Technological advancement Only tender based business Replacement of towers by underground pipes Political instability & Poor economic conditions CHINAS bug share in engineering products in ASIA Only one regular customer i.e. WAPDA (MONOPSONY)

Comments:
External factors like opportunities and threats are very important for any company. Every company has some opportunities in the environment also this environment provides many threats. PECO has to face many threats in external environment. Its major competitors are international.

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SECTION 4 RATIO ANALYSIS OF PECO LIMITED

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ACTIVITY RATIOS
Activity ratios are used to check the Activity or efficiency or turnover ratios concerned with measuring the efficiency in asset management. This category includes several ratios referred to asset utilization or turnover ratios. They often indicate of how well a firm utilizes various assets such as inventory and fixed assets. (Figures in Millions) 1) Receivable Turnover Ratio = = = 5.623 Times

2) Days of Sales Outstanding

= = = 65 Days

3) Inventory Turnover ratio

= = = 3.64 Times

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4) Days of Inventory on Hand

= = = 100 days

5) Payable Turnover Ratio

= = = 9.43 Times

6) Number of Days Payables

= = = 39 Days

7) Total Asset Turnover

= = = 0.27 Times

8) Fixed Asset Turnover

= = = 0.33 Times 25 | P a g e

9) Working Capital Turnover

= = = 2.29 Times

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LIQUIDITY RATIOS
Liquidity ratios are employed by analysts to determine the firms ability to pay its short-term liabilities.

1) Current Ratio

= = = 4.06:1 Times

2) Quick Ratio

= = = 1.60:1 Times

3) Cash Ratio

= = = 0.35:1 Times

4) Defensive Interval

= = = 108 Days [ ITD + RTD PTD ] [ 100 + 65 39 ] 126 Days 27 | P a g e

5) Cash Conversion Cycle

= = =

SOLVENCY RATIOS
One of many ratios used to measure a company's ability to meet long-term obligations. The solvency ratio measures the size of a company's after-tax income, excluding noncash depreciation expenses, as compared to the firm's total debt obligations. It provides a measurement of how likely a company will be to continue meeting its debt obligations. 1) Debt to Equity = = = 2) Debt to Capital = = = 3) Debt to Asset = = = 4) Financial Levarage = = = 1.576 29.24% 31.15% 45.25%

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5) Interest Coverage

= = = 8.42

6) Fixed Charge Coverage

= = = 8.41

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PROFITABILITY RATIOS
A class of financial metrics that are used to assess a business's ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time. For most of these ratios, having a higher value relative to a competitor's ratio or the same ratio from a previous period is indicative that the company is doing well. 1) Net Profit Margin = = = 2) Gross Profit Margin = = = 3) Operating Profit Margin = 18.26% 7.10%

=
= 4) Pretax Margin = = = 11.22% 13.04%

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5) Return on Assets (ROA)

= = = 1.95%

6) Return on Total Capital

=
= 7) Return on Equity = = = 8) Return on Common Equity = = = 9) DUPONT Analysis: = 3.08% 3.08% 3.85%

= =
= = 3.08% 31 | P a g e

Summary of computed ratios:

Activity ratios:
Receivables turnover ratio: Receivables turnover in days: Inventory turnover ratio: Inventory turnover in days ratio: Payables turnover ratio: Payables turnover in days ratio: Total asset turnover ratio: Fixed asset turnover ratio: Working capital ratio:

2010
5.623 times 65 days 3.64 times 100 days 9.43 times 39 days 27.53 times 33.2 times 2.29 times

Liquidity ratios:
Current ratio: Quick ratio: Cash ratio: Defensive ratio: Cash conversion cycle:

2010
4.06 times 1.60 times 0.35 times 108 days 126 days

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Solvency ratio:
Debt to equity ratio: Debt to capital ratio: Debt to asset ratio: Financial leverage ratio: Interest coverage ratio: Fixed charge coverage ratio: 45.25 % 31.15 % 29.24 % 1.576 8.42 8.41

2010

Profitability ratios:
Net profit margin ratio: Gross profit margin: Operating profit margin: Pretax margin ratio: Return on assets ratio: Return on total capital: Return on equity ratio: 7.10 % 18.26 % 13.04 % 11.22 % 1.95 % 3.85 % 3.08 %

2010

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SECTION 5 COMPARATIVE RATIO ANALYSIS

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Comparison Of Financial Ratios Pakistan Engineering Company Limited With Ghani Automobiles Industries Limited

Activity ratios:
Receivables turnover: Receivables turnover in days: Inventory turnover ratio: Inventory turnover in days Payables turnover ratio: Payables turnover in days: Total asset turnover ratio: Fixed asset turnover ratio: Working capital ratio: 3.64

PECO Ltd. 5.623 times 65 days

Ghani Industries Automobiles Ltd. 5.518 times 80 days

comparison Efficient Efficient

4.59 80 Days 7.36 50 Days 98.6 % 7.28 % 8.15

Inefficient Inefficient Inefficient Inefficient Inefficient Inefficient Inefficient

100 Days 9.43 39 days 27.53 % 33.2 % 2.29

INTERPRETATION OF ACTIVITY RATIOS:

Receivables turnover:

A high turnover ratio is generally a good thing since it means that customers are paying their bills on time. Calculated ratio shows that company receivables are converting into cash 5.6 times in a year. PECOs receivable turnover is greater than the other firm, thus it is efficient.

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Receivables turnover in days: It indicates that in how many days firm is collecting their receivables. High RTD is too bad and Very low RTD may not necessarily be good. A high RTD mean that customers are too slow in paying their bills. Calculated ratio indicates the efficient RTD as compare to other firm. Inventory turnover ratio: Determine how effectively the firm is managing inventory. The IT tells us how many times inventory is turned over into receivables through sales during the year. Generally, the higher the IT, the more efficient the inventory management of the firm. Calculated ratio is showing that company inventory management is in-efficient as compare to the other company.

Inventory turnover in days: Lower the inventory turnover on hand the better it is. Calculated ratio shows that PECO has more days as compare to the other firm.thus, PECO is inefficient.

Payables turnover in days: Higher the payable turnover in days the better it is. Calculated ratio shows that PECO has lesser days as compare to the other firm. Thus, PECO is inefficient.

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Total asset turnover: Higher the Total asset turnover the better it is. Calculated ratio shows that PECO has lesser turnovers as compare to the other firm. Thus, PECO is inefficient.

Fixed asset turnover: Higher the Fixed asset turnover the better it is. Calculated ratio shows that PECO has lesser turnover as compare to the other firm. Thus, PECO is inefficient.

Working capital turnover: Higher the Working capital turnover the better it is. Calculated ratio shows that PECO has lesser turnover as compare to the other firm. Thus, PECO is inefficient.

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Liquidity ratios:
Current ratio: Quick ratio: Cash ratio: Defensive ratio: Cash conversion cycle: 4.06 1.06 0.35

PECO Ltd.

Ghani Industries Automobiles Ltd. 1.16 0.89 0.0835 1256.87 110

Comparison Efficient Efficient Efficient Efficient Inefficient

108 Days 126 Days

INTERPRETATION OF LIQUIDIY RATIOS:

Current ratio: The higher the current ratio the better it is. Calculated ratio shows that PECO has greater current ratio as compare to the other firm. Thus, PECO is efficient.

Quick ratio: The higher the quick ratio the better it is. Calculated ratio shows that PECO has greater quick ratio as compare to the other firm. Thus, PECO is efficient.

Cash ratio: The higher the cash ratio the better it is. Calculated ratio shows that PECO has more cash ratio as compare to the other firm. Thus, PECO is efficient.

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Defensive interval: The higher the defensive interval the better it is. Calculated ratio shows that PECO has lesser defensive interval as compare to the other firm. Thus, PECO is inefficient.

Cash conversion cycle: The lower the cash conversion cycle the better it is. Calculated ratio shows that PECO has more cash conversion cycle as compare to the other firm. Thus, PECO is Inefficient.

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Solvency ratio:
Debt to equity ratio: Debt to capital ratio: Debt to asset ratio: Financial leverage ratio: Interest coverage ratio: Fixed charge coverage:

PECO Ltd. 45.25 % 31.15 % 29.24 % 1.576 8.42 8.41

Ghani Industries Automobiles Ltd. 86.34 % 46.34 % 22.25 % 3.89 0.043 0.041

Comparison Efficient Efficient Efficient Less Risky Efficient Efficient

INTERPRETATION OF SOLVENCY RATIOS:

Debt to equity ratio: The lower the Debt to equity ratio the better it is. Calculated ratio shows that PECO has lesser ratio as compare to the other firm. Thus, PECO is Efficient.

Debt to capital ratio: The lower the Debt to equity ratio the better it is. Calculated ratio shows that PECO has lesser ratio as compare to the other firm. Thus, PECO is Efficient.

Debt to asset ratio: The lower the Debt to equity ratio the better it is. Calculated ratio shows that PECO has lesser ratio as compare to the other firm. Thus, PECO is Efficient.

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Financial leverage ratio: The lower the financial leverage ratio the better it is. Calculated ratio shows that PECO has lesser ratio as compare to the other firm. Thus, PECO is less risky.

Interest coverage ratio: The lower the Debt to equity ratio the better it is. Calculated ratio shows that PECO has lesser ratio as compare to the other firm. Thus, PECO is Efficient.

Fixed charge coverage: The lower the Debt to equity ratio the better it is. Calculated ratio shows that PECO has lesser ratio as compare to the other firm. Thus, PECO is Efficient.

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Profitability ratios:
Net profit margin ratio: Gross profit margin: Operating profit margin: Pretax margin ratio: Return on assets ratio: Return on total capital: Return on equity ratio:

PECO Ltd. 7.10 % 18.26 % 13.04 % 11.22 % 1.95 % 3.85 % 3.08 %

Ghani Industries Automobiles Ltd. 6% 7.5 % 6.223 % 2.23 % 6.1 % 41.66 % 29.95 %

Comparison Efficient Efficient Efficient Efficient Inefficient Inefficient Inefficient

INTERPRETATION OF PROFITABILITY RATIOS:

Net profit margin: The higher the Net profit margin ratio the better it is. Calculated ratio shows that PECO has greater margin as compare to the other firm. Thus, PECO is efficient.

Gross profit margin: The higher the Gross profit margin the better it is. Calculated ratio shows that PECO has greater margin as compare to the other firm. Thus, PECO is efficient.

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Operating profit margin: The higher the Operating profit margin the better it is. Calculated ratio shows that PECO has greater margin as compare to the other firm. Thus, PECO is efficient. Pretax margin ratio: The higher the Pretax margin ratio the better it is. Calculated ratio shows that PECO has greater margin as compare to the other firm. Thus, PECO is efficient. Return on assets ratio: The higher the Return on assets ratio the better it is. Calculated ratio shows that PECO has lesser ratio as compare to the other firm. Thus, PECO is Inefficient. Return on total capital: The higher the Return on total capital the better it is. Calculated ratio shows that PECO has lesser ratio as compare to the other firm. Thus, PECO is Inefficient. Return on equity ratio: The higher the Return on equity ratio the better it is. Calculated ratio shows that PECO has lesser ratio as compare to the other firm. Thus, PECO is Inefficient.

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SECTION 6 HORIZONTAL & VERTICAL ANALYSIS

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Horizontal Analysis of Balance Sheet Pakistan Engineering Company Balance Sheet As on June 30, 2010
Particulars Non Current Assets Property, Plant, And Equipment-Tangible Assets Subject to Finance Lease Capital Work in Progress Land Held For Sale Long Term Security Deposit Total Non-Current Assets Current Assets Stores, Spares, And Loose Tools Stock-in-Trade Assets Held For Sale Trade Debtors Loans And Advances to Employees Advance to Others Trade Deposits, Prepayments, & receivables Cash & Bank Balances Total Current Assets Current Liabilities Trade Creditors Accrued Liabilities Deposits & Advance Payments Other Liabilities Unclaimed Dividend Accrued Mark-Up Short Term Borrowings Current Portion of Long Term Liability Current Portion of Liabilities Against Assets Subject to Finance Lease Provision For Taxation Total Current Liabilities Net Current Assets Total Assets Less Current Liabilities 68,778 238,057 728,401 5,929,952 17,653 366,390 737,846 5,651,536 3.90 0.65 0.99 1.05 1.00 1.00 1.00 1.00 50,546 5,779 13,012 59,306 12,226 5,910 22,500 143,023 9,419 15,289 81,591 7,803 30,932 59,725 955 0.38 1.00 1.00 0.35 0.61 0.85 0.73 1.57 0.19 1.00 1.00 1.00 1.00 1.00 1.00 137,494 307,565 20,556 298,301 1,175 77,934 39,757 83676 966,458 142,403 445,460 25,654 347,364 1,022 67,717 46,366 28250 1,104,236 0.97 0.69 0.80 0.86 1.15 1.15 0.86 2.96 0.88 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 4,879,205 5,684 314,724 1,938 5,201,551 4,592,772 710 2,559 314,724 2,925 4,913,690 1.06 2.22 1.00 0.66 1.06 1.00 1.00 1.00 1.00 1.00 2010 Rs (,000) 2009 Rs (,000) 2010 2009 Rs (,000) Rs (,000)

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Non-Current Liabilities Government of Pakistan Loans Long Term Loan Deffered Tax-Net Total Non-Current Liabilities Net Total Assets PRESENTED BY Share Capital Revenue Reserve - General Accumulated (Loss) Total Surplus on Revaluation of Fixed Assets Total Equity 56,902 10,000 (994,063) (927,161) 4,913,034 3,985,873 56,902 10,000 (1,056,203) (989,301) 4,736,958 3,747,657 1.00 1.00 0.94 0.94 1.04 1.06 1.00 1.00 1.00 1.00 1.00 1.00 1,790,848 12,887 140,344 1,944,079 3,985,873 1,790,848 76,317 36,714 1,903,879 3,747,657 1.00 0.17 3.82 1.02 1.06 1.00 1.00 1.00 1.00 1.00

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Horizontal Analysis of Profit and Loss Statement Pakistan Engineering Company Profit & Loss Statement For The Year Ended 30, 2010
Particulars Sales Cost of Goods Sold Gross Profit Selling & Distribution Expenses Freight & Forwarding Expenses General & Administrative Expenses Total Operating Expenses Operating Profit Other Charges Finanacial Charges Total Other Charges Other Income Workers Profit Participation Fund Profit Before Taxation Taxation Profit After Taxation Earning Per Share - Basic 2010 Rs (,000) 1,677,379 (1,371,129) 306,250 (11,961) (25,587) (49,916) (87,464) 218,786 (757) (26,118) (26,875) 5,880 (9,596) 188,195 (69,091) 119,104 20.93 2009 Rs (,000) 1,361,633 (1,035,306) 326,327 (14,168) (22,182) (41,807) (78,157) 248,170 (501) (82,551) (83,052) 44,309 (8,256) 201,171 (67,223) 133,948 23.54 2010 1.23 1.32 0.94 0.84 1.15 1.19 1.12 0.88 1.51 0.32 0.32 0.13 1.16 0.94 1.03 0.89 0.89 2009 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 Rs (,000) Rs (,000)

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GRAPHICAL PRESENTATION FOR HORIZONTAL ANALYSIS

Current Assets
3.5 3 2.5 2 1.5 1 0.5 0 Cash Trade Debtors Stock In Trade Advances Deposits & Prepayments 2010 2009

Current Liabilities
4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 Trade Creditors Deposits & Advance Payments Provision For Taxation Other Liabilities 2010 2009

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Non-Current Assets
2.5 2 1.5 1 0.5 0 Property Plant & Equipment Capital Work In Progress Land Held For Sale Long Term Security Deposit 2010 2009

Non-Current Liabilities
4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 Government of Pakstan Loans Long Term Loan Deffered Tax 2010 2009

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Profit & Loss Account

1.4 1.2 1 0.8 0.6 0.4 2010 2009

0.2
0 Sales Cost of Goods Sold Gross Profit Operating Expenses Net Profit

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INTERPRETATION FOR HORIZONTAL ANALYSIS

The company fixed assets, & capital work in progress have increased as compare to last year. Overall Non-Current assets have also increased this year which tells us that company spent their investment on non-current assets but it is not too much significant. On the other hand, company current assets are decreasing except of cash. Cash has been increased twice as compare to last year which means company received their receivables and makes more sales this year. This will indicate that company received the debts and convert the more inventories into the sales this year and received more cash this year as compared to last year. Current liabilities show that companys pay off short term liabilities this year and didnt increase their short-term obligations. Total position of short term liabilities tells us that company used their funds to reduce the current liabilities. Company pays off the trade creditors, Accrued liabilities, & other liabilities. Increased provision for taxation shows that company make more sales than last year but this change is very significant which may arises from other several factors i.e tax rate etc. Total position of current assets and current liabilities tells us that company pay off their short-term liabilities by making more sales and reducing their current assets like inventories, debtors, & Prepayments etc. Non-current liabilities indicates that company pay off their major portion their long term loans but their deferred tax was increased three times as compare to last year. Share capital and reserves remains the same but accumulated loss indicates that company earns profit this year and reduce accumulated losses. Profit & Loss statement indicates that company makes greater sales this year but earns less gross profit. This occurs due to higher cost of goods sold. Companys operating expenses also increased this year which also affects operating profit. Net profit is also lower down as compare to last year which shows poor performance of the company.

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Vertical Analysis of Balance Sheet Pakistan Engineering Company Balance Sheet As on June 30, 2010
Particulars Non Current Assets Property, Plant, And Equipment-Tangible Assets Subject to Finance Lease Capital Work in Progress Land Held For Sale Long Term Security Deposit Total Non-Current Assets Current Assets Stores, Spares, And Loose Tools Stock-in-Trade Assets Held For Sale Trade Debtors Loans And Advances to Employees Advance to Others Trade Deposits, Prepayments, & receivables Cash & Bank Balances Total Current Assets Current Liabilities Trade Creditors Accrued Liabilities Deposits & Advance Payments Other Liabilities Unclaimed Dividend Accrued Mark-Up Short Term Borrowings Current Portion of Long Term Liability Current Portion of Liabilities Against Assets Subject to Finance Lease Provision For Taxation Total Current Liabilities Net Current Assets Total Assets Less Current Liabilities 68,778 238,057 728,401 5,929,952 17,653 366,390 737,846 5,651,536 1.1% 3.9% 11.8% 96.1% 0.29% 6.1% 12.3% 93.9% 50,546 5,779 13,012 59,306 12,226 5,910 22,500 143,023 9,419 15,289 81,591 7,803 30,932 59,725 955 0.4% 0.0% 0.99% 0.02% 0.8% 0.1% 0.2% 1.0% 0.2% 0.1% 2.38% 0.16% 0.25% 1.36% 0.13% 0.51% 137,494 307,565 20,556 298,301 1,175 77,934 39,757 83676 966,458 142,403 445,460 25,654 347,364 1,022 67,717 46,366 28250 1,104,236 2.2% 5.0% 0.3% 4.8% 0.0% 1.3% 0.6% 1.4% 15.7% 2.37% 7.40% 0.43% 5.77% 0.02% 1.13% 0.77% 0.47% 18.3% 4,879,205 5,684 314,724 1,938 5,201,551 4,592,772 710 2,559 314,724 2,925 4,913,690 79.1% 0.0% 0.1% 5.1% 0.0% 84.3% 76.3% 0.01% 0.04% 5.23% 0.05% 81.7% 2010 Rs (,000) 2009 Rs (,000) 2010 2009 Rs (,000) Rs (,000)

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Non-Current Liabilities Government of Pakistan Loans Long Term Loan Deffered Tax-Net Total Non-Current Liabilities Net Total Assets PRESENTED BY Share Capital Revenue Reserve - General Accumulated (Loss) Total Surplus on Revaluation of Fixed Assets Total Equity 56,902 10,000 (994,063) (927,161) 4,913,034 3,985,873 56,902 10,000 (1,056,203) (989,301) 4,736,958 3,747,657 0.9% 0.2% -16.1% -15.0% 79.7% 65% 1% 0% -18% -16% 79% 62% 1,790,848 12,887 140,344 1,944,079 3,985,873 1,790,848 76,317 36,714 1,903,879 3,747,657 29% 0.2% 2.3% 31.5% 65% 30% 1% 1% 32% 62%

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Vertical Analysis of Profit & Loss Statement Pakistan Engineering Company Profit & Loss Statement For The Year Ended 30, 2010
Particulars Sales Cost of Goods Sold Gross Profit Selling & Distribution Expenses Freight & Forwarding Expenses General & Administrative Expenses Total Operating Expenses Operating Profit Other Charges Finanacial Charges Total Other Charges Other Income Workers Profit Participation Fund Profit Before Taxation Taxation Profit After Taxation Earning Per Share - Basic 2010 Rs (,000) 1,677,379 (1,371,129) 306,250 (11,961) (25,587) (49,916) (87,464) 218,786 (757) (26,118) (26,875) 5,880 (9,596) 188,195 (69,091) 119,104 20.93 2009 Rs (,000) 1,361,633 (1,035,306) 326,327 (14,168) (22,182) (41,807) (78,157) 248,170 (501) (82,551) (83,052) 44,309 (8,256) 201,171 (67,223) 133,948 23.54 2010 100% -82% 18% -1% -2% -3% -5% 13% 0% -2% -2% 0% -1% 11% -4% 7% 0.89 2009 100% -76% 24% -1% -2% -3% -6% 18% 0% -6% -6% 3% -1% 15% -5% 10% 1.00 Rs (,000) Rs (,000)

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GRAPHICAL PRESENTATION FOR HORIZONTAL ANALYSIS

Current Assets
8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00%

2010
2009

0.00%
Cash Trade Debtors Stock in Trade Advances Deposits & Prepaymens

Current Liabilities
2.50% 2.00% 1.50% 1.00% 2010 2009

0.50%
0.00%

Trade Creditors

Deposits & Advance Payments

Provision For Taxation

Other Liabilities

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Non-Current Assets
90.00% 80.00% 70.00% 60.00% 50.00% 40.00% 2010 2009

30.00%
20.00% 10.00% 0.00% Property Plant & Equipment Capital Work In Progress Land Held For Sale Long Term Security Deposit

Non-Current Liabilities
35.00% 30.00%

25.00%
20.00% 15.00% 10.00% 5.00% 0.00% Government of Pakstan Loans Long Term Loan Deffered Tax 2010 2009

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Profit & Loss

120.00% 100.00% 80.00% 60.00% 40.00% 20.00% 0.00% Sales Cost of Goods Sold Gross Profit Operating Expenses Net Profit

2010 2009

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INTERPRETATION FOR VERTICAL ANALYSIS

The vertical analysis also presents the same picture of the companys balance sheet. The companys fixed assets have increased as compare to last year. Overall Non-Current assets have also increased this year which tells us that company spent their investment on non-current assets but it is not too much significant. This also indicates that companys fixed assets are 84 % of total assets which shows more capital investment by the company in the non-current assets and this percentage has been increased as compare to last year. On the other hand, company current assets are decreasing except of cash. Cash has been increased 4 times as compare to last year which means company received their receivables and makes more sales this year. This analysis shows that companys current assets comprise only 16 % of total assets, and this year current assets are decreased as compare to last year. This will indicate that company received the debts and convert the more inventories into the sales this year and received more cash this year as compared to last year. Current liabilities show that companys pay off short term liabilities this year and didnt increase their short-term obligations. Total position of short term liabilities tells us that company used their funds to reduce the current liabilities. Company pays off the trade creditors, Accrued liabilities, & other liabilities. Increased provision for taxation shows that company make more sales than last year but this change is very significant which may arises from other several factors i.e tax rate etc. The current percentages indicate that companys current liabilities are decreased as compare to last year. Total position of current assets and current liabilities tells us that company pay off their short-term liabilities by making more sales and reducing their current assets like inventories, debtors, & Prepayments etc. Non-current liabilities indicate that no significant change is occurred as compare with total assets but long term loans were paid off during the year. Net percentage tells us the approximately same results as compare to last year. This percentage also tells us that companys 31 % total assets are financed with non current liabilities. Share capital and reserves remains the same but accumulated loss indicates that company earns profit this year and reduce accumulated losses. Percentage shows that 65 % assets are financed with equity. Profit & Loss statement indicates that cost of goods sold increased this year relative to sales and company gross profit ratio is decreased due to higher CGS ratio.

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Operating expenses are relatively decreased as compare to last year but companys net profit is affected and diminishes this year. Overall position tells that company has increased their expenses with higher ratio.

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SECTION 7 CONCLUSION & FINDINGS

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Findings:
By the analysis of PECO financial report we finds that company is gaining profit. The company is managing their assets debts etc efficiently. If company production is increasing our cost is also increasing with a proportionate increase in our sales thus our profit is also increasing. The company has been effected by the economic crises and increase in the international fuel prices. Overall performance of the company is better according to the size of the organizations because it has increasing trend in sales and profit so it would be better form Ghani Industries Automobiles Ltd. to proceed its future prospectus.

Conclusion:
We have compared the results of PECO & Ghani Industries Automobiles Ltd. and result out that the PECO is working better then Ghani Industries Automobiles Ltd. PECOs Liquidity is so much Better then Ghani Industries Automobiles Ltd. PECOs profitability and Debt management is also good.

Decision:
By the investment point of view we will suggest that we should invest not in Ghani Industries Automobiles Ltd. rather PECO is preferable. As PECO is less risky and have better solvency position thus, banks can approve loans to PECO.

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References:
Books
1. Strategic management by Fred R. David. 2. Principles of Marketing by Philip Kotler, Gary Armstrong. 3. Managerial Economics and Business Strategy by Micheal R. Baye. 4. An Experiential approach to Organization Development by Donald R. Brown, Don Harvey. 5. Financial management by Gittman. 6. Financial management by James C Van Horne. 7. Management. 8. Profiles, annual reports and other documents of Pakistan Engineering Company.

Websites:
1. www.peco.com.pk 2. www.answers.com 3. www.engineeringindustry.info 4. www.wikipedia.com 5. www.investopedia.com

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