Company Introduction:

Siemens’ overall involvement in the region dates back nearly 140 years. The
company’s name first became known in the region through the construction
of the Indo-European telegraph line from London to Calcutta in 1870.
Siemens’ first office in what is now Pakistan opened in 1922. The Siemens
Pakistan Engineering Company Ltd. was founded in 1953 as a private
company, and in 1963 the company was reorganized as a public limited
company.

For 87 years, Siemens has been active in Pakistan, where it holds leading
positions in the three application fields: Energy and Environmental Care,
Industry & Public Infrastructures and Healthcare. The Siemens IT Solutions
and Services Group functions across all three fields. Siemens is the country’s
No. 1 supplier of high-voltage grid stations, switchgear products and
systems, power distribution and power transformers, and network
consultancy. The company has also built a new 220kV Power Transformer
factory, and is poised to meet the demand in this sector nationally and in the
region

There Top rankings in Karachi Stock Exchange is the true testament of their
leading position and also a living example of their vision which is “To remain
market leader and technology pace setter in the engineering and electronics
industry by utilizing the high-tech engineering expertise of the Siemens
Group worldwide. To maintain their strong and prominent local presence.” In
fiscal 2010 (October 1, 2009 – September 30, 2010), sales to customers in
Pakistan amounted to EUR 160 million, while new orders totaled nearly EUR
175 million. With a workforce of 1,400 employees, Siemens is one of the
most important employers in the country and the largest employer of
engineering graduates including women.

Globally, the company has 475,000 employees working to develop and

manufacture products, design and install complex systems and projects, and
tailor a wide range of services for individual requirements.

Siemens further strengthened its competitive market position by contributing

to the country’s major infrastructure development projects. It secured an
extensive contract to provide power and telecommunication systems for
Benazir Bhutto International Airport in Islamabad, Pakistan’s premier airport.
Financial Analysis

Financial analysis refers to an assessment of the viability, stability and

profitability of a business, sub-business or project. It is also known as the
comparison of the financial reports; which includes;

1. Balance Sheets

2. Income Statements

3. Cash Flow Statements

With the help of these three reports financial analysis is done, which is again
classified into three analyses;

1. Vertical Analysis

2. Horizontal Analysis

3. Ratios.

On the basis of these three analyses company can determine its Profitability,
Solvency, Liquidity and Stability.

In the next sections of my report you will find all the above mentioned
things.
Consolidated Balance Sheet with
Vertical and Horizontal Analysis.

Five fiscal years data

(2006- 2010)
Consolidated Income Statement

Five fiscal years data

(2006- 2010)
Vertical Analysis:

Five fiscal years data

(2006- 2010)
Ratio Analysis:

Five fiscal years data

(2006- 2010)
Current Ratio:
2006 2007 2008 2009 2010

1.059396 1.1954998 1.150552 1.1883954 1.206134

145 19 194 51 573

Current ratio is widely used for evaluating the company’s liquidity and short term
debt paying ability. If we see the current ratio trend in the 5years of Siemens
Pakistan we see that in the first 2 years the trend is increasing and then in the 3rd
year it is decreased whereas in the 4th and 5th year it was again increased.

The total current assets in the year 2006 were PKR 9,795,948 and the current
liabilities were PKR 9,246,728. But in the year 2007 the short term financing has
been increased by 22% and provision for taxation by 10% which increases the
current liabilities to PKR 12,229,594, on the other hand the cash and current bank
balances are increased by 23% which overall increases the current assets by 1% to
PKR 14,484,573. This increases the current ratio and shows liquidity of the
company. In the year 2008 the trade and other payable are increased to 76% and
short term borrowing and provisions for taxation has been decreased to 5% and 8%
respectively. But the overall effect increased the current liabilities to PKR
18,487,125. But the Cash and Bank balances are reduced to 16% but the overall
effect has increased the current assets to 85% of the total assets. In the next two
years 2009 and 2010 the short term financing and provision for taxation has been
increased which also increases the current liabilities. We have seen the changes in
these two years in the assets section of balance sheet, in which trade receivables
are increased while the cash account has been decreased. Due to this overall the
current asset amount has been decreased as compared to 2008 which increases the
current ratio. In these two years the amount of current liabilities were also
decreased. The average of the current ratio is 1.156: 1. This means that for every
rupee of liability there is present current asset equivalent to 1.156 rupees which is a
good amount. Considering the current economic conditions of Pakistan, and it is
also above the industry average. This shows that company is reasonably liquid.

Quick Ratio:
2006 2007 2008 2009 2010

0.81 0.93 0.9 0.93 0.99

It is also known as acid- test ratio. It is a measure of company’s immediate short

term liquidity. It includes the cash, short term investments and net receivables of
the company which are divided y the current liabilities.

The graph doesn’t shows any major changes or diversion except a decrease in 2006
and after it there is increase in 2007, a slight decrease in 2008 and then in 2009
and 2010 there is a continuous increase.

The basic reason for the decrease in the quick ratio in 2006 was that, there was a
decrease in cash balance account which decreases the amount of quick assets. And
hence decreases the whole quick ratio. In 2007 the figures shows that cash balance
was 23% of the total current assets. And in the liability section trade and other
payable has also been reduced to 58% of the total current liabilities. And there
overall affect as increased the quick ratio. In year 2008 the trade payable was
increased to 76% of the total current liabilities and the cash balance was reduced to
16% of the current assets and there has been a decrease in the quick ratio. In the
year 2009 and 2010 the trades payable are reduced to 67% and 51%
respectively .but the cash balance has also decreased to 7% in both years and the
overall affect has increased the quick ratio. The average quick ratio for the 5 years
is 0.92:1, this means that 0.91 amount is present to pay off every rupee of current
liability but this amount is very low and The rate of mark-up on these accounts
ranges between 9.00% and 10.05% (2009: 9.00% and 11.20% ) per annum. This
also has affects on the cash and bank balance account of the company.

Working Capital:
2006 2007 2008 2009 2010

PKR PKR PKR PKR PKR

549,220.00 2,368,659.0 2,767,305. 1,999,229.0 3,545,728.0
0 00 0 0

It is the amount which is excess of current assets over current liabilities. It is also
one of the indicator of company’s liquidity. (All the above mentioned amounts are in
‘000’.)

In 2006 the working capital is very low due to the huge increase in the short term
liabilities which were 90% of the total current liabilities. The cash balance was also
low because the amount in the deposits of bank balance was low which in return
produces less markup interest. Due to which overall current assets balance has
been decreased. In 2007 was comparatively high due to the 32% decrease in the
short term liabilities and 5% increase in the cash balances. This increased the
working capital. In 2008 working capital was reasonably high which shows that
company is fair enough liquid. In this year the short term liabilities were 76% of the
total current liabilities which was actually a high amount. But the inventory and
trade receivable accounts were increased to 22% and 53% respectively. This
increases the current assets accounts which in return increased the working capital
for the year 2008. In the year 2009 the major increase was in provisions for taxation
of 11% which increases the current liabilities. The other receivable account was
decreased to 5% and cash balance was only 7% of the current assets, this
decreases the amount of working capital. The cash amount was decreased due to
the low amount of cheques in hand and cash in hand. In the year 2010 the working
capital is the highest amount in comparison of 5years. Short term liabilities were
increased by 5% and short term running financing was increased by 753% and
provisions for taxation has been increased by 345% which overall increased the
current liability to 86%. Inventories are increased by the 63%, trade receivable was
increased by 188% but cash decreased by 21%, this overall increase the current
assets to 112% and thus increased the working capital. After viewing the amounts
of working capital we can say that company is very liquid and it can easily perform
its business after paying off its all current liabilities.

Net Cash Provided by the

Operating Activities
2006 2007 2008 2009 2010
PKR PKR PKR PKR PKR
726,384.0 (2,247,61 2,725,707 (1,871,08 (1,689,17
0 4.00) .00 8.00) 7.00)

This tells the investors that how much cash has been generated from the operating
activities during the whole year.
In the year 2006 graph shows that cash generated from the operation was greater
than the expenses which includes the installments of long term payments, income
tax and payments to employees. In the year 2007 the cash generation shows a
negative amount which shows that company has not generated in positive cash
amount. In the year 2008 cash generated was very high then the expenses that is
why the net cash amount is in positive figure. In the year 2009 and 2010 the cash
generation was in negative and as a result the net cash was also in negative. This
shows that operating expenses of the company are far more than its operating cash
generation.

Cash Flow from Operations to

Current liabilities
2006 2007 2008 2009 2010
0.
08 -0.19 0.15 -0.11 -0.10

It indicates ability to cover currently maturing obligations from recurring operations.

The year 2006 shows that current liabilities are greater and cash generated from
the operating activities was also positive. In the year 2007 the current liabilities
were increased by 31% but the cash generated from the operating activities was in
negative. In the year 2008 cash generated from the operating activities was very
high and the current liabilities were increased by 98% which increases the above
ratio. In the year 2009 the cash generation form the operating activity was again
negative due to the increase in the operating expenses and the current liabilities
were increased by 86% which decrease the value of the given ratio. In the year
2010 the trend was similar like the 2009.

These balances may not represent the company’s current position so commenting
on companies current liquidity is not possible.

Receivable Turnover rate:

2006 2007 2008 2009 2010

5.86 3.66 3.03 2.93 1.86

It measures the number of times, on average receivables are collected during the
period. It measures how certain assets can be converted into cash quickly.
In this trend analysis the graph shows that the highest receivable turnover rate was
in 2006. And then gradually it starts decreasing. Reason behind this decrease is that
in the year 2007 the net credit ere increased by 5% and the trade receivables were
increased by 30% which increases the average trade receivables account which
overall decreases the turnover rate. Trade receivables increased due to the increase
in receivables from related parties with amount of PKR 4,017,319. In the year 2008
the net sales increased by 29% and the trade receivables increased by 118% which
lower the turnover ratio. In the year 2009 and 2010 same trend has been followed
the net sales are increased by 74% and 26% respectively and the trade receivables
are increased by 166% and 188% which shows that a lot of sales have been done
on credit. This decreases the turnover ratio. Liquidity may be measured from this.
The average of the 5 years is 3.46 which show that the current receivables can take
some time to convert into cash.

Days to Collect Average Account

Receivable.
2006 2007 2008 2009 2010

62 100 121 125 196

It tells about that on average how much days are required to collect average
account receivables.
This graph is basically based on the data of the above turnover rate. To find the
days we have to divide the 365days by turnover rate.

As we have seen that the turnover rate was very high in the year 2006 for this the
days are very less and only 62days were required to collect the receivables. In the
next 4 years the turnover rate was very low which has increased the number of
days to collect the receivables.

It is very important for the banks and other companies which are going to give loan
to this company to see this ratio. Because this will tell them in how much time
Siemens is going to collect its receivables and as a result according to these days
they can predict that in how much period of time Siemens will pay off its loan.

Inventory Turnover Rate

2006 2007 2008 2009 2010
9.69 6.68 5.89 7.18 5.52

It measures the number of times on average the inventory is sold during the period.
The purpose is to measure the liquidity of the inventory.
In the year 2006 the inventory turnover rate is very high because the inventory in
this year was 23% of its current assets and the cost of goods sold was also not very
much high and there result increases the turnover rate. It means that this year
inventory was sold in heavy quantity. In the year 2007 the cost of goods sold
increased by 2% and the inventory in this year increased by 37% which decreases
the turnover rate due to low sales of inventory the turnover rate decreases. In the
year 2008 the COGS increased by 29% and the inventory increased by 101% which
is showing that the inventory was pilling up and the sales are not up to the level.
The cost of raw materials in this year reaches to PKR 1,537,010, the value of goods
in transit reached to PKR 972,811 and the value of work in process reached to PKR
1,549,276. This increased the overall amount of the inventory. In the year 2009 the
COGS increased by 74% which indicates the high amount of sale in this year, and
the value of inventories increased by 91% which overall increases the turnover rate.
In the year 2010 the COGS were increased to 26% and inventories increased to 63%
which somehow lowers the turnover rate. Generally, the faster the inventory
turnover, the less cash that is tied up in inventory and the less the chance of
inventory obsolescence.

Days to Sell Average Inventory

2006 2007 2008 2009 2010

38 55 62 51 66
It is a variant of inventory turnover rate. It determines the number of days in which
the inventory will be sold. It can be calculated by dividing the inventory turnover
into 365.

This graph is based upon the data of the inventory turnover rate. As we already
know that the inventory turnover rate was high in the year 2006 so that is why the
days required to sell the average inventory is less. In the year 2007 the days
required to sell average inventory is 55 because the inventory turnover rate was
low. Same reason is based in the next three years.

It means that the company is generating inventory but the sale of inventory is very
low and the average for years shows that Siemens need almost 55 days to sell its
inventory. This is reasonable number of days and the company is doing a profitable
business.

Operating Cycle
2006 2007 2008 2009 2010
 100 154 183 176 262

It indicates the number of days that how quickly cash invested in inventory converts
back into cash. it can be calculated by adding the average no of days required to
sell inventory plus the days required to collect the average account receivables.

In the year 2006 due to the less no of days required to sell average inventory and
less no of days required to collect average account receivables, that is why the
operating cycle indicates the less number of days. As we are moving further in the
next 4 years the trend is that the operating cycle is increasing due to the increase
in the number of days required to sell inventory increases and as well as no of days
required to collect average account receivables increases.

But from the view point of short term creditors the shorter the operating cycle, the
higher the quality of the borrower’s working capital. The increase in the trend of
operating cycle is an unfavorable trend for the company. It will also cause a very
strong impact on the company’s loan borrowing strategies.

Free Cash Flow

 2006 2007 2008 2009 2010

PKR PKR PKR PKR PKR

(447,734. (568,787.0 1,875,248 (899,844.0 (2,629,363
00) 0) .00 0) )

Free cash flow tells about the excess of operating cash flow over the basic needs.

The graph of 5years shows great fluctuations in different years. In the year 2007
there is a negative free cash flow which means that company should invest more
cash inflow so that they can meet there basic requirements. In this year the cash
generated from the operating activities was PKR 795,861 but the cash flows from
the investing and financing activities were negative which decreases the cash flow
and all the cash from the operating activities was used by the investing and
financing activities and hence there was a negative cash flow in return. In the year
2007 the Operating cash was negative and the cash flow from the investing
activities was positive but after the subtraction of cash flow from the financing
activities again decreases the free cash flow and makes it a negative cash flow. In
the year 2008 the cash generated from the operation was PKR 4,113,256 and
operating expenses was very low which at the end shows a positive cash flow of
PKR 2,725,707. In the investing activities capital expenditure was low as compare to
the other years and although the amount of dividend paid was very much high but
the overall results shows a positive free cash flow in the year 2008. In the year 2009
and 2010 same trend has been followed and in these both years the amount of free
cash flow shows the negative value. It means that company has to invest some cash
from the retained earnings to meet the basic needs.
Debt Ratio
2006 2007 2008 2009 2010
0.77 0.70 0.75 0.72 0.71

It comes under the solvency ratios which determine the ability of a company to
survive over a long period of time. This ratio indicates the company‘s degree of
leverage. It also provides s some indication of the company’s ability to withstand
losses without impairing the interests of creditors

It is said that the higher the value of the ratio is considered as a risk for the
company that it might not be able to meet its maturity obligations.

In the year 2006 the debt ratio is the highest ratio among the 5 year trend because
in this year total liabilities was very high and total assets was low. In the year 2007
the total liabilities were increased by 31% but the assets also increased by 46% due
to the increase in the cash and bank balance account by 37% and other receivable
account increased by 113%, and there overall effect increases the total asset
account which in return decreases the debt ratio. In the year 2008 the total
liabilities were increased by 99% and the total assets by 106%, but due to high
amount of total liabilities the debt ratio increased. In the year 2009 and 2010 the
total liabilities increased by 85% and 86% respectively. The total assets account
increased by 101% and 104% respectively. Due to the very high increase in the
current assets account the overall asset account increased and as result the debt
ratio decreases.

The average if the debt ratio for 5 years is 0.73 or 73% which is a very high ratio.
But know we have to compare it with the average of its competitors if the average
is below the industry average then it is well and good because creditors look for the
low debt ratio.
Interest Coverage Ratio
2006 2007 2008 2009 2010
14.74 25.04 23.94 28.29 18.56
PKR PKR PKR PKR PKR
68,337.45 62,608.87 97,977.28 75,802.01 85,035.18

It provides an indication of the company’s ability to meet interest payments as they

come due.

In the year 2006 the amount of interest was PKR 68,337.45 which is considering
being a very high amount and as result of this the interest coverage ratio was low.
In the year 2007 the income before tax and interest was increased to 30% which
increases the interest coverage ratio. In the year 2008 the in interest was very high
and the income before the tax and interest increased to 70% and their overall effect
decreases the interest coverage ratio. Moving in the next year 2009 the interest
expense was a little bit less than the previous year and the income before interest
and tax was increased to 42%. This increase is lower than the previous year and as
a result the ratio goes high. In the last year 2010 the interest rate was high but the
income before the interest and tax was only increased to 5% which reduces the
ratio.
It is consider that if the ratio is more than 2 1it is consider as very strong. So
according to this view all these ratios are very high and they are very strong. So it
means that the company can easily meet its interest payments as they come due.

Gross Profit Rate

2006 2007 2008 2009 2010
12% 14% 15% 11% 15%

Gross profit rate comes under the profitability ratios which measures the income or
operating success for the given period of time. Profitability is frequently used as the
ultimate test of managements operating effectiveness.

In the year 2006 gross profit was low because of the sale of the huge quantity of
inventory. This reduces the gross profit rate. In year 2007 the rate was slightly
higher due to the increase of 5% in net sales and 27% in the gross profit. In 2008
the net sales increased by 29% and gross profit by 64% which increases the rate. In
the year 2009 the net sales was increased by 73% and the gross profit by 63%
which reduces the rate because of the good quantity sale of inventory the gross
profit value drops. In the year 2010 the net sales increased by 26% whereas the
gross profit increased by 58% which increased the gross profit rate.

1
Mentioned in Financial Accounting chapter no 14 page# 656
 In these 5 years the gross profit rate was lying in 11% to 15% which was
reasonably normal. So it clearly shows that income and operating success of the
company in the given period of 5 years.

Operating Expense Ratio

2006 2007 2008 2009 2010
7% 7% 6% 5% 8%

It is a measure of the management ability to control expenses. It is calculated by

dividing operating expenses by net sales.

In the year 2006 only 7% of the net sales were required to meet all the operating
expenses. In 2006 the operating expenses were PKR 1444463 and the net sales
were PKR 20795847. So Siemens was able to ay off all its operating expenses. In
the year 2007 the operating expenses decreased by 2% and net sales increased by
5% which again maintain the same ratio. In the year 2008 the net sales increased
by 29% and operating expenses also increased but due to the higher value of the
net sales the ratio drops. In the year 2009 same thing was happened and that is
why the ratio decreased. In the year 2010 the net sales increased by 26% but one
operating expense increased by 42% and the other by 48% which makes the ratio
highest among the five years.

Operating expenses are basically those expenses which are done in order to
produce revenue. They are subdivided into selling and administrative expenses. The
selling expenses rises and fall with the increase and decrease in the net sales. The
administrative expenses are more or often remain constant.

Operating Income
2006 2007 2008 2009 2010
PKR PKR PKR PKR PKR
1,007,294 1,567,726. 2,345,576 2,132,680. 1,763,986.
.00 00 .00 00 00

It is the profitability of a company’s basic business activities. It is calculated by

subtracting operating expenses from gross profit.

In 2006 the gross profit was very low and the selling expenses were high which
increases the operating expenses. This all was done due to the increase in the net
sales. In the 2007 the gross profit increased by 27% and the operating expenses
also increased but the selling expense decreases by 2% due to the not enough sales
in the year. In 2008 the gross profit increases by 64% the operating expenses also
increased but due to the high increase in the gross profit the operating income for
2008 was the highest among these 5 years. In the next 2 years the gross profit also
increased and due to the increase in sales the operating expenses also increases
and there affect is visible in the graph.

This trend of the operating income shows that the company is doing the business
with profit and if this trend will be followed in next year’s the company will earn a
lot more profit.

Net Income as a Percentage of Net

Sales
2006 2007 2008 2009 2010
3% 11% 6% 4% 4%

It is a measure of the percentage of each dollar of sales that result s in net income.
It is computed by dividing net income by net sales.
In 2006 the net income was low due to high amount of tax and operating expenses
and the net sales was high. This decreases the percentage of each dollar sales that
results in net income. In the year 2007 the percentage is the highest among these 5
years. In this year the net sales only increased by 5% but the net income increases
by 242%. This all is done due to the low net sales and which increases the gross
profit and lowers the operating expense which in return increases the net income. In
the year 2008 the net sales increased by 29% and net income increased by 132%,
which as compare to the previous year was low. Due to this the net income as a
percentage of net sales decreased. In the next 2 years 2009 and 2010 the
percentage is same due to huge increase in the net sales as compare to the net
income, as a result the percentage of each dollar of sales that result in net income
decreases.

The average percentage for these 5years is 5.6%, which is considered as very
strong for the company like Siemens. This also indicates that the company business
is growing in the profitable way.

Earnings per Share (EPS)

2006 2007 2008 2009 2010
PKR PKR PKR PKR PKR
93.57 300.87 203.06 165.53 121.19

EPS is a measure of the net income earned on each share of common stock. Mostly
it is given in the annual reports. A measure of net income earned on a per share
basis provides a useful perspective for determining profitability. Basically the term
earning per share refers to the amount of net income applicable to each share of
common stock. In computing EPS, if there are preferred dividends declared for the
period, they must be deducted from net income to determine income available to
the common stockholders.2

2
Reference taken from the book Financial Accounting 4th edition by KIESO.
.

Most of the companies have not mentioned there outstanding shares just like
Siemens. Then the only way to analyze the EPS is intracompany. It means that in
the year 2007 the EPS increased by 221% so it means that the Siemens has earned
221% net income on every share in 2007 as compared to 2006. In the year 2008
the EPS increased by 117%. In 2009 and 2010 the EPS increased by 77% and 30%
respectively as compared to 2006. So the trend shows that there is a decrease in
the EPS every share due to the less amount of net income due to the increase in the
sales which also increases the operating expenses and lowers the gross profit and
then reduces the net income.

Return on Assets
2006 2007 2008 2009 2010
10% 10% 11% 9% 7%

It is a measure of the productivity of assets, regardless of how the assets are

financed. An overall measure of profitability is return on assets.
It is calculated by dividing operating income by average total assets. As in the 2006
the operating income was PKR 1,007,294.00 and the assets were also very high
due to the increase in the inventory, trade receivable and cash and bank balance
account which lowers the return percentage. In the year 2007 the average total
assets increase by 73% which maintain the return rate. In the year 2008 the
average assets increased to 76% but the operating income also increased. This
increase the overall return on assets. In the next 2 years average total assets
increased by huge amounts that is why the return on assets decreases.

The average return on the assets is 9.4% which high then the industry average of
7.42%3. This shows that the company is doing a profitable business and return on
assets is fair enough high.

Return on Equity
2006 2007 2008 2009 2010
28% 61% 29% 21% 14%

It is the rate of return earned on the stockholders equity in the business. It is

calculated by dividing the net income by average total equity.
3
Industry average mentioned in INTERMIDIATE ACCOUNTING 13th EDITION Volume 2 BY
KIESO.
It is only the returned earned by the management on the stockholders equity. In the
year 2006 the average total equity increased but the net income decrease which
reduces the return on equity. In the year 2007 the net income increased by 242%
and the average equity increases by 98% which increases the return rate. In the
next three years the net income increased but not as much as in the 2007 due to
the high sales and operating expenses the net income was considerably lower than
in 2007. On the other hand in these 3 years the total equity increases due to the
increase in the retained earnings and the reserves.

Annual return of more than 12%4 or more from equity investments in large,
financially strong companies is very common. So Siemens is giving more than the
industry requirements so its shows that the management is earning good profit.

Market value
2006 2007 2008 2009 2010
PKR PKR PKR PKR PKR
980.00 1,689.00 1,210.00 1,415.00 1,160.00

It reflects the both investors expectation and the current market conditions.

4
Financial Accounting 14th editions, Chapter 14 page no 649.
As in the above part I have mentioned that the market value of the financial
instrument is dependable upon the both investors expectation and the current
market conditions. Siemens is registered in Karachi Stock Exchange and due to the
sole company which is doing so many electronic projects its share price increases.
There is a minor decrease in the 2008 which is due to the current situation of the
Pakistani market and its declining economy. Same is the reason for the decline in
2010. Pakistan being a developing country is facing so many problems in which
terrorism is one of the most serious problem which seriously effects the market
conditions.

Price Earnings Ratio

2006 2007 2008 2009 2010
10.47 5.61 5.96 8.55 9.57
PKR PKR PKR PKR PKR
979.68 1,687.88 1,210.24 1,415.28 1,159.79
It is an oft-quoted measure of the ratio of the market price of each share of common
stock to the earnings per share. The price earnings ratio reflects the investor’s
assessments of company’s future earnings. It is computed by dividing the market
price by EPS.

In the year 2006 the market price was PKR 980 and the EPS was PKR 93.57 which
increases the ratio. In the next 2 years 2007 and 2008 the market value was high
but the EPS was also increased which decrease the ratio and due to the increase in
the market value in next 2 years 2009 and 2010 the ratio also increased.

Companies with track records of rapid growth may sell P/E ratios of perhaps 30 to 1
or even higher5. Siemens has record of rapid growth and its P/E ratios lies in the
range so its market price will grow due to its profitable business.

Dividend yield
2006 2007 2008 2009 2010
0.07 0.05 0.07 0.06 0.08

Dividends expressed as a rate of return on the market value of the stock. It is

calculated by dividing the annual dividend by the current stock price. Dividend yield
5
Financial Accounting 14th edition chapter no 14 page no 652.
is especially important to those investors whose objective is to maximize the
dividend revenue from their investments.

In 2006 the company declared the annual dividend at PKR 66 and the stock price
was also high which makes the yield to 7% only. In the next year the company
declared the dividend at 90 and the stock price was very high which reduces the
yield to 5% only. In the next three years the annual dividend remains the same at
PKR 90 and due to the increase and decrease in the market value there is minor
fluctuation in the yield. If a corporation is profitable and retains its earnings for
expansion of the business the expanded operations should produce an increase in
the net income of the company and thus tend to make each share of the stock more
valuable.

So net income of the Siemens increased gradually in every year which makes the
each share of the stock more valuable.