Professional Documents
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Internship Report
DEDICATED
TO
My Parents
AND
All My Teachers
Who taught me the first word to speak The first alphabet to write and The first step to take
Internship Report
Preface
The business world today is considerably different and more complex than it was just some years ago. Today, we experience private-equity firms acquiring hundreds of companies. Both the challenges and opportunities facing organizations of all sizes today are greater than ever. This internship report prepared on one of the company in printing of aluminum foils, gives you a complete over view of that company what is its accounting cycle, what is its opportunities and etc. I have given the ratio analysis of Pharma Zone Pvt. Limited. Ratios are made for 2007, 2008. These ratios are depicted graphically through line chart. Analysis of ratio shows that the ratios of Pharma Zone are satisfactory except average collection period.
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Executive summary
Pharma Zone, the leading company in the printing of foil, is situated in PCSIR Colony, College Road Lahore. It was a sole proprietorship named as Pharma Link but in 2002 it was converted into private Limited Corporation. Mr. Arshad Mehmood and his wife are the director of Pharma Zone. Pharma Zone has acquired a plot in Shaikhupura to start the work in the year 2010. It has also acquired new machineries to improve its functions. Currently Pharma Zone has 50 gravure (printing) machines. Pharma zone currently manufactures following products: Aluminum Foil Blister Strip Foil Poly Coated Paper Blister Pouches Alu Alu Foil Plain
Company keeps its quality at the peak of the business. There are high levels of professionals in all departments of Pharma Zone and it is continuously keeping an eye over their growth. There is a proper channel of communication between the departments of the Pharma Zone. There is a proper organizational chart issued by the organization. Accounting system adopted by Pharma zone is single entry system. Pharma Zone adopted this system because it is an easy approach towards accounting. Ratios of Pharma Zone are good except average collection period which is very poor for Pharma Zone. Ali Mehdi
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Acknowledgement
I was home when I heard the news from my cousin that you can do your training in his friends company, the Pharma Zone Pvt. Limited. After one week I got into my career first opportunity and went to the company with my cousin. Initially there was little bit work to do in the Pharma Zone but Manger Accounts and Finance very kind to me gave me some work of posting and other checking. I want to thanks Mr. Imran Shafi, Manager Accounts and Finance of Pharma Zone for his cooperativeness to me in the prepration of this internship report. Mr. Quasim, the accountant, also assisted me in understanding the management and hierarchy of the organization and the relationship between departments. Mr. Adeel Dawar gave me the Financial Statements of Pharma Zone Pvt. Limited very next day of my internsip to get the ratios and have a work on it. Finally I want to thanks Mr. Arshad Mehmood, the CEO of Pharma Zone who also talked to me on much occasions do discuss any problems faced by me.
Ali Mehdi
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Table of Contents
PREFACE....................................................................................................................................II EXECUTIVE SUMMARY........................................................................................................III ACKNOWLEDGEMENT.........................................................................................................IV HISTORY OF ORGANIZATION...............................................................................................1 ORIGIN:..............................................................................................................................................1 WHY CHANGE TO PRIVATE LIMITED COMPANY?....................................................................................1 ORGANIZATIONAL CHART....................................................................................................2 MANAGEMENT OF ORGANIZATION...................................................................................3 BOARD OF DIRECTORS:.........................................................................................................................3 MANAGEMENT:....................................................................................................................................3 FIELD OF ACTIVITIES.............................................................................................................6 CUSTOMERS AND SUPPLIERS OF PHARMA ZONE..........................................................7 LIST OF QUALITY MAJOR CUSTOMERS:...................................................................................................7 LIST OF MAJOR SUPPLIERS:....................................................................................................................8 PRODUCT INFORMATION......................................................................................................9 PRODUCT MATRIX................................................................................................................................9 PRODUCT RANGE:................................................................................................................................9 FUTURE PLANS AND PROJECTIONS.................................................................................10 MISSION & VISION STATEMENT........................................................................................10 OFFICES AND FACTORY OF PHARMA ZONE..................................................................12 MAJOR FUNCTIONS PERFORMED BY ACCOUNTING DEPARTMENT.....................13
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SALES CYCLE...........................................................................................................................13 STEP I: COLLECTION OF PURCHASE ORDER:........................................................................................14 STEP II: PREPARATION OF SALES ORDER:............................................................................................14 STEP III: PREPARATION OF PRINTING JOB CARD:..................................................................................15 STEP IV: PREPARATION OF DELIVERY CHALLAN:..................................................................................16 STEP V: PREPARATION OF SALES TAX INVOICE:.....................................................................................17 STEP VI: PREPARATION OF JOURNAL VOUCHERS (JV):........................................................................18 STEP VII: POSTING TO LEDGERS:.......................................................................................................18 STEP VIII: PREPARATION OF JOURNAL:...............................................................................................19 STEP IX: TAX RETURN FILING:..........................................................................................................19 WHEN A CUSTOMER MAKES PAYMENT..........................................................................19 WHEN PAYMENT IS MADE TO THE SUPPLIER...............................................................19 MY LEARNING.........................................................................................................................20 CHEQUE ONLINE TRANSFER AND RECEIPT OF CHEQUES:............................................................................20 POSTING INTO DEBTORS LEDGER:.........................................................................................................20 CHECKING THE ENTRIES POSTED INTO LEDGER:......................................................................................20 CHECKING OF JOURNAL VOUCHERS:......................................................................................................21 MISCELLANEOUS:...............................................................................................................................21 PHARMA ZONE FINANCIAL STATEMENTS:....................................................................22 BALANCE SHEET:...............................................................................................................................22 INCOME STATEMENT:..........................................................................................................................23 RATIO ANALYSIS....................................................................................................................24 CATEGORIES OF FINANCIAL RATIOS:....................................................................................................24 LIQUIDITY RATIOS:............................................................................................................................24 CURRENT RATIO:................................................................................................................................24 QUICK (ACID-TEST) RATIO:.................................................................................................................25 ACTIVITY RATIOS:.............................................................................................................................25 INVENTORY TURNOVER:.......................................................................................................................25 AVERAGE COLLECTION PERIOD:............................................................................................................25 AVERAGE PAYMENT PERIOD:................................................................................................................26 TOTAL ASSET TURNOVER:....................................................................................................................26 DEBT RATIOS:...................................................................................................................................26 DEBT RATIO:......................................................................................................................................26 TIMES INTEREST EARNED RATIO:..........................................................................................................26 PROFITABILITY RATIOS:......................................................................................................................27 GROSS PROFIT MARGIN:......................................................................................................................27 OPERATING PROFIT MARGIN:................................................................................................................27 NET PROFIT MARGIN:..........................................................................................................................28
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EARNING PER SHARE:...........................................................................................................................28 RETURN ON ASSETS:............................................................................................................................28 RETURN ON EQUITY:............................................................................................................................28 MARKET RATIOS:................................................................................................................................28 PRICE/ EARNINGS (P/E) RATIO:............................................................................................................29 MARKET/BOOK (M/B) RATIO:.............................................................................................................29 ADVANTAGES OF RATIO ANALYSIS:......................................................................................................29 RATIOS OF PHARMA ZONE PVT. LIMITED 2007-08.......................................................30 RATIOS PHARMA ZONE PVT. LIMITED (2007) ...............................................................30 RATIOS PHARMA ZONE PVT. LIMITED (2008) ...............................................................32 IMPORTANT NOTES & ASSUMPTION................................................................................34 LIMITATIONS:.........................................................................................................................34 RATIO ANALYSIS 2007-2008..................................................................................................35 LIQUIDITY RATIOS:............................................................................................................................35 LIQUIDITY RATIOS ANALYSIS............................................................................................36 CURRENT RATIO:...............................................................................................................................36 QUICK (ACID-TEST) RATIO:...............................................................................................................36 ACTIVITY RATIOS:.............................................................................................................................37 ACTIVITY RATIOS ANALYSIS.............................................................................................39 INVENTORY TURNOVER:......................................................................................................................39 AVERAGE COLLECTION PERIOD:..........................................................................................................39 AVERAGE PAYMENT PERIOD:..............................................................................................................39 TOTAL ASSET TURNOVER:..................................................................................................................39 DEBT RATIOS.....................................................................................................................................40 DEBT RATIOS ANALYSIS......................................................................................................41 DEBT RATIO......................................................................................................................................41 PROFITABILITY RATIOS.......................................................................................................................42 PROFITABILITY RATIOS ANALYSIS..................................................................................43 GROSS PROFIT MARGIN:....................................................................................................................43
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OPERATING PROFIT MARGIN:.............................................................................................................43 NET PROFIT MARGIN:........................................................................................................................43 RETURN ON ASSETS:..........................................................................................................................43 RETURN ON EQUITY:.........................................................................................................................43 SUMMARY OF ALL RATIOS.................................................................................................44 RATIO ANALYSIS CONCLUSION.........................................................................................45 HORIZONTAL AND VERTICAL ANALYSIS.......................................................................46 VERTICAL ANALYSIS:..........................................................................................................................46 HORIZONTAL ANALYSIS:.....................................................................................................................46 VERTICAL ANALYSIS............................................................................................................46 COMMON-SIZE INCOME STATEMENT:....................................................................................................46 SUPPORTING CALCULATION:................................................................................................................47 GRAPHICAL REPRESENTATION OF COMMON-SIZE INCOME STATEMENT........48 COMMON-SIZE BALANCE SHEET:.....................................................................................49 SUPPORTING CALCULATION:................................................................................................................50 HORIZONTAL ANALYSIS......................................................................................................52 HORIZONTAL ANALYSIS OF BALANCE SHEET.............................................................52 SUPPORTING CALCULATIONS:...............................................................................................................53 HORIZONTAL ANALYSIS OF INCOME STATEMENT....................................................55 SUPPORTING CALCULATION:................................................................................................................55 RECOMMENDATIONS............................................................................................................57 CONCLUSION...........................................................................................................................58 INDEX.........................................................................................................................................59 REFERENCES...........................................................................................................................60
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History of organization
Origin:
Pharma Zone was established in 2002 with name of Pharma Link for manufacturing of Printed Aluminum Foil, Strip & Poly Coated Paper for Pharmaceutical Industries by: Mr. Arshad Mahmood Executive director since its inception a position holding bachelor of engineering from UET Lahore who served Material Manager Himont Pharmaceutical (Pvt.) Ltd, and National Sales Manager in Himont Chemicals Lahore for 10 years. Mr. Arshad Mahmood being a successful purchaser and Marketer has sufficient understanding of quality and commitments which are integral parts of a successful business by any supplier or vendor. This is the reason that in a short span of time Pharma Link has captured a big share of Printing Market for pharmaceutical industries. We have established a private Limited company in the name of Pharma Zone (Pvt.) Limited to further improve the existing business in a corporate and systematic manner.
Pharma Link was the sole proprietorship. Many of the customers of the Pharma Link were the Sales Tax Payer. They wanted to have the transactions secure. So for this reason Pharma Zone was formed. Now with the private limited company customers can be given sales tax invoice and tax can be deducted at source.
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Organizational Chart
CEO
Manager Operations
Production Manager
Marketing Manager
Dispatch Manger
Marketing Executive
Designer
Marketing Officer
Sales Officer
Accountant
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Management of Organization
Following is the experienced management of Pharma Zone Pvt. Ltd.:
Board of Directors:
In private Limited company minimum directors should be 2. Mr. Arshad Mehmood and his wife are the two directors of Pharma Zone.
Management:
1. Arshad Mehmood, CEO: Arshad Mehmood is executive director/Chief executive Officer (CEO) since its inception. He has got position holding bachelor of engineering from UET Lahore who served Material Manager Himont Pharmaceutical (Pvt.) Ltd, and National Sales Manager in Himont Chemicals Lahore for 10 years.
Pharma Zone Pvt. Ltd. 4. Faraz Ali, Assistant Operations Manager: 5. Shehzad Ahmed, Designer: 6. Badar Munir, Production Manager:
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Pharma Zone Pvt. Ltd. 9. Waseem Ahmed Jam , Sales Officer: 10. Liaqat Ali, Marketing Officer: 11. Muhammad Imran Shafi, Manager Finance & Accounts:
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13. Adeel Dawar, Assistant Finance Manger 14. Muhammad Kashif, Dispatch Manager
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Field of activities
Recently, Pharma Zone (Pvt.) Limited is formally leading source of Printed and Plain Aluminum foil for blister, Strip, Poly Coated Paper & Alu Alu Foil.
Plain Aluminum
Exhibit 1
It Prints Aluminum foil for more than 150 pharmaceutical Companies all over Pakistan and it always use best quality imported material for printing. o It employees over 40 qualified manpower o It prides itself on maintaining internal standards and quality
Pharma Zone secures product leadership by: o Product differentiation o Operational Competencies, and o Customer intimacy
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Exhibit 2
Pharma Zone Pvt. Ltd. Pacific Pharmaceuticals (Pvt.) Ltd, Lahore Askari Pharmaceuticals (Pvt.) Ltd, Lahore Siza International (Pvt.) Ltd, Lahore Raazee Therapeutics (Pvt.) Ltd, Lahore Hansel Pharmaceuticals (Pvt.) Ltd, Lahore Dyson Laboratories (Pvt.) Ltd, Lahore Bryon Pharmaceuticals (Pvt.) Ltd, Peshawar Paramount Pharmaceutical (Pvt.) Ltd, Islamabad Polyfine Chem Pharmaceuticals (Pvt.) Ltd, Peshawar Hammaz Pharmaceuticals (Pvt.) Ltd, Multan Batala Pharmaceuticals (Pvt.) Ltd, Gujranwala Qintat Pharmaceuticals (Pvt.) Ltd, Sargodha Fynk Pharmaceuticals (Pvt.) Ltd, Lahore NovaMed Pharmaceuticals (Pvt.) Ltd, Lahore
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Pharma Zone Pvt. Ltd. Jiangsu Zhongin Medical Packing Co. Ltd. China
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Product Information
Product Matrix
Aluminum Foil Blister o Use in Blistering of Tablets, Capsules and Injections by Pharmaceuticals Industry Strip Foil o Use in making strips for tablets or capsules by different machine technology Poly Coated Paper o Use in making paper strips and powder sachets by pharmaceuticals and food industry. Blister Pouches o Use to protect blisters from heat, light and moisture Alu Alu Foil Plain o Use in Blister Making in Place of PVC. This is the most protection material used by pharmaceuticals
Product Range:
According to Pharma Zone Sources the share of the company in the market is as follows:
Types of Products
Pharma Zone Pvt. Ltd. Aluminum foil Strip Foil Poly Coated Paper Pouches for Blister Alu Alu Plain Foil 60 15 20 5 80/100
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The aluminum foil is the most selling product of Pharma Zone with a market share of 60%. And the Alu Alu Plain foil is the least selling product of Pharma Zone with a market share of 0.8%.
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Pharma Zone (Pvt.) Ltd. 102-D, PCSIR Staff Colony College Road, Lahore Phone: 0423-5110647 E-mail: thepharmazone@gmail.com
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Sales Cycle
Here are some steps which tells exactly whats the sale procedure of Pharma Zone Pvt. Ltd. Sales Cycle consists of following steps: Step I: Collection of Purchase Order Step II: Preparation of Sales Order Step III: Preparation of Printing job card Step IV: Preparation of delivery Challan Step V: Preparation of sales tax invoice Step VI: Preparation of Journal Vouchers (JV) Step VII: Posting to Ledgers Step VIII: Preparation of Journal Step IX: Tax Return Filing
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Purchase Order:
Purchase order or PO is the first communication of the customer to purchase a specified amount of goods at specified prices. There are different formats of purchase orders. One of the samples of purchase order is given in Appendix I. Following is the brief description of purchase order: It mentions the company name, address, phone and fax of the customer. It mentions the company name, address, phone and fax of the vendor. It describes the shipping location where the goods are to be ultimately brought. It specifies the item/items which are to be purchased by the customer. Their quantity, preferably in the case of Pharma Industry, their weight, is mentioned. The price of the items is mentioned. The total purchase amount is calculated. If there is any sales tax or other duty such as in Pakistan there is 1% special excise duty is mentioned and the final total is calculated. And finally there is signature of the manager operations of the customer and preferably stamp of the company.
Box 1
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what the customer has sent in the purchase order. Box 2 gives a brief description of Sales order. At the end of this report, the Sample of Sales order of Pharma Zone is also given.
Sales Order
Following are given brief contents of sales order: It specifies the purchase order number from which it is made. It has its own number which is Sales order number. It tells the job name, order quantity, material, size and other specifications of the order. It includes date of the sales order Required date of the order is mentioned. In the Pharma zone all aluminum foils are sent to the customer wrapping around a cylinder. So in the Pharma Zone Sales order Cylinder information is also given. Blank spaces of different signatures are included.
Box 2 There are made three copies of Sales order one is kept in the files for future evidence. One is given to the production department for the manufacturing. And one is sent to the Accounting department.
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3. It includes, Sales Order Number, Purchase Order Number, Job card number and Date at which the sales order is received by the production department For the Pharma Zone Pvt. Limited the job card has four sections and it travels into 4 different departments. Production department portion includes o o o o o o o o o Box 3 Customer Name Type of material Number of Colors, order quantity, etc. Gross weight issued Source of Material etc. Quality check during production Quality check after final production Weight received Wastage of material
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Box 4
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Box 5
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My Learning
I have a good opportunity to having the internship of 2 months from the Pharma Zone pvt. Limited. All these 2 months were full of events. At start I have little bit work to do but when I got stuck with my job I gained much experience in my these two months.
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I also checked the entries posted into ledger by tallying it from the vouchers (e.g. bank receipt voucher). This was easy task I had to check the amount entered, into specific customer account. If these were correct I have to sign on the voucher below which ledger entries are referenced.
Miscellaneous:
If there was no work to do sometimes I was called to do other than routine work. Thats sometimes I was said that Get the USB net device from the operations department. Sometimes I have to copy the documents from the photocopy machines given by my superiors.
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Balance Sheet:
PHARMA ZONE (PVT.) LIMITED Balance Sheet AS AT JUNE 30, 2008 2008 Capital and Liabilities Share Capital and reserves Authorized Share Capital: 25000/-ordinary Shares of 100/- each Issued, Subscribed and Paid up Capital: 2,000/- Ordinary Shares of 100/- each fully paid up in cash Accumulated Profit 2,500,00 0 2,500,00 0 2007
Share Deposit Money Current Liabilities Director's Loan Creditors Accrued and other Liabilities
3,568,52
3,775,00
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0 241,84 1
Trade Debts Stock in Trade Advances, deposits, prepayments and other receivables Cash and Bank Balances
Income Statement:
The Pharma Zone Income statement is given below:
PHARMA ZONE (PVT.) LIMITED Income Statement FOR THE YEAR ENDED JUNE 30, 2008 2008 Amount (Rupees) Sales Less: Cost of Sales Gross Profit/ (Loss) Administrative, Selling and General Expenses Financial Charges Operating Profit Provision for taxation Net Loss before Taxation Accumulated profit - Transferred to Balance Sheet 10442040 8718676 1723364 723570 2007 Amount (Rupees) 7292261 5949751 1342510 683869 5064 663705 36461 627244 627244
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Ratio analysis
Categories of Financial Ratios:
Financial ratios are divided into five basic categories: 1. Liquidity Ratios 2. Activity Ratios 3. Debt Ratios 4. Profitability Ratios 5. Market Ratios
Liquidity Ratios:
A firms ability to satisfy its short-term obligations as they come due is called liquidity. Liquidity ratios measure the power of the firm to satisfy its short-term obligations. The two basic sources of liquidity are: 1. Current Ratio 2. Quick Ratio
Current Ratio:
The current ratio is a measure of liquidity calculated by dividing the firms current assets by its current liabilities.ii It is calculated by: Current Ratio = Current Assets Current Liabilities
Although the current ratio depends on what type of industry the firm exists, but normally high current ratio is preferred.
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It is similar to current ratio except that inventory is excluded from current assets. The higher the ratio is preferred. It is calculated by Quick ( Acid Test ) Ratio = Current Assets Inventories Current Liabilities
Activity Ratios:
Following are the activity ratios: 1. Inventory Turnover 2. Average Collection Period 3. Average Payment Period 4. Total Asset Turnover
Activity ratios measure the speed with which various accounts are converted into sales or cash inflows or outflows.iii
Inventory Turnover:
Inventory turnover measures the activity, or liquidity, of a firms inventory.iv Inventory Turnover = Cost of Goods Sold Inventory
The average collection period, or average age of accounts receivable, is useful in evaluating credit and collection policies.v Average Collection Period = Accounts Re ceivable Average Sales per Day
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The average payment period, or average age of accounts payable, is the average amount of time needed to pay accounts payable.vi Average Payment Period = Accounts Payable Average Purchases per Day
It indicates the efficiency with which the firm uses its assets to generate sales.vii Total Asset Turnover = Sales Total Assets
Debt Ratios:
Following are three debt ratios: 1. Debt Ratio 2. Times Interest Earned Ratio 3. Fixed Payment Coverage Ratio
Debt Ratio:
It measures the proportion of total assets financed by the firms creditors.viii Debt Ratio = Total Liabilities Total Assets
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Times interest earned ratio or interest coverage ratio measures the firms ability to make contractual interest payments.ix Times Interest earned Ratio = Earnings before int erest and Taxes Interest
Profitability Ratios:
Following are the profitability ratios: 1. Gross Profit Margin 2. Operating Profit Margin 3. Net Profit Margin 4. Earning per Share 5. Return on Assets 6. Return on equity
It measures the percentage of each sales dollar remaining after the firm has paid for its goods.x Gross Pr ofits M arg in = Gross Pr ofits Sales
It measures the percentage of each sales dollar remaining after all costs and expenses other than interest, taxes, and preferred stock dividends are deducted: the pure profits earned on each sales dollar.xi Operating Pr ofits M arg in = Operating Pr ofits Sales
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It measures the percentage of each sales dollar remaining after all costs and expenses, including interest, taxes and preferred stock dividends, have been deducted.xii Net Pr ofits M arg in = Earnings Available to Common Stockholders Sales
The firms earnings per share (EPS) is generally of interest to present or prospective stockholders and management.xiii Earnings per share = Earnings Available to Common Stockholders Number of Shares
Return on Assets:
It measures the overall effectiveness of management is generating profits with its available assets, also called the return on investment (ROI). Re turn on Assets = Earnings Available to Common Stockholders Total Assets
Return on equity:
It measures the return earned on the common stockholders investment in the firm.xiv Re turn on Equity = Earnings Available to Common Stockholders Common Stock Equity
Market Ratios:
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Pharma Zone Pvt. Ltd. 1. Price/ earnings (P/E) Ratio: 2. Market/Book (M/B) Ratio:
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It measures the amount that investors are willing to pay for each dollar of a firms earnings; the higher the P/E ratio, the greater is investor confidence.xv Pr ice / earnings ( P / E ) ratio = Market price per share of common stock Earnings per share
It provides an assessment of how investors view the firms performance. Firms expected to earn higher returns relative to their risk typically sell at higher M/B multiples.xvi Market / book ( M / B ) ratio = Market price per share ofcommon stock Book value per share of Common Stock
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Ratio
Current Ratio =
Formula
Current Assets Current Liabilities =
Calculation
Rs Rs 8,534,066 4,823,663 =
Valu e
1.7 7
Rs Rs
2,434,767 4,823,663
0.5 = 0
Activity Ratios Inventory Turnover Cost of Goods Sold Inventory Rs Rs 5,949,751 6,099,229 0.9 = 8
Rs Rs
613,887 20,256
30.3 1
Rs Rs
2,120,643 28,515
74.3 7
Rs 7,292,261 Rs 12,550,907
0.5 = 8
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Debt Ratios Debt Ratio Total Liabilities Total Assets Rs Rs 11,723,663 12,550,907 0.9 = 3
Profitability Ratios Gross Profit Margin Gross Profits Sales Rs Rs 1,342,510 7,292,261 0.1 = 8
Rs Rs
663,705 7,292,261
0.0 = 9
Rs Rs
627,244 7,292,261
0.0 = 9
Return On Assets
Rs 627,244 Rs 12,550,907
0.0 = 5
Return On Equity
Rs Rs
627,244 827,244
0.7 = 6
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Ratio
Current Ratio =
Formula
Current Assets Current Liabilities =
Calculation
Rs Rs 8,427,986 3,511,317 =
Value
2.4 0
Rs Rs
4,927,451 3,511,317
1.4 = 0
Activity Ratios Inventory Turnover Cost of Goods Sold Inventory Rs Rs 8,718,676 3,500,535 2.4 = 9
Rs Rs
3,269,571 29,006
112.7 2
Rs = Rs
504,581 12,905 =
39.1 0
Rs Rs
10,442,040 12,238,356
0.8 = 5
Debt Ratios Debt Ratio Total Liabilities Total Assets Rs Rs 10,411,317 12,238,356 0.8 = 5
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1,723,364 10,442,040
0.1 = 7
Rs 999,795 Rs 10,442,040
0.1 = 0
Rs Rs
1,627,039 10,442,040
0.1 = 6
Return On Assets
Rs Rs
1,627,039 12,238,356
0.1 = 3
Return On Equity
Rs Rs
1,627,039 1,827,039
0.8 = 9
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Limitations:
1. Inflation can affect Ratios. 2. Only one ratio is not enough to give the company whole image. 3. Times interest earned ratio is not given because there is no interest. 4. Market ratios are unavailable.
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Ratios
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Activity Ratios:
Ratios
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Activity Ratios Graphical Analysis (Inventory Turnover & Total Asset Turnover)
3 Ratios 2 1 0 2007 2008 Years Inventory Turnover Total Asset Turnover
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Total asset turnover got better from 2007 to 2008. Although it is getting better from year to year, but it is actually very low for the Pharma Zone. Just it is around 1.
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Debt Ratios
Ratio
Debt Ratio
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Profitability Ratios
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Return On Assets:
Return on Assets became good from 0.50 to 0.10 from 2007 to 2008. So assets are not giving proper return.
Return On Equity:
Return on equity of Pharma Zone is good in the year 2007 and 2008.
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Time Series Ratio Analysis Pharma Zone Pvt. Limited (2007- 2008)
Actual Ratio Liquidity Ratios Current Ratio Quick (Acid-Test) Ratio 2007 2008 Evaluation 2007-11
1.77 0.50
2.40 1.40
OK Poor
Activity Ratios Inventory Turnover Average Collection Period Average Payment Period Total Asset Turnover 0.98 30.31 74.37 0.58 2.49 112.72 39.10 0.85 Ok Very Bad Good Poor
Gross Profit Margin Operating Profit Margin Net Profit Margin Return On Assets Return On Equity
Pharma Zone looks good in most of the ratios. But some ratios are not good rather these are poor like the Average collection period is much worse. Its profits are low but this happens in industry in which Pharma Zone lies. Hailey College of Commerce 44
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Horizontal Analysis:
Horizontal analysis looks at amounts on the financial statements over the past
years.xviii
Vertical Analysis
Common-size Income Statement:
An income statement in which each item is expressed as a percentage of sales is called Common-size Income Statement:xix The Common Size income Statement of Pharma Zone is given over the five years.
Sales Less: Cost of Sales Gross Profit/ (Loss) Administrative, Selling and General Expenses Financial Charges Operating Profit Provision for taxation Net Loss before Taxation Accmulated profit - Transffered to Balance Sheet
9.57%
9.57% 9.57%
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Supporting Calculation:
Here is given the supporting calculation of above common-size Income Statement:
Sales = Sales Sales x 100 = 7292261 7292261 x 100 = 100.00%
Cost of Sales
100
5949751 7292261
100
81.59%
100
1342510 7292261
100
18.41%
100 =
683869 7292261
100 =
9.38%
Financial Charges
100
5064 7292261
100
0.07%
Operating Profits
100
663705 7292261
100
9.10%
100
36461 7292261
100
0.50%
100
627244 7292261
100
8.60%
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Capital and Liabilities Share Capital and reserves Authorized Share Capital: 25000/-ordinary Shares of 100/- each Issued, Subscribed and Paid up Capital: 2,000/- Ordinary Shares of 100/- each fully paid up in cash Accumulated Profit Share Deposit Money Current Liabilities Director's Loan Creditors, accrued and other liabilities
Property and Assets Operating Fixed Assets Deferred Cost Current Assets: Trade Debts Stock in Trade Advances, deposits, prepayments and other receivables Cash and Bank Balances 29.16% 1.98% 68.87% 26.72% 28.60% 9.43% 4.11% 100.00%
In the Common-size Balance Sheet total assets are taken as 100% of that year and the percentage of each amount is calculated as compared to that percentage of total assets.
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Pharma Zone Cash and Bank Balances position looks bad, it is just 4.11%. Pharma Zone liabilities are much more specially directors loan which is about 28% of total assets.
Supporting Calculation:
Authorized Share Capital: = Authorized Share Capital: Total Assets = Rs 2,500,000 Rs 12,238,356 = 20.43%
Rs 200,000 Rs 12,238,356
1.63%
Accumulated Profit
Rs 1,627,039 Rs 12,238,356
13.29%
Rs 6,900,000 Rs 12,238,356
56.38%
Current Liabilities
Rs 504,581 Rs 12,238,356
4.12%
Director's Loan
Rs 2,928,939 Rs 12,238,356
23.93%
Rs 582,378 Rs 12,238,356
4.76%
Rs 3,568,529 Rs 12,238,356
29.16%
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Deferred Cost
Rs 241,841 Rs 12,238,356
1.98%
Current Assets:
Rs 8,427,986 Rs 12,238,356
68.87%
Trade Debts
Rs 3,269,571 Rs 12,238,356
26.72%
Stock in Trade
Rs 3,500,535 Rs 12,238,356
28.60%
Rs 1,154,642 Rs 12,238,356
9.43%
Rs 503,238 Rs 12,238,356
4.11%
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Horizontal Analysis
In this Horizontal Analysis the base year is considered as 2007. All the amounts of 2008 are divided by 2007 amounts and the percentage is given here
Capital and Liabilities Share Capital and reserves Authorized Share Capital: 25000/-ordinary Shares of 100/- each Issued, Subscribed and Paid up Capital: 2,000/- Ordinary Shares of 100/- each fully paid up in cash Accumulated Profit Share Deposit Money Current Liabilities Director's Loan Creditors, accrued and other liabilities
Property and Assets Operating Fixed Assets Deffered Cost Current Assets: Trade Debts Stock in Trade Advances, deposits, prepayments and other receivables Cash and Bank Balances -5.47% 0.00% -1.24% 432.60% -42.61% -28.10% 133.97% -2.49%
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As we can see that accumulated profits are approximately 259% of the year 2007. Thats discussed in the income statement below. Although total assets are decreased in the year 2008 but there is good change in liquidity of the Pharma Zone in the year 2008. As we can see in the ratio analysis Average Collection period is very very large, this is the behavior depicted in the trade debts, just look at the percentage of trade debts, it is 532.60%.
Supporting Calculations:
Authorized = Share Capital: Authorized Share Capital (2008) Authorized Share Capital (2007) Authorized Share Capital (2007) 100 = 2,500,00 2,500,000 0 = 0.00% 2500000
100
200,000 200000
200,00 0
= 0.00%
Accumulated = Profit
Accumulated Profits (2008) - Accumulated Profits (2007) 100 x Accumulated Profits (2007)
1,627,039 627244
627,24 4 = 159.39%
Share Deposit Money (2008) - Share Deposit Money (2007) Share Deposit Money (2007)
100
Director's Loan
Director's Loan (2008) - Director's Loan (2007) 100 x Director's Loan (2007)
Creditors and other liabilities (2008) Creditors and other liabilities (2007) x Creditors and other liabilities (2007)
100
77,797 128298
128,29 8
= -39.36%
Operating = Operating Fixed Assets (2008) - Operating 100 Fixed Assets Fixed Assets (2007) x
3,568,529 -
3,775,00 = -5.47% 0
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3775000
Deffered Cost =
100
241,841 241841
241,84 1 = 0.00%
Current Assets:
Current Assets (2008) - Current Assets (2007) 100 x Current Assets (2007)
Trade Debts = Trade debts (2008) -Trade debts (2007) 100 x Trade debts (2007)
3,269,571 613887
613,88 7 = 432.60%
Stock in Trade
100
Advances, Advance deposits and receivables (2008) deposits, - Advance deposits and receivables prepayments = (2007) 100 x and other receivables Advance deposits and receivables (2007)
1,154,642 -
1,605,86 1 = -28.10%
1605861
Cash and Bank Balance (2008) - Cash and Bank Balance (2007) Cash and Bank Balance (2007)
100
503,238 215089
215,08 9 = 133.97%
Total Assets = Total Assets (2008) - Total Assets (2007) 100 x Total Assets (2007)
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Sales Less: Cost of Sales Gross Profit/ (Loss) Administrative, Selling and General Expenses Financial Charges Operating Profit Provision for taxation Net Loss before Taxation Accmulated profit - Transffered to Balance Sheet
As we can see the Income statement looks very healthy as far as the base year 2007 is concerned. Sales are of 143.19% of 2007. This is a very healthy change for the Pharma Zone. It earned the net profit of 15.91% thats very good for Pharma Zone pvt. Limited.
Supporting Calculation:
Sales = Sales (2008) - Sales (2007) Sales (2007) x 100 = 10442040 - 7292261 = 7292261 43.19%
Cost of Sales
100 =
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Administrative expenses(2008) Administrative, selling and general = Administrative expenses(2007) 100 = x expenses Administrative expenses(2007)
5.81%
Financial Charges =
100 =
5064
5064
= -100.00%
Operating Profits
100 =
Provision for taxation (2008) Provision for taxation (2007) Provision for taxation (2007)
100 =
Net Loss before taxation (2008) = Net Loss before taxation (2007) 100 = x Net Loss before taxation (2007)
Accumulated Profits =
100 =
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Recommendations
Almost any small business can use advice on how to improve its collection cycle. The first line of defense against late payments is a complete invoice. Bills should be accurate, detailed and easy to understand. If difficult to understand, then client will need to call for additional information. This increases the time of company collection cycle. Include on each invoice: Company's contact information: name, address, tax id number, phone and contact person The date the invoice was prepared The customer's name and address A description of the goods or services sold to the customer The amount due, with sales tax amount broken out
Once prepared, send invoices promptly. The longer a company takes to bill a customer the less likely it is to receive payment for the goods and services provided. If the steps are reduced in the cash conversion process Average Collection Period can be reduced. If the Pharma Zone makes the agent to the third party it can reduce its average collection period. For example it may hire the services of the bank or any other professional party. The average accounts receivable collection period is an important indicator for determining when customers business will pay for the goods and services it provides.xx
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Conclusion
Pharma Zone, the leading company in the printing of foil, is situated in PCSIR Colony, College Road Lahore. Pharma zone currently manufactures following products: Aluminum Foil Blister Strip Foil Poly Coated Paper Blister Pouches Alu Alu Foil Plain
Company keeps its quality at the peak of the business. There are high levels of professionals in all departments of Pharma Zone and it is continuously keeping an eye over their growth. Accounting system adopted by Pharma zone is single entry system. Pharma Zone adopted this system because it is an easy approach towards accounting. There is a proper channel of communication between the departments of the Pharma Zone. There is a proper organizational chart issued by the organization. Ratios of Pharma Zone are good except average collection period which is very poor for Pharma Zone. Overall Pharma Zone is in the good business with low profitability now a day. It is worth mentioned here that in the recent arena where Pakistan is in severe situation such as load shutting, there are different companies which are trying to survive in this situation Pharma Zone has done well and installed well generators of electricity to work effectively in the time of crises.
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Index
A
Accounts Payable.........................................................32 Accounts Receivable....................................................32 Activity ratios.........................................................24, 25 AIMS............................................................................19 Alu Alu Foil................................................iii, 6, 7, 9, 58 Arshad Mahmood...........................................................1 Average Collection Period...................25, 32, 39, 44, 57 Average Payment Period.....................25, 26, 32, 39, 44
P
Pharma Zone...1, ii, 3, 6, 7, 9, 10, 12, 13, 14, 15, 16, 18, 19, 20, 30, 32, 36, 39, 41, 44, 45, 57, 58 Price/ earnings (P/E) Ratio...........................................29 Printing job card...............................................13, 15, 16 Profitability ratios........................................................24 Purchase Order.................................................13, 14, 16
Q
Quick Ratio..................................................................24
B
Bank Payment voucher................................................19 Bank receipt voucher.............................................19, 20
R
Return on Assets..............................................27, 28, 43 Return on equity.....................................................27, 28
C
CEO..........................................................................3, 14 Common Stock Equity.................................................33 Cost of Goods Sold......................................................32 Current Assets..............................................................32 Current Liabilities........................................................32 Current Ratio..............................................24, 32, 36, 44
S
Sales...........1, 3, 5, 13, 14, 15, 16, 17, 18, 21, 32, 33, 43 Sales Order.................................................13, 14, 15, 16 sales tax invoice...........................................1, 13, 16, 17 Sheikhupura.................................................................10 single entry system.....................................iii, 13, 18, 58 Special Excise Duty.....................................................21
D
Debt Ratio..................................................26, 32, 41, 44 Debt ratios..............................................................24, 41 delivery Challan...........................................................13
T
Tax Return.............................................................13, 19 Times Interest Earned Ratio.........................................26 Total Asset Turnover...........................25, 26, 32, 39, 44
E
Earning per Share...................................................27, 28
V
Vertical Analysis..........................................................46
F
Fixed Payment Coverage Ratio...................................26
G
Gross Profit Margin...................................27, 33, 43, 44 Gross Profits.................................................................33
H
Horizontal Analysis.........................................46, 52, 55
I
Inventory....................................................25, 32, 39, 44 Inventory Turnover....................................25, 32, 39, 44
J
Journal..............................................................13, 18, 19 Journal Vouchers...................................................13, 18
L
Liquidity ratios.............................................................24
M
Market Ratios.........................................................24, 28 Market/Book (M/B) Ratio............................................29 Mission & Vision Statement........................................10
N
Net Profit Margin.................................27, 28, 33, 43, 44 Net Profits....................................................................33
O
Operating Profit Margin.............................27, 33, 43, 44 Operating Profits....................................................33, 43
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References
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http://en.wikipedia.org/wiki/Single-entry_bookkeeping_system Page 54, Principals of Managerial Finance, 10th edition Page 55, Principals of Managerial Finance, 10th edition Page 55, Principals of Managerial Finance, 10th edition Page 56, Principals of Managerial Finance, 10th edition Page 56, Principals of Managerial Finance, 10th edition Page 57, Principals of Managerial Finance, 10th edition Page 57, Principals of Managerial Finance, 10th edition
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iii
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Page 60, Principals of Managerial Finance, 10th edition Page 62, Principals of Managerial Finance, 10th edition Page 63, Principals of Managerial Finance, 10th edition Page 64, Principals of Managerial Finance, 10th edition Page 65, Principals of Managerial Finance, 10th edition Page 65, Principals of Managerial Finance, 10th edition Page 66, Principals of Managerial Finance, 10th edition Page 66, Principals of Managerial Finance, 10th edition
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xiii
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September 7, 2007, article What is the difference between vertical and horizontal analysis? Available on site http://blog.accountingcoach.com/vertical-analysis-horizontal-analysis/
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September 7, 2007, article What is the difference between vertical and horizontal analysis? Available on site http://blog.accountingcoach.com/vertical-analysis-horizontal-analysis/
xix
xx
http://www.content4reprint.com/accounting/bookkeeping/small-business-advice-improve-your-accounts-receivablecollection-cycle-now.htm