Final Project

Final Project

Portfolio Management

Submitted To:

Sir Syed Waqar Akbar

Submitted By:

Irfan Rafiq 2476Mohammad Nabeel 2467

Umer Saddam 2484 M. Shoaib Sheikh 2381

Aseeqa Butt 2345

Acknowledgement

First of all, we thank Allah Almighty for the successful completion of the project. Then

we would like to thank Sir Syed Waqar Akbar from whom we learned various skills

relating to Portfolio Management. We would also thank Mr. Sajid Malik, G.M.

Operations at General Investments and Securities for taking his time out and helping us

developing the portfolio.

Economic Analysis

GDP/GNP

Growth rates

FY 2005-2006 2006-2007 2007-2008

GDP 5.8 6.8 5.8

GNP 5.6 6.7 6.1

The government has envisaged 5.5 percent GDP growth for next fiscal year that would be

contributed by 3.5 percent growth in agriculture, 6.1 percent manufacturing and 6.1

percent growth in services. Total investment of Rs 2638.8 billion would be required to

achieve the projected growth target, which 17 percent higher to investment in 2007-08.

As a ratio to GDP, total investment is expected to stay around outgoing year's level of

21.5 percent of the GDP. For financing the required investment, national saving as a ratio

to GDP is projected to increase to 14.3 percent in 2008-09.

Inflation

Inflation rates

Items 2005-06 2006-07 2006-07 2007-08

CPI general 7.9 7.8 7.9 10.3

Food group 6.9 10.4 10.3 15.0

Non-food group

8.6 6.0 6.2 6.8

Core inflation 7.5 5.9 6.1 7.5

Inflation is getting bigger and uglier by the minute as the Consumer Price Index (CPI)

inflation soared to peak level of 25.3 percent during August 2008, as compared to 6.5

percent in the same period last year. While food inflation year-on-year basis (YoY) is

also soaring persistently high and depicting increased trend during August by breaching

all previous record to an historical level of 34.1 percent, as compared to 8.6 percent in the

same period last year. The central bank on Monday has issued Inflation Monitor for

August, in which the State Bank of Pakistan (SBP) said that both food and non-food

groups of CPI contributed to this upsurge in headline inflation. As non-food inflation

(YoY) also increased significantly reaching 18.7 percent in August 2008, as compared to

4.9 percent during the same period last year.

Interest rate

SBP rate at present is 13 percent, while six months KIBOR is at 15.75 percent).

Therefore, SBP wants banks to freeze KIBOR at this level, and not raise it further when

the discount rate goes to 15 percent.

Unemployment rate

The unemployment rate in Pakistan is around 7.5% in 2008 whereas it was 6.5% in 2007.

The population below poverty line is about 24% which means a quarter of the whole

population.

Balance of trade/payment

Pakistan's balance of payments position is precarious, and the depleting reserves and

depreciating rupee reflect this, says the State Bank of Pakistan. An interim report on

monetary conditions, issued by SBP says. "Despite strong inflow of workers' remittances

and a robust export performance (14.2 percent in July-October, FY09) the external

current account deficit continues to remain on an unsustainable trajectory in FY09 after

registering a deficit at 8.4 percent of GDP in FY08. This is largely due to rise in the

import bill by 35.2 percent during July-October, FY09 compared to a negligible 4.4

percent growth in the corresponding period of last year.

"Strong import demand in the country and the rising international commodity prices have

widened the external current account deficit to $5.9 billion ($3.0 billion during the

comparable period of last year). While the decline in quantum is quite visible in many of

the importable commodities, its impact has been dampened due to higher prices relative

to last year. More importantly, the oil demand has not declined, and the oil import bill is

still a major source of growth in the overall import bill."

Consequently, the SBP's foreign exchange reserves have depleted by $5.0 billion with a

cumulative depletion of $10.7 billion up to November 10, 2008 since end-October 2007

when SBP's reserves were at their peak of $14.3 billion. The dollar-rupee exchange rate

has depreciated by 15.3 percent since the beginning of FY09.

Trade defecit

Trade 2006-07 2006-07 (July-April) 2007-08 (July-April)Exports 17119 13903 15991

Imports -26614 -22020 28586

Net -9495 -8117 12595

Fiscal policy

Fiscal year 2007-08 proved to be a difficult year for Pakistan, with several political and

economic events transpiring unexpectedly. These events include heightened political

tensions, soaring global oil prices, the international and domestic food inflation

phenomena, a slowdown in global economic activity, and the troubled law and order

situation prevalent in the country. However, the most important aspect was the non-

responsive stance on account of political expediency, that is, not responding to the policy

challenges emerging on Pakistan’s economic scene during most part of the fiscal year

2007-08. All these events have had adverse consequences for fiscal discipline. Because of

the instability experienced at the onset of 2007- 08, the fiscal deficit is expected to miss

the target of 4.0 percent of GDP this year by a wide margin.

Population

Pakistan, with a population of 160.9 million in mid 2008 is the 6th most populous

country in the world. The population of the area now constituting Pakistan has increased

ten-fold since 1901; half added during the post independence period. In absolute

numbers; almost 128 million persons have been added to the population during the last 58

years (1951-2008). Annual growth rates have risen from 1 percent in the first three

decades of the country to around 2 percent in the next three decades after peaking over 3

percent in the 1960s and 1970s and then below 3 percent in the 1990s. The country’s

population is estimated to double in the year 2045 if it continues to grow at 1.8 percent.

The population density has increased to 203 persons per square kilometer today from

42.5 persons per square kilometer in 1951 which is almost a four time increase.

Movement of population to urban areas, attributed to well known “pull” and “push”

factors continues and as a result the urban population has increased from 6 million in

1951 to today’s 57 million. Thus, putting an enormous pressure on the available

infrastructure like housing, transportation, electricity, water, sewerage, sanitation, health

and educational facilities.

Indicators Latest Available

Total Fertility Rate (TFR) 3.8

Crude Birth Rate (CBR) 26.1

Crude Death Rate (CDR) 7.1

Population Growth Rate 1.8

Infant Mortality Rate 76.7

Maternal Mortality Rate 350-400

Life Expectancy at Birth Male: 64 YearsFemale: 66 Years

Debt rating

Standard & Poor's Ratings Services said on Monday its lowered its long-term foreign

currency sovereign credit rating on the Islamic Republic of Pakistan to 'CCC+' from 'B'

and its long-term local currency rating to 'B-' from 'BB-'. At the same time, we lowered

our short-term rating on the sovereign to 'C' from 'B'.

Industrial Analysis

In industrial analysis we will discuss about industrial life cycle, competition in industry,

and government and structural effect, on that particular industry.

Banking Sector Analysis

Sector in Pakistan

Banking sector plays very important role in economy of Pakistan. Pakistan has a well-

developed banking system, which consists of a wide variety of institutions ranging from a

central bank to commercial banks and to specialized agencies to cater for special

requirements of specific sectors. The country started without any worthwhile banking

network in 1947 but witnessed phenomenal growth in the first two decades. By 1970, it

had acquired a flourishing banking sector.

Growth potential

As Quality of the loan portfolio in recent years has been influenced by several positive

economic developments, the foremost among which is real GDP growth which has

averaged at 7.0 percent over the last 5 years. That means banking system has expanded

recently and still has a potential to grow.

Competition:

As the competition in domestic banking system has become fierce (perfect competition)

and the profit margins on traditional modes of Corporate and trade financing are under

pressure the banks are moving into new business areas – Consumer loans, mortgage

financing, SME finances and agriculture lending. But creating awareness, educating the

counter parties, building up local expertise, introducing proper controls and disclosures

standards are some of the pre-requisites that have to be put in place.

At the national level the biggest opportunity is to integrate into international financial

market.

Future in Pakistan Foreign investors in the banking industry are welcome in Pakistan as they bring not only

the precious foreign exchange but also the skills and techniques which means that

banking sector has a growth hidden in it but it is an interest sensitive industry because

government can restrict the lending or borrowing ability of banks by applying monetary

or fiscal policies. Structural changes do occur in banking industry as internet business

mobile business terms introduced because of fierce completion. These terms created

space for professionals to enter in this industry.

Tobacco industry

Sector in Pakistan:

Tobacco industry growing, manufacturing, distribution and retailing contributed 4.4 per

cent or over Rs 27.5 billion to the total GDP of Pakistan including Rs 15.17 billion,

including Rs 14.54 billion in excise duty and sales tax, in 1997. It is the single biggest

contributor of excise duty, six-times than that from cotton yarn. Over 5 per cent of all

taxes collected in the country come from the tobacco industry. It employs over one

million people directly or indirectly which in terms of full-time equivalent jobs means

312,500 jobs supporting some 1.2 million persons

Growth potential:

Tobacco industry growing, manufacturing, distribution and retailing employ over one

million persons directly or otherwise. This translates in the full time equivalent of

312,500 jobs supporting approximately 1.2 million persons. Manufacturing employs the

highest number of persons 35 per cent followed by 33 per cent by growing and 32

percent.

Competition:

Tobacco is the only crop grown in Pakistan whose yield is well above the world average

and matches the per hectare yield in the US and other developed countries. That means

the competition that company is facing is not fierce. Perhaps it is the type of monopolistic

competition still now.

Future:

Growth potential in it and seems bright future in Pakistan because of social services that

they are providing are also countable along with their contribution in GDP.

Engineering Sector Analysis:

Sector in Pakistan:

Pakistan Engineering Company Ltd. reported earnings results for the fiscal year ended on

June 30, 2007. For the period, the company reported sales of PKR 983 million with profit

before tax of PKR 202 million. The company declared a cash dividend of PKR 9 per

share for the year as recommended by the company board.

According to the information available on the website of the Privatization Commission of

Pakistan, the state has updated its schedule for the privatization of state owned

companies. According to the list, the sale of Hazara Phosphate Fertilizer Limited will

take place in the first quarter of financial year 2007-2008.

Growth potential:

This sector always has growth potential in it. Because every country always needs service

sector for its growth. So importance of this sector cannot neglect in Pakistan.

Competition:

Competition is fierce because of lot of competition in that sector and privatization trend

in Pakistan.

Future:

As service sector is having very potential in it therefore its importance cannot be

neglected in the history of Pakistan.

Automobile Sector analysis:

Sector in Pakistan:

The industry is coming out of slump and during the year 1998-99, the production of all

kinds of vehicles increased 9 per cent due to abolition of Capital Value Tax (CVT)

rationalization of duty structure and sufficient liquidity which led to increase in the

production of Cars (11.3%), Buses (198.5%) and Tractors (68.1%), while the decline was

recorded in production of Jeeps (8.8%), Light Commercial Vehicles LCVs (19.3 per

cent), Motorcycles (3.5%) and Trucks (48.5%).

Growth potential:

There are early indications that Pakistan’s automotive industry is in decline compared

with the previous financial year, according to BMI’s recently published Pakistan

Automotives Report. Data for the first three months of FY2008/09 (July-September)

shows production is down by 31.2% year-on-year (y-o-y), while sales are currently 34%

lower than the same period of the previous year. Although a proportion of the downturn,

particularly in production, can be attributed to the phasing out of the old Toyota Corolla

before production of the new version began in August 2008, the overall performance of

the market has prompted BMI to lower its forecasts for the current financial year.

Competition:

Toyota's guiding principles, thereby producing quality cars. When comparing the Corolla

production standards with those of 11 manufacturers of Corolla in the world, Toyota

Japan rated Pakistan quite high. Marketing professionals at the IMC, beside their strategy

of cost leadership were still able to introduce new developments/products and were

successful in maintaining volumes and retaining the confidence of the market.

Future:

Pakistan's Economic Co-ordination Committee (ECC) is to consider a tax cut of 10% for

domestic carmakers, suggested by the Ministry of Industries and Production. Following a

51% drop in vehicle sales for the first quarter of FY2008/09 (July to September), the

ministry is looking for a way to support the flagging automotive sector, which has

suffered a subsequent slowdown in production. In the three-month period to September,

most of the major manufacturers recorded a drop in sales, according to the local Business

Recorder, led by a 64% decline in sales for Indus Motor.

Oil Sector Analysis

Industry in Pakistan:

The latest Pakistan Oil & Gas Report from BMI forecasts that the country will account

for just 1.55% of Asia Pacific regional oil demand by 2011, while providing 0.77% of

supply. Asia Pacific regional oil use of 21.4mn barrels per day (b/d) in 2001 reached

24.87mn b/d in 2006. It should average 25.52mn b/d in 2007 and then rise to around

28.99mn b/d by 2011. In terms of natural gas, the region in 2006 consumed 409bcm, with

demand of 618bcm targeted for 2011, representing growth of 50.9% between 2006 and

2011. Production of 329bcm in 2006 should reach 479bcm in 2011 (+45.4%), but implies

net imports rising from 80bcm per annum to 139bcm. Pakistan's share of gas

consumption in 2006 was 7.50%, while its share of production was 9.32%. By 2011, its

share of gas consumption is forecast to remain around 7.50%, with the country

accounting for 9.67% of supply.

Growth potential:

Global oil demand growth is now expected to be 1.9% in 2007, down from our June

forecast, but with Asia Pacific and the CEE regions dominating. While oil demand

growth assumptions remain robust, there are early signs that future revisions will be on

the downside as factors such as the credit crunch kick in. The overall demand outlook for

the period to 2011 remains healthy, but subject to review if the macroeconomic outlook

deteriorates. Our projections for 2007 as a whole are revised upwards from the last

quarterly report. We are now assuming an OPEC basket price average of US$64 per

barrel, compared with the US$59 estimate provided by our last quarterly report. Based on

recent price differentials, this implies Brent at US$67.81, WTI averaging US$66.18/bbl,

and Urals at US$64.43/bbl.

Competition:

But from an investment standpoint, the actual timing of peak oil isn't all that important.

The simple fact is that growing production will require tapping more-complex reserves;

producing these reserves will require enormous investment and the use of the most

advanced oilfield technologies. It shows that competitors need to face a fierce situation to

enter into that sector.

Future in Pakistan:

Management in oil sector believes that this new exploration cycle will accelerate in the

2008–09 time frame as a number of new deepwater rigs are scheduled to be launched out

of global shipyards. The only reason that the exploration cycle isn't already at full steam

is that there just aren't enough rigs out there to handle all the work..

Company Analysis

Pakistan Tobacco Company

Table 1.1 and 1.2 from the annexure give the overview of balance sheets of Pakistan

Tobacco Company. Paid up capital remains unchanged from 2002 to 2007, while share

holders wealth increases by 2,788 million Rs. to 4,023 million. Reserves also show an

increasing trend which means that company’s future expectations are good. Property

plant and equipment show the increasing trend as per the need of business. In 2007

current liabilities are more than current assets. Long term differed liabilities are also

showing an increasing trend which will affect the current ratio or debt ratio. This will be

discussed on the ratio analysis.

Table 1.3 and 1.4 present the analysis of profit and loss accounts which also seem to

prosper as the business has market growth potential in it. In profit and loss analysis we

can see that it shows volume and net turnover shows increasing trend from year to year.

Same is the case with EAT and dividends. It portraits the positive snapshot of business.

Table 1.5 shows the cash flows of the business through operating, investing and

financing activities. Cash flows from operating activities is positive because of customer

revenue and in financing and investing activities which shows business is normal but

overall flows are negative which is a bad sign.

Table 1.6 reflects different ratios useful to investors for analysis purpose.

Graphical Representation of Some Analysis:

Analysis of Financial Statements

Gross Profit Ratio (GP/Sales):

Gross profit ratio improved from 2002 to 2007 as shown in above table. Business is

earning better gross profit on each sales dollar. It may be because of economic production

cost of merchandise sold.

Earnings Per Share (NI/Shares Outstanding):

EPS deteriorated from 2002 to 2003 and than improved from 2004 to 2007 as shown in

table. It is very useful indicator of the operating performance of the company.

Inventory Turnover Ratio (COGS/AVG.INV.):

Inventory turnover ratio improved from 2002 to 2004 than deteriorated to 2006 and than

remain constant to 2007. It depicts stocking goods that means goods are selling well.

Asset Turnover Ratio (Net Sales/ Total Assets):

Improved from 2002-2007. It is helpful in evaluating a company’s ability to use its asset

base efficiently to generate revenue. This sounds good.

Price to Earnings Ratio: Improved from 2002 to 2004, than deteriorated to 2006 and than improved. It checks the

level of confidence.

Dividend Per Share (Dividend Paid/Net income): It improved from 2002 to 2007. Which shows company is paying reasonable dividend

every year.

Dividend Yield Ratio (Dividend Per Share/ Mkt. Price Per Share):

Improved to 2006 and then deteriorated. It also reflects the value of dividends and would

cause concern on the part of stockholders.

Dividend Payout Ratio (Dividend Per Share/Earnings Per Share):

It improved from 2002 to 2007. It attracts the stockholders because dividend concerns on

the part of stockholders.

Return on Equity (Net Income/Common Equity):

Improved through out the year. It measures the rate of return earned on the common

stockholders’ investment. Though there is a favorable use of leverage so the ratio

company was able to increase the stockholders’ return significantly. In this case it looks

good for investor.

Debt To Equity Ratio (T. Liabilities/Stockholders Equity):

Deteriorated from 2002 to 2004 and than remain constant to 2007. It is significant

measure of solvency since a high degree of debt in the capital structure. It depends on

many variables, including the rates of other companies in the industry.

Current Ratio (Current Assets/Current Liabilities):

It remains constant in most of the cases except in 2004 where it improved. It is ability of

that company to meet its current liabilities out of current assists although this ratio is

subject to many seasonal fluctuations. While we think that in 2004 high ratio is needed

because PTC has difficulty borrowing on short notice at that time.

Interest Coverage Ratio (EBIT/Interest Exp.):

It improved from 2002 to 2006 but gave bad impact on 2007 since less earnings are

available to meet interest charges.

These financial statements have been prepared in accordance with approved accounting

standards as applicable in Pakistan. Approved accounting standards comprise of such

International Financial Reporting Standards (IFRS) issued by the International

Accounting Standard Board as are notified under the Companies Ordinance, 1984,

provisions of and directives issued under the Companies Ordinance, 1984. In case

requirements differ, the provisions or directives of the Companies Ordinance, 1984 shall

prevail.

C) Sustainable Growth Rate It is the rate at which company can grow from internal sources with out the issuance of

additional securities.

= D1/Ke-g

D1 dividend per share

Ke cost of financing

G growth rate

G = ROE (1-dividend payout ratio)

In 2007:

= .135 (1-.485)

= .069525 or 6.95 %

In

P0= 7.9/.10-.069525

Askari Bank

Table 2.1 and 2.2 in the annexure shows the balance sheet overview of Askari Bank.

This graph represent the balance sheet growth from 2000 to 2005 we can see the graph is

showing the increasing trend from year to year and same trend is being followed in the

statements of 2006 and 2007. This gives a positive sign of Askari bank. In balance sheet

deposits and short term statutory deposits with SBP are also giving increasing trend from

year to year means business have growth potential and is growing day to day.

Table 2.3 gives the profit and loss overview of Askari bank. We can predict from the

income statement of the company that EPS and EAT both are showing increasing trend

from year to year. Which means business is going in profit and still in the condition to

utilize its resources and can generate more profit in future years.

Table 2.4 shows the cash flow overview of Askari Bank through operating, investing and

financing activities. It shows the positive cash flows for operating activities and than

negative flows in investing and financing activities but overall flows is positive. It leads a

good image of Askari bank.


Profitability

G.P. Margin 2006 = G.P./Sales:

= 5,619,608/12,596,921 = 0.0446


= 6,457,617/15,143,241 = 0.0426 (Deteriorated)

Profit Margin 2006 = NI/Sales:

= 3,867,571/12,596,921 = 0.307


= 4,480,911/15,143,241 = 0.295

(Deteriorated)

ROA 2006 = NI/Total Assets:

= 3,867,571/166,033,588 = 0.023


= 4,480,911/182,171,885 = 0.024

(Constant)

ROE 2006 = NI/Common Equity:

= 3,867,571/9619066 = 0.302


= 4,480,911/12,099,645 = 0.470 (Improved)

Market Value

EPS (2006) = (NI-PD)/Shares Outstanding:

=7.44


= 9.05

(Improved) PE Ratio 2006= MPS/EPS:

= 99.75/7.44 = 13.40

PE Ratio 2007= MPS/EPS:

= 97.475/9.05 =10.75

(Deteriorated)

Dividend Yield (2006):

=DPS/MPS =1,027,491/351,022=2.93/99.75 =.0293 or 2.9%

Dividend Yield (2007):

= DPS/MPS = 1,217,841/514,890=2.37/97.475 =.024 or 2.4% (Deteriorated)

Dividend Payout 2006:

= DPS/EPS=2.93/7.44 =.3938 or 39.38%


= 2.37/9.05 =.2618 or 26.18%

(Deteriorated)

We can see from our analysis that most of the ratios are deteriorated through out the year

but ROE which is most important for the investment point of the view attracts the

customers in investment perspective. Similarly EPS ratio also gives positive sign for the

customers. While other ratios like dividend payout ratio, dividend yield and profit margin

gives negative signs to investors.

Pak Engineering

Table 3.1 shows the overview of balance sheet of Pak Engineering in annexure. The

balance sheet displays a growth trend from 2006 to 2007. But in 2007 they entered a new

account on Capital Work on Progress. I think that account is only to show growth in

balance sheet if we ignore that account than Balance sheet also grows but not to that

extent which is being shown with the presence of work on progress account. Any how it

shows the positive sign.

Table 3.2 and 3.5 shows the profit and loss account of Pak Engineering. We can see the

significant growth in EAT and EPS which is again a positive sign.

Table 3.3 shows the cash flow statement through operating, investing and financing

activities. We can see a difference from year to year. In 2007 net cash flows are positive

which really adds the value of Pak Engineering.

Table 3.4 shows the change in owner’s equity.


Profitability


= 217,442/834,706 = 0.2605


= 223,163/983,499 = 0.2269 (Deteriorated)

Profit Margin 2006 = NI/Sales

= 109,494/834,706 = 0.1312


= 312,042/983,499 = 0.3173

(Deteriorated)


= 3,867,571/166,033,588 = 0.023


= 109,494/2473219 = 0.044

(Improved)

ROE 2006 = NI/Common Equity

= 109,494/56902 = 1.92


=312,042 /56902 = 5.48

(Improved)

Market value


=19.24


= 54.84

(Improved)


= 100.73/19.24= 5.23


= 197.925/54.84=3.60

(Deteriorated)

Dividend Yield 2006:

= DPS/MPS=1,027,491/351,022 =2.93/99.75=.0293 or 2.9%

Dividend Yield 2007:

1,217,841/514,890=2.37/97.475=.024 or 2.4% (Deteriorated)


DPS/EPS=2.93/19.24=.3938 or 39.38%


=2.37/54.84=.2618 or 26.18%

(Deteriorated)

Many ratios are in the favor of investors. E.g. ROE, ROA, EPS while else ratio accounts

show the negative sign.

Indus Motors

Table 4.1 and first part of 4.4 shows the data of balance sheet for Indus motors. Share

capital remains unchanged while reserves net fixed and current assets shows increasing

trend. Long term liabilities changed from year to year. Anyhow it shows the positive

sign.

Table 4.2 and second part of table 4.4 shows the summary of income statement or profit

and loss statement. Sales volume, net income, Gross profit and EAT and dividends show

the increasing trend from year to year. This is a positive sign by company.

Table 4.3 shows the cash flows of Indus motors through operating, investing and

financing activities. Operating and overall cash flows are positive. Show the positive sign

by company.

Table 4.5 shows the analysis of financial statements.


Gross Profit Ratio (GP/Sales):

Gross profit ratio improved from 2003 to 2004 and than deteriorated as shown in above

table. While in 2006 and 2007 it remains unchanged. Business is earning fair gross profit

on each sales dollar. It may be because of economic production cost of merchandise sold.

Earnings Per share (NI/shares outstanding):

EPS improved from 2002 to 2007as shown in table. It is very useful indicator of the

operating performance of the company.

Inventory Turnover ratio (COGS/AVG.INV.):

Inventory turnover ratio improved from 2003 to 2004 than deteriorated to 2006 and than

remain constant to 2007. It depicts stocking goods that means goods are selling well.

Asset Turnover ratio (net sales/ total assets):

Improved from 2003-2006 and than deteriorated in 2007. It is helpful in evaluating a

company’s ability to use its asset base efficiently to generate revenue. This sounds good.

Price to earnings ratio: Improved from 2003 to 2004, than deteriorated to 2006 and than improved. It checks the

level of confidence.

Dividend per Share (Dividend paid/net income): It improved from 2002 to 2007. Which shows company is paying reasonable dividend

every year.

Dividend Yield Ratio (dividend per share/ mkt. price per share):

Improved to 2006 and than deteriorated. It also reflects the value of dividends and

would cause concern on the part of stockholders.

Dividend payout ratio (dividend per share/earrings per share):

It improved from 2002 to 2006 and than deteriorated. It attracts the stockholders because

dividend concerns on the part of stockholders.

Return on Equity (net income/common equity):

Only deteriorated in 2005 and 2007. It measures the rate of return earned on the common



good for investor.

Debt to equity ratio (T.liabilites/stockholders equity):

Remains unchanged during the year which is 0:1. It is significant measure of solvency

since a high degree of debt in the capital structure. It depends on many variables,

including the rates of other companies in the industry. This shows that business is very

solvent.

Current ratio (current assets/current liabilities):

Improved through out the years. This may affect the dividend policy of the company. It is

ability of that company to meet its current liabilities out of current assists although this

ratio is subject to many seasonal fluctuations.

OGDCL

Table 5.1 shows the balance sheet overview of OGDCL. Overall trend of Balance Sheet

is improved. Capital and reserves and assets grow during the years backed by liabilities.

Table 5.2 shows the income statement overview of OGDCL. Sales Volume, gross profit,

profit after tax and earnings per share improved through out the year that means it shows

positive sign of a company.

Table 5.3 shows the cash flows of OGDCL through operating, investing and financing

activities. Cash flows through operating activities and overall cash flows are positive

which leads the positive image of OGDCL.

Analysis Of Financial Statements

Analysis of financial statement/ratio statement:

Operating and net profit margins:

It only deteriorates in 2003 but overall it shows the positive effect on company.

Return on common equity:

Only deteriorated in 2003 and 2004. It measures the rate of return earned on the common



good for investor

Sales Revenue:

Improved and shows the positive image of company.

Earnings per share:

EPS improved from 2002 to 2007as shown in table. It is very useful indicator of the

operating performance of the company.

Dividends per share:

Improved from 2002 to 2007. Which shows company is paying reasonable dividend

every year.

Return on assets

It improved through out the year. It shows that company’s assets are generating better

revenue.

Technical Analysis:

In technical analysis we get to know about behavior of securities with respect to time.

Trend of securities with respect to time. To explain technical analysis Dow has

represented a theory.

DOW Theory A technique for determining the long term returns in aggregate stock markets. He also

explained that there are three different types of behaviors/moves for a security.

Primary (Short term) from 5 years data.

Secondary (medium term) from 1 years data

Day to day move from day to day process

From these moves we get to know about the trend of securities whether

Bullish trend: purchasing trend.

Bear trend: selling trend.

For that purpose we draw charts to know about trend of securities because every security

has a trend called

Trend line

Support line

Resistance level

Momentum

PTC

BAR CHART

0

20

40

60

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100

120

140

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180

Series1

Series2

On January 2002 this security has had support level which forces buyers to buy the

security (Bullish trend). While at July trend was bear which forces the holders to sell the

securities (bear trend) and that level is called momentum level. This momentum

completed at January 2003. And than new momentum started. In the same way again in

2004 bullish trend. This shows momentum trend of security in the whole trend line which

gives the same sense every year.

Trend/point and figure chart

0

20

40

60

80

100

120

140

160

180

Series1

Series2

We can see from January to July its prices are tends to increase that means Bullish trend

on that security and that trend repeated every year. Which means it is the best time to sell

the security because we can predict that after that extent security prices will becomes to

fall down as we can see that trend from July to December. Which means that time is best

for buying security.

Relative Strength Calculation

year price stock index Relative strength

2001 10.67917 1366.44 0.007815323

2002 23.29167 1770.12 0.013158244

2003 26.52917 3402.48 0.00779701

2004 46.36667 5279.18 0.00878293

2005 62.70417 7450.12 0.008416532

2006 68.94583 9989.41 0.006901892

2007 131.1208 13772.46 0.009520507

We can see the relative strength is not increasing in most of the cases because of increase

in stock prices this may be giving other indicators presence.

Best time to sell that security: January to July because of bullish trend.

Best time to buy the security: July to December because of bearish trend.

Bar Chart of Askari Bank

Jan-00

Sep-13

May-27

Jan-41

Oct-54

Jun-68

Feb-82

Oct-95

Jul-09

Mar-23

1 2 3 4 5 6 7 8 9 10 11 12

Series1

Series2

Series3

Series4

Series5

Series6

Series7

Series8

Series9

Series10

Series11

Series12

Series13

Series14

Series15

Series16

Series17Trend the prices are giving in this case is a constant E.g. prices are increasing from October to July and than declines and than same happened in next year.

Trend chart

Jan-00

Sep-13

May-27

Jan-41

Oct-54

Jun-68

Feb-82

Oct-95

Jul-09

Mar-23

1 2 3 4 5 6 7 8 9 10 11 12

Series1

Series2

Series3

Series4

Series5

Series6

Series7

Series8

Series9

Series10

Series11

Series12

Series13

Series14

Series15

Series16

Series17

Trend Chart shows the constant trend in the prices of securities.

Relative strength:

Calculating Relative Strength

year price stock index Relative strength

2001 12.95 1366.44 0.009474132002 21.13 1770.12 0.011936572003 35.08 3402.48 0.010311112004 72.82 5279.18 0.013793182005 95.59 7450.12 0.012830222006 99.65 9989.41 0.009975562007 97.48 13772.46 0.00707753

Relative Strength is increasing in most of the cases but in some cases it may be indication of other indicators

Bar Chart (pak. Engg)

0

50

100

150

200

250

300

350

400

450

Jan-01

Jul-0

1

Jan-02

Jul-0

2

Jan-03

Jul-0

3

Jan-04

Jul-0

4

Jan-05

Jul-0

5

Jan-06

Jul-0

6

Jan-07

Jul-0

7

Jan-08

Jul-0

8

Series1

Series2

In this case prices are showing very interesting trend. Prices remain constant from

January 2001 to 2004 but from January 2004 prices showed an increasing trend (Bullish)

to July 2004 and than rapidly increased until January 2005. After that bearish trend falls

until January 2006 and than bullish until July 2007 but after that security showed an

increasing trend

Best time to buy security: January to July

Best time to sell security: July to January

Trend Bar Chart

0

50

100

150

200

250

300

350

400

450Jan-01

Jul-0

1

Jan-02

Jul-0

2

Jan-03

Jul-0

3

Jan-04

Jul-0

4

Jan-05

Jul-0

5

Jan-06

Jul-0

6

Jan-07

Jul-0

7

Jan-08

Jul-0

8

Series1

Series2

It showed constant trend from January 2004 to January 2004.

Bullish trend until July 2004. Bearish trend until January 2005.

In 2007 it showed and increasing trend.


year price

stock index

Relative strength

2001 2.99 1366.44 0.0021863382002 2.30 1770.12 0.0012993472003 6.16 3402.48 0.0018099542004 47.61 5279.18 0.009018132005 73.68 7450.12 0.0098902212006 100.73 9989.41 0.0100840122007 197.93 13772.46 0.014371071

Bar chart Indus motors

Trend Bar Chart

0

50

100

150

200

250

300

350

400

450 10.9

11.2510.4

9.7

10.3

11.3

11.2

11.3

11.5

10.5511.8

10.0513.6

13.6

17.4

19

16.4

18

17.7521.5

25.7

37

41.0548

53.6546.1

54.9

59.8

65.7

72.2587

111.487.5580.9597.7

114.95124.95112.2116.45100.75104.2591.2

98

100

89.7583

89.3

102

101.5116

120

100.583.5

90

100

101

133.45147.5166

175

222

185.05186

188

190

191

217.75218.25205.25202.5201.9195.5211

216

240.1293.35284.25305.5317.9291.75329

385.7361

319.2286

297

284

335

240.07202.7


year price

stock index Relative strength

2001 10.95 1366.44 0.0080104752002 24.08 1770.12 0.0136054812003 77.66 3402.48 0.0228252632004 100.99 5279.18 0.0191293912005 119.54 7450.12 0.0160450442006 200.30 9989.41 0.0200516512007 200.30 13772.46 0.014543819

Bar Chart OGDCL

Trend chart OGDCL

Jan-00

Sep-13

May-27

Jan-41

Oct-54

Jun-68

Feb-82

Oct-95

Jul-09

Mar-23

1 2 3 4 5 6 7 8 9 10 11 12

Series1

Series2

Series3

Series4

Series5

Series6

Series7

Series8

Series9

Series10

Series11

Series12

Series13

Series14

Series15

Series16

Series17


year price

stock index Relative strength

2004 64.02 5279.18 0.0121262522005 105.56 7450.12 0.0141682282006 137.16 9989.41 0.0137307912007 119.95 13772.46 0.00870941

Annexure

(1.1)PAKISTAN TOBACCO COMPNY Ltd.

BALANCE SHEETAS AT 2006.

(1.2)

Balance Sheet Overview

2007 2006 2005 2004 2003 2002

1.3) Income Statement

1.4) Income Statement Overview

1.5) Cash Flow Statement

1.6) Financial Statement Analysis/Ratio Analysis

2007 2006 2005 2004 2003 2002

Askari Bank

a) Financial statements overview(2.1)

3.1) Pak Engineering.

(3.2)

4.1) Indus motors

(5.4) Financial analysis/ ratio analysis:

2007 2006 2005 2004 2003

5.1) OGDCL

Price Valuation Model

K% G% D0 D1 P=D1/K-GPTC 15.85 6.95 7.9 8.96 141.25Askari 15.85 13.8 1 1.14 61.62Pak Eng

15.85 15.1 9 10.08 261.8

Indus 15.85 8.5 13 14.1 191.8

Expected & Actual Risk & Return

PTC Ltd:

Return Calculator

year Do Pb Pe Return(x) x-x' (x-x')2

2001 1.38 10.8625 10.67916667 0.110164941 0.019551512 0.0003822622002 1.65 22.17916667 23.29166667 0.124553823 0.033940395 0.001151952003 1.26 26.2625 26.52916667 0.058131049 -0.032482379 0.0010551052004 2.6 43.49166667 46.36666667 0.125886185 0.035272757 0.0012441672005 5.17 62.07916667 62.70416667 0.093348547 0.002735119 7.48087E-062006 7.46 68.69583333 68.94583333 0.112233881 0.021620453 0.0004674442007 5.5 124.1625 131.1208333 0.100338938 0.009725509 9.45855E-052008 4.5 142.8214286 138.3571429 0.000250063 -0.090363366 0.008165538

x' : 0.090613428 0.012568533

S:0.042373396

4%

Expected Risk and Return

Year R P R' R-R' (R-R')2 P.(R-R')2

1 0.12 0.4 0.048 0.012 0.000144 0.00005762 0.11 0.3 0.033 0.002 4E-06 0.00000123 0.09 0.3 0.027 -0.018 0.000324 0.0000972

R':0.108 0.00015611%

S:0.012489996

1%

Askari Bank:

Return Calculatoryear Do Pb Pe Return(x) RR x-x' (x-x')2

2001 $ 3.00

$ 13.00

$ 12.95 0.226209548 1.226209548 0.154714592 0.023936605

2002 2.50

20.00

21.13 0.181458333 1.181458333 0.109963377 0.012091944

2003 3.00

33.03

35.08 0.15302132 1.15302132 0.081526363 0.006646548

2004 2.00

69.28

72.82 0.079995188 1.079995188 0.008500232 7.22539E-05

2005 1.50

92.85

95.59 0.045591614 1.045591614

-0.025903342 0.000670983

2006 1.00

101.55

99.65

-0.008862629 0.991137371

-0.080357586 0.006457342

2007 1.00

97.83

97.48 0.006601644 1.006601644

-0.064893312 0.004211142

2008 1.50

72.45

62.83

-0.112055367 0.887944633

-0.183550324 0.033690721

x': 1.071494956 0.087777539

S:0.111980572

11%

Expected Risk and ReturnYear R P R' R-R' (R-R')2 P.(R-R')2

1 -0.03 0.35 -0.0105 -0.03925 0.001540563 0.0005391972 0.005 0.35 0.00175 -0.00425 1.80625E-05 6.32188E-063 0.06 0.3 0.018 0.05075 0.002575563 0.000772669

R':0.00925 0.001318188

1%S:

0.0363068524%

Pakistan Engineering:

Return Calculator

year Do Pb Pe Return(x) x-x' (x-x')2

2001 1.5 3.070833 2.9875 0.461329715 0.176253801 0.031065402

2002 1.30 2.27

2.30 0.585321101 0.300245187 0.090147172

2003 3.00 5.24

6.16 0.747217806 0.462141892 0.213575128

2004 2.50 42.72

47.61 0.172924998 -0.112150917 0.012577828

2005 4.50 71.77

73.68 0.089410125 -0.195665789 0.038285101

2006 3.00 100.65

100.73 0.030634211 -0.254441703 0.06474058

2007 9.00 177.68

197.93 0.164626425 -0.12044949 0.01450808

2008 - 377.45 388.45 0.029142933 -0.255932981 0.065501691

x': 0.285075914 0.530400982

S:0.27526636

28%



1 0.05 0.4 0.02 -0.0725 0.00525625 0.00210252 0.15 0.35 0.0525 0.0275 0.00075625 0.0002646883 0.2 0.25 0.05 0.0775 0.00600625 0.001501563

R':0.1225 0.00386875

12%S:

0.0621992776%

Indus Motors:

Return Calculator

year Do Pb Pe Return(x) RR x-x' (x-x')2

2001 1.2 11.01667 10.94583 0.102496218 1.102496218-

0.002438957 5.94851E-06

2002 2.00 20.92 24.08 0.246763593 1.246763593 0.141828418 0.0201153

2003 7.00 72.08 77.66 0.174508671 1.174508671 0.069573496 0.004840471

2004 9.00 102.07 100.99 0.077604507 1.077604507

-0.027330668 0.000746965

2005 10 113.4542 119.5375 0.141760623 1.141760623 0.036825448 0.001356114

2006 12.00 198.56 200.30 0.069228187 1.069228187

-0.035706988 0.001274989

2007 12.00 198.56 200.30 0.069228187 1.069228187

-0.035706988 0.001274989

2008 6.50 280.57 262.25

-0.042108586 0.957891414

-0.147043761 0.021621868

x': 1.104935175 0.051236645

S: 0.0855541979%



1 0.02 0.45 0.009 -0.0435 0.00189225 0.0008515132 0.11 0.35 0.0385 0.0465 0.00216225 0.0007567883 0.08 0.2 0.016 0.0165 0.00027225 0.00005445

R':0.0635 0.00166275

6%S:

0.0407768324%

OGDCL:

Return Calculator

year Do Pb Pe Return(x) RR x-x' (x-x')2

2004 $ 4.00

$62.15

$64.02 0.09439528 1.09439528 0.026131856 0.000682874

2005 7.50

101.99

105.56 0.108463858 1.108463858 0.040200433 0.001616075

2006 9.00

137.34

137.16 0.064225472 1.064225472 -0.00403795 1.63051E-05

2007 9.50

119.63

119.95 0.082093971 1.082093971 0.013830546 0.000191284

2008 126.29

125.30

-0.007861457 0.992138543 -0.07612488 0.005794998

x': 1.068263425 0.008301535

S:0.045556381

5%



1-

0.002 0.35-

0.0007 -0.0523 0.00273529 0.0009573522 0.12 0.35 0.042 0.0697 0.00485809 0.0017003323 0.03 0.3 0.009 -0.0203 0.00041209 0.000123627

R':0.0503 0.00278131

5%S:

0.0527381275%

Portfolio Risk & Return

Portfolio

Security w Return Risk

PTCL 40%

0.086912 9% 0.000528 0%

Askari Bank 8%

Pak Engg 20%

Indus Motors 18%

OGDCL 14%

r

PTCL and Askari Bank -0.99805

PTCL and Pak Engg -0.92857

PTCL and Indus motors -0.5

PTCL and OGDCL -0.06555

Askari Bank and Pak Engg 0.949947

Askari Bank and Indus Motors 0.553134

Askari Bank and OGDCL 0.127765

Pak Engg and Indus Motors 0.785714

Pak Engg and OGDCL 0.431219

Indus Motors and OGDCL 0.896936

RISK FREE INTEREST RATE (Rf) 0.1279 13%MARKET INTEREST RATE (Rm) 0.1558 16%

PTCL Year Market Return (x) R (y) xy x2 Beta

CAPM (R)

2001 0.112 0.110164941 0.012338 0.012544

-0.71783 0.107873

2002 0.087 0.124553823 0.010836 0.0075692003 0.057 0.058131049 0.003313 0.0032492004 0.05 0.125886185 0.006294 0.00252005 0.075 0.093348547 0.007001 0.0056252006 0.091 0.112233881 0.010213 0.0082812007 0.0934 0.100338938 0.009372 0.0087242008 0.1279 0.000250063 3.2E-05 0.016358 0.6933 0.724907426 0.0594 0.06485 11%

ASKARI BANK Year Market Return (x) R (y) xy x2 Beta

CAPM (R)

2001 0.112 0.226209548 0.025335 0.012544

-1.43188 0.087951

2002 0.087 0.181458333 0.015787 0.0075692003 0.057 0.15302132 0.008722 0.0032492004 0.05 0.079995188 0.004 0.00252005 0.075 0.045591614 0.003419 0.0056252006 0.091 -0.00886263 -0.00081 0.0082812007 0.0934 0.006601644 0.000617 0.0087242008 0.1279 -0.11205537 -0.01433 0.016358 0.6933 0.571959651 0.042742 0.06485 9%

PAKISTAN ENGINEERING Year Market Return (x) R (y) xy x2 Beta

CAPM (R)

2001 0.112 0.461329715 0.051669 0.012544

-3.19217 0.038838

2002 0.087 0.585321101 0.050923 0.0075692003 0.057 0.747217806 0.042591 0.0032492004 0.05 0.172924998 0.008646 0.00252005 0.075 0.089410125 0.006706 0.0056252006 0.091 0.030634211 0.002788 0.0082812007 0.0934 0.164626425 0.015376 0.0087242008 0.1279 0.029142933 0.003727 0.016358 0.6933 2.280607313 0.182426 0.06485 4%

INDUS MOTORS Year Market Return (x) R (y) xy x2 Beta

CAPM (R)

2001 0.112 0.102496218 0.01148 0.012544

-1.67076 0.081286

2002 0.087 0.246763593 0.021468 0.0075692003 0.057 0.174508671 0.009947 0.0032492004 0.05 0.077604507 0.00388 0.00252005 0.075 0.141760623 0.010632 0.0056252006 0.091 0.069228187 0.0063 0.0082812007 0.0934 0.069228187 0.006466 0.0087242008 0.1279 -0.04210859 -0.00539 0.016358 0.6933 0.839481398 0.064787 0.06485 8%

OGDCL Year Market Return (x) R (y) xy x2 Beta

CAPM (R)

2004 0.05 0.09439528 0.00472 0.0025

-1.3852 0.089253

2005 0.075 0.108463858 0.008135 0.0056252006 0.091 0.064225472 0.005845 0.0082812007 0.0934 0.082093971 0.007668 0.0087242008 0.1279 -0.00786146 -0.00101 0.016358 0.4373 0.341317123 0.025361 0.041488 9%

References:

http://www.marketoracle.co.uk/Article319.html

http//www.wikipedia.com/economic analysis.html

http//www.investopedia.com

http//www.paksearch.com

http//

http://www.marketoracle.co.uk/Article319.html

Final Project

Documents

Transcript of Final Project