Noman Ahmad

BB10137
Submitted To,

Assignment # 03

Hafiz Muhammad Imran

Assignment of,

Financial Reporting Analysis

Punjab University
Gujranwala Campus

Solvency:
Definition:The

ability of a business to pay its long-term debts.

Year Involve:Current Year:

2013

Base Year:

2012

Items Involve: Operating Profit (EBIT)

Interest
Total Debts
Total Assets
Total Equity
Intangible Assets

Analytical Table:
Name Of
Ratio

Reason For
Change

2013

2012

Result

Time
Interest
Earned

70
Times

131
Times

Unfavora
ble

8.6 % Operating
Profit
102.6 % Interest

Debt Ratio

0.86

0.71

Unfavora
ble

42.16 % Total
Debts
18.03 % Total
Assets

Debt to
Equity Ratio

0.29

0.21

Unfavora
ble

41.3 % Equity
16.6 % Debt(long-

Debt to
Tangible net
worth

0.38

0.25

Unfavora
ble

term)
16.6 % Debt(longterm)
41.3 % Equity
19.5 % Intangible
Asset

Analysis

Comparative year Analysis

To check the long-term debt paying ability of the Unilever

Pakistan, I have examined that the results are not in the favor of
company in 2013 as compare to 2012.Most of the indicators shows
unfavorable results that depicts that company is not able to pay its
long-term debts easily. The Unilever Pakistan has also many more
debts than equities so it shows that it is very difficult for Unilever
Pakistan to pay its long-term liabilities from their equities. Total debts
should be lesser than total equities.
The unfavorable results shows that the Unilever Pakistan is taking
more debts and reducing its equity in 2013 as compare to 2012. So its
interest on borrowing is also increasing. The further aggregation shows
the following:

 Periodic Payment Paying Ability

One factor of the solvency is periodic payment ability
which shows negative results in two comparative periods
because of high increase in payment of interest. Both the
operating profit and interest are increasing as compared to
last year but interest is increasing in more proportion. Too
much increase in interest is due to increase in borrowings. It
became cause of the periodic payment paying ability and
time interest earned ratio of Unilever Pakistan reduced in
this year. It is also observed that company is trying to pay
its long-term liabilities with short-term borrowings. It may be
the cause of reduction in interest rate because on shortterm loans interest rate is lesser. In conclusion as analyst I
can recommend that Unilever Pakistan should focus on
increasing equity and reducing loans that can decrease
interest and helpful for increasing periodic payment paying
ability.

Original Debt Paying Ability

The analysis of Unilever Pakistan shows that the
company is not focusing on its debt policies and there is
much change in debt position in this year as compare to
previous year. Companys current year assets are based
approximately 86 % on debts and only 14 % on equity. It is
very hard for the company to pay its more liabilities from its
fewer equities. More worst for Unilever Pakistan is that not
only debts are increasing but equities are also decreasing.
All ratios show unfavorable results because all of them are
lesser as compared to prior year. It is observed that the
company is trying to pay its long-term liabilities with shortterm borrowings. Company should pay its long-term
liabilities with equities by increasing share capital. In 2013

Unilever Pakistan has sicker long-term debt position as

compare to 2012 in both aspects period and total debt
paying ability.

Comparative Company Analysis

Inter-company comparison Table:

Name of
Ratio

Unilever
2013

Sheza
Results
n
2013

70
Times

10.55
Times

Debt Ratio

0.86

0.42

Unfavorabl
e

Debt to Equity
Ratio

0.29

0.038

Unfavorabl
e

Debt to Tangible
net worth

0.38

Time Interest
Earned

Favorable

The ratio calculated of both companies show that Shezan Foods

has better long-term debt position as compare to Unilever Pakistan in
both aspects periodic and total debt paying ability because most of the
indicators shows unfavorable results. Ratios show that the Shezan
Foods financed most of its assets by short-term borrowings, its markup or interest is higher. So Time interest earned is less than Unilever
Pakistan. In Unilever Pakistan high portion of its assets is financed by
debts so its debt ratio is very higher than Shezan foods and shows
unfavorable result.