Profitability Ratio (Investors & Creditors)
Summary: The investor should be slightly confident in investing in HinoPak because it has
made a recovery since 2022, the impact of COVID-19 and shrinking of the heavy vehicle
industry led to losses for the company. After 2022 the return on assets, equity and net operating
assets have all increased, making it a safe investment opportunity. In 2023 however growth does
decline and so does profitability hence making it a somewhat risky investment opportunity and
risk averse investors might avoid Hinopak.
Net Profit Margin / Return on Sales
2019: A net loss for the company as income declined by 175%, despite reduction in tax rate due
to fixed rate scheme (at 29%), the company’s net profit fell
2022: First year since 2018 that the company makes net profit, interest cost declines, other
income increased, taxation increased (by 19%) overshadowed by the 200%+ increase in Other
Income, Net Income increases hence Net Profit rises
2023: Taxation and interest cost increased, net income declined resulting in lower profit (interest
cost increased due to exchange rate loss
Gross Profit Margin
2019: CGS proportion increased and became 94% of Sales, in 2018 this figure had been 88%;
Sales declined by 28% so decline in CGS overshadowed, overall gross profit fell
2020: Gross Profit declined by 117% in comparison to 2019, ratio worsened, decline in CGS
overshadowed
2022: Recovery as gross profit becomes a positive figure, increases by 75%, revenue rises by
37% due to increase in sales volume and price increases
2023: CGS increased due to a devaluation of rupee and reliance on import, increasing cost,
decline the gross profit and GPM
Operating Profit Margin
2019: Operating Expenses although declined, so did EBIT hence overshadowing the decline in
expenses
2020: Operating Profit declined by over 300% in comparison to 2019, ratio worsened, the
decline in sales contributed to this decline
2022: Operating margin increases to 3.61% (0.1% in 2021), this recovery is aided by a 100%
decline in impairment losses which cause the EBIT figure to rise by 4678%
2023: Distribution and administrative expenses increases, OPM declined
EBITDA to Sales
ROA
2022: For every $1 invested in assets, the company generates 5.43 cents in revenue. In 2023 this
figure fell to 2 cents, because the company’s assets increased (property plant as well as
employment benefit prepayment being the main cause)
ROE
2020: Shareholders incurred a net loss of 78% on their investment
2022: For every $1 generated in equity, 8.99 cents were generated as return
2023: NI decreased and Equity increased leading to a decline in return on equity
RNOA
2020: NOPAT is a negative figure (ebit is negative), avg NOA had increased leading to an
overall decline in RNOA
2022: avg NOA declined and NOPAT increased, leading to a sharp rise in RNOA
2023: RNOA drops as ebit declines, effective tax rate becomes 93% causing nopat to fall; as
well as noa increased all leading to decline in rnoa (actual profit generated from core activities in
the company)
Liquidity Ratio (Trade Creditors)
Summary: Company seems to have a good liquidity although the quick ratio is low, all other
measures indicate towards a healthy balance. Operating cycle might be shortened by an increase
in time from creditors to reduce chances of liquidity problems. Creditors should lend (short term
loans and days to pay off trade creditors)
Current Ratio
For all years remains above 1, meaning the company has more than a 1$ for every $1 in liability.
Outlier is the year 2020, where for every $1 in liability on 0.77$ in assets. In 2020 the inventory
declined causing a drop in current asset figure
Quick Ratio
Below 1 in all years, relatively low in 2019 and 2020 (0.29, company making net loss in these
years). Climbed back to 0.88 in 2022, but still low as it means the company has more of
inventory which is an illiquid current asset. Might cause liquidity problems. The decline in
current liability in 2023 is overshadowed by the increase in inventory, ratio drops to 0.82.
Inventory Turnover
In 2022 and 2023 this improved, meaning the company is able to sell off its inventory faster. In
2022 this was at 5.8, in 2023 at 6.2 (generate and sell inventory 6 times in the year). A positive
indicator.
Days Sales in Inventory
Declined overall meaning that Hinopak is able to sell off its inventory and generate cash against
it in shorter amount of time
Days Sales in Receivables
In 2023 receive money from credit sales in 5 days, meaning that the company is probably not
going to be short of cash
Days Purchases in A/P
Need to pay back creditors in only 4 days as of 2023, tight policy could lead to liquidity crunches
Operating Cycle
Takes 62 days to sell inventory, generate cash and pay creditors. A positive indicator, although in
2022 it took only 58 days. Should look into increasing days purchases in a/p
Solvency Ratio (Long Term Loans / Banks / FI)
Summary: Banks and other financial institutions should give loans to the company as their
capital structure is fairly balanced and not completely reliant on debt. ROCE and TIE are low
because company is still in recovery phase however the long term indicators show that the
company is likely to be able to maintain solvency and pay back its long term lenders
Liability to Equity
Declining overall, first sharp decline in 2021 as equity increased and liabilities almost halved.
Went from 4.5 in 2020 to 0.77 in 2021 meaning that for every 1$ of equity funding only 0.77$
came from liabilities, a positive sign for banks.
Long Term Liability to Equity
Significantly below 1, in 2023 for every $1 in equity funding, only 0.045 was in long term
liability. Offers a clearer picture of the company’s financial position in the long run. Low
financial risk, a good indicator for companies or institutions interested in giving loans.
Times Interest Earned (TIE)
Post recovery in 2021, the TIE ratio dropped in 2023, from 4 in 2022 to 1 in 2023, this is because
finance cost increased and the ebit decreased, leading to an overall decline in the TIE ratio.
Return on Capital Employed (ROCE)
In 2018 the company was able to generate a 36% return from its capital, which indicated that the
company was generating great value for its shareholders. However, after the losses it faced in
2019 and 2020 due to decline in sales, spike in impairment losses, the EBIT and after tax EBIT
figures declined. Leading to low ROCE values. It fell again in 2023 due to a rise in costs, and
remained at 5%, so only 5 cents in profit generated for every $1 of capital employed, indicating a
poor management of company resources.
Total Leverage
Asset Utilization (Creditors and Investors)
Summary
Creditors and investors should all be confident about the company’s management of its resources
as they have been stable and high turnovers have been observed over the analysis period.
Creditors should lend and investors should invest in the company.
Sales to Asset
Stable throughout the years, remained above 1, even in the years that sales declined (2019 -
2021) the assets for the company also declined and hence that led to the ratio stabling over 1. A
good indicator as it means for every $1 of assets used in production a > $1 sale was generated.
Indicating efficient use of company resources.
Sales to NWC
In 2020 and 2021 the turnover is a negative figure (greater current liability than current asset)
which is primarily due to the decline in inventory figures and because of a decline in sales the
Receivables figure also dropped. Current liabilities also declined however using the avg NWC
leads to a negative turnover in 2021 as well.
2022 onwards the company has a turnover of greater than 10, indicating efficient employment of
the company’s working capital to generate revenue.
Sales to Fixed Asset
Drops in 2020 from 6 to 3 because sales volume declined and the company’s fixed assets
increased. 2021 onwards fixed assets have increased but have been overshadowed by the
increase in Sales figure hence leading to Fixed Asset turnover increasing over the years.
Increase in Fixed Assets: Increase in long term loans and advances, increase in property plant
and equipment, employee benefit prepayment and right of use asset.
Market Ratio (Investors)
Summary
Investors seeking dividend income might not prefer the company because the company has not
declared dividends since 2018. Investors seeking capital gains may find the investment to be
profitable as the share price has increased in 2024 (450+) but it is a risky investment as the share
price declined in 2025 (345), so investors with high risk tolerance might find HinoPak a good
investment.
Earnings Per Share
Significantly fell in 2019 due to a net loss, investors earned a net loss on their share (loss per
share) of 70.421, in 2018 they had made an earning of 90 per share.
2020 EPS worsened to a loss of 165 per share.
In 2023 EPS drops to 0.6 (although it had been 16.819 in 2022), this is because high interest
costs and taxation led to a drop in the net income for the company, causing the eps figure to drop
(shares remained constant at 24,801).
Years New Shares issued in: 2021 and 2022.
Price to Earnings
In 2019 stock price fell from over 1100 to 395 rupees. EPS had also declined, leading to an over
drop in the P/E ratio. In 2021 although eps increased and share price increased as well, the P/E
ratio dropped, this is because the increase in eps overshadows the price increase (eps increased
by 91%, share price by 29%).
2023 the stock is overvalued (NI fell, EPS fell but P/E is increasing).
Dividend Yield
Not applicable. Because of losses 2019 onwards and then stabilizing only after 2022, the
company has not declared dividends hence investors have not earned any dividend income.
Market to Book Value
No haphazard movement, relatively stable and close to 1, indicating that the investors have a
positive outlook for the company’s future performance and the company has high growth
potential in the future.
FORMULAS
1. RNOA = NOPAT / Avg NOA
How much return in generated per $ of operating assets used in operations
2. ROCE (return on common equity) = RNOA + (Lev * Spread)
Lev* Spread is the inclusion of debt (lucrative or not)
3. Lev = Net Financial Obligation / Avg Equity
4. Net Financial Obligation = Financial Liability - Financial Asset
5. Spread = RNOA - NFR
If spread is negative then inclusion of debt eats away the NOPAT figure
If spread is positive then inclusion of interest bearing debt is lucrative to growth (NFR < RNOA)
6. NFR = NFE / Avg NFO
How much it costs the company to include financial obligation / interest bearing liability in
capital structure
7. NFE = Int Exp - Other Inc
8. NOPAT = EBIT * (1-Eff T)
True picture of how much profit the company made from its operations after tax
9. Eff T (Effective Tax) = Taxation / EBT
10.NOA = Operating Asset - Operating Liability (Highlighted in Pink on Balance sheet)