Debt Management

Debt is money the company owes in total to its sources of funding such as loans. Debt
management ratios allow a company to assess how much of their funding is covered by equity
and how much finance is generated through debt.

1. Debt to Asset Ratio

The debt to asset ratio is a leverage ratio which shows how much of the company's assets are
being funded by debt such as loans.The information provided by the ratio indicates how
financially stable a company is. As the ratio increases so does the risk of investing in that
company so a low one is better.

Debt to Asset Ratio = Total Debt/Total Assets

Over the years Ismail industries have increased their assets more then their liabilities which
means that they can pay for all of their debt by selling assets.there is a decrease in ratio from
2015-2019 which shows that the company is becoming less risky with time for the investors.
However from 2019 onwards there was an increase in their liabilities. between 2019-2020
alone there was an increase from 19,590,248,874 to 27,608,150,265. This was due to the effect
of covid-19 which led to an increase in debts and loans. Furthermore, the company took an
extension of a year on principal loan which was approved by the state bank of pakistan.Ismail
industries entered into a long term loan agreement in 2020 with JS Bank limited of 706.50
million. The loan was paid from January 2021 in eight equal quarterly instalments. which led to
a fall in the current ratio to 0.72.

2. Debt to Equity ratio

The debt to equity ratio shows us the extent to which a company can cover its liabilities.The
debt to equity ratio shows the extent of equity and debt a company is utilising to back its
resources and it shows the degree to which investor's value can satisfy commitments to people
they owe, in the occasion a business declines. It is calculated by dividing total debt by
shareholders equity. A low debt to equity ratio demonstrates a lower measure of financing by
debt

Debt to Equity Ratio = Total Debt/Shareholders’ Equity

The ratio saw a decline from 2015 to 2018 from 2.57 to 2.20 which shows low amount of
financing by debts and funding through equity via shareholders.the equity increased by 14.05%
while liabilities only increased by 1.92% which led to this improvement. There dollar rate
started to increase in 2017 104.85 to 164.10 in 2021 which led to an increase in the value which
effected the equity and profit and loss rate. There was a great rise in liabilities due to rise in
prices of basic inputs due to sky-scrapping food inflation, stiff competition, causing sizeable
increase in marketing spent and other related factors that exorbitantly raised cost of doing
business.All this along with the added pressure caused by Covid-19 led to the fall of the ratio
2.20 to 2.79 in 2020. However as the world recovered and Pakistan's economy somewhat
stabilised the ratio started to go down and fell to 2.64 in 2021 which showed they were getting
back on track.
3. Long Term Debt Management Ratio

Long term debt management ratio shows how much of the company's assets are funded by
long term debt. It basically shows the percentage of a company's assets it would have to
liquidate in order to repay its long-term debt. It is calculated by dividing long term liabilities
with total assets.

Long term debt management ratio = Long term Liabilities/Total Assets

In 2015, Ismail Industries had a long term debt ratio of 0.44, this ratio shows that the company
has 44 cents of long term debt for every dollar it has worth of assets.THe long term dept ratio
for ismail decreased from 0.44 in 2015 to 0.32 in 2017 even though the long term debt was
increasing this was due to the equity increasing at a higher rate. 2017 onwards the ratio started
to rise due to the rise in the dollar rate which increased the value of the loans Ismail Industries
had taken from international markets. Furthermore this was compounded by the start of the
covid-19 pandemic which led to them financing more assets through long term loans. Despite
all of this Ismail industries was able to keep the increase in the ratio low by better utilising their
resources and raising equity due to which the increase from 2017 to 2021 was only by 0.03
overall which is good compared to how much loan companies had to take around the country.

4. Times Interest Earned Ratio

The times interest earned (TIE) ratio indicates a company's ability to pay its debts. It measures
the amount of interest expenses which are covered by the company's operating income.It
shows how many times a company could cover its interest charges with its earnings before tax.
The TIE ratio is an indication of a company's freedom from the constraints of debt. Higher the
TIE ratio the better as it is more appealing to investors.

TIE = EBIT/ Interest expense

From 2015 Ismail Industries steadily increased its TIE ratio from 1.76 to 3.34 in 2018. THis all
was due to the increase in sales Ismail Industries was redieving as it increased by 15% in 2018
which caused by an improved marketing approach. furthermore they were able to manage
their resources more efficiently as well whic led to an overall increase in gross profit and net
profit by 20% and 16% respectively. 2019 onwards their tie ratio started to fall as covid-19 had
led to increase in loans which further increased their interest expenses. This coupled with the
fall in profits led to the fall in the TIE ratio.In order to reduce the exposure to credit risk, they
created a formal approval process which placed credit limits to its customers in order to
increase earnings, initiatives like this allowed Ismail Industries to tackle the pandemic well and
increase their sales which allowed the ratio to increase to 3.32

MARKET RATIOS
Market value ratios are financial measurements that assess stock prices, evaluate them in relation
to competitors' stock prices as well as other data points. These ratios monitor public corporations'
financial results to help us better comprehend their place in the market.

2. Dividend Cover Ratio

Dividend cover is a measure of the number of times a company can pay dividends to its
shareholders. A dividend coverage ratio above 1 is considered to be a minimum as it indicates
that the company has earned enough to pay its shareholders and a dividend cover ratio above 2
is thought of as a good level. A falling dividend cover ratio would deter investors as they would
think they might not receive their dividends in the near future.

Dividend cover = Earnings per share/Dividends per share

When looking at Ismail Industries Dividend cover ratio we see a fluctuating pattern .In 2014 it
started off high at 4.42 but then drastically fell to 2.11. This is attributed to a great increase in
the amount of dividends they had to payout. The dividend paid increased from RS.842 to
RS.303,125 the next year. This was in turn due to an increase in the number of shares. But in
2016 they were able to start bringing it back up through an increase in profit they earned as it
had increased by Rs. 362,301. 2017 saw a great increase in the ratio to 6.64 which showed that
Ismail were able improve their performance. As the pandemic came around it saw an increase
in the expenses for the company which led to a lower dividend cover ratio as they to service
multiple loans and debts as from 2018 to 2020 earnings per share well from Rs.22.13 to
Rs.14.49.

3. Price to Earning Ratio (times)

Price to earning ratio tells investors how much a company is worth. It informs them how much
they would have to pay per $1 earned.P/E shows what the market is willing to pay for a stock
based on its earnings per share. A high P/E ratio could mean that a stock's price is high relative
to earnings and could be overvalued. Furthermore P/E ratio indicates how secure investing in a
company would be as you are able to see how much shareholders received per share in
previous years in comparison to how much they paid.

P/E Ratio = share price/earning per share

In the stock market a p/e ratio between 15-18 is considered to be a optimal level where the
stock is neither undervalued or overvalued. In 2015 Ismail Industries had a respectable ratio of
16.51 but then after that it started to increase and went to 23.76 the following year in 2016.
This could be considered as the stock being overvalued the reason for this is could be seen as
the great increase in the price per share which increased from Rs. 209 to Rs. 373.06. The
earnings per share did not increase at the same rate due to which it became overvalued. Over
the next few years till 2018 they improved their sales thus improving their earnings per share to
22.13. The earnings per share was increasing at a higher rate then the price per share which
allowed Ismail to fix their P/E ratio and bring it to 17.85. However The following year economic
uncertainty coupled with the pandemic led to a fall in the earnings per share by 6.64 in the 2
years. This led to shares being overvalued deterring the investors from investing but in 2021
Ismail was able to improve the p/e ratio by reducing their liabilities and paying off loans. This
coupled with the fall in the share price by Rs. 40 made the p/e ratio fall to 13.82 which is much
better.

5. Dividend Yield Ratio

The dividend yield ratio tells us how much you would get back from each share you purchase. It
tells you what percentage of the share price the company pays back to shareholders each year.
A higher dividend yield is more attractive to investors as they see that company is more
profitable as it is performing better and giving out more to its shareholders. A strong dividend
yield is seen as a sign of a healthy business in the stock market. However a very strong dividend
yield could mean that there is not much potential for growth as they are giving a lot back to the
investors.

dividend yield ratio = (dividends per share/market price per share) x 100

From 2015 to 2016 ismail industries dividend yield ratio was at an average level of 2.28% and
2.47% respectively. This was due to the fact that they wanted to prevent uncertainty as if they
had given out a high amount of dividend any problems in the future would lead to a drastic fall
in dividends which would lead to a lot of investors pulling out, plus it allowed them to maintain
a level of growth which would attract long term investors as they would see a lot of potential in
the company. 2017 saw a fall in the value of the rupee which inturn increased Ismail industries
expenses as they imported alot of their raw materials and machinery from abroad this led to
the dividend per share to fall from 6.5 to 2.8. This led to the dividend yield to fall as well and as
Ismail industries were recovering from this in 2019 the pandemic hit the world which also
reduced dividend levels so the improvement in 2018 to 1.71% from 1.05% the previous year
was brought back down to 1.14% in 2019. Furthermore in 2021 Ismail Industries dividend yield
increased to 5.70% by increasing the amount of dividends paid to Rs. 995.520 in order to attract
more investment in the company as this would be appealing to people. This would help Ismail
industries pay back the loans they had to take during the pandemic.