BATA SHOES COMPANY FINANCIAL ANALYSIS OF FIRM FINANCIAL STATEMENT

Presented by

Imtiaz nawaz #26Farman hassan #31

Faiz subhani #43Adeel bashir #46

Umar farooq #142

PAKISTAN SHOE INDUSTRY ANALYSIS

Challenges: One of the most important problems hindering the growth of

footwear industry is higher energy prices. Increasing energy and inputs prices leads to an increase in the cost of production that influences the expected production of the industries and thereby exports.

Industries do not have footwear training institutes of quality and repute and in result there is a lack of skilled labor force. Thus there exists a problem of absorption capacity in advanced machinery.

Industry is facing high competition from China providing cheaper footwear product in markets.

  Heavy taxes in the form of sales tax and income tax on retail

businesses.

Outdated production methods are still prevailing in the shoe factories.

  Improper availability of raw material.  There is no mechanism of collaboration between Industry units and

other related research organization and academic institution to improve their productivity.

  Transport and utility infrastructure facilities are not adequate.

Shoe industry in Pakistan is growing rapidly and a lot of companies are competing for market share so the rivalry among the firms is intense.

 

BATA (PAKISTAN)

Since 1942 Bata Pakistan has been rendering its services to its valued customers by offering quality products.It was incorporated in Pakistan as Bata Shoe Company (Pakistan) Limited in 1951 and went public to become Bata Pakistan Limited in the year 1979.

Self-concept: Since its inception, the company has not only maintained a good reputation of manufacturing high quality footwear for all segments but has also been designing shoes in accordance with the changing fashions and trends.

Networking: Bata Pakistan is serving its valued customers through a strong retail network comprising of more than 400 retail outlets, 467 registered wholesale dealers, 13 wholesale depots, 28 wholesale distributors and 41 DSP wholesale franchises across the country. Besides catering local market, Bata Pakistan also shows its presence in an international footwear market through its export department which is constantly exploring new potential market in order to earn foreign exchange.

VERTICAL & HORIZONTAL ANALYSISBalance sheet (vertical analysis)

Items 2011 2012 2013 2014 2015Non-current assets          Property plant & equipment 15.86

%14.78% 17.47% 18.84% 17.85%

Intangible asset 0.227%

0.14% 0.077% 0.067% 0.052%

Long term investment 0.79% 0.656% 0.59% 0.51% 0.55%Long term deposit & payment

0.80% 0.464% 0.368% 0.63% 0.43%

Current asset          Store & spare   0.0044

%  0.001% 0.0042

%Stock in trade 48.58

%39.11% 37.06% 36.93% 36.01%

Trade debt unsecure 2.81% 5.98% 5.7% 6.82% 9.57%Advance is unsecure 0.52% 0.157% 0.44% 0.82% 0.52%Deposit short payment & other receivable

7.43% 7.725% 8.17% 7.97% 7.51%

Interest accrued 0.029%

0.089% 0.12% 0.053% 0.027%

Short term investment 2.16% 8.87% 15.15% 15.29% 15.78%Tax refunds due from govt 11.47

%9.02% 7.96% 6.88% 6.17%

Cash & bank balances 9.32% 13% 6.88% 5.19% 5.53%Total assets 100% 100% 100% 100% 100%

Share capital % reserves          

Capital reserve 0.01% 0.0086%

0.0075%

0.0065%

0.0058%

Issue subscribed & paid up capital

1.63% 1.34% 1.183% 1.02% 0.92%

Revenue reserve 69.21%

68.19% 69.25% 70.07% 72.52%

Noncurrent liabilities          Long term deposits 0.791

%0.656% 0.59% 0.51% 0.55%

Deferred liabilities 1.71% 1.51% 0.85% 0.72% 0.83%Deferred taxation 0.74% 0.72% 0.78% 0.91% 0.59%Current liabilities          Trade & other payable 20.43

%21.11% 19.96% 19.68% 17.03%

Short term borrowing          Provision for taxation 5.47% 6.46% 7.37% 7.07% 7.55%Total liabilities 100% 100% 100% 100% 100%

INCOME STATEMENT (VERTICAL ANALYSIS)Items 2011 2012 2013 2014 2015

sales 100% 100% 100% 100% 100%cost of sales 63.93

%62.89% 60.9% 60.92% 59.37%

Gross profit 36.07% 37.11% 39.09% 39.07% 40.63%Distribution cost 18.65% 17.91% 18.59% 18.91% 19.29%Administrative expenses 6.10% 6.11% 6.4% 6.37% 6.34%Other operating expenses 0.78% 1.04% 1.15% 1.03% 1.19%Other operating income 0.43% 0.49% 0.67% 1.18% .62%Operating profit 10.96% 12.53% 13.63% 13.94% 14.45%Finance cost 0.52% 0.46% 0.21% 0.22% .21%Profit before taxation 10.44% 12.07% 13.63% 13.71% 14.21%taxation 2.82% 3.18% 3.77% 3.98% 4.43%Profit after taxation 7.6% 8.9% 9.65% 9.73% 9.78%Other comprehensive income

- - - 0.036% (.05%)

Total comprehensive income for year

7.6% 8.9% 9.65% 9.76% 9.73%

Earnings per share 98.96 135.03 163 177.17 191.20

BALANCE SHEET (HORIZONTAL ANALYSIS)Items 2011 2012 2013 2014 2015Non-current assets          Property plant & equipment 100% 113.57 152.1

5189.76 200.0

0Intangible asset 100% 76.28 47.04 46.93 40.56Long term investment 100% 101.11 103.8

4103.84 122.9

7Long term deposit & payment 100% 70.65 63.44 125.44 94.75Current asset          Store & spare 100% 247.00 _ 77.00 343.0

0Stock in trade 100% 98.11 105.3

7121.45 132.0

2Trade debt unsecure 100% 259.13 279.7

4387.15 605.9

4Advance is unsecure 100% 36.72 115.7

0250.59 177.7

8Deposit short payment & other receivable

100% 126.73 151.91

171.41 180.08

Interest accrued 100% 443.02 568.71

292.28 171.25

Short term investment 100% 500.00 968.00

1130 1300

Tax refunds due from govt 100% 95.84 95.84 95.84 95.84Cash & bank balances 100% 170.19 102.1

189.06 105.6

9Total assets 100% 121.87 138.1

1159.76 178.1

0

Share capital % reserves          

Capital reserve 100% 100.00

100.00

100.00 100.00

Issue subscribed & paid up capital 100% 100.00

100.00

100.00 100.00

Revenue reserve 100% 120.08

138.19

161.77 186.62

Noncurrent liabilities          

Long term deposits 100% 101.11

103.84

103.84 122.97

Deferred liabilities 100% 107.25

64.02 67.04 86.80

Deferred taxation 100% 119.41

122.25

196.10 142.69

Current liabilities          

Trade & other payable 100% 125.91

107.16

153.88 148.49

Short term borrowing 100% _ _ _ _

Provision for taxation 100% 143.98

185.97

206.55 245.64

Total liabilities 100% 121.870

138.11

159.76 178.10

INCOME STATEMENT (HORIZONTAL ANALYSIS)Items 2011 2012 2013 2014 2015

Sales 100% 116.91%

130.13% 140.25% 150.58%

cost of sales 100% 115% 123.98% 133.66% 139.85%Gross profit 100% 120.28

%141.05% 151.92% 169.6%

Distribution cost 100% 123.17%

129.66% 142.2% 141%

Administrative expenses 100% 117.1% 136.41% 146.4% 156.32%Other operating expenses 100% 155.72

%192.21% 185.1% 229.53%

Other operating income 100% 133.37%

201.28% 383.46% 214.70%

Operating profit 100% 133.71%

161.76% 178.34% 198.08%

Finance cost 100% 104.38%

51.78% 61.33% 59.57%

Profit before taxation 100% 135.18%

167.26% 184.19% 205%

Taxation 100% 131.77%

174.10% 198.13% 236.88%

Profit after taxation 100% 136.44%

164.72% 179% 193.2%

Other comprehensive income -     100% -100%Total comprehensive income for year

100% 136.44%

164.72% 179.69% 192.25%

Earnings per share 98.96 135.03 163 177.17 191.20

LIQUIDITY OF SHORT TERM ASSET RELATED DEBT PAYING ABILITY

In 2011 firm has 4.83 days for convert sales into receivableIn 2012 firm has 10.7 days for convert sales into receivableIn 2013 firm has 10.40 days for convert sales into receivableIn 2014 firm has 13.36 days for convert sales into receivableIn 2015 firm has 19.47 days for convert sales into receivableAccount receivable turnoverLiquidity of receivable time per year has decreasing trend ( how much collection has made year to year)

Ratios 2011 2012 2013 2014 2015Day sale in receivable

4.83 10.7 10.40 13.36 19.47

Account receivable turnover

128.79 49.12 36.44 31.73 22.88

Account receivable turnover in daysThis ratio shows turnover in days has increasing year to year which has negative trend( how days are required to collection )

Days sales in inventoryThis ratio shows the length of inventories convert into sales so this trend has no significant change

Account receivable turnover in days

2.83 7.43 10.02 11.50 15.95

Days sales in inventory

130.72 111.5 111.11 118.78 123.40

Inventory turnover

3.33 3.24 3.40 3.27 3.08

Inventory turnoverThis ratio shows how much time required to convert into sale. Which has moderate change in year to year.

Inventory turnover in a daysDays to convert into sales also has moderate change.Operating cycle This ratio is combination of a/r turnover in a days & inventory turnover in a daysIt is useful to compare period to period ratios for similar firms like service shows

Inventory turnover in a days

109.77 112.6 107.28 110.92 118.46

Operating cycle

112.6 120.03 117.30 122.42 134.41

Working capital

2609950 3178932 3460195 3931845 4658537

Working capital it shows the solvency of the firm so it is increasing period to period

Current ratioIt shows debt paying ability of the firm so this firm has better ability because of over 2:1 ratioacid-test ratioThis ratio relates to most liquid asset to current liabilities minus inventory because of many reason ( slow moving trend) so it showing the positive trend over period to periodcash ratioThis ratio is used for an extremely conservative point of view if it is high means firm not using cash and if it is low firm has low paying ability.So there firm has no significant change ( moderate level)sale to working capitalIt indicates turn over in working capital year to year so in 2011 ratio is 4.12 and than decreasing in next years means working capital increasing after 2011. it shows less profitable use of working capital after 2011.

Current ratio

3.18:1 3.04:1 2.98:1 2.99:1 2.99:1

acid-test ratio

0.55 1.01 1.02 1.02 1.26

cash ratio 0.44 0.79 0.81 0.76 0.87sale to working capital

4.12 3.97 3.85 3.72 3.44

FINANCIAL RATIOSTime interest earned ratio

21.02 times

26.92 times

65.66 times

61.12 times 

69.88 times

Fixed charge coverage Ratio

21.02 times

26.92 times

65.66 times

61.12 times

69.88 times

Time interest earned ratioThe time interest earned ratio indicate a firms long term debt paying ability from the income statementIt is relatively low in 2011 and 2012, stable, and high in the next three years.Fixed charge coverage RatioIt is extension of time interest ratio and include rental interest portion in numerator and denominator.It is same as fixed interest ratio because Bata Company has no rental interest

Debt ratioIt indicates how many assets creditor finances and it helps to determine of creditors protection.It is decreasing in five years from 29% to 26%, which is a good indicator.Debt to Equity ratioIt is alternative of debt ratio but it include all the liabilities and tell how well are creditors are protected.It is less than 50%, which is a good indicator.Debt to tangible net worth ratioIt is same as last two ratios but it does not include tangible assets because tangible assets are not providing resources to pay creditors.It is almost low in all five years.

Debt ratio 29.15% 30.46% 29.56% 28.90%

26.56%

Debt to Equity ratio 41.14% 43.81% 41.96% 40.64% 36.16%

Debt to tangible net worth ratio

41.27% 43.90% 42% 40.68% 36.18%

Financial ratios 2011 2012 2013 2014 2015

Net profit margin 7.6% 8.9% 9.65% 9.76% 9.73%

Total assets turn over

2.23 times

2.24 times

2.12 times

1.99 times

1.89 times

  Net profit margin measure the net income rupee generated

by each dollar of sale. This ratio of years 2011-2015 is increasing respectively which shows that income rupee generated is increasing respectively against each rupee of sale

Total assets turn over measure the activity of assets and the ability of firm to generate sales through use of assets. This ratio is showing decreasing trend in five years that shows the ability of firm generating sale is decreasing but not significantly

PROFITABILITY RATIOS

Return on assets 17% 19.9% 20.5% 19.5% 19.4%

Operating income margin

10.96% 12.5% 13.6% 13.94% 14.4%

Operating assets turnover

14.38 14.65 13.10 10.97 10.32

Return on assets measure the firm’s ability to utilize its assets to create profits by comparing profit with the assets that generate the profit. This ratio is increasing in first three years and a little decreasing trend in last two years

Operating income margin measures the operating income generated by each rupee of sale. This ratio shows increasing trend from 2011 to 2015 that’s mean company operating income is increasing per rupee of sale

Operating assets turn over measures the ability of operating assets to generate sales. This ratio is showing decreasing trend shows that ability of operating assets is decreasing.

Return on operating assets

157.7%

184.6%

178.5%

153.0%

148.9%

Sale to fixed assets

12.78 times

13.32 times

13.24times

10.33 times

9.73 times

Return on investment

24.92% 23.92% 28.68%

27.08% 25.22%

Return on operating assets measures the ability of firms utilizes its operating assets to generate operating income. This ratio shows increasing trend in in first three years (2011-2013) and decreasing trend in last two years (2014 & 2015)

Sale to fixes assets measure the firm’s ability to make productive use of its assets (plant property equipment etc.) it exclude construction in progress. This ratio shows increasing trend in in first three years (2011-2013) and decreasing trend in last two years (2014 & 2015).

Return on investment measure the income earned on the invested capital. This ratio shows the average increasing trend of Bata income on invested capital

Return on total equity

24.85% 28.36% 29.22% 27.45% 25.56%

Return on common equity

24.86% 28.36% 29.22% 27.45% 25.56%

Gross profit margin 36.07% 37.11% 39.09% 39.07% 40.63%

Return on total equity measures the return on both common and preferred stock. This ratio shows increasing trend in in first three years (2011-2013) and decreasing trend in last two years (2014 & 2015)

Return on common equity measures the return on common stockholders (residual owners). It shows the same trend as return on total equity shows because it has no preferred stock.

Gross profit margin measures the gross profit margin in net sales. Shows the gross profit of firm increasing respectively on net sales

Financial ratios 2011 2012 2013 2014 2015

Financial leverage 2.33 2.00 1.02 1.02 1.01

Earnings per share 13.50 9.89 16.30 17.72 19.03

Price earnings ratio 8.27 10.00 17.13 19.70 17.10

Financial leverage measures the cost of debts in other words net income change as compare to change in EBIT this ratio shows the decreasing trend which states that cost of finance of company is decreasing

Earnings per share measures the amount of income earned on each share of common stock during an accounting period. This shows the earning per share is increasing of Bata.

Price earnings ratio measure what is being paid for dollar of recurring earning. This is showing the increasing trend in 2011-2015

INVESTING RATIOS

Percentage of earning retained

79.37% 49.96 46.40 56.20 55.89

Dividend yield 2.44% 3.71 3.15 2.33 2.69

Dividend payout ratio

20.64% 50.07 53.61 43.81 44.10

Book value 43.36 51.86 59.53 65.52 80.04

Percentage of earning retained measures the proportion current earning retained for the internal growth. This ratio shows the reducing trend which interprets that Bata starts retained less cash for growth nowDividend yield measures the dividend paid rate to total earning. This ratio shows increasing trend in in first three years (2011-2013) and decreasing trend in last two years (2014 & 2015)Dividend payout ratio measures the portion of current earnings per common share being paid as dividend. This ratio shows increasing trend in in first three years (2011-2013) and decreasing trend in last two years (2014 & 2015)Book value per share measures the book value of each outstanding share. Book value of shares is increasing which shows the strong position of organization

Financial ratios 2011 2012 2013 2014 2015

14.05%

90.39%

66.78%

51.09%

54.1%

2.5 20.5 16.68 14.43 15.66

89.9% 414% 190.9%

185.9%

186.5%

Cash flow ratios

Operating cash flow/ total debts measures the firm’s ability to cover total debt with the yearly operating cash flow .This ratio is very low in 2011, in 2012 there was high and relatively good in 2013, 2014 & 2015

Operating cash flow per share measures the fund flow per common share outstanding. It is usually higher than earning per share because deprecation has not been deducted. This ratio is very low in 2011, in 2012 there was high and relatively good in 2013, 2014 & 2015

Operating cash flow over cash dividend Firms ability to cover cash dividend through yearly operating cash flow it also show same trend