Deewan Textile Mill Ltd. Intro to Business Finance (Financial Report 2010)

7/28/2019 Deewan Textile Mill Ltd. Intro to Business Finance (Financial Report 2010)

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MOHAMMAD ALI JINNAH UNIVERSITY

KARACHI, PAKISTAN

M. Shaharyar Saeed

SP10-BB-0039

Dated; 22nd April 22, 2011

INTRODUCTION TO BUSINESS FINANCE

Section C

FINAL REPORT

DEEWAN TEXTILE MILLS LTD.

Sir Faisal Aziz

MOHAMMAD ALI JINNAH UNIVERSITY, KARACHI. Page 1


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Contents:

Introduction

Mission Statement

Vision Statement

Ratio Analysis

Comparison of 2009-2010

Common Size Income Statement

Pro forma Balance Sheet

Recommendations

Conclusions

Ratio Analysis

Working Capital

Current Ratio

Quick Ratio

Inventory Turnover

Account Receivable Turnover

Account Payable Payment Period

Total Days of Opreating Cycle

Debt Ratio

Equit Ratio

Asset Turnover

Earning / (Lose) Per Share

Book Value per Share

Rate of Return on total Assets

Rate of Return on Shareholders Equity

Rate of Cost of Goods Sold

Rate of Gross Profit /Loss

Rate of Operating Expense

Cash flow Margin

Internal Growth Rate



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Dewan Mushtaq Group has an annual turnover exceeding Pak Rupees 30 billion. The main fields ofbusiness include textiles, sugar, polyester and acrylic staple fibre, assembly-cum-progressive manufacture

of automobiles and equity participation in a private bank. Other allied businesses include a polypropylene

sacks making and particle board manufacturing plants as downstream industries of sugar industry and

automotive parts manufacturing as backward integration of its automobile industry.

All group companies are highly reputed for paying their shareholders handsome dividends regularly, and

in fulfilling their financial obligations and commitments on time.

The history of Dewan Mushtaq Group goes way back to the year 1916 to the State of Patiyala in the

Punjab Province of India when a small cottage industry was set up by Dewan Mohammad and his son

Dewan Mushtaq Ahmed to manufacture garments. During 1918, another establishment was started in

Karachi to import clothing and other multifarious commodities which were then sold all over India.

In 1947, the Dewan family migrated to Pakistan. They settled in Karachi, formed Dewan Mushtaq Sons,

and started trading in commodities like tea, sugar, second-hand clothing, garments and fabrics. Due to

hard work and honest dealings of the family, the business rose to new heights and by late fifties, the

turnover of the firm was as significant as Rs. 60 million per annum.

The Group presently employs over 12,000 persons at its various plants and offices.

DEWAN TEXTILE MILLS LTD.

Dewan Textile Mills Limited is one of the most modern textile mills in the country. This wasthe first textile mill of the group, which entered the group into the manufacturing sector of

the country.

The project, which was started in 1970 with a cost of Rs 20.5 million, has now grown to a

size of Rs 800 million. The civil works of the project were completed in September 1971 andthe installation of the machinery was started in June of the same year and completed in

October. The trial production started in November 1971 and within a month, the unit went



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into commercial production. Now the production has reached a level of around 23 millionkilograms of yarn per year using a capacity of more than 61,000 spindles. The sales in 1999

exceeded Rs. 2.3 billion and are growing. The company has recently started its own powergeneration which will bring a substantial cost saving for the company.

Dewan Textile Mills has two parallel manufacturing facilities; both located at Kotri near

Hyderabad, in the province of Sindh, Pakistan.

The raw material used is lint cotton both of local origin and imported. The unit has appliedthe most modern technology in its facilities and has installed the latest model Swiss made

yarn cleaner which ensures an extremely good quality of the yarn product. Anotherachievement was the installation of a computer controlled yarn classmate, which can check

the quality of different counts directly on the production machines; thus the necessity ofbringing the samples physically to the laboratory is eliminated.

One of the basic strengths of the unit, indeed of the Group, is professionalized workingatmosphere. This has resulted in the development of a high caliber and dedicated group of

executives who are efficiently managing the operations of the project.

The professional approach of the management also results in constant cost and efficiencyappraisal, helping the company to maintain its competitive edge.

MISSION STATEMENT

The mission of Dewan Mushtaq Group is to be the finest Organization, and to conduct business

responsibly in a straightforward way.

Our basic aim is to benefit the customers, employees and shareholders, and to fulfill our commitments to

the society. Our hallmark is honesty, initaitive and teamwork of our people, and our ability to respond

effectively to change on all aspects of life including technology, culture and environment.

We will create a work environment, which motivates, recognizes, and rewards achievements at all levels

of the organization, because

IN ALLAH WE TRUST & IN PEOPLE WE BELIEVE

We will always conduct ourselves with integrity and strive to be the best.



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RATIO ANALYSIS1- WORKING CAPITAL

Working capital = Current Assets Current Liabilities

= 2,308,179,876 3,125,449,766

= Rs.-817,269,890

ANALYSIS: The negative working capital shows that the companys current asset does not even match

the companys current liabilities and they cannot be able to pay out their liabilities from the current asset.

From the previous year comparison the liabilities gone down but the asset declines especially the stock in

trade that is why the working capital is worse than the last year.

2- CURRENT RATIO

Current Ratio = Current Assets / Current Liabilities

= 2,308,179,876 / 3,125,449,766

= 0.74

ANALYSIS: This ratio shows that for every Re.1 of the current liability the company has Re. 0.74 to pay

which is not a good sign for the companys creditors. From last year the ratio is worsened.

3- QUICK RATIO

Quick Raito = Quick assets / Current Liabilities

= 1,178,186,708 / 3,125,449,766

= 0.38



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ANALYSIS: The ratio indicates very much less quick asset to pay liabilities at once but the quick asset

ratio is improved as compared to last year which is a good sign. This is because reduction occurs in stock

in trade which do not included in the quick assets.

4- INVENTORY TURNOVER

(a) Inventory Turnover = Cost of Goods Sold / Average Inventory= 3,265,734,522 / 1,186,015,876

= 2.75 Times

ANALYSIS: This ratio is improved from last year and it means the inventory is converting to cost of

goods sold 2.75 times in a year which is more than the previous year. More money is not kept blocked as

compared to last year on inventory. Cost of goods sold has declined because of the introduction of the

new testing technology and more improved means.

(b) Inventory Turnover Days = 365 / Inventory Turnover

= 365 / 2.75

= 132.73 Days

ANALYSIS: It shows that the average turnover days are 133 approximately which shows improvement

from the last year which was 164 days.

5- ACCOUNT RECEIVABLE TURNOVER

(a) Receivable Turnover = Net Credit Sales / Average Account Receivable

= 3,441,743,032 / 1,074,865,556

= 3.20 Times



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ANALYSIS: The ratio shows that the account receivable become 3.2 Times which is less than the last

year that means company giving credit for greater period which shows bounding money for larger period

of time. This incentive is given to increase the sales of the company as buyers who take more time to

repay can also buy on credit. Local sales are targeted and develop new markets in the local areas.

(b) Receivable turnover Days = 365 / Receivable turnover

= 365 / 3.20

= 113.99 Days

ANALYSIS: Shows that the account receivable on average rise to 114 days from 101 days which shows

more credit terms used.

6- ACCOUNT PAYABLE PAYMEN PERIOD

(a) Payable Payment = Net Credit Purchases / Average Account Payable

= 2,345,914,600 / 653,260,119

= 3.59 Times

ANALYSIS: The payment period time rise to 3.59 Times mean paying out time is less as compared to

last year that means less interest have to be paid and it is a good sign.

(b) Payable Payment Days = 365 / Payable Payment

= 365 / 3.59

= 101.64 Days



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ANALYSIS: Payable days have been reduced to 102 which show improvement in payment of the

creditors and so improve the creditors confidence on the company. Cash is utilized for the payment of

the liabilities to remove the distrust which is severely affecting the companys reputation.

7- TOTAL DAYS OF OPERATING CYCLE

Total Days of Operating Cycle = Account Receivable Turnover Days +

Inventory Turnover Days

= 113.99 + 132.73

= 246.72 Days

ANALYSIS: Total days of operating cycle have been reduced from 265 to 247 which mean cost is

reduced as less days generating better result and it is a very good indication for the company business.

More production is carrying on and the days are reducing, that is, efficient working.

8- DEBT RATIO

Debt Ratio = Total Liabilities / Total Assets * 100

= 3,652,491,273 / 3,670,917,254 * 100

= 99.5%

ANALYSIS: Debt ratio seems to be improved from the previous year. Last time there are more debts than

the asset owned but now it has improved to about 2% but still lot of work has to be done in this sector as

for the save side this ratio should be between 70-80%.

9- EQUITY RATIO

Equity Ratio = Total Shareholders Equity / Total Assets * 100

= 18,425,981 / 3,670,917,254 * 100

= 0.5 %



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ANALYSIS: Last year the equity is in negative due to heavy losses to the company bur this year the

profit makes it positive and improve the ratio to about 2% but still very much less.

10- ASSETS TURNOVER

Assets Turnover = Total Net Sales / Total Assets * 100

= 3,441,743,032 / 3,670,917,254 * 100

= 93.76 %

ANALYSIS: This year the sale has been improved which makes this ratio looks very attractive as

compared to previous year to about 15% more and showing that assets are utilizing well to increase

production and eventually increasing sale.

11- EARNING / (LOSS) PER SHARE

Earnings per Share = Net Profit / No. Of Shares= 48,919,759 / 13,504,609

= Rs.3.62

ANALYSIS: The profit shows an increase in earnings per share which was negative in the past year dueto the losses but company seems to be recovering and generates good earnings per share.

12- BOOK VALUE PER SHARE

Book Value per Share = Total Shareholders Equity / No. Of Shares

= 18,425,981 / 13,504,609

= Rs.1.36



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AANALYSIS: Last year the book value per share due to negative equity was also in negative but this

year the conditions reversed and a book value of Rs.1.36 is achieved due to positive equity conditions due

to the increase in profits.

13- RATE OF RETURN ON TOTAL ASSETS

Return on Total Assets = Net Profit / Total Assets * 100

= 48,919,759 / 3,670,917,254 * 100

= 1.33 %

ANALYSIS: Due to losses the return on asset last year is in negative which is better in the current year

proceedings and rate comes into the positive slab. Though it is quite low but encouraging to do well.

14- RATE OF RETURN ON SHAREHOLDERS EQUITYReturn on Shareholders Equity = Net Profit / Total Shareholders Equity * 100

= 48,919,759 / 18,425,981 * 100

= 265.5 %

ANALYSIS: The ratio seems to be very large as the equity just reaches the positive value and is pretty

much less than the net profit but definitely the condition shows fair improvement. Previous losses were

also adjusted because of this equity remains on lesser side.

15- RATE OF COST OF GOODS SOLD

Rate of Cost of Goods Sold = Cost Of Goods Sold / Total Net Sales *100

= 3,265,734,522 / 3,441,743,032 *100



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= 94.89 %

ANALYSIS: The ratio shows that cost of goods sold has been declined and become less than the sales

values which in the previous year exceeds the sales amount that means that the resources are now

utilizing more efficiently than before and the new testing technique cut short the costs.

16- RATE OF GROSS PROFIT / (LOSS)

Rate of Gross Loss = Gross Profit / Total Net Sales * 100

= 176,008,510 / 3,441,743,032 * 100

= 5.11 %

ANALYSIS: The ratio is definitely improved as there was a gross loss in the previous year which now

becomes gross profit. The gross profit is because of increase in sales and decreases in the cost of sales and

shows the companys progress in the right direction.

17- RATE OF OPERATING EXPENSES

Rate of Operating Expenses = Operating Expenses / Total Net Sales * 100

= 51,947,658 / 3,441,743,032 * 100

= 1.51 %

ANALYSIS: The ratio clearly indicates that the operating expenses have been cut down by almost 3%

which is a very good sign for the company as the cost is becoming low which helps to increase the net

profit. This was made possible as the exports are reduced so their much more expenses also the

administrative expenses are also cut down but entertainment expenses are increased slightly to keep

employees intact.



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18- RATE OF NET PROFIT / (LOSS)

Rate of Net Profit = Net Profit / Total Net Sales * 100

= 48,919,759 / 3,441,743,032 * 100

= 1.42 %

ANALYSIS: The ratio shows that a company is now making a net profit out of total sales as expenses are

reduced and increase the equity of the company.

19- CASH FLOW MARGIN

Cash Flow Margin = Cash from Operation / Total Net Sales * 100= 108,808,341 / 3,441,743,032 * 100

= 3.16%

ANALYSIS: The cash flow margin improves from the previous year and is in positive. This means thatthe company operating activities are generating cash for the business. The liquid cash is very important

for the company to carry on the activities.

INTERNAL GROWTH RATE (IGR)

IGR = ROA * b b = 1- Payout Ratio

1 (ROA * b) Payout Ratio = Dividend

Net Income

= 0.0133

1- 0.0133= 1.35%



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COMPARISON OF 2009-2010

2009 2010

Working Capital -736,181,766 -817,269,890

Current Ratio 0.77 0.74

Quick Ratio 0.35 0.38

Inventory Turnover 2.23 Times 2.75 Times

Inventory turnover Days 163.94 Days 132.73 Days

Account Receivable Turnover 3.62 Times 3.20 Times

Account Receivable Turnover Days 100.69 Days 113.99 Days

Account Payable Payment Period 3.30 Times 3.59 Times

Payable Payment Days 110.53 Days 101.64 Days

Total Days of Operating Cycle 263.63 Days 246.72 Days

Debt Ratio 101.5% 99.5 %

Equity Ratio -1.50% 0.5 %

Asset Turnover 79.83% 93.76 %

Earning / (Loss) Per Share (49.98) Rs. 3.62

Price Earning Ratio - -

Dividend per Share - -

Dividend Yield - -Book Value per Share (4.32) Rs. 1.36

Rate of Return on Total Assets -17.30% 1.33 %

Rate Of Return on Shareholders Equity -115% 265.5 %

Rate of Cost of Goods Sold 107.24 % 94.89 %

Rate of Gross Loss - 7.24% 5.11 %

Rate of Operating Expenses 4% 1.51%



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15/19

Finance Cost 0.92

Donation 0.02

Impairment in Investments 0.68

Workers Welfare Fund 0.04

Workers Profit Participation Fund 0.10

(1.76)

PROFIT / (LOSS) FOR THE YEAR 1.84

Other Income 0.11

Profit / (Loss) before taxation 1.95

Taxation (0.53)

Profit / (Loss) after taxation 1.42

PROFORMA INCOME STATEMENT

Sales 3,506,003,242

Less: Commission (12,621,612)

Net Sales 3,493,381,630

Cost of Sales (3,314,575,465)

Gross Profit / (Loss) 178,806,165



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OPERATING EXPENSES

Distribution Cost 24,542,023

Administrative Expenses 28,048,026

(52,590,049)

OPERATING PROFIT / (LOSS) 126,216,116

OTHER CHARGES

Finance Cost 32,255,230

Donation 701,201

Impairment in Investments 23,840,822

Workers Welfare Fund 1,402,401

Workers Profit Participation Fund 3,506,003

(61,705,657)

Profit / (Loss) for the year 64,510,459

Add: Other Income 3,856,604

Profit / (Loss) before taxation 68,367,063

Taxation (23,928,472)

Profit / (Loss) after taxation 44,438,591

RECOMMENDATIONS1- Technological upgrade in the spindles is very essential to cut the operating expenses.

2- Company is currently relying on the internal sources for the finance because of bad liquidity

condition of the company and banks are not allowing further working capital. This should be sort

out and try to work out terms with the banks to arrange capital.



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3- Turnover can be improved by opting different innovative techniques.

4- Government policies should be argued to improve export conditions as this can bring much

foreign exchange for the country and boost up the sales.

5- Wastage of yarn should be reduced to increase profits.

6- Better funds management is required.

7- Investment should be made with more care.8- The factories of the company should try to be run on full capacity.

9- More cash is to be arranged in a short time to meet the cash requirements of the business which

can be raised by issuing more shares to the existing shareholders or credits from some other

sources.

CONCLUSIONSAccording to the current situation of the country as the flood affects about 20% of the cotton production

of the country which will tend to increase the price of cotton and affect the cost of production. Also the

inflation rate in the country is resisting the improvement of the industry. These two conditions along with

power problem, gas problem as long as there, rapid improvement is very difficult. In spite of this the

world recovery starts which is a very good sign to reach more international markets and improve turnover

se overall profits of the company. The good thing is that the factories start generating their own electricity

in the recent past which helps to overcome the power problem. By closely studying the auditors report itis evident that the company management has created artificial net profit amount as the provision for the

markup for which the suit is still pending in the court should have to be made according to the general

practices but management insisted that they will going to defend the suits successfully. By this way the

provision of about 421 million is not created raised and if it was raised there is a net loss of about 403

million. If the export conditions are relaxed by the government then there is a sign that the company sales

from exports boost rapidly as from the past year we can see that the export sales were around 1,511

million which is now declined to 247 million, that means, decrease by 84%. If all the conditions start

improving in the coming year there is no doubt that the company will show much better results and much

more profits otherwise there is a serious threat to the company as the going concern because of the di

strust from various creditors who file the suits and even the winding up plea in against the company.



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Deewan Textile Mill Ltd. Intro to Business Finance (Financial Report 2010)

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