THE ISLAMIA UNIVERSITY OF BAHAWALPUR

Submitted To ; Miss. Sundas Shaheen

Submitted By ;

Muhammad Ijaz M.B.A (Marketing) 41

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My overall experience of preparing this report was a knowledgeable journey. I learn

a lot about the functions of Ruby Textile Mills Ltd. Apart from this, by actually

conducting this report; I also learnt practical application of what I have been

studying in overall M.B.A.

For completing this project I required the annual reports (5 years) of not only Ruby

Textile Mills Ltd. but also of some other Textile Mills which are benchmark at this

time in the industry in order to estimate the industrial profile, business processes

and SWOT analysis. I got my required data from websites of insurance companies

and from newspapers.

While conducting this report I faced some problems in getting the data as at

websites data is not managed very well. The knowledge of what I have studied in

MBA also came in handy. Once every thing was found out it got very interesting.

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“I dedicate this work of mine to

my Teachers, My Parents and to

all My Friends, who truly help and

guide me in completing this

project. “

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I am grateful to Allah almighty, for enabling me to fulfill this tiring, but

interesting job for the completion of my report.

The long and arduous task of developing this report was made easier by the help

and guidance of my teachers Dr.Khwaja Amjad Saeed, Mr. Irshad and as well

as Mr. Fida Hussain Bukhari.The whole practice of collecting material for the

report compiling and composing was enjoyable.

I would not be going justice in presenting this report without mentioning the

people around us who have been inextricably related with the completion of this

report

I extend my deep gratitude and heartiest thanks to my teachers and Coordinator

for preparing this report.

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TABLE OF CONTENTS

Introduction of Company-------------------------------------------06

Main Offices---------------------------------------------------------11

Organizational Hierarchy------------------------------------------12

Board of Advisory Committee------------------------------------13

Management of RTML---------------------------------------------17

Departments & functions-------------------------------------------20

Cash Flow Statements----------------------------------------------35

Financial analysis &Interpretation--------------------------------38

Competitors Analysis-----------------------------------------------51

Conclusion,Obligation,&Recomendation------------------------55

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INTRODUCTION

This report is written on the textile sector of Pakistan. This sector is playing a vital role

in the economy of Pakistan not only by providing large number of employment

opportunities but also major share of export of Pakistan. Pakistan is an agricultural

country and textile sector has major contribution towards its GDP. Cotton is cash crop of

Pakistan and the farmers of Punjab and Sindh mostly depend upon this crop. Due to

international affairs and political reason, the curve of progress of this sector has a

declining trend due to which the economy of Pakistan is suffering badly. After virus

attack in 1992, the farmers of South Punjab and Rural Sindh were unable to meet the

seeds, fertilizers and other expenditures. It is also one of the reasons that textile sector of

Pakistan is in grasp of problems and stepping slowly towards recovery.

Large number of textile units is declared sick industrial units. Faisalabad the centre of

textile products in Pakistan has negative growth rate of textile in these years. Hundred of

textile units are closed during this time and rate of unemployment is enhancing

considerably.

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OBJECTIVES OF STUDYING THE ORGANIZATION

The objectives of studying this organization are being elaborated below:

1. To study the performance of textile sector of Pakistan.

2. To find the reasons of downfall of this sector.

3. To know the view point of textile sector and stuffy their suggestions for uplifting of

this sector.

4. To know the demand of textile sector for the improvement in the textile policy made

by the Government.

5. To make the financial analysis of Ruby Textile Mills Ltd.

6. To give the recommendations for improvement of the Finance & Accounting System

of Ruby Textile Mills Ltd.

OVERVIEW OF THE ORGANIZATION

BRIEF HISTORY

Ruby Textile Mills Limited (RTML) is a company which was established in October

18,1980 as a private limited company and was subsequently converted into public limited

company. the registered office of the company is located at 3-A,SMC Housing

Scoietyu,Shara-e-Faisal,Karachi. RTML’s authorized and paid up Capital is Rs.400

million and Rs. 392 million respectively. The Company is listed at Karachi and Lahore

stock Exchanges.

NATURE OF THE ORGANIZATION

Ruby textile Mills Ltd. is a ‘public limited company’ incorporated under Companies

Ordinance 1984, and listed at Karachi and Lahore Stock Exchanges.

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VISION STATEMENT

To be company recognized for its art of textile and best business practices.

MISSION STATEMENT

The mission of the company is to operate state of the art textile plants capable of

producing yarn and fabrics.

The company will conduct its operations prudently assuring customer satisfaction and

will provide profits and growth to its shareholders through:

Manufacturing of yarn and fabrics as per the customer’s requirements and

market demand.

Exploring the global market with special emphasis on Europe and USA.

Keeping pace with the rapidly changing technology by continuously

Balancing, Modernization and Replacement (BMR) of plant and machinery.

Enhancing the profitability by improved efficiency and cost controls.

Recruiting, developing, motivating and retaining the personnel having

exceptional ability and dedication by providing them good working conditions,

performance based compensation, attractive benefit program and opportunity for

growth.

Protecting the environment and contributing towards the economic strength of

the country and function as a good corporate citizen.

COMPANY’S QUALITY POLICY

COMMITMENT TO EXCELLENCE

All of our priorities action and products must be recognized as an

expression of unique quality.

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We are dedicated to produce fabrics and yarn of the best export quality to

meet the requirement and expectations of our customers.

We strive for continuous improvement in day-to-day quality work;

organize the training and necessary feedback on our performance.

BUSINESS VOLUME

The principal business of the Company is manufacturing and sale of cotton yarn and

woven fabric. RTML’s production capacity consists of one main segments,

manufacturing. Today Ruby Textile Mills Limited is the 5th largest manufacturing mills

in Pakistan, with most modern and technologically advanced facilities.

IN HOUSE POWER GENERATION

The company has its own natural gas fired, captive power plants. The power generating

capacity of these plants is 4.5 MW. The company has purchased three more generating

sets of 3.0 MW capacities which are under installation and by addition of these

generators the company will be in position to meet its power requirements

EXPORT SALES

Reliance Weaving Mills Limited enjoys excellent reputation in the international as well

as domestic market due to its quality products of extended range. Many of the company’s

customers have a long association with the company and attach a strong brand loyalty to

the company’s products. The company has maintained its export performance during last

several years and is one of the leading exporters of the country.

NUMBER OF EMPLOYEES

The company believes that its dedicated workforce is its biggest asset. At present the

company employs 1400 people. Employee breakup is provided as per their position in

the management hierarchy hereunder.

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PRODUCT LINES

M/S Ruby Textile Mills Ltd has the following product lines.

FABRIC

Grey Woven Fabrics of all construction – with width range 45" to 124",Twill Fabric,

Bedford cord, Satin, Stripe Satin, chessboard, Percales, Honey Comb, Sheeting, Poplin,

Canvas, Bird eye, Stretch Twill, Double Pick Fabrics, Ottomans, Velveteen, Upholstery,

Waffle, Huckaback etc.

YARN

In order to broaden the product range, along with the traditional usage of local Cotton,

cotton of Australian & USA origin are also used to manufacture yarns for high strength,

low-contamination and improved evenness yarns.

Core-Spun stretch and low hairiness yarns are amongst their specialties

Chairman (01)

Managers (35) Company Secretary (01)

Assistant Managers (85)

Officers (153)

Officials (300)

Workers (825)

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CERTIFICATES & ACCREDITATIONS:

The Cotton USA and Supima licenses have been obtained to supply Supima yarns.

RWML is also Lycra Accredited by M/s Du-Pont.

Weaving and Spinning Facilities are ISO – 9001: 2000 Certified by M/S SGS.

AWARDS

The company has recently won (in November 2004) the “Special Merit Trophy” from the

country’s Premier due to its excellent export performance.

CREDIT RATING

The Company has been assigned a ‘Medium to Long Term’ Entity Rating at BBB+,

whereas ‘Short Term Credit Rating’ Entity Rating at A-3 by M/s JCR-VIS Credit Rating

Company (Pvt.) Ltd.

ORGANIZATIONAL STRUCTURE

Organizational structure of the Reliance Weaving Mills Ltd. is discussed detailed below:

COMMENTS ON THE ORGANIZATIONAL STRUCTURE

That is sign of good management. There are separate department controlled by the head

of the each department a manager. By the division of the managerial activities the

everyone is entrusted to his respective assignment but however a little bit exchange is

normal , exchange of posts or in case of any employee turnover the colleagues have

preferred to create such environment to get the activity done in case of absence of any

person. While one thing is that all the decisions are being taken at the top level i.e. at the

stage of the C.E.O. and another point which I have noted is that beyond the environment

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of departmentalization no preference is given to retain the professional employees in their

respective professional department. It has created a little bit phonation in the employees.

As for as my visit to the site is concerned and w.r.t. my discussion to mill workers of the

site decision of all kinds are being taken by the G.M. and no any other can just put his

suggestions or convey his point of view to overcome any barrier or to solve any problem..

The span of control is short therefore the grip of administrative authorities is strong on

the management. The chart of account of Reliance Weaving Mills Ltd. is such organized

that the discipline in ideal in the head office employees.

MAIN OFFICES

Basically Ruby Textile Mills Ltd. has one operative unit which is manufacturing unit.

This is a big listed public limited company exporting its major part of production. Main

offices of Weaving Ruby Textile Mills Ltd. Lahore are provided as follows:

Registered Office:

Room # 203-Faiyaz Center, 2nd floor,3-A,

S.M.C.H.S., Shahrah- e- Faisal, Karachi-74400.

Phone (+92-21)35396610, 34387710

Fax: (+92-21)34398810

Email:rtml@khi.wol.net.pk

Head Office:

35-Industrial area, Gulburge-IIILahore.

Phone: (+92-21)3576-1245,3576-1245

Fax: (+92-21)3576-1128,3571-1410

Email:rtml@wol.net.pk

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Mills:

Raiwand –Manga Road,

Raiwand, District Kasur.

Phone: (+92-42)3539-1035,3539-2658,3539-2659

Fax: (+92-42)3539-1037

Email:rtml@lhr.wol.net.pk

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ORGANIZATION’S (RTML) HIERARCHY

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FINANCE MANAGER

MARKETINGMANAGER

PURCHASEMANAGER

ACCOUNTSMANAGER

CHIEF INTERNALAUDITOR

CHIEF FINANCIAL OFFICER

DEPUTY CHIEF ACCOUNTANT

CHAIRMAN

C.E.O

CHIEF ACCOUNTANT

ASSISTANT AUDIT OFFICER

ASSISTANT FINANCE

MANAGER

ASSISTANTMARKETING MANAGER

PURCHASE OFFICER

MANAGER TAXATION

DY. MANAGER

TAX. MANAGER

REBATE ASSISTANT

Chairman and Chief Executive:

MR.NOOR ELAHI

Board of Directors:

Mrs.Parveen Elahi Mrs.Naheed Javed Mr.Nabeel Javed Mr.Javed Usman

Mr.Faizan JavedMr.Mansoob A.Akhtar

Audit Committee Mr. Nabeel Javed Chairman Mr.Nabeel Javed Member

Mr. Faizan JavedMember

Auditors

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ACCOUNTSOFFICERS

M/S . Mushtaq & Co.Chartered Accountants,

Hasrat Mohani Road ,Karachi.

Legal Advisor

M/S Ali Sibtain Fazli &ASSOCIATES

Bankers

Askari Commercial Bank LimitedArif Habib Bank Ltd.Habib Bank Ltd.Standard Chartered Bank Ltd.

Soneri Bank Ltd.

Registrar and Share Transfer Office

THK Associates (Private) Limited,Ground Floor, State Life Building-3

Dr.Ziauddin Ahmed Road, Karachi  Tel: 111-000-322Fax: 021 - 5655595

Registered Office/Head Office

Room # 203-Faiyaz Center, 2nd floor,3-A,

S.M.C.H.S., Shahrah- e- Faisal, Karachi-74400.

Phone (+92-21)35396610, 34387710

Fax: (+92-21)34398810

Email:rtml@khi.wol.net.pk

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President & Chief Executive

Mr. Mohammad Hussain Hirji  

Executive Vice Presidents (Marketing)

Syed Hassan Nadeem

Rana Shahbaz Ahmed

Senior Vice Presidents

Mr. Muhammad Afzal (H.O)

Engr. Ehtesham Malik (Engineering)

Sheikh Abdul Qayyum (Claims)

Mr. Muhammad Iqbal (Reinsurance)

Mr. Waseemullah (Company Secretary/CFO)

Mr.Najam Irshad

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Senior Vice Presidents (Marketing)

Ch. Shams-ul-Haq

Mr. Shah Saud Mirza

Mr. Sarfraz Ahmed Tarrar

Vice Presidents

Maj. (Retd) Muhammad Ajmal Khan           

Mr. Ali Munem Shamsi

Mr. Sohail Khalid

Mr.Jamil Ahmed (C.A)

Vice Presidents (Marketing)

Mr. Mubashir-ul-Hassan

Mr. Tahir-ul-Haq

Sh.Muhammad Hanif

Sh.Abdul Wahab

Assistant Vice Presidents

Mr. Ghulam Ashgar        

Mr. Waqas Ahmed

Mr. Sohail Younas

Assistant Vice Presidents (Marketing)

Mr.Ikram Zai

Mr.Moeenuddin

Managers

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Mr. Tazeem Hussain

Mr. Gulzar Hussain Shah

Syed.Imran Abid (I.A)

Mr.Noor Afsar

Mr.Gulfraz Anis

Mr. Muhammad Ali Soomro

Mr.Qamar Ikram Sheikh

Mr.Shahid Hussain

Mrs.Tallat Raza

Mrs.Samina Khan

Mr.Shahid Hussain

Mr.Tahir Mahmood

Mr.Faisal Ejaz

Mr.Taqiuddin

STRUCTURE OF THE FINANCE DEPARTMENT

NUMBER OF EMPLOYEES WORKING IN THE FINANCE DEPARTMENT

Finance department performs critical activity of total operation of the company. Operations of this department are so sensitive as company may flourish or collapse just because of the decisions of this department. As this critical job is being done in this department therefore its employees must be qualified, energetic and having sufficient capabilities of managerial operations. There are ten employees in this department. The employee chart of company’s finance department is given in figure provided hereunder.

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CHIEF FINANCIAL OFFICER

MANAGER ACCOUNTS

Figure: Employee chart of finance department

FINANCE AND ACCOUNTING OPERATIONS

FUNCTIONS OF ACCOUNTS DEPARTMENT

Accounts Department has the following main functions:

Book Keeping in computerized environment

Maintaining records.

Arrangement and best utilization of funds

Cash management

Provides reports for assistance in analysis to top management decisions.

Analysis of reports

Preparation of final accounts

Arrangement of funds from the banks.

Preparation of fund flow statement.

Stock taking normally on monthly basis.

Stock procurement

Filling sales tax and income tax returns.

Discounting of export bills from the bank

Payment of utility bills and other expenses

Preparation of annual Financial Statements of the company.

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ASSISTANT FINANCE MANAGER

FINANCE ASSISTANT

TREASURY OFFICE BOY

Provide necessary assistance to the internal and external auditors on demand

We can say that this department acts as a nervous system. Every matter firstly is brought

in the knowledge of the head of this dept. The Head of this dept. is equipped with a very

experienced Financial Controller who is a C.A (Finalist) and has a ten-year experience in

related fields. All the vouchers, reports and any other document prepared by this dept. are

vouched and signed by him.

FUNCTION OF BANKING SECTION

This section is also very important part of the account dept. all the functions that are

related to the banks are handled in this section. Major functions of this section are as

under;

1. Preparation of Bank reconciliation statement daily basis.

2. Vouching of the bank’s debit and credit advice.

3. Preparation of the loan documents.

4. Creation and application of funds adequately.

5. All the works related to the letter of credit.

6. Preparation of documents for Export Re-Finance.

BANK RECONCILIATION STATEMENT

Bank going-clerk collects the statements of the accounts and advice from the bank on

daily basis so that true and fair position could remain in the books.

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All these transactions have been incorporated in the co.’s accounts when the treatment

comes, the banking section reconcile it with their accounts. But due to some reasons,

these transactions do not equally matched with the co.’ records. These reasons are:

1. Check issued by the co. to any party but not still presented to the bank.

2. Check deposited but not cashed or cancelled due to some reasons.

3. Any amount debited or credited by the bank but not treated in the co.’s accounts due

to disagree with the bank.

DEBIT AND CREDIT ADVICE

Banks going clerk collect debit and credit advices from the co. These advices are the

reflection of the transactions between the company and the bank.

When any amount is deducted from the company accounts due to any reason like;

Deduction of bank charges

Payment of any amount to the party on behalf of the company

The adjustment of loan as well as markup.

For these amounts the bank made the Debit Advice, means that certain amount has been

deducted from the co.’s account and handover it to the employees of the co. ultimately

the co. considered these as the expenses and deducts this amount from the banks ledger.

Bank section credits these amounts from the accounts and makes and BDN (Bank Debit

Note) through passing entry, signed it and send to F.M. who checks it and signed it and

than it is send to Director for final approval so that its may be posted in to the computer

in its particulars account.

More over when the bank credit any amount in the company’s account due to some

reasons like;

Re-imbursement of loan

Depositing of any amount in the bank by co.

Depositing of any amount in the bank from any party in the company’s accounts

Refund of excess Mark-up if recovered by the bank

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For these the bank sends the Credit Advice to the RTML, means that the certain amount

has been credited to the company’s accounts. There is the co. the section treat these

pieces of advices in the company’s accounts of that certain bank and Debit the amount in

the account.

EXPORT REFINANCE LOAN

Reliance Weaving Mills Limited is an export-oriented company. Its export sales are more

than 90% of its sales. Under the facility provided by the State Bank of Pakistan, it avails

the export finance/ refinance from different banks for exporting its commodities.

EXPORT RE-FINANCE PART-I

The following documents are required to present before the bank to avail that loan.

Sales contract for which export refinance is to be applied Letter of credit opened by the buyer Purchase order by the buyerThe above documents are forwarded for the sanctioning of the refinance loan are checked

by the bank for integrity and loan is sanctioned when the loan is sanctioned, the bank

pass an entry in its books by crediting the co. with the export refinance loan amount

which is called reimbursement.

EXPORT RE-FINANCE PART-II

This type of loan is provided against the previous export performance of the co. by

dividing the total sale on 2.4

The following documents are required to present before the bank to avail that loan:

Statement of EE certified from the SBP

Promissory note

Request letter

These loans are much cheaper to other commercial loans because its markup is in ranging

from 10% to 12%.

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OPENING OF LETTER OF CREDIT

One of the most important functions of the commercial banks in the world is to finance

the imports and exports trade. There are several ways of financing international trade, of

all the methods available at present, the documentary letters of credit are most important

because they undertake the beneficiaries to obtain money either immediately or within a

mutual agreed period, provided the beneficiary fulfills the conditions lay down in the

letter of credit.

Article-2 of the uniform custom and practice for documentary credit of the international

chamber of commerce (ICC) defines the documentary credit as under;

“Any arrangement, however, named or described, whereby a bank (the

issuing bank), acting at the request and on the instructions of a customer (the

applicant) or its own behalf is to make payment to or to the order of a third

party (the beneficiary) , or is to accept and pay bills of exchange (draft/drafts)

drawn by the beneficiaries, or authorizes an other bank to negotiate, against

stipulated documents, provided that terms and conditions of credit are

compiled with.”

Form the above definition it means that a documentary letter is a bank’s written

undertaking given to the exporter of the payment of a certain amount of money on behalf

of the importer provided the exporter tenders to the bank or its overseas agent, the

specified document within a specified period in accordance with the terms of

understanding.

LETTER OF CREDIT TREATMENT

The company has to import following items for the continuation of its operation.

1. Machinery

2. Spare parts and Chemicals

The company has to request to open L/C for these imports. All the work related to the

L/C is prescribed in the purchase order and send it to bank duly signed by import

department.

For opening of L/C amount of margin 10% of the total invoice cost and L/C opening

charges are deducted by L/C opening bank. This amount is debited to the L/C account

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created for that particular L/C # , by debiting the margin and charges recovered by the

bank. An entry is made.

L/C # XYZ Dr. Margin Dr.

Bank Cr.

When the imported items come into the counter, bank inform to get release the

documents. By depositing the amount of the L/C is of sight nature. If the L/C is of

deferred (30, 60, 90, 120 days) nature then the rate of the currency or the mark up

required to deposit by the company in addition to L/C value is decided between the bank

and the company provide some guarantee to the bank or the bank decides on the credit

worthiness of the company.

Amount deposited to the bank is then debited to the L/C account by debiting the bank is

then debited to the L/C account by debiting the bank or payable. An entry is made:

L/C # XYZ Dr.

Bank/Import bill payable Cr.

After releasing the documents these are sent to the agent sitting in Karachi who then

release the shipment from the port by paying all the expenses to cargo, carriers, customs,

sales tax, income tax authorities.

The company sends time to time the amounts to the agent for the particular L/C #. If there

is no payment is made to the bank then bank create the PAD is favor of the company and

recovered form the RWML otherwise make the loan duly a mutual consideration.

L/C # XYZ Dr.

Import bill payable Cr.

Clearing agent after releasing the consignment dispatched it to the company and along

with all documents (bill of entry and receipts of the expenses stated above). The company

after checking all the documents sends the remaining amount if any to the agent. When

all the amounts are paid to the agent for that certain L/C then the entry is made to close

the account of the agent for that particular L/C. the entry is:

L/C # XYZ Dr.

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Agent Cr.

EXPORT BILLS NEGOTIATION

This term is specified to the exports. When the company makes export sales, the buyer

opens an L/C in favor of the company. As described earlier the L/C may be of different

kinds from sight to 90& 120 days.

FUNCTIONS OF THE FINANCE DEPARTMENT

ACCOUNTING SYSTEM OF THE ORGANIZATION

The Finance department deals with these accounting operations like, Cash & bank,

inward invoicing, outward invoicing, Income and sales tax, Inventory accounts and

payroll.

CASH & BANK

It deals with all the payments and receipts of the funds. Payments are both cash and

through cheque. Similarly receipts are both cash and through cheque. The above

function is being performed at factory and Head office. Cash payments are made to

temporary workers (wages), purchasers against expense summaries, for traveling &

entertainments bills, for machinery maintenance & other minor services and petty cash

payments. Certain payments are being made through cheque as supplier’s bill and

utilities bill after verification by Plant Manager & checking by the Accounts Officer.

Sash receipts from waste material sale and Fair Price Shop sale is received by the

Accounts Officer. Cash receipts from local distributors are also received by him and

deposited in Company’s Bank Account accordingly. The same procedure is in vogue at

Head office.

INWARD INVOICING

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Like Cash &Bank Inward invoicing also takes place at factory. This section does

accounting of all the materials stores, spares & supplies. Purchases are classified into

cash purchases and credit purchases.

OUTWARD INVOICING

Outward invoicing deals mainly with the Marketing & Sales function. It also maintains

the customer’s records. This section plays a vital role in preparing of acco9unts. The

following documents are involved with Sales

(i) Order Confirmation (ii) Marketing Order (iii) Invoice.

EXCISE AND SALES TAX

Reliance Weaving Mills Ltd. Maintains all of the necessary records to submit Monthly

Sales Tax return to the Sales Tax department. The sales tax record of Daily Production

report, Sales tax invoices, Supply register, Gate pass and Monthly sales tax return are

maintained at factory.

INVENTORY ACCOUNTS

This department is concerned with the control of inventory/stock carried by the entire

company. The company have not separate purchase department hence all the purchases

are conducted by storekeeper. Following are the item in the recording entries in the

books.

Raw material

Packing material

Miscellaneous items store

All these materials are kept in the central stores and two storekeeper looks after the store.

All purchases whether on credit or cash purchases arrived at the factory gate.

Storekeeper records the received material in books and also bin ledger cards are used to

record the material.

PAYROLL

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Payroll section basically deals with payment of salaries and wages to the employees and

workers. Like other sections, payroll is also computerized. In Reliance Weaving Mills

Ltd following categories of employees and worker:

Monthly paid workers

Permanent worker

Workers on daily wages

FINANCE SYSTEM OF THE ORGANIZATION

FINANCE SYSTEM OF THE ORGANIZATION

Finance is the life blood of an organization. To meet the financial requirement of the

company a separate finance deptt. is established under the supervision of general

manager finance (Manager) Finance. Mr. Hamid Mehmood is manager Finance and

finance deptt. falls under the control of Chief Financial Officer (CFO) Sheikh Abrar

Manzoor, who is a qualified Chartered Accountant from institute of chartered

Accountants of Pakistan (ICAP). The duties & functions of typical finance department

can be classified into two categories.

1. Planning 2. Controlling

The first category is PLANNING and the second function is CONTROLLING. These

activities are inter-related and inseparable because if there is no planning there will not be

any control. Therefore, planning and control move together. Planning refers to the

activities that bridge the gap from the starting point to the terminal point. Planning in the

finance department under review refers to the activities of Cash Flow and Budget

preparation. These are the major activities (planning) in any such department.

Further Financial requirements are met through following ways.

Banking Loans and Advances

Receipts and Payments Capital Market

Pledging of Stocks Mortgage of property

Hedging

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Brief detail of the above mentioned aspects is given hereunder.

BANKING

To meet it s financial requirements RWML has obtained financial assistance from various

banks like;

Habib Bank Limited Muslim Commercial BankAllied Bank Limited United Bank LimitedNational Bank of Pakistan Saudi Pak Commercial Bank LimitedUnion Bank

LOANS AND ADVANCES

Loans and advances is another source of meeting the financial requirements of the

RWML. Company meets its requirements through

Muslim Commercial Bank National Bank of PakistanUnited Bank Limited Habib Bank LimitedAllied Bank Limited United Bank LimitedUnion Bank Limited

Bonds

RWML being the 1st Co. in Southern Punjab Issued 7.5% bonds. And it was a very

successful offering.

RECEIPTS AND PAYMENTS

Narrowing the collection from debtors period and widening the payment to supplier

period is another source of funds which is also used artistically well by the management

of Reliance Weaving Mills Ltd. This is done in such a way that it provides funds to the

company for some vital days without agitating the supplies. It is the aim of every

effective financial management setup to boost up its collection system and to delay its

payments effectively. The company is also adapting effective modes for its receipt

collection. The delay in payables is not slow enough to affect the company’s goodwill.

Company is using the banking facilities for its receipts and payments. Only the daily

laborers or the officials getting less than 10000 salaries are taking their pay and

allowances through cash. Moreover, except petty expenses all the expenses are being met

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through cheques or bank drafts. In case of minimizing the import clearing charges co. is

now using the facility of Telephonic Transfer (TT) and delay in the clearing of L/C bills

and detention charges are being urgently cleared.

Reliance Weaving Mills Ltd. is also using running finance accounts and cash finance

accounts with its bankers to meet its money market and capital market requirements.

CAPITAL MARKETS

Financial Assets exists in the market/economy because an economic units investment in

real assets frequently differs from its savings. The purpose of capital market is efficient

allocation of savings to ultimate users of funds. Reliance Weaving Mills Ltd. is

benefiting from lease financing and issue of securities/bonds to capital markets. The

allocation of funds in a sector of economy primarily occurs on the basis of risk & returns.

This factor is influential in the financial management decision of RWML, also.

PLEDGING OF STOCK

Financing against the pledging of stock is one of the major sources of financing in

RWML mostly working capital requirements are met through pledging of stock;

Pledging of Reliance Weaving Mills Ltd. stock with Muslim Commercial BankPledging of Reliance Weaving Mills Ltd. stock with Habib Bank LimitedPledging of Reliance Weaving Mills Ltd. stock with Allied BankPledging of Reliance Weaving Mills Ltd. stock with Union Bank

Financial requirements are also being met through;

Pledging of finished goods inventory with Muslim Commercial BankPledging of finished goods inventory with Habib Bank LimitedPledging of finished goods inventory with Allied Bank LimitedPledging of finished goods inventory with National Bank LimitedPledging of finished goods inventory with Union Bank

MORTGAGE OF PROPERTY

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Demand finance requirements are met with mortgage of property of RWML (Ruby

Textile Mils Ltd.). Money market loans are also obtained to meet the financial

requirements of the company.

As company enjoys very healthy relationships with its corporate associates and believes

in longer term business relationship and believes in mutual cooperative efforts to boost

the economy & contribute to uplift the corporate sector.

BUDGETING

Cash flow budget, Marketing operation budget, Production department budget are

prepared in Reliance Weaving Mill Ltd. Finance System of the organization also covers

the decision relation to the investment, financing and dividend.

USE OF ELECTRONIC DATA IN DECISION-MAKING

Reliance Weaving Mills Ltd. also uses the computer in order to record the information.

Data related to economic activities of the company is recorded in computers and as well

as manually. The company maintains a suitable Management Information System (MIS)

by using electronic data processing for every department. Head of all departments send

reports to the office of General Manager and then it is presented to the Board of Director.

RWML’s Software Specification

These are of two types;

1. System Software2. Application Software

SYSTEM SOFTWARE

It is the operating system of computers. In RTML, they are using window base operating

system. Window based software installed by the company. It is an operating system. The

basis of system is a supervisor’s level that creates a number of Virtual machines (VMs).

In each of these machines users can run their own program, using the terminal to control,

the VM and also to provide the route by which they input to receive out put from their

VM. Their operating System provides them every good level of security.

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APPLICATION SOFTWARE

RTML got their system development in Visual tools. (Like Visual Basic + SQL Server).

It is a very powerful language. They have following systems computerized.

Accounts system

Sales System Both local and export.

Share System

Yarn Management

Purchase System

Inventory System

Sales Dept. has the following sub-dept.

Local Sales Cloth Rags

Export Sales Cloth

Whenever they need some modification, in their system, their programs do so. They are

using their system under the environment of Online System.

PRESENTATION OF REPORTS

No one system can access computer until using their personal password. So the system of

RWML is also generating a broad no. of reports in confidential condition. Following are

some important reports produced. By this system;

Listing of all master files

Listing of all ledgers files

Sub ledgers Edit lists

Due balances

Day Book

Purchase day book

Sale day book

Trail Balance

Monthly Balances

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Outstanding Cheque

Trail Balance

Monthly Profit & Loss Account.

DATA FLOW

In RTML, they are using Online System. In account dept. they are using four vouchers.

These vouchers are as follows;

Journal Voucher (bill payable)

Bank Voucher Debit/Credit

Adjustment Voucher

Following are the files that are being maintained there;

Chart of Account

Employees

Buyers

Suppliers

Banks

Letter of Credits ( for Sale & Purchase)

The data about any voucher flow in a way that first of all, it comes to Keypunch

Operator. He recognizes the type of voucher i.e. JV/BV/BDN/BCN. After recognizing

the type, he assigns a specific code to the voucher depending upon that with which entity

this voucher is related. After the keypunch Operator has assigned the code to the voucher

then the accountant check that whether the voucher is assigned the code of a/c right or

not. In no, then it is sent check to the F.M. to correctly assign their code to the voucher. If

yes, them it is again sent to the internal auditor to check voucher, then edit list is

displayed on the accountant’s screen and he checks the voucher entry. If the finds any

error in the entry he asks back the K.P. to make the entry correct. If there is no error in

inputting the voucher then it is sent to be C.E. for final approval.

Data Security

We use the term “data security” to mean protection of the data in the data base against the

unauthorized or accidental disclosures, alteration or destruction. Realizing that perfect

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security is unattainable, the objective of data security is to minimize the risk and

probability of loss and disclosure to the lowest affordable level.

There, In RTML, they are securing there data in following ways;

Backup on daily basis.

Protecting from unauthorized access

Watchman

UPS ( Non-interruptible Power Supply)

Stabilizer

We have already described that TWML is running their computer network under the

environment of W.S. Operating Systems. Their Operating systems provides them the

facility to set different level passwords. Each level may be allocated different rights that

are pre-specified. They are using five levels of data securing and only the authorized

person can access the system up to the extent they have authority. These levels are as

follows;

SYSTEM LEVEL SECURITY

This is highest level of security. It has all the possible rights. It has access to change the

different operating system protocols. It can change the different passwords. It can modify

the levels of rights given to different users. In RTML it is carried by Muhammad Tousef

the head of MIS Department.

MANAGER LEVEL SECURITY

This is the top most level in operational work. This level is also held by manager MIS

Dept. under this level, the manager can perform any kind of activity regarding the

management of the data also hold this level.

USER’S LEVEL SECURITY

This is also called the K.P. level. At this level user of the system have the minimum

rights. Their main work is to input the data and to generate different reports.

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MOBILIZATION OF FUNDS

For fulfilling the cash requirement, an efficient cash management system is maintained

by the Reliance Weaving Mills Ltd. In this organization highly qualified financial

experts manage its mobilization of funds by slowing disbursements. This means when

cash has to flow outside the organization, it tries to delay such payments for some days so

that the receiving party doesn’t feel it. Now the Banks has made it more convenient for

the businessman. Banks provide the short-term loan facility in order to meet the short-

term needs. Reliance Weaving Mills Ltd. is also enjoying this facility. Assistant Finance

Manager of the organization tries to purchase maximum raw material on credit with

promise to pay in future. This situation allows company to utilize the fund in other profit

earning activities. The opportunity is availed and suitable amount of money is earned in

shape of profit by delaying the disbursements.

GENERATION AND SOURCES OF FUNDS

Funds are generated by the sale activities of the company during the year. After the

preparation of Profit & Loss Account the amount of generated fund is known. The

source of funds of last five years is presented below for ready reference.

Sources 2010 2009

Capital 205,406,250 205,406,250

Reserves 457,348,084 356,963,536

Long Term Finances/Loans:

From Saudi Pak Investment Co. - Term Finance 40,933,330 11,615,776

35

From United Bank Limited demand finance I 139,375,000 161,675,000

From United Bank Limited demand finance II 7,873,290 11,813,290

From NBP Ltd. demand finance 105,135,669 119,829,287

From HBL - demand finance 15,199,196 45,533,194

From HBL - Fixed Asset Financing 175,911,990 175,911,990

Short Term Finances/Loans:

Creditors, accrued and other liabilities 89,051,800 105,086,055

Finance of mark up arrangements & cr. Facilities 694,602,080 472,032,230

Reliance Weaving Mills Ltd.

Cash Flow Statement

For the Year Ended September 30, 2010.

2010 2009

Rupees Rupees

Cash flow from operating activities

Cash generated from operations 132,354,184 71,326,144

Finance cost paid (85,309,483) (87,527,678)

Taxes paid (26,853,605) (26,902,424)

Gratuity paid (2,738,703) (1,304,274)

Net cash from operating activities 57,452,393 (44,408,232)

Cash flow from investing activities

Fixed capital expenditure (93,036,233) (274,879,907)

Sale proceeds of fixed assets 8,070,330 4,029,633

Long term security deposits (215,618) -

Net cash used in investing activities (85,181,521) (270,850,274)

Cash flow from financing activities

Redemption of TFCs (42,857,142) -

Proceeds from long term loans - 295,741,277

Repayment of long term finances (78,790,062) (203,031,667)

Liabilities against assets subject to finance lease (13,576,776) (11,789,326)

Dividend paid (15,326,357) (15,288,339)

Net cash used in financing activities (150,550,337) 65,631,945

Net decrease in cash and cash equivalents (178,279,465) (249,626,561)

Cash and cash equivalents at beginning of the year (464,758,832) (215,132,271)

Cash and cash equivalents at the end of the year (643,038,297) (464,758,832)

36

ALLOCATION OF FUNDS

Analysis of Balance sheet is elaborated below which shows the funds allocated to

different assets and liabilities for the year 2010. The analysis of Balance Sheet shows

that the funds allocation to different assets and liabilities is as under for the year

2010.

LIABILITIES ASSETSIssued subscribed and paid up capital 205,406,250 Operating fixed assets 1,074,047,252 reserve for bonus shares capital work in progress 54,948,865 capital reserve share premium 136,162,500 long term deposits 2,421,340 general reserve 300,000,000 Current Asset Un-appropriated Profit 21,185,584 stores, spares and loose tools 72,580,056 Redeemable Capital stock in trade 556,956,873 Long term loans 421,845,190 Trade debts 141,435,098 Liabilities against Finance Lease loans, advances, deposits, 91,390,340 Employee retirement benefits 2,413,983 cash and bank balances 51,563,783 Current Liabilities short term bank borrowings 694,602,080 current portion of long term liabilities 171,480,455 Creditors, accrued and other liabilities 67,020,033 Provision for taxation 22,031,767 Dividends 3,195,765

Total 2,045,343,607 Total 2,045,343,607

CRITICAL ANALYSIS OF THE THEORETICAL CONCEPTS RELATING TO PRACTICAL EXPERIENCES

There are many theoretical concepts, which are not used practically in this organization

but the basic accounting and finance operations are applicable practically. As far as

accounting policies and business ethics in the Reliance Weaving Mills Ltd. is concerned,

is according to rules and regulations of the government policies. Legal preceding are

made in accordance with the company ordinance 1984. All matter relates to accounts i.e.

37

sales tax, excise tax, audit of the company etc. is done practically in this organization. I

analyze that:

Accounting system is designed in such way that there is minimum expectation about

fraud and omission of entries.

a. Accounting system of this organization has made the internal check very strict.

b. The internal audit department of this organization is much effective and provides

useful information for the decision making.

c. There is quick retrieval of posting of entries that works automatically.

FINANCIAL ANALYSIS:

Financial analysis is designed to determine the relative strengths and weaknesses of a

Company. Financial analysis concentrates on financial statements analysis, which

highlights the key aspects of a firm’s operation. Financial statements analysis involves a

study of the relationships between income statement and Balance Sheet accounts, how

these relationships change overtime (trend analysis) and how a particular firm compares

with other firms in its industry (comparative analysis). Although financial analysis has

limitation, when used with care and judgment, it can provide some very useful in sight

into the operations of a company. The income statement summarizes the firm’s revenues

and expenses over the past year. Earning per share (EPS) is called “the bottom line”’

denoting that all of the items on the income statement, EPS is the most important.

The Balance Sheet shows the firm’s assets an the claims against those assets. It portrays

the financial condition at a point in time. Assets, found on the left-hand side of the

balance sheet, are typically shown in the order of their liquidity. Claims, found on the

right-hand side are generally listed in the order in which they must be paid.

Trend analysis looks at the trend of single ratio overtime. Trend analysis can provide

clues as to whether the firm’s financial situation is improving, holding constant, or

deterioration Comparative analysis compares the firm’s ratios with industry average

ratios and/or the ratios of leading competitors. Such analysis is another technique for

analyzing a firm’s financial statements. To create common size statements, all income

38

statement items are divided by sales, and total assets divide all balance sheet items. Thus,

a common size income statement shows each item as a percentage of sales, and a

common size balance sheet shows each item as a percentage of total assets. Different

operation policies, such as the decision to lease rather than to buy equipment may have an

impact on financial ratios. Information on the firm’s non-capitalized lease agreements,

on its pension plan, on its recent acquisitions and divestitures, or its accounting policies,

and so forth can be found in the notes to the financial statements and should be

considered by the analyst. In the financial analysis, following three techniques have been

used; these are Ratio analysis, Horizontal and vertical analysis.

TABLE OF DIFFERENT RATIOS

2005 2006 2007 2008 2009 2010Leverage Ratios:Debt Equity Ratio 60:40 46:54 60:40 57:43 57:43 47:53Interest Cover Ratio(times) 1.76 2.46 1.36 1.52 2.00 2.52Liquidity Ratios:Current Ratio 47:53 51:49 54:46 51:49 52:48 49:51Acid Test(Quick) Ratio 0.50 0.71 0.53 0.37 0.31 0.20Efficiency Ratios:Total Assets Turnover Ratio (Times) 0.82 1.06 0.85 1.29 1.32 1.40Fixed Asset turnover(times) 1.67 2.03 1.50 2.01 2.07 2.40Profitability Ratios:Gross Profit Ratio 16.14% 24.61% 15.58% 15.30% 12.90% 10.46%Net Profit Ratio 4.28% 10.95% 1.58% 2.66% 4.15% 4.21%Inventory Turnover(times) 4.90 5.69 6.44 7.91 5.76 5.00Return on Capital Employed 10.12% 33.09% 14.33% 16.66% 16.48% 16.85%Market Value Ratios:Per Share (Rs.)Break-up Value 20.80 28.61 23.69 22.84 26.63 32.27Cash Dividend 1.25 5.25 0.75 0.75 0.75 Earning Per Share 3.13 10.5 2.67 2.82 4.54 5.64

Each above have been applied for the years 2005, 2006, 2007,2008,2009,2010.

COMMENTS

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Leverage shall be considered from two view points i.e. operating leverage and financial

leverage. Since if we analyze the income statement ratio of fixed production cost to that

of variable cost in not so high or reasonable. Therefore, as the company is not under

heavy debt and loans are not quite old therefore rate of interest is also reasonable. This is

the vital aspect of the better financial management.

Liquidity ratio shows whether the organization is able to its creditors in the hour of need

or not. Current ratio shows that this organization has current assets of Rs. 0.96 for every

Rs. 1 of current liabilities. Quick ratio tells us that in the hour of need this organization

can pay Rs. 20 for every Rs. 1 of current liabilities.

Total assets turnover ratio shows how hard the firm assets are being put to use. It

measures the revenue generated per rupee of assets. For 2004 total assets turnover ratio

is 1.40 times.

Net profit / (loss) indicates that the profit ranges from 1.58% to 10.95% in the last six

years. It indicates that the co. never suffers loss for any of the year; and now continuously

the company’s profit is increasing but the more important is that the company’s business

volume is expending rapidly. This is a sign of rapid growth.

If we overview all the financial ratios of Reliance Weaving Mills Ltd. then it comes to

know that this organization is rapidly expanding its business volume.

Most of earning is paid towards administrative expenses and raw material because of this

liquidity of this company is ultimately affected. And the ratio is less than 1:1.

Graphic depiction of important ratios is given in figures I to VI.

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HORIZONTAL & VERTICAL ANALYSIS OF RWML

BALANCE SHEET ANALYSIS

2010 2009 2008 2007 2006

ASSETSOperating fixed assets 1,074,047,252 1,151,456,788 963,961,057 537,836,670 585,592,036 capital work in progress 54,948,865 11,143,923 40,260,082 475,214,695 67,435,944 long term deposits 2,421,340 4,027,780 4,027,780 3,996,550 650,550 Current Assets:stores, spares and loose tools 72,580,056 72,746,915 38,527,545 36,333,854 19,641,030 stock in trade 556,956,873 429,009,085 249,798,561 185,452,931 142,680,978 Trade debts 141,435,098 132,478,254 73,023,993 304,471,808 320,084,928 loans, advances, deposits, 91,390,340 91,192,017 96,656,807 87,695,275 58,545,904 cash and bank balances 51,563,783 7,273,398 36,897,243 10,514,208 111,196,417

Total 2,045,343,607 1,899,328,160 1,503,153,068 1,641,515,991 1,305,827,787 LIABILITIESIssued subscribed and paid up capital 205,406,250 205,406,250 205,406,250 164,325,000 109,550,000 reserve for bonus shares - - - - 27,387,500 capital reserve share premium 136,162,500 41,081,250 41,081,250 41,081,250 general reserve 300,000,000 300,000,000 200,000,000 100,000,000 100,000,000 Un-appropriated Profit 21,185,584 476,817 22,660,143 83,894,927 76,496,986 Redeemable Capital 107,142,858 150,000,000 Long term loans 421,845,190 438,306,846 352,395,341 472,654,396 314,103,910 Liabilities against Finance Lease 12,834,692 25,026,591 34,838,087 Employee retirement benefits 2,413,983 Current Liabilities:short term bank borrowings 694,602,080 472,032,230 252,029,514 504,643,382 397,588,859 current portion of long term liabilities 171,480,455 144,505,609 91,085,082 86,055,167 62,438,535 Creditors, accrued and other liabilities 67,020,033 135,028,920 124,046,467 114,959,651 147,648,360 Provision for taxation 22,031,767 13,990,566 21,017,438 20,797,245 11,111,902 Dividends 3,195,765 18,522,122 18,404,992 18,266,886 59,501,735

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Total 2,045,343,607 1,889,328,160 1,503,153,068 1,641,515,991 1,305,827,787

INTERPERTATION

This analysis is describing the five year balance sheet. So, it enables us to observe the

comparative progress of the company in these five years in each face item of the balance

sheet. It is clear from this table that the operating fixed assets have an increasing trend in

the company that these are Rs. 585.60 million in 2006 whereas after 2008 these remains

more then 964 million. As for as the current asset are concerned these are also increasing

as the business is expanding annually so the requirements of funds to met day to day

needs are also increasing which resulted into increase in the current assets.

Share capital of the company was Rs. 109.56 million in the year which was raised up to

163.33 million in the year 2007. Furthermore business expansion necessitated the further

issuance of share capital of 41.8 million and share capital figure reached to Rs. 205.41

million in 2008. Capital Reserves of the firm were also raised up to Rs. 136.16 million in

the year 2010 from 41.08 million in the previous years

General reserves of the co. were also increased from 100 million to 200 million in the

year 2008 and this amount was further raised to Rs. 300 million in the year 2009.

Long term loans are relatively less raised though the firm has expanded its business

volume. As for as, the current liabilities are concerned, the need to meet the business

requirements was raised therefore firm has to depend more on the current liabilities.

These are not bearing high interest rates therefore these are economical then that of the

long term liabilities.

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In nutshell the comparative figures of the last five years revealed that the company’s

progress is increasing rapidly in terms of its business worth and also its business volume.

As the company’s total assets were Rs. 130.50 million which are now increased up to

Rs.2045 million which is a good sign.

VERTICAL ANALYSIS OF BALANCE SHEET

2010 2009 2008 2007 2006

ASSETS

Operating fixed assets 52.51 60.62 64.13 32.76 44.84

capital work in progress 2.69 0.59 2.68 28.95 5.16

long term deposits 0.12 0.21 0.27 0.24 0.05

Current Assets:

stores, spares and loose tools 3.55 3.83 2.56 2.21 1.50

stock in trade 27.23 22.59 16.62 11.30 10.93

Trade debts 6.91 6.98 4.86 18.55 24.51loans, advances, deposits, prepayments and other receivables

4.47 4.80 6.43 5.34 4.48

cash and bank balances 2.52 0.38 2.45 0.64 8.52

TOTAL ASSETS 100.00 100.00 100.00 100.00 100.00

EQUITIES 2004 2003 2002 2001 2000

SHARE CAPITAL & RESERVES

Issued subscribed and paid up capital 10.04 10.87 13.67 10.01 8.39

reserve for bonus shares 2.10

capital reserve share premium 6.66 2.17 2.73 2.50 0.00

general reserve 14.67 15.88 13.31 6.09 7.66

Un-appropriated Profit 1.04 0.03 1.51 5.11 5.86

Redeemable Capital 0.00 5.67 9.98 0.00 0.00

LIABILITIES:

Long term loans 20.62 23.20 23.44 28.79 24.05

Liabilities against assets subject to Finance 0.00 0.68 1.66 2.12 0.00

43

LeaseEmployee retirement benefits 0.12 0.00 0.00 0.00 0.00

Current Liabilities:

short term bank borrowings 33.96 24.98 16.77 30.74 30.45

current portion of long term liabilities 8.38 7.65 6.06 5.24 4.78

Creditors, accrued and other liabilities 3.28 7.15 8.25 7.00 11.31

provision for taxation 1.08 0.74 1.40 1.27 0.85

Dividends 0.16 0.98 1.22 1.11 4.56

TOTAL LIABILITIES 100.00 100.00 100.00 100.00 100.00

INTERPERTATION

This analysis is showing the relationship of each item of the balance sheet in ratio to the

total assets. It is clear from this analysis that how much of the assets are being kept in

which form at this company. The same depiction of the equities side is also provided.

Moreover comparative information of the five years enables us to judge the company’s

progress in this time period. Operating fixed assets were 45% of the total assets in the

year 2006 whereas these are forming a 65% part of the total assets in the year 2007 which

shows that company has increased its fixed assets surely is due to the increase in the

share capital. Company has raised its share capital to fulfill the requirement of funds for

expansion. Long term deposits are also very short which tells us that company has

expanding its business activities therefore it doesn’t have extra funds to put in long term

deposits. As for as the stores of the company are concerned these are also increasing as

compare to the figure of 2008. The reason of such increase is that by the expansion in

business volume it requires more store and stock for ensuring the continuity of operations

which is of intense importance in such industries.

The ratio of stock in trade and trade debts is increasing annually, which is showing that

now company needs more working capital.

On the other side the company has issued its further shares to raise funds in 2007 and

2009 Rs. 54.28 million and 41.09 million respectively to meet the business needs. With

44

this share capital induction the owner’s equity portion was raised in these years as

compare to 2007. The share capital was 13.67% of the total assets in year 2007 whereas

this ratio was declined in the year 20010 because respective portion of general reserve is

increased from Rs. 200 million to a Rs. 300 million. And further more, the current

liabilities are also increased to meet the working capital needs.

Long term loans are 28.79% in the year 2008 where as this ratio was decreased to 20.62%

in the year 2010.

In nutshell it is clearly understood that the short term liabilities of the co. are increasing

and long term liabilities are decreasing which is a good sign but the negative point of

RWML’s is that its current assets are less then the current liabilities i-e Co. is not in a

position to meet its current liabilities. Rest of the position of the company is sound and

having good repute as well as rapid business growth also.

HORIZENTAL ANALYSIS OF BALANCE SHEET

2010 2009 2008 2007 2006

LIABILITIES

Issued subscribed and paid up capital 187.50 187.50 187.50 150.00 100.00

reserve for bonus shares 100.00

capital reserve share premium

general reserve 300.00 300.00 200.00 100.00 100.00

Un-appropriated Profit 27.69 0.62 29.62 109.67 100.00

Redeemable Capital

Long term loans 134.30 139.54 112.19 150.48 100.00

Liabilities against assets subject to Finance Lease

Employee retirement benefits

Current Liabilities:

short term bank borrowings 174.70 118.72 63.39 126.93 100.00

45

current portion of long term liabilities 274.64 231.44 145.88 137.82 100.00

creditors, accrued and other liabilities 45.39 91.45 84.01 77.86 100.00

provision for taxation 198.27 125.91 189.14 187.16 100.00

Dividends 5.37 31.13 30.93 30.70 100.00

TOTAL LIABILITIES 156.63 144.68 115.11 125.71 100.00

INTERPERTATION

Here I have attempted to show the company’s progress considering the year 2006 as a

base year i-e how much company has expanded its business. It is basically the depiction

of company’s growth form the year 2006 and up to the current year 2010.

Share capital was increased 150% in 2007 as compare to the paid up capital of 2006.

Whereas, the share’s value was increased up 187.50% of the figure in 2006 then it was in

the year 2008 and onward.

General Reserve figure is increased by 300% in last four years. But the un-appropriated

profit is decreased by 73% in the 2010 as compare to the 2006. Long term loans were

also increased in the 2002 but the same were reduced after 2009.

More critical is that the short term borrowings are increased 175% and the major reason

of this increase is that most of the long term loans are achieving their maturity in these

years therefore the current portion of long term liabilities is increased by 274% which is

much higher. This is the major reason of having week current ratio.

Provision for taxation is also increased by 200% (approx) that is due to the expansion of

business growth.

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PROFIT AND LOSS ANALYSIS

2010 2009 2008 2007 2006Sales 2,750,397,914 2,236,762,562 2,032,159,094 1,252,560,023 1,306,887,918 Cost of Goods Sold 2,462,611,361 1,962,481,594 1,721,195,792 1,057,331,258 985,287,197 Gross Profit 287,786,553 274,280,968 310,963,302 195,228,765 321,600,721 Operating Expenses:Administrative Expenses (30,273,916) (28,341,359) (25,469,915) (27,366,056) (19,089,432)Distribution and Marketing Exp.

(39,805,128) (31,940,503) (64,920,432) (33,830,380) (42,575,769)

other operating Expenses (9,861,175) (8,023,011)

Other Operating Income 337,342 13,955,016      

Profit from Operation 208,183,676 219,931,111 220,572,955 134,032,329 259,935,520

Finance cost (82,496,217) (111,302,656) (145,384,832) (98,743,210) (105,759,182)

Profit Before Taxation 125,687,459 108,628,455 75,188,123 35,289,119 154,176,338

Taxation (9,897,442) (15,406,312) (21,017,438) (15,566,803) (11,111,902)

Profit After Taxation 115,790,017 93,222,143 54,170,685 19,722,316 143,064,436

INTERPRETATION

Profit and loss of the five years are provided here comparatively. From the above figure

we can see that company’s sales are increasing rapidly which is a sound signal of rapid

business growth. In contravention to the above growth signal the cost of goods sold of

company was also increasing, The company’s sales were increased in 2008 by 800

million (approx) whereas increase in the cost of goods sold was high than that of the

increase in the sales in 2009. Therefore, the gross profit of the company was decreased.

47

In the year 2010 the sales of the company were reached at peak of Rs. 2750.40 million

where as cost of goods sold of the company was also increasing as the business volume is

expanding continuously. The gross profit of the company decreased in the year 2009 as

compare to the gross profit of 2008. The reason of this is the comparatively more increase

in cost of goods sold than that of the sales.

As we now that long term loans were raised in 2007 by 150% that’s why the finance cost

of the company was raised in the preceding year 2008 that was reached to its maximum

of Rs.145 million which reduces the profit before taxation than that of in the year 2006.

Whereas now in 2004 most of the long term loans were paid in 2008 & 2009 the finance

cost is much reduced. Marketing and distribution expenses are controlled in the 2009 &

2010. That is a factor to good profitability of company in these years.

VERTICAL ANALYSIS OF PROFIT & LOSS ACCOUNT

2010 2009 2008 2007 2006

Sales 100.00 122.96 135.34 219.58 210.45 Cost of Goods Sold 89.54 110.10 121.18 196.61 188.43 Gross Profit 10.46 12.26 15.30 15.59 24.61 Operating Expenses:Administrative Expenses (1.10) (1.27) (1.25) (2.18) (1.46)Distribution and Marketing Exp. (1.45) (1.43) (3.19) (2.70) (3.26)other operating Expenses (0.36) (0.36) 0.00 0.00 0.00 Other Operating Income 0.01 0.62 0.00 0.00 0.00 Profit from Operation 7.57 9.83 10.85 10.70 19.89 Finance cost (3.00) (4.98) (7.15) (7.88) (8.09)Profit Before Taxation 4.57 4.86 3.70 2.82 11.80 Taxation (0.36) (0.69) (1.03) (1.24) (0.85)Profit After Taxation 4.21 4.17 2.67 1.57 10.95

INTERPERTATION

Above figures are showing gradually decreasing percentage of gross profit, provided that

the sales of the company are increasing annually. So, it is clear that the cost of goods sold

is relatively more increasing than of its sales. In 2010 the operating expenses are just

7.57% of the sales than these were 20% in the year 2006. i-e the increasing of trend in the

operating expenses is relatively slow than the sales. Profit before taxation ratio is more in

the year 2010 than that of just 2.82% and 3.70% in the years 2008 & 2009 respectively; it

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is due to reduction of finance cost in current year. Though the gross profit of the

company has a decreasing trend, the profit after taxation ratio is relatively raising which

shows that beyond the annual increase in the cost of goods sold, other operations of the

company are being driven on the right track. It is the vertical analysis of profit and loss

accounts of the company.

HORIZONTAL ANALYSIS OF PROFIT & LOSS ACCOUNT

2010 2009 2008 2007 2006

Sales 210.45 171.15 155.50 95.84 100.00

Cost of Goods Sold 249.94 199.18 174.69 107.31 100.00

Gross Profit 89.49 85.29 96.69 60.71 100.00

Operating Expenses:Administrative Expenses 158.59 148.47 133.42 143.36 100.00

Distribution and Marketing Exp. 93.49 75.02 152.48 79.46 100.00

other operating ExpensesOther Operating IncomeProfit from Operation 80.09 84.61 84.86 51.56 100.00

Finance cost 78.00 105.24 137.47 93.37 100.00

Profit Before Taxation 81.52 70.46 48.77 22.89 100.00

Taxation 89.07 138.65 189.14 140.09 100.00

Profit After Taxation 80.94 65.16 37.86 13.79 100.00

INTERPERTATION

This horizontal analysis of the profit and loss account describes the comparative

information of above five year. Sales are 210% more than these were in 2006. It shows

annual increase in the sales volume. It is obvious that the marketing department is

efficient as for as the sales volume is concerned. RWML’S cost of goods sold is also

249% increased. It is an alarming increase in today’s competitive era.

As the Company’s cost of goods sold is 30% extra increased than that of the increase in

sales. Due to the higher cost the selling price of the product is also increased however, the

sales increasing ratio is low than that of cost.

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This alarming increase in the cost of goods sold is due to the rise in the prices of raw

material consumed and packing material used. This increasing trend of cost of goods

sold has reduced the company’s gross profit ratio also.

Company has controlled its marketing and respective administrative expenses in 2010

than that of in the last two years. Therefore, the Co. has better net profit ratio than that of

the last two years.

Over all if we see the company is loosing its profitability as it has more than 80% of the

profits in the year 2008. So we can say that the business is growing in its volume but not

in the profitability.

If we see from the investors point of view whose aim is to maximize their worth. This

business is effectively going on but the Co. is not increasing its profitability annually.

In the year 2004 the operation profits of the company were declined therefore the taxation

cost is also decreased in the year 2010. By reduction in the taxation cost, profit after

taxation rose in the 2010. Which were 37% & 65% in the years 2008& 2009 respectively

raised up to 81% in the year 2010.

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SIX YEARS GROWTH AT A GLANCE (2005-2010)

PARTICULARS 2005 2006 2007 2008 2009 2010OPERATIONAL PERFORMANCE:WeavingNumber of Looms Installed 116 116 212 224 272 272Number of Looms Worked 116 116 212 224 272 272Std. Cloth Production(50ppi) into meters(000)

16,085 16,085 16,085 37,355 42,092 42,092

Actual Cloth Production(50ppi) into meters(000)

14,340 15,539 14,678 38,838 41,333 46,688

SpinningNumber of Spindles Installed 14,400 14,400 14,400 14,400 14,400 14,400Number of Spindles worked 14,400 14,400 14,400 14,400 14,400 14,400Installed Capacity(after conversion20/s count)KGS(000)

Trial run 4,850 4,850 4,850 4,850 4,850

Actual Yarn Production(after con. 20/s count)KGS(000)

Trial run 4,234 4,294 4,203 4,124 4,056

PROFIT AND LOSS:Net Sales(000) 800,382 1,360,888 1,252,560 2,032,159 2,243,856 2,750,398Gross Profit(000) 129,202 321,601 195,229 310,963 289,381 287,787Operating Profit(000) 94,610 259,935 134,032 220,572 217,636 208,184Profit before Tax(000) 40,834 154,176 35,289 75,188 108,628 125,687Profit after Tax(000) 33,936 143,064 19,722 54,171 93,222 115,790Dividends Including Bonus Shares(000) 13,694 84,902 12,324 15,405 15,405Dividend Declared Percentage 12.50% 52.50% 7.50% 7.50% 7.50%BALANCE SHEET:Share Capital and Reserves(000)Shareholders Funds 227,884 313,435 348,220 428,066 505,883 621,673Capital Reserves - - 41,081 41,081 41,081 41,081

227,884 313,435 389,301 469,147 546,964 662,754Property Plant and Machinery(000) 334,756 653,028 1,013,051 1,004,221 1,162,601 1,128,996Current Assets(000) 526,659 652,149 624,468 494,904 722,700 913,926Current Liabilities(000) 598,707 678,254 744,722 506,583 784,079 958,330Long Term Loans (000) 341,891 314,104 507,492 527,422 558,284 424,259INVESTOR INFORMATION :Per Share (Rs.)Break-up Value 20.80 28.61 23.69 22.84 26.63 32.27Cash Dividend 1.25 5.25 0.75 0.75 0.75

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Earning Per Share 3.13 10.5 2.67 2.82 4.54 5.64Market Value per ShareRatiosGross Profit Ratio 16.14% 24.61% 15.58% 15.30% 12.90% 10.46%Net Profit Ratio 4.28% 10.95% 1.58% 2.66% 4.15% 4.21%Inventory turnover(times) 4.90 5.69 6.44 7.91 5.76 5.00Fixed Asset turnover(times) 1.67 2.03 1.50 2.01 2.07 2.40Total Asset turnover(times) 0.82 1.06 0.85 1.29 1.32 1.40Price Earning RatioReturn on Capital Employed 10.12% 33.09% 14.33% 16.66% 16.48% 16.85%Debt Equity Ratio 60:40 46:54 60:40 57:43 57:43 47:53Current Ratio 47:53 51:49 54:46 51:49 52:48 49:51Acid Test(Quick) Ratio 0.50 0.71 0.53 0.37 0.31 0.20Interest Cover Ratio(times) 1.76 2.46 1.36 1.52 2.00 2.52

COMPETITOR ANALYSIS

To compare this organization with other similar organization; I have selected Allah

Wasaya Textile Mills Limited (AWTML) Multan. The company was incorporated in

Pakistan as a public limited company on January 31, 1985. Its shares are quoted on the

Karachi and Lahore stock exchanges. The company is principally engaged in

manufacturing and sale of yarn and woven fabrics. The comparison between

organizations can be analyzed as under.

COMPARISON OF DIFFERENT RATIOS

NET PROFIT/ (LOSS) RS. In (000)

Year AWTML RTML2006 -61961 1430642007 -63472 197222008 -46387 541712009 -74229 932222010 -51414 115790

Financial Charges (%) of Sales

Year AWTML RTML2006 33.49 8.092007 36.03 7.882008 18.42 7.152009 19.66 4.98

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2010 20.43 3.00

Current Ratio

Year AWTML RTML2006 0.216 1.042007 0.202 1.742008 0.052 1.042009 0.038 1.082010 0.037 0.96

Quick Ratio

Year AWTML RTML2006 0.160 0.712007 0.190 0.532008 0.033 0.372009 0.028 0.312010 0.023 0.20

Earning Per Share

Year AWTML RTML2006 -11.97 10.502007 -12.27 02.672008 -8.96 02.822009 -14.34 04.542010 -9.94 05.64

COMMENTS

This is the comparison of the two units involving in same business and it shows that

Reliance Weaving Mills Ltd has batter Financial Position then Allah Wasaya Textile

Mills Ltd. RTML is earning profit while AWTML is suffering loss. The ratios stated

above clearly indicate that RTML is performing well as compared to AWTML in the

Textile sector.

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FUTURE PROSPECTS OF THE ORGANIZATION

The economic indicators of our economy have shown a healthy trend and the GDP

growth rate has been in excess of 6%pa and this growth rate I expected to be at 8%

annually in medium term future. The recent upgrading of Pakistan’ long term Sovereign

Credit Ratings by one notch, to ‘B+’ for foreign currency and ‘BB’ for local currency

reflects the sustained economic progress. The shifting of the country’s borrowings from

the IMF to international capital markets also indicates the country’s economics

sovereignty & stability. However rising inflation and simultaneously increasing interest

rates if remained unchecked will be affecting profitability of businesses.

With overall positive indications for the economy’s future and huge infrastructural

investments made by the textile sector in recent years, the future seems to be promising

for the industry. Your management also anticipates a promising future for the company

and is hopeful that the declining trend of the company’s profit margins will be checked

and improved in coming years (Insha-a-Allah) as:

1. with commissioning of the 2nd spinning unit of the company, almost 70% of

the yarn demands will be met in house thus enabling the company to take

advantage of price efficiency and other synergy effects of its increased backwards

integration;

2. to further strengthen its weaving capacity the management decided to add 48

more looms in its weaving unit # 2, This investment will enable the company to

capture more orders without comprising on its quality;

3. the company has also made its presence in the local fabric market where the

company as it ill enable to claim tax depreciation for on-going capital expansion

in proportion to its local sales:

4. the management recognizes the importance of marketing pricing and customer

relationship shills to maximize its shareholders value. A substantial increase in

current year’s marketing expense also evidences management’s effort in this area.

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SHORTFALLS/WEAKNESSES OF FINANCE DEPARTMENT

During the internship period, Following are my findings regarding the weaknesses of the

finance department:

Increase in prices of raw material has increased the cost o production and the company has been suffering from gross loaded for many years. Heavy interest on loans is also one of the reasons of the increasing cost of production.

Short term running finances and current liabilities cost in very much to the company and a comprehensive amount of funds is consumed on interest.

Long term loans are not arranged for the company in suitable amount as compare to short-term loans which is required to be arranged. That’s why the company’s current ratio is lower than the standard.

The drawbacks of short term financing are:

Interest rates fluctuates more often

Refinancing frequently needed

RTML having liquidity problem may stretch its accounts payable however among the disadvantages of doing so is the giving up of any cash discount offered which may increase the probability of lowering its credit rating.

CONCLUSIONS & RECOMMENDATIONS FOR IMPROVEMENT

Following are the suggestions for improvements in the financial position of the company.

1. Company should maintain a reserve to meet short-term needs. Moreover short-

term loans and finances should be taken very carefully because large amount of

funds are being consumed in this regard by paying interest on them. Long-term

loans should also be arranged from financial institutions on low interest rates.

2. A training programme is also required to be started for employee to enhance their

working skills and grow the same up to International standards.

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3. The cost of production is very high, the company needs more concentration on

reducing the cost of production.

4. The company is required to finalize the working of the 2nd spinning unit so that,

the raw material needs can be fulfilled up to 70%. It will contribute much in

reducing the cost.

5. The company has to hedge the foreign currency liabilities which are due within

the next four months. This can be effectively managed by entering into forward

exchange contracts for the management of currency risk.

6. Company should manage its interest rate risk by contracting minimum and

maximum interest rates, it will enable the company to manage the significant

interest rates and cash flow risks exposures.

REFERENCES AND SOURCES USED

Following are the sources and references I have consulted during my internship period.

1. Annual Reports of Reliance Weaving Mills Ltd. Multan, for the last five years

provided by the finance department.

2. Books consulted for the theoretical knowledge

i. Fundamental of Financial Management (James C. Van Horne)ii. Managerial Finance (Shim & Seagle)

3. Face to Face meeting with the following:

Mr. Mukhtar Blouch(C.A.-Finalist)Manager Accounts

Mr. Hamid Mehmood(MBA-Finance)Manager Finance

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