BRIEF HISTORY OF THE COMPANY

The business that became the Bata Shoe Organization was established on August 24, 1894 in Zlin, Czechoslovakia by Tomas Bata, and included his brother Antonin and sister Anna. Although this business was new, the Bata name had been part of a tradition of shoemaking for eight generations, spanning three hundred years.

It was one of the first modern-day shoe 'manufacturers', a team of snitchers and shoemakers creating footwear not just for the local town, but also for distant retail merchants. This departure from the centuries-old tradition of the one-man cobbler's workshop was a brand new concept, creating an entirely new industry.

The Bata enterprise revolutionized the treatment of employees and labor conditions. Tomas consistently maintained a human focus, creating opportunities for development and advancement, and added compensation for employees based on achievement.

In late 1895, Antonin was drafted into the army for compulsory military service and left the family shoe business. Also that year, Anna left the company to marry, leaving a young Tomas to build the business on his own.

By 1905 Tomas had taken the new enterprise to 2200 pairs of shoes per day, produced by 250 employees - utilizing resourceful imaginations, skilled hands and modern machinery

to keep up with demand. Under this 'manufacturing' system, productivity was greater than ever before.

Bata shoes were excellent quality and available in more styles than had been offered before. Demand grew rapidly in the early 1900s. Despite material and manpower shortages, cartels and the outbreak of World War I, sales continued to increase, reaching two million pairs per year by 1917.

As the enterprise prospered, so did the communities where it operated. Tomas believed that a focus on people and public service was critical for business success. The enterprise built housing, schools and a

hospital near the shoemaking plant in Zlin. It provided food and inexpensive rent during very difficult times; when there was no other help to be found. Bata companies later provided rail services, construction, insurance, publishing and a tannery in Zlin.

Following World War I, consumer purchasing power was very low. Tomas and his employees devised a plan to adjust to post-war economic difficulties and reduced their shoe prices. Bata stores were flooded with buyers, and industry cynics were forced to follow their lead.

Already exporting to other European countries, Northern Africa and the USA, the enterprise began establishing new sales organizations in these markets during the 1920s. Companies were opened in Poland, Yugoslavia, Holland, Denmark, the United Kingdom and the USA. By the early 1930s, the Bata enterprise and Czechoslovakia were the world's leading footwear exporters.

"The Bata System" devised by the Zlin team, and later applied in other Bata Shoe Organization companies, organized operations into autonomous workshops and departments ("profit centers"), allowing employees to contribute ideas and stimulate production, and contributed significant breakthroughs in footwear technology.

BATA BUSINESS

Bata Shoe Organization companies are involved in every facet of the business of shoes. Throughout the world, Bata companies service customers from the store sales floor to the factory floor.

Retailing

Bata Shoe Organization companies have built successful retail store concepts to satisfy changing consumer tastes and needs. Each store features merchandise targeted to different lifestyles and people. The merchandise ranges from footwear to clothing and goods complementing shoe offerings. Sensitivity

to and satisfaction of customer wants and needs has allowed the Bata Shoe Organization (BSO) to become a world leader in footwear.

Manufacturing

Tomas Bata's revolutionary business concept was to industrialize the shoemaking process of that day. That type of thinking has been the driving force behind the Bata Shoe Organization success.

The Bata Shoe Organization has been an innovator in the manufacturing of shoes over the years. Bata personnel have made important advances in DVP (Direct Vulcanization Process), PVC, athletic footwear production and slush-molded footwear production.

Wholesaling

The Bata Shoe Organization [BSO] enjoys a unique position in the wholesale marketplace. Global economies of scale enable BSO plants to offer quality products at local prices, with many operating at ISO standards. Bata Shoe Organization production facilities are world renowned for their commitment to quality and customers, and have attracted production contracts from many international footwear brands.

Brands& Product Development

Throughout the world, the Bata brand distinguishes well-made and well-priced footwear. Many core articles for Bata branded collections are designed in product development centers in Italy, the Far East and Canada. Designers and merchandisers in Bata Shoe Organization companies broaden the collections by developing complementary styles to reflect tastes, budgets and climates within their own market. Strict quality controls govern the selection of materials and all production stages.

BATA PAKISTAN LIMITED

Bata Pakistan Ltd. was formed in Pakistan in1952. It was a newly growing concern all over the world but in Pakistan it established its feet with in very short time. It was very tuff decision for the Bata International to start its business in a country that was newly established. But Batas decision was quite right because there was not so tuff competition in Pakistan at that time which helps them to make their foots more strong. Now Bata Pakistan is not only providing the quality shoe with in Pakistan but is also exporting its major portion of production all over the world. With in the country Bata is facing the competition with Service Industries ltd and other private companies. According to a survey almost 89% of the market is covered by the other organizations and 6% by Service and 5% by the Bata Pakistan Ltd.

Bata Pakistan Ltd. is producing almost 13000 million pairs of shoes with in year but in year 2001 produces 13891 million pairs of shoes which shows the soundness of the organization and it strong footing in the Pakistan. Bata is still improving its business

AN OVERVIEW ON COMPANYS PERFORMANCE DURING 2001

The Bata Company Ltd. with its established brand name and national presence enjoys an edge over its competitors. Long and successful participation in the industry has given the Bata name an acceptability and reach, which other brands can only aspire to achieve. People from all walks of life instantly favorably recognize the Bata logo, synonymous with quality for money shoe. Based on this customer perception, the company hopes to strengthen its position in the branded footwear segment in Pakistan.

The companys performance during the year 2001 is quite efficient. During the year 2001 emphasis on cost and quality control measures remains important to the company in view of both foreign and domestic competitors, who enjoy certain price advantages. The continuous cost control drive initiated by the management resulted in significant cost reductions in almost every sphere of operation.

Consequently, Bata company able to achieve good results in the year 2001. Bata Company closed the year with positive financial outcomes in various areas of its activities.

During the year sales amounted to Rs. 2,065.5 million as compared with Rs. 2,188 million in 2000. The pretax profit of Rs.104.5 million was 60% higher. After making provision for current and deferred taxation of Rs. 36.1 million, the net profit grew by 47% over the previous year to record level of Rs 68.4 million, benefiting from both good sales and margin improvements resulting from the focus on cost reductions. By adding Rs. 1.1 million of un-appropriated profit brought forward from 2000, Rs. 69.5 million were available for appropriations.

In view of the satisfactory financial condition of company, Bata is pleased to recommend for 2001 a final dividend of 40%, which is the highest in the history of the company. A sum of Rs. 38 million is being transferred to General Reserve, as the Board of Directors considers this necessary to meet the Companys development plans for its sales outlets and factories.

Administrative expenses were 9% lower, mainly due to the capital loss booked in last year on the sale of companys wholly owned subsidiary international Tanners & industries (PVT) Limited that has been a constant financial drain on the company.

Selling and distribution expenses went up by 5% and financial charges increased by 3% due to higher short term borrowing to meet the cash flow requirements of the Company.

Bata Company achieved a return on equity of 18.8% and the earnings per share of Rs. 9.04 increased by 47% over 2000. The equity of the company at Rs. 363.3 million constitutes a solid capital base. The Companys shares of Rs. 10 each were quoted at Rs. 23 on the 31st December 2001. Bata Company continues to be listed on Karachi and Lahore Stock Exchanges with whom we have maintained close contact.

In 2001, Bata Company contributed Rs.323.3 million to the National Revenue in the form of corporate tax, customers duties and other taxes. The total production of footwear during the year from the factory at Batapur was 13,891 million pairs, as against 12,560 million in 2000. The branch factory at Maraka produced 1,857 million pairs in 2000. The company creates regular work for 42 independent contractors under the Business Associates Programme. We provide technical and design assistance to the Business Associates, as well as materials and components, where necessary. The total production achieved through these independent manufacturers was 1,194 pairs, a decrease of 40% from the previous year.

FINANCIAL ANALYSIS

BATA PAKISTAN LIMITED

A number of different approaches might be used in analyzing a firms financial performance in a particular period. To analyze the performance of BATA PAKISTAN LIMITED. I adopted following three method of

v Ratio Analysis

v Common Size and Index Analysis

v Trend Analysis

RATIO ANALYSIS

An index that relates two accounting numbers and is obtained by dividing one number by other

Ratio Analysis is an important and age-old technique of financial analysis. It simplifies the comprehension of financial statements. Ratios tell the whole story of changes in the financial condition of business. It provides data fro inter firm comparison. Ratios highlights the factors associated with successful and unsuccessful firm. They also reveal strong firms and weak firms, over- valued and under valued firms.

It helps in Planning and forecasting. Ratios can assist management, in its basic functions of forecasting, planning, co-ordination, control and communication. Ratio analysis also makes possible comparison of the performance of different divisions of the firm. The ratios are helpful in decision about their efficiency of otherwise in the past and likely performance in future. Ratios also helps in Investment decisions in the of investors and lending decisions in the case of bankers etc.

Types of Ratios

Following the main types of ratios that we are going to calculate in this assignment,

v Liquidity Ratios

v Leverage Ratios

v Coverage Ratio

v Activity Ratios

v Profitability Ratios

LIQUIDITY RATIOS

Liquidity ratios are used to measure a firms ability & solvency of the firm to meet short-term obligations. They compare short-term obligations to short-term resources available to meet these obligations. It consists of two ratios current & acid test ratio. Let us calculate these for Bata;

Current Ratio

Current ratio is the relationship between current assets and current liabilities. This Ratio is also known as working Capital ratio. It is calculated as

Current ratio = Current Assets/ Current Liabilities

Batas Current Ratio

1,225,784,000

2001 = --------------------- = 1.17:1

1,046,257,000

1,174,261,000

2000 = -------------------- = 1.15:1

1,017,223,000

1,038,542,000

1999 = --------------------- = 1.23:1

843,973,000

Industry ratio =1.20:1

Current ratio for Bata Company shows that the Bata has Rs. 1.17 to meet its obligations of Rs. 1. If we review the last year we will find that current ration of the Bata is continuously increasing which is a good sign. In 2000, it was 1.15. Where as the industry ratio is 1.20:1 that is slightly high than Batas but still Bata is maintaining a good solvency and liquidity ratio.

Quick or Acid Test Ratio

Quick or Acid Test Ratio is the ratio of liquid assets to current Liabilities. True liquidity refers to the ability of a firm to pay its short-term obligations as when they become due. Quick Ratio is equal to

Quick or Acid test ratio = Quick Assets/ Current liabilities

Where as quick assets = Current Assets Store & spare parts Stock in trade

Acid test ratio for Bata

785,365,000

2001 = --------------------- = 0.75:1

1,046,257,000

729,630,000

2000 = -------------------- = 0.71:1

1,017,223,000

434,474,000

1999 = --------------------- = 0.51:1

843,973,000

Industry ratio = 0.71:1

Bata is also maintaining a good acid test ratio as compared to industry ratio i.e. 0.71:1. In year 2001 Batas acid test ratio is 0.75:1 which is continuously increase from year 1999, in 99 it was .051 than in 2000 it increase to .71:1 and now .75:1 which shows the managements efficiency during the operating year.

LEVERAGE RATIOS

Ratios that shows the extent to which the firm is financed by the debts.

Debt to Equity Ratio

Debt to equity ratio indicates the relationship between the external equities or outsider finds and the internal equities or shareholder fund. It is calculated to assess the extend to which the firm is using borrowed money. Debt to equity is simply calculated as

Debt to equity ratio = Total Debts / Shareholders equity

Ratio for Bata

1,125,244,000

2001 = --------------------- = 3.09:1 or 76:24

363,318,000

1,118,829,000

2000 = -------------------- = 3.44:1 or 78:22

325,181,000

1,038,542,000

1999 = --------------------- = 1.23:1 or 55:45

843,973,000

Industry Ratio = 2.974:1

According to prudential Regulation this ratio should be 1.5:1 or 60:40, which means the company should have the debts of Rs. 1.5 as against owner equity of Rs. 1. Equity ratio for the Bata in year 2001 is 3.09:1. This ratio in year 2000 was 3.44:1 and in 1999 it was 3.60: 1. Which means company in mostly relaying on external sources. But as we review the ratios of last three years we observe that this ratio is continuously decreasing.

Debts to Total Assets Ratio

The Debts to total assets Ratio tells us how much portion of assets is a debt. This ratio servers a similar purpose to debts to equity ratio. It highlights relative importance of debt financing to the firm by showing the percentage of the firms that is supported by debts financing. This ratio is calculated as

Debts to Total Assets ratio = Total Debts / Total Assets

Ratio for Bata

1,125,244,000

2001 = --------------------- = 0.75:1 or 75%

1,046,257,000

1,118,829,000

2000 = -------------------- = 0.769:1 or 77%

1,453,625,000

1,078,368,000

1999 = --------------------- = 078:1 or 78%

1,377,805,000

Industry Ratio = 073 or 73%

According to this ratio around 75% of total assets are supported by the debts finance or debts. Where as the industry ratio is 73%. Bata is going right according to the industry ratio; there is not so high difference in ratios. But this ratio is also slightly decreasing as we review the ratio of previous two year i.e. in year 2000 77% and in 1999 78 % of the total assets are financed by the debts. We can say that people and other financial institutions are very sure about the solvency of the firm and not hesitating to finance or make investment in Bata Pakistan Ltd.

COVERAGE RATIO

The Ratio that relate the financial charges of a firm to its ability to service, or cover them.

Interest Coverage Ratio

Interest Coverage ratio is designed to relate the financial charges of a firm to its ability of pay/cover them form its earning. Interest Coverage ratio is calculated as

Interest Coverage Ratio = Earning before Interest & Tax / Financial charges

Ratio for Bata

186,256,000

2001 = --------------------- = 2.52:1

74,010,000

142,296,000

2000 = -------------------- = 1.98:1

71,861,000

123,815,000

1999 = --------------------- = 1.69:1

73,051,000

Industry Ratio = 2.40:1

Coverage ratio shows that the firm has significant profit to pay its financial charges

This ratio shows that Bata has Rs. 2.52 to pay off its financial charges of Rs. 1. This ratio was 1.98 times in 2000 and 1.69 times in 1999. This ratio is also increasing continuously, in 2001 this ratio increased by

33% which is a high percentage. It is very important from the lenders point of view. It indicates number of times interest is covered by profit. It is an index of the financial strength of an enterprise and high ratio assure the lender a regular and periodical interest income.

ACTIVITY RATIOS

Activity ratios are also known as efficiency or turnover ratios, measure how effectively the firm is using its assets. Some of the aspects of activity analysis are closely related to

liquidity analysis. In this session we will primarily focus on how effectively the firm is managing tow specific groups receivables and inventories and its total assets in general.

Receivable Turnover Ratio

Debtor turnover ratio indicates the velocity of debts collection of a firm. In simple words it indicates the number of times average debts are turned over during a year. Higher the value of debts turnover, more efficient is the management of debts or more liquid the debtors are and vice versa. Receivable turnover ratio is calculated as

Receivable/debtors turnover ratio = Annual credit sale / Trade debtors

Ratio for BATA

2,065,502,000

2001 = --------------------- = 3.06:1

674,128,000

2,187,951,000

2000 = -------------------- = 411:1

71,861,000

2,007,224,000

1999 = --------------------- = 6.08:1

330,089,000

Industry Ratio = 3.51:1

Above calculations for Bata shows, around 3.06 time debtors are turned over during the year. This ratio for Bata is declining, as we review previous years, in 2000 this ratio was 4.11 times and in 1999 it was 6.08 times which is not a good sign for a organization like Bata. The industry ratio is 3.51, which is above the turnover ratio for 2001. So management has to think about the recovery of its debts and make it frequent.

Average Collection Period

Debtor turnover ratio when calculated in term of days is known as receivable turnover in days. It represents the average number of days for which a firm has to wait before its debtors are converted in cash. It is calculated as

A.C.P = No. of days in year / Receivable turnover ratio

Ratio for Bata

365

2001 = --------------------- = 119 days

3.06

365

2000 = -------------------- = 89 days

4.11

365

1999 = --------------------- = 60 days

6.08

Industry Ratio = 106 days

Batas average collection period is not much impressive in year2001 because it is showing continuous increase in days to wait before its debtors converted into cash and it is not a good sign because less the average collection period better for the company. In 2001 Average collection period is 119, in 2000 it

was 89 days and in 1999 it was 60 days. In the year 2001 the industry ratio is also less then the Batas. Management has to think seriously to reduce average collection period to improve its efficiency.

Payable/Creditor Turnover Ratio

This ratio is against to Debtors turnover ratio. It compares the creditors with the total credit purchase. It signifies the credit period enjoyed by the firm in paying off debts. In payable turnover ratio less the results better for the company. It is calculated as

Payable Turnover ratio = Annual Credit Purchase / Creditors

Ratio for Bata

867,677,000

2001 = --------------------- = 2.265:1

383,414,000

846,412,000

2000 = -------------------- = 2.362:1

358,214,000

Industry Ratio = 4.136:1

Bata Pakistan Ltd. is quite efficient in its payable turnover ratio. In year 2001 the ratio is 2.265 times which means almost in year 2.265 time creditors are paid off. Industry ratio is 4.136 times. It means Bata Company is enjoying a healthy credit period.

Average Payment Period

It is also a managerial ratio, which signifies the credit period, which is enjoyed by the organization in paying credit. Higher the number of days betters the ratio and efficiency. More the days allowed to pay off its debts more the working capital for the organization. It is calculated as

Average Payment period = No. of days in a year / Payable turnover

Ratio for Bata

365

2001 = --------------------- = 161 days

2.265

365

2000 = -------------------- = 155 days

2.362

Industry Ratio = 111 days

Average payment period for Bata Pakistan Ltd. was 155 days in 2000, which increased to 161 days in 2001, is a good sign for a company to have more and more money at his disposal. Number of days to payoff its debts are also greater than the average Industry ratio, which is 111 days. Bata need to continue this increase to be more efficient and effective.

Inventory turnover Ratio

Inventory Turnover ratio, also known as Stock Turnover, is the relationship between Cost of Goods Sold during the period and average inventories. It measures the velocity of conversion of stock into sales. Usually higher inventory turnover, stock velocity, indicates efficient management because more frequently stocks are sold lesser the amount of money required to finance the inventory. It is calculated as

Inventory Turnover = Cost of Goods Sold / Average Inventory

Ratio for Bata

1,376,205,000

2001 = --------------------- = 3.52 times

391,465,000

1,539,021,000

2000 = -------------------- = 3.31 times

465,271,000

Industry Ratio = 3.37 times

Every organization has to maintain a certain level of inventories to be able to meet the requirement of the business. Bata is also maintaining a good inventory turnover, which is 3.52 time in a year 2001 and 3.31 times in 2000. This ratio is also increasing which shows that management is improving it management strategies about the inventories and stock. For the Inventory turnover ratio Industry ratio is 3.37 times. Batas ratio is slightly higher than the industry ratio.

Inventory turn over in days

This ratio is also a managerial ratio, which measures the number of days the inventory is held before it is turned into accounts receivables through cash. Usually lesser the number of days inventory held before it is turned into accounts receivable though sale is better for the company. Inventory turnover is calculated as

Inventory turnover in days = No. of days in a year / Inventory turnover ratio

Ratio calculation for Bata

Ratio for Bata

365

2001 = --------------------- = 104 days

3.52

365

2000 = -------------------- = 110 days

3.31

Industry Ratio = 100 days

For Bata whose Inventory turnover ratio is 3.52 times in year 2001 the inventory turnover in days is 104 days which is almost 4 days slower as compare to industry ratio i.e. 100 days in turning its inventory into Accounts receivables through sales. Bata has to reduce these days and management has to think about that to improve this ratio in Companies favour.

PROFITABILITY RATIOS

Profitability ratios are of tow types --- those showing profitability in relation to sale and those showing profitability in relation to investment. To gather these ratios indicate the overall effectiveness of operation

Gross Profit Margin

Gross profit ratio, which is also called Profitability in relation to sales, is the ratio of gross profit to new sales expressed as a percentage. This ratio tells us the profit of the firm relative to sales after we deduct the producing the goods. It is an measure of the efficiency of the firm operation. Higher the gross profit ratio better it is. It is calculated as

Gross Profit Margin = Gross Profit / Net Sales

Ratio for Bata

689,297,000

2001 = --------------------- = .33 or 33%

2,065,502,000

648,930,000

2000 = -------------------- = .296 or 29.6%

2,187,951,000

581,463,000

1999 = --------------------- = .289 or 28.9%

2,007,224,000

Industry Ratio = 24.07%

According to above calculation Gross Profit Margin for Bata is 33.3 % , which is increasing as we review the previous two years, 29.6 % in 2000 and 28.9 % in 1999. Industry ratio for 2001 is 24.07%. Batas G.P

ratio is very good as compared to industry ratio and sill improving, as it is 37 % according to half yearly report 2002.

Net Profit Margin

The net profit margin is a measure of the firms profitability of sales after taking account of all expenses and income tax. This ratio also indicates performance during the financial year. Simply high the ratio better the firm performance and efficiency. It is calculated as

Net Profit Margin = Profit after tax / Sales

Ratio for Bata

68,377,000

2001 = --------------------- x 100 = 0.031 or 3.31%

2,065,502,000

46,534,000

2000 = -------------------- x 100 = 0.021 or 2.10%

2,187,951,000

33,954,000

1999 = --------------------- x 100 = 0.0169 or 1.69%

2,007,224,000

Industry Ratio = 3.11%

Bat is also maintaining a good Net Profit margin ratio, which is 3.31% of sales. Where as the industry ratio is 3.11%, less then the Batas. Company is not showing loss any of the last five years which shows companies strong financial position.

Return On Investment

Return on investment is one of he most important ratio considered by he proprietors and investors. It compares the net profit after tax with Total Assets. Investor is much concerned about this ratio. Higher the ratio of ROI more secures the place considered for making investment. It is calculated as

Return On Investment = Net profit after tax / Total Assets x 100

Ratio for Bata

68,377,000

2001 = --------------------- x 100 = 4.58%

1,492,022,000

46,534,000

2000 = -------------------- x 100 = 3.20%

1,453,625,000

34,474,000

1999 = --------------------- x 100 = 2.57%

1,377,805,000

Industry Ratio = 4.30%

In this special ratio Bata is quite consistent to rise at it was 2.57% in 1999 which increases to 3.20% in 2000 and now it reaches to 4.58% which is a huge increase and welcome one for Bata Pakistan Ltd. Management should have to maintain its policies and strategies, they have adopted during the year.

Return On Equity

Return on equity is another measure of overall firms performance. It compares net profit after tax to the equity that share holders have invested in firm. This ratio tells the earning power on shareholders book value. High the return on equity often reflects the firms acceptance of strong investment opportunities and effective expense management. It is calculated as

Return On Equity = Net profit After Tax / Shareholders Equity x100

Ratio for Bata

68,377,000

2001 = --------------------- x 100 = 18.82%

363,318,000

46,534,000

2000 = -------------------- x 100 = 14.31%

325,181,000

33,954,000

1999 = --------------------- x 100 = 11.33%

299,437,000

Industry Ratio = 16.42%

Bata Company is continuously improving its Return on equity as it was 11.33 in 1999,14.31% in 2000 and in year 2001 it increases to 18.82%, which is a positive sign for a organization. It shows a strong position of firm. It will be helpful for the company to create in investment within the company from outsiders.

Total Asset Turn over

Total Asset turn over shown the sale revenue per dollar of assets invested. This total asset turnover ratio tells us the relative efficiency with which firm utilize its total assets to generate sale. It is calculated as

Total Asset Turnover = Net Sales / Total Assets x 100

Ratio for Bata

2,065,502,000

2001 = --------------------- = 1.38:1

1,492,022,000

2,187,951,000

2000 = -------------------- = 1.50:1

1,453,625,000

2,007,224,000

1999 = --------------------- = 1.46:1

1,377,805,000

Industry Ratio = 1.38 : 1

Bata is also showing efficiency in Total assets turn over because in 2001 Total Asset Turnover ratio is 1.38:1, which means company is generating sale of Rs. 1.38 out of every Rs.1 invested in assets. Industry ratio is exactly equal to the Batas ratio. This year ratio is decreased as compare it to its last year ratio i.e. 1.50:1 in 2000 and 1.46:1 in 1999. It is not a good sign and management has to investigate the reasons for the decrease in this ratio to avoid its effect on coming year.

Return On Equity

Return on equity (ROE) compares net profit after tax to the equity that shareholders have invested in the firm. This ratio tells us the earning power on shareholders book value investment and is frequently used in comparing two or more firms in an industry. A high return on equity often reflects the firm acceptance of strong investment opportunities and effective expense management. However if firm has chosen to employ a level of debt that is high by industry medium, high ROE might simply be result of assuming excessive financial risk

To illustrate more we use Due Pont Analysis

ROE = Net Profit Margin x Total Asset turnover x Equity Multiplier

Net Profit Margin = 3.10 %

Total Asset Turnover = 1.384

Equity Multiplier = 4.11\

Calculation for Bata

ROE = 3.10% x 1.384 x 4.11 = 18.83 %

Net profit margin measures profitability with respect to sales generated, Total Asset turnover ratio measures efficiency in using assets to generate sales, and equity multiplier measures the financial leverage of firm

OPERATING CYCLE

"Operating Cycle indicates the length of time from the commitment of cash for purchase until the collection of receivable resulting from the sale of goods or services. It does not mean the actual outflow of cash but the time at which purchase and promise for the payment is made. Lesser the number of days to complete the operational cycle better for the company. It is calculated as

Operating Cycle = Inventory turnover in days + Receivable turnover in days

Calculation for Bata

2001 = 104 days + 119 days = 223 days

2000 = 110 days + 89 days = 199 days

Operating Cycle for Bata Pakistan limited is very high it means from the day of purchase Bata is receiving back the money from the accounts receivables after 223 days which is very high amount of days because it takes more than half year to complete its operating cycle. Management have to investigate the reasons behind this large number of days

Cash Cycle ( Cash Flow Cycle)

Cash Cycle shows the length of time from the actual outlay of cash for purchase until the collection of receivable resulting from the sales of goods and services. It indicates the period that starts firm the actual outflow of cash to actual inflow of cash. It is calculated as

Cash Cycle = Operating cycle Payable Turn over

Calculation for Bata

2001 = 223 days + 155 days = 68 days

2000 = 199 days + 161 days = 38 days

Industry Ratio = 98 days

Cash Cycle calculation is indicating that after the actual out flow of cash almost after 68 days company receives back the money from receivables created by sales in 2001. In 2000 this period was more efficient i.e. 38 days it means company was receiving back money or inflow of cash after 38 days. It is very positive no of days as compared to operating cycle

DU PONT ANALYSIS

Return On Equity

Return on equity (ROE) compares net profit after tax to the equity that shareholders have invested in the firm. This ratio tells us the earning power on shareholders book value investment and is frequently used in comparing two or more firms in an industry. A high return on equity often reflects the firm acceptance of strong investment opportunities and effective expense management. However if firm has chosen to employ a level of debt that is high by industry medium, high ROE might simply be result of assuming excessive financial risk. To illustrate more we use Due Pont Analysis

ROE = Net Profit Margin x Total Asset turnover x Equity Multiplier

Net Profit Margin = 3.10 %

Total Asset Turnover = 1.384

Equity Multiplier = 4.11

Calculation for Bata

ROE = 3.10% x 1.384 x 4.11 = 18.83 %

Du Pont Analysis helps to Return On Equity to explain why company is going behind the industry average but in the case of Bata almost all the ratios are above the industry medium and having the upward trend. It is because of the efficient use of Assets to create sale and good ratio of N.P. Net profit margin measures profitability with respect to sales generated, Total Asset turnover ratio measures efficiency in using assets to generate sales, and equity multiplier measures the financial leverage of firm.

Return On Investment

In Du Pont Analysis We calculate Return On Investment as

ROI = Net Profit Margin x Total Asset Turnover

Calculation For Bata

2001 = 3.10% x 1.384 = 4.55%

Net profit margin measures profitability with respect to sales generated, Total Asset turnover ratio measures efficiency in using assets to generate sales. It is again a practical approach to see the field where the company in going unfavorable. But in case of Bata Pakistan Limited ROI is showing positive trend and both the component of this approach is also showing positive trend due to the effective management policies and efficient use of assets.

Common Size & Index Analysis

Balance Sheet At A Glance Items 1999

Rs. In thousand 2000

Rs. In thousand 2001

Rs. In thousand

Liabilities and Owners equity

Paid up Capital

Capital Reserves

General Reserves

Inappropriate Profit

Total Shareholders Equity

Long term Finance

Deferred Liabilities

Provision for gratuity

Deferred taxation

Total Deferred Liabilities

Long term Deposits

Obligation under finance lease

Current liabilities

Short term running finance

Current portion of long term finance

Obligation under finance lease

Creditors accrued and others

Proposed dividend

Total Current Liabilities

75,600

483

2,22,000

1,354

299,437

1,50,000

57132

57,132

12,503

14,760

2,91,927

18,448

5,18,438

15,120

8,43,973

75,600

483

2,48,000

1,098

3,25,181

25,000

59,505

4,086

63,591

13,015

9,615

3,72,716

50,000

5,146

5,86,571

20,790

10,17,223

75,600

483

2,86,000

1,235

3,63,318

62,431

1,541

63,972

15,015

3,460

3,81,837

25,000

6,155

5,79,704

30,240

10,46,257

Total liabilities and owner equity 1,377,805 1,453,625 1,492,022

Assets

Fixed Operating Assets

Long term Investment

Long term Deposits

Current Asset

Store & Spare parts

Stock in Trade

Trade Debtors

Loan and advances

Deposit & short term payments

Cast at Bank

Total Current Assets 2,67,965

58,570

12,728

64,775

5,39,293

3,30,089

1,440

41,175

61,770

10,38,542 2,47,617

13,015

18,732

53,382

3,91,249

5,31,543

2,962

29,493

1,65,632

11,74,261 2,30,030

15,015

21,193

48,739

3,91,680

6,74,128

4,448

74,821

31,968

12,25,784

Total Assets 1,377,805 1,453,625

1,492,022

Profit & Loss Account At A Glance Items 1999

Rs. In, 000 2000

Rs. In, 000 2001

Rs. In, 000

Net Sale

Less: Cost of goods sold

Gross Profit

Less Operating Expenses

Selling expenses

Administrative expenses

Total operating expenses

Operating Profit

Add: Other Income

Earning Before Interest & Tax

Less: Financial & other charges

Financial charges

Workers profit participation

Workers welfare fund

Total Financial & other charges

Profit Before Taxation

Less: Provision for Taxation

Profit After Taxation

Add: Inappropriate profit from last year

Less: Appropriations for the year

Proposed Final Dividend

Transferred to General Reserves

2,007,224

1,425,761

581,463

167,483

290,941

458,454

123,039

776

123,815

73,051

2,538

964

76,553

47,262

13,308

33,954

1,520

19,000

15,120 2,187,951

1,539,021

648,930

189,296

320,286

509,582

139,348

2,948

142,296

71,861

3,522

1,801

77,184

65,112

18,578

46,537

1,354

20,790

26,000

2,065,502

1,376,205

689,297

171,970

335,041

507,041

182,256

4,000

186,475

74,010

5,616

2,155

81,781

104,475

36,098

68,377

1,098

30,240

38,000

Inappropriate Profit C/F 1,354

1,098 1,235

COMMON SIZE ANALYSIS

An analysis of percentage financial statements where all balance sheet items are divided by total assets and all income statement items are divided by net sales or revenue. It is also known as Vertical Analysis. It shows the more sensitive and important elements in financial statement.

Vertical Analysis Balance Sheet Items 1999

% age 2000

% age 2001

% age

Liabilities and Owners equity

Paid up Capital

Capital Reserves

General Reserves

Inappropriate Profit

Total Shareholders Equity

Long term Finance

Total Deferred Liabilities

Long term Deposits

Obligation under finance lease

Current liabilities

Short term running finance

Current portion of long term finance

Obligation under finance lease

Creditors accrued and others

Provision for Taxation

Proposed dividend

Total Current Liabilities

5.486

.035

16.112

.098

21.730

10.88

4.146

.905

1.071

21.188

1.342

37.62

1.907

61.25

5.200

.033

17.061

.076

22.370

1.719

4.375

.895

.661

25.640

3.439

.354

40.352

1.430

69.978

5.067

.032

19.168

.083

24.350

4.287

1.006

.232

25.592

1.675

.413

38.854

1.563

2.0267

70.125

Total liabilities and owner equity 100 100 100

Assets

Fixed Operating Assets

Long term Investment

Long term Deposits

Current Asset

Store & Spare parts

Stock in Trade

Trade Debtors

Loan and advances

Deposit & short term payments

Cast at Bank

Total Current Assets

19.446

4.251

.924

4.701

39.141

23.96

.105

2.988

4.483

75.379

17.034

.895

1.289

3.672

26.915

36.566

.204

2.029

11.394

80.782

15.417

1.006

1.420

3.267

26.252

45.182

.298

5.015

2.143

82.157

Total Assets

100 100 100

Vertical Analysis Profit And Loss Account

Items 1999

% age 2000

% age 2001

% age

Net Sale

Less: Cost of goods sold

Gross Profit

Less Operating Expenses

Selling expenses

Administrative expenses

Total operating expenses

Operating Profit

Add: Other Income

Earning Before Interest & Tax

Less: Financial & other charges

Financial charges

Workers profit participation

Workers welfare fund

Total Financial & other charges

Profit Before Taxation

Less: Provision for Taxation

Profit After Taxation

Add: Inappropriate profit from last year

Less: Appropriations for the year

Proposed Final Dividend

Transferred to General Reserves

Total Appropriations for the year

100

(71.031)

28.969

8.344

14.494

(22.838)

6.129

.039

6.168

3.639

.126

.048

(3.813)

2.355

(.663)

1.692

.076

.947

.753

(1.700) 100

(70.340)

29.660

7.655

14.639

(23.290)

6.369

.135

6.504

3.284

.161

.082

(3.527)

2.976

(.849)

2.127

.062

1.188

.950

(2.138)

100

(66.630)

33.370

8.326

16.222

(24.548)

8.824

.194

9.017

3.583

.272

.104

(3.959)

5.058

(1.747)

3.310

.053

1.464

1.839

(3.303)

Inappropriate Profit C/F .068 .051 .060

COMMENTS

Percentage of capital reduced at very low rate because of increase in the amount of long term as well as short-term debts and unappropriated profit.

Amount of capital reserve is same but percentage shows decreasing trend due to increase in net figure of the balance sheet.

General reserves percentage increase it means this year net profit is higher than last year profit and company consistently improve its position in these three years.

Unappropriated profit percentage increases every year due to increase in net profit.

Shareholders equity shows increasing trend because increase in percentage of reserves.

Percentage of total deferred liability during the year 2000 increase because of high provision and less total value of liability side and in 2001 provision add less and value of total liability also increase this year.

Long-term deposits decrease in 2000 because company reduced the number of employees in 2000 and increase in 2001 due to the appointment of new staff.

Percentage obligations under finance lease reduced every year this shows companys financial position become stronger and stronger.

Percentage of current liabilities increase every year, which shows that company relying more on short term financing than long term financing against hypothecation of company. Operating fixed assets/percentage reduced every year because of depreciation and disposal of assets every year.

Current assets show that company maintain control over stocks and spares, companys credit sales increase every year. Loans and advances to employees increase but loans to suppliers reduced, this shows that company follows the policy of backward integration.

In 2000 the percentage of cash at bank was very high which shows the wastage of resources but in 2001 company use cash in loans and advances to employees.

In 2000 sales of company increase and cost of goods sold also increase but less than the rate of sales due to this gross profit percentage increase. In 2001 sales reduced (due to decrease in export) but cost of goods sold reduced at high rate than sales due to this gross profit percentage increase in 2001. This shows company management has good control on production process.

In 2001 company reduce the expenses of administration and spent on selling but the percentage of overall operating expenses increase due to the reduction in sales and company still has high percentage of operating profit.

Percentage of other incomes increase due to the sale of scrapped fixed asset every year.

Percentage of financial charges & other increase due to interest receive on short & long-term loans and receiving interest on employees securities and personal accounts due to these reserves percentage of profit before taxation & after taxation also increase. So company declares more dividend and automatically reserving per share increases in year of 2001

. INDEX ANALYSIS

An analysis of percentage financial statements where all balance sheet or income statement figures for a base year equal 100 and subsequent financial statement items are expressed as percentages of their values in base year. It is also know as Horizontal Analysis.

Horizontal Analysis (Chain Base method

BALANCE SHEET

Items 2000

% Inc (Dec) 2001

% Inc (Dec)

Liabilities and Owners equity

Paid up Capital

Capital Reserves

General Reserves

Inappropriate Profit

Total Shareholders Equity

Long term Finance

Deferred Liabilities

Provision for gratuity

Deferred taxation

Total Deferred Liabilities

Long term Deposits

Obligation under finance lease

Current liabilities

Short term running finance

Current portion of long term finance

Obligation under finance lease

Creditors accrued and others

Proposed dividend

Total Current Liabilities

11.17

(18.91)

8.59

(83.84)

4.15

11.31

4.10

(34.86)

27.67

(72.17)

13.14

37.5

20.53

15.32

12.47

11.73

4.92

(62.29)

.599

15.37

64.01

2.48

(50)

19.61

(1.17)

45.45

2.85

Total liabilities and owner equity

Assets

Fixed Operating Assets

Long term Investment

Long term Deposits

Current Asset

Store & Spare parts

Stock in Trade

Trade Debtors

Loan and advances

Deposit & short term payments

Cast at Bank

Total Current Assets 8.22

(78.78)

47.77

(17.59)

(27.45)

61.03

102.69

28.73

168.14

13.07 (7.11)

15.37

13.14

(8.70)

.11

26.82

50.19

153.69

(80.70)

4.39

Total Assets

COMMENTS

General Reserves

General reserves are showing a rising trend since 1999. In year 2000 General Reserves were increased by 12% and in year 2001 it again increased by 15 %. It means management is allocating a healthy portion of to General Reserves due to the higher profit, which increases the share holder equity.

Share Holders Equity

Shareholder equity is continuously increasing due to the increased allocation of general reserves where inappropriate profit is decreasing and share capital is unchanged in 2000. Owners equity was increased by 9 % and again increased by 15 % in 2001.

Current Liabilities

Current liabilities are also showing a rise of 20 % in 2000 and 3 % in 2001. This increase is basically due to the increase in short term running finance and proposed dividend, which increased by 38 % in 2000 and again increased 45 % in 2001.

Long Term Debts

Companys long-term debts are decreasing very sharply in year 2000 it decreased by 52 % and again decreased by 26 % in 2001. Share of long-term debts was 17 % of total liabilities in 2000, which decrease to 8 %, and at the end of 2001 it was 6%, which is very minor amount.

Fixed Assets

Fixed Assets are showing fluctuation as in year 2000 increased by 8 % but 2001 it decreases by also 8 %. This decrease in ratio is due to the sale of scrap assets.

Long Term Investment

According to Horizontal analysis long term Investment are showing a huge decrease by 77.78 %, which is a big one and then increased by 15 % and still increasing.

Stock In Trade

Inventories maintained by the Bata ltd. are fluctuating. In 2000 stock in trade deceased by 27 % and in 2001 it increased only by 0.11 %. Decrease in the inventory may be due to the increase in sale by 9 %.

Current Assets

Current Asset in Horizontal Analysis of Bata Pakistan ltd are continuously increasing. In the 2000 the amount of the total current assets increased by 13 % as compared to year 1999 and by 4 % in 2001. Management is increasing the current assets to be more liquid and increase its current ratio to 2:1 but if it block its more capital in current assets it will be proved adverse because it may loose a healthy profit obtained if this amount is invested in some long term investment

Horizontal Analysis Profit And Loss Account Items 2000

% Inc (-dec)

2001

% Inc (-dec)

Net Sale

Less: Cost of goods sold

Gross Profit

Less Operating Expenses

Selling expenses

Administrative expenses

Total operating expenses

Operating Profit

Add: Other Income

Earning Before Interest & Tax

Less: Financial & other charges

Financial charges

Workers profit participation

Workers welfare fund

Total Financial & other charges

Profit Before Taxation

Less: Provision for Taxation

Profit After Taxation

Add: Inappropriate profit from last year

Less: Appropriations for the year

Proposed Final Dividend

Transferred to General Reserves

9.04

7.94

11.60

13.02

10.86

11.15

13.25

279.90

14.93

-1.60

38.77

86.83

.82

37.77

39.60

37.05

-10.92

36.84

37.50

-5.60

-10.58

6.22

-9.153

4.61

-0.50

30.79

35.69

30.89

2.90

59.46

19.66

5.96

60.45

94.31

46.49

-18.91

16.31

82.78

Inappropriate Profit C/F -18.91 12.48

COMMENTS

Sales

Horizontal Analysis of sales is showing a great fluctuation. In year 2000 it increased by 9% and then decreased by 6%. This decrease in sales in 2001 may be due to the events of September 11 events but it is not a good sign and management has to think and investigate about it to get the actual reasoning behind it.

Cost Of Goods Sold

Horizontal Analysis of Cost of Goods Sold also indicating the increase in cost of sales by 8 % as the sale increased by 9% in 2000 and decreased by 10.5% against the decrease of sales by 6%. So it is showing fluctuating trend exactly following the sales.

Gross Profit

Gross Profit is showing a positive trend as in year 2000 it was increased by 12 % and again increased by 6 %, which is a positive sign. Increase in gross profit percentage is due to the reduction in cost during 2001.

Operating Expenses

Operating expenses in Horizontal Analysis is also showing the same trend of increase and decrease along with sale. Operating expenses increased by 11 % as against the increased sale of 9 % and showing a decline of a nominal .50% as against decreased sale of 6%.

Financial Charges

Financial charges are showing a decline of almost 2 % despite of increase in sales in 2000 and increased by 3 % in 2001 as compared to 2000. This increase may be due to increase in differed liabilities, which are increased by 4 %.

Operating Profit

As we analyze the operating profit in Horizontal Analysis we observed that profit is increasing consistently. In 2000 operating profit was increased by 13 % and then again increased by 31 % in 2001, which is a positive sign. Increase in operating profit may be due to the slight reduction in operating expenses.

Profit Before Tax

Horizontal Analysis is showing 40 % increase in 2000 and 60 % increase in 2001, despite of less sales and high financial charges %age as compared to 2000, which is good sign for the company.

Tax Payment

In year 2000-tax payment are increased by 38 % as to 1999 and in 2001 tax payments are increased by almost 94 % which is a high ratio as compared to year 2000. This increases 60% increase in the profit before tax.

Dividends

The Amount of proposed dividend is increasing continuously. In year 2000 the amount of dividend is increased by 37 % as compared to 1999 and again it is 47 % more then the dividend of year 2001. It is a very good sign for shareholder point of view and helps to increase the share value in market.

Earning per Share

Earning per share in also showing an increase of 25 % in 2000 and almost 47% in 2001 as compared to 2000. Which is good sign for any company and shareholders will be pleased with the performance of the managements efficiency and effective policies.

TREND ANALYSIS Items 1999 2000 2001 Industry Ratio 2001

Liquidity Ratios

Current Ratio

Acid Test Ratio

Leverage Ratios

Debt to Equity Ratio

Total Debts to Total Asset

Coverage Ratio

Interest Coverage Ratio

Activity Ratios

Receivable Turnover

Average Collection Period

Payable Turnover

Average Payment Period

Inventory Turnover

Inventory turnover in days

Profitability Ratios

Gross Profit Margin

Net Profit Margin

Return On Investment

Return On Equity

Total Debts Turnover

1.23:1

0.51:1

3.60:1

0.78:1

1.69:1

6.08 times

60 days

2.27 times

149 days

3.09 times

117 days

28.97 %

1.69%

2.57%

11.33%

1.46:1 1.15:1

0.71:1

3.44:1

0.78:1

1.98:1

4.11 times

89 days

2.36 times

155 days

3.31 times

110 days

29.60 %

2.10%

3.20%

14.31%

1.50:1 1.17:1

0.75:1

3.09:1

.75:1

2.52:1

3.06 times

119 days

2.265 times

161 days

3.52 times

104 days

33.33%

3.31%

4.58%

18.82%

1.38:1 1.20:1

0.71:1

2.79:1

.73:1

2.40:1

3.51times

106 days

4.14 times

111 days

3.37 times

100 days

24.07%

3.11%

4.30%

16.42%

1.38:1

TREND ANALYSIS INTERPRETATION

As it can be seen, the current ratio have fallen off and become less then industry norms in 2001. Where as Acid test ratio is rising continuously and higher than the industry ratio. So the firm trend in Absolute liquidity is increasing. The average collection period has growing up since 1999 and exceeds the current industry median level, where as average payment period is tends to increase frequently which is a good sign and company is enjoying a good credit time. This ratio also exceeds industry average. These trends here tell us that there has been a relative building up in receivable and inventories. Despite above average level of current and acid test ratios, the apparent deterioration in accounts receivable and inventories is a matter of concern and needs to be investigated.

Stability of the firms leverage also helping to stable the efficiency and performance. In Bata Share of debts assets is decreasing which is not a good sing as management point of view, because it is considered better to use the outsider find and safe owner equity from losses. So it should be investigated to get the reason behind it.

The Gross profit and Net profit margin have generally shown improvement over the recent past. The current level is stronger then the industry ratio and management will be comfortable to get these result.

Return on Investment has been relatively stable over the time and above the industry medium and it is the case with the Return on Equity, it is also quite impressive.

When we analysis the overall performance pf the Bata Pakistan Limited, we observed that almost all the ratios are positive and in the favour of the company. Management should continue to increase the ratios in their favour and plan to make favorable those who are still against the companys interest.

COMPARISON WITH SERVICE INDUSTRIES LTD

BREIF HISTORY OF SERVICE

Service Industries Limited is the major competitor of Bata Pakistan Ltd. in footwear industry in Pakistan. Service is basically a Domestic Industry have good repute in international market of footwear due to fashion and durable products. Service industries were formed in 1941. Ch. Mohammad Hussein was the founder. Service is a strong footwear company with its capital of Rs. 1 billion and annual sale of more than Rs. 2.32 billion.

FINANCIAL COMPARISON

Liquidity Ratios: -

As we compare the liquidity position of servis we find that current ratio of servis industry is quite efficient because it is above the industry average as well as sales current Ratio. But in case of acid test ratio the situation is quite different. In acid test ratio Bata is comparatively better i.e. 0.75 and o.62 for servis. The reason behind this difference is that service maintains and blocks his large amount of money in inventories, store and spare parts.

Leverage Ratio : -

Bata is relying more on external debts as compare to servis. Servis debts to equity ratio is 2.49 and Batas 3.07 in the year 2001. In case of debts to total assets ratio we observed that Bata is using 75% of outer debts and remain 25% is shareholders equity and servis is using only 20 % of external reserves. E can say that Bata has less risk of equity loss as

compare to servis. But the difference is around 4%, which is considered not so high in both companies.

INTERST COVERAGE: -

When we compare Interest coverage ratio of servis and Bata there is a great difference. Bata has the high coverage ratio of Rs. 2.52 to cover 1 rupee of interest where as servis has 2.33 and industry ratio of 2.4. This difference is due to the high percentage increase of profits and reducing the costs.

ACTIVITY RATIO COMPARISON: -

Receivable turnover and a collection period

As we know high the receivable turn over better for the company in this ratio comparison Servis is the quite efficient as compare to Bata because it receivables turnover ratio is 3.97 as compare to Bata which is 3.06 times

And when we observe a collection period due to good receivable turnover ratio Servis is collecting its debts quite earlier as compared to Bata. Servis is collecting its debts almost after 95 days where as Bata is collecting its debts after 119 days.

Payable turnover and Average Payment Period

Payable turn over ratio for servis is only 5.9 which is very high as compare to Batas 2.36. it means that servis is paying 5.9 or 6 % time its debts which is unfavorable for any company as we know less the ACP better will be the companys operating cycle. So Bata is showing a good impression here.

And when we are concerned about any payment period Bata is paying off its debts after 155 days and servis is only 61 days. For servis it is very low paying off its debts and it

may reduce the working capital availability. So servis has to consider this ratio and investigate the actual reason behind it.

In Profitable ratios servis is going under the industry average. So servis has to think about it and investigation should be conducted to the revise the policies to get better results.

Inventory Turnover

It is under stood that higher the inventory turnover better the companys performance and Bata is again going ahead with 3.51 times as to servis 3.23 and Industry average of 3.37. It means inventories of Bata are converted into sales or account receivable than sales almost 3.51 times. There is no rule of thumb of about the industry ratio. Inventory turnover in days for servis is 125 days and for Bata is 104 days. So Servis is converting its stock into sales almost after 125 days quite late as compare to Bata.

PROFITABILITY SITUATION: -

Both Servis and Bata are improving their profitability ratios, and going positive and upward but Batas all the profitability ratios are higher as compare to servis. In year 2001 G.P margin for Bata is 33% and for servis is only 15%, Almost 50% less as compare to Bata. It is the case with N.P margin, N.P of Bata is 3.3% and for servis is 3 % .In return on equity position is almost same i.e. above 4 %. Servis is again below in respect of industry average. Return on Equity of Bata is very impressive with 19 % as compared to servis 14 %.

RECOMMENDATIONS

Financial Position of the Bata Pakistan limited is very impressive only in few of the department Bata is quite week. There is some of recommendations which help the management to overcome these deficiencies

v Bata Debt to Equity ratio is 3.51, which means almost 75 % are debts. Due to high debts ratio financial charges are increasing and consuming major portion of profit. Management has to reduce its debts to reduce the financial charges

v Due to High debts ratio company will also find difficulties if they apply for the loan. Because none of the financial institution will like to invest money due to low equity ration

v Companys current ratio is 1.17:1 but the favorable and most acceptable is 2:1. So company should try to decrease its liabilities mainly the accrued expenses payable or to increase its current assets to be more positive.

v Companys Average collection period is increasing, which is adverse situation not favorable, and reducing Batas current ratio. To manage it, management should have to offer incentive to debts in payment of debts to get early payment. It will help us to increase our current ratio and reduces the high number of days to complete operating cycle.

v Company is earning a healthy operating profit of 9% of its sales where as out of this operating profit almost 6% is absorbed by the operating and other expenses. Management has to reduce these expenses mainly selling and administration expenses to get more Net profit.

v Company is maintaining a healthy Return on equity and showing a upward trend which is a good sign. Management has to maintain this improvement and try to increase this ratio by revising the policy in positive sense.

v Companys Total Asset Turnover ratio is declining. Management should have to increase this ratio by efficient use of Assets and to increase the sale by impressive marketing and sale strategy.

v As we observed company is borrowing short term running finance to meet its accrued liabilities which is not a positive action of a good management because it increase our current liabilities and adversely effects the Current ratio. So management should try to collect its debts early by offering incentives and use this money in paying debts. It will help to reduce liabilities and decrease the our financial charges