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MILLAT TRACTORS Ltd.

MCOM 2nd(M)

Millat Tractors Limited (MTL) is an ISO 9002 certified company for its Assembly Plants
(Tractor Assembly, Engine Assembly, Industrial/Agricultural Products), Material Testing
and Gauge Control Laboratory. It is Pakistan’s leading engineering concern in the
automobile sector, that manufactures;

• Tractors, under licensing agreement with Massey Ferguson, UK (AGCO, USA)


• Diesel Engines, as per design of Perkins Engine, UK
• Diesel Generating Sets and Prime Movers
• Forklift Trucks, under license from Anhui Heli Forklift Trucks China and
• A range of Agricultural Implements.

The company is also dedicated to customize its Diesel Generating Sets and Prime
Movers as per requirements of its Customers.

Millat Tractors Limited (MTL) was established in 1964 as Rana tractors and equipment
limited and changed its name to Millat tractors limited in 1972 at the time of take-over.
The main activity of the company is to introduce and market Massey Ferguson (MF)
Tractors in Pakistan. An assembly plant was set up in 1967 to assemble tractors imported
in semi-knocked down (SKD) condition.

The company was nationalized under Economic Reforms Order in 1972 and started
assembling and marketing tractors on behalf of Pakistan Tractor Corporation (PTC)
which was formed by the Government for import of tractors in SKD condition. In 1980
the Government decided on indigenization of the tractors and entrusted this task to PTC.

PTC transferred this role of indigenization in 1981 to MTL. This was the turning point in
the Company’s history and it went about the task methodically and rapidly. The
Company undertook this new role with enthusiasm and in the spirit of national
development and proved its engineering capabilities by surprising the deletion targets set
by the Government. Just in one year's time, the company took a giant step towards self-
reliance by setting up the first engine assembly plant in Pakistan.

The Company made a strategic decision right in the beginning to bring those
manufacturing facilities in-house for which capabilities did not exist in the country and
for parts which required high precision and investment. Therefore, in 1984, sophisticated
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MILLAT TRACTORS Ltd. MCOM 2nd(M)

manufacturing facilities for the machining of intricate components were set up. These
were previously not available in Pakistan. Currently, critical components like Engine
Blocks, Sump, Transmission Case, Axle Housing, Hydraulic Lift Cover, Front Axle
Support and Centre Housing are all being machined most successfully in-house at MTL
from locally sourced castings.

At MTL, we firmly believe that producing to International quality standards is the key to
our continued success and growth, and our quality control department converts this belief
into reality.

In 1992, the company was privatized. The employees joined hands and took over the
management by winning an open bid.

To maintain its leadership role in tractor manufacturing in the country, MTL continues to
look toward future, to identify and exploit new opportunities and to consolidate existing
ones. The Tractor Assembly Plant is part of this philosophy. This plant started its
production in 1992. The establishment of this modern plant not only increased production
capacity to 16000 tractors per year on a single shift basis, but also provided a quantum
jump to the quality of the assembled tractors and pushed MTL into ranks of the major
tractor manufacturing companies of the World.

After successful takeover, MTL also acquired the management control of Bolan Castings
Limited (a Public Limited Company specializing in intricate automotive castings) in
partnership with employees of the company, in 1993. The company has been the regular
recipient of the Corporate Excellence Award of Management Association of Pakistan and
the Top Companies Award of Karachi Stock Exchange, since early eighties. MTL's
Annual Report has been acknowledged as the Best Annual Report by the Institute of
Chartered Secretaries and Admin Association of Pakistan for several years.

Future Outlook
The Company looks to the future with optimism and plans to broaden its customer base.
Consequently the opportunities are being explored in multi-application of engines and
tractors in areas other than farming sectors. Mass Production of Generating Sets was
started in 1994, while a 3-Ton Fork Lift Truck branded as Millat, based on TCM
technology was launched in the year 2002.

The company has established a wholly new company named Millat Industrial Products
(Pvt) Limited to manufacture quality automotive batteries.

It is mission of the company to provide total satisfaction to the customers. The employees
of the company ably supported by our engineers continue to work with full vigor to
further enhance products, performance and reliability.

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MILLAT TRACTORS Ltd. MCOM 2nd(M)

Millat is a global group of companies, recognized for a range of quality products with
innovative design capabilities.

Millat to be market leader in agricultural tractors and machinery, building Company’s


image through innovation and competitiveness, grow by expanding market and investing
into group companies, ensuring satisfaction to customers and stakeholders and to fulfill
social obligations.

Our customers as our first priority

Profitability for the prosperity of our stakeholders that allows us to constantly invest,
improve and succeed

Corporate social responsibilities to enrich the lives of community where we operate

Recognition and reward for the talented and high performing employees

Excellence in every thing we do

Integrity in all our dealings

Respect for our customers and each other

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MILLAT TRACTORS Ltd. MCOM 2nd(M)

BOARD OF DIRECTORS
Chairman

Sikandar Mustafa Khan

Cheif Executive
Sohail Bashir Rana

M.C.B Nominee
Latif Khalid Hashmi
Laeeq Uddin Ansari
Mian Muhammad Saleem
Bashir Ahmad Chaudhry
Rana Muhammad Saddique
Syed Kokub Mohyuddin
Mian Nawaz Tishna
S.M. Tanveer
Mian Muhammad Saleem

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MILLAT TRACTORS Ltd. MCOM 2nd(M)

Company Secretary
Mian Muhammad saleem

Chief financial officer


Javed munir

Auditors
M/s, ford Rhodes sidat hyder & co.
chartered accountant
legal advisors
Walker martineau saleem
Advocates & legal consultants

Altaf & Altaf


Advocates

Bankers
ABN Amro Bank
Bank Alfalah Ltd.
Habib Bank Ltd.
MCB Bank Ltd.
Standard Chartered Bank
Meezan Bank Ltd.
United Bank Ltd.

Registered office & plant


Sheikhupura Road, Distt. Sheikhupura
Tel; 042-7911021-25, 111-200-786
Fax; 042-7924166, 7925835
Website; www.millat.com.pk
E-mail; info@millat.com.pk

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MILLAT TRACTORS Ltd. MCOM 2nd(M)

COMMITIES OF BOARD OF DIRECTORS &


MANAGEMENT

Board of Directors committee

Audit committee

Latif Khalid Hashmi Chairman


Mr. M. Nawaz Tishna Member
Mr. Mazhar Uddin Ansari Member
Mian Muhammad Saleem Member
Mr. S. M. Tanvir Member

Management Committees

Business strategy committee

Mr. Sikandar Mustafa khan Chairman


Mr. Sohail Bashir Rana Member
Mr. Latif Khalid Hashmi Member
Mr. Laeeq Uddin Ansari Member
Mian Muhammad Saleem Member

Remuneration Committee

Mr. Sikandar Mustafa khan Chairman


Mr. Sohail Bashir Rana Member
Mr. Latif Khalid Hashmi Member
Mr. Javed munir Member

Systems & technology Committee

Mr. Sohail Bashir Rana Chairman


Mr. shaukat ali sheikh Member
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MILLAT TRACTORS Ltd. MCOM 2nd(M)

Mr. Javed munir Member


Dr. Syed Amer Ali Member
Mr. Farough Iqbal Member

Environment Committee

Mr. Sohail Bashir Rana Chairman


Mr. Mubashar Iqbal Member
Mr. Nasim A. Sindhu Member
Mr. Muhammad Ali Member

Safety committee

Mr. Nasim A. Sindhu Chairman


Mr. Ahsan Imran Member
Mr. Shafaat Ahmad Member
Mr. Muhammad Akbar Member
Mr. Muhammad Ali Member

Risk Management Committee

Mr. Sikandar Mustafa khan Chairman


Mr. Sohail Bashir Rana Member
Mr. Latif Khalid Hashmi Member
Mr. Laeeq Uddin Ansari Member
Mian Muhammad Saleem Member

Management co-ordination committee

Mr. Sohail Bashir Rana Chairman


Mr. Shaukat ali sheikh Member
Dr. Syed Amer Ali Member
Mr. Mubashar Iqbal Member
Mr. Javed munir Member
Mr. M. Aslam khokhar Member
Mr. Muhammad Akram Member

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Budget Committee

Mr. Sohail Bashir Rana Chairman


Dr. Syed Amer Ali Member
Mr. Mubashar Iqbal Member
Mr. Javed munir Member
Mr. Muhammad Akram Member

Human Resource Committee

Mr. Ahsan Imran Chairman


Mr. Shafaat Ahmad Member
Mr. Zulfiqar Elahi Member
Syed Azhar Hussain Member

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MILLAT TRACTORS Ltd. MCOM 2nd(M)

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PRODUCTS
PRODUCTS ARE AS FOLLOW:

1. TRACTORS
2. Industrial Products
3. Agricultural Implements

1.TRACTORS
A wide range of Massey Ferguson Tractors from 50 hp to 85 hp is available to cater to
the needs of farmers. These Tractors can be procured against Cash, as well as through
Bank Financing Millat Tractors Limited (MTL) offers five models that range from 50
horse power(hp) to 85 horse power. All models are meant to fulfill specific requirements
of our valued customers.
MF240
• Most economical in 50 HP range
• Rugged, maneuverable and compact
• Easy accessability to service points
• Ideal, versatile, all round tractor
• Spring suspension deluxe Seat
• Availability of parts and service facilities at your doorstep

MF260
• High performance, fuel efficient, Perkins Turbocharged Engine
• Less Smoke emmission due to better fuel burning
• Oil cooler added for effective cooling
• High PTO power for efficient operation of Tube Wells, Rotavators, Threshers etc.
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• Robust Straddle Rear Axle


• Efficient oil immersed Disc Brakes
• Spring suspension deluxe seat

MF375S
• Environment friendly, High performance Perkins 4.41 Engine
• Oil Cooler for effective cooling
• Gaseous Emmisions under ECE R49
• Robust Straddle Rear Axle
• Efficient oil-Immersed Disc Brakes
• Heavy-Duty Front Support
• Spring Suspension Deluxe Seat
• Easy Accessibility to Service points
• Heavy-Duty Spindle and Steering Arm
• Specious Operator's Area
• New Sheet Metal Style

MF385
• HighPerformance 4.41, low noise Engine
• Gaseous Emmissions under ECE R49
• Reduced Smoke Level
• Oil Cooler added for effective cooling
• Hydrostatic Power Steering
• Efficient Oil Immersed Disc Brake System
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• Spring Suspension Deluxe Seat

MF385 4WD
• EDGE OVER 2WD
• Traction (30% More)
• Drawbar Power (16% More)
• Drawbar Pull (34% More)
• Tyre Wear (15% less)
• Fuel Efficiency (15% More)
• Field Work Speed (13-20% More)

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2.Industrial Products
Industrial Products of Millat Tractors Limited (Millat) include:

I. Millat Generating Sets


II. Massey Generating Sets
III. Fork Lift Truck
IV. Prime Movers

(I).Millat Generating Sets


MPG-25
1. 15 kVA Manual
2. 27 kVA Manual

MPG-42
40kVA Manual

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(II).MTL Generators Massey Generators

MODELS

1. 930-1000E: 1000kVA / 800kW


2. 930-1000: 1000kVA / 800kW
3. 930-100E: 100kVA / 80kW
4. 930-100: 100kVA / 80kW
5. 930-1100E: 1100kVA / 880kW
6. 930-110E: 110kVA / 88kW
7. 930-1250: 1250kVA / 1000kW
8. 930-135: 135kVA / 108kW
9. 930-1375E: 1375kVA / 1100kW
10. 930-1500: 1500kVA / 1200kW
11. 930-150E: 150kVA / 120kW
12. 930-160H: 160kVA / 128kW
13. 930-1650E: 1650kVA / 1320kW
14. 930-1700: 1700kVA / 1360kW
15. 930-1750: 1750kVA / 1400kW
16. 930-175HE: 175kVA / 140kW
17. 930-1825: 1825kVA / 1460kW
18. 930-1875E: 1875kVA / 1500kW
19. 930-1925E: 1925kVA / 1540kW
20. 930-2000E: 2000kVA / 1600kW
21. 930-2000: 2000kVA / 1600kW
22. 930-200H: 200kVA / 160kW
23. 930-2200E: 2200kVA / 1760kW
24. 930-220HE: 220kVA / 176kW
25. 930-230H: 230kVA / 184kW
26. 930-250HE: 250kVA / 200kW
27. 930-250H: 250kVA / 200kW
28. 930-275HE: 275kVA / 220kW
29. 930-300: 300kVA / 240kW
30. 930-330E: 330kVA / 264kW
31. 930-350: 350kVA / 280kW
32. 930-380E: 380kVA / 304kW
33. 930-380: 380kVA / 304kW
34. 930-425E: 425kVA / 340kW
35. 930-450: 450kVA / 360kW
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36. 930-500E: 500kVA / 400kW


37. 930-500: 500kVA / 400kW
38. 930-550E: 550kVA / 440kW
39. 930-626E: 60 Hz only
40. 930-188HE: 60 Hz only
41. 930-600: 600kVA / 480kW
42. 930-60P1: 60kVA / 48kW
43. 930-650: 650kVA / 520kW
44. 930-65E1: 65kVA / 52kW
45. 930-660E: 660kVA / 528kW
46. 930-715E: 715kVA / 572kW
47. 930-725: 725kVA / 580kW
48. 930-75P1: 75kVA / 60Kw
49. 930-800E: 800kVA / 640kW
50. 930-800: 800kVA / 640kW
51. 930-83E1: 82.5kVA / 66kW
52. 930-880E: 880kVA / 704kW
53. 930-90: 90kVA / 72kW
54. 930-910: 910kVA / 728kW

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MILLAT TRACTORS Ltd. MCOM 2nd(M)

(III). Forklift Truck


FD30M1 3000(KG)

FEATURES

• Low cost of ownersship, low cost of operation and high quality


• Simple and conveniently placed controls.
• Positive feel of the hoist and tilt function for precise load control
• Millat/Perkins D3.152 engine with low maintenance and nationwide availability
of parts
• Complete after sales service and support availability

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(IV).Prime Movers
FEATURES

• Total power package easy to install & ready to operate reducing on-site
installation and labour cost.
• Long life & fuel efficient.
• An extensive after-sale service backup through Millat nationwide dealer's
network.
• Assured ready avilability of full range of spare parts.
• Realiability on Millat/Perkins Engine reduces down-time and operational cost.

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3.Agricultural Implements
The most Impotant plough for primary tillage in canal irrigated or heavy rain areas
where too much weeds grow. The objective for ploughing with a Mould Board is to
completely invert and pulverize the soil, up-root all weeds, trash and crop residues
and bury them under the soil. The shape of mould Board is designed to cut down the
soil and invert it to right side, completely burying the undesired growth which is
subsequently turned into manure after decomposition.

Millat Tractors Limited (MTL) deals in different types of Agricultural Implements,


which give MTL a unique position in agricultural driven market place.

The Agricultural Implements include different types of ploughs, farm trailers, lawn
mowers, jib cranes, agricultural loader

Chisel Plough [MT-01] Disc Plough [MT-765] Mould Board Plough [MT-02(M)]

Tine Tillers [MT-38/13 tines] Front Blade [MF-08/1] for MF240/MF260


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MILLAT TRACTORS Ltd. MCOM 2nd(M)

JIB CRANE [MT-16]

MASCHIO LAWN MOVER

FRONT BLADE [MT-08/2]

Agriculture Loader [MT-11/1 (for MF 240)]

Offset Disc Harrow Model [MT-03 (M)]

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The ratios which measure the short term solvency or financial


position of a firm are called liquidity ratios. These ratios are calculated to
comment upon the short term paying capacity of a concern or the firm’s
ability to meet its current obligations.
These ratios are;
1. Current Ratio
2. Quick Ratio
3. Absolute Quick Ratio
Current Ratio:
A measure of liquidity calculated by dividing the firm’s current
assets by its current liabilities.
The standard of Current Ratio is 2:1.
Current Ratio= Current asset
Current liabilities

Quick Ratio:
A measure of liquidity calculated by dividing the firm’s current
assets minus inventory by its current liability, it is also known as Liquid
Ratio and Acid-Test Ratio.
The standard of Quick Ratio is 1:1.
Quick Ratio= Quick assets
Current liabilities

Absolute Quick Ratio:


It is ratio of Absolute Liquid Asset to Current Liability in the
computation of this ratio, only the Absolute Liquid Assets are compared
with Liquid Liabilities. The Absolute Liquid Assets are Cash, Bank and
Marketable Securities. A standard 0.5:1 Absolute Liquid Ratio is considered
an acceptable norm.
Absolute Quick Ratio= Absolute liquid assets
Current liabilities

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RATIOS 2006 2007 RESULT REASONS


Current Ratio 1.4 1.6 Favorable Because of more
decrease in current
liabilities as compared
to decrease in current
assets
Quick Ratio 0.9 1.1 Favorable Because of stock of
trade decreased
Absolute Quick Ratio 0.74 0.79 Favorable Because of more
decrease in liabilities as
compared in decease in
absolute quick assets.

RATIOS ITEM %CHANGE

Current ratio Trade & other ↓31.9%


payables
Quick ratio Stock in trade ↓18.9%

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Comments:

Result:
The overall liquidity of the firm is seems to be a good shape. Its Current
Ratio, Quick Ratio and Absolute Quick Ratio are good relative to the
previous year.
The company is capable to meet short term obligations.
Working capital is being properly utilized.

Reasons:

In 2007, current liabilities as well as current assets decreased but there


is heavy decrease in current liabilities as compared to current assets.

Effects:

The liquidity ratios of Millat Tractors are viewed as good leading


indicators of cash flow problems. The company is in a business with a
relatively predictable annual cash flow so its current ratio and quick
ratio are acceptable.

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MILLAT TRACTORS Ltd. MCOM 2nd(M)

Activity Ratios are calculated to measure the efficiency with which


resources of the firm have been employed. These ratio are also called
Turnover Ratios because they indicate the speed with which Assets are being
turned aver into sales.
In short the effectiveness of management towards utilization of resources to
generate sales.
These ratios are;
1. Inventory Turnover
2. Average Collection Period
3. Average Payment Period
4. Total Asset Turnover Ratio
5. Working Capital Turnover

Inventory Turnover:
Inventory turnover also known as stock turnover is the relationship between
Cost of Gods Sold during a particular period of time and cost of Average
Inventory during that period. It is expressed in number of times. This ratio
indicated the number of times the stock has been turned over during the
period and evaluated the efficiency with which the firm is able to mange its
inventory. This ratio indicates whether investment in stock is with in proper
limit or not.

Inventory Turnover ratio= Cost of sales


Average inventory

Average Collection Period:


The debtor turnover ratio when calculated in terms of days known as
Average Collection Period or debtor collection period ratio. The average
collection period ratio represents the average number of days for which a
firm has to wait before its debtors are converted into cash.

Average collection period= accounts receivable *365


Annual sales
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MILLAT TRACTORS Ltd. MCOM 2nd(M)

Average Payment Period:


The ratio gives the average credit period enjoyed from the creditor. It
represents the number of days taken by the firm to pay its creditor.
Average payment period= accounts payable * 365
Annual purchases
Total Asset Turnover Ratio:
The total asset turnover indicated the efficiency with which the firm uses its
assets to generate sales.
Total Asset Turnover Ratio= Cost of sales
Total assets

RATIOS 2006 2007 RESULT REASONS


Inventory Turnover 3.69 5.3 Favorable Because of increase in cost
of sales

Average Collection 8.2 11.3 Unfavorable Because of increase in A/R


Period

Average Payment Period 17359 10293 Favorable Because of decrease in


A/P
Total Asset Turnover 1.29 1.71 Favorable Because of increase in
Ratio sales and decrease in
assets

RATIOS ITEM %CHANGE


Inventory Turnover Cost of sales ↑16.7%
Average Collection creditors ↑88.8%
Period

Average Payment Period debtors ↑84.2%

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Comments:

Result:

The company’s activity ratios appear in a good shape. And the ratio
stands favorable for Millat tractor’s company.

Reasons:

Its inventory turnover seems to have improved. In 2007, it has low level
of stock as compared to pervious year which causes of good inventory
turnover. The firm is facing difficulty in receiving its debts as compared
to previous year, so this could adversely affect the firm’s credit
standing. Its collection period is poor. Its total assets decreased which
results in increase its sales so its total assets turnover is Favorable.

Effects:

The overall activity position of the company is Good and so we can say
that there is a speedy disposable of finished goods stock; effective use of
working capital, efficient operations that have a positive and healthy
impact on the success and the profitability of the Millat tractors.

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MILLAT TRACTORS Ltd. MCOM 2nd(M)

These ratios measure the results of business operation or overall


performance and effectiveness of the firms.
1. Gross Profit Margin.
2. Operating Profit Margin.
3. Net Profit Margin.
4. Earning Per Share.
5. Return on Assets.
6. Return on Equity.

Gross profit margin:


Gross profit margin is the ratio of gross profit to net sales expressed as
a percentage. It expresses the relationship between gross profit and sales.
Gross profit margin reflects its products .there is no standard gross profit
ratio for evaluation it may vary from business to business.
Gross profit ratio= Gross profit
Net sales

Operating Profit Margin:


Operating profit margin is the ratio of operating profit to net sales
expressed as a percentage. It expressed the relationship between operating
profit and sales. Operating profit is “pure profit” because they measures only
the profits earned on operations and ignore interests, taxes and preferred
stock dividend. A high operating profit is preferred.
Operating Profit ratio= Operating Profit
Net sales

Net Profit Margins:


This is the ratio of net profit (after taxes) to net sales. It is also
expressed as percentage. This is used to measure the overall profitability and
have it is very useful to proprietors. This ratio is very useful as if the net
profit is not sufficient, the firm shall not be able to achieve a satisfactory
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MILLAT TRACTORS Ltd. MCOM 2nd(M)

return on its investment. This ratio also indicates the firm’s capacity to face
adverse economic conditions such as price competition, law demand etc.
obviously, higher the ratio the better is the profitability.

Net Profit ratio= Net Profit


Net sales

Earning Per Share:


Earning per share is a small variation of return on equity capital and is
calculated y dividing the net profit after taxes and prefer dividend by the
total no. of equity shares. It is a good measure of earning.
Earning Per Share=
Earning available for common stockholders
No of shares

Return on Assets:
The return on assets, often called the return on investment measure the
overall effectiveness of management in generating profits with its available
assets. The higher the firm’s return on total assets, the better.
Return on Assets=
Earning available for common stockholders
Total assets

Return on Equity:
Return on equity measures the return earned on the common stock
holder’s investment in the firm. Generally, the higher this return, the better
off is the owners. In the real sense, the common stock holders are the real
owner of the company. They assume the highest risk in the company. This
ratio is more meaningful to the equity shareholders who are interested to
know the profit earned by the company and those profits which can be made
available to pay dividend to them.

Return on Equity=
Earning available for common stockholders
Common stock equity

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RATIOS 2006 2007 RESULT REASONS


Gross Profit Margin 13.2% 10.3% Unfavorable Because of high sales

Operating Profit Margin 9.52% 5.42% Unfavorable Because of high sales

Net Profit Margin 7.47% 5.94% Unfavorable Because of high sales

Earning Per Share 39.42 35.17 Unfavorable Due to decrease in earning


available for common
stock holders
Return on Assets 9.6% 10.2% Favorable Due to decrease in total
assets
Return on Equity 30.4% 24.2% Unfavorable Due to increase in equity

RATIOS ITEM %CHANGE

Gross Profit Gross profit ↓11.57%


Margin

Operating Profit Operating ↓35.71%


Margin
profit
Net Profit Margin Net profit ↓10.1%
Earning Per Share EPS ↓10.76%
Return on Assets Total assets ↓15.05%
Return on Equity General reserve ↑24.12%

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Comments:
Results:

Millat tractors profitability is not as good as compare to previous year.


So in this year, it is unfavorable for company.

Reasons:

It’s Gross Profit, Operating Profit and Net Profit is not better than the
previous year and its sales increased but decrease in Gross Profit,
Operating Profit and Net Profit adversely affects profitability ratios of
the firm.EPS is also not better in this year due to decrease in earning
available for common stock holders. But its return on assets is quite
similar in this year. Shareholders equity remained low as compare to
previous year which affects the return on equity; it shows that firm is
not performing well.

Effects:

In profitability, the efficiency of business is measured. The profitability


of Millat tractors Limited is low because of:
 A low profitability arises due to lack of control over the expenses.
 There is increase in sale without corresponding increase in profits.
There is poor impact of profitability because the bankers, financial
institutions and other creditors look at the profitability ratios as an
indicator, whether or not the firm earns substantially more than it pays
interest for the use of borrowed funds and whether the ultimate
repayment of their debt appears reasonably certain.

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The debt position of a firm indicates the amount of other people’s money
being used to generate profits.
1. Debt Ratio.
2. Time Interest Earned Ratio.
3. Fixed Payment Coverage Ratio.

Debt Ratio:
It measure the proportion of total assets financed by the firm’s
creditors the higher the ratio, the greater the amount of other people’s money
being used to generate profit and the more financial leverage it has.
Debt Ratio=
Total liabilities
Total assets

Time Interest Earned Ratio:


It measures the firm’s ability to make contractual interest payments.
This ratio relates the fixed interest changes to the income earned by the
business. It indicates whether the business has earned sufficient profit to pay
periodically the interest charges. It is an index of the financial strength of an
enterprise. The higher its value, the better able the firm is to fulfill its
interest obligations. It is also known as interest coverage ratio.
Time Interest Earned Ratio=
Earning before interest and tax
Interest

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Fixed Payment Coverage Ratio:


It measures the firm’s ability to meet all fixed payment obligation,
such as loan interest and principal, lease payment and preferred stock
dividends. Like the time interest earned ratio, the fixed payment coverage
ratio measures risk, the lower the ratio the greater the risk to both lenders
and owners; the greater the ratio, the lower the risk.
Fixed Payment Coverage Ratio=
Earning before interest and tax +lease payment
Interest+lease payment+ [(prin+pref.div)*[1/1-T)]

RATIOS 2006 2007 RESULT REASONS


Debt Ratio 0.67 0.56 Favorable Because of heavy decrease
in total liabilities,

Time Interest Earned 162.25 32.1 Unfavorable Because it paid heavy


Ratio interest in this year

RATIOS ITEM %CHANGE

Debt Ratio Trade & other ↓31.9%


payables
Time Interest Finance cost ↑311%
Earned Ratio

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Comments:
Result:

The overall solvency ratio of company is not favorable for the firm.

Reason:

The debt ratio of the company is indicating favorable position as


compared to the previous year, company’s liabilities decreased more as
compare to the assets which is good. While the company’s net profit has
decreased as compare to the previous year but company paid more
interest in 2007. Time Interest Earned Ratio is less than previous year
which shows the firm’s less ability to pay its contractual interest
payments.

Effects:

The firm’s ability to pay its contractual interest payments became less
in this year.

In short, it appears that the company’s ability to pay debts in 2007 does
not compensate for its increased degree of indebtedness.

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MILLAT TRACTORS Ltd. MCOM 2nd(M)

It relates a firm’s market value as measured by its current share price to


certain accounting values. These ratios give insight into how well invertors
in the market place feel the firm are doing in term of risk and return.

The popular market ratios are:


1. Price Earning Ratio.
2. Market Book Ratio.
3. Book Value per Share.
4. Dividend Yield Ratio

Price Earning Ratio:


Price Earning Ratio is the ratio between market price of share and
Earning per Share. The ratio is calculated to make an estimate of
appreciation in the value of a share of a company and is widely used by
investors to decide whether or not to buy shares in a particular company.
Generally the higher the Price Earning Ratio the better it is.
This ratio is calculated on daily basis.
Price Earning Ratio=
Market price per share of common stockholder
Earning per share

Market Book Ratio:


Provide an assessment of how investors view the firm’s performance.
Book Value per Share: This ratio shows the strength of the share of a
company in the business. It is the true indicator to show the strength of
share.
Market Book Ratio=

Market price per share of common stockholder


Book value per share of common stockholder

34
MILLAT TRACTORS Ltd. MCOM 2nd(M)

RATIOS 2006 2007 RESULT REASONS


Price Earning Ratio. 8.26 9.75 Favorable Because of decrease in
EPS
Market Book Ratio 2.12 2.38 Favorable Due to decrease in book
value
Book Value per Share. 153.2 143.9 Unfavorable Because of decrease in
common stock equity

RATIOS ITEM %CHANGE

Price Earning Earning ↓10.75%


Ratio. available for
common
stockholders
Market Book Book value ↓6.07%
Ratio

35
MILLAT TRACTORS Ltd. MCOM 2nd(M)

Comments:
Results:

The market ratios of Millat tractors seem to be satisfied as compared to


2006.

Reasons:

The price Earning ratio increased because decrease in EPS in 2007.


The book value decreased in 2007 but due to increase in market price of
the share of the firm, the company’s market book ratio become
favorable.

Effects:

Millat’s market value ratios show that:


The higher P/E ratio indicates that investors have greater confidence in
the firm in 2007. This ratio suggests that firm’s risk has declined.
The firm’s M/B ratio implies that investors are optimistic about the
firm’s future performance.
In short the firm appears to be growing.

36