(A DETAILED REPORT FOR INVESTIGATING

THE PROBLEMS IN THE LIGHT OF

FUNDAMENTALS OF CORPORATE AND
MANAGERIAL FINANCE)

Threats to Shahtaj Sugar Mills ltd

Presented to:

Dr Salman Masood

Prepared by:

Hassan Amin

Roll # 61

MBA finance 1.5

 Business report 1

Stage 1: planning
(Problem statement, Purpose, aim and objectives)

Problem statement:
Severe threats to Shahtaj Sugar Mills Ltd

Shahtaj Sugar Mills faces very severe threats and performance is not fair. From last many
years firm faces drastic uncertainties in his financial glance. After reviewed by writer
firm is not consistent in his all financial and operating aspect. There is extreme ups and
down in Earning per share, index and stock relation, equity, dividend, sales, enterprise
value and profitability. Financial disturbance and some risks have been reported in 2019
annual report as

 Increased competition in local market due to lesser availability of crop

 Hike in the oil prices
 Increase in prices of raw and packing material.
 Increase in interest rates on financial borrowings.
 Increased rate of taxes

Purpose:
The purpose of this report is to highlight and solve all the problems faced by Shahtaj
Sugar Mills Ltd. The vision provided by them “To succeed and grow to the utmost
satisfaction of the customers, employees and shareholders”. Every firm has such types of
visions, but formation of vision is not a big deal; March self-confidently on the prepared
vision is a fantastic deal. mission are footsteps to reach the desired vision “To strive for
still higher levels of efficiency, productivity, cost effectiveness, profitability, customer
satisfaction, congenial employee’s relations, profit sharing with shareholders and hence
gaining further strength to continue to succeed and grow”. The writer desires not to only
highlight the severe problems, but also create some necessary solutions and type suitable
recommendations according to corporate finance disciplines. There are many highlighted
problems and the writer’s hope that all the recommendations will be helpful to the
stakeholders of the firm in each aspect.

Objectives:
The writer desires to highlight all the problems clearly and effectively according to the
disciplines and fundamentals of corporate finance. First of all, the writer want to
highlight all business and financial problems, all problems would be highlighted with
horizontal, vertical, fundamental& technical and complete financial statement analysis.

The first objective of the writer is to highlight the theoretical problems in the light of
corporate finance and then travel towards factual problems. After observing the vision,

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mission, corporate strategy, ten years production review, director report, six year glance
review, performance snapshots of earnings per share, index v/s stocks movements, equity
ratios, dividend flow and profitability ratios, cash flows, liquidity and solvency,
enterprise value and sales graphs on SCS-PSX and financial statements, and the second
objective is to calculate some mathematical tools like operating, financial and total
leverages for better decisions.

 Primary objectives:
There are several primary objectives. E.g
 Business analysis.
 Financial statement analysis.
 Increased competition in local market due to lesser availability of crop.
 Hike in the oil prices.
 Increase in prices of raw and packing material.
 Increase in interest rates on financial borrowings.
 Increased rate of taxes.
 Un-volatility in crushing plans.
 Un-volatility in sugarcane recovery.
 Inconsistencies in production of sugar.
 Un-volatility in days worked.
 Over valuation of share price and disturbance in 100 Index V/s share price.
 Ratio analysis interpretation.
 Horizontal and vertical analysis.
 Secondary objective:
There are several secondary objectives. E.g
 Find out the operating, financial and total leverage of firm.
 Fundamental analysis.

Aims:
 The writer would like to perform business analysis contains evaluation of
company’s economic prospect and risks including, analysis of internal
environment including strategies, financial position and performance, also want to
analyze the credit-worthiness of the firm(credit analysis) further analyzing trade
and non-trade creditors, also analyzes risk and rewards of ownership residential
claimed by shareholders. The writer would like to perform equity analysis
contains both fundamental and technical analysis and industry analysis.
 The writer would like to perform financial analysis contains financial, accounting
and prospective analysis. Financial analysis will evaluate comparative financial
statements (The Comparative Financial Statement provides trend or horizontal
analysis and common size financial statement analysis or vertical analysis would
use to show the relative sizes of the different accounts on a financial statement as

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 Business report 3

a percentage of a base amount for the same time period. The writer will use this
analysis on balance sheet and income statement). Both analyses accounting risk
and earning quality. The writer also want to perform fundamental and technical
analysis Complete ratio analysis will be conduct and interpret accordingly e.g
investor ratios, efficiency ratios, cash flow ratios, debt ratios, price to earnings
ratio, solvency, profitability, liquidity ratios, equity ratios and enterprise value
ratios. Financial and market overview will also be observed to check the overall
market performance in trading. After analyzing overall performance, the writer
also want to calculate leverage of the shahtaj sugar mills, leverage includes degree
of operating, financial and total leverage of firm. after calculating, results would
indicate sensitivity of firm. Theoretical problems are
 Increase competition in local market due to lesser availability of crop: In this
section the writer would find out how Shahtaj Mills can managed their shortage of
crop and high competition?
 Hike in the oil prices: In this section, the writer would find out how Shahtaj Mills
can manage their oil prices?
 Increase in prices of raw and packing material: In this section, the writer would
find out how Shahtaj Mills can manage increase in prices of raw and packaging
material?
 Increase in interest rate and financial borrowings: In this section, the writer would
find out how Shahtaj Mills can manage increase in interest rate and financial
burden?
 Increased rate of taxes: In this section, the writer would find out how Shahtaj
Mills can manage increased rates of taxes?
 Un-volatility in crushing plans: In this section, the writer would comment how
stability would be created in crushing plans of firm?
 Un-volatility in sugarcane recovery: In this section, the writer would comment
how stability would be created in recovery of sugarcane of firm?
 Inconsistency in production of sugar: In this section, the writer would comment
how consistency would be created in production plans of firm?
 Un-volatility in days worked: In this section, the writer would comment how
consistency would be created in production days of firm?
 Over valuation of share price and index v/s stock price: In this section, the writer
would comment how consistency would be created in production days of firm?

1.2: Audience:
Reader:
First of all most respected Sir Dr Salman Masood will be the reader who can guide me
for the preparation of business report and then all respected stakeholders of Shahtaj Sugar
Mills Ltd.

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 Business report 4

Readers Preference:
Under the light of fundamentals of corporate finance the writer did highlight all major
and minor problems which can be crucial for the stability and growth of the any firm. It’s
the writer academic professional writing activity in which writer can used his full
potential to highlight the problems. The entire objectives described earlier can creates
problems for future prospects of any public ltd firm.

 This report is to be written for firm management to observe and take corrective
actions for all the highlighted problems in future for betterment. All the
determinants show poor performance in each level.
 This report is to be written for the all the stakeholders related to firm growth,
productivity, and easily analyze the value of the company, because everything has
explained easily.
 For investors, this report is to be very crucial to read before the investment in
Shahtaj Sugar Mills Ltd.

Reader’s Needs:
The main uncertainties highlighted by them are;

 Increased competition in local market due to lesser availability of crop.

 Hike in the oil prices.
 Increase in prices of raw and packing material.
 Increase in interest rates on financial borrowings.
 Increased rate of taxes.
 Stability in operational and financial performance.
 Overvalued stock as compared to index.

1.3. Structure:

(Parts of report)

Timeline:
The report had been completed in 1 week.

Reporting Style:
In this report, writer analyzes the real situation and applies business theories and practices
to produce a range of suggestions for improvement. Business reports are typically
assigned to enables the writer to apply business and management theories to a practical
situation. The writer covered all factual, narrative, leading and implementation styles in
this report for the betterment of the firm. According to writer, the purpose of this report is

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to highlight all operational and financial problems and gave some necessary solutions for
the betterment of the firm. Dr, Salman masood and stakeholders would be the first reader
and the writer had financial, managerial and corporate financial information to
communicate to stakeholders.

Circulation:
The report is to be circulating to most respected Dr Salman masood for evaluation and
then it would be circulated to corporate contact person.

Stage 2: collecting information:

The writer had been collected information through vision, mission, corporate strategy,
production plans, income statement and balance sheet, complete ratio analysis tables with
charts, leverage tables, horizontal and vertical analysis, fundamental and technical
analysis. All relevant data have been collected from annual reports of shahtaj sugar mills
ltd and all ratio analysis from SCS-trade brokerage website. The writer used case study
method for data collection and arranged necessary data according to requirement of the
report.

Stage 3: Organization:
Introduction:
Many firms today develop a vision statement that answers the question “what do we want
to become?” Developing a vision statement is often considered the first step in strategic
planning, preceding even development of a mission statement. Many vision statements
are single sentence E.g. “To succeed and grow to the utmost satisfaction of the
customers, employees and shareholders”. Vision statement of Shahtaj is attractive to
stakeholders but it cannot provide consistent output to shareholders in terms of profit,
dividend and stock price. Mission statements are enduring statements of purpose that
distinguish one business from other similar firms. Mission statement identifies the scope
of firm’s operation in market and product terms. “To strive for still higher levels of
efficiency, productivity, cost effectiveness, profitability, customer satisfaction, congenial
employee’s relations, and profit sharing with shareholders and hence gaining further
strength to continue to succeed and grow”. Mission statement describes the values and
priorities of an organization. The writer will analyze the vision, mission, corporate
strategy, ten years production review, director report, six year glance review,
performance snapshots of earnings per share, index v/s stocks movements, equity ratios,
dividend flow and profitability ratios, cash flows, enterprise value and sales graphs on
SCS-PSX and financial statements, the writer analyze that the firm reflects poor
performance and face drastic serious conditions. The overall financial performance is not
well like of growing firms. All the major factors that could be affects the firm are moving

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in negative directions or one or two time in positive direction. The writer also wants to
calculate leverage (degree of operating, financial and total leverage) and horizontal and
analysis then comment. The degree of operating leverage quantifies a
company's operating risk that is a result of the structure of fixed and variable cost,
Company with a high degree of operating leverage has high fixed costs relative to its
variable costs. A degree of financial leverage (DFL) is a leverage ratio that measures the
sensitivity of a company’s earnings per share (EPS) to fluctuations in its operating
income, as a result of changes in its capital structure. The degree of financial leverage
(DFL) measures the percentage change in EPS for a unit change in operating income,
also known as earnings before interest and taxes (EBIT) . External opportunities and
threats refer to economic, social, cultural, demographic, environmental, competitive
trends, events, political and legal that could significantly benefit or harm an organization
in future. Firm have to be used his external opportunities and threats for making possible
chances of growth by effectively manage its internal strength and weaknesses. Objectives
are the specific results the firm seeks to achieve in pursuing its basic mission, they should
be challenging, measureable, consistent, reasonable and clear. firm facing hurdles in
achievement of objectives, so writer will recommend it best possible solutions later.
Strategies are means by which annual objectives will be achieved. firm has to renegotiate
its overall strategies for perform better. It may include effectively management of raw
material, diversification, acquisition of suppliers and market penetration. Annual
objectives are short term milestones that firms must achieve to reach long term
objectives; they are stated in terms of management, accounting/finance, production and
operations. To achieve its overall objectives and mission, Shahtaj has to make changes in
all its operational and financial performance for attract-ness of investors. Problems
highlighted by the management are; shortage of crop in country, the sugar industry in
Pakistan has been over-expanding day by day. As much as demand for sugar cane
increases, supply can decrease. Due to shortage of supply a lot of competition has been
started between firms. That results in lower productivity and higher sugar prices in almost
all sugar mills. This cannot suit with the main objective of each business "to maximize
shareholder wealth in the long term". By increasing prices as rather than production, they
could achieve short term profit. the writer also tells about how the competition has been
beaten in local market in terms of price and crop rather than your competitors. firm also
has to show stability and consistency in his supply of crop to compliance with desired
objectives by developing backward integration of supply line or acquiring the suppliers.
Consistent increase in oil prices, Pakistan has 31st number in the world oil importing
countries; In 2018 Pakistan imports 0.4% of the world total oil exports. In the context of
industries, oil always placed a lot of risk for the manufacturers, which can indirectly
relate with production. firm has access to international level, he has to import oil and
related products form his exports. Because in international market, prices remains
moderate and in dollar as compared to Pakistani rupee, firm also has to change
procurement process of oil to compliance with desired objectives. Increase in percentage
of debt rather than income, due to inflation, interest rate can increase due to devaluation

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 Business report 7

of the currency value. It can affect the firms badly. That is not in control of anyone, but in
the matter of financial borrowings that is to be manageable. Just there is needed to be re-
negotiating the capital structure of the firm. By performing, the issue can be minimizes.
firm also has to show stability and consistency in less borrowing to compliance with
desired objectives. Increase in the prices of the raw material, same as case with shahtaj
sugar mills, sugar industry has been expanding day by day and the crop supply is the
same as before. Match between supply and demand is very crucial for moderate the
prices of raw and packaging material. Firms also has to show stability and consistency in
supply of crop to compliance with desired objectives. and increased rate of taxes,
corporate finance says that higher the tax rate, lower will be the income and vice versa.
Firm also has to perform some technical actions in tax system to compliance with desired
objective. Earnings per share or EPS are an important financial measure, which indicates
the profitability of a company. It is calculated by dividing the company's net income with
its total number of outstanding shares. ... It is considered to be a more expanded version
of the basic earnings per share ratio. The higher a company's EPS, the more profitable it
is considered. A stock index is a gauge to read the whole market, or sector of the market.
In contrast, a stock exchange is the place where you buy and sell stocks, bonds, and other
securities that are listed on various indexes. The debt-to-equity (D/E) ratio is calculated
by dividing a company’s total liabilities by its shareholder equity. These numbers are
available on the balance sheet of a company’s financial statements. The ratio is used to
evaluate a company's financial leverage. Dividend yield ratio is the ratio between the
current dividend of the company and the company's current share price; this represents
the risk inherently involved in investing in the company. The dividend yield ratio
indicates how much a firm is paying out in dividends each year in relation to its market
share price. Price to sales ratio (PSR ratio) indicates how much investor paid for a share
compared to the sales a company generated per share. A higher ratio means that the
market is willing to pay for each dollar of annual sales. In general, the lower the P/S, the
better the value is. The price-to-earnings ratio (P/E ratio) is the ratio for valuing a
company that measures its current share price relative to its per-share earnings (EPS).
The P/E ratio doesn't consider the amount of debt that a company has on its balance
sheet. Cash flow ratios states the operating cash flow ratio is a measure of the number of
times a company can pay off current debts with cash generated within the same period. A
high number, greater than one, indicates that a company has generated more cash in a
period than what is needed to pay off its current liabilities. Profitability ratios are
financial metrics used by analysts and investors to measure and evaluate the ability of a
company to generate income (profit) relative to revenue, balance sheet assets, operating
costs, and shareholders’ equity during a specific period of time. They show how well a
company utilizes its assets to produce profit and value to shareholders. A higher ratio or
value is commonly sought-after by most companies, as this usually means the business is
performing well by generating revenues, profits, and cash flow. Liquidity ratio analysis
refers to the use of several ratios to determine the ability of an organization to pay its bills
in a timely manner; there are several ratios available for this analysis, all of which use the

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 Business report 8

same concept of comparing liquid assets to short-term liabilities. solvency ratio can be
used by analyst or investor can gain insight into how likely a company will be to continue
meeting its debt obligations. A stronger or higher ratio indicates financial strength. In
stark contrast, a lower ratio, or one on the weak side, could indicate financial struggles in
the future. Fundamental analysis is a method of evaluating the intrinsic value of an asset
and analyzing the factors that could influence its price in the future. This form of analysis
is based on external events and influences, as well as financial statements and industry
trends. Horizontal analysis (also known as trend analysis) is a financial statement analysis
technique that shows changes in the amounts of corresponding financial statement items
over a period of time. It is a useful tool to evaluate the trend situations. The statements
for two or more periods are used in horizontal analysis.

Findings:
The writer used financial statement analysis method to highlight all the problems of the
firm. In this analysis, all the indicators have been covered in it. In other words, writer will
passed Shahtaj Sugar Mills into complete financial analysis process and all the possible
indicators had been highlighted. First of all writer find out the problems highlighted by
management in their annual report, then the analyzing process can highlight all the
indicators that can harm business performance, writer can also calculate the leverage
(operating, financial and total) of the firm All the results have been shown in this section
according to calculation, narration and information.

Vision: To succeed and grow to the utmost satisfaction of the customers, employees and
shareholders.

Mission: To strive for still higher levels of efficiency, productivity, cost effectiveness,
profitability, customer satisfaction, congenial employees relations, profit sharing with
shareholders and hence gaining further strength to continue to succeed and grow.

Corporate Strategy: To maximize effective utilization of men, material and machines, by

encouraging, supporting and rewarding the employees, eliminating any waste, reducing
costs aiming and establishing Shahtaj Sugar Mills Limited as the most trusted, efficient
and successful name among all stakeholders and customers. Findings results of
uncertainties and risks are:

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 Business report 9

1000000
900000
800000
700000
600000
500000 sugarcane crushed
400000
300000
200000
100000
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

100000
90000
80000
70000
60000
50000
sugar produced M.tons
40000
30000
20000
10000
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

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 Business report 10

160
140
120
100
80 days worked
60
40
20
0
2008 2010 2012 2014 2016 2018 2020

Market
valuations
Name Price EPS EPS P/E EXP
Price ROE ROA Week Dividend
annual latest P/E
to Vol yield
book
value
Shahtaj 81.95 2.77 1.283 29.58 16.01 0.40 1.35 0.70 2963.96 0.000%
sugar mills M
ltd

Horizontal analysis:

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 Business report 11

Earnings per share:

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 Business report 12

Equity ratios (book value, P/B value)

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 Business report 13

Dividend ratios( DPS, dividend yield)

Sales and price to sales (sales P/S and P/S)

Enterprise value (market capitalization, Ep value, Ev /EBITDA)

Cash flow ratios (CF/S)

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Profitability ratios (net profit margin, gross profit margin)

Liquidity ratios:

Solvency ratios:

Financial overview:

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 Business report 15

Degree of financial, operating and total leverage,

2017 2018 2019

Sales 5807237 4878366 4609540
Fix and variable cost 5680951 5317351 4616653
EBIT 126286 (438985) (7113)
EPS 11.9 (34.04) 2.77
 DOL (2019) = -5.6% operating leverage not exist, The writer states that if sale
would decrease by -5.5% then, EBIT would also decrease by -98%.
 DFL (2019) = 110% high financial leverage exist. The writer states that if EBIT
would decrease by -98% then, EPS would also decrease by -108%.
 DTL (2019) = -6.16% sales to EPS difference.
 DOL (2017) = -14% operating leverage not exist. The writer states that if sale
would increase by 19% then, EBIT would also decrease by -134%.
 DFL (2017) = 188% high financial leverage is present. The writer states that if
EBIT would decrease by -134% the, EPS would also decrease by -71%.
 DTL (2017) = - 24% sales to EPS difference.

Conclusions:
Vision, mission and corporate strategy: after review all these factors, Shahtaj Mills had
clear and achievable vision, mission and corporate objectives.

Increase competition in local market due to lesser availability of crop: The writer finds
some issues in shortage of sugarcane in local market by observing statistics of sugarcane
produced in the agriculture sector of Pakistan, the writer states that firm has to face very
difficulties in shortage of crop in higher competition. For consistence growth of the
company, management had to perform some technical action regarding this problem.

Hike in the oil prices: Oil price issue is the main issue in overall industry of Pakistan. The
firm faces high prices problems in oil market of Pakistan, due to this they have to face
high cost in their production process.

Increase in prices of raw and packing material: As much as inflation in Pakistan

increases, prices of raw and packaging material also increases. Shahtaj also facing this
problem, that’s why their cost increases.

Increase in interest rate and financial borrowings: After reviewing other statistics in
balance sheet and calculating leverage, there is a high operating and financial leverage
because firm is relying on commercial and associates debt rather than their own
resources.

Increased rate of taxes: Tax is the main financial element which can reduce the firm’s net
income. Higher the tax; lower would be the net income and vice versa. The writer

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reviews that, due to un-consistency in firm’s overall financial and operational

performance. Tax would be badly affected the firms net income and earnings per share.

Un-volatility in sugarcane recovery: firm faces inconsistencies in sugarcane recoveries

from many years due to expansion of sugar industry and shortage of crop in market.

Un-volatility in crushing plans: Due to un-volatility in recovery of sugarcane and crop

shortages in market, firm had in-consistencies in crushing plans, Crushing plans are the
first step of production plan.

Inconsistency in production of sugar: Due to in-consistencies in production plans and raw

material, the production varies every year that can affect all the financial cycle of the
firm.

Un-volatility in days worked: due to in-consistencies in production process every year,

maximum utilization of labor’s objective cannot be achieved to compliance with desired
corporate objectives.

Over valuation of share price and index v/s stock price: overvalued stocks are not
attractive to investors for longer term due to high risk. Shahtaj’s stock also has
inconsistency due to overvaluation to its face value and deviate from stock index.

Market evaluation: The writer had overview the overall financial performance and market
evaluation states that, share price of the firm is 81.9 Rs. And earnings per share of 2019 is
2.77 shows very less profitability ratio (had more un-volatility), price to earnings ratio is
also very less that indicates future performance would not be good for all stakeholders
and specially for investors, but the firm can achieve its expected price to earnings ratio is
16.01. price to book value is also less than 1, means that company’s stock is under-valued
and investors are not willing to pay any more for it. Return on equity is 1.35 that is fair
ratio, but it can vary un-consistently, return on asset also has less than ratio 0.70% that is
not good. Dividend yield also 0.000% this represents the risk inherently involved in
investing in the company.

In horizontal analysis, there is too much un-stability in all items of the income-statement
and balance sheet. financial and accounting analysis shows as earnings per share include
latest earnings per share (2.77) very less, price to earnings are (28.52) is less than share
price (future prospects not good).expected price to earnings are 15.43 that they had
achieved. Expected earnings growth is 84%, in actual they grow only 0.18%. in quarterly
EPS reports they showed highly in-consistency in EPS, that is not good. Index v/s stock
graph shows that their stock had deviates from PSX index that means the stock is
overvalued and unstable. equity ratios include in 2019 4th quarter, book value ratio
204.80 showed very high jump in it, but expected book value was 209.92. the growth was
208.29%, expected book value of growth was 2.50%. the price to book value is 0.39 and
expected was 0.38. Return on equity was 1.35% and expected was 2.44%. the retention

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ratio was 100% to grow the firm. equity to assets ratio was 51.90% means that firm is
50% leveraged. Return on assets was 0.70% is less than 1. In 2017 and 18, the firm pays
higher dividend and in 2019 no dividend had been declared due to less income. Sales
ratios include S/share R.s 383.77 that means firm has efficiently used their resources to
produce sales. Expected was R.s 222.44. price to sales was 0.21* and expected was 0.36*
means that ratio is attracts investors. Sales growth per share was -5.51% and expected
was -42.04%. there are very un-stabilities recorded in equity ratios of firm. Enterprise
ratios include EV to sales was 0.44 less than 1 but expected means that valuation (Current
Market Cap + Debt + Minority Interest + preferred shares – cash) is satisfactory. EV
recorded 2 Billion and market capitalization was 0.95 Billion. EV/share was Rs. 167.80.
There are very un-stabilities recorded in equity ratios of firm. Cash flow ratios are
CF/share recorded Rs. 2.55, these ratios are stable as compared to others. Profitability
ratios include net profit margin 0.72% which means the proportion of sales revenue that
translates into net profit, ratio has less than 1 and it is also not stable. Gross profit margin
ratio is 9.11% which means that firm is generating reasonable profit based on sales, but it
is not stable. EBIT margin ratio is 4.02% measures the profitability of a company
calculated without taking into account the effect of interest and taxes. The EBIT margin
ratio is good but not stable. EBITDA margin shows 5.20% means that a business has
profitability problems as well as issues with cash flow. Net interest margin shows
302.16% measures how successful a firm is at investing its funds in comparison to its
expenses on the same investments. Liquidity ratios includes 1.68% measures the ability
of a company to pay the interest on its outstanding debt that is satisfactory. Inventory
turnover shows 15.68% indicates fast moving inventories. Asset turnover has 97.25%
measures the efficiency of how well a company uses assets to produce sales. The ratio is
excellent. Current ratio is 0.84% which is not favorable. Effective tax rate 62.22% at
which a business or individual is taxed on the earned income, that is the indirect cost of
firm. quick ratio has 0.59% that the company has enough quick assets to pay for its
current liabilities.8.86% the profit a company makes on its investing activities as
a percentage of total investing assets. Solvency ratios include long debt to equity 44.61%
high ratio usually indicates a higher degree of business risk because the company must
meet principal and interest on its obligations. Total debt to equity has 92.69% reflects the
ability of shareholder equity to cover all outstanding debts in the event of a business
downturn. Long term debt to assets has 23.15% measurement representing the percentage
of a corporation's assets financed with long-term debt, which encompasses loans or
other debt obligations lasting more than one year. Total debt to total assets has 48.10%
shows the financial leverage of firm. according to results degree of operating leverage
had -5.6% means operating leverage not exist, financial leverage had 110% highly
financial leverage means firm had high financial risk in 2019. In 2017 firm recorded -
14% means operating leverage not exist and 188% high financial leverage, which is too
risky.

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Recommendation:
After the identifications of problems, the writer is also interested in problem solving. The
solutions of the problems can impress the reader, because the writer did cover all major
aspects in problem identification. First reader Dr. Salman Masood will be impressed by
the writers’ contribution and also writer had almost completed the work of stakeholders,
if anyone of them can review this report. The writer can also give some necessary
recommendations for the betterment of Shahtaj Sugar Mills Ltd. In terms of uncertainties
related to production, the writer recommends that

Increase competition in local market due to lesser availability of crop: The writer also
tells about how the competition has been beaten in local market in terms of price and crop
rather than your competitors. According to their annual production graphs 2019, they are
very un-consistent Shahtaj also has to show stability and consistency in his supply of crop
to compliance with desired objectives by developing backward integration of supply line
or acquiring the suppliers. According to writer first priority will be granted to
productivity rather than price, shortage of sugarcane can be fulfill by cultivation of
sugarcane on their own behalf, establish sugarcane farms one times can be beneficial for
longer period or purchasing of suppliers for permanent or establishing backward supplier
integration or hire an agent, who can purchase sugarcane from farmers on higher than the
government rate. By performing this most of the farmers attracted towards that agent.
Shortage of sugarcane can be reduced and production will be increased. Higher the
productivity higher will be the sales vice-versa. Shahtaj had to perform these steps to
compliance with his desired objectives.

Hike in the oil prices: According to writer specifically for the sugar industry, sugar mills
can also deal at international level. Export quality sugar could be exported to several
countries, in return of foreign exchange. They have to directly import from any customer
country or make a forward or future contract with the commercial banks in stable foreign
currency dollar (or deliverable or non-deliverable forward contract) for importing
petroleum oil from international market, in international market prices remain stable and
another advantage should be the stable currency rather than Pakistan Rs. In Pakistan oil
prices remains high and moves in upward direction, until on international level the price
could reduce.by using that way their cost could be reduced rather than normal
circumstances. Shahtaj had to perform these steps to compliance with his desired
objectives.

Increase in prices of raw and packing material: Government of Punjab has notified the
price of sugarcane at Rs.190/-per 40 kg, last year it was Rs.180/-per 40kg. According to
writer if management thinks that due to Shortage of sugarcane we increase the prices of
finished goods to make adjustments for profitability, then they are using wrong strategy.
That’s why according to writer, producers have to acquires itself with the suppliers of
raw material to control price and production cost in the process or establishing their own

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sugarcane supply units (by developing sugarcane farms, offering higher price rather than
government rate, or hire an agent; requires one time investment).There is needed to be
efficient designed materials storage and squeezed packaging lines, for reducing
packaging cost and enhancing your brand reputation. Change in packaging of bags can
also reduce the cost of packaging (e.g transparent sealed bags used in luggage packaging
in airports).

Increase in interest rate and financial borrowings: Researchers states that higher the
financial borrowings; higher will be the risk vice versa. The writer finds high leverage in
shahtaj sugar mills due to highly financial borrowings. Risks of debts are,

 Credit repayment risk:

Statements show the possibility of a loss resulting from a borrower's failure to
repay a loan or meet contractual obligations. Shahtaj rely upon commercial debt
as compared to his own financial resources of his operations.
 Risk of being underfunded:
Too much debt might restrict a company’s ability to raise additional capital,
which can prevent a company from getting the cash it needs if it gets into a bind.
Due to higher risk and less generating capital due to his operating activities;
Shahtaj had to perform efficient to improve this operation.
 Loss of ownership:
If business raises too much equity capital, it risks losing control of the company.
Equity investors are typically entitled to vote on certain company matters. If firm
sell a large equity stake to one investor or a group of investors, they might try to
influence the company in a way with which you don’t agree. Shahtaj had to be
aware from that risk.

All ratios showed high un-stability in their responses, some of them was favorable and
some were not, which means that shahtaj have to take some necessary technical actions to
make a stable firm in longer term to compliance with its corporate strategy.

Increased rate of taxes: In the context of tax, the rule is that higher the income, higher
will be the taxes and vice versa. Robert kiyosaki quote about the tax minimization.
“Those who have safe and secure jobs pay more taxes than those who own the business
that provide jobs”. Window-dressing technique will be the best for the preparation of the
financial statements. Report higher expenses rather than to income that means; lower the
income, lower will be the tax slab. Shahtaj has to perform some actions to compliance
with their desired objectives.

In the case of leverage, shahtaj’s operating leverage is less than 1 in many years specially
2017 & 2019 but financial leverage shows more than 1 (they were 110% and 188%
means firm has highly financial leverage that is no good for longer period), measures the
sensitivity of a company's earnings per share to fluctuations in its operating income, as a

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result of changes in its capital structure. This ratio indicates that the higher the degree of
financial leverage, the more volatile earnings will be vice versa.

Executive summary:
Maximization of shareholders wealth in long term could be objective of every firm. In
this case the writer analyzes the annual report of Shahtaj Mills 2019 and highlight
business problems that placed hurdles in achieving their corporate strategy. All the items
could be highlighted by keeping in mind the reader interest. After observing the vision,
mission, corporate strategy and review of the ten-year production in director's report, the
writer states that, firm is not working under the fundamentals of corporate finance.
Highly severe factors have inconsistencies such as supplies and production plans,
recovery of sugarcane, days worked in season, sale and earnings, payout ratios, equity
ratios, dividend yield, value of firm, cash flows, profitability, liquidity and solvency even
stock price deviation with Index value means that your stock is overvalued. On the other
hand the writer also interested in calculating the leverages of firm, so that a clear picture
of presence of risk can be visualized. Share price will decline any time because of high
risk. There are also many theoretical problems, increased competition in local market due
to lesser availability of crop, mature firms can manage their suppliers by acquiring or
establishing backward integration in supplies. hike in the oil prices, can be managed
through some technical tools to reduce the cost. Export oriented firms can manage their
indirect production tools like oil by importing from international market by creating
forward contracts through commercial banks. Increase in prices of raw and packing
material, the firms who want to grow in long term cannot depends on external suppliers,
they establish their own raw material units or suppliers or agents who can generate
maximum level of raw material for production and firm also be easy in terms of
collection of raw material. Increase in interest rates on financial borrowings, due to poor
management of shahtaj they had high financial borrowing rather than output/ income. If
shahtaj should manage all extreme problems than they should borrow less from
commercial banks and associates. Interest rate cannot control any one of Shahtaj they
have to keep in mind the interest cost that could increase day by day. Increased rate of
taxes, simple rule is that lower will be the income; lower will be the tax slab and vice
versa. Report more expenses rather than your income in financial statement. according to
your vision, “To succeed and grow to the utmost satisfaction of the customers, employees
and shareholders”. If you want to create a comparative advantage, then you have to
perform some unique steps rather than to others. Because everyone is striving for
attaining sustained comparative advantage. Shahtaj must strive to achieve sustained
comparative advantage by continually adapting change in its internal and external events,

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capabilities and competencies and resources and by effectively formulating,

implementing and evaluating strategies that capitalizes on these factors.

Appendix:
Data had been collected from annual reports and website of Shahtaj sugar mills ltd.
Financial and accounting data had been collected from SCS-PSX- Pakistan stock
exchange brokerage website.

Title page:
Threats to Shahtaj Sugar Mills Ltd (A DETAILED REPORT FOR INVESTIGATING
THE PROBLEMS IN THE LIGHT OF FUNDAMENTALS OF CORPORATE
FINANCE),

Stage 4: writing:
This report had been written by according to interest of readers and in the light of
fundamentals of corporate finance. All the data and information had been relatively used
according to requirement. The writer had written this report after covering all the
financial and managerial courses (financial management, managerial finance,
intermediate accounting, financial accounting, corporate finance and international
finance). The writer had used graphs, tables and snapshots for the easiness of the reader.
All the information had been easily explained. Report had been written being factual and
un-biased, according to the interests of the reader.

References:
http://jerz.setonhill.edu/writing/technical/reports/index.html

http://writingcenter.gmu.edu/resources/handouts.html

http://www.scstrade.com/

http://www.shahtajsugar.com/

02/22/2020