GOVERNMENT COLLEGE UNIVERSITY,

LAHORE

MANAGERIAL ACCOUNTING PRACTICAL – BAF-3104P

SUBMITTED TO:

MR ALI RAZA ELAHI

SUBMITTED BY:

Group

Fatimah Mazher Khan (1804-BS-BAF-21)

Muhammad Abu Hurara (1875-BS-BAF-21)

Awab Umer (1927-BS-BAF-21)

BSc. (HONS.) BUSINESS, ACCOUNTING & FINANCE

SEMESTER V
Service Industries Limited
Managerial Accounting Practical
Final Term Report
Acknowledgement:

First, we want to give a big thank you to our awesome teacher, Mr. Ali Raza Elahi! He was
not only our teacher but also part of our group. He helped us all the time, gave us directions,
and made sure we finished our project successfully. He was always there when we needed
him. This project was super helpful for us!

Next, we want to say a big thanks to Mr. Hammad, who is HOD in HR at Servis
Industries Limited. He was nice and helped us with our interview. He gave us all the
information we needed for our project. Thanks, Mr. Hammad!

And we can't forget to thank our classmates and Seniors. They helped us a lot too. Without
their support, we wouldn't have finished our task. Thank you, everyone!

Abstract:

This is a report that three college students from Government College University in Lahore
worked on for their Business Accounting and Finance class. It's a big part of their semester
grade. The goal of the report was to learn about how a company works and to understand the
real-world mechanics of the industry they were studying. They visited production facilities to
see things in action.

The students made a questionnaire with questions about different parts of the company, like
Human Resources, Production, Sales, and Finance. They were lucky because Mr. Hammad,
the HR Manager, and his colleagues were nice. They took the time to answer all the
questions and even talked about some problems and how to solve them. Everything we
learned is in this report.
Company Overview:

Servis is a company from Pakistan that makes shoes and tires. It started in 1941
and has factories in different cities in Pakistan and even in Sri Lanka. They
make shoes under the name Servis Shoes and tires under the name Servis Tyres.

Vision:
To become a Global, World class and Diversified Company which leverages its
brands and its people.

Mission:
 Improve market share, quality, diversity, availability, presentation,
reliability, and customer acceptance.
 Ensure profitability and growth for shareholders.
 Prioritize cost-conscious decision-making without compromising quality.
 Create an efficient resource management and business-friendly
environment.
 Develop a professional and motivated management team for effective
leadership.
 Stay updated with modern technology and designs for production
optimization and international recognition.
 Uphold ethical business standards and contribute to national economic
development and charitable causes.

History:
Origins:

 Servis started over 50 years ago with friends Ch. Nazar Muhammad, Ch.
Muhammad Hussain, and Ch. Muhammad Saeed.
 In 1941, they began with small-scale production in Lahore, making
handbags and sports goods.
  Their business flourished, supplying products across India during the
Partition.
Expansion:

 In 1954, they established a shoe manufacturing plant in Gulberg, Lahore,

later moving to Gujrat.
 Service Sales Corporation (Pvt.) Ltd. was formed in 1959 as the Group's
marketing company.
 Values of humility, fairness, and respect guided their success.
Today:

 Service Industries Limited (SIL) now produces world-class shoes, tires,

tubes, and rubber in Gujrat and Muridke.
 SIL is a leading footwear exporter.
 Service Sales Corporation (Pvt.) Ltd. (SSC) is Pakistan's top footwear
retailer diversifying into other businesses.
 A small venture has grown into a group impacting millions of lives daily

Products:
Servis Group has over 450 stores across Pakistan and sells to over 2500
independent retailers.

They have two main product lines:

 Servis Shoes (oldest and top shoe manufacturer in Pakistan).

 Servis Tyres, providing tires for motorcycles, bicycles, rickshaws, and
trolleys in Pakistan.
They export shoes, tires, and rubber tubes to Europe, Middle East, South
America, Africa, and other Asian countries.
Footwear Brands:

 Servis brand (oldest and largest).

 Cheetah brand for sport shoes.
 Don Carlos brand for premium formal men's footwear.
 Shoe Planet for high fashion shoes.
 Liza for women's shoes.
 Lark and Finch shoes.
  Calza for men's shoes.
 T.Z for kids' shoes.
 Klara Shoes.
 Ndure.
Tyres and Tubes:

 Less than half of their sales come from tires and tubes.

Associated Companies:
1. S2 Power Limited.
2. S2 Hydro Limited
3. Service Industries Capital (Pvt) Ltd.
4. SIL FZE Gulf
5. Shahid Arif Investments (Pvt) Ltd.
6. SBL Trading (Pvt) Ltd.
7. Service Shoes Lanka (Pvt) Ltd.
8. Servis Foundation.
9. Service Global Footwear Limited.
10. Service Long March Tyres (Pvt) Ltd.
11. JOMO Technologies (Pvt) Ltd.

Group Profile:
About Service Industries Limited (SIL):

 SIL is a company listed on the Pakistan Stock Exchange.

 It makes about PKR 40 Billion ($245 Million) in annual revenue.
 SIL is the biggest maker of shoes, tires, and tubes for two-wheelers in
Pakistan.
 It has been the top shoe exporter in the country for 10 years.
 SIL employs over 14,000 people in Gujrat and Muridke and sells its
products worldwide.
Footwear:

 SIL's footwear division is a leader in Pakistan's export market.

 Annual revenues exceed USD 86 Million, with 75% coming from exports
to EU countries.
  They handle everything from designing to marketing in-house.
Tyres:

 SIL has been making tires and tubes since 1970, being a pioneer in
Pakistan.
 They focus on motorcycles and bicycles.
 SIL is a market leader in bicycles and holds a majority share in the
motorcycle market.
 They supply to major motorcycle manufacturers like HONDA and
YAMAHA.
 With over 3,300 employees and a turnover of approximately $152 million
per year, they are a low-cost producer.
Global Reach:

 SIL is the largest exporter of tires and tubes, selling to over 36 countries.
 They've expanded globally with a footprint in various international
markets.
 Questions asked from the concerned departments

Production Department:
Questions Asked Related to Production Department:

Are you utilizing raw materials sourced locally or internationally?

The organization acquires its raw materials from various origins, including China and
Turkey, as well as local sources. Specifically, Servis Tyres obtains its motorcycle, bicycle,
motor rickshaw, and trolley tires from local manufacturers in Pakistan, such as Servis Tyres.
On the other hand, Servis Shoes imports certain raw materials like rubber, leather, and
synthetic fabrics from overseas to adhere to global standards and fulfil customer expectations.
Consequently, Servis Industries employs a combination of local and international raw
materials, tailoring its approach based on product categories and market demands.

What is the production time needed for each batch?

The production time required for each batch is approximately 30 days. This duration accounts
for the varying nature of products, with factors such as peak seasons like Eid and seasonal
changes influencing the production schedule based on demand fluctuations.

Does the production department rely more on manual labour or machinery for its
operations?

Servis Industries has delegated its production operations to a third-party entity.

What practices are in place for waste management and recycling?

In Servis Industries, waste management and recycling practices involve systematic collection
and recycling of discarded materials. The company likely implements specific programs for
recycling materials such as rubber from shoes. Regular audits and compliance with local
waste disposal regulations are essential components of their waste management strategy,
emphasizing a commitment to environmentally responsible practices within the shoe
manufacturing sector.
What are the standards for Quality Management?

Servis Industries maintains elevated quality standards and does not compromise on them,
striving to fulfil client requirements.

Finance Department:
Questions Asked Related to Finance Department:

What percentage of the total sales of goods is exported?

Approximately 70 to 80 percent of the sales goods are exported.

What is the primary costing method utilized by Servis?

Servis mainly utilizes the absorption costing technique.

What limitations exist in reducing variable costs?

Reducing variable costs at Servis Industries can enhance profitability and competitiveness.
However, limitations exist:

Quality: Trimming variable costs may compromise product quality, impacting customer
satisfaction and brand image. For instance, using cheaper materials like rubber or leather
might affect durability and safety.

Capacity: Cost reductions may limit business capacity, affecting market share and revenue.
Downsizing labor or equipment could hinder meeting customer demand during peak seasons.

Innovation: Cutting variable costs may impede innovation, impacting competitiveness.

Reduced investment in research, development, or marketing may hinder the introduction of
new products or technologies.

Servis Industries must balance variable costs with quality, capacity, and innovation goals,
considering trade-offs and benefits. Monitoring market trends and competitor strategies is
crucial for adjusting variable costs effectively.
What strategies can be employed to decrease fixed costs?

Fixed costs are beyond control as they hinge on factors like inflation, dollar rates,
government policies, electricity prices, and fuel costs. Despite this, Servis Company takes the
initiative to implement solar systems, distinguishing itself from others.

Nevertheless, there are strategies to mitigate fixed costs:

Negotiating leases and contracts: Seeking better rates or terms from landlords, suppliers, or
service providers, or exploring alternatives with improved value or flexibility.

Implementing cost-saving technologies: Investing in technologies like cloud computing,

automation, or energy-efficient devices for long-term fixed cost reduction.

Reducing staff and consolidating operations: Streamlining the workforce and operations
by eliminating non-core functions, merging, or closing unprofitable units, or adopting remote
working arrangements.

Outsourcing non-core functions: Outsourcing tasks like accounting, marketing, or customer

service to external providers offering lower costs or higher quality.

Relocating to a lower-cost area: Moving headquarters, offices, or factories to a more cost-

effective location, where rent, taxes, wages, or utilities are cheaper.

How was the increase in Cost of Goods Sold (CGS) in 2022 compared to 2021?

In 2022, the Cost of Goods Sold experienced a rise compared to 2021, primarily attributed to
inflation, fluctuations in the dollar exchange rate, stringent government policies, and political
instability impacting the prices of various raw materials and fuel.

How is your budget formulated, and does it effectively address your future
requirements and investment plans?

Servis Industries Limited formulates its budget by meticulously analyzing past data while
maintaining a keen focus on future considerations. Prior to the impact of COVID-19, the
budgeting process relied heavily on historical records. However, in the post-COVID era,
there has been a significant shift, and the budget is now crafted with a forward-looking
perspective, emphasizing future endeavors, and adapting to the evolving business landscape.
This strategic approach allows Servis Industries Limited to navigate challenges, capitalize on
emerging opportunities, and ensure financial preparedness for the dynamic market conditions.
Human Resources Department:
Questions Asked Related to Human Resources Department:

What is the hiring policy for trainees and interns at Servis?

 For retail positions, a minimum requirement of a matriculation qualification is

considered.
 For management roles, the minimum qualification is graduation, preferably with a
master's degree.
 For positions at the Head Office (H.O.), a minimum of a graduation degree is
required, preferably with a master's degree, along with relevant experience in the
field.

What is the hiring policy for labour at your organization? Do you exclusively hire
trained and skilled labour, or is untrained labour also considered?

We employ a trust-based hiring approach. Following recruitment, we provide training to

newly hired individuals.

What are the criteria for selecting administrative faculty members?

The minimum criteria for hiring administrative faculty include a graduation degree and
relevant work experience.

Financial Statement Analysis:

A quantitative analysis through the help of financial ratios is done to access Company’s
liquidity, leverage, growth, margins, profitability, rates of return, valuation, and more. Firstly,
summarized statement of financial position and statement of profit and loss for latest two
years are given and then detailed ratio analysis is given that simplifies the interpretation and
comprehension of financial statements.
 Summarized Statement of Financial Position (2020 – 2021)
For the year ended June 30, 2021

2022 % 2021 Analysis

Cha
nge

(Rupees in thousand)

10,736,350 34.22 7,999,342 Fixed Assets

Fixed Assets is increased
by 2,737,008
Right-of-use of Assets 3,386,71 28.1 2,642,56 Right-of-use
8 2 0 of Assets is
increased by
3,144,068

Long term investments 7,987,95 17.8 6,779,66 Long term

1 6 investments
increased by
1,208,285

Intangible Assets 9,376 135. 3,979 Increase of

64 238,916 is
observed

Long term loans to 13,422 (51. 27,416 Decrease of

employees 09) 13,994 is
observed
Current Assets
568,953 76.20 322,895 Increase of
Stores, spares and loose tools 246,058 is
observed
Stock-in-trade 9,164,08 1.81 9,001,10 Stock-in-trade
2 7 increased by
162,975

Trade debts 4,914,67 29.0 3,808,76 Stock in trade

9 5 3 is decreased
by 1,105,116

Loans and advances 695,309 21.5 572,187 Loans and

2 advances
increased by
123,122

Advance income tax - net 536,034 (11. 607,515 Advance

of provision for taxation 76) income tax -
net of
provision for
taxation is
decreased by
71,481

Trade deposits and 236,834 (26. 320,840 Trade deposits

prepayments 2) and
 prepayments
is decreased
by 84, 006

Other receivables 205,067 (22. 265,476 Other

64) receivables are
decreased by
60,409

Short term investments 181,615 16.4 155,943 Increase of

7 25,672 is
observed

Cash and bank balances 1,424,59 103. 699,296 Cash and bank
2 72 balances
increased by
725,295

TOTAL ASSETS 40,249,7 20.6 33,344,9 Total assets

92 7 41 are increased
by 6,904,851

2021 % Change 2020 Analysis

 (Rupees in thousand)

Total Equity 7,271,421 (0.502) 7,308,181 A decrease of 36,760 is

observed in total equity
Non – Current Liabilities
Long Term Financing 7,102,730 14.48 6,205,473 Increase of 897,257 is
observed

Long Term deposits 1,915 32.99 1,440 Increase of 475 is observed

Lease liabilities 3,721,780 32.14 2,817,034 Increase of 904,746 is

observed

Employees' retirement benefit 214,459 21.36 176,721 Increase of 37,738 is

observed

Deferred Liabilities 616,041 55.78 302,672 Increase of 220,798 is

observed

Current Liabilities
Trade and other payables 6,359,206 26.06 5,124,422 Decrease of 1,234,784 is
observed

Accrued mark-up 612,873 133.78 262,097 Increased of 350,776 is

observed

Short term borrowings 11,699,132 21.81 9,152,752 Increased of 2,546,380 is

observed
Current portion of non-current liabilities 2,608,205 40.04 1,862,235 Increased of 745,970 is
observed

Unclaimed dividend 42,030 6.83 39,343 Increase of 2,627 is

observed

TOTAL EQUITY AND LIABILITIES 40,249,792 20.67 33,344,941 Increase of 6,904,851is

observed
 Statement of Profit or Loss

For the year ended June 30, 2021

2022 % Change 2021 Analysis

(Rupees in thousand)

Top line of the Company

Revenue 42,599,481 30.17 32,724,924 grew to Rs. 9,874,557
million which is
historically the highest
ever revenue.

Cost of Sales (34,626,020) 26.11 (27,458,310)) Raw material cost had

increased significantly
during the financial year
under review.

Gross Profit 7,973,461 28% 5,266,614 The Company achieved

this unprecedented
increase due to better cost
management.
Distribution Cost (3,218,564) 39.37% (2,309,860)

Administrative Expenses (1,505,313) 21.6% (1,238,301)

Other Expenses (300,384)) 167.33% (112,389)

(5,024,261) 35.83% (3,698,500)

2,949,200 88.07% 1,568,114

Other Income 1,073,620 279.89% 282,457 It is increased by 791,163

Profit from Operations (PBIT) 4,022,820 117.49% 1,850,571 Increase in Operating profit
shows high profitability

Finance Cost (3,075,387) 134.07 % (1,314,456) Finance cost is increased by

134.07%

Share of profit of equity accounted investee – 28,588 34,727

net of taxation

Profit before taxation 976,021 70.9 % 570,842 It is increased by 405,179

Taxation (621,594) 190.21% (214,016)

Profit After Taxation 354,839 (0.556%) 356,826 It is decreased by 1,987

No. of Ordinary Shares (Weighted average) 351,599? 351,599?

Earnings Per Share 7.54 (0.658%) 7.59 Decrease of −0.658% is
observed

Ratio Analysis

PROFITABILITY RATIOS

Ratio Name Formula 2022 Unit 2021 Analysis

Gross Profit Ratio Gross Profit 23.02 % 19.18 It shows the relationship between GP and Sales
x 100
Net Sales
and the efficiency with which a business
produces its products.

Pre-Tax Profit Ratio Profit before tax 2.82 % 2.08

x 100
Net Sales

After-Tax Profit Ratio Profit after tax 1.02 % 1.30 It shows the overall profitability of business. It
x 100
Net Sales
ensures how efficiently the business is
conducting its operations. High net profit ratio
shows efficient operating expenses and low
finance cost.

Return on Equity (ROE) Pr ofit after tax 4.87 % 4.88 Here, Equity includes Ordinary Share Capital
100
Avg . Equity
and all reserves. This ratio is of great
 importance to present and prospective
shareholders as well as management.

Return on Capital PBIT 21.25 % 25.32 Here, Capital employed means Equity and
x 100
Avg . Capital Employed
Employed (ROCE) long-term borrowings. High ROCE shows high
profitability and efficient funds management

Return on Assets (ROA) PBIT 9.99 % 5.55 It measures overall efficiency of a company in
x 100
Avg . Asset s
generating profits using its assets efficiently

LIQUIDITY RATIOS
Ratio Name Formula 2021 Unit 2020 Analysis

Current Ratio Current Assets 0.9 % 0.95 It represents to the margin of safety to the
Current Liabilities
creditors. It is an index of the business financial
stability. High Current ratio determines better
liquidity position.

Quick Ratio Current Assets−Inventory 0.41 % 0.41 It measures business’s capacity to pay off
Current Liabilities
current obligations immediately. High quick
ratio determines longer debtor’s credit period.
 ACTIVITY/TURNOVER RATIOS

Ratio Name Formula 2022 Unit 2021 Analysis

Inventory Turnover Cost of Sales 3.81 Times 3.02 High inventory turnover ratio determines
Avg . Inventory
Ratio efficient inventory management and high sales

Inventory Period Avg . Inventory 95.8 Days 120.73

x 365
Cost of Sales

Debtors Turnover Ratio Credit Sales 0.07 Times 0.54 Slightly low debtors’ turnover ratio determines
Avg . Debtors
longer credit periods and slightly poor control
over debtors.

Debtor Collection Period Avg . Debt ors 5214.2 Days 666.75

x 365
Credit Sales

Creditors Turnover Credit Purchases 1.11 Times 0.89 High creditors’ turnover ratio determines timely
Avg . Creditors
Ratio payment to suppliers and credit worthiness

Creditors Payment Avg . Creditors 329.56 Days 408.97

x 365
Credit Purchases
Period

Assets Turnover Ratio Sales 1.05 Times 0.98 A very slight change in assets’ turnover ratio
Avg . Assets
shows slightly less efficient utilization and
 productivity of assets

Working Capital Cycle / Inventory Period + Debtors 44.05 Days 51.03 Low working capital shows high inventory
Operating Cycle collection period – Creditors turnover and better control over debtors
payment period

LEVERAGE RATIOS
Ratio Name Formula 2022 Unit 2021 Analysis

Debt to Equity ratio Debt 4.53 % 3.56 It indicates the relationship between external
x 100
Equity
finance and internal finance. High ratio determines
less risk shared by owners and higher debts

Gearing Ratio Debt 81.93 % 78.08 It measures the portion of total finance of a
x 100
Debt + Equity
business relating to the outsiders. Low ratio shows
lower debt and better solvency position

Interest Cover Ratio PBIT 2.17 Times 1.41 It indicates whether the business earned
Interest
sufficient profits to pay periodically the interest
charges. High ratio shows high profitability and
ability to take further debts.
Budget:
We assume that the growth trends in financial year 2023 remains same as we observed in 2022.

Budgeted Statement of Financial Position (2021 – 2022)

For the year ended December 31, 2022

% Change change in Amount 2022

Rupees in thousand

Non – Current Assets

Fixed Assets 34.22 2,737,008 10,736,350

Right-of-use of Assets 28.12 3,144,068 3,386,718

Long term investments 17.8 1,208,285 7,987,951

Intangible Assets 135.64 238,916 9,376

Long term loans to employees (51.09) (13,994) 13,422

Current Assets
Stores, spares and loose tools 76.20 246,058 568,953

Stock-in-trade 1.81 162,975 9,164,082

Trade debts 29.05 1,105,116 4,914,679

Loans and advances 21.52 123,122 695,309

Advance income tax - net of provision for taxation (11.76) (71,481) 536,034

Trade deposits and prepayments (26.2) (84, 006) 236,834

Other receivables (22.64) (60,409) 205,067

Short term investments 16.47 25,672 181,615

Cash and bank balances 103.72 725,295 1,424,592

TOTAL ASSETS 20.67 6,904,851 40,249,792

 % Change Change in amount 2022

(Rupees in thousand)

Total Equity (0.502) (36,760) 7,271,421

Non – Current Liabilities

Long Term Financing 14.48 897,257 7,102,730

Long Term deposits 32.99 475 1,915

Lease liabilities 32.14 904,746 3,721,780

Employees' retirement benefit 21.36 37,738 214,459

Deferred Liabilities 55.78 220,798 616,041

Current Liabilities
Trade and other payables 26.06 1,234,784 6,359,206

Accrued mark-up 133.78 350,776 612,873

Short term borrowings 21.81 2,546,380 11,699,132

Current portion of non-current liabilities 40.04 745,970 2,608,205

Unclaimed dividend 6.83 2,627 42,030

TOTAL EQUITY AND LIABILITIES 20.67 6,904,851 40,249,792

 Statement of Profit or Loss (2020 – 21)
For the year ended June 30, 2022

% Change Change in amount 2022

(Rupees in Thousand)

9,874,557 42,599,481
Revenue 30.17

Cost of Sales 26.11 (9,826,301) (34,626,020)

Gross Profit 28% 2,608,999 7,973,461

Distribution Cost 39.37% (238,119) (3,218,564)

Administrative Expenses 21.6% (110,156) (1,505,313)

Other Expenses 167.33% (184,611) (300,384))

35.83% (486,373) (5,024,261)

88.07% 2,468,555 2,949,200

Other Income 279.89% 887,669 1,073,620

Profit from Operations (PBIT) 117.49% 3,216,126 4,022,820

Finance Cost 134.07 % 223,465 (3,075,387)

Share of profit of equity accounted investee – 28,588

net of taxation

Profit before taxation 70.9 % 4,090,285 976,021

Taxation 190.21% -206,531 (621,594)

Profit After Taxation (0.556%) 4,081,174 354,839

No. of Ordinary Shares (Weighted average) 30.17 - -

Earnings Per Share 26.11 12 16.84?

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