You are on page 1of 54

Balance sheet Balance Sheet

As on December 31,2001
As on December, 2001

2001 Capital and reserves Authorized capital 10,000,000 ordinary shares of Rs. 10 each Issued, subscribed and paid up capital 3 Reserve and surplus Capital reserve General reserve Inappropriate profit Share holders equity Long term finance Deferred liabilities Provision for gratuity Deferred taxation Long term deposits 6 7 8 9 4 5 100,000 75,600 438 268,000 1,235 287,718 363,318 62,431 1,541 15,015 3,460 381,837 25,000 6,155 579,704 23,321 30,240 ________ 1,492,022 Note Rs. 000s

2000 Rs.000s

100,000 75,600 438 248,000 1,0988 249,581 325,181 25,000 59,505 4,086 13,015 9,615 372,716 50,000 5,146 568,571 20,790 ________ 1,453,625

Obligations under finance lease 10 Current liabilities and provisions Short term running finances 11 Current portion of long term finance 6 Current portion of obligation under finance lease Creditors, accrued and other liabilities 12 Provision for taxation 13 Proposed dividend Contingent liability and capital Commitments 14

The annexed notes from an integral part of these accounts

Institute Of Business Administration

102

2001 Fixed capital expenditure Operating fixed assets Long-term investment Long term payments Current assets Stores and spares Stocks in trade Trade debts Loans and advances Deposits, short term payments and Other receivables Cash and bank balances 18 19 20 21 22 23 48,739 391,680 674,128 4,448 74,821 31,968 1,225,784 Notes 15 16 17 Rs. 000s 230,030 15,015 21,192

2000 Rs.000s 247,617 13,015 18,732

53,382 391,249 531,543 2,962 29,493 165,632 1,174,261

________ 1,492,022

________ 1,453,625

Institute Of Business Administration

103

Profit And Loss Account


For The Year Ended December 31, 2001 2001 Note Net sales Cost of sales Gross profit Operating expenses Administrative Selling and distribution Operating profit Other income Financial and other charges Financial charges Workers profit participation fund Workers welfare fund Profit before taxation Provision for taxation Current Prior years Deferred Profit after taxation Unappropriate profit from previous year Appropriations Proposed final dividend 40% (2000@27.50) Transfer to general reserve Unappropriate profit carried forward 29 74,010 5,616 2,155 81,781 104,47 71,868 3,522 1,801 77,184 65,112 28 26 27 171,970 335,071 507,041 182,256 4,000 186,256 189,296 320,286 509,582 139,348 2,948 142,296 24 25 Rs. 000s 2,065,502 1,376,204 689,297 2000 Rs.000s 2,187,951 1,539,021 648,930

38,653 (2,545) 36,098 68,377

14,856 (364) 4,086 18,578 46,534

30,240 38,000 68,240 1,235

20,790 26,000 46,790 1,098

Institute Of Business Administration

104

Earnings per share of Rs. 10 each

30

9.04

6.16

Tripple-em is private sector organization finance by a Malik Family. The organization does not disclose its annual reports to anyone. So, I could not get the annual report of tripple em. As financial analysis is the integral past of the internship report so I with the prior approval of Miss. Sajida Nisar, analyzed the financial statements of the Bata Pakistan Ltd.

BRIEF HISTORY OF THE COMPANY


The business that became the Bata Shoe Organization was established on August 24, 1894 in Zlin, Czechoslovakia by Tomas Bata, and included his brother Antonin and sister Anna. Although this business was new, the Bata name had been part of a tradition of shoemaking for eight generations, spanning three hundred years. It was one of the first modern-day shoe 'manufacturers', a team of snitchers and shoemakers creating footwear not just for the local town, but also for distant retail merchants. This departure from the centuries-old tradition of the one-man cobbler's workshop was a brand new concept, creating an entirely new industry. The Bata enterprise revolutionized the treatment of employees and labor conditions. Tomas consistently maintained a human focus, creating opportunities for development and advancement, and added compensation for employees based on achievement. In late 1895, Antonin was drafted into the army for compulsory military service and left the family shoe business. Also that year, Anna left the company to marry, leaving a young Tomas to build the business on his own.

Institute Of Business Administration

105

By 1905 Tomas had taken the new enterprise to 2200 pairs of shoes per day, produced by 250 employees - utilizing resourceful imaginations, skilled hands and modern machinery to keep up with demand. Under this 'manufacturing' system, productivity was greater than ever before. Bata shoes were excellent quality and available in more styles than had been offered before. Demand grew rapidly in the early 1900s. Despite material and manpower shortages, cartels and the outbreak of World War I, sales continued to increase, reaching two million pairs per year by 1917. As the enterprise prospered, so did the communities where it operated. Tomas believed that a focus on people and public service was critical for business success. The enterprise built housing, schools and a hospital near the shoemaking plant in Zlin. It provided food and inexpensive rent during very difficult times; when there was no other help to be found. Bata companies later provided rail services, construction, insurance, publishing and a tannery in Zlin. Following World War I, consumer purchasing power was very low. Tomas and his employees devised a plan to adjust to post-war economic difficulties and reduced their shoe prices. Bata stores were flooded with buyers, and industry cynics were forced to follow their lead. Already exporting to other European countries, Northern Africa and the USA, the enterprise began establishing new sales organizations in these markets during the 1920s. Companies were opened in Poland, Yugoslavia, Holland, Denmark, the United Kingdom and the USA. By the early 1930s, the Bata enterprise and Czechoslovakia were the world's leading footwear exporters. "The Bata System" devised by the Zlin team, and later applied in other Bata Shoe Organization companies, organized operations into autonomous workshops and departments ("profit centers"), allowing employees to contribute ideas and stimulate production, and contributed significant breakthroughs in footwear technology.

Institute Of Business Administration

106

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

Retailing
Bata Shoe Organization companies have built successful retail store concepts to satisfy changing consumer tastes and needs. Each store features merchandise targeted to different lifestyles and people. The merchandise ranges from footwear to clothing and goods complementing shoe offerings. Sensitivity to and satisfaction of customer wants and needs has allowed the Bata Shoe Organization (BSO) to become a world leader in footwear.

Manufacturing
Tomas Bata's revolutionary business concept was to industrialize the shoemaking process of that day. That type of thinking has been the driving force behind the Bata Shoe Organization success. The Bata Shoe Organization has been an innovator in the manufacturing of shoes over the years. Bata personnel have made important advances in DVP (Direct Vulcanization Process), PVC, athletic footwear production and slush-molded footwear production.

Institute Of Business Administration

107

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

Brands& Product Development


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

Institute Of Business Administration

108

BATA PAKISTAN LIMITED


Bata Pakistan Ltd. was formed in Pakistan in1952. It was a newly growing concern all over the world but in Pakistan it established its feet with in very short time. It was very tuff decision for the Bata International to start its business in a country that was newly established. But Batas decision was quite right because there was not so tuff competition in Pakistan at that time which helps them to make their foots more strong. Now Bata Pakistan is not only providing the quality shoe with in Pakistan but is also exporting its major portion of production all over the world. With in the country Bata is facing the competition with Service Industries ltd and other private companies. According to a survey almost 89% of the market is covered by the other organizations and 6% by Service and 5% by the Bata Pakistan Ltd. Bata Pakistan Ltd. is producing almost 13000 million pairs of shoes with in year but in year 2001 produces 13891 million pairs of shoes which shows the soundness of the organization and it strong footing in the Pakistan. Bata is still improving its business

Institute Of Business Administration

109

AN OVERVIEW ON COMPANYS PERFORMANCE DURING 2001


The Bata Company Ltd. with its established brand name and national presence enjoys an edge over its competitors. Long and successful participation in the industry has given the Bata name an acceptability and reach, which other brands can only aspire to achieve. People from all walks of life instantly favorably recognize the Bata logo, synonymous with quality for money shoe. Based on this customer perception, the company hopes to strengthen its position in the branded footwear segment in Pakistan. The companys performance during the year 2001 is quite efficient. During the year 2001 emphasis on cost and quality control measures remains important to the company in view of both foreign and domestic competitors, who enjoy certain price advantages. The continuous cost control drive initiated by the management resulted in significant cost reductions in almost every sphere of operation. achieve good results in the year 2001. financial outcomes in various areas of its activities. Consequently, Bata company able to Bata Company closed the year with positive

Average Collection Period


140 120 100 89 119 106

days

80 60 60 40 20 0 1999 2000 2001 Average Collection Period Industry Ratio 2001

Institute Of Business Administration

110

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

Current Ratio
1.24 1.22 1.2

times

1.18 1.16 1.14 1.12 1.1 1999 2000


Current Ratio

2001

Industry Ratio 2001

In view of the satisfactory financial condition of company, Bata is pleased to recommend for 2001 a final dividend of 40%, which is the highest in the history of the company. A sum of Rs. 38 million is being transferred to General Reserve, as the Board of Directors considers this necessary to meet the Companys development plans for its sales outlets and factories. Administrative expenses were 9% lower, mainly due to the capital loss booked in last year on the sale of companys wholly owned subsidiary international Tanners & industries (PVT) Limited that has been a constant financial drain on the company. Selling and distribution expenses went up by 5% and financial charges increased by 3% due to higher short term borrowing to meet the cash flow requirements of the Company.

Institute Of Business Administration

111

Bata Company achieved a return on equity of 18.8% and the earnings per share of Rs. 9.04 increased by 47% over 2000. 23 on the 31st December 2001. The equity of the company at Rs. 363.3 million constitutes a solid capital base. The Companys shares of Rs. 10 each were quoted at Rs. Bata Company continues to be listed on Karachi and Lahore Stock Exchanges with whom we have maintained close contact. In 2001, Bata Company contributed Rs.323.3 million to the National Revenue in the form of corporate tax, customers duties and other taxes. million in 2000. The total production of footwear during the year from the factory at Batapur was 13,891 million pairs, as against 12,560 The branch factory at Maraka produced 1,857 million pairs in 2000. We provide technical and design assistance to the Business The company creates regular work for 42 independent contractors under the Business Associates Programme. Associates, as well as materials and components, where necessary. The total production achieved through these independent manufacturers was 1,194 pairs, a decrease of 40% from the previous year.

3 2.5

Interest Coverage Ratio


2.52 2.4

ratio times

2 1.5 1 0.5 0

1.98 1.69

1999

2000

2001
Interest Coverage Ratio

Industry Ratio 2001

Institute Of Business Administration

112

FINANCIAL ANALYSIS
BATA PAKISTAN LIMITED
A number of different approaches might be used in analyzing a firms financial performance in a particular period. To analyze the performance of BATA PAKISTAN LIMITED. I adopted following three method of Ratio Analysis Common Size and Index Analysis Trend Analysis

RATIO ANALYSIS
An index that relates two accounting numbers and is obtained by dividing one number by other Ratio Analysis is an important and age-old technique of financial analysis. It simplifies the comprehension of financial statements. Ratios tell the whole story of changes in the financial condition of business. It provides data fro inter firm comparison. Ratios highlights the factors associated with successful and unsuccessful firm. They also reveal strong firms and weak firms, over- valued and under valued firms. It helps in Planning and forecasting. Ratios can assist management, in its basic functions of forecasting, planning, co-ordination, control and communication. Ratio analysis also makes possible comparison of the performance of different divisions of the firm. The ratios are helpful in decision about their efficiency of otherwise in the past and likely performance in future. Ratios also helps in Investment decisions in the of investors and lending decisions in the case of bankers etc.

Institute Of Business Administration

113

Types of Ratios
Following the main types of ratios that we are going to calculate in this assignment, Liquidity Ratios Leverage Ratios Coverage Ratio Activity Ratios Profitability Ratios

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

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

Institute Of Business Administration

114

Batas Current Ratio 1,225,784,000 2001 = --------------------1,046,257,000 1,174,261,000 2000 = -------------------1,017,223,000 1,038,542,000 1999 = --------------------843,973,000 Industry ratio =1.20:1 Current ratio for Bata Company shows that the Bata has Rs. 1.17 to meet its obligations of Rs. 1. If we review the last year we will find that current ration of the Bata is continuously increasing which is a good sign. In 2000, it was 1.15. Where as the industry ratio is 1.20:1 that is slightly high than Batas but still Bata is maintaining a good solvency and liquidity ratio. = 1.23:1 = 1.15:1 = 1.17:1

Quick or Acid Test Ratio


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

Institute Of Business Administration

115

Quick or Acid test ratio = Quick Assets/ Current liabilities Where as quick assets = Current Assets Store & spare parts Stock in trade Acid test ratio for Bata 785,365,000 2001 = --------------------1,046,257,000 729,630,000 2000 = -------------------1,017,223,000 434,474,000 1999 = --------------------843,973,000 Industry ratio = 0.71:1 = 0.51:1 = 0.71:1 = 0.75:1

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

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

Institute Of Business Administration

116

Debt to Equity Ratio


Debt to equity ratio indicates the relationship between the external equities or outsider finds and the internal equities or shareholder fund. It is calculated to assess the extend to which the firm is using borrowed money. Debt to equity is simply calculated as Debt to equity ratio = Total Debts / Shareholders equity Ratio for Bata 2001 = 1,125,244,000 --------------------363,318,000 1,118,829,000 -------------------325,181,000 1,038,542,000 --------------------843,973,000 = 3.09:1 or 76:24

2000

3.44:1 or 78:22

1999

1.23:1 or 55:45

Industry Ratio = 2.974:1 According to prudential Regulation this ratio should be 1.5:1 or 60:40, which means the company should have the debts of Rs. 1.5 as against owner equity of Rs. 1. Equity ratio for the Bata in year 2001 is 3.09:1. This ratio in year 2000 was 3.44:1 and in 1999 it was 3.60: 1. Which means company in mostly relaying on external sources. But as we review the ratios of last three years we observe that this ratio is continuously decreasing.

Debts to Total Assets Ratio


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

Institute Of Business Administration

117

Debts to Total Assets ratio = Total Debts / Total Assets Ratio for Bata 1,125,244,000 2001 = --------------------1,046,257,000 1,118,829,000 2000 = -------------------1,453,625,000 1,078,368,000 1999 = --------------------1,377,805,000 Industry Ratio = 073 or 73% According to this ratio around 75% of total assets are supported by the debts finance or debts. Where as the industry ratio is 73%. Bata is going right according to the industry ratio; there is not so high difference in ratios. But this ratio is also slightly decreasing as we review the ratio of previous two year i.e. in year 2000 77% and in 1999 78 % of the total assets are financed by the debts. We can say that people and other financial institutions are very sure about the solvency of the firm and not hesitating to finance or make investment in Bata Pakistan Ltd. = 078:1 or 78% = 0.769:1 or 77% = 0.75:1 or 75%

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

Institute Of Business Administration

118

Interest Coverage Ratio


Interest Coverage ratio is designed to relate the financial charges of a firm to its ability of pay/cover them form its earning. Interest Coverage ratio is calculated as
Interest Coverage Ratio = Earning before Interest & Tax / Financial charges

Ratio for Bata 2001 = 186,256,000 --------------------74,010,000 142,296,000 -------------------71,861,000 123,815,000 --------------------73,051,000 = 2.52:1

2000

1.98:1

1999

1.69:1

Industry Ratio = 2.40:1 Coverage ratio shows that the firm has significant profit to pay its financial charges This ratio shows that Bata has Rs. 2.52 to pay off its financial charges of Rs. 1. This ratio was 1.98 times in 2000 and 1.69 times in 1999. This ratio is also increasing continuously, in 2001 this ratio increased by 33% which is a high percentage. It is very important from the lenders point of view. It indicates number of times interest is covered by profit. It is an index of the financial strength of an enterprise and high ratio assure the lender a regular and periodical interest income.

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

Institute Of Business Administration

119

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

Receivable Turnover Ratio


Debtor turnover ratio indicates the velocity of debts collection of a firm. In simple words it indicates the number of times average debts are turned over during a year. Higher the value of debts turnover, more efficient is the management of debts or more liquid the debtors are and vice versa. Receivable turnover ratio is calculated as Receivable/debtors turnover ratio = Annual credit sale / Trade debtors Ratio for BATA 2001 = 2,065,502,000 --------------------674,128,000 2,187,951,000 -------------------71,861,000 2,007,224,000 --------------------330,089,000 = 3.06:1

2000

411:1

1999

6.08:1

Industry Ratio = 3.51:1 Above calculations for Bata shows, around 3.06 time debtors are turned over during the year. This ratio for Bata is declining, as we review previous years, in 2000 this ratio was 4.11 times and in 1999 it was 6.08 times which is not a good sign for a organization like Bata. The industry ratio is 3.51, which is above the turnover ratio for 2001. So management has to think about the recovery of its debts and make it frequent.

Institute Of Business Administration

120

Average Collection Period


Debtor turnover ratio when calculated in term of days is known as receivable turnover in days. It represents the average number of days for which a firm has to wait before its debtors are converted in cash. It is calculated as A.C.P = No. of days in year / Receivable turnover ratio Ratio for Bata 365 2001 = --------------------3.06 365 2000 = -------------------4.11 365 1999 = --------------------6.08 Industry Ratio = 106 days Batas average collection period is not much impressive in year2001 because it is showing continuous increase in days to wait before its debtors converted into cash and it is not a good sign because less the average collection period better for the company. In 2001 Average collection period is 119, in 2000 it was 89 days and in 1999 it was 60 days. In the year 2001 the industry ratio is also less then the Batas. Management has to think seriously to reduce average collection period to improve its efficiency. = 60 days = 89 days = 119 days

Institute Of Business Administration

121

Payable/Creditor Turnover Ratio


This ratio is against to Debtors turnover ratio. It compares the creditors with the total

credit purchase. It signifies the credit period enjoyed by the firm in paying off debts. In payable turnover ratio less the results better for the company. It is calculated as Payable Turnover ratio = Annual Credit Purchase / Creditors Ratio for Bata 867,677,000 2001 = --------------------383,414,000 = 2.265:1

846,412,000 2000 = -------------------358,214,000 = 2.362:1

Industry Ratio = 4.136:1 Bata Pakistan Ltd. is quite efficient in its payable turnover ratio. In year 2001 the ratio is 2.265 times which means almost in year 2.265 time creditors are paid off. Industry ratio is 4.136 times. It means Bata Company is enjoying a healthy credit period.

Institute Of Business Administration

122

Average Payment Period


It is also a managerial ratio, which signifies the credit period, which is enjoyed by the organization in paying credit. Higher the number of days betters the ratio and efficiency. More the days allowed to pay off its debts more the working capital for the organization. It is calculated as Average Payment period = No. of days in a year / Payable turnover Ratio for Bata 365 2001 = --------------------2.265 365 2000 = -------------------2.362 Industry Ratio = 111 days Average payment period for Bata Pakistan Ltd. was 155 days in 2000, which increased to 161 days in 2001, is a good sign for a company to have more and more money at his disposal. Number of days to payoff its debts are also greater than the average Industry ratio, which is 111 days. Bata need to continue this increase to be more efficient and effective. = 155 days = 161 days

Institute Of Business Administration

123

Inventory turnover Ratio


Inventory Turnover ratio, also known as Stock Turnover, is the relationship between Cost of Goods Sold during the period and average inventories. conversion of stock into sales. It measures the velocity of Usually higher inventory turnover, stock velocity,

indicates efficient management because more frequently stocks are sold lesser the amount of money required to finance the inventory. It is calculated as Inventory Turnover = Cost of Goods Sold / Average Inventory Ratio for Bata 1,376,205,000 2001 = --------------------391,465,000 1,539,021,000 2000 = -------------------465,271,000 = 3.31 times = 3.52 times

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

Institute Of Business Administration

124

Inventory turn over in days


This ratio is also a managerial ratio, which measures the number of days the inventory is held before it is turned into accounts receivables through cash. better for the company. Inventory turnover is calculated as Inventory turnover in days = No. of days in a year / Inventory turnover ratio Ratio calculation for Bata Ratio for Bata 365 2001 = --------------------3.52 365 2000 = -------------------3.31 Industry Ratio = 100 days For Bata whose Inventory turnover ratio is 3.52 times in year 2001 the inventory turnover in days is 104 days which is almost 4 days slower as compare to industry ratio i.e. 100 days in turning its inventory into Accounts receivables through sales. Bata has to reduce these days and management has to think about that to improve this ratio in Companies favour. = 110 days = 104 days Usually lesser the number of days inventory held before it is turned into accounts receivable though sale is

Institute Of Business Administration

125

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

Gross Profit Margin


Gross profit ratio, which is also called Profitability in relation to sales, is the ratio of gross profit to new sales expressed as a percentage. This ratio tells us the profit of the firm relative to sales after we deduct the producing the goods. as Gross Profit Margin = Gross Profit / Net Sales Ratio for Bata 2001 = 689,297,000 --------------------2,065,502,000 648,930,000 -------------------2,187,951,000 581,463,000 --------------------2,007,224,000 = .33 or 33% It is an measure of the efficiency of the firm operation. Higher the gross profit ratio better it is. It is calculated

2000

.296 or 29.6%

1999

.289 or 28.9%

Industry Ratio = 24.07% According to above calculation Gross Profit Margin for Bata is 33.3 % , which is increasing as we review the previous two years, 29.6 % in 2000 and 28.9 % in 1999. Industry ratio for 2001 is 24.07%. Batas G.P ratio is very good as compared to industry ratio and sill improving, as it is 37 % according to half yearly report 2002.

Institute Of Business Administration

126

Net Profit Margin


The net profit margin is a measure of the firms profitability of sales after taking account of all expenses and income tax. calculated as Net Profit Margin = Profit after tax / Sales Ratio for Bata 68,377,000 2001 = --------------------- x 100 = 2,065,502,000 46,534,000 2000 = -------------------- x 100 = 2,187,951,000 33,954,000 1999 = --------------------- x 100 = 2,007,224,000 Industry Ratio = 3.11% Bat is also maintaining a good Net Profit margin ratio, which is 3.31% of sales. Where as the industry ratio is 3.11%, less then the Batas. Company is not showing loss any of the last five years which shows companies strong financial position. 0.0169 or 1.69% 0.021 or 2.10% 0.031 or 3.31% This ratio also indicates performance during the It is financial year. Simply high the ratio better the firm performance and efficiency.

Institute Of Business Administration

127

Return On Investment
Return on investment is one of he most important ratio considered by he proprietors and investors. It compares the net profit after tax with Total Assets. Investor is much concerned about this ratio. Higher the ratio of ROI more secures the place considered for making investment. It is calculated as Return On Investment = Net profit after tax / Total Assets x 100 Ratio for Bata 68,377,000 2001 = --------------------- x 100 = 1,492,022,000 46,534,000 2000 = -------------------1,453,625,000 34,474,000 1999 = --------------------- x 100 = 1,377,805,000 Industry Ratio = 4.30% In this special ratio Bata is quite consistent to rise at it was 2.57% in 1999 which increases to 3.20% in 2000 and now it reaches to 4.58% which is a huge increase and welcome one for Bata Pakistan Ltd. Management should have to maintain its policies and strategies, they have adopted during the year. 2.57% x 100 = 3.20% 4.58%

Institute Of Business Administration

128

Return On Equity
Return on equity is another measure of overall firms performance. It compares net profit after tax to the equity that share holders have invested in firm. This ratio tells the earning power on shareholders book value. High the return on equity often reflects the firms acceptance of strong investment opportunities and effective expense management. It is calculated as Return On Equity = Net profit After Tax / Shareholders Equity x100 Ratio for Bata 68,377,000 2001 = --------------------- x 100 = 363,318,000 46,534,000 2000 = -------------------- x 100 = 325,181,000 33,954,000 1999 = --------------------- x 100 = 299,437,000 Industry Ratio = 16.42% Bata Company is continuously improving its Return on equity as it was 11.33 in 1999,14.31% in 2000 and in year 2001 it increases to 18.82%, which is a positive sign for a organization. It shows a strong position of firm. It will be helpful for the company to create in investment within the company from outsiders. 11.33% 14.31% 18.82%

Institute Of Business Administration

129

Total Asset Turn over


Total Asset turn over shown the sale revenue per dollar of assets invested. This total asset turnover ratio tells us the relative efficiency with which firm utilize its total assets to generate sale. It is calculated as Total Asset Turnover = Net Sales / Total Assets x 100 Ratio for Bata 2,065,502,000 --------------------1,492,022,000 2,187,951,000 -------------------1,453,625,000 2,007,224,000 --------------------1,377,805,000

2001

1.38:1

2000

1.50:1

1999

1.46:1

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

Institute Of Business Administration

130

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

Net Profit Margin Equity Multiplier Calculation for Bata

= 3.10 % = 4.11\

Total Asset Turnover = 1.384

ROE = 3.10% x 1.384 x 4.11

18.83 %

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

Institute Of Business Administration

131

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

Calculation for Bata 2001 2000 = = 104 days + 119 days 110 days + 89 days = = 223 days 199 days

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

Institute Of Business Administration

132

Cash Cycle ( Cash Flow Cycle)


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

Calculation for Bata

2001 2000

= =

223 days + 155 days 199 days + 161 days

= =

68 days 38 days

Industry Ratio = 98 days

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

Institute Of Business Administration

133

DU PONT ANALYSIS
Return On Equity
Return on equity (ROE) compares net profit after tax to the equity that shareholders have invested in the firm. This ratio tells us the earning power on shareholders book value investment and is frequently used in comparing two or more firms in an industry. A high return on equity often reflects the firm acceptance of strong investment opportunities and effective expense management. However if firm has chosen to employ a level of debt that is high by industry medium, high ROE might simply be result of assuming excessive financial risk. To illustrate more we use Due Pont Analysis ROE = Net Profit Margin x Total Asset turnover x Equity Multiplier Net Profit Margin Equity Multiplier Calculation for Bata ROE = 3.10% x 1.384 x 4.11 = 18.83 % = 3.10 % = 4.11

Total Asset Turnover = 1.384

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

Institute Of Business Administration

134

Return On Investment
In Du Pont Analysis We calculate Return On Investment as ROI = Net Profit Margin x Total Asset Turnover Calculation For Bata 2001 = 3.10% x 1.384 = 4.55%

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

Institute Of Business Administration

135

Common Size & Index Analysis


Balance Sheet At A Glance
Items Liabilities and Owners equity Paid up Capital Capital Reserves General Reserves Inappropriate Profit Total Shareholders Equity Long term Finance Deferred Liabilities Provision for gratuity Deferred taxation Total Deferred Liabilities Long term Deposits Obligation under finance lease Current liabilities Short term running finance Current portion of long term finance Obligation under finance lease Creditors accrued and others Proposed dividend Total Current Liabilities Total liabilities and owner equity Assets Fixed Operating Assets Long term Investment Long term Deposits Current Asset Store & Spare parts Stock in Trade Trade Debtors Loan and advances Deposit & short term payments Cast at Bank Total Current Assets Total Assets 1,377,805 2,67,965 58,570 12,728 64,775 5,39,293 3,30,089 1,440 41,175 61,770 10,38,542 1,377,805 75,600 483 2,22,000 1,354 299,437 1,50,000 57132 57,132 12,503 14,760 2,91,927 18,448 5,18,438 15,120 8,43,973 75,600 483 2,48,000 1,098 3,25,181 25,000 59,505 4,086 63,591 13,015 9,615 3,72,716 50,000 5,146 5,86,571 20,790 10,17,223 1,453,625 2,47,617 13,015 18,732 53,382 3,91,249 5,31,543 2,962 29,493 1,65,632 11,74,261 1,453,625 75,600 483 2,86,000 1,235 3,63,318 62,431 1,541 63,972 15,015 3,460 3,81,837 25,000 6,155 5,79,704 30,240 10,46,257 1,492,022 2,30,030 15,015 21,193 48,739 3,91,680 6,74,128 4,448 74,821 31,968 12,25,784 1,492,022 1999 Rs. In thousand 2000 Rs. In thousand 2001 Rs. In thousand

Institute Of Business Administration

136

Profit & Loss Account At A Glance

Items Net Sale Less: Cost of goods sold Gross Profit Less Operating Expenses Selling expenses Administrative expenses
Total operating expenses

1999 Rs. In, 000 2,007,224 1,425,761 581,463 167,483 290,941 458,454 123,039 776 123,815 73,051 2,538 964 76,553 47,262 13,308 33,954 1,520 19,000 15,120 1,354

2000 Rs. In, 000 2,187,951 1,539,021 648,930 189,296 320,286 509,582 139,348 2,948 142,296 71,861 3,522 1,801 77,184 65,112 18,578 46,537 1,354 20,790 26,000 1,098

2001 Rs. In, 000 2,065,502 1,376,205 689,297 171,970 335,041 507,041 182,256 4,000 186,475 74,010 5,616 2,155 81,781 104,475 36,098 68,377 1,098 30,240 38,000 1,235

Operating Profit Add: Other Income Earning Before Interest & Tax Less: Financial & other charges Financial charges Workers profit participation Workers welfare fund Total Financial & other charges Profit Before Taxation Less: Provision for Taxation Profit After Taxation Add: Inappropriate profit from last year Less: Appropriations for the year Proposed Final Dividend
Transferred to General Reserves Inappropriate Profit C/F

COMMON SIZE ANALYSIS


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

Institute Of Business Administration

137

Vertical Analysis Balance Sheet


Items Liabilities and Owners equity Paid up Capital Capital Reserves General Reserves Inappropriate Profit
Total Shareholders Equity Long term Finance Total Deferred Liabilities

1999 % age

2000 % age

2001 % age

Long term Deposits


Obligation under finance lease

Current liabilities
Short term running finance Current portion of long term finance Obligation under finance lease Creditors accrued and others Provision for Taxation Proposed dividend

5.486 .035 16.112 .098 21.730 10.88 4.146 .905 1.071


21.188 1.342 37.62 1.907

5.200 .033 17.061 .076 22.370 1.719 4.375 .895 .661


25.640 3.439 .354 40.352 1.430

5.067 .032 19.168 .083 24.350 4.287 1.006 .232


25.592 1.675 .413 38.854 1.563 2.0267

Total Current Liabilities Total liabilities and owner equity

61.25

69.978 100

70.125 100

100

Assets
Fixed Operating Assets Long term Investment Long term Deposits Current Asset Store & Spare parts Stock in Trade Trade Debtors Loan and advances Deposit & short term payments Cast at Bank Total Current Assets Total Assets 19.446 4.251 .924 4.701 39.141 23.96 .105 2.988 4.483 75.379 100 17.034 .895 1.289 3.672 26.915 36.566 .204 2.029 11.394 80.782 100 15.417 1.006 1.420 3.267 26.252 45.182 .298 5.015 2.143 82.157 100

Institute Of Business Administration

138

Vertical Analysis Profit And Loss Account

Items Net Sale Less: Cost of goods sold Gross Profit Less Operating Expenses Selling expenses Administrative expenses
Total operating expenses

1999 % age 100 (71.031) 28.969 8.344 14.494 (22.838) 6.129 .039 6.168 3.639 .126 .048 (3.813) 2.355 (.663) 1.692 .076 .947 .753 (1.700) .068

2000 % age 100 (70.340) 29.660 7.655 14.639 (23.290) 6.369 .135 6.504 3.284 .161 .082 (3.527) 2.976 (.849) 2.127 .062 1.188 .950 (2.138) .051

2001 % age 100 (66.630) 33.370 8.326 16.222 (24.548) 8.824 .194 9.017 3.583 .272 .104 (3.959) 5.058 (1.747) 3.310 .053 1.464 1.839 (3.303) .060

Operating Profit Add: Other Income Earning Before Interest & Tax Less: Financial & other charges Financial charges Workers profit participation Workers welfare fund Total Financial & other charges Profit Before Taxation Less: Provision for Taxation Profit After Taxation Add: Inappropriate profit from last year Less: Appropriations for the year Proposed Final Dividend
Transferred to General Reserves Total Appropriations for the year Inappropriate Profit C/F

Institute Of Business Administration

139

COMMENTS
Percentage of capital reduced at very low rate because of increase in the amount of long term as well as short-term debts and unappropriated profit. . Amount of capital reserve is same but percentage shows decreasing trend due to increase in net figure of the balance sheet. General reserves percentage increase it means this year net profit is higher than last year profit and company consistently improve its position in these three years. Unappropriated profit percentage increases every year due to increase in net profit. Shareholders equity shows increasing trend because increase in percentage of reserves. Percentage of total deferred liability during the year 2000 increase because of high provision and less total value of liability side and in 2001 provision add less and value of total liability also increase this year. Long-term deposits decrease in 2000 because company reduced the number of employees in 2000 and increase in 2001 due to the appointment of new staff. Percentage obligations under finance lease reduced every year this shows companys financial position become stronger and stronger. Percentage of current liabilities increase every year, which shows that company relying more on short term financing than long term financing against hypothecation of company. Operating fixed assets/percentage reduced every year because of depreciation and disposal of assets every year.

Institute Of Business Administration

140

Current assets show that company maintain control over stocks and spares, companys credit sales increase every year. Loans and advances to employees increase but loans to suppliers reduced, this shows that company follows the policy of backward integration. In 2000 the percentage of cash at bank was very high which shows the wastage of resources but in 2001 company use cash in loans and advances to employees. In 2000 sales of company increase and cost of goods sold also increase but less than the rate of sales due to this gross profit percentage increase. In 2001 sales reduced (due to decrease in export) but cost of goods sold reduced at high rate than sales due to this gross profit percentage increase in 2001. This shows company management has good control on production process. In 2001 company reduce the expenses of administration and spent on selling but the percentage of overall operating expenses increase due to the reduction in sales and company still has high percentage of operating profit. Percentage of other incomes increase due to the sale of scrapped fixed asset every year. Percentage of financial charges & other increase due to interest receive on short & longterm loans and receiving interest on employees securities and personal accounts due to these reserves percentage of profit before taxation & after taxation also increase. So company declares more dividend and automatically reserving per share increases in year of 2001 .

INDEX ANALYSIS

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

Institute Of Business Administration

141

Horizontal Analysis (Chain Base method BALANCE SHEET


Items Liabilities and Owners equity Paid up Capital Capital Reserves General Reserves Inappropriate Profit Total Shareholders Equity Long term Finance Deferred Liabilities Provision for gratuity Deferred taxation Total Deferred Liabilities Long term Deposits Obligation under finance lease Current liabilities Short term running finance Current portion of long term finance Obligation under finance lease Creditors accrued and others Proposed dividend Total Current Liabilities Total liabilities and owner equity Assets Fixed Operating Assets Long term Investment Long term Deposits Current Asset Store & Spare parts Stock in Trade Trade Debtors Loan and advances Deposit & short term payments Cast at Bank Total Current Assets Total Assets 8.22 (78.78) 47.77 (17.59) (27.45) 61.03 102.69 28.73 168.14 13.07 (7.11) 15.37 13.14 (8.70) .11 26.82 50.19 153.69 (80.70) 4.39 0 0 11.17 (18.91) 8.59 (83.84) 4.15 11.31 4.10 (34.86) 27.67 (72.17) 13.14 37.5 20.53 0 0 15.32 12.47 11.73 4.92 (62.29) .599 15.37 64.01 2.48 (50) 19.61 (1.17) 45.45 2.85 2000 % Inc (Dec) 2001 % Inc (Dec)

Institute Of Business Administration

142

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

Share Holders Equity


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

Current Liabilities
Current liabilities are also showing a rise of 20 % in 2000 and 3 % in 2001. dividend, which increased by 38 % in 2000 and again increased 45 % in 2001. This

increase is basically due to the increase in short term running finance and proposed

Long Term Debts


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

Institute Of Business Administration

143

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

Long Term Investment


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

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

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

Institute Of Business Administration

144

Horizontal Analysis Profit And Loss Account

Items Net Sale Less: Cost of goods sold Gross Profit Less Operating Expenses Selling expenses Administrative expenses
Total operating expenses

2000 % Inc (-dec) 9.04 7.94 11.60 13.02 10.86 11.15 13.25 279.90 14.93 -1.60 38.77 86.83 .82 37.77 39.60 37.05 -10.92 36.84 37.50 -18.91

2001 % Inc (-dec) -5.60 -10.58 6.22 -9.153 4.61 -0.50 30.79 35.69 30.89 2.90 59.46 19.66 5.96 60.45 94.31 46.49 -18.91 16.31 82.78 12.48

Operating Profit Add: Other Income Earning Before Interest & Tax Less: Financial & other charges Financial charges Workers profit participation Workers welfare fund Total Financial & other charges Profit Before Taxation Less: Provision for Taxation Profit After Taxation Add: Inappropriate profit from last year Less: Appropriations for the year Proposed Final Dividend
Transferred to General Reserves Inappropriate Profit C/F

Institute Of Business Administration

145

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

Cost Of Goods Sold


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

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

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

Financial Charges

Institute Of Business Administration

146

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

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

Profit Before Tax


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

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

Dividends
The Amount of proposed dividend is increasing continuously. In year 2000 the amount of dividend is increased by 37 % as compared to 1999 and again it is 47 % more then the

Institute Of Business Administration

147

dividend of year 2001. It is a very good sign for shareholder point of view and helps to increase the share value in market.

Earning per Share


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

TREND ANALYSIS

Institute Of Business Administration

148

Items Liquidity Ratios Current Ratio Acid Test Ratio Leverage Ratios Debt to Equity Ratio Total Debts to Total Asset Coverage Ratio Interest Coverage Ratio Activity Ratios Receivable Turnover Average Collection Period Payable Turnover Average Payment Period Inventory Turnover Inventory turnover in days Profitability Ratios Gross Profit Margin Net Profit Margin Return On Investment Return On Equity Total Debts Turnover

1999 1.23:1 0.51:1 3.60:1 0.78:1 1.69:1 6.08 times 60 days 2.27 times 149 days 3.09 times 117 days 28.97 % 1.69% 2.57% 11.33% 1.46:1

2000 1.15:1 0.71:1 3.44:1 0.78:1 1.98:1 4.11 times 89 days 2.36 times 155 days 3.31 times 110 days 29.60 % 2.10% 3.20% 14.31% 1.50:1

2001 1.17:1 0.75:1 3.09:1 .75:1 2.52:1 3.06 times 119 days 2.265 times 161 days 3.52 times 104 days 33.33% 3.31% 4.58% 18.82% 1.38:1

Industry Ratio 2001 1.20:1 0.71:1 2.79:1 .73:1 2.40:1 3.51times 106 days 4.14 times 111 days 3.37 times 100 days 24.07% 3.11% 4.30% 16.42% 1.38:1

TREND ANALYSIS INTERPRETATION


As it can be seen, the current ratio have fallen off and become less then industry norms in 2001. Where as Acid test ratio is rising continuously and higher than the industry ratio. So the firm trend in Absolute liquidity is increasing. The average collection period has growing up since 1999 and exceeds the current industry median level, where as average

Institute Of Business Administration

149

payment period is tends to increase frequently which is a good sign and company is enjoying a good credit time. This ratio also exceeds industry average. These trends here tell us that there has been a relative building up in receivable and inventories. receivable and inventories is a matter of concern and needs to be investigated. Stability of the firms leverage also helping to stable the efficiency and performance. In Bata Share of debts assets is decreasing which is not a good sing as management point of view, because it is considered better to use the outsider find and safe owner equity from losses. So it should be investigated to get the reason behind it. The Gross profit and Net profit margin have generally shown improvement over the recent past. The current level is stronger then the industry ratio and management will be comfortable to get these result. Return on Investment has been relatively stable over the time and above the industry medium and it is the case with the Return on Equity, it is also quite impressive. When we analysis the overall performance pf the Bata Pakistan Limited, we observed that almost all the ratios are positive and in the favour of the company. Management should continue to increase the ratios in their favour and plan to make favorable those who are still against the companys interest. Despite above average level of current and acid test ratios, the apparent deterioration in accounts

COMPARISON WITH SERVICE INDUSTRIES LTD


BREIF HISTORY OF SERVICE

Institute Of Business Administration

150

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

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

Leverage Ratio : Bata is relying more on external debts as compare to servis. Servis debts to equity ratio is 2.49 and Batas 3.07 in the year 2001. In case of debts to total assets ratio we observed that Bata is using 75% of outer debts and remain 25% is shareholders equity and servis is using only 20 % of external reserves. E can say that Bata has less risk of equity loss as compare to servis. But the difference is around 4%, which is considered not so high in both companies.

INTERST COVERAGE: -

Institute Of Business Administration

151

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

ACTIVITY RATIO COMPARISON: Receivable turnover and a collection period As we know high the receivable turn over better for the company in this ratio comparison Servis is the quite efficient as compare to Bata because it receivables turnover ratio is 3.97 as compare to Bata which is 3.06 times And when we observe a collection period due to good receivable turnover ratio Servis is collecting its debts quite earlier as compared to Bata. Servis is collecting its debts almost after 95 days where as Bata is collecting its debts after 119 days. Payable turnover and Average Payment Period Payable turn over ratio for servis is only 5.9 which is very high as compare to Batas 2.36. it means that servis is paying 5.9 or 6 % time its debts which is unfavorable for any company as we know less the ACP better will be the companys operating cycle. So Bata is showing a good impression here. And when we are concerned about any payment period Bata is paying off its debts after 155 days and servis is only 61 days. For servis it is very low paying off its debts and it

may reduce the working capital availability. So servis has to consider this ratio and investigate the actual reason behind it. In Profitable ratios servis is going under the industry average. So servis has to think about it and investigation should be conducted to the revise the policies to get better results. Inventory Turnover

Institute Of Business Administration

152

It is under stood that higher the inventory turnover better the companys performance and Bata is again going ahead with 3.51 times as to servis 3.23 and Industry average of 3.37. It means inventories of Bata are converted into sales or account receivable than sales almost 3.51 times. There is no rule of thumb of about the industry ratio. Inventory turnover in days for servis is 125 days and for Bata is 104 days. So Servis is converting its stock into sales almost after 125 days quite late as compare to Bata. PROFITABILITY SITUATION: Both Servis and Bata are improving their profitability ratios, and going positive and upward but Batas all the profitability ratios are higher as compare to servis. In year 2001 G.P margin for Bata is 33% and for servis is only 15%, Almost 50% less as compare to Bata. It is the case with N.P margin, N.P of Bata is 3.3% and for servis is 3 % .In return on equity position is almost same i.e. above 4 %. Servis is again below in respect of industry average. Return on Equity of Bata is very impressive with 19 % as compared to servis 14 %.

RECOMMENDATIONS

Institute Of Business Administration

153

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

Bata Debt to Equity ratio is 3.51, which means almost 75 % are debts. profit. Management has to reduce its debts to reduce the financial charges

Due to

high debts ratio financial charges are increasing and consuming major portion of

Due to High debts ratio company will also find difficulties if they apply for the loan. Because none of the financial institution will like to invest money due to low equity ration Companys current ratio is 1.17:1 but the favorable and most acceptable is 2:1. So company should try to decrease its liabilities mainly the accrued expenses payable or to increase its current assets to be more positive. Companys Average collection period is increasing, which is adverse situation not favorable, and reducing Batas current ratio. To manage it, management should have to offer incentive to debts in payment of debts to get early payment. It will help us to increase our current ratio and reduces the high number of days to complete operating cycle. Company is earning a healthy operating profit of 9% of its sales where as out of this operating profit almost 6% is absorbed by the operating and other expenses. Management has to reduce these expenses mainly selling and administration expenses to get more Net profit. Company is maintaining a healthy Return on equity and showing a upward trend which is a good sign. Management has to maintain this improvement and try to increase this ratio by revising the policy in positive sense.

Institute Of Business Administration

154

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

Institute Of Business Administration

155