Finance Report Sugar Mills Adeel A. Siddiqui (11262) Adnan Waqar - PDF document

Institute of Business Management Finance Report Sugar Mills Adeel A. Siddiqui (11262) Adnan Waqar (11828) Zeeshan Memon (12045) 4/13/2011

Table of Contents 1. Introduction ............................................................................................................................1 2. Dewan Sugar Mills ...................................................................................................................2 2.1 Balance sheet of Dewan Sugar Mills ...................................................................................3 2.2 Liquidity and Leverage Ratios of Dewan Sugar Mills ...........................................................4 2.3 Liquidity ratios ...................................................................................................................5 2.3.1 Current ratio ................................................................................................................5 2.3.2 Quick ratio ...................................................................................................................6 2.4 Financial leverage (debt) ratios ..........................................................................................6 2.4.1 Debt-to-equity ratios ...................................................................................................6 2.4.2 Debt ratio ....................................................................................................................6 3. Al-Abbas Sugar Mills Limited ...................................................................................................7 3.1 Credit Rating ......................................................................................................................8 3.2 Balance sheet of Al-Abbas Sugar Mills ................................................................................8 3.3 Liquidity and Leverage Ratios of Dewan Sugar Mills .........................................................10 3.4 Liquidity ratios .................................................................................................................11 3.4.1 Current ratio ..............................................................................................................11 3.4.2 Quick ratio .................................................................................................................11 3.4.3 Debt-to-equity ratios .................................................................................................11

3.4.4 Debt ratio ..................................................................................................................12 4. Liquidity and Leverage Ratio’s Comparison with Industry Averages .......................................13 4.1 Dewan Sugar ....................................................................................................................13 4.2 Al-Abbas Sugar .................................................................................................................14 5. Conclusion .............................................................................................................................15

Finance Report 2011 1. Introduction Financial ratios are used to analyze the financial condition of a firm by comparing it with other firms of same industry or industry average standards. We analyze different ratios to get complete inside of a firm’s financial health. Liquidity ratios show firms ability to cover its current liabilities with its current assets. Leverage ratio shows the extent to which firm is financed by debt. Here we have calculated financial ratios of two sugar mills and we have compared them with each other and industry standards. Chapter: 1. Introduction 1

Finance Report 2011 2. Dewan Sugar Mills Dewan Sugar Mills Limited is one of the largest sugar mills of Pakistan having a cane crushing capacity of over 9,000 tons per day. It was established as a public limited company in 1982. Through installation of most modern cane handling and processing systems, delivery times have been shortened. Installation of modern computerized systems has greatly helped in improving the cane procurement and management systems. As a result of these measures, Dewan Sugar Mills Limited is regarded as a preferred customer by most farmers which results in a longer crushing season for the mill. Dewan Sugar Mills Limited enjoys market leadership position in the country and its product enjoys definite premium over its competitors. Dewan Sugar Mills Limited has been awarded with ISO 9002 certificate that proves the company’s strength in producing consistent and high quality product. Their aim is to benefit the customers, employees and shareholders, and to fulfill their commitments to the society. Their hallmark is honesty, initiative and teamwork of their people, and their ability to respond effectively to change on all aspects of life including technology, culture and environment. There was shortfall in sugar cane production in the season due to reduction in the sugar cane plantation area and yield. As a result, sugar cane prices skyrocketed and the entire sugar industry including your company paid very high cost of sugar cane. To meet this contingency, Chapter: 2. Dewan Sugar Mills sugar manufacturers imported raw sugar for processing locally which saved the industry to some extent. However, subsequently Government allowed import of white refined sugar resulting in lot of documented and undocumented imports, which created huge unsold stocks of sugar with the mills. The carry over stocks from last year kept the sugar market depressed and hence very little margins are left for the mills. 2

Finance Report 2011 2.1 Balance sheet of Dewan Sugar Mills Balance Sheet as at sep 30 2008 2007 2006 Assets Non –current assets Property, plant and equipment 2,264,422 1,527,982 1,472,955 Long-term investment 37,751 10,263 8,607 Long-term deposits 5,071 11,317 10,742 Total fixed assets 2,307,244 15,49,562 1,492,304 Current assets Stores and spare parts 188,578 144,818 131,668 Stock-in-trade 1,009,052 393,723 230,809 Trade debts 11,314 28,978 43,166 Loans and advances 149,526 144,861 109,388 Trade deposits and short-term prepayments 7,164 5,254 3,638 Other receivables 417 23,271 13,993 Income tax recoverable 16,168 - - Cash and bank balances 86,263 47,597 48,694 Total current assets 1,468,482 788,502 581,356 Chapter: 2. Dewan Sugar Mills Total assets 3,775,726 2,338,064 2,073,660 Equity and liabilities 2008 2007 2006 2000000 (2006: 20000) ordinary shares of 200,000 200,000 200,000 Rs.10/- each Issued, subscribed and paid-up capital 185,703 185,703 185,703 Inappropriate profit 366,139 154,659 178,040 Reserves 190,000 190,000 190,000 3

Finance Report 2011 Total equity 741,842 530,362 553,743 Surplus on revaluation 730,234 337,261 369,288 Non-current liabilities Long-term deposits 4,869 4,874 5,035 Long-term financing-secured 237,500 325,000 67,470 Liabilities against assets subject to finance 28,261 70,840 77,568 lease Deferred liabilities 492,058 346,074 277,540 Total non-current liabilities 762,688 746,788 427,613 Current liabilities Trade and other payables 526,054 317,484 187,470 Accrued mark-up 28,416 14,446 25,138 Short-term borrowings-secured 862,684 270,955 397,809 Current portion of long-term financing 123,808 118,679 105,139 Provision for market committee fee - 2,089 7,460 Total current liabilities 1,540,962 723,653 723,016 Total Equity and Liability 3,775,726 2,388,064 2,073,660 Chapter: 2. Dewan Sugar Mills 2.2 Liquidity and Leverage Ratios of Dewan Sugar Mills Ratios 2008 2007 2006 Company Industry Averages Averages Current ratio 0.95 1.09 0.80 0.95 0.73 Quick ratio 0.30 0.55 0.48 0.44 0.34 Debt to equity 3.11 2.77 2.08 2.65 4 Debt ratio 0.61 0.63 0.55 0.60 1.31 4

Finance Report 2011 3.50 3.00 2.50 2010 2.00 2009 2008 1.50 COMPANY AVERAGES 1.00 INDUSTRY AVERAGES 0.50 - CURRENT RATIO QUICK RATIO DEBT TO EQUITY DEBT RATIO 2.3 Liquidity ratios 2.3.1 Current ratio Current ratio = current assets / current liabilities From 2006 to 2008 both current assets and current liabilities have increased to more than Chapter: 2. Dewan Sugar Mills 100%. There has been increase in stock in trade which has increased very rapidly. Loans, advances and short term prepayments have also increased while trade debts have decreased considerably. Liabilities have increased mainly due to increase in trade and other payables. Besides that short term borrowings and current portion of long term financing have also increased. Firm’s ability to cover its current liabilities with current assets is significant, better than industry average 5