Fini 619 Internship Report on Iqbal Rice Mills

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Internship Report on

Virtual University of Pakistan

Evaluation Sheet for Internship Report

Fall 2011

Name of Student:

Student’s ID:

i

i ) I

i iva

FINI619: Internship Report (Finance) Credit Hours: 3

Muhammad Jamshaid

MC100202381

Evaluation Criteria Result

Wr tten Work Status

(Internsh p Report

Pass/Needs mprovement

Presentat on & VVoce

Final Result

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Pass

Dear student,

i itten work You are declared PASS n your wr

“In the Name of ALLAH, Most Compassionate, Ever Merciful”

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FACTORY NAME

Submitted to : Instructor FINI-619

Submitted by : Muhammad Jamshaid

VU ID : MC100202381

Session : Spring 2010

Subject : FINI-619

Submitted Date : 13th January 2012

Virtual University of Pakistan

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Letter of Undertaking

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Internship Certificate

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Acknowledgement letter

It is a great honor for me to present this internship report as required for the completion of MBA (Finance). I feel great pride and pleasure on the accomplishment of this report. All praises, thanks and acknowledgements are for CREATOR: The ALMIGHTY ALLAH, who has bestowed upon human being the crown of creation and has endowed them with knowledge and wisdom,

I would like to express my gratitude towards the members of FACTORY NAME for their kind co-operation and encouragement which helped me in completion of this project.

I would like to thank the Managing Partner Ch. Masood Iqbal and especially to Mr. Muhammad Javed (Finance / Accounts Manager). The supervision and support that he gave truly helps the progression and smoothness of the internship program. The co-operation is much indeed appreciated. I am also very thankful to my supervisor Mr. Abubakar, Mr. Aadil Majeed and Mr. M. Attique for help in my internship report.

I am also very great full to all staff of FACTORY NAME for their help, guidance and encouragement on my report. In this report I have completed the ratio analysis of the organization which strengthen and clear my concept about accounting ratios and its implementation. It is very helpful for my future and gives me such confidence in myself. I am very thankful to VU who assigns us such a great task to groom our abilities and to show our potential and I also thanks all the staff of the organization who help me a lot to improve my potential and abilities.

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Executive Summary

I have worked as an internee with FACTORY NAME for six weeks. The owner of this company is Ch. Masood Iqbal. This company is composed of four managing partners having great experience related to Rice field. The nature of business is Rice Manufacturing (Husking, Polishing, Sorting and Grading), and Export of Rice. All the management functions are performed by this company’s management from planning to control. There are mainly five departments working in this organization. The departments are Production, Export, Lab & Procurement, Finance / Accounts, Administration and Human Resource Management.

I have worked as an internee in Finance / Accounts Department. In Finance / Accounts department I assist the Finance officer and worked in his supervision however some of the work is done independently.

At the end I would like to say that working with FACTORY NAME was a good learning experience. I came to know that bookish knowledge is one side of the picture and practical experience is another side of this picture. Both are essential for complete understanding of this diverse business world.

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Table of contents

• The Name of ALMIGHTY ALLAH 1

• Title Page 2

• Letter of Undertaking 3

• Internship Certificate 4

• Acknowledgement 5

• Executive summary 6

• Table of Contents 7

• Introduction of company 8

• Overview of Organization 9-10

• Organizational chart 11

• Departments of company 12-14

• Plan of Internship 15

• Training Program 15-19

• Ratio Analysis 20-34

• Future Prospectus of Organization 35

• Conclusion 36

• Recommendations for Improvement 37

• References and Sources used. 38

• Annexes 39-58

o Financial Statements of Iqbal Rice Mills (scan copies)

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Introduction

FACTORY NAME was started its business in 1978. Initially the company had started its one Husking unit. The core product or specialty product that was processed is Super Rice. This is the initial and core product of this company. As the specialty of this product is its Quality and Length,

IQBAL Brand is the brand name of this company. Very soon this product captured many global markets successfully, almost within two years.

The company deals in all major cities of Pakistan like Faisalabad, Lahore, Karachi, Islamabad Hyderabad, Multan, and Gujranwala etc.

At present FACTORY NAME has capacity of processing 25 M.T rice per hour and its warehouses can store 75000 M.T of rice. It has also got ISO 9001-2000 (HACCP) and ISO 2200 certification by Moody International Certification Limited U.K.

I.R.M management believes on self reliance in terms of finance as no long-term borrowings have ever been obtained.

After gaining competitive edge in domestic market FACTORY NAME focused its eyes on international markets in 1999.It took only 2 years to become the best Basmati Rice exporter of Pakistan. Federal government of Pakistan acknowledged this by awarding Special Merit Trophy by the federal government for the 4 consecutive years, 2003, 2004, 2005 and 2006.

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FACTORY NAME continued the same spirit and won the best businessman awards and gold medals for years 2006, 2007, 2008 and 2010.

In 2010 export sales of FACTORY NAME were about 55 million US dollars. And it exported its products to the countries: UAE, Iran, Saudi Arabia, Muscat, Qatar, and etc. Emirates countries.

Overview of Organization

M/ .

Brief History of the Organization

S. FACTORY NAME

Partnership firm.

Company name:

Constitution:

Established in: 1978

Registered Office: 3 KM Faisalabad Road Chiniot. Phone # 047-6332734, 047-8869283 Fax # 0092-041-8585394

Nature of business: 1- Paddy Husking 2- Processing of Rice (Grading, Sorting and Polishing) 3- Export of Rice.

Management

1) Managing Partner.

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Academic Qualification Masters in English from Punjab University Lahore

Experience

More than two decades experience in marketing the Rice products and managing of Rice processing units and Human Resources Career Planning/ development of more than 300 employees.

2-, Partner

3-Hafiz Muhammad Ali, Partner

4-Muhammad Saleem, Partner

Administrative, Production Personnel & Qualifications

1. General Manager Production, (M.SC) 10 years experience 2. G.M Finance 10 years Finance experience 3. G.M Procurement and Lab 15 Years experience. 4. Export Manager (MBA) 8 Years experience. 5. HR & Admin Manager (MBA HRM) 10 years experience. 6. Accountant (ICMA)-8 years experience 7. Assistant Account Manager MBA- 4 years experience 8. Purchase Manager M.Sc 10 years experience 9. Skilled workers- 150 10. Semi skilled workers -55 11. Unskilled labor/drivers/guards -45

Competitors

The FACTORY NAME is offering different dimensions plots to its customers. The competitors of society are:

MATCO (Pvt.) Ltd

Hassan Corporations.

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Pearl Rice Mills They are the main competitors of the FACTORY NAME. The main competitor is the MATCO (Pvt) Ltd. It has the latest technology and a huge setup with good share in market at Global level as compare to FACTORY NAME.

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Functional Structure of I.R.M

Managing Director

Production Finance HR & Admin Export

Lab & Marketing Department Department Departmen Procurement Department

Department Department t

Finance HR Export

Manager Manager Manager Manager Lab Manager Production

Manager& Marketing Procurement

Accountant HR OfficerExport

Officers Assistant Marketing

Boiler Electrical Mechanical Manger

Finance /Account Clerical

Officer Staff Lab

Analysts

Officers Department Department Department

Boiler Electrical Mechanical Engineer Engineer Engineer

Assistant Electrical Store Manager Purchase Manager Operators Engineer Operators

Store In charge Purchase OfficerElectricians Labor

Store Keeper

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The organizational structure of FACTORY NAME fulfills all the requirements of the organization. Every department has the Head authority. No any department is comes under other department so there is no any chance of misuse of authority by any person in the organization.

Functions of FACTORY NAME

Production department

Marketing department

Finance department

Human Resource and Administration department

Lab & Procurement department

Export Department

Production Department:

Production department is the backbone of Rice industry. This department has latest machinery, advanced technology and efficient workforce. In this department, the rice is manufacture under the experts of this department and than it is processed (process includes Polishing, sorting and grading of Rice). After the processing it is packed and than moved to other departments for dispatching the order to the customers.

Marketing department

Marketing is needed in almost all kinds of business to achieve its desired objectives and future goals. A good marketer contributes a lot towards the success of any company. Therefore, this department is also as much as important like any other department.

Marketing department of this company is also operated by experts and subordinates.

Activities of marketing department:

Test marketing through sample selection to loyal and satisfied customer

Order placement

New product offerings

Explore new customers by complete understanding of their requirements

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Finance department

Finance is being considered as a life blood of modern business and plays a key role in business organizations because without finance, there is nothing to plan, organizes, direct, activate and control.

Finance department of this company is controlled and managed by owner himself and his subordinates.

Activities of finance department:

Financial planning

Procurement of raw material

Exploring new ways of acquiring capital

Develop plans for cost effectiveness

Negotiating with creditors and customers

Effective utilization of funds

Administration and Human Resource Department:

The duties and responsibilities of the administrative manager mainly depends on how big is the establishment and the scope of work given to him/her by the management of the firm. In big offices there is a different department for looking after the administrative works along and they are not responsible for the accounts. If the office is a small one and managed by an owner, naturally he will expect the Admin Manager to look after everything.

Everyone knows the importance of the administrative role. They are the glue that holds the office together and keep the everyday functions running smoothly. This position is a key in every organization. Functions of the HR department of this company are as follow:

General co-ordination of various things

Maintenance of offices and factory

Vehicle movement

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The Human Resources department of this organization has staff relationship with other department / managers in the total organization. This department is responsible for advising management from Managing Director to the lowest line supervisor on all area relating to the personnel management and industrial relations. This department also performs various functions of employment, training and development. It represents management in many of the relationships that affect the organization as a whole. It is also responsible for representing various workers problems to management. This department is controlled and managed by owner himself and it is merged along with administration up till yet all the functions of HR are performed under the guidance of one of the managing partner with the consultations of all the managing partners and final decision is taken by owner himself regarding any Human Resource related issue.

Lab & Procurement Department

The duties and responsibilities of the Lab & Procurement department are to control the quality of their products according to the customers demand and International Standards. This department is responsible to analyze the raw material purchased that whether it is according to our demand or not and also analyze all Rice finished goods which are dispatched out for sale in local Market or Export to other country keeping in mind the customers requirements and International Standards.

Export Department

The function of this department in FACTORY NAME to get orders from abroad, making contracts, Order completion one per sample and Delivery of goods with preparation of all the documentation related to export by adopting all the international standards. Other function of this department is to increase export of their products for obtaining the best reputation in foreign market.

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PLAN OF INTERSHIP PROGRAM

I have completed my internship In FACTORY NAME (Office: 3-KM Faisalabad Road,

I started my internship from 15th November 2011which completed on 31st December 2011.

Branch Name

Chiniot.)

Date of Internship

DETARTMENT AND DURATION

I have completed my internship in the Finance / Accounts department and perform some of thetasks of accounts as given below,Updating of Manual books of Accounts, preparing all kinds of voucher manually & in OracleBase Software (Cash Vouchers, Journal Vouchers & Bank Vouchers)Checking contractor bills, Pay roll procedure.Sale & Purchased recording in ERP System.Prepared Documents related to Finance.Calculation of Markup on advances,Keeping the record of advancesKeeping the record of pledge given as security against advances.Bank reconciliation StatementDaily bank transaction statement

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/ 15 31

Department Name Starting Date Ending Date

Finance Accounts th November 2011 th December 201

Training program

I have completed my internship program in Finance/Accounts department and performed some of the function related to the accounts. First couple of days I assist the Account Officer who told me that what actually the account department is? What are the functions performed by this department? I was told; which are the basic books of accounts and how the entries are made in such books.

During my internship I performed the following tasks:

Maintain Manual Books of Accounts

In first weak of my internship the work assigned to me was to maintain the Manual books of Accounts like Day Journal, Creditors, Debtors & Staff loan Ledgers. Firstly all types of vouchers were recorded in Day Journal by me and then all the entries were posted to the relevant ledger accounts from day journal.

Vouchering:

I have made following types of vouchers, Bank Vouchers, Cash vouchers & Journal vouchers. In Bank vouchers I have prepared bank payment vouchers & cheque against payment made to different creditors & Bank receipt vouchers against payment received from local debtors & foreign debtors. In Cash vouchers I have prepare all cash payment & receipt vouchers. In Journal vouchers I have prepared vouchers for making adjustments such as accruals, and to record liabilities. After the preparation of vouchers it is posted to the relevant ledgers accounts. These posting is made on the accounting software after supervision of Chief Accountant. The organization uses its own custom made accounting software to record the transaction.

Sale and Purchase Recording

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During my internship I also record all the transactions related to Sale of finish goods and Purchase of raw material and semi manufactured goods. This all recording is made on accounting software by me which used by the organization. In Sale transaction firstly the contracts recorded in software with Name of Customer, Product code, Quantity of bags, Weight, Rate and the validity of the contract, and than the Delivery order is issued when the customer demand the product. In last step the loaded quantity of bags and weight the sale is recorded on daily basis by me and then checked by my supervisor. In Purchase transaction all the contracts are recorded first and when the raw material arrived all the data entered in software with detail description Quantity of bags, weight received, receipt note number against contract recorded.

Pay Roll:

During my internship I have learned how to prepare the salary sheet of the staff. The salary sheet comprises of Name of the Employee, Designation, Gross salary, tax deduction, advances deduction and leave without pay, leave encashment net salary. The salaries of management staff is paid through cheques. And I have also learned the daily wages sheet of the workers on daily wages.

Running Bill Checking:

I have checked the running bills which was received form the contractor for work done up to a specified period of time. My task was to check all the calculation of the work done either this is exactly according to the rate which we decided with the contractor.

Preparation of Documents

During my internship I also prepare the documents related to Loan granted and adjustment such as Cash Finance Loan & Export Refinance Part II Loan. For granted Cash Finance loan a request letter is typed to the name of the manager of the bank for granted a required amount from loan account to the current account, for adjustment of Cash finance loan a request letter is also typed to adjust the loan account with the requested amount transfer from the Current account. For granted Export refinance part II loan a set of documents is prepared according to the predefined procedure of the State Bank of Pakistan. This type of loan is obtained on the performance of export.

Bank Reconciliation Statement:

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I have learnt from accounts officer during my internship how the Bank Reconciliation Statement is prepared. In Bank reconciliation statement each transaction of the bank statement is reconciled with the transaction of Bank accounts ledger which is maintained from company side and the reason of the reconciliation is to locate the difference of balance between bank account ledger prepare by the firm and bank statement. The difference is because of some unpresented cheques which we issued to the creditors against the payment made to them, but they didn’t present the cheque to the bank for payment. The difference which is found is because we credited the amount in our bank account ledger however it is not debited by the bank. Just like uncollected cheques that are deposited in bank and the bank has not yet credited to our account. Another difference which is found of the bank charges that the bank deducted from our account and firm did not recorded that amount of charges in Bank Account Ledger.

Calculation of Markup:

During my internship I have learned the Calculation of markup on advances in Microsoft excel sheet, the sheet consist of following columns;

1. Date of loan granted 2. Principle amount 3. Date of maturity 4. No. of days amounts outstand 5. Markup rate 6. Markup amount 7. Total payable amount included principle & markup

Daily Bank Transaction:

In daily bank transaction a report is prepared relating to the transaction of the bank account.I have learnt from my Finance officer the procedure for preparing daily bank transaction.I have call to the bank and received the record of debit & credit transaction of current & loanaccount, after receiving transaction from the bank I have prepared the following reports

1. Summery of the Bank Transaction:

In this report all transaction is showing like opening balance of the accounts and added the receipts against local sale, receipts against export sale, short terms loan granted and deducted cheque present in the bank, short term loan adjusted from current account, Markup deducted by bank, withholding tax deducted by bank & other miscellaneous charges deducted by bank

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2. Loan Statement:

In loan statement I put the transaction in the loan accounts like granted & adjustment of loan.

3. Payment Sheet:

Payment sheet is consist of seven columns, 1 Cheque issuing date, 2 Name of the person 4, Name of the bank 5 cheque number 6 Cheque Amount, 6A cheque amount show in presented columns which are presented in the bank & 6B cheque amount which are not presented in the bank.

4. Debtors Receipts:

This report is consist on columns a) Date of cheque b) Cheque deposited in the bank date c) Name of debtors d) Instrument Bank name e) Cheque number or Party Deposited, if payment directly deposited by debtors in the bank. f) Deposited Amount g) Name of the bank payment deposited

5. Post dated cheque:

This report is consisting of Post dated Cheque received from debtors or cheque which are deposited in to the bank & not cleared yet.

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Ratio analysis

Ratio analysis can also help us to check whether a business doing better this year than it was last year; and it can tell us if our business is doing better or worse than other businesses doing the same things.

Financial Ratios

Financial ratios are useful indicator of a firm’s performance and financial situation. Most ratios can be calculated from information provided by the financial statements. Financial ratios are very useful tool in the hand of management for decision making. Shareholders, investor and creditors have a keen interest in the financial ratios. Financial ratios can be used to analyze trends and to compare the firm’s financials to those of other firms. In some cases, ratio analysis can predict future bankruptcy.

The followings are some types of financial ratio.

1. Liquidity Ratio 2. Financial Leverage Ratio 3. Profitability Ratio 4. Activity Ratio 5. Market Ratios

Liquidity Ratio

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This ratio is used to determine a company’s abilities to pay off its short-term debts obligations. It also shows the company’s ability to turn short-term assets into cash to cover debts when firm needs cash. These ratios consist of following;

Current Ratio

Acid Test / Quick Ratio

Working Capital Ratio

Leverage Ratios

Leverage ratios provide an indication of the long-term solvency of the firm. Leverage ratios measure the extent to which the firm is using long term debt. These ratios include:

Time Interest Earned

Debt Ratio

Debt / Equity Ratio

Profitability Ratio

Profitability ratios measure the company’s use of its assets and control of its expenses to generate an acceptable profit in return. It also shows the firm’s performance whether it is better or worse. These include;

Net Profit Margin

Gross Profit Margin

Return on Assets

Operating Income Margin

Return on Total Equity

Activity Ratio

These ratios measure the firm’s ability to convert different accounts within their balance sheets into cash or sales. It also called Efficiency Ratio. It also shows how effectively the company utilizes their assets and manages its liabilities. These consist;

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Total Assets Turnover Operating Cash Flow Ratio

Market Ratios

These ratios show the investor response towards owning the stock of the company. These include;

Dividend per Share

Earning per Share

Liquidity Ratio

/

2011 2010 2009

0

1

2

Current Ratio

Current Ratio = Current Assets Current Liabilities

=2,617,915,474 / 1,895,764,536

= 1.38 Times

=2,131,336,036 / 1,648,619,279

= 1.29 Times

=1,050,496,638 / 607,590,274

= 1.73 Times

Graph of Current Ratio

0.5

1.5

2011 2010 2009

2011

2010

2009

Interpretation

This ratio is used to determine the company’s ability to pay its debts and obligations over the next 12 months. Generally Current ratio 2:1 is acceptable.

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From above table it is clear that FACTORY NAME the trend is downward however ratio is more than one which means that the firm has enough resources to pay it debts. The table shows in 2009 ratio was higher but after that it decreased because of more increase in Current Liabilities as to Current assets but it is sufficient for the firm.

Acid Test / Quick Ratio

Quick Ratio = Liquid Assets / Current Liabilities

2011 2010 2009

2011 701,854,243 2010 666,156,929 2009 = 541,889,506

0

1

=701,854,243 / 1,895,764,536

= 0.37 Times

=666,156,929 / 1,648,619,279

= 0.40 Times

=541,889,506 / 607,590,274

= 0.89 Times

Working of Liquid Assets

Liquid Assets = Current Assets – Inventory

= 2,617,915,474 - 1,906,319,040 - 9,742,191= = 2,131,336,036 - 1,459,855,278 - 5,323,829= = 1,050,496,638 - 501,717,535 - 6,889,597

Graph of Quick Ratio

0.2

0.4

0.6

0.8

2011 2010 2009

2011

2010

2009

Interpretation

This ratio determines the company’s ability to use its Liquid Assets to pay its short-term obligation. Quick Ratio should be 1:1. It should be more or equal to one. In case of FACTORY NAME, the above analysis shows that the Quick Ratio is decreasing and lowers than one which means firm is facing problems to pay its short term liabilities and relies too much on inventory and other assets. It is due to Less Liquid Assets as compare to Current Liabilities.

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Working Capital

Working Capital = Current Assets – Current Liabilities

2011 2010 2009

=2,617,915,474 - 1,895,764,536

= 722,150,938

=2,131,336,036 - 1,648,619,279

= 482,716,757

=1,050,496,638 - 607,590,274

= 442,906,364

Graph of Working Capital Ratio

800,000,000700,000,000600,000,000500,000,000400,000,000300,000,000200,000,000100,000,000

0

2011

2010

2009

2011 2010 2009

Interpretation

Working Capital shows the company’s ability to pay off its short-term liabilities. Positive Working Capital means business is able to pay off its short term liabilities. While Negative Working Capital means business is unable pay off its short term liabilities. In case of FACTORY NAME the working capital is positive as shown above in previous three years which means company is able to pay its short term obligations. In 2011 the positive working capital is higher as shown above which means company has enough resources to pay its short term liabilities and also can expand its operations.

Leverage Ratios

Time Interest Earned

Time Interest Earned = Earning before Interest & Taxes (EBIT) / Interest Charges

2011 2010 2009

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=451,203,080 / 150,010,405

= 3.01 Times

=220,388,367 / 77,948,891

= 2.83 Times

=234,407,296 / 111,128,472

= 2.11 Times

Working for Earning before Interest and Tax:

Earning before Interest & Taxes = Operating Profit – Other Expenses – Depreciation

2011 = 504,186,306 – 3,793,476 – 49,189,750 = 451,203,080 2010 = 255,465,411 – 1,805,869 – 33,271,175 = 220,388,367 2009 = 282,953,910 – 1,713,936 – 46,832,678 = 234,407,296

Interest Expenses 2011 2010 2009

1. Long Term Financing - -2. Short Term Borrowing

-150,010,405 77,948,891 111,128,472

Graph of Time Interest Earned Ratio

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0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

2011 2010 2009

2011

2010

2009

Interpretation

/

2011 2010 2009

This ratio is also known as Interest Coverage Ratio. This Ratio indicates how well a company can cover its interest payment before paying tax. The ratio should be more than 1.5. The ratio is increasing. In case of FACTORY NAME, the analysis’s shows that company is able to meet his interest obligations because earnings are significantly greater than annual interest obligations.

Debt Ratio

Debt Ratio = Total Debt Total Assets

=1,895,764,536 / 3,276,445,542

= 0.579

=1,648,619,279 / 2,822,995,201

= 0.584

=607,590,274 / 1,697,218,896

= 0.358

Total Debt = Current Liabilities + Long Term Liabilities

2011 = 1,895,764,536 + 0 = 1,895,764,536 2010 = 1,648,619,279 + 0 = 1,648,619,279 2009 = 607,590,274 + 0 = 607,590,274

Graph of Total Debt Ratio

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0.00

0.10

0.20

0.30

0.40

0.50

0.60

2011 2010 2009

2011

2010

2009

Interpretation

Debt ratio indicates what proportion of debt a company has relative to its assets. Debt ratio more then 1 indicates that firm has more debt than assets and less than 1 indicates more assets than debt. From calculation it is clear that the ratio of FACTORY NAME is less than one in consecutive three years which means company has more assets than its debts. The above table shows that the ratio is increasing, and the reason is more increase in debts as compare to total assets however the ratio is acceptable for the firm.

Debt / Equity Ratio

Debt / Equity Ratio = Total Debt / Shareholder’s Equity

2011 2010 2009

=1,895,764,536 / 1,310,142,152

= 1.45

=1,648,619,279 / 1,095,999,417

= 1.50

=607,590,274 / 1,004,897,265

= 0.60

Total Debt = Current Liabilities + Long Term Liabilities

2011 = 1,895,764,536 + 0 = 1,895,764,536 2010 = 1,648,619,279 + 0 = 1,648,619,279 2009 = 607,590,274 + 0 = 607,590,274

Graph of Total Debt Ratio

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0.00

0.20 0.40

0.60

0.80

1.00 1.20

1.40

1.60

2011 2010 2009

2011

2010

2009

Interpretation

This ratio indicates that what proportion of Equity and Debt the firm is using to finance its assets. From the above table it is clear that the ratio is increasing which means Iqbal Rice Mill’s assets are financed through debt rather than Equity. It shows that the reason is increase in Debts as compare to shareholder’s equity. In first year 2009 it was less than one which shows that assets were finance by equity and now the firm’s assets are financed by debts than equity.

Profitability Ratios

Net Profit Margin

Net Profit Margin = (Net Profit / Sales)*100

2011 2010 2009

=256,182,475 / 5,067,101,571

= 5.06%

=129,276,523 / 2,008,672,422

= 6.44%

=113,409,529 / 2,345,047,424

= 4.84%

Graph of Net Profit Margin Ratio

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0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

2011 2010 2009

2011

2010

2009

Interpretation

This ratio indicates how much a firm is efficient and how well it controls its costs and what portion of sales contribute to the income of the firm. From above calculations it is clear that the performance of FACTORY NAME is good and the trend is upward. The ratio is acceptable for the firm and needs to be control over cost more than before.

Gross Profit Margin

Gross Profit Margin = (Gross Profit / Sales)*100

2011 2010 2009

=772,696,109 / 5,067,101,571

= 15.25%

=348,614,757 / 2,008,672,422

= 17.36%

=372,836,853 / 2,345,047,424

= 15.90%

Graph of Gross Profit Margin Ratio

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14.00

14.50

15.00

15.50

16.00

16.50

17.00

17.50

2011 2010 2009

2011

2010

2009

Interpretation

This ratio indicates what the firm’s policy is and what the true mark-up are. It also shows how efficiently a firm a controlling its direct cost or expenses. The above analysis shows that FACTORY NAME ratio is increasing and clears that the company has good control over direct cost.

Return on Assets

Return on Assets = Net Profit / Total Assets

2011 2010 2009

=256,182,475 / 3,276,445,542

= 0.078

=129,276,523 / 2,822,995,201

= 0.046

=113,409,529 / 1,697,218,896

= 0.067

Graph of Return on Assets Ratio

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0.00

0.01

0.02

0.03

0.04

0.05 0.06

0.07

0.08

2011 2010 2009

2011

2010

2009

Interpretation

This ratio measures how much return a company is generating on the firm’s assets. The above analysis shows that FACTORY NAME ratio is good and it is generating enough income on the assets. It also helps the firm to decide whether or not to start a new project. The ratio is acceptable in all three consecutive years.

Operating Income Margin

Operating Income Margin = (Operating Income / Net Sales)*100

2011 2010 2009

=451,203,080 / 5,067,101,571

= 8.9%

=220,388,367 / 2,008,672,422

= 10.97

=234,407,296 / 2,345,047,424

= 9.995

Working of Operating Income

Operating Income = Operating Profit – Other Expenses - Depreciation 2011 = 504,186,306 – (14,577 + 3,778,899) – 49,189,750 = 451,203,080 2010 = 255,465,411 – (8,120 + 1,797,749) – 33,271,175 = 220,388,367 2009 = 282,953,910 – (41,101 + 1,672,835) – 46,832,678 = 234,407,296

Graph of Operating Income Margin Ratio

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0.000

2.000

4.000

6.000

8.000

10.000

12.000

2011 2010 2009

2011

2010

2009

Interpretation

This ratio indicates what proportion of a firm’s revenue is left over after deducting all the direct costs (like raw material, wages and etc). It also indicates the firm’s pricing strategy and operating efficiency. From above table it is clear that the ratio of FACTORY NAME is 9.995% in 2009 and then increase and becomes 10.97% but after that is decrease 8.9%. it shows how much this firm earn on each Rupee of sales.

Return on Equity

Return on Equity = Net Profit / Partner’s Equity

2011 2010 2009

=256,182,475 / 1,310,142,152

= 0.196

=129,276,523 / 1,095,999,417

= 0.118

=113,409,529 / 1,004,897,265

= 0.113

Graph of Return on Equity

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0.00

0.02

0.04

0.06

0.08

0.10

0.12

2011 2010 2009

2011

2010

2009

Interpretation

This ratio indicates that how much profit a company earned on partner’s equity. It measures how efficiently the partner’s equity used by a firm. From above calculation it is clear that ratio of FACTORY NAME is increasing. It shows that the firm ratio is on higher side which means the return on equity of partners is good / acceptable.

Activity Ratio

Total Asset Turnover

Total Asset Turnover = Net Sales / Total Assets

2011 2010 2009

=5,067,101,571 / 3,276,445,542

= 1.55

=2,008,672,422 / 2,822,995,201

= 0.71

=2,345,047,424 / 1,697,218,896

= 1.38

Graph of Total Assets Turnover Ratio

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0.00

0.20 0.40

0.60

0.80

1.00 1.20

1.40

1.60

2011 2010 2009

2011

2010

2009

Interpretation

This ratio indicates that how efficiently a firm is using its assets to generate income. It shows how much a firm getting income on One (1) Rupee value asset. In the analysis of FACTORY NAME it shows that in 2009 it was 1.38 then but in year 2010 it reduces to 0.71 however in 2011 it again improve and becomes 1.55. The ratio is increasing. Higher ratio indicates that the firm is best utilizing its resources.

Operating Cash Flow Ratio

Operating Cash Flow Ratio = Cash Flow from Operations / Current Liabilities

2011 2010 2009

=-80,977,707 / 1,895,764,536

= -0.04

=-1,007,186,123 / 1,648,619,279

= -0.61

=-143,941,594 / 607,590,274

= -0.24

Graph of Operating Cash Flow Ratio

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-0.70

-0.60

-0.50

-0.40

-0.30

-0.20

-0.10

0.00

2011 2010 2009

2011

2010

2009

Interpretation

This ratio indicates how well current liabilities are covered by the Cash Flow generated from company operations. The ratio should be more than 1. From above analysis it is clear that FACTORY NAME is in negative which shows that firm is not generating enough cash to pay off its short term debts which is a serious situation.

Market Ratios

Dividend per Share

Dividend per Share = Dividend Amount / Number of Equity Shares

Note: In case of FACTORY NAME this ratio can not be calculated

Earning per Share

Earning per Share = Net Income - Dividend on Preferred Stock / No. of Shares Outstanding

Note: In case of FACTORY NAME this ratio can not be calculated

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Future Prospectus of Organization

Future Plan of the FACTORY NAME is to introduce its products in European country like U.K, USA, Germany, France, Sweden, Canada, Italy and etc to get a huge share market in Global world. The purpose is to increase its exports with increasing profit of the firm which provide huge benefits to company.

The firm is also planning to start a new manufacturing unit with processing unit near Muridke city.

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Conclusion

I would conclude by saying that working as an internee with FACTORY NAME for seven weeks was a good learning experience. This internship program really helped me to clear my concepts and also allowed me to share with the management in case of any confusion regarding the company’s operations. The whole management team of this company is very supportive and intellectual.

From above ratio analysis on FACTORY NAME which is done by me I concluded that Liquidity Ratio as shown above the firm is facing problem to pay off its short term liabilities and relies too much on inventory and other assets, if we see the current asset ratio. The liquidity ratio shows the short term solvency of the firm that’s why the creditors have the great concerned with it.

Leverage ratio indicates that how much a firm is financed through debts. From above analysis, the Debt ratio and Debt / Equity of FACTORY NAME shows that the firm ratio is increasing. In starts the company was self reliance than debts but now the company’s assets are financed through debts more then equity.

From ratio analysis of FACTORY NAME it is concluded that Profitability ratio is higher than standard acceptable ratio but it is not enough for this kind of organization. The Net profit Margin should be more than this.

Activity ratio shows that the Cash flow form operations is in negative which is serious condition for the firm.

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Recommendations for FACTORY NAME

As an internee working with FACTORY NAME is a good learning experience to know the difference between bookish knowledge and practical world. There are certain things that are going but few needs to be improved. My few recommendations that I want to share with you and I have already shared all these with the management of this company as well.

1. The firm has enough Working Capital so I recommend that the firm should be expands their operations as seeing the working capital. The company should increase its Liquid assets because if we see the Current ratio of the firm it can pay off its short term debts. Now if we see Acid Test ratio it shows that the firm is facing problem to pay it immediate liabilities.

2. The Leverage ratio shows that firm was depend on Equity more than debts but after that now the firm is more dependent on the Debts than equity and it increase year to year. So I suggest that firm should control their debts to made the firm less levered.

3. I suggest that the management of the firm should control its direct cost while seeing the profitability ratio. Because the profit margin is less as compare to sale of the firm.

4. Similarly the Firm should also best utilize its operating assets more and more because the Operating cash flow ratio is negative as shown above which is very serious for the firm to think and also controls its direct cost on operating assets.

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Reference and Sources used.

Reference Books (Financial Management MGT101, Investment Analysis and Portfolio Management (FIN630)).

Internet.

FACTORY NAME

.Staff and Management of FACTORY NAME

Brushers.

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Annexes

Financial Statements of FACTORY NAME

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