Analysis of Interloop

Presented To:Mr. Hamza

Mukhtar

Presented By: SAIMA SHAHEEN RANA KARAM ELAHI

What is Financial Analysis?

Assessment of the firm’s past, present and future financial conditions.

Financial Analysis is done to find the firm’s strengths and weaknesses.

Financial Statements

Statements that provide financial information about profit or non profit organization. The common types of financial statements are:

Balance SheetIncome StatementStatement of Cash FlowStatement of changes in equityNotes to the Accounts

Reasons of making the Financial Statements

On the behalf of Principals, the Agents make financial statements.

Analysis of the funds needs to the firm

Analysis of the financial condition and profitability of the firm

Analysis of the business risk of the firm

Users of Financial Statements

• Creditors

• Lenders

• Owners

• Students

Financial Statements Analysis

We will done our analysis in three Steps:

EconomY Analysis

Industry Analysis

Firm Analysis• Common size analysis

• Vertical analysis• Horizontal analysis

• Trend analysis

Economy Analysis

• Business cycle• Monetary and fiscal policy• Economic indicators• World events & foreign trade• Inflation• GDP growth• Unemployment• Productivity• Capacity utilization

Real GDP GrowthThe real GDP growth in financial year 2009 is found to be 6.6 percent

that is low as it was targeted at 7.00 percent.

This deficiency is due to:

• Agriculture products such as cotton, sugarcane, and wheat falling below target put some negative downstream effects on textile and sugar industries.

• Unexpected weakness in commodity producing sectors, especially agriculture, leads to the revival of inflationary pressure.

• Impact of high energy cost.• Strength of aggregate demand. • Large external current account deficit.

• This deficiency is due to borrowing from central bank. • Due to sharp rise in development expenditures.

• Declaration in exports

How we can achieve our targets

• Recovery in agriculture producing commodities

• Recovery in industrial products.

• Government policy should be set

InflationThe inflation rate in the economy in financial year

2009 is found to be 7.9 percent that was very high as compared to the target of 6.5 percent.

• Continued strength of aggregate demand

• Inability to reduce prices of petroleum products.

• High international commodity prices

• Domestic demand for construction inputs (e.g. metal, copper,etc.)

How government can reduce inflation rate

• By increasing interest rates. • By sharp rupee depreciation.

Both these factors can reduce inflation rates at medium run but at short run, both have significant costs.

High interest rates could risky because in this way the growth momentum of the economy could be slow.

A sharp rupee depreciation could lead to destabilize the economy.

Business Cycle

Are a type of fluctuations found in the aggregate economic activity of nations that organize their work mainly in business enterprise: a cycle consists of expansions occurring at about same time in economic activity followed by similarly general recessions, contractions and revivals which merge into the expansion phase of next cycle.

At this time the economy of Pakistan is enjoying the stage of “Revival” in business cycle.

How Business Cycle is beneficial

• Appropriate in designing good stabilize policies

• Business cycle may guide researcher in choosing leading indictors for economic activity and provide a set of “regularities”

Duration of business cycle is identified by…

• GDP• Industrial production • Output• Average length of business cycle in Pakistan 11.2

quarters. • In the world it is almost 10.2 quarters. • Contraction period is longer than expansion period in

Pakistan in previous decades.• The business cycle of Pakistan and other Asian counties

is effected by oil crisis at various points.• Average duration of business cycle is shorter than

industrialized countries in developing countries.

Unemployment

Unemployment is a central problem because when unemployment is high, resources are wasted and people's incomes are depressed; during such periods, economic distress also spills over to affect people's emotions and family lives.

Unemployment in rural areas is higher then the unemployment in urban areas due to industries. Mostly industries are established in urban areas. That’s why the unemployment rate in urban areas is low as compared to rural areas.

Reasons

• Agriculture sectors is not absorbing them due to adaptation of mechanical industries.

• Small scale industries are not working efficiently due to worse economic conditions.

• Inflexibility of wages arise in Pakistan because of costs involved in administering the compensation system.

• Government policies are also increasing unemployment rate.

Classification of unemployment

Unemployment is basically classified into three categories:

1. Frictional unemploymentworkers who are simply moving between jobs

2. Structural unemploymentworkers who are in regions or industries that are in persistent slump

3. Cyclical unemploymentworkers who laid off when the overall economy suffers a downturn

In Pakistan, the unemployment is of cyclical and structural nature.

Role of Government

• Loan arising from 10,000 to 500,000 for small businesses.

• Loan arising from 500,000 to 5,000,000 for small industries.

• A Small and Medium Enterprise Development (SMED) has been setup for growth and development of self employment scheme in Pakistan.

• The liberal and fiscal policies of the government are playing their role in reducing unemployment rate.

• Construction of additional motorways and additional industrial zones in the country will reduce the unemployment rate.

Industry Analysis

Learning Objective in Industry Analysis

• To determine the opportunities and threats that exists for firms within a competitive environment.

• When analyzing an industry, taking all factors into account, should we as a corporation, enter this industry? The end result will be an understanding of what it takes to compete successfully.

Definition of Industry

The people or companies engaged in a particular kind of commercial enterprise; "each industry has its own trade publications"

Concerns primarily engaged in the same kind of economic activity are classified in the same industry regardless of their types of ownership (such as sole proprietorship, partnership or corporation).

Definition of Textile Industry

Companies that manufacture and/or distribute textile , including basic, intermediate, and specialty chemicals; petrochemicals; plastic resins and materials used in synthetic fibers; agrochemicals; and paints and coatings.

Nature of the Business

The nature of the textile industry is of manufacturing concern.

Customers of the chemical industry

• Other Textile industries in case of yarn

• Garment industries

• Whole sellers

• Retailers

• Foreign buyers

• Consumers

Major Products• yarn

• cloth

• wool

• etc

Changing chemical industry

• Decline of Multinationals

• The rise of textile contractors

• Flexibility in productions

• Globalization of textile industry

• Advances in process technology and techniques

Sales and Distribution channel

Sales and distribution channel consists of this industry may be of following types:

• Textile industry wholesaler Retailers End customers

• Textile industry Retailers• Textile industry End customers

Obstacles of Growth of Local industry

• Expensive New Technology

• Lack of Trained Teachers

• Lack of skilled Personnel

• Government Regulations

• Economic Situations

Attract New Firm in Industry

• Government Rules & Regulations

• Policy must be set for the investors in the industry in case of taxation.

• Availability of skilled Labor

• Cheaper new technology

Competition

Firms are under too much high competition because the already the number of firms which are producing Textile are low in numbers.

However companies uses three types of strategy to compete within industry with some other firms.

• Differentiation• Cost Leadership• Focus

Firm Analysis

Learning Objective of Firm Analysis

The learning objective for the firm analysis is to determine the strength and weaknesses of a firm and to determine core competence that can be built on to establish a competitive advantage. The final step is to develop a business plan that will align the capabilities of the firm with the requirements of the competitive environment. How a firm’s performance is defined is left to the students.

Outline that should be for Firm Analysis

• Current Situation• Brief firm history • Strategic Posture

• External Environment (Opportunities and Threats)• Socio Culture• Task Environment

• Internal Environment (Strength and Weaknesses)• Management• Marketing • Operations/ Productions• Finance • Human Resource Management• Management Information System

SHARE CAPITAL AND RESERVE

2007 2008 2009

Authorized share capital 2,000,000,000

2,000,000,000

Issued subscribed and paid up capital

1,260,000,000

1,260,000,000

1,262,000,000

Unappropriated profit 591,084,975 1,036,930,146

1,366,238,322

Balance Sheet

Cont.

NON CURRENT LIABILITES 2007 2008 2009 Long Term financing 1,297,285,26

6 929,404,05

3

1,062,660,834

Long term leased liabilities

517,349,140 552,156,375

131,974,93

1

Long term deposits3,742,101 4,726,766 6,432,260

DEFERRED LIABILITIES

54,935,953 75,926,476 369,311,011

18.97

CURRENT LIABILITES 2007 2008 2009

Trade and other payablesMarkup accruedShort term borrowingCurrent Portion ofNon current liabilitiesLong term morabahaTaxation

327,251,907 56,360,964

2,278,326,654 278,066,281 166,582,578

7,316,374

475,767,672

49,773,010 2,584,145,9

91 270,480,77

8 191,634,38

4 19,430,753

7,268,824

209,794,195

303,604,0

49

3,564,367,388

95,808,49

1

563,514,788

TOTAL LIABILITES AND SHARE HOLDER’S

EQUITY

6,838,302,193

7,450,376,404

8,942,975,093

109

Non Current Assets

2007 2008 2009

Property, Plant & Equipment

4,886,344,978

5,112,207,059

4,023,719,

183

Long Term Investment 3,048,800 3,391,000 13,031,12

9

Long Term Loans and Advances

9,517,500 8,460,000 8,460,000

Long Term Deposits 20,197,650 105,472,723

106,160,0

70

Cont.

Assets Side

Current Assets 2007 2008 2009

Stores, spares and loose tools

265,165,744

166,201,392 239,669,4

99

Stock in trade 1,531,570,691

1,888,948,644

2,711,840,

721

Trade Debts 786,087,508

1,065,590,472

1,482,768,

710

Loans and advances 234,134,023

254,771,373 159,761,3

21

Trade deposits and short term prepayments

6,233,741 17,403,788 147,188,0

53

Other Receivables 102,049,743

226,677,725 4,065,000

Cont.

Current Assets 2007 2008 2009

Cash and bank balances

37,758,739 18,463,222 37,651,29

9

Total Assets 6,838,302,193

7,450,376,404

8,942,975,093

2007 2008 2009

SalesLess: Cost of goods sold

5,070,609,172

(3,873,689,944)

6,089,983,558

(4,589,379,497)

8,647,863,371

6,823,849,067

Gross profitAdd: Other operating income

1,196,919,228

2717623

1,154,132,533

58377021

1,824,014,304

19233234

Distribution costAdministrative expensesOther operating expensesFinance cost

(165,806,582)

(133,516,461)

(26,243,662)

(355,092,922)

(176,616,643)

(123,925,176)

(26,977,531)

(345,484,578)

445,836,5

13

289,933,227

39,778,02

3

530,481,698

Profit before Taxation 498,629,586

58,377,021 537,218,0

77

Profit & Loss A/C

2007 2008 2009

Profit Before TaxationLess: provision for taxation

498,629,586

(65,260,901)

58,377,021 (66,727,91

3)

537,218,0

77

81,909,901

Profit for the year 433,368,685

445,845,171

455,308,1

76

Liquidity Ratios

Ratios 2009 2008 2007

Current Ratio

The increase in ratio is resulting due to the increase in different current assets.i.e the major change in the current assets (cash) and trade Receivables and inventory is also increased.

Analysis of Profitability

Profitability can be analyzed by using different ratios:

Gross profit Margin Ratio 2009 2008 2007

Gross Profit/Sales 18.50 22.84

The ratio of Gross profit is decreasing due to the following reasons:

Decrease in sales of Textile divisionIncrease Cost of Goods Sold due to:

Hyper prices of Funance OilFuel and GasElectricity Freight and Transportation

Net Margin Ratio 2009 2008 2007Net profit/Sales 7.00% 7.50%

The decrease in net margin ratio is due to decrease in sales and ultimately low profits. But if we look at the operating expenses, we have come to know that one expense named as “EXCHANGE LOSS” is additionally incurred in 2006

Operating Margin 2009 2008 2007

Operating Profit/Sales 13.36 17.94

One reason of decreasing in the ratio of operating profit is already discussed that sales are decreasing and cost of goods sold is increasing. Other reason is that administrative expenses are also increasing. The expenses which are decreasing are:

Directors’ remunerationStaff salaries and benefitsRetirement benefitsPrinting & stationaryElectricity Repair & maintenanceEntertainment

Assets Turnover Ratio 20092008 2007Net Sales/Average Total Assets 0.87 1.46

The main reason in decreasing the ratio is an increase in the value of assets and decrease in sales of the company for the year 2006

Long Term Debt Paying Ability

The Long term debt paying ability of the company can be checked by using different ratios:

Debt To Equity 2009 2008 2007

51:4937:63The company long term debt paying ability decrease in 2006 because the ratio represents that company are using more debt as compared to its equity. And this also shows that company has to pay more outside the firm as compared to the inside of the firm

Common Size Analysis


2007 (%)

2008(%)

2009(%)

Authorized share capital 29.24 26.84


18.42 16.91 14.11

Unappropriated profit 8.64 13.92 15.28

Balance Sheet

Cont.

NON CURRENT LIABILITES 2007 (%)

2008(%)

2009 (%)

Long Term financing 18.97 12.47 11.88

Long term leased liabilities 7.57 7.41 1.48

Long term deposits 0.050.06 0.07

DEFERRED LIABILITIES 0.80 1.02 4.13

18.97

CURRENT LIABILITES 2007 (%) 2008(%)

2009 (%)


4.790.82

4.072.440.11

6.390.67

3.632.570.26

0.082.35

3.393.981.07


EQUITY

100 100 100

109

Non Current Assets

2007 (%)

2008(%)

2009 (%)


71.46 68.62 45.01

Long Term Investment 0.04 0.05 0.15


0.14 0.11 0.09

Long Term Deposits 0.30 2.30 1.19

Cont.

Assets Side

Current Assets 2007 (%)

2008(%)

2009 (%)


3.88 2.23 2.68

Stock in trade 22.40 25.35 30.34

Trade Debts 11.50 14.30 16.59

Loans and advances 3.42 3.42 1.79


0.09 0.23 0.10

Other Receivables 1.49 3.04 1.65

Cont.


2008(%)

2009 (%)


.55 0.25 0.42

Total Assets 100 100 100

2007 (%)

2008(%)

2009 (%)


100.0069.56

10075.36

100.0078.91


23.610.46

18.950.95

21.090.22


2.421.950.38

60.07

2.030.445.670.96

5.163.350.466.13

Profit before Taxation 7.29 8.42 6.21

Profit & Loss A/C

2007 (%) 2008(%) 2009 (%)


7.290.95

8.421.10

6.210.95

Profit for the year 6.34 7.32 5.26

Index Analysis


2007 (%)

2008(%)

2009(%)

Authorized share capital 100 100 100


100 175 100

Unappropriated profit 100 72 231

Balance Sheet

Cont.

NON CURRENT LIABILITES 2007 (%)

2008(%)

2009 (%)

Long Term financing 100 107 82

Long term leased liabilities 100 126 126

Long term deposits100 138 172

DEFERRED LIABILITIES 100 145 672

18.97 126

CURRENT LIABILITES 2007 (%) 2008(%)

2009 (%)


100100

100100100

88 113

97 115 266

2 372

13 128770


EQUITY

100 109 131

126 107

Non Current Assets

2007 (%)

2008(%)

2009 (%)


100 105 82

Long Term Investment 100 111 427


100 89 89

Long Term Deposits 100 522 526

Cont.

Assets Side


2008(%)

2009 (%)


100 63 90

Stock in trade 100 123 177

Trade Debts 100 136 189

Loans and advances 100 109 68


100 279 139

Other Receivables 100 222 144

Cont.


2008(%)

2009 (%)


100 49 100

Total Assets 100 109 131

2007 (%)

2008(%)

2009 (%)


100100

120 130

171 (193


100100

96 214

152 708


100100100100

10793

103 97

269217152149

Profit before Taxation 100 103 108

Profit & Loss A/C

2007 (%) 2008(%) 2009 (%)


100100

103 102

108 126

Profit for the year 100 103 105

Thank You Very Much

Analysis of Interloop

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