Ibf Report Final

8/9/2019 Ibf Report Final

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Financial Policies of Lucky KnitsPvt Ltd

Submitted To: Kamran Rabbani Ghansham

Kessani Daryl Anthony

Khier !oosvi

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Financial Policies of Lucky Knits Pvt Ltd 2

L"TT"R #F TRA$S!%TTAL

SIR !"R!# R!##!$I%rof& Introduction to #usiness 'inanceInstitute of #usiness "anagement

Respected Sir(

)e are submitting here the *erm %roject of I#' given to us on the topic

+'inancial management policies of ,ucky nits %vt ,td-& *he researchon this report has provided us extensive knowledge of our course

concepts as well as its implementation in practical world& )e believe

that the report will be in accordance with the guide lines provided for

its preparation&

*he following report has prepared us for the .nancial practicesoperated in industries and strategic implementation of almost all thetopics of our course which will help us to a greater extent in our futureprofessional careers& )e owe gratitude to the 'inance "anager of

,ucky nits( "r& Shiraz "ahmood for providing us with the informationand giving us precious time

)e are thankful to you for your assistance in making this report& If youhave any queries regarding the report we will be obliged to discuss itwith you at your request& )e will be grateful if you provide us withsuggestions to improve our study&

/ours sincerely(

0hansham essani1aryl !nthonyhizer "oosvi

%age 2


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Financial Policies of Lucky Knits Pvt Ltd 3

%$TR#D&'T%#$ (L&'K) K$%TS P*T LTD

%$D&STR) A$AL)S%S

'#!P"T%T%#$

'om+etitors: (

In textile market( there are a lot of competitors of lucky knits& #ut lucky knits

had a powerful brand image in market& It4s due to the /5$5S #R6*78RS

because it is a largest conglomerate in %akistan& 9ompetitors of ,ucky knits

are: ;

*he little nit kit 9ompany

%ure 7andknit

Rowan

#erreco

St


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Financial Policies of Lucky Knits Pvt Ltd >

/unus #rothers 0roup AB/#BC was founded in DE@2 as a commercial exporter

of cotton yarn to far;east countries under the dynamic leadership of late "r&

!bdul !ziz *abba

/# consists of nine companies with an annual turnover of over 5S1 ?==million with export sales accounting for over @?F of annual turnover

/# is a leading textile house and is engaged in diverse aspects of textile

manufacturing consisting of spinning( weaving( processing( .nishing and

stitching

#esides playing a leading role in textile( /# has diversi.ed its activities and

owns the largest cement manufacturing plant in the country with a

production capacity of G&H million tons per annum

/# received more than 2= export trophies from the 0overnment of %akistan(

including one for the highest overall exports and another for the highest

exports in the *extile sector

)&$&S -R#T."RS /)-0

/unus #rothers is the agship company and trading arm of the group which

was formed in DE@2 by 9hairman A,ateC 7aji !bdul !ziz *abba& Starting as asmall commercial 8xporter of /arn and 0rey 9loth to 'ar 8astern countries(the company developed rapidly and expanded its 8xports to 8urope and 5S!also& /unus #rother 0roup is recognized internationally in the world of *extiles and enjoying a strong reputation in respect of consistent quality(reliability and superb customer services& *he /# 0roup is engaged indiversi.ed manufacturing activities including *extile Spinning( )eaving(%rocessing( 'inishing( Stitching( *rading( 9ement "anufacturing and %ower0eneration& *he 0roup consists of the following industrial units:

D& ,ucky 9ement ,imited

2& 0adoon *extile "ills ,imited

3& 'azal *extile "ills ,imited

>& /unus *extile "ills ,imited

H& ,ucky *extile "ills

%age >


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Financial Policies of Lucky Knits Pvt Ltd H

@& ,ucky 8nergy A%rivateC ,imited

G& ,ucky nits A%rivateC ,imited

?& Royale ,inen $ew (3E2 installed spindles producing highquality compact yarn( murata jet spinning yarn( corespun yarn and D==F 0rey cotton ring spun yarn&

%age H


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7/17

Financial Policies of Lucky Knits Pvt Ltd G

• ! strategic global player with core businesses in textile and

commercial( industrial and residential real estate

• ! debt free corporation with aggressive investment projects in%akistan&

• ! socially responsible company( striving to serve our business partners(

communities and collaborators&

• ! service company( with manufacturing and technological capabilities

• 8stablished in /ear 2==D under the umbrella of /unus #rothers( theplant has grown over the last ten years to be one of the prominent

0arment exporting houses in %akistan&

• !re one of the few company which have a vertical infrastructure

starting from Spinning to .nishing

!%SS%#$ STAT"!"$T

Mission of Yunus Brothers: *o provide our customers with products and services of a higher quality andvalue( promptly catering to their needs with eLciency and honesty( makingthem our partners and allies& In turn( they will reward us with leadership insales( generation wealth and prosperity for our employees( associates(shareholders and the communities that we serve&

Vision of Yunus Brothers:

*o be leaders in our core business( *extiles and Real 8state( by providingadded value for the products and services we oMer and always exceeding ourcustomerNs expectation&

Mission of Lucky Knits Pvt Ltd

%age G


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Financial Policies of Lucky Knits Pvt Ltd D=

• 8xpansion in textile industry due to loans by bank and support ofumbrella companies

• !dvancements in technology&

• Interest loan from #ank !l;7abib at low cost may be an eMective toolfor competing in market

T.R"ATS:

• 0overnment Regulations on process cycle

• %rice 9ompetition; price of raw material

• !lliance 6pposition

• 8nvironmental factors of %akistan A energy crisis and political unrest C

• ,abor 5nion problems K lack of man power

• "odular production; in chain form

• 9ost threat in international market

'inancial "anagement %olicies

,orkin2 'a+ital !ana2ement

%age D=


11/17

Financial Policies of Lucky Knits Pvt Ltd DD

"or!ing capital

management involve

s the relationship

between a .rmNs short;

term assets and its

short;term liabilities&

*he goal of working

capital management is

to ensure that a .rm is

able to continue its operations and that it has suLcient ability to satisfy both

maturing short;term debt and upcoming operational expenses& *he

management of working capital involves managing inventories( accounts

receivable and payable( and cash& It consists of three main approaches which

are as following:

D& !ggressive approach: 5sing short term notes to .nance the working

capital2& 9onservative approach: 5sing long term loan to .nance the working

capital3& 7edging approach: 5sing short and long term .nance against the

working capital

)hen we interviewed the .nance manager asking him about the approaches(

he answered that since the company has a stable business and an

established umbrella company although not as large as huge brands or

renowned mills and industries( thus they use the aggressive approach which

tells that they risk more in order to generate more change either pro.t or

loss depending on the performance of the business&

*he main eye of the company is on exporting its products and incurring pro.t

with quality service& So that they make sure that they don4t have to face

losses as they previously had more risky investments which led to losses in

two consecutive years A2==EC& *hey now try to reduce risk elements& 'or

these reasons the .nancial manager and staM devote a considerable portion

of their time to working capital matters& *he management of cash(

marketable securities( accounts receivable( accruals( and means of short

term .nancing is the direct responsibility of the .nance manager( except

managing inventories& It .nances through equity( bank borrowing and

lending via various sources&

%age DD


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Financial Policies of Lucky Knits Pvt Ltd D2

*heir hedging approach consists of booking foreign exchange currency(

receipt invoices in foreign currency and investment in stock market& It is

discussed in detail in receivable management&

*he manger also told us that if working capital is not managed properly( itwill eMect directly on the company4s returns and share price& Similarly the

company has to safeguard its .xed assets as well which will be discussed

below&

'urrent3Fi1ed Assets

!ana2ement

!s truly said(

“Procedures should be such that

if expensive equipment is

removed, it will be missed within

a reasonable time, and some

record will exist as to who had

access during that period!

"aymond # Peterson, $ccounting for Fixed $ssets, %nd ed &'ew (ork) *ohn +iley and ons, %--%.

*he best practices help to seek out potential savings in company4s .xed

asset base and save time in the process& *hese are the guides of the

company:

P 8stablish an accurate baseline of .xed assets

P Select the right tool for the job

P Rely on accurate depreciation calculations

P Stay up;to;date with legislative changes

P %roduce targeted .nancial reports

P 0et trained on the system you employ

%age D2


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Financial Policies of Lucky Knits Pvt Ltd D3

*he manager also told us that they purchase high level of .xed assets& *he

trade cycle of the company is of D2= days i&e& 3 times a year& It wholly

includes the collection of yarn( spinning( dyeing( apparel work( making of

products A.nishingC and their sale& In short it consists of the activities

involved from production to exporting the yarn& *herefore the company

requires high level of .xed assets to yield greater output&

*he manager also told us that this leads them to .nance their loans from

banks Aif borrowedC and generates enough funds for other miscellaneous

expenses& 1epreciation is charged using the reducing balance method& *he

whole trade cycle also requires current assets( but investment is a little

greater in .xed assets comparatively& *his tells that the company has low

liquidity high pro.tability and high risk& *he purchase of .rms .xed assets

are determined by its scale of production& 1isposal of asset is recognized

when signi.cant risk and rewards incidental to ownership have been

transferred to buyers

*he permanent current assets are the minimum amount of current assets

required by the company to maintain its operations& *he major assets on the

banks balance sheet are long term loans( advances( stock in trade( secured

trade debts( cash and loans from associated companies&

'ash !ana2ement 3 %nventory !ana2ement

9ash management is not the core job of the company& *he company keeps

minimum cash balance and it also has marketable securities and

investments to replenish cash in times of urgency& ?=F of the purchase of

raw material is local so they maintain safety stock to keep the production in

ow throughout the year without hindrance of environment and prices& *hey

follow 'I'6 inventory system&

'#,*(3&4+T(#, $+,5(,67

)e asked the manager about consideration banking and the system used by

them& *he manager replied that they use ,ondon international bankingstandards& *he funds are transferred via e'unds transfer as the money is

eLciently transferred abroad and received here& *heir main business is

exporting outside %akistan& *hus they rely on #ank !l;7abib& #eing old

customers and project of established group( #ank !l;7abib has provided

them with certain rates according to I#6R Aarachi Interbank 6Mered RateC&

%age D3


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Financial Policies of Lucky Knits Pvt Ltd DH

)hen these securities are disposed oM or impaired( the related fair value

adjustments previously taken to equity are transferred to pro.t and loss

account&

Receivable !ana2ement

,ucky nits is an 8xporting company& *he credit policies for customer are GH

to D?= days& %olices for supplier are >H to GH days( collections made by bank

in time due to transaction in ,9s& *rade cycle is D2= days& *he receivables

are recognized at original invoices less an allowance for uncollectible

amounts& !n estimate is made when collection of full amount is no longer

probable& *he mode of transfer is through cheque and ,94s& !ll the payments

and receivables abroad are dollar based& *he main banking system used by

them is #ank !l;7abib& *he interesting point is that when the company

requires funds for its operations( it gets these bills discounted by #ank !l;

7abib& *he export invoices are discounted at =&2HF& *his is the way they use

hedging approach& *hey don4t take payments from the banks on the spot(

instead they negotiate with the bank at some rates let4s say they will take

the money of all the receipts not at the current prevailing rate but after 3

months at Rs D=? per dollar& #asically they hedge in order to insure

themselves against a negative event&

'redit risk:

*he company4s overall risk management focuses on the unpredictability of .nancial

markets& 9redit risk is the risk that one party will fail to discharge an obligation and

cause other party to incur .nancial losses& It arises when a number of .nancial

instruments or contracts are entered into with the same party( or when the counter

party is engaged in similar business activities& 9oncentration of credit risk indicates

that relative sensitivity of the company4s performance to development aMect a

particular industry&

#+eratin2 and Financial Levera2e: interest cost loans

*he main duties of the manger are:

• the allocation of 'unds J to manage treasury account

• eeping debt information about debtors

• "aintain liquidly J inventory position

%age DH


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Financial Policies of Lucky Knits Pvt Ltd DG

Revie5:

It has kicked oM the second quarter of the ongoing .scal with a strong

performance& *he top line touted growth of D> percent compared to thesame period of '/D2

,ucky knits needs to review its risk policies& It should concentrate on current

asset management as well

*he strongest investment of lucky knits is in the discounting of bills at dollar

rate and then hedging the foreign currency& !s #ank !l;7abib is their main

bank for carrying transactions( they are oMered loans at nominal interest

cost& *hey are bene.tted from certain Intercompany lending4s also U =F

interest charge

*hey have a stable receivable turnover which is 3 times a year& *his shows

that they have reliable and loyal customers& *hey have reduced stock out

chances by maintain suLcient amount of safety stock and standardized cost

accounting systems

#eing a part of already established name( it should concentrate on social

projects from its own side&

%age DG

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