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ZAHID IQBALZULFIQAR ALI

SHAHID SATTARMUHAMMAD IMRAN

MUHAMMAD SHAHZADMBA III . FINANCE (Evening)

NUML

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GROUP MEMBERS

1. ZAHID IQBALROLL NO. 5514

2. ZULFIQAR ALIROLL NO. 5788

3. SHAHID SATTARROLL NO. 5839

4. MUHAMMAD IMRANROLL NO. 5828

5. MUHAMMAD SHAHZADROLL NO. 5826

MBA. III. FINANCE.(EVENING)

Introduction of organization:

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Kohinoor Sugar Mills Limited

Kohinoor Sugar Mills Limited is one of the first Sugar Factories

established in Pakistan since the country's independence. A Saigol

Family project, KSML is a public limited company, listed on the

Karachi and Lahore Stock Exchanges.

Location; Kohinoor Sugar Mills is located in Jauharabad, District

Khushab in the Punjab province. The plant has the capacity of crushing

over 5,000 Metric Tons of Cane per Day (TCD). The Factory produces

over 40,000 tons of sugar every year

Products; We manufacture white refined sugar of the following

specifications:

White Refined Sugar, Color: 60-80 ICUMSA; Grain: Medium; Packed

in single woven polypropylene bags of net wt. 50 Kgs each.

Website; www.ksugar.com

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Statement of Ethics and Business PracticeCode of ethics is a pre-requisite for all directors and

employees of Kohinoor Sugar Mills Limited. We

endeavor to have fully groomed employees

committed to carry out honestly activities assigned

to them. Our aim is to have high standard of

excellence for the products and for all those involved

with our Company

VISION STATEMENTTo become a market leader in the Industry setting

out high quality standards for the Company and

others to follow.

MISSION STATEMENT

To produce/manufacture quality sugar and molasses

by maintaining a high standard of efficiency and

staying competitive to ensure customer satisfaction

and to provide a comfortable level of return to all

stakeholders.

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Objective of analysis; We will analyze the financial statements of KSML from the perspective of three important groups

Investors Long term creditors Short term creditors

Data Collection; The basic information for our analysis is contained in set of 5-year annual reports of KSML.

Data Type; The data used for this analysis will be secondary data.

Analysis Method; The data will be analyzed by using following methods.

Ratio Analysis Common size analysis Index analysis

Data Presentation; The analysis will be presented in the form of graphs and brief illustrations will be given.

Results and discussion; Results of analysis will be discussed according to the objective concerned.

Recommendations; The recommendations will be given according to the ratio concerned and in the best favor of organization.

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Analysis by common stock holders

Common stock holders and potential investors in common stock look first at a company’s earning record. Their investment is in shares of stocks, so earning per share and dividends per share are of particular interest.

Earning per share of common stock;

Earning per share of common stock is computed by dividing the income applicable to the common stock by the weighted average no of shares of common stock outstanding during the year. Any of preferred dividend requirements must be subtracted from net income to determine income applicable to the common stock, as shown in the following computation for the KSML.

Years 2002 2003 2004 2005 2006EPS 4.82 -3.47 3.02 5.70 0.86

Here we see that EPS of KSML was good enough in 2002 but it went in negative figures in 2003 due to huge loss faced by the company. In 2004 the company improved its performance and EPS moved up to 3.02. In 2005 it was at its highest position during the last five years, but unfortunately it is again near zero in 2006.

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Price-Earning ratio; The relationship between marker price of common stock and earning per share is so widely recognized that it is expressed as a separate ratio, called price earning ratio. The p/e ratio is determined by dividing the market price per share by the annual earning per share.P/E ratio of KSML is given below.

YEAR 2002 2003 2004 2005 2006P/E ratio 5.71 -6.77 7.94 3.8 26.16

All the fluctuations found in p/e ratio of KSML during the last five years are mainly due to change in EPS, because the price per share of the company has not much changed it kept on moving between 23.5 and 25.In 2006 the p/e ratio of KSML has reached at peak due to decrease in EPS.

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Dividend Yield;

Dividends are of prime importance to some stock holders, but a secondary factor for others. Some stock holders invest primarily to receive regular cash income, while others invest in stock principally with the expectation of rising market prices. If a corporation is profitable and it retains its earnings for expansion of the business, the expanded operations should produce an increase in the net income of the company and thus tend to make each share of stock more valuable.In comparing the merits of alternative investment opportunities, we should relate earning and dividends per share to the market value of the stock.Dividend yield is calculated by dividing DPS by market price per share.Dividend yield of KSML over the last five years is given as.

Years 2002 2003 2004 2005 2006Dividend Yield 6.38% 0% 4.4% 6.25% 0%

The dividend yield in 2002 was high due to less divedend per share and relatively high earning per share. In 2003 and 2006 no dividend was paid due to loss and less earning per share so dividend yield was zero in both the years. In 2005 the dividend yield was at high level because of the highest earning per share and a sufficient market price of the share.

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Return on Assets; An important test of management’s ability to earn returns on funds supplied from all resources is the rate of return on assets.The income figure used in computing this ratio should be operating income, since interest expence and income taxes are determined by factors other than the efficient use of resources. Operating income is earned through out the year and therefore should be related to the average investment in assets during the year.The ROA of KSML over the last five years is given below.

Years 2002 2003 2004 2005 2006ROA 5.52% -0.374% 9.66% 5.88% 0.48%

Return on common Stockholder’s equity; The return on equity is simply net income divided by average stockholders’ equity. If a company has both the common stock and preferred stock we don’t include the preferred stock in the stock holders’ equity because they don’t participate in the company’s prosperity, rather the return on preferred stock is limited to their dividend. Thus we must adjust the return on equity to reflect the return on common stockholders’ equity. The return on common stockholder’s equity is equal to net income less any preferred dividends.The return on common stockholders’ equity of KSML is computed as follows.

YEAR 2002 2003 2004 2005 2006ROE 48.19% -34.47% 30.23% 57% 8.58%

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Here we see that ROE of KSML was good enough in 2002. Then it went into negative figures in 2003 due to losses faced by the company. In 2004 it started increasing and reached at the highest level in 2005. Again it was not at a satisfactory level in year 2006.

Debt Ratio; The debt ratio is on of the important indicator of amount of leverage used by the business. This ratio measures the proportion of the total assets financed by creditors, as distinguished from stockholders. It is computed by dividing total liabilities by total assets. A high debt ratio indicates an extensive use of leverage, that is, a large proportion financing provided by the creditors. A low debt ratio, on the other hand, indicates that the business is making little use of leverage.The debt ratio of KSML over the last five years is given below.

YEARS 2002 2003 2004 2005 2006Debt ratio 38.96% 46.39% 44.57% 40.79% 54.63%

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We see that debt ratio of KSML kept on moving between 39 to 54 percent over the last five years. This shows that KSML is making an extensive use of debt for financing purpose.

Analysis by long term creditorsThe bondholders and other long term creditors are primly interested in three factors (i) the rate of return on their investment, (ii) the firm’s ability to meet its interest requirements, (iii) the firm’s ability to pay the principal of debt when it falls due.Interest coverage ratio; The long term creditors feel that their investments are relatively safer if the company earns enough income to cover its annual intrest obligations by a wide margin.A common measure of creditors’ safety -is the ratio of operating income available for the payment of intrest to annual intrest expense, called intrest coverage ratio. This comutation for KSML would be as follows.

YEARS 2002 2003 2004 2005 2006Int.C.ratio 1.76 -.0124 0.65 0.456 1.67

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Here we see that intrest coverage ratio of KSML is not satisfactory. It attained its maximum value in 2002 when it went upto 1.76. In 2003 in went into negative figures. This shows that the long term creditors of KSML would not be satisfied with this ratio.

Debt Ratio; The long term creditors like stock holders are also intrested in the debt ratio of the company. This ratio measures the proportion of the total assets financed by creditors, as distinguished from stockholders. It is computed by dividing total liabilities by total assets. A high debt ratio indicates an extensive use of leverage, that is, a large proportion financing provided by the creditors. A low debt ratio, on the other hand, indicates that the business is making little use of leverage.From a creditor’s point of view the lower the debt ratio the better. The debt ratio of KSML over the last five years is given below.YEARS 2002 2003 2004 2005 2006Debt ratio 38.96% 46.39% 44.57% 40.79% 54.63%

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We see that debt ratio of KSML kept on moving between 39 to 54 percent over the last five years. This shows that KSML is making an extensive use of debt for financing purpose. This is also not a better sign for long term creditors.

Secured claims; Sometimes the claims of long term creditors are secured with specific collateral, such as the land and buildings owned by the borrower. In these situations, the secured creditors may look primarily to the value of collateral in assesing the safety of their claims.Assets pleged as collaterals to secure specific liabilities are disclosed in notes to the financial statements. As KSML makes no such disclosure, we may assume that none of its assets has been pleged as collateral to secure specific liabilities. Hense the claims of long term creditors are not secure.

Analysis by short term creditors

Bankers and other short term creditors share the intrest of stockholders and long term creditors in the profitability and long term stability of the business. Their primary intrest, however, is in the current position of the company that is its ability to generate sufficient funds (working capital) to meet current operating needs and to pay current debt promptly.Thus the analyis of financial statements by a banker cosidering a short term loan, or by a trade creditor investigating the credit status of a customer, is likely to center on the working capital position of the prospective debtor.

Amount of working capital; Working capital is the excess of current assets over current liabilities. It represents the cash and near cash assets that provide a “cushion” of liquidity over the amount expected to be needed in the near future to satisfy maturing obligations.

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The details of working capital of KSML over the last five years is shown below.

YEARS 2002 2003 2004 2005 2006Working capital

-44709636 -14831353 -65722452 17219191 -67126687

We see that working capital of KSML is very unsatisfactory over the last five years. It went into positive figures only once in the last five years otherwise it remained in negative figures, which is not a good sign for short term creditors.

Quality of working capital; In evaluating the debt paying ability of a business, short term creditors should consider the quality of working capital as well as the

total dollar amount. The principal factors affecting the quality of working capital are (i) the nature of the current assets and(ii) the length of time required to convert these assets into cash.

Days sales outstanding; The accouts receiveables turnover rate indicates how quickly a company converts its accounts receivebles into cash. This rate is determined by dividing net sales by the average balance of accounts receiveable. The number of days to collect accounts receiveable then may be determined by dividing by the number of days in a year (365) by the turnover rate.This computation for KSML over the last five years is given below.

YEARS 2002 2003 2004 2005 2006

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DSO 268days 214days 166days 225days 301days

The DSO of KSML is also not much satisfactory for the short term creditors that is KSML takes a longer period to convert its sales into cash and hence the short term creditors are also paid after a longer period.

Inventory turnover rate; The inventory turnover rate shows that how many times during the year the company is able to sell a quantity of goods equal to its average inventory. Mathematically this rate is determined by dividing the cost of goods sold for the year by the average amount of inventory on hand during the year. The number of days required to sell this amount of inventory may be determined by dividing 365 by inventory turnover rate.

YEARS 2002 2003 2004 2005 2006Inventory turnover rate

31.2days 47.34days 48.68days 33.81days 90days

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KSML has replaced its inventory more frequently (around 40 days) from year 2002 to 2005 which is satisfactory. But in 2006 its inventory turnover rate was not satisfactory. In 2006 it took on average 90 days to replace its inventory.

Operating cycle; The inventory turnover rate indicates how quickly inventory sells, but not how quickly this asset converts into cash. Short term creditors, of course, are intrested in company’s ability to generate cash.The period of time required for a merchandising company to convert its inventory into cash is called operating cycle.The operating cycle is computed by adding DSO and inventory turnover rate.KSML’s operating cycle over the last five years is given as;

YEARS 2002 2003 2004 2005 2006Operating cycle

299days 261days 215days 259days 391days

Operating cycle of KSML has shown almost similar pattern as DSO and inventory turnover rate over the last five years.

Current ratio; The current ratio expresses the relationship between the current assets and current liabilities. As debts come due, they must be paid out of current assets, therefore ,short term creditors, frequently compare the amount of current assets with the amount of current liabilities. The current ratio indicates a company’s

short run debt paying ability. It is a measure of liquidity and of solvency. A strong current ratio provides considerable assurance that a company will be able to meet

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its obligations coming due in the near future. The current ratio for KSML is computed as follows.

YEARS 2002 2003 2004 2005 2006Current ratio

0.80 0.93 0.77 1.08 0.85

A widely used rule of thumb is that this ratio should be 2 to 1, although significant difference exists across industries.The current ratio of KSML is not satisfactory , that is it does not have enough current assets to meet its current liabilities. This is not satisfactory for short term creditors.Only once in the last five years the current assets of KSML were equal to its current liabilities (in 2005) otherwise the current assets were always less than its current liabilites which is not a good sign.

Quick ratio;

Because inventories and prepaid expenses are further removed from conversion into cash than other current assets, the quick ratio is sometimes comprted as a supplement to the current ratio. The quick ratio compares the highly liquid current assets( cash, marketable securities, and receivables) with current liabilities.The quick ratio for KSML is computed as follows.

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YEARS 2002 2003 2004 2005 2006Quick ratio 0.26 0.36 0.34 0.55 0.37

Here again the analysis reveal an unfavourable trend and a weak position, because a quick ratio of 1 or above is considered satisfactory.

HORIZENTAL ANALYSISBalance Sheet

2002 2003 2004 2005 2006

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FIXED ASSETSOperating fixed assets 100% 102% 99% 95% 91%

Property plant and equipment 100% 87% 80% 85% 96%Capital work in progress 100% 72% 85% 76% 65%Long term deposits 100% 82% 70% 65% 105%

The graph and table above show the horizental analysis of fixed assets of KSML over the last five years.We see an overall decresing trend in fixed assets of KSML over the last five years.All of the fixed assets except long term deposits have decreased form 2002 to 2006.

2002 2003 2004 2005 2006

CURRENT ASSETSStores spare parts and loose tools 100% 85% 70% 87% 89%

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Stocks in trade 100% 72% 65% 60% 45%Trade debt loans and advances 100% 95% 80% 78% 79%Short term deposits and prepayments 100% 78.21% 98.23% 74.32% 74.23%Other receivables 100% 87% 85% 70% 85%Taxation 100% 89% 78% 45% 65%Cash and bank balances 100% 85% 95% 105% 124%

The graph and table above show the horizental analysis of current assets of KSML.Like fixed assets, the current assets have also shown a decreasing trend over the last five years, which is not a good sign.Only cash and bank balances of KSML have shown increase during the last five years.

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2002 2003 2004 2005 2006

CURRENT LIABILITIES 100% 115% 102% 99% 102%Trade and other payables 100% 110% 121% 132% 120%Accrued mark up 100% 102% 95% 102% 117%Short term borrowing secured 100% 102% 96% 95% 96%Current portion of long term liabilities 100% 101.02% 142% 132% 121%Provision for taxation 100% 95% 96% 124% 125%

The graph and table above show the horizental analysis of current liabilities of KSML.We see that current liabilities of KSML have shown an increasing trend over the last five years, which is not a good sign.

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2002 2003 2004 2005 2006

NON CURRENT LIABILITEDS 100% 98% 101% 99% 141%Long term finances secured 100% 95% 99% 102% 109%Liabilities against assets subject to finance 100% 111% 98% 97% 96%Other loan unsecured 100% 109% 89% 99% 113%

The table and graph above show the horizental analysis of non current liabilities of KSML. The non current liabilities of KSML have niether shown an increasing nor a decreasing trend over the last five years.

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2002 2003 2004 2005 2006

OWNER'S EQUITY 100% 95% 96% 105% 103%Share capital 100% 98% 112% 102% 98%Capital reserves 100% 99% 95% 109% 91%General reserve 100% 102% 103% 112% 103%Unappropriated profit 100% 113% 99% 99% 95%

The table and graph above show the horizental analysis of owner’s equity of KSML over the last five years. The owner’s equity of KSML has remained almost the same over the last five years.

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VERTICAL ANALYSIS(2002)

2002

Sales 100%Cost of sale 84.82%Gross Profit 15.00%

Operating ExpenseAdmisnistrative 4.11%Selling 0.33%Operating profit(loss) 11%Financial Charges 6%Other Income 1.00%Prior years adjustments 0.16%

Workers profit paricipation Fund 0.29%Profit (loss) before taxation 5.54%Taxation -0.50%Profit (Loss) after taxation 5.03%Balance brought forward -6.48%

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(2003)

2003

Sales 100%Cost of sale 86.00%Gross Profit 13.00%

Operating ExpenseAdmisnistrative 4.52%Selling 0.39%Operating profit(loss) 9%Financial Charges 6%Other Income 1.54%Prior years adjustments 1.65%

Workers profit paricipation Fund 0.42%Profit (loss) before taxation 4.12%Taxation 4.85%Profit (Loss) after taxation 4.14%Balance brought forward 5.45%

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(2004)

2004

Sales 100%Cost of sale 88%Gross Profit 12.00%

Operating ExpenseAdmisnistrative 4.50%Selling 0.33%Operating profit(loss) .0.7%Financial Charges 3.27%Other Income 0.21%Prior years adjustments -0.07%

Workers profit paricipation Fund 0.20%Profit (loss) before taxation 4%Taxation -0.50%Profit (Loss) after taxation 4%Balance brought forward -7.38%

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(2005)

2005

Sales 100%Cost of sale 84.13Gross Profit 15.86

Operating ExpenseAdmisnistrative 4.77%Selling 0.19%Operating profit(loss) 10.89%Financial Charges 2.44%Other Income 2%Prior years adjustments -----

Workers profit paricipation Fund 0.49%Profit (loss) before taxation 9.94%Taxation 3.62%Profit (Loss) after taxation 6.34%Balance brought forward 6.45%

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(2006)2006

Sales 100%Cost of sale 85%Gross Profit 15.06%

Operating ExpenseAdmisnistrative 5.40%Selling 0.20%Operating profit(loss) 9.47%Financial Charges 5.64%Other Income 0.51%Prior years adjustments -------

Workers profit paricipation Fund 0.19%Profit (loss) before taxation 4.04%Taxation 3.15%Profit (Loss) after taxation 0.89%Balance brought forward 0%

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(Balance Sheet)

2002 2003 2004 2005 2006

FIXED ASSETSOperating fixed assets 52% 48% 55.21% 57% 47^%Property plant and equipment 3.94% 3.17% 3.12% 4.12% 2.54%Capital work in progress 4.55% 6.26% 2.62% 0.10% 3.52%Long term deposits 0.25% 32.00% 0.48% 0.57%

CURRENT ASSETSStores spare parts and loose tools 4.98% 5.35% 6.38% 8.02% 7%Stock in trade 6.22% 8.55% 9.64% 5.88% 8.65%Trade debts longs and advances 0.00% 0.29% 4.71% 4.00% 3.94%Short term depoits and prepayments 3.55% 6.63% 3.31% 1.95% 4.25%Other recevables --------- 2.28% 3.17% 3.99% 4.27%Taxtion 1.92% 0.23% 0.11% 0.28% 0.23%Cash and bank balances 0.51% 0.49% 0.54% 0.51% 0.53%

CURRENT LIABILITIESTrade and other payables 25.32% 30.48% 25.32% 32.22% 27%Accrued mark up 1.32% 2.53% 1.59% 1.33% 2.12%Short term borrowing Secured 1.29% 1.39% 16.53% 14.99% 17.32%Current portion of long term liabilities 3.01% 3.85% 8.78% 5.55% 4.52%Provision for taxation 0.31% 0.35% 1.40% 0.91% 0.73%

CURRENT ASSETS LESS CURRENT LIABITES TOTAL ASSETS LESS CURRENT LIABITIESCONTINGENCIES AND COMMITMENTSNON CURRENT LIABILITEDSLong term finances secured 6.32% 8.48% 1.88% 2.32% 2.20I%Liabilities against assets subject to finance lease 1.62% 1.96% 1.74% 1.66% 1.91%Other loan unsecured 4.21% 3.12% 58% 5.21% 4.96%

DEFERED TAXATRION OTHER LIABILITIES 1.23% 1.29% 1.47% 1.21% 1.32%

NET ASSETSPEPRESENTED BYShare capital 7.98% 8.40% 9.56% 8.21% 7.56%Capital reserve -premium on right shares 2.97% 3.64% 4.40% 4.52% 3.97%General reserve 4.20% 5.49% 62.51% 5.03% 4.32%Unappropriated profit 5.21% 5.36% 3.19% 5.32% 4.14%

TOTAL CAPITAL AND RESERVES 11.21% 12.19% 16.77% 14.21% 15.45%

SURPLUS ON REVALUATION OF LAND 27.32% 29.60% 33.70% 35.21% 33.12%

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2002

00.10.20.30.40.50.6

FIXED ASSETS Short termborrowingSecured

General reserve

2002

2003

00.10.20.30.40.50.6

FIXED ASSETS Accrued mark up Share capital

2003

2004

00.20.40.60.8

FIXED ASSETS Accrued mark up Share capital

2004

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2005

00.10.20.30.40.50.6

FIXED ASSETS Accrued mark up Share capital

2005

2006

00.10.20.30.4

FIXED ASSETS Accrued mark up Share capital

2006

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