fel internship report by muhammad qasim

Fatima Enterprises Ltd

EXECUTIVE SUMMARYThe Fatima Enterprises Ltd (FEL) is one of the largest and well reputed organizations in Textile industry and is working under the supervision of Mian Sheikh Nishat Ahmad. Fatima Enterprises Ltd was nationalized but with the great effort of Sheikh Fazal Rehman it was repurchased form the Govt. and incorporated in 13 Nov, 1976, as a public limited company. FEL has taken ISO9001 as a first step towards total quality management and its implementation has been executed in all plants. Currently the spinning unit has been installed the capacity of 60,000 spindles. The Fatima Enterprises Ltd is producing three type of yarn; Cotton Yarn, PC Yarn and Woolen Yarn. The main departments of Fatima Enterprises Ltd are as follows. Purchase Department Accounts Department Finance Department Marketing Department Export Department Fatima Enterprises exports its products in the following countries; Bahrain, Dubai, Hong Kong, United States of America, Turkey, Spain, Korea, Italy, Bahrain and Singapore etc. They export the Cotton Yarn, PC Yarn and Woolen Yarn to the above mentioned countries. There future plan is to maintain a stable level of profit by increasing value to the customers and modernizing and equipments.

TEXTILE INDUSTRY IN PAKISTANOver the years, Pakistan is said to be the single crop economy i.e. cotton1


and textile that claims the lions share in terms of the contribution in the national economy of Pakistan. Despite efforts to bring in diversification in countrys overall economic get-up, the textile sector continues to be the most important segment of the national economy. Its share in the economy, in term of GDP, exports, employment, foreign exchange earnings, investment and revenue generation altogether placed the textile industry as the single largest determinant of the economic growth of the country.

2


TEXTILE EXPORTSPakistan has the potential to export textiles worth $24b per annum. The countrys total textile export is around three percent of the current textile trade estimated at $300 billion. However, industry experts predict that by 2014 textile manufacturing facilities in the West will be ceased totally, forcing them to outsource to efficient areas of the world. This will result in a textile trade volume that can rise up to $800 billion. If the current share of Pakistan is maintained in the larger pie, there is a potential of textile exports worth $24 billion per annum. In 2005 textile exports of Pakistan, he said that the total exports of textile increased from $6,442,879 in 2004-05 to $7,390,735 in 2005-06. He said during 2005-06 bed wear exports were up by 58%, readymade garments 31%, fabrics 16%, towels 12%, yarn 11%, and knitwear4%.

3


4


OPPORTUNITYAt the time of partition in Pakistan there were only 16 textile mills out of which only 12 are in operation. It grew to 70 in 1957 as industrial development takes place. Now a day, there are 596 textile mills out of which 442 are in operation. The textile industry in United States, a major business partner of Pakistan, is currently passing through a phase of economic recession due to various reasons. Although the US textile sector is pressing the government for an increased market accesses to Pakistan textile products yet the share of Pakistan textile and other textile producing countries would increase manifold in the days to come as the US is now getting out of the textile industry. Pakistan is looking forward to high market accesses for the countrys textiles as higher quotas would generate economic activity and creates jobs, which will reduce deprivation. Pakistan has a very competitive textile industry producing world class textile goods, which have an attractive market in the US, provided the quota facility is further enhanced. Pakistans textile exports, which mainly depend on the gray fabrics and yarn, can also fetch a higher per unit price through having an interface with the latest technology.

5


COMPANY HISTORYThe Fatima Enterprises Ltd (FEL) is one of the largest and well reputed organizations in Textile industry and is working under the supervision of Mian Sheikh Nishat Ahmad. Fatima Enterprises Ltd was nationalized but with the great effort of Sheikh Fazal Rehman it was repurchased form the Govt. and incorporated in 13 Nov, 1976, as a public limited company. FEL has taken ISO9001 as a first step towards total quality management and its implementation has been executed in all plants. Currently the spinning unit has been installed the capacity of 60,000 spindles. At initial stage, when the company was taken over, it was very small company, having authorized capital of 700000 shares @ Rs. 10 each in 1977 with issued capital of 50000 shares @ Rs 10 each. But now, it has gotten progress and reached at top level. At present, Fatima Enterprises Ltd. is well known enterprise, having authorized capital of 25000000 shares @ Rs 10 each and issued and subscribed capital of 14231052 shares @ Rs. 10 each. Weather it is a dream to be the best or commitment of company with textile sector Fatima did achieve its deserving status where it stood up as one of the major exporter of Pakistan. It got its place-paved ways for further developments with ever improving quality and never looked back. YES it did it!!!!!!! This way to progress is not so simple it was a step-by-step process of

6


Commitment Patience Dedication

7


LEGAL FORMATION & STRUCTUREFatima Enterprises Ltd. Is a public limited company and listed at Karachi stock exchange. The management of Fatima enterprises Ltd. is highly skilled, enthusiastic and very keen to keep the groups flag high in industry. Fatima Enterprises Ltd. has following list of persons in its board of director: Chairman & chief executive: Board of directors: Sh. Nishat ahmad Sh.zafar iqbal Mr.gulam yasine Mrs. Farhat nishat Mrs.sahira nishat Mr.ashar fazal Mr.imtiaz fazal

8


ORGANIZATIONAL CHART

Chairman

Directors

Chief Executive

Company Secretary

Import/Export Manager

Manager Finance

Sales Manager

Purchase Manager

9


ORGANIZATION UNITSFATIMA ENTERPRISES LIMITED

Fatima Textile Unit #2 Okara

Solvent Plant Extraction Plant 487-A Vehari Road Multan

Fatima Textile Unit #1 Muzaffar Garh

Gining Section &oil Mill BWP Road Multan

Ghee Unit#1 Nasir Abad BWP Road MUltan

Ginning Section & oil mill Industrial Area Raheem Yar Khan

Ginning Section &oil Mill Dera Budoo Bwp road Multan

Fatima Sugar Mill Muzafar Garh

10


VISIONTo remain Market leader in Textile and Ghee and emerge as a globally competitive centre of production and exports.

11


MISSION To be a dynamic, profitable and growth oriented company through market leadership, excellence in quality and service optimizing value for the shareholders and maximizing exports. To give attractive returns to business associates and shareholders as per their expectations. Be a responsible employer and reward employee according to their ability and performance. To be a good corporate citizen to fulfill its social responsibilities.

12


OBJECTIVES OF FATIMA ENTERPRISESFatima enterprises Conduct Business under following objectives: To carry on the business of general manufactures and to manufactures, buy, sell and deal in commodities, apparatus, machinery, materials and articles of all kinds. To carry on the business of textile mills, spinning, weaving, dyeing, bleaching, printing, mercerizing and to erect all kinds of other machinery as required in textile mills and buy and sell all raw materials as required and sell manufactured goods, cotton, cotton yarn and cloth etc. To purchase raw materials and machinery as when it is required by the company. To carry on business and install woolen mills, woolen yarn, woolen cloth etc, and purchase machinery, and spare parts as required by the company. To manufacture and carry on business in different vegetable oils, cotton seed oil, rape seed oil, line seed, olive caster seed and their products and by-products. To refine vegetable oil and to manufacture better substitutes and to carry on business of every description in this line. To grant pension, allowances, gratuities and bonuses and to make contribution to provident fund for the benefit of employees of company.

13


DEPARTMENTAL STRUCTUREChairman

Directors

Chief Executive

Import/Export Dept.

Marketing Dept.

Finance Dept.

Accounts Dept.

Purchase Dept.

IT Dept.

14


INTRODUCTIONThis department is run and controlled by the purchase manager. One purchase assistant and one helper are also performing their duties in this department. This department makes arrangements for the local purchases of machinery & other items i.e. spare parts which are used in the repair of machinery, electric goods, packing materials, oils and other general items including printing of stationary. The commercial or purchase manager is responsible for reporting directly to the purchase committee. The purchase incharge is responsible to work for this department but take very much care in checking purchase orders. Comparative statements and rejection are also prepared by the assistant. The duties of helpers include the collection of quotations and dispatch of goods. Generally purchase department is concerned with purchase of raw materials, machinery, chemicals, tin plates, tin, cotton, woolen, oils etc.

15


OBJECTIVES OF DEPARTMENTThe following are the objectives and functions of this department: To enter demands in demand register. To classify the out stations demands and local demands. To collect quotation inquiries. Dispatch the purchase orders. Enter goods when received in the challan book. Recording of approved rates of the goods in the relative register. Dispatch goods to the mill's staff with delivery challan. To meets requirements of the urgent demands. To sends checks to the selling parties approximately within 15 days. To keep records of all information about purchases and sale items in the concerned registers.

16


Purchase ProcedureDemand Quotations & Negotiation

Comparison & Finalization

Advance payment

Delivery of Goods

Bills

Mill

Credit Negotiation A/C Section

Cash

Cheques Dispatched

17


PURCHASE PROCEDUREWhen any demand is raised at the mills, it is signed by the purchase committee. Similarly head office demand is signed by the head of the department and these are sent to the purchase committee for approval. After approval, these are sent to the purchase office where these demands are classified in to local and out station demands. The outstations demands include out of Multan or out of Pakistan. The demands out of Pakistan are sent to the head office. Big items such as tin plates, chemicals are purchased by calling tenders and the lower tender is accepted. Other purchases like oil, cotton seeds and chemicals are purchased by collecting the rates from different brokers and other related agencies and then concerned item is purchased. When selling party is approved purchase order is sent to that party. When goods are received at factory, delivery challan book entry is made. Two copies are sent to the store incharge at mills. Most of the goods from local markets and out station are purchased on credit basis.

REJECTION OF PURCHASESAll the items purchased are sent to the perspective departments and are checked by the head of the departments e.g. chemicals, Oils being demanded by the production department. Then chief chemist checks those chemicals. If the item is up to standard then it is accepted by preparing the quality report and sent to the commercial department. Similarly all the cash purchases are subject to the approval of quality. If goods like chemicals are out of standard then rejection report is made by the checking department and sent to the purchase department.

18


CASH PURCHASESSome goods are purchased on cash basis for the mill needed. In this case bill is received after making the cash payments and bill is stamped as "CASH PAID". These purchases include office stationary equipments, and some time repairing items.

BOOKS & REGISTERS WORKINGSeparate ledgers are maintained for recording all sales and purchases items. Store spare parts. Electric goods. General goods. Packing materials. Individual party ledger. The following information is recorded in above registers: The date, name of items and department. Demand number. Date of purchase. Name of party. Quantity of items. Rates of purchase items. The separate pages are allocated for different items and parties.

19


INTRODUCTIONFatima enterprises has separate account department under the control of chief Accountant who is responsible for the financial affairs of the organization and to keep control on all inflows and outflows of cash and funds. Similarly he is responsible for tax affairs of the corporate affairs which are handed by the secretary of the company, Mr.Iqbal. His main assignment is to handle the shareholder and the Board of Director's meetings. He also prepares the Agenda and papers of the meeting after this he prepares the minutes of the meetings of the Board of Directors. Accounts Department. o Chief Accountant. o Accountant. o Assistant Accountant. o Computer Operator.

OBJECTIVES To provide a permanent a systematic record of the business transactions. The periodically results as to profit and loss should be ready and accurate. To keep the financial data up to date so that it can be ready to show the higher management whenever demanded. To provide the media between production and marketing. It is useful for the future planning. To enable the trader to compare the different items such as sales, purchase, opening stock and closing stock of one period with similar items of proceeding periods. It is useful for preparing arithmetical accuracy of the transaction. To provide most reliable information about business. To provide correctness of the assets and liabilities.

FUNCTIONS OF ACCOUNTS DEPARTMENTThe major functions of accounts department are as under:20


Maintaining the record of the account receivable. Record of payments by bank. Record of payments by cash. Maintaining the record of raw material purchased. Maintaining the record of sale of Yarn, waste etc Record of store purchases. Record of insurance. Record of the expenses i.e., manufacturing and marketing. Record of wages and salaries. Preparation of financial statements.

VOUCHERS*The major vouchers which are prepared in the Fatima Enterprises: Adjusted Journal Voucher. Cash Payment Voucher. Cash Receipt Voucher. Bank Payment Voucher.

* See Annexure # 1, 2, 3 and 4

21


BOOKSThe following are the Books, which are maintained by the Enterprise: Cash Book. General Ledger. General Journal. Local Customer Ledger. Bank Book. CASH BOOK In Cash Book all cash transaction are entered. This book has two sides: Payment Side. Receipt Side. BANK BOOK Most of the business is carried out through banks. So this book is maintained to record all the transaction occurred in the bank against the mill. It shows the inflows and outflows of the cash at the bank, in sub ledgers the posting is made daily. We can see the bank balance of any bank with which we have an account from the bank book at any time because separate sheets have been allocated for separate banks. GENERAL JOURNAL All kind of daily transactions occurred at the mill are recorded in this book and then transactions are transferred to their concerning ledgers against concerning accounts.

22


GENERAL LEDGER* Following are to be maintained in the general ledger: Allied Bank limited Hussain Agahi. Muslim Commercial Bank Hussain Agahi. National Bank of Pakistan Mumtazabad. Cash Receipt. Sonahri Bank Ltd. Predential Commercial Bank Ltd. Askari Commercial Bank Ltd. Platinum Bank Ltd. Yarn sale Waste sale Local sale parties Sales tax Export sale Yarn stock Cash payments Profit & Loss Account. From disposal of assets. Profit & Loss Account. From disposal of stores. Financial Charges.

* See Annexure # 5

23


INTRODUCTIONThis is the major department of the company. This is located in Fatima Enterprises Ltd head office Multan. It prepares different kinds of financial reports and gives information to management for decision making purpose. Finance department prepares the Income Statement, Balance Sheet, Trial Balance, Cash Flow, Production report for the whole month, stock taking report, yield comparison report etc. these all reports are useful for the management to make production plan, financing decision and other important matters. The head of this department is Finance Manager.

OBJECTIVESFollowing are the main objective of finance department: To prepare monthly and half yearly reports To keep the record of inventory and stock To maintain a liquid position To maintain adequate cash to run the operations of business To reconcile the bank statements To make payments to the suppliers To deal with sale tax and income tax departments Preparation of bank payment and bank receipt vouchers Prepare profit and loss accounts and Balance sheet Keep record for the payments of salaries

24


COMPONENTS OF FINANCE DEPARTMENTFinance department are consists on the following sections: Payable, Contraction Bank negotiation and reconciliation Store costing Excise Audit

PAYABLE, CONTRACTIONIn this section usually payable is paid to the supplier of all goods including stationary, maintenance goods, cement etc. Payable is made according to the contract and instruction of the CFO.

BANK NEGOTIATION AND RECONCILIATION *This section starts working when documents reach from bank to head office. Documents are recorded in documents receipt register and in bank register. A report is given to the CFO on daily basis about the customer and payment date. He makes decision either to grant discount to him or not.

STORE COSTINGGoods receipt note, the store costing section receives the related bills. They are checked against purchase order and Performa invoice in terms of quantity, specification, price etc. After this, a bank payment voucher is prepared and sent to this section, which issue the checks to the related parties and posts in the ledger.

* See Annexure # 6, 7EXCISE25


Excise section deals with the outgoing products for issuance of Gate pass. This working of excise section starts after sale, when loading program is received from export sale and local sale processing. According to this program Gate pass is prepared and issued to the go-down keeper. After issuing a Gate pass, its details are recorded in the register and then sale invoice is prepared in which actual value and sale tax value is mentioned.

26


INTRODUCTIONImport and export section has an important value for any type of business. This section helps to earn maximum for its owner. The company has the manager of export and import. The Import/export manager Dr. Nafees Iqbal is an asset of Fatima enterprises limited. He performs his duty in different manners than others. There is a one assistant working under the import/export manager. They perform all the activities of import and export with the help of top management.

EXPORT SECTIONExport means the exchange of goods or products from inside country to any foreign country with any currency equal to the value of product or goods. There is the demand of Fatima Enterprises finished products all over the world. They try to meet the demands of the world. They also try to compete with Quality and on time delivery in any environment according to its respondents. Fatima Enterprises exports its products in the following countries; Bahrain, Dubai, Hong Kong, United States of America, Turkey, Spain, Korea, Italy, Bahrain and Singapore etc. They export the Cotton Yarn, PC Yarn and Woolen Yarn to the above mentioned countries.

27


EXPORT FUNCTIONSThe following are the main functions, which an export department performs: To build good relationship with the buyers. Co-ordination with the buyers and the production department. Getting orders from the buyers and try to fulfill them in time. Improve the quality of the product with the interaction of buyer and the production department. Prepare and arrange the documents of export. Prepare the documents for the taxation and excise purpose.

OBJECTIVESFollowing are the objectives of export section:

To survive in the world market.

To earn foreign exchange for the development of the country. Increase the export to obtaining the optimum profit. Export for the growth of the company as well as the country. To avail the opportunities the foreign market.

28


EXPORT DOCUMENTS CONTAIN THE FOLLOWING THINGSExporting of any commodity in the foreign market was very complex and risky in the past. But now the export documentation provides the security from different risks. When the goods are exported, a number of documents are to be prepared.

Contract Bill of Exchange* Invoice* Packing list* Bill of lading Copy of L/C Form E Transportation documents*

BILL OF LADING *Bill of Lading is also the important document in export. Fatima Enterprises loads the products from Port of Karachi. This document also includes the shipper/exporter address, Consignee (to the order of bank), port of loading, also port of discharge or place of delivery, container #, detail of product, origin of country , purpose of export and gross weight etc.

* See Annexure # 8, 11, 12, 13 and 14

29


COPY OF L/C*L/C defined as in simple words

THE TRUST OF PERSON ON OTHER PERSONThe copy of Later of Credit is the most important in the document of Export. Letter of Credit is the guarantee for Exporter from Importer through bank. Importer opens the Letter of Credit in the bank and pays negotiable amount for this service provided by 1the bank. The Importer pays the negotiable amount to bank between 2% to 4%. He also gives the sum of money to Broker which is also negotiable. They deal with any party through band to bank. The importer opens the L/C by giving the terms and conditions which are suitable for him/her. Now the Exporter sends some amendments to Importer through bank. Amendment is the change from Exporter in the terms and conditions showed by the Importer. Some time the Importer accepts the terms and conditions according to the Exporter. In Fatima Enterprises all the work of Import and Export is properly done. They have the well established department separate from other sections.

TYPES OF LETTER OF CREDIT Confirmed or unconfirmed Fixed or Unfixed or Revolving Clean or Documentary Revocable or Irrevocable* See Annexure # 9

30


FORM E*:This form contains the following information; Place and date of the issuing of letter with the name of bank. It also contains the description of goods which are going to be exported. Fatima Enterprises exports the cotton yarn , so they writes the type of yarn as 16/1 carded, 100% cotton yarn or PC yarn with the ratio 60:40. Actual quantity, value of Goods in dealing currency and the contract No. is also the part of this form. Name and address of importer bank & Port of destination are also added in these types of documents. All the above mentioned forms are the same but these are for different departments. As the Quadruplicate form E is for the custom purposes.

TRANSPORTATION DOCUMENTSInternational trade involves the movement of goods from the warehouse of the exporter to the warehouse of the importer. There are several modes of transporting goods and the several types of documentation involved in the transportation process. These are as follows: Mode By sea By road By rail By air Carrier Shipping Co. Trucking Co. Railway service Airline Co. Transport document Bill of lading Road way bill Railway receipt/consignment Air way bill

* See Annexure # 10

31


IMPORT SECTIONThe basic definition of import is the exchange of required product or goods from foreign country by giving money in any currency equal to the value of goods. The import section of Fatima Enterprises is well established and work is being done in good manners according to rules and regulations. The manager of this department is responsible about his work. They import the following; chemicals, raw material (palm oil and other edible oils), Soya been seed, rape seed, cotton, Wool, Textile machinery and spare parts of textile machinery etc. They import the wool from Newzealand, palm oil from Indonesia & Malaysia and seed and tallow from all over the world as France and Australia etc. The Import documents include the following attached material: Later of credit form. Copy of contract. Insurance cover note. Terms and conditions Bill of entry

LATER OF CREDITLetter of credit is the guarantee of Bank which provides security to importer in the business with exporter. L/C opens the bank for the importer after the request of importer. But nowadays the situation is completely change because now the bank tries to compete with other banks so, they try to contact with the responsible persons of organization for the opening of L/C. The importer gives the negotiable amount to bank due to the reason of this facility provided by bank which is between 2% to 4%of total amount of money. The importer is responsible to pay the charges which occur in his country and the exporter pays the freight in and other charges which occur in his country after the time of agreement. The exporter also pays the negotiable amount to bank which has the contact with the importer bank. Bank opens the L/C in two terms:32


1) 2)

Hypothecation Pledge

HYPOTHECATIONHypothecation is the term in which the bank provides the facility to importer during the procedure of import. This is the trust of bank on importer. The importer pays the money to bank when the imports material comes at port of his country. On the other hand, if the importer party is new or having a small business or not well reputed then the bank receives the half amount of total value of L/C.

PLEDGEThis is also the term used by banker for importer at the time of opening L/C. In this term the bank takes the security for import purposes. Suppose the importer is unable to pay the money for his imports then the bank has the security of any building or any other thing for pledge purposes. The value of security is equal to or greater than the value of imports.

33


INTRODUCTIONMr. Iqbal secretary of the company, he is responsible for tax affairs of the company. His main assignment is to handle the shareholder and the Board of Director's meetings. He also prepares the Agenda and papers of the meeting after this he prepares the minutes of the meetings of the Board of Directors.

OBJECTIVES & FUNCTIONS To issue share certificate to share holders. To maintain share register. To maintain share deed register. To return share certificate. To inform the deputy commissioner of the companies in case of change in the directorship. To inform the deputy controller of the companies if the capital is to be raised. To maintain the register of directors. To maintain all the important documents of the company such as memorandum of association and article of association. To inform the shareholder of the company 21 days before the commencement of the annual general meetings. To inform the stock exchange before giving any notice of annual general meeting. To inform the corporate law authority about the change of directorship.

34


BOOKS & REGISTERS Share Register. Transfer Deed register. Register of change of directors. Minute Book.

SHARE REGISTERIn share register, all information such as value of share, date of shares and number of shares are kept.

TRANSFER DEED REGISTERA share holder has power of transfer of his share in the manner provided by the article because the shares are movable property. The article may prescribe the mode of transfer and it may place restriction on the transfer. The restriction should not be absolute. The transfer must be made in writing and in form of either prescribed by the article. The share certificate must also be handed over to the transferee. All information relating to the transfer of shares such as; when who transfer the share and who purchased these shares are recorded in this register. A ticket of value of Rs. 7.5/- is necessary for transfer of ever 500 shares.

REGISTER OF CHANGES IN DIRECTORSHIPIf there is any change in the directorship, it is recorded in this register of company. Company may remove any Director by extraordinary resolution whose period of office is liable to fault termination at any time by the retirement of Director in rotation before the expiration of his period of office and may appoint by ordinary resolution another Director.35


MINUTES BOOKIt is required that every company to cause Minute of all proceedings of general meeting and of its director in a book called Minutes Book. The chairman of the meeting must sign this book.

MEMORANDUM OF ASSOCIATIONIt is document which set out the constitution of the company and such as it is the foundation on which the structure of the company is based. It defines its relation with the outside world and scopes of its activities who transfers the shares and who purchases these shares are recorded in this register.

ARTICLE OF ASSOCIATIONThe article of association is the rules made by the company for the internal management of its staff and carrying out the objects of the company. In case of limited company by shares article signed by the subscribers to the memorandum must be registered.

36


FINANCIAL STATEMENTSFinancial statements are summaries of monetary data about an enterprise. The most common financial statements include the Balance sheet, provides the user with data about available resources as well as the claims to those resources. The Income Statement provides the user with data about the profitability of the enterprise detailing sources of revenue and the expenses which reduce profit. The Statement of Cash Flow shows the inflow and outflow of cash. The statement of Retained Earnings, reconciles the owners' equity section of successive balance sheets, showing what has happened to generated revenue. These statements are used by management, labor, investors, creditors and government regulatory agencies, primarily. Financial statements may be drawn up for private individuals, non-profit organizations, retailers, wholesalers, manufacturers and service industries. The nature of the enterprise involved dramatically affects the kind of data available in the financial statements. The purpose of the user dramatically affects the data he or she will seek.

USERS OF FINANCIAL STATEMENTSThe main user groups of financial statements include:

Investors / shareholders Employees Lenders Suppliers Customers Government Public

37


FINANCIAL ANALYSIS TOOLS/TECHNIQUESThe most common tools/techniques of financial analysis are, Ratio Analysis Common-Size Analysis Differences of components of financial statements among industries Review of descriptive material Comparison of results with other type of data

38


Ratio AnalysisThe financial ratios are calculated using standardized financial methods to determine company and industry performance. The main purpose of financial analysis is to provide reasonable dues and answer to specific question posted by problem of interest to the analyst. It is flexible approach tailored to the needs of specific situations. The work of financial analysis will become much more meaningful and efficient if the analyst acts its art of focus. His investigation desired refinement of the tools chosen may substantially add to the insight gained into the financial picture of the company. Financial analysis in this context keeps the analyst to appraise management performance corporate efficiency financial strength and weakness credit worthiness and other aspects of the company based upon its performance. When the company financial position and process of the business is being considered three factors are of vital importance of significance. Its solvency Its stability Its profitability To be solvent a business must be able to meet its liabilities as they fall due. Stability is judged by the companys ability to meet interest on its debts and ultimately to repay the principal amount owed. Companys ability to pay divided regularly to its shareholders profitability is measured by the company succession maintaining and increasing its own quality as indicated by the income statements.

39


Liquidity RatiosThe liquidity of firm is measured by its ability to satisfy its short-term obligation as they come due. Liquidity refers to the solvency of the firms overall financial position-the ease with which it can pay its bills. Because a company precursor to financial distress and bankruptcy is low or declining liquidity, these ration viewed as good leading indicators of cash flow problems.

40


Current RatioCurrent Ratio = Current assets / Current liabilities Years CR 2000 0.96 2001 0.95 2002 0.99 2003 0.89 2004 1.00

Current Ratio1 0.98 0.96 0.94 Current 0.92 Ratio 0.9 0.88 0.86 0.84 0.82

CR

2000

2001

2002 Years

2003

2004

Also called the Working Capital Ratio, it measures the extent to which current assets are available to meet current liabilities (due within the next 12 months). Your current ratio will be particularly important to you if you're thinking of borrowing money or getting credit from one of your suppliers. Potential creditors use this ratio to measure a company's liquidity or ability to pay off short-term debts. Though acceptable ratios may vary from industry to industry, a current ratio of 2.00:1 is considered the norm. The current ratios of the company are showing an irregular trend but gradually increased. In 2004 it is 1.00 but still below the standard. The overall current ratio of the company was satisfactory but the company has to improve it because technically it is not good and it shows that the company is not in a position to satisfy its short-term obligations.

Quick Ratio41


Quick ratio = Current Assets - (Inventory + Prepaid exp.) / Current Liabilities

Years QR

2000 0.23

2001 0.18

2002 0.27

2003 0.20

2004 0.19

Quick Ratio0.5 0.4 Quick Ratio 0.3 0.2 0.1 0 2000 2001 2002 Years 2003 2004 QR

The quick ratio, sometimes called the acid test ratio, is similar to the current ratio, but is considered a more reliable indicator of a company's ability to meet its shortterm financial obligations. Because inventory can sometimes be difficult to liquidate, this ratio deducts inventory from your assets before computing the ratio. Generally, a Quick Ratio of 1.0 or greater is considered adequate to ensure a company's ability to pay its current obligations. The quick ratio of the company is not satisfactory and below the average of 1.0 and showing an irregular trend. The highest value of quick ratio is 0.27:1 in 2002.

42


Net Working CapitalNWC = Current Assets - Current LiabilitiesRupees in thousand

Years NWC

2000 -31,598

2001 -66,844

2002 -10,062

2003 -157,684

2004 -2,216

Net Working Capital0 -50000000Capital Amount

-100000000 -150000000 -200000000 2000 2001 2002 2003 2004Years

NWC

Net working capital shows that how many assets remain after deduction of current liabilities. The negative net working capital shows that in short-term the company is not good and the company was not in a position to get short-term borrowing because it cannot repay them. The overall position of net working capital is not satisfactory. In all years the net working capital is negative that shows that Company is not able to meet its short-term obligations. The net working capital was gradually decreased from 2000 to 2002 but in 2003 it increase in high proportion as compared to the current assets due to short term financing.

43


Activity ratiosActivity ratio measure the speed with which various accounts are converted in to sales or cash. With regard to current accounts, measures of liquidity are generally inadequate because differences in the composition of a firms current assets and current liabilities can significantly affect its true liquidity. It is therefore important to look beyond measures of overall liquidity and to asses the activity (liquidity) of specific current account. A numbers of ratio are available to measuring the activity of the most important current accounts, which include inventory, accounts receivable, and accounts payable.

44


Average Collection PeriodDSO = Accounts Receivable / (Sales / 360 days)

Years ACP(Days)

2000 15.47

2001 19.30

2002 19.84

2003 15.12

2004 16.44

Average Collection Period20 15Days

10 5 0 2000 2001 2002 2003 2004Years

ACP

Measures the average number of days customers take to pay their bills, indicating the effectiveness of credit and collection policies of the business. The overall position in collection period of the company is good it is due to good management of collections but it could also be the signal of an overly tight credit policy limiting sales and profits.

Average Payment Period45


APP = Accounts Payable / (Purchases / 360) Years APP(Days) 2000 25.01 2001 24.58 2002 53.20 2003 36.95 2004 12.68

Average Payment Period60 50 40 30 20 10 0

Days

APP

2000 2001 2002 2003 2004Years

Measures the average number of days it takes to pay suppliers. The average payment period of the company is greater than the average collection period this is due to ineffective payment procedures or a poor cash position since last four years but in 2004 it is decreased to 13days. High average payment period as compared to collection period creates problem to the company for buying on credit.

46


Fixed Assets TurnoverFAT = (Sales / Net Fixed Assets) Years FAT(Times) 2000 4.94 2001 4.33 2002 5.63 2003 5.66 2004 4.74

Fixed Assets Turnover6 5 4 3 2 1 0

FAT

2000 2001 2002 2003 2004Years

Also called the Sales to Fixed Assets Ratio, it measures the number of sales dollars earned for each dollar of investment in fixed assets. This ratio is normally used with the Asset Utilization Ratio. The fixed assets turnover of the company meets the standard of the industry, it indicates the following: An efficient use of resources, favorable to making profits; an over-use of production capacity; or the reliance on older fixed assets those need to be replaced. The company increased its fixed assets gradually in 2000 to 2004 by 9, 11, 22 and 62% due to establishment of its new weaving unit.

Total Asset Turnover47


Total Asset Turnover = Sales / Total Assets Years TAT(Times) 2000 2.20 2001 1.61 2002 2.23 2003 1.98 2004 1.87

Total Assets Turnover2.5 2 1.5 1 0.5 0 2000 2001 2002 2003 2004Years

TAT

Measures the number of sales dollars earned for each dollar invested in assets. A low ratio compared to other businesses in the same industry can indicate an overinvestment. A higher ratio value than the industry standard can indicate an efficient use of resources favorable to making profits. The maximum value of total assets turnover in 2002 was 2.23 times of total assets. Overall the company shows an irregular trend in assets turnover but satisfactory position as compared to the industry.

Inventory TurnoverInventory Turnover = Cost of Goods / Total Inventory48


Years Inv. T(Times)

2000 5.91

2001 3.61

2002 6.43

2003 6.61

2004 5.65

Inventory Turnover7 6 5 4 3 2 1 0

Int. T

2000 2001 2002 2003 2004Years

Measures the number of times inventory has been turned over (sold and replaced) during the year. It is a good indicator of inventory quality and inventory management. A high turnover rate is an indication of good inventory management. A major variance from industry standards may indicate an inventory surplus resulting from a poor purchasing or marketing policy. Company inventory turnover ratio shows an irregular trend in 2000 and 2001 but in the third year it is gradually increased till 2003 and in 2004 it is again decreased.

49


Debt RatiosThe debt position of a firm indicates the amount of other peoples money being used to generate profits. In general, the financial analyst is most concern with long-term debt, because these commit the firm to a stream of payments over the long run. Because the creditors claims must be satisfied before the earning can be distributed to shareholder, present and prospective shareholders pay close attention to the firms ability to pay debts. Lenders are also concerned with about the firms indebtedness.

50


Debt RatioDebt Ratio = Total Liabilities / Total Assets*100

Years DR(%)

2000 84.9

2001 88.6

2002 83.5

2003 86.6

2004 85.1

Debt Ratio90 88 86 84 82 80 2000 2001 2002 2003 2004Years

DR

The debt ratio measures the proportion of total assets financed by the creditors. The debt ratio of the company is greater of the average i.e. 60%. But company ratio is almost 20% plus that is higher than the average which shows high leverage as a result company shows high variation in the profits. It is not good sign for company.

51


Debt to EquityDebt to Equity = Long Term Debt / Total Equity Years Debt to Equity 2000 1.88:1 2001 2.25:1 2002 1.57:1 2003 1.97:1 2004 1.79:1

Debt to Equity2.5 2 1.5 1 0.5 0 2000 2001 2002Years

2003

2004

This ratio indicates the amount of liabilities the business has for every dollar of shareholders' equity. Because this ratio is a good indicator of a business's capacity to repay its creditors, it is considered very important by most term lenders. Company debt to equity ratio is very high and company arranges more and more funds due to its newly weaving unit which is almost complete. The maximum debt to equity value is in 2001, which is 2.25:1 which shows company has Rs.2.25 of debt against its Rs.1 of equity but gradually decrease in 2002, 2003 and 2004.

52


Coverage ratioTimes Interest Earned = EBIT / Interest Years CR 2000 1.97 2001 1.19 2002 1.88 2003 2.01 2004 2.83

Coverage Ratio3 2.5 2 1.5 1 0.5 0

CR

2000 2001 2002 2003 2004Years

Also known as the Times Interest Earned Ratio, it measures the business' capacity to generate enough income to pay the interest on its loans. A lower value may indicate that the debt load is too high for profitability and that the business may not be able to meet all of its obligations. The coverage ratio of the company is not below the standard but company took steps to improve it. As a result it gradually increased from 2001. In 2001 it was 1.19 and at the end of 2004 it was 2.83.

53


Profitability RatiosThe profitability figures measure the ability of the business firm to earn a profit from its operations through assets, sales, and equity. These ratios enable the analyst to evaluate the firms profits with respect to a given level of sales, a certain level of assets, or the owners investment. Without profits, a firm could not attract outside capital. Owners, creditors, and management pay close attention to boosting profits because of the great importance placed on earning in the marketplace.

54


Gross Profit MarginGPM = (Sales - Cost of Goods Sold)/ Sales Years GPM (%) 2000 9.68 2001 8.14 2002 7.99 2003 5.65 2004 6.05

Gross Profit Margin10 8 6 4 2 0 2000 2001 2002 2003 2004Years

GPM

Your gross profit ratio tells you how much of each sales dollar you can expect to use to cover your operating expenses and profit. Gross profit margin ratio is gradually decreased due to increase of cost of goods sold. In cost of goods sold, the prices of raw material are increased and wages of direct labor is gradually increased. Overall the cost of goods sold in 2002 is increased by 28%, in 2003 it increased by 47% and in 2004 it increased by 61% as compared to the base year.

55


Operating Profit MarginOperating Profits = Operating Profits / Sales

Years OP (%)

2000 8.05

2001 6.52

2002 6.76

2003 4.36

2004 4.72

Operating Profits Margin10 8 6 4 2 0 2000 2001 2002 2003 2004Years

OP

Operating profit shows that what's left from your sales dollar after you've deducted your cost of goods sold and your ordinary operating costs. The operating profit of the company decreased gradually due to increase in operating expenses. In 2000 it was 8.05% of the sale and in 2004 it reached to 4.72% of the sale i.e. 58.6% decrease in the operating profit in last 5years.

Net Profit Margin56


NPM = Net Profits /Sales Years NPM (%) 2000 2.94 2001 (0.09) 2002 2.08 2003 0.11 2004 1.88

Net Profit Margin3 2.5 2 1.5 1 0.5 0 -0.5

NPM

2000 2001 2002 2003 2004Years

Also called the Return on Sales Ratio, it shows the after-tax profit (net income) generated by each sales dollar by measuring the percentage of sales revenue retained by the company after operating expenses, creditor interest expenses, and income taxes have been paid. It also shows decreasing trend due to high payment of interest expense because company approximately operates on 80% debt. In 2000 the ratio is 2.94% of the sale and in 2001 company showed loss due to 30% increase in interest expense as compared to the base year and in 2004 profit of the company reached to 1.88% of the sale.

57


Return on EquityROE = Net Profits / Stockholders Equity Years ROE (%) 2000 42.89 2001 (1.31) 2002 27.95 2003 1.62 2004 23.55

Return on Equity50 40 30 20 10 0 -10

ROE

2000 2001 2002 2003 2004Years

Measures the rate of return the shareholders receive on their investment in your business or Indicates the dollar amount of after-tax and after-interest profit generated for each $1 of equity. In 2000 it ratio is 42.89% but it is suddenly decreased to -1.31 because of the impact of 9/11. And in next year it again increased to 27.95% and in 2003 it again decreased to 1.62% due to amount of provision of taxes and again in 2004 it achieved the level of 23.55%.

58


Earnings per ShareEPS = Total Earnings / No. of shares outstanding Years EPS (Rs.) 2000 6.74 2001 (0.20) 2002 6.02 2003 0.35 2004 6.68

Earning per shere7 6 5 4 3 2 1 0 -1

EPS

2000 2001 2002 2003 2004Years

Measures the after-tax earnings generated for each share of common stock. Earnings per Share do not apply to prefer shareholders as they receive dividends before any dividends are made to common shareholders. The EPS in 2000 was Rs59


6.74 but in 2001 a drastic decrease occur and EPS reached to Rs -0.20 due to impact of 9/11 and high interest expense and in 2002 it again increased to Rs 6.02 but in 2003 again decreased to high proportion and reached to Rs 0.35 it is due to high provision of taxes but in 2004 company earned Rs 6.68.

Dividend Pay-out RatioD/P = Dividend per ordinary share (DPS)/ Earning per share * 100

Years D/P

2000 4.58

2001 0.00

2002 0.00

2003 0.00

2004 0.00

Dividend Payout Ratio5 4 3 2 1 0 2000 2001 2002 2003 2004Years

D/P

Measure the percentage of EPS that is given to the shareholders as a dividend. Company gave dividend only in 2000 which was 4.58% of the EPS of that year and company passed over the dividend since last four years and increased its retained earning due to its newly weaving unit which is almost complete.60


STRENGTHSThere are following strengths of Fatima Enterprises Fatima enterprises limited is the old company and has goodwill in the market. The installed capacity of the textile units is enough and they also extending its capacity by installing 8000 spindles in the textile unit II in Okara district. Approximately all the oil of Fatima enterprises is sold to army of Pakistan. Due to one customer they save a lot of expenses in respect of Marketing and Promotion. There is qualified and professional staff in all the departments. Environment is very friendly in the Fatima enterprises, which creates the sense of responsibility among the employees. Employees have the easy access to the Chief Executive in case of any problem. The Weaving unit of the company started its production at the end of August.

FEL has modem machinery to check the quality of yarn.

61


WEAKNESSES Machinery is very old in textile as well as in the ghee units. Due to this reason the efficiency of Fatima Enterprises in the production department is very poor. Employees of Fatima enterprises limited are not satisfied to their salaries. The salary package is not competent so, the employees seek towards the good offer in any other organization. Fatima enterprises limited has most of the units in the urban areas as one unit is situated on Vehari road, Mumtazabad Multan. So, there are no tax holidays or any concession in the tax. Even the manager has not free hand in the simple nature matter facing by the organization or the employee of organization. Production cost is very high due to the old machinery. So, the profit is very low due to high cost of goods. Centralization of authority is the major weakness; the Chief Executive of the company is all in all of the organization, even in the simple nature of matter the chief executive takes decision. There is no participation of employees in decision making for the betterment of the organization. The staff is very short than needed, especially in the Import and Export section. No proper human resource management.

62


OPPORTUNITIES

FEL can establish its own weaving department to capture local and foreign market as well.

They can boost up their exports and can increase their profitability, because they have the potential to do some thing. They can install the new units in the tax holiday areas and can earn maximum in production. Raw material is easily available in home country due to the export restrictions of government and due to good crop of cotton. They are financially sound companies in Pakistan, So, they can get the different advantages from the trust of banks in the matter of Import of the oil, tallow and chemicals etc. Due to the trust of banks on the Fatima group they can install the new units with the help of banks. The markup on loans of banks is very low, so they can avail this opportunities. Fatima Enterprises Ltd. is ISO-9001& 9002 certified company so it has a chance to increase its exports all over the world. There will be an increase in its market in year 2005 after launch of free trade by WTO.

63


THREATS High cost of production is also the threat of Fatima enterprises limited. Foreign investment in textile sector in Sri Lanka, Bangladesh and India is a danger in future for FEL. An increase in the Chinas textile products is a danger for FEL. Trading of quota as a commodity has been a great hurdle for exports. Due to shut down of electricity the production of Fatima enterprises limited is much disturbed. High competition in the international markets is also the threat for the Fatima enterprises.

64


After the completion of my internship and analyses (environmentally and financially) of Fatima enterprises limited, I am able to give the suggestions, these are not only benefited for management, the employees can also improve their efficiency and get incentives by performing their duties in good manners. These suggestions are as follows: There is centralization of authority. All the decisions are made by the Chief Executive and other Directors. Even the chief accountant of any unit can not take any decision on his behalf. The authority should be decentralized; the division of authority creates the responsibility and satisfaction. By the decentralization of authority, top management can save its important time. Because the delegation of authority creates the confidence among the employees, so they will perform their work efficiently. I would like to recommend that the management should develop some policies for the promotion of workers. As there is no policy for the promotion of workers so it is creating unrest among workers. The rate of turnover is very high due to low pay and no promotion policy. The management should make sound policies for the promotion of efficient worker. This will increase in productivity of workers and also the management can reduce the turnover among the experienced employees. The company should start training programs especially among the top management level as well as middle level managers. By this action the productivity as well as efficiency of employees will increase. The culture of the organization should be according to the well established organizations.

The Administration cost of Fatima Enterprises is very high, management emphasis on the high administrated cost.

Proper training and cooperation should be given to the new recruited employees. Due to this they can easily established in the organization65


according to the organizational culture. There is no any procedure for evaluating the work and efficiency of the employees and there are no extra benefits for the efficient workers. The top management should introduce the procedure for evaluating the performance of workers and should be given the reward to efficient workers. This action will increase the efficiency and productivity and not will increase the burden on the organization. There is lack of staff in the offices, so new employees should be recruited for the proper working and removing burden on other employees to achieve efficiency and better results. They do not export the product of ghee. The company should think about the export of ghee. Due to this reason or action they can improve the quality and can earn more profit by exporting.

66


CONCLUSTIONI got a lot of experience in Fatima Enterprises Ltd. During my internship I came to know that how the different activities take place, what are the procedures? The Fatima Enterprises Ltd. is on the way of progress. It has been earning profit for the last five years. The management is professionally qualified and experienced. The Fatima Enterprises Ltd. Should motivates their employees by providing different incentives. Their salary package at sight is also not attractive for lower operatives. There is no proper human resource department. Fatima Enterprises Ltd. Produce high quality yarn. The demand of its products is increasing with the passage of time. The company should expand its capacity as soon as possible to satisfy the demands of its customers. For this Fatima Enterprises Ltd. established a weaving unit that is starting its production by the end of August.

67