IOBM

Report on Analysis of Mehran Sugar Mills

Financial Management

Sec: B

Submitted to:

Sir Sharique Ayubi

Submitted by:

Letter of transmittal

April 19, 2011

Sir Sharique Ayubi,

Financial Management,

Institute of Business Management,

Korangi Creek, Karachi

Dear Sir,

This letter is pertaining to the report that shows the comparative analysis of Mehran Sugar Mills of Pakistan of past 5 years. Now this report is complete, it can be viewed for assessment.

The report was written for the subject “Financial Management” in order to understand the basic concepts of finance in a more practical way. Sugar industries has suffered a lot during the period of 2007-08 and it shows that how company has performed during these years.

Thank you for the opportunity to prepare this report. We hope this report will fulfill your expectations from us regarding this course.

Sincerely,

TUBA IQBAL

2

Table of ContentsLetter of transmittal.....................................................................................................................................1

INTRODUCTION:......................................................................................................................................5

RATIO ANALYSIS:...................................................................................................................................6

Liquidity Ratios:.......................................................................................................................................6

Current Ratio:......................................................................................................................................6

Quick Ratio:.........................................................................................................................................6

Leverage Ratios:......................................................................................................................................6

Total debt to total asset:.....................................................................................................................6

Times interest earned:.........................................................................................................................7

Efficiency Ratios:......................................................................................................................................7

Inventory turnover Ratio:....................................................................................................................7

Day’s sales outstanding:......................................................................................................................7

Fixed assets turnover:..........................................................................................................................7

Total assets turnover:..........................................................................................................................8

Profitability Ratios:..................................................................................................................................8

Gross profit margin:.............................................................................................................................8

EBIT margin:.........................................................................................................................................8

EBT Margin:.........................................................................................................................................8

Profit margin:.......................................................................................................................................9

Return on assets:.................................................................................................................................9

Return on common equity:..................................................................................................................9

Equity Ratios:...........................................................................................................................................9

Price/Earnings Ratio:...........................................................................................................................9

Market/Book Ratio:.............................................................................................................................9

RATIO ANALYSIS EXPLANATION:....................................................................................................10

LIQUIDITY RATIOS:.................................................................................................................................10

LEVERAGE RATIOS:................................................................................................................................10

EFFICIENCY RATIOS:...............................................................................................................................10

PROFITABILITY RATIOS:..........................................................................................................................11

3

EQUITY RATIOS:.....................................................................................................................................11

VERTICAL ANALYSIS:..........................................................................................................................11

BALANCE SHEET:....................................................................................................................................11

INCOME STATEMENT:............................................................................................................................14

HORIZONTAL ANALYSIS:....................................................................................................................15

BALANCE SHEET:....................................................................................................................................15

INCOME STATEMENT:............................................................................................................................19

CASH FLOW ANALYSIS:......................................................................................................................20

Cash from Operating Activities:.............................................................................................................20

Cash from Investing Activities:...............................................................................................................20

Cash from Financing Activities:..............................................................................................................20

SWOT ANALYSIS:..................................................................................................................................21

STRENGTHS:...........................................................................................................................................21

WEAKNESSES.........................................................................................................................................21

OPPORTUNITIES.....................................................................................................................................21

THREATS................................................................................................................................................21

RECOMMENDATIONS:.........................................................................................................................22

APPENDICES

4

INTRODUCTION:In Pakistan the sugar industry is to a greater extent based on sugarcane production without a nominal percentage of sugar beet. Refined white sugar obtained from sugarcane is the largest chunk of sweetening industry in Pakistan. Pakistan is the fifth largest sugarcane producing country and the total production during the financial year 2007-08 was 64 million tons as compared to 55 million tons in the fiscal year 2006-07, an increase of 16.4 per cent. In the fiscal year 2008-09, sugarcane has been sown in the area of 1029 thousand hectares, 17.1 per cent lower than last year. The main reason for lower production was shortage of irrigation water, shifting of area to rice crop, less use of DAP and nonpayment of dues to farmers by sugar mill owners on time.

For the last several years sugar industry has been governed by both the provincial and federal government. At the federal level it is dealt by various ministries like Ministry of Food, Agriculture and Livestock, Ministry of Trade and Commerce, Ministry of Finance, etc. Due to the involvement of different federal ministries and provincial government sugar industry underwent into different crisis. The government policy towards sugar sub-sector had been always on adhoc basis. Both the federal and provincial government seemed to be treating it as a more of trade management problem- needing administrative solutions. The government raid stocks, seize them, throw the sugar in the market and claim consequently political mileage. The government failed to come up with any long term policy for the improvement of sugar industry. There was lack of coordination in policy and pursuits within the government and of the sugarcane cultivating provinces.

There was an agreement of leasing a land between government and sugar industries for 30 years and the period was completed in 2007 so to renew that agreement companies had to bribe the government which incurred great expenses to them.

Most of the mills in Pakistan are running at below 50 per cent of their capacity thus lifting cane from other mills to meet the requirements. This has incurred heavy revenue losses to the national exchequer. This is mainly due to the set up of de-zoning of the sugarcane growing area and the unplanned setup of large number of sugar mills. The present de-zoning emboldens farmers to sell their inferior quality sugarcane to any mill they like. This has also left the mills uncompetitive and has incurred heavy losses to them. Heavy taxes on white sugar production have restricted the mill sector to compete for available cane supplies and has led to the under utilization of the capacity.

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Overall profits increased on the whole, since being a sugar industry there was a shortage of sugar in the country and these sugar mills made huge amounts of profits by raising the prices twice or thrice as much as before. They did this by hoarding the sugar and sugar being the necessity, there was no effect on the demand of the sugar and people were ready to pay high prices for sugar.

RATIO ANALYSIS:

Liquidity Ratios:

Current Ratio:Current assets/Current liabilities

Quick Ratio:Current assets-inventories/current liabilities

Leverage Ratios:

Total debt to total asset:Total debt/total asset

2006

577656978807,459,329

71.5%

2007

645,222,794763,634,692

84.5%

2008

1,015,801,6051,191,589,394

85.2%

2009

784,763,5151,118,444,635

70.1%

2010

1,212,976,7901,735,391,149

69.8%

6

2006 2007 2008 2009 2010

290291883/326369486 206,741,433/320,046,306 588,822,899/712,400,129 430,048,325/482,161,173

707,367,775/751,721,999

0.89:1 0.64:1 0.83:1 0.89:1 0.94:1

2006 2007 2008 2009 2010

290291883-139,740,348 206,741,433-118,386,838 588,822,899-437,057,566 430,048,325-141,296,744 707,367,775-253,836,976

326369486 320,046,306 712,400,129 482,161,173 751,721,999

0.46:1 0.28:1 0.21:1 0.59:1 0.60:1

Times interest earned:EBIT/Interest charges

2006

145,862,295/46,939,313

3.1 times

2007

(46,820,718)/57,773,160

(0.81) times

2008

68,832,682/43,638,528

1.58 times

2009

271,404,223/65,333,093

4.15 times

2010

393,081,736/73,800,473

5.32 times

Efficiency Ratios:

Inventory turnover Ratio:Sales/Inventories

2006

1,960,592,238139,740,348

14.03 times35 days

2007

1,288,719,617118,386,838

10.88 times36 days

2008

1,284,440,469437,057,566

2.94 times87 days

2009

2,387,445,858141,296,744

16.9 times53 days

2010

3,841,344,807253,836,976

15.13 times21 days

Day’s sales outstanding:Receivables/(Annual sales/360)

2006

57,959,983+413,7131,960,592,238 / 360

10.7 days

2007

31,072,631+785,6491,288,719,617/ 360

9 days

2008

30511612 + 6545661284440469 / 360

8.7 days

2009

112,101,426+961,2432,387,445,858 / 360

17.05 days

2010

90,560,989+563,0773,841,344,807/ 360

8.5 days

Fixed assets turnover:Sales / Net fixed assets

2006

1,960,592,238

517,167,446

3.79 times

2007

1,288,719,617

556,893,259

2.31 times

2008

1,284,440,469

602,766,495

2.13 times

2009

2,387,445,858

688,396,310

3.5 times

2010

3,841,344,807

1,028,023,374

3.74 times

7

Total assets turnover:Sales / total assets

2006

1,960,592,238

807,459,329

2.43 times

2007

1,288,719,617

763,634,692

1.69 times

2008

1,284,440,469

1,191,589,394

1.1 times

2009

2,387,445,858

1,118,444,635

2.13 times

2010

3,841,344,807

1,735,391,149

2.2 times

Profitability Ratios:

Gross profit margin:Gross Profit/Sales

2006

188,494,7671,960,592,238

9.61%

2007

( 7,360,502)1,288,719,617

(0.57%)

2008

118,576,9121,284,440,469

9.23%

2009

393,067,6192,387,445,858

16.46%

2010

474,778,9193,841,344,807

12.36%

EBIT margin:EBIT/Sales

2006

145,862,2951,960,592,238

7.44%

2007

( 46,820,718)1,288,719,617

(3.63%)

2008

68,832,6821,284,440,469

5.36%

2009

271,404,2232,387,445,858

11.37%

2010

393,081,7363,841,344,807

10.23%

EBT Margin:EBT/Sales

2006

98,922,9821,960,592,238

5.04%

2007

( 110,356,878)1,288,719,617

(8.56%)

2008

60,564,5651,284,440,469

4.71%

2009

245,693,0012,387,445,858

10.29%

2010

321,129,4723,841,344,807

8.36%

8

Profit margin:Net income available to common stockholders/ Sales

200679,851,493

1,960,592,238

4.07%

2007( 86,781,078)

1,288,719,617

-6.73%

200857,375,891

1,284,440,469

4.47%

2009175,912,778

2,387,445,858

7.37%

2010241,986,265

3,841,344,807

6.3%

Return on assets:Net income available to common stockholders/ Total assets

2006

79,851,493807,459,329

9.9%

2007

(86,781,078)763,634,692

(11.36%)

2008

57,375,8911,191,589,394

4.8%

2009

175,912,7781,118,444,635

15.73%

2010

241,986,2651,735,391,149

13.9%

Return on common equity:Net income available to common stockholders/ Common equity

2006

79,851,493229,802,351

34.7%

2007

( 86,781,078)118,411,898

-73.3%

2008

57,375,891175,787,789

32.6%

2009

175,912,778333,681,120

52.7%

2010

241,986,265522,414,359

46.3%

Equity Ratios:

Price/Earnings Ratio:Price per share/Earnings per share

2006

24.7/8.11

3.04

2007

15/(8.82)

-1.7

2008

28.25/5.83

4.84

2009

60.02/12.31

4.87

2010

57.52/16.93

3.4

Market/Book Ratio:Market Price per share/book value per share

9

Book value per share: Common equity/Shares outstanding

2006

229,802,351/9843750

23.34

2007

118,411,898/9843750

12.03

2008

175,787,789/9843750

17.86

2009

333,681,120/11812500

28.25

2010

522,414,359/14293125

36.55

MV/BV

2006

24.7/23.34

1.06

2007

15/12.03

1.25

2008

28.25/17.86

1.58

2009

60.02/28.25

2.12

2010

57.52/36.55

1.57

RATIO ANALYSIS EXPLANATION:

LIQUIDITY RATIOS: More or less the current ratio of the mill remains same and they were approximately Rs.0.8 of assets to pay of its Rs. 1 of liabilities but in 2007, due to the low cane purchase which yields to the less sugar production makes the ratio less than that of other years. It is also because of no imported sugar during that year the amount of current assets gets down and it further decreases cash balances.In past 5 years, quick ratio of the company shows that in 2006, 2009 and 2010 Mehran Mills has more amounts of liquid assets than the stock in trade while in 2007 and 2008 the ratio depicts that more than half of the amount was stuck in inventory.

LEVERAGE RATIOS: According to the debt ratio, 70% of assets are funded by the creditors but in 2007 and 2008 share capital remains same as that of 2006 whereas total liabilities gets increased and prominently trade payables and deferred taxation share the big portion cohesively. This is why in 2007 and 2008 the company’s abilities to pay off its interest decline and otherwise its position gets better & they were able to pay their interest charges with available EBIT more easily.

EFFICIENCY RATIOS: Inventory is being sold out in 30-40 days but in 2008 due to the high level of stock in trade it got up to 87 days which is because of hoarding of sugar in that period, while they have improved their efficiency by selling out its inventory early. Receivables are being collected in 10 days, whereas the large amount of trade debt presents that it took comparatively more days in recovering it. They are able to utilize their plants and equipments 3.5 times in converting it sales but because of sugar crisis in 2007 and 2008 they showed under utilization. Company is converting its 2.5 times of total assets in sales which shows its less

10

utilization of current assets while in 2010, fixed assets got increased but it was not utilized to its full capacity.

PROFITABILITY RATIOS: The greater portion of sales is consumed in cost of goods sold i.e. from purchase of sugarcane to manufacture the sugar. Then operating expenses and interest expenses absorb app. 4% of gross profit, interests are high because the co. is 70% debt financed. In 2010, co. is able to get high profits and shows better performance due to achieve the milestone of sales of all times. Returns on assets and equity also got up in 2009 and 2010, while in 2007 co. faces loss which decreases it’s all other ratios.

EQUITY RATIOS:Due to the company’s efficient performance and its increased sales cohesively affect the market price of its shares and shareholders’ equity value increased. Unicol production also affects the company’s reputation and its market price got up.

VERTICAL ANALYSIS:

BALANCE SHEET:

ASSETS

N O N -CURRENT ASSETS

Property, plant and equipment

Long-term receivable

Long-term investment

Long-term deposits

CURRENT ASSETS

Biological assets

Stores and spare parts

Stock- in- trade

2006

48.83%

5.26%

9.91%

0.043%

-

3.01%

17.31%

2007

54.97%

5.57%

12.34%

0.046%

0.284%

3.35%

15.50%

2008

35.7%

3.57%

11.3%

.026%

.333%

3.38%

36.68%

2009

45.79%

-

15.57%

.178%

.782%

5.39%

12.63%

2010

48.86%

-

10.15%

.23%

.769%

3.28%

14.63%

11

Trade debts

Loans and advances

Trade deposits and short-term prepayments

Other receivables

Short-term investments

Income tax recoverable

Cash and bank balances

TOTAL ASSETS

EQUITY AND LIABILITIES

SHARE CAPITAL AND RESERVES

Issued, subscribed and paid-up capital

Reserves

N O N -CURRENT LIABILITIES

Subordinated loans

Long-term financing

Liabilities against assets subject to

finance lease

7.18%

1.86%

2.71%

0.051%

0.45%

0.092%

3.28%

100%

12.19%

16.27%

5.127%

6.12%

0.04%

4.07%

1.37%

1.39%

0.103%

0.48%

0.276%

0.289%

100%

12.89%

2.61%

5.58%

19.78%

0.148%

2.56%

2.28%

0.406%

0.055%

14.18%

2.156%

.139%

100%

8.26%

6.49%

2.35%

10.6%

0.106%

10.02%

3.728%

0.117%

0.085%

3.49%

2.076%

.1199%

100%

10.56%

19.27%

-

7.66%

0.44%

5.218%

4.87%

0.137%

0.032%

5.27%

-

6.55%

100%

8.24%

21.87%

-

11.74%

0.934%

12

Deferred liabilities

Deferred taxation

Provisions

CURRENT LIABILITIES

Trade and other payables

Mark-up accrued on loans and

other payables

Short-term borrowings

Current maturity of liabilities

against assets subject to finance

lease

Current portion of long-term

financing

Provision for market

committee fee

Income tax-net

Sales tax payable

TOTAL EQUITY AND LIABILITIES

7.53%

-

12.3%

7.79%

3.08%

21.61%

0.119%

3.83%

-

-

3.98%

100%

0.766%

2.92%

13.37%

16.18%

4.08%

11.40%

0.196%

6.36%

-

-

3.69%

100%

0.46%

1.94%

10.01%

37.74%

2.47%

14.05%

0.114%

1.154%

2.744%

-

1.51%

100%

0.435%

7.85%

10.66%

27.78%

0.917%

6.3%

0.097%

3.26%

2.92%

-

1.82%

100%

0.33%

6.7%

6.87%

34.95%

0.623%

1.73%

0.425%

2.3%

1.88%

0.854%

0.55%

100%

In assets major portion is covered by plants and equipments, inventory and in certain years (2008,09 and 10) with the short term investment. In 2008 company was holding investment in quoted securities which were available for sale that enhances co’s short term investment during the year. In 2009 and 2010 long term investment has also share the big chunk of assets and company goes through the

13

investing in the long run. During these years investment in Unicol unquoted company securities were increased which further lead to increment in long term investment.

In 2009 and 2010 although the company’s share capital gets high but due to the overall increment in liabilities and equity the proportion of it remains low as compare to that of 2006, 07 and 08. Whereas the reserves in 2007 and 2008 shows the lowest percentage of all times due to the loss faced in 2007. Long term financing in PICIC and My bank were increased during the year 2007 which lead to the enhancement of its proportion in liabilities and equity. Subordinated loans were not taken in 2009 and 2010. Deferred taxation was the part of 2007, 08, 09 and 2010 due to the accelerated tax depreciation and unabsorbed tax losses. Provisions also constitute large portion of liabilities which has quality premium to farmers and marketing committee fees. Trade payables during 2007, 08, 09 and 2010 got increased due to the increased amount in advances from customers and workers’ participation funds. In 2006, 2007 and 2008 short term borrowing from banks were at peak and hence constitute large portion of liabilities. Sales tax was also high during 2006 and 2007.

INCOME STATEMENT:

Net Sales

Cost of Sales

Gross (Loss)/Profit

Distribution costs

Administrative expenses

Other operating expenses

Other operating income

Share of loss from an associate

Finance costs

Profit (Loss) before taxation

Taxation

2006

100%

90.38%

9.614%

0.117%

2.043%

0.256%

(0.242%)

-

2.39%

5.045%

0.972%

2007

100%

100.57%

(0.57%)

0.15%

3.205%

0.23%

(0.53%)

0.45%

4.48%

(8.56%)

(1.829%)

2008

100%

90.77%

9.23%

1.064%

4.5%

0.526%

2.216%

2.754%

3.4%

4.715%

0.248%

2009

100%

83.54%

16.46%

0.225%

2.58%

3.23%

0.944%

1.66%

2.74%

10.29%

2.92%

2010

100%

87.64%

12.36%

0.14%

2.13%

0.869%

1.017%

0.048%

1.92%

8.36%

2.06%

14

Profit(Loss) after taxation

4.07% (0.067%) 4.47% 7.37% 6.3%

Cost of sales was high in 2006, 2007 and 2008 but it went down during 2009 and 2010. But the operating expenses in 2009 were slightly up due to increase in provisions for doubtful debts, deposits and long term receivables. While in 2008 administrative expenses were high because of increased salaries and wages. Operating income of 2008 stands out due to the gain on disposal of fixed assets high amount, high scrap sales and large exchange gain. Due to the loss faced in 2007 the large portion of net sales absorbed into finance cost during that year comparatively.

HORIZONTAL ANALYSIS:{(Current year value – Base year value)/ Base year value}*100

BALANCE SHEET:

ASSETS

N O N -CURRENT ASSET

Property, plant and equipment

Long-term receivable

Long-term investment

Long-term deposits

CURRENT ASSETS

Biological assets

Stores and spare parts

Stock- in- trade

2006 2007

6.46%

0

17.8%

0

-

5.26%

(15.28%)

2008

7.87%

0

68.26%

(10.84%)

-

65.94%

212.76%

2009

29.89%

-

117.79%

468.6%

-

148.15%

1.114%

2010

115.05%

-

120.1%

1039.4%

-

134.37%

81.65%

15

Trade debts

Loans and advances

Trade deposits and short-term prepayments

Other receivables

Short-term investments

Income tax recoverable

Cash and bank balances

TOTAL ASSETS

EQUITY AND LIABILITIES

SHARE CAPITAL AND RESERVES

Issued, subscribed and paid-up capital

Reserves

N O N CURRENT LIABILITIES

Subordinated loans

Long-term financing

Liabilities against assets

subject to

(46.39%)

(32.57%)

(41.56%)

89.9%

0

182.199%

(91.67%)

(5.43%)

0

(84.8%)

3.02%

205.5%

245%

(47.36%)

81.1%

(77.9%)

58.2%

362.5%

3341.2%

(93.75%)

47.57%

0

(41.12%)

(32.41%)

155.3%

285.6%

93.41%

177.59%

(94.01%)

132.34%

968.78%

3010%

(94.94%)

38.51%

20%

64.09%

-

73.33%

1404.14%

56.25%

462.37%

(89.13%)

36.1%

2403.58%

-

328.81

114.92%

45.2%

188.88%

-

312.02%

4862.1%

16

finance lease

Deferred liabilities

Deferred taxation

Provisions

CURRENT LIABILITIES

Trade and other payables

Mark-up accrued on

loans and other payables

Short-term borrowings

Current maturity of liabilities

against assets subject to

finance lease

Current portion of long-term

financing

Provision for market

committee fee

Income tax-net

Sales tax payable

TOTAL EQUITY AND LIABILITIES

(53.46%)

-

2.86%

96.35%

25.29%

(50.09%)

56.56%

57.07%

-

-

(12.43%)

(5.43%)

(90.98%)

-

20.14%

614.62%

18.28%

(4.035%)

41.35%

(55.51%)

-

-

(44.23%)

47.57%

(91.99%)

-

20.14%

393.77%

(58.72%)

(59.59%)

12.87%

17.88%

-

-

(36.59%)

38.51%

(90.56)

-

20.14%

863.72%

(56.53%)

(82.81%)

669.6%

29.43%

-

-

(70.52%)

114.92%

17

During the year 2009 and 2010 company invests in plants and equipments heavily as compare to that of 2006 which is done because of the increased demand. It is shown that company has invested in long term investment in Unicol co. during 2009 and 10. Long term deposits also increased manifold during these years. Loans taken from banks also got up many times in the years 2008, 2009 and 2010 in comparison with 2006. As it was described earlier that company has invested in short term investments during 2008, 2009 and heavily in 2010 that’s why it is increasing abnormally. While cash balances in 2010 show positive with respect to 2006 cash balance that means company was able to hold much amount of money in the liquid form after 4 years.

In 2009 and 2010 company issued some more shares which increased its share capital. Liabilities against assets subject to finance lease were also very high. Markup on accrued loans were less during 4 years which shows the good sign for company that they required to pay less amount as interests on loans. It also shows that company’s total equity and liabilities were increased in 2009 and 2010.

18

INCOME STATEMENT:

Net sales during 2007 and 2008 shows not the impressive performance of company as compare to that of 2006, while in 2009 and 2010 net sales depicts the impressive change and it goes up. Cost of sales also got down during 2009 and 2010 which shows company’s effective performance and they able to increase their gross profit margin and hence their profit margin. In 2009 operating expenses were

19

Net Sales

Cost of Sales

Gross (Loss)/Profit

Distribution costs

Administrative expenses

Other operating expenses

Other operating income

Share of loss from an associate

Finance costs

Profit (Loss) before taxation

Taxation

Profit(Loss) after taxation

2006 2007

(34.27%)

(26.86%)

(103.9%)

(16.02%)

3.127%

(40.01%)

43.10%

-

23.1%

(211.56%)

(223.62%)

(208.68%)

2008

(34.49%)

(34.21%)

(37.1%)

496.23%

44.28%

34.29%

499.91%

-

(7.03%)

(38.78%)

(83.28%)

(28.15%)

2009

21.77%

12.54%

108.53%

134.21%

53.76%

1435.99%

374.93%

-

39.19%

148.19%

265.89%

120.3%

2010

95.93%

89.98%

151.88%

137.5%

104.6%

563.74%

723.49%

-

57.22%

224.62%

314.98%

203.04%

abnormally high and it was due to provision of doubtful debts and receivables which increased its ratio in comparison with that of 2006.

CASH FLOW ANALYSIS:

Cash from Operating Activities:In 2006 generated cash from operating activities were very low as compare to that of other years because of no provision for additional tax on bagasse, no share of loss from an associate and less amount of finance cost. As the company expands its plants get increased and so the amount of its depreciation which is a non-cash item and it enhances the cash generated during 2007, 08, 09 and 10. In 2008, provision for quality premium, doubtful debts also increased which was added to the high amount of cash generated from operating activities. Working capital changes in 2007 also share the major chunk of cash. Finance costs and large working capital changes in 2009 and 2010 constitute large portion of cash from operating activities.

Cash from Investing Activities: Net cash generated from these activities was in negative which shows that company has received fewer amounts of proceeds from its assets as it has invested in them and deposits. Firm capital expenditure was also got increased due to the increased size of company capital. Its short-term investment in 2008, 2009 and 2010 also gets up which lead to the high amount of negative cash balance at the end of investing activities.

Cash from Financing Activities:In 2007 long term financing were obtained but short term borrowings and dividends were paid out with this amount so the net effect brings out less cash generation from financing activities during that year, whereas in 2006 short term borrowings were obtained which increased its net cash generated from this activity. In 2008 and 2009 negative cash balance remains at the end of financing activities because of the payments of long term financing and dividends, liabilities and subordinated loans. In 2010, long term financing was obtained which enhanced the cash generated from financing activities.

Overall, in 2006 and 2010 show the positive balance at the end of years while in 2007, 08 and 09 the net cash balance is in negative, this is because of negative amount of cash generated from investing and financing activities, due to the loss faced in 2007. It’s after effects remained till two years and company borrowed large amount of financing from banks and paid off its interests.

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SWOT ANALYSIS:

STRENGTHS:

-Most of population live in rural areas that’s why labor is cheap.

-Cultivatable land is available for the production.

-Large domestic market is available.

WEAKNESSES

We do not have proper recycling system which results in high water consumption.

⁻We do not tune-up boilers periodically that causes emission of gases.

⁻Low yield.

⁻Farmers are using old technology for production.

⁻Sucrose recovery rate is less than international standard

OPPORTUNITIES

-We can increase per yield production by using new technologies and fertilizers.

-We can shift towards beet production as it is more cheaper.

-We can earn foreign exchange by exporting surplus sugar.

-Rather than exporting raw material we can add value to it.

THREATS

-The production of sugar cane decreases the productivity of land.

-As sugar cane crop requires a lot of water, increase in production may create shortage of water for

other crops

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RECOMMENDATIONS:

They should control their finance cost and increase their EBIT to pay off its liabilities quickly.

Inventory turnover are impressive during 2010 and they should continue their practice.

Long term financing should be controlled so that they could hold lump sum amount of money at

the end of year in cash, which can improve liquidity position.

Operating expenses and administrative cost should be controlled.

Short term borrowings can also be minimized.

Liquidity position can be further maintained in the better way by holding cash more and liquid

assets in company’s account.

Water irrigation should be enhanced and it should be utilized properly in order to sown the crop

properly and hence got the great production of sugar.

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