Financial Statement AnalysisJDW Sugar Mills

Presented to: Mawal Sara

Muhammad Bilal

11U0420

Section E

BBA31

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Executive Summary

This project was to assess the financial situation of JDW Sugar Mill From the year 2010 to 2012.

JDW Sugar Mill is a Pakistan-based company engaged in the production and sale of crystalline

sugar. JDW Sugar Mills Limited (“the Company”) was incorporated in Pakistan on 31 May 1990

as a private limited company under the Companies Ordinance, 1984 and was subsequently

converted into a public limited Company on 24 August 1991. Shares of the Company are listed

on the Karachi and Lahore Stock Exchanges. Crushing capacity of this Unit is 20,500 TCD and

is located in District Rahim Yar Khan. The principal activity of the Company is production and

sale of crystalline sugar. In this project there has been assessment made as to how the company

has been performing over these 3 years. In certain tables that follow in the analysis below, the

liquidity, solvency and profitability of the company has been analyzed to a large extent. Balance

sheet and Income statements have been thoroughly referred and analyzed to check the

performance of JDW along with how well or how poor it is performing as industry averages have

been taken into account. This report also focuses on how it can improve its position among ther

competitors and giants in the market.

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JDW Sugar MillIncome Statement

  2012 2011 2010   Rs Rs Rs       Gross sales 24491645116 26467625682 21387670717 FED, Sales tax, SED & others (1741764905) (1738134475) (995462924)Net sales 22749880211 24729491207 20392207793 Cost of sales (20387894576) (20513820267) (16744461278)Gross profit 2361985635 4215670940 3647746515 Administrative expenses (462956222) (430482211) (344195411)Distribution and marketing expenses (22589638) (15135294) (11956057)Other operating expenses (119203961) (323690681) (212051150)Other operating income 126043597 66438897 47729198   (478706224) (702869289) (520473420)Operating profit 1883279411 3512801651 3127273095 Finance cost (1334998725) (1333093303) (1168439503)Share of loss of associated companies     (6957792)Profit before taxation 548280686 2179708348 1951875800 Taxation 138993868 (836522582) (711473399)Profit after taxation 687274554 1343185766 1240402401 Basic earnings per share 11.52 24.42 28.20 Diluted earnings per share 11.50 24.18 28.20

From Income statement we can see that the trend of sales is showing an increasing trend except for the year 2012 but again they regain their position, and cost of sales also decreased in 2012 but it did not increased as much as it was in 2011. Taxes were 3 times higher in 2010 but were least in 2012. Its Operating profit has been increasing but again for 2012 it decreased. Their profit for the year has been increasing to 2011 but fell again in 2012. Earning per share also goes down in 2012. So this shows that 2012 was bad year for JDW Sugar Mill. This could have been due to rise in CGS and along with it a rise in the operating costs. There Distribution and marketing expense rose drastically in 2012 consuming most of the chunk of the profit

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JDW Sugar MillBalance Sheet

  2012 2011 2010  (Rs) (Rs) (Rs)   

SHARE CAPITAL AND RESERVES     Share capital 597,766,610 592,766,610 489,889,770

Reserves 4,325,287,489 4,224,139,342 2,921,051,745  4,923,054,099 4,816,905,952 3,410,941,515

NON CURRENT LIABILITIES     Subordinated loan from Director - unsecured    

Long term loans - secured 3,119,611,115 4,068,000,001 2,571,888,890Liabilities against assets subject to finance

lease 414,748,686 540,516,474 528,665,198Deferred taxation   Deferred income    

Deferred liabilities 1,592,526,507 1,497,915,433 1,295,662,797  5,126,886,308 6,106,431,908 4,396,216,885

CURRENT LIABILITIES   Short term borrowings - secured 8,111,666,733 5,535,951,315 2,285,290,971

Current portion of non current liabilities 1,449,872,658 1,115,947,540 1,013,482,464Trade and other payables 2,526,560,365 1,008,356,364 665,390,967

Interest and mark-up accrued 442,600,039 201,904,179 136,129,479Provision for taxation   458,547,650 257,965,246

  12,530,699,795 8,320,707,048 4,358,259,127CONTINGENCIES AND

COMMITMENTS      22,580,640,202 19,244,044,908 12,165,417,527

NON CURRENT ASSETS      Property, plant and equipment      

Operating fixed assets 7,856,588,719 7,554,015,934 6,893,409,143Capital work in progress 369,984,770 114,788,255 46,062,570

  8,226,573,489 7,668,804,189 6,939,471,713Investment property 685,973,260 527,290,145 419,348,133

Investments 1,810,250,000 851,500,000 797,572,569Goodwill 608,310,693 608,310,693 608,310,693

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Long term deposits 105,637,735 105,769,396 84,408,648Advances to related parties 2,027,500,000 2,977,178,837

  5,237,671,688 5,070,049,071 1,909,640,043CURRENT ASSETS

Stores, spares and loose tools 590,954,610 540,910,519 391,144,991Stock in trade – finished goods 3,731,551,031 1,922,057,309 206,682,011

Advances, deposits, prepayments and  

other receivables 4,157,065,058 3,066,797,871 2,707,394,009Advance income tax  

Tax refunds from Government 256,136,742 Cash and bank balances 11,382,760 115,732,769 10,941,804

  9,116,395,025 6,505,191,648 3,316,305,771  22,580,640,202 19,244,044,908 12,165,417,527

Liability portion of JDW shows a decreasing trend from 2010 to 2012. The only rise or alarming value is of short term borrowing and trade payables. JDW might have a significant Account Payables in their accounts. Other than this the Liability section is stable and does not alter much.

Looking into the trend of non-current assets, we observe that there we can see that there has been an increase in trend and has almost doubled the amount then in 2012. And all of the components in the non-current assets have a shown an increasing Trend. This mean they have invested more in fixed assets and may have acquired plants or lands to increase or expand.

Current Assets have shown that it is increasing over time but it was low in 2010 compared to successive year. Due to this increase in current and Non Current assets the total assets has increased over time which shows that they will keep on increasing. The increase in the current assets can be explained by the components such as Advances, deposits, prepayments and other receivables, and Cash and bank balances.

Now coming to the Equity portion of balance sheet the Share capital increased from 2010 to 2011 but level off after that till 2012. Non current liabilities have been fluctuating and current liabilities are increasing over time. The current liabilities are increasing over time and they are very high than current assets. This is a reason why capital increases from 2010 to 2011 greatly.

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Cash Flow Statement

  2010 2011 2012CASH GENERATED FROM OPERATING ACTIVITIESCash generated from operations 4,320,005,217 1,898,558,883 2,902,025,103Finance cost paid -1,159,106,529 - -Workers’ profit participation fund paid -55,453,880 -124,078,869 -146,922,935Workers’ welfare fund paid -24,037,078 -4,410,145 -Income tax paid -97,147,553 -453,925,583 -566,260,360Staff retirement benefits paid -22,277,994 -20,251,941 -50,635,148

-1,358,023,034 -602,666,538 -763,818,443Net cash generated from / (used in) operations 2,961,982,183 1,295,892,345 2,138,206,660

CASH FLOW FROM INVESTING ACTIVITIESAdvances to related parties – -2,109,219,875 -

1,178,870,424Long term advances – – –Investments made during the year -410,000,000 -46,000,000 –Investment property -37,756,392 -108,553,632 -135,103,494Property, plant and equipment -185,510,557 -914,870,466 -

1,068,483,470Proceeds realized from sale of investment 150,000 2,000,000 30,000,000Advances to related parties for purchase of shares -1,141,391,628 -Proceeds realized from sale and lease transactions

– - -

Proceeds realized from sale of plant and equipment

9,287,993 2,646,000 55,030,930

Stores held for capital expenditure – - -Long term deposits -35,531,373 -21,360,748 131,661Net cash used in investing activities -659,360,329 -4,336,750,349 -

2,297,294,797

CASH FLOW FROM FINANCING ACTIVITIESLong term loans -504,222,221 2,300,000,000 119,500,000Proceeds from issuance of term finance certificates

– – –

Proceeds from isuance of shares under employes’ stock

– – 11,809,500

Short term borrowings -1,480,111,770 3,250,660,344 2,575,715,418Finance cost paid – -1,207,530,679 -957,208,293Long term loans repaid during the year – -803,888,889 -703,888,886Lease rentals -232,649,852 -426,882,902 -459,567,884

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Proceeds from issuance of right shares 92,909,300 377,215,090 -Dividend -174,183,028 -343,923,995 -531,621,727Net cash (used in) / generated from financing activities

-2,298,257,571 3,145,648,969 54,738,128

Net increase / (decrease) in cash and cash equivalents

4,364,283 104,790,965 -104,350,009

Cash and cash equivalents at the beginning of the year

6,577,521 10,941,804 115,732,769

Cash and cash equivalents at the end of the year 10,941,804 115,732,769 11,382,760

Cash Flow Statement shows that net cash generated from operations are increasing over time drastically, that’s because they have not paid finance cost for the last three years. The net cash generated from financing activities is negative. The cash flow is negative in investing activities as they tend to deposit long term and high investments. In financing activities the cash flow is negative due to short term borrowings which increased greatly. At the end of the year we can say that 2011 was a good year for the cash flow but both 2010 and 2012 were weak .

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Common-Size Income Statements  2012 2011 2010

Net sales 100.00% 100.00% 100.00%Cost of sales -80.12% -74.88% -82.11%Gross profit 19.88% 25.12% 17.89%

Administrative expenses -1.90% -2.35% -1.69%Distribution and marketing

expenses -1.22% -0.20% -0.06%Other operating expenses -0.99% -1.36% -1.04%Other operating income 0.64% 0.31% 0.23%

  -3.46% -3.60% -2.55%Operating profit 16.42% 21.53% 15.34%

Finance cost -9.09% -11.49% -5.73%Share of loss of associated

companies 0.00% 0.00% -0.03%Profit before taxation 7.32% 10.03% 9.57%

Taxation -1.64% -3.40% -3.49%Profit after taxation 5.69% 6.63% 6.08%

The cost of sales has remained a very high percentage of sales throughout these three years; the lowest

being in 2009. As a result gross profit has decreased over time. . Expenses were broken down into

distribution costs, administrative expenses and other operating expenses. Other operating income is

Fluctuating. Operating profit has decreased overtime and profit after Taxation has also decreased due to

increase in cost of sales. Another change is the fall in tax rates as we can see this from 2012 column. We

see a fall in operating profit and other than that distribution and marketing expenses also increased.

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Common-Size Balance Sheets

Common Size Balance Sheet  2012 2011 2010       

SHARE CAPITAL AND RESERVES      Share capital 2.65% 3.08% 4.03%

Reserves 19.15% 21.95% 24.01%  21.80% 25.03% 28.04%

NON CURRENT LIABILITIES 0.00% 0.00% 0.00%Subordinated loan from Director - unsecured 0.00% 0.00% 0.00%

Long term loans - secured 13.82% 21.14% 21.14%Liabilities against assets subject to finance

lease 1.84% 2.81% 4.35%Deferred taxation 0.00% 0.00% 0.00%Deferred income 0.00% 0.00% 0.00%

Deferred liabilities 7.05% 7.78% 10.65%  22.70% 31.73% 36.14%

CURRENT LIABILITIES 0.00% 0.00% 0.00%Short term borrowings - secured 35.92% 28.77% 18.79%

Current portion of non current liabilities 6.42% 5.80% 8.33%Trade and other payables 11.19% 5.24% 5.47%

Interest and mark-up accrued 1.96% 1.05% 1.12%Provision for taxation 0.00% 2.38% 2.12%

  55.49% 43.24% 35.82%CONTINGENCIES AND

COMMITMENTS        100.00% 100.00% 100.00%              

NON CURRENT ASSETS      Property, plant and equipment      

Operating fixed assets 34.79% 39.25% 56.66%Capital work in progress 1.64% 0.60% 0.38%

  36.43% 39.85% 57.04%Investment property 3.04% 2.74% 3.45%

Investments 8.02% 4.42% 6.56%Goodwill 2.69% 3.16% 5.00%

Long term deposits 0.47% 0.55% 0.69%Advances to related parties 8.98% 15.47% 0.00%

  23.20% 26.35% 15.70%

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CURRENT ASSETS      Stores, spares and loose tools 2.62% 2.81% 3.22%

Stock in trade – finished goods 16.53% 9.99% 1.70%Trade debts – unsecured, considered good 1.64% 4.47% 0.00%

Advances, deposits, prepayments and 0.00% 0.00% 0.00%other receivables 18.41% 15.94% 22.25%

Advance income tax 0.00% 0.00% 0.00%Tax refunds from Government 1.13% 0.00% 0.00%

Cash and bank balances 0.05% 0.60% 0.09%  40.37% 33.80% 27.26%  100.00% 100.00% 100.00%

In equity portion the shared capital was highest in 2010 in percentage terms but decreased after that and same is the case with reserves which were high in 2010 but decreased from 2010 to 2013. These two values make shareholders equity high in 2010. For this company long term Financing does matter that’s why they are high percentage each year. The company does not believe in long-term financing as it is not a high percentage of the non-current liabilities. The long term financing had fell in the course of the 3 years. The non-current liabilities had shown a decreasing trend and it could be primarily explained by the fall in the long term liabilities. Contrary to this, larger percentage was of current liabilities that shows an increasing trend and was highest in 2012. With the decrease in equity and increase in liabilities we can say that company is moving from equity financing to debt Financing. Towards the assets side, the non-current assets were of a higher percentage than the current assets. Advances, deposits, prepayments and other receivables was a major component of current assets in percentage terms, whereas property, plant and equipment formed a major percentage in non-current assets. Both current and non-current assets show a minor fluctuating trend throughout. The major point to be noted here is again the short term borrowing which drastically rose in 2012. Other than this it’s a stable situation over all in the balance sheet.

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Trend Index Analysis

2012 2011 2010      

Balance Sheet                  

Trade debts – unsecured, considered good 258334.61% 601369.08% 142956.00

Cash and bank balances 104.03% 1057.71% 10941804.00 Stock in trade – finished goods 1805.46% 929.96% 206682011.00

Total Current Assets 274.90% 196.16% 3316305771.00 Total Current Liabilities 287.52% 190.92% 4358259127.00

Property, plant and equipment 144.33% 141.22% 3410941515.00 Operating fixed assets 113.97% 109.58% 6893409143.00

Investments (non-current asset) 226.97% 106.76% 797572569.00 Long Term Liabilities 116.62% 138.90% 4396216885.00

Total Liabilities 201.70% 164.80% 8754476012.00 Total Equity 144.33% 141.22% 3,410,941,515

Working Capital 327.68% 174.24% (1041953356.00)            

Income Statement            

Net sales 111.56% 121.27% 20392207793.00 Cost of sales 121.76% 122.51% (16744461278.00)Gross profit 64.75% 115.57% 3647746515.00

Total Operating Expenses 106.43% 135.39% (568202618.00)EBIT 60.36% 112.58% 3120315303.00

Finance cost 114.25% 114.09% (1168439503.00)Profit after taxation(NI) 55.41% 108.29% 1240402401.00

Bank balances showed a huge increase in the year 2010 and it was highest in 2011. Accounts receivables shows a Drastic change in 2011 which is very high. Total current liabilities, total assets and other payables had increased. Working Capital has also increased over time but slows down in 2013. This is because current liabilities are increasing over time. As discussed earlier long term financing values are very high. Net Income has doubled from 2009 – 2010 and kept increasing till 2011.So the whole picture depicted by this table shows that the main contributors of a company’s growth are rising vividly with huge jumps which means that the company is growing. We also see a fall in operating expenses while on the other hand profit after taxation was also affected.

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Per Share Analysis

2012 per share 2011 per share 2010 per share

303.3317361 329.7265494 271.8961039

9.16366072 17.90914355 16.53869868

Book Value 65.64072132 64.22541269 45.4792202

Sales per share showed fluctuations; where they increased till 2011 and then fell in 2012. Net income has increased initially but starts decreasing after 2010. There were dividends that showed fluctuating results but they were very high in the 2012. Book value has been increasing till 2011 but fell down which may be the result of decrease in equity. Numbers of shares outstanding have been constant in last 2 years.

Liquidity Measures:

2012 2011 2010JDW

(Average)Industry Average

Working Capital-

3,414,304,770-

1,815,515,400-

1,041,953,356-

2,090,591,175-

26430837.95Current Ratio 0.73 0.78 0.76 0.757 8.65

(Cash+short term investment)/C.L 0.09% 1.39% 0.25% 0.58% 5.03(Cash+short term investment)/C.A 0.12% 1.78% 0.33% 0.74% 6.20

Acid Test 0.03 0.12 0.00 0.050 5.94Asset receivable turn over 37.02 57.52 75.25 56.598 469.87

Collection period 9.72 6.26 4.78 6.922 46.27Inventory turnover 7.21 19.27 81.02 35.834 113.66

Days sales in Inventory Turnover 49.91 18.68 4.44 24.346 56.18Days purchase in assets turnover 44.61 17.70 14.31 25.538 60.57

Coversion period 59.64 24.94 9.23 31.268 104.1Net trade cycle 6,322,315,158 5,381,102,515 2,639,973,000 4,781,130,224 -6.98

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Current ratio is less than 1 throughout those 3 years which means current assets are less than current liabilities. The overall current ratio for the company is less than the industry average which means that this company has less liquidity. This means it cannot convert its assets into cash very quickly which at times is problematic. Acid test ratio has been fluctuating but its average is less than industry average. It is also fluctuated near to industry average so implying that all the companies have same quick assets. Account receivable turnover has shown a fluctuating trend but overall it is less than the industry this shows that the company is not efficient in collecting back its receivables. The inventory turnover has also shown a fluctuating trend and it is also more than the industry average so this shows that the company is not using its stock efficiently as the inventory is turned up quickly. Days’ sales in receivables kept on declining after 2011 but its average is less than industry average showing that they are managing their receivables impressively throughout the year. Days’ sales in inventory have shown increasing trend after 2010 and its average is less than industry showing that it take the least number of days to turn inventory into sales. Approximate conversion period shows that it is increasing after 2010 and its average is less than Industry average so this proves that the company has good collection policies. The cash to current assets ratio also fluctuated, where the largest number of current assets was converted into cash in 2011.Cash to current liabilities ratio also showed fluctuations throughout, with the highest liabilities being converted into cash in 2011 again..Working capital was decreasing throughout except 2010, whereas very much lower than the industry average also implying that this company is not performing well. Days’ purchase in accounts payables were fluctuating around 7 It is also lesser than the industry average throughout the years which implying that this company is paying off their creditors more quickly than other companies in the industry. The trade cycle for the company has shown a fluctuating trend and it is also low comparing with the industry this company is performing well as the net trade cycle is low. Cash provided by operations to average current liabilities has also shown a fluctuating trend but it is lower than the industry average so it shows that company does not have sufficient money available to pay of its liabilities using its operations as compared to the industry.

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Common-Size Analysis of Current Assets and Current Liabilities

When it comes to the current assets of this company, there are two important components that are

noteworthy. Firstly, Advances, deposits, prepayments and other receivables constituted the largest part of

the current assets as compared to other components. They were largest in 2010. Secondly, the trade debts

were also a major contributor to current assets being lowest in 2010, meaning a good thing for the

company. So debtors were paying off quicker which could improve liquidity. However, both these

components are not depicting a single trend, rather a fluctuating one over the years. In current liabilities,

short term running finances were significant in all years showing decreasing trend, so this means that

liabilities were decreasing as they were being paid off.

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Common size of capital Structure

2012 2011 2010

SHARE CAPITAL AND RESERVES

Share capital 2.65% 3.08% 4.03%

Reserves 19.15% 21.95% 24.01%

21.80% 25.03% 28.04%

NON CURRENT LIABILITIES

Subordinated loan from Director - unsecured 0.00% 0.00% 0.00%

Long term loans - secured 13.82% 21.14% 21.14%

Liabilities against assets subject to finance lease 1.84% 2.81% 4.35%

Deferred taxation 0.00% 0.00% 0.00%

Deferred income 0.00% 0.00% 0.00%

Deferred liabilities 7.05% 7.78% 10.65%

22.70% 31.73% 36.14%

CURRENT LIABILITIES 0.00% 0.00% 0.00%

Short term borrowings - secured 35.92% 28.77% 18.79%

Current portion of noncurrent liabilities 6.42% 5.80% 8.33%

Trade and other payables 11.19% 5.24% 5.47%

Interest and mark-up accrued 1.96% 1.05% 1.12%

Provision for taxation 0.00% 2.38% 2.12%

55.49% 43.24% 35.82%

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Capital Structure and Solvency Ratios2010 2011 2012 Industry

Total debt to equity 2.57 3.06 3.59 28.95Total debt ratio 0.72 0.75 0.78 6.84long-term debt to Equity 1.29 1.28 1.04 3.72Equity to total debt 0.39 0.33 0.28 8.4Fixed assets to equity 0.56 1.07 1.06 27.7current liabilities to total liabilities 0.36 0.44 0.55 29.0

The debt to equity ratio has been decreasing throughout the period except it increased in year 2012.it has

always been above the industry average. The 3 year average is above the industry average meaning that

JDW sugar Mill prefers debt financing whereas other companies prefer equity financing. The total debt

ratio and the long-term debt to equity ratio also support this as the 3-year average for JDW is above that

of the industry whereas the equity to total debt is lower, meaning that JDW likes to finance through debt

as compared to equity. Fixed asset to equity is lower than industry average till 2012 meaning that fixed

assets are less than equity. Current liabilities to total liabilities ratio is lower the industry average. It is

also lower meaning that current liabilities are lower than total liabilities. Earning to fixed ratio increase

tremendously till 2011 and also the average is above the industry proving the fact that the company has

enough earnings to pay of its finance cost and other charges. Cash flow to fixed charges kept fluctuating

and was negative indicating that there was not enough cash generated to pay fixed charges such as

interest. Both earnings and cash flow to fixed charges are way above industry averages showing that our

company has sufficient earnings and cash to meet their fixed charges.

.

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ROI

2012 2011 2010 JDWAverage

Industry Average

RNOA 9.27% 18.49% 21.59% 16.45%445.39%

ROCE 13.96% 27.88% 36.37% 26.07%389.70%

Return on LT Debt 13.05% 19.44% 25.07% 19.19%705.33%

Equity Growth Rate 10.42% 25.14% 36.35% 23.97%540.18%

Disaggregation RNOA 7.11% 13.05% 19.68% 13.28%242.68%

This table clearly shows RNOA is falling in 2012 alone with ROCE. The return on common

equity was high in previous 2 years but fell in 2012 which is alarming for JDW. Equity growth

rate also slowed down in 2012. The company is growing unlike other companies in the industry.

The industry averages are high but JDW is also on the spot and will capitalize if it tends to

improve its its debts and equity. RNOA is a financial ratio that measures a company's

profitability and the efficiency with which its capital is employed. Return on Capital Employed

(ROCE) is calculated as: ROCE = Earnings Before Interest and Tax (EBIT) / Capital Employed.

Capital Employed as shown in the denominator is the sum of shareholders' equity and debt

liabilities; it can be simplified as (Total Assets – Current Liabilities). Instead of using capital

employed at an arbitrary point in time, analysts and investors often calculate ROCE based on

Average Capital Employed, which takes the average of opening and closing capital employed for

the time period. A higher ROCE indicates more efficient use of capital. ROCE should be higher

than the company’s capital cost; otherwise it indicates that the company is not employing its

capital effectively and is not generating shareholder value.

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Asset Utilization Ratios

2012 2011 2010Sales to Cash and equivalents 1998.6 213.7 1862.6Sales to Receivables 61.6 28.8 66.1Sales to inventories 6.1 12.9 98.6Sales to working Capital -6.7 -12.9 -19.6Sales to Fixed assets 2.8 3.2 2.9Sales to other assets 4.3 4.9 10.7Sales to total assets 1.0 1.3 1.7Sales to Short term liabilities 1.8 2.9 4.7

The sales to cash and equivalent showed a fluctuating trend throughout the period. This means

that the cash and equivalents were not translated into enough sales therefore it is higher than the

industry meaning that the company is better at converting sales in cash. The sales to receivables

ratio showed a fluctuating trend over years. JDW is successful at turning receivables into sales

compared to other companies. The sales to inventory ratio fluctuating throughout and it was

really high in 2010 showing that company sold a lot of inventory in that year also the average is

much is much higher. JDW is efficient in turning inventories into sales. The sale to working

capital ratio is lower for JDW throughout the 3 years except for year 2009 and 2011 meaning

that JDW is less efficient at financing additional sales. Sales to fixed assets ratio showed a

fluctuating trend but average meaning that fixed assets are being utilized efficiently to generate

sales. Sales to other assets were lower for this company in all years especially in 2009 meaning

that company was doing bad in case of using its other assets to generate sales. Both sales to total

assets and sales to short-term liabilities were increasing from 2009 to 2012 .This means total

assets are not been utilized properly to generate sales earnings and sales to short term implies

that our short term liabilities are converted into sales in a lower ratio than the industry.

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Analysis of Profit Margin Ratios

Profit Margins 2012 2011 2010Gross Profit Margin 10.38% 17.05% 17.84%Operating Profit Margin 8.28% 14.20% 15.34%Net Profit Margin 3.02% 5.43% 6.11%

Gross profit margin for JDW was showing a constant decreasing trend meaning that it was

lowest in recent year, either JDW sales were very low or cost of goods sold was high resulting in

lower gross profit. Lower gross profit compared to industry means that other companies had

higher sales or lower cost of goods sold compared to JDW. Operating profit margin is decreasing

in all years except it marginally increased in recent year but the operating profit margin is low.

Lastly the net profit margins are increasing but still are low than the industry average. The net

profit margins is also showing a decreasing trend but still the ratio is low. Our company is not

managing their finance costs and taxes better.

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Conclusion and Recommendation

Try to improve profitability

Capitalize more on sales

Reduce operating costs

Reduce distribution and marketing costs

Improve profit margins (GP and OP)

Improve receivables turnover

Try to reduce short term borrowing

Increase sales

Reduce CGS

Manage taxes better

Manage Finance Costs

Cash and equivalents were not translated into enough sales

Weak cash flow

Too much investment

Weak account payables

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