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

Table of Contents
Letter 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
Days 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
EQUITY RATIOS:....................................................................................................................................... 11
VERTICAL ANALYSIS: ........................................................................................................................... 11
3

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

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.
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
5

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
2006

2007

290291883/326369486 206,741,433/320,046,306

0.89:1

2008

2009

588,822,899/712,400,129 430,048,325/482,161,173

0.64:1

0.83:1

0.89:1

2010
707,367,775/751,721,999

0.94:1

Quick Ratio:
Current assets-inventories/current liabilities
2006

2007

290291883-139,740,348
326369486

206,741,433-118,386,838

320,046,306

0.46:1

0.28:1

2008
588,822,899-437,057,566
712,400,129

0.21:1

2009
430,048,325-141,296,744
482,161,173

0.59:1

2010
707,367,775-253,836,976
751,721,999

0.60:1

Leverage Ratios:
Total debt to total asset:
Total debt/total asset
2006

2007

2008

2009

2010

577656978
807,459,329

645,222,794
763,634,692

1,015,801,605
1,191,589,394

784,763,515
1,118,444,635

1,212,976,790
1,735,391,149

71.5%

84.5%

85.2%

70.1%

69.8%

Times interest earned:

EBIT/Interest charges
2006

2007

2008

2009

2010

145,862,295/46,939,313

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

68,832,682/43,638,528

271,404,223/65,333,093

393,081,736/73,800,473

3.1 times

(0.81) times

1.58 times

4.15 times

5.32 times

Efficiency Ratios:
Inventory turnover Ratio:
Sales/Inventories
2006

2007

2008

2009

2010

1,960,592,238
139,740,348

1,288,719,617
118,386,838

1,284,440,469
437,057,566

2,387,445,858
141,296,744

3,841,344,807
253,836,976

14.03 times
35 days

10.88 times
36 days

2.94 times
87 days

16.9 times
53 days

15.13 times
21 days

Days sales outstanding:

Receivables/(Annual sales/360)
2006

2007

2008

2009

2010

57,959,983+413,713
1,960,592,238 / 360

31,072,631+785,649
1,288,719,617/ 360

30511612 + 654566
1284440469 / 360

112,101,426+961,243
2,387,445,858 / 360

90,560,989+563,077
3,841,344,807/ 360

10.7 days

9 days

8.7 days

17.05 days

8.5 days

Fixed assets turnover:

Sales / Net fixed assets
2006

2007

2008

2009

2010

1,960,592,238

1,288,719,617

1,284,440,469

2,387,445,858

3,841,344,807

517,167,446

556,893,259

602,766,495

688,396,310

1,028,023,374

3.79 times

2.31 times

2.13 times

3.5 times

3.74 times

Total assets turnover:

Sales / total assets
2006

2007

2008

2009

2010

1,960,592,238

1,288,719,617

1,284,440,469

2,387,445,858

3,841,344,807

807,459,329

763,634,692

1,191,589,394

1,118,444,635

1,735,391,149

2.43 times

1.69 times

1.1 times

2.13 times

2.2 times

Profitability Ratios:
Gross profit margin:
Gross Profit/Sales
2006

2007

2008

2009

2010

188,494,767
1,960,592,238
9.61%

( 7,360,502)
1,288,719,617
(0.57%)

118,576,912
1,284,440,469
9.23%

393,067,619
2,387,445,858
16.46%

474,778,919
3,841,344,807
12.36%

EBIT margin:
EBIT/Sales
2006

2007

2008

2009

2010

145,862,295
1,960,592,238
7.44%

( 46,820,718)
1,288,719,617
(3.63%)

68,832,682
1,284,440,469
5.36%

271,404,223
2,387,445,858
11.37%

393,081,736
3,841,344,807
10.23%

2006

2007

2008

2009

2010

98,922,982
1,960,592,238
5.04%

( 110,356,878)
1,288,719,617
(8.56%)

60,564,565
1,284,440,469
4.71%

245,693,001
2,387,445,858
10.29%

321,129,472
3,841,344,807
8.36%

EBT Margin:
EBT/Sales

Profit margin:
Net income available to common stockholders/ Sales
2006

2007

2008

2009

2010

79,851,493

( 86,781,078)

57,375,891

175,912,778

241,986,265

1,960,592,238

1,288,719,617

1,284,440,469

2,387,445,858

3,841,344,807

4.07%

-6.73%

4.47%

7.37%

6.3%

Return on assets:
Net income available to common stockholders/ Total assets
2006

2007

2008

2009

2010

79,851,493
807,459,329

(86,781,078)

57,375,891
1,191,589,394
4.8%

175,912,778
1,118,444,635
15.73%

241,986,265
1,735,391,149
13.9%

9.9%

763,634,692
(11.36%)

Return on common equity:

Net income available to common stockholders/ Common equity
2006

2007

2008

2009

2010

79,851,493
229,802,351

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

57,375,891
175,787,789

175,912,778
333,681,120

241,986,265
522,414,359

34.7%

-73.3%

32.6%

52.7%

46.3%

Equity Ratios:
Price/Earnings Ratio:
Price per share/Earnings per share
2006

2007

2008

2009

2010

24.7/8.11

15/(8.82)

28.25/5.83

60.02/12.31

57.52/16.93

3.04

-1.7

4.84

4.87

3.4

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

Book value per share: Common equity/Shares outstanding

2006

2007

2008

2009

2010

229,802,351/9843750

118,411,898/9843750

175,787,789/9843750

333,681,120/11812500

522,414,359/14293125

23.34

12.03

17.86

28.25

36.55

MV/BV
2006

2007

2008

2009

2010

24.7/23.34

15/12.03

28.25/17.86

60.02/28.25

57.52/36.55

1.06

1.25

1.58

2.12

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 companys
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 its all other ratios.

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

VERTICAL ANALYSIS:
BALANCE SHEET:
2006

2007

2008

2009

2010

Property, plant
and equipment

48.83%

54.97%

35.7%

45.79%

48.86%

Long-term
receivable

5.26%

5.57%

3.57%

Long-term
investment

9.91%

12.34%

11.3%

15.57%

10.15%

Long-term
deposits

0.043%

0.046%

.026%

.178%

.23%

Biological assets

0.284%

.333%

.782%

.769%

Stores and spare

parts

3.01%

3.35%

3.38%

5.39%

3.28%

Stock- in- trade

17.31%

15.50%

36.68%

12.63%

14.63%

ASSETS
N O N -CURRENT
ASSETS

CURRENT ASSETS

11

Trade debts

7.18%

4.07%

2.56%

10.02%

5.218%

Loans and
advances

1.86%

1.37%

2.28%

3.728%

4.87%

Trade deposits
and short-term
prepayments

2.71%

1.39%

0.406%

0.117%

0.137%

Other receivables

0.051%

0.103%

0.055%

0.085%

0.032%

Short-term
investments

0.45%

0.48%

14.18%

3.49%

5.27%

Income tax
recoverable

0.092%

0.276%

2.156%

2.076%

Cash and bank

balances

3.28%

0.289%

.139%

.1199%

6.55%

TOTAL ASSETS

100%

100%

100%

100%

100%

Issued,
subscribed and
paid-up capital

12.19%

12.89%

8.26%

10.56%

8.24%

Reserves

16.27%

2.61%

6.49%

19.27%

21.87%

Subordinated
loans

5.127%

5.58%

2.35%

Long-term
financing

6.12%

19.78%

10.6%

7.66%

11.74%

Liabilities against
assets subject to
finance lease

0.04%

0.148%

0.106%

0.44%

0.934%

EQUITY AND
LIABILITIES
SHARE CAPITAL
AND RESERVES

N O N -CURRENT
LIABILITIES

12

Deferred
liabilities

7.53%

0.766%

0.46%

0.435%

0.33%

Deferred taxation

2.92%

1.94%

7.85%

6.7%

Provisions

12.3%

13.37%

10.01%

10.66%

6.87%

Trade and other

payables

7.79%

16.18%

37.74%

27.78%

34.95%

Mark-up accrued
on loans and
other payables

3.08%

4.08%

2.47%

0.917%

0.623%

Short-term
borrowings

21.61%

11.40%

14.05%

6.3%

1.73%

Current maturity
of liabilities
against assets
subject to finance
lease

0.119%

0.196%

0.114%

0.097%

0.425%

Current portion
of long-term
financing

3.83%

6.36%

1.154%

3.26%

2.3%

Provision for
market
committee fee

2.744%

2.92%

1.88%

Income tax-net

0.854%

Sales tax payable

3.98%

3.69%

1.51%

1.82%

0.55%

TOTAL EQUITY
AND LIABILITIES

100%

100%

100%

100%

100%

CURRENT
LIABILITIES

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 cos 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 companys 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:
2006

2007

2008

2009

2010

Net Sales

100%

100%

100%

100%

100%

Cost of Sales

90.38%

100.57%

90.77%

83.54%

87.64%

Gross
(Loss)/Profit

9.614%

(0.57%)

9.23%

16.46%

12.36%

Distribution costs

0.117%

0.15%

1.064%

0.225%

0.14%

Administrative
expenses

2.043%

3.205%

4.5%

2.58%

2.13%

Other operating
expenses

0.256%

0.23%

0.526%

3.23%

0.869%

Other operating
income

(0.242%)

(0.53%)

2.216%

0.944%

1.017%

Share of loss
from an associate

0.45%

2.754%

1.66%

0.048%

Finance costs

2.39%

4.48%

3.4%

2.74%

1.92%

Profit (Loss)
before taxation

5.045%

(8.56%)

4.715%

10.29%

8.36%

Taxation

0.972%

(1.829%)

0.248%

2.92%

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:
2006

2007

2008

2009

2010

6.46%

7.87%

29.89%

115.05%

Long-term
receivable

Long-term
investment

17.8%

68.26%

117.79%

120.1%

Long-term
deposits

(10.84%)

468.6%

1039.4%

Biological assets

Stores and spare

parts

5.26%

65.94%

148.15%

134.37%

Stock- in- trade

(15.28%)

212.76%

1.114%

81.65%

ASSETS
NONCURRENT ASSET
Property, plant
and equipment

CURRENT
ASSETS

15

Trade debts

(46.39%)

(47.36%)

93.41%

56.25%

Loans and
advances

(32.57%)

81.1%

177.59%

462.37%

Trade deposits
and short-term
prepayments

(41.56%)

(77.9%)

(94.01%)

(89.13%)

Other
receivables

89.9%

58.2%

132.34%

36.1%

Short-term
investments

362.5%

968.78%

2403.58%

Income tax
recoverable

182.199%

3341.2%

3010%

Cash and bank

balances

(91.67%)

(93.75%)

(94.94%)

328.81

TOTAL ASSETS

(5.43%)

47.57%

38.51%

114.92%

20%

45.2%

(84.8%)

(41.12%)

64.09%

188.88%

Subordinated
loans

3.02%

(32.41%)

Long-term
financing

205.5%

155.3%

73.33%

312.02%

245%

285.6%

1404.14%

4862.1%

EQUITY AND
LIABILITIES
SHARE CAPITAL
AND RESERVES
Issued,
subscribed and
paid-up capital
Reserves

N O N CURRENT
LIABILITIES

Liabilities
against assets
subject to

16

finance lease
Deferred
liabilities

(53.46%)

(90.98%)

(91.99%)

(90.56)

Deferred
taxation

Provisions

2.86%

20.14%

20.14%

20.14%

Trade and other

payables

96.35%

614.62%

393.77%

863.72%

Mark-up
accrued on
loans and other
payables

25.29%

18.28%

(58.72%)

(56.53%)

Short-term
borrowings

(50.09%)

(4.035%)

(59.59%)

(82.81%)

Current maturity
of liabilities
against assets
subject to
finance lease

56.56%

41.35%

12.87%

669.6%

Current portion
of long-term
financing

57.07%

(55.51%)

17.88%

29.43%

Provision for
market
committee fee

Income tax-net

Sales tax
payable

(12.43%)

(44.23%)

(36.59%)

(70.52%)

TOTAL EQUITY
AND LIABILITIES

(5.43%)

47.57%

38.51%

114.92%

CURRENT
LIABILITIES

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 thats 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 companys total equity and liabilities were increased in 2009 and 2010.

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INCOME STATEMENT:
2006

2007

2008

2009

2010

Net Sales

(34.27%)

(34.49%)

21.77%

95.93%

Cost of Sales

(26.86%)

(34.21%)

12.54%

89.98%

Gross
(Loss)/Profit

(103.9%)

(37.1%)

108.53%

151.88%

Distribution
costs

(16.02%)

496.23%

134.21%

137.5%

Administrative
expenses

3.127%

44.28%

53.76%

104.6%

Other
operating
expenses

(40.01%)

34.29%

1435.99%

563.74%

Other
operating
income

43.10%

499.91%

374.93%

723.49%

Share of loss
from an
associate

Finance costs

23.1%

(7.03%)

39.19%

57.22%

Profit (Loss)
before taxation

(211.56%)

(38.78%)

148.19%

224.62%

Taxation

(223.62%)

(83.28%)

265.89%

314.98%

Profit(Loss)
after taxation

(208.68%)

(28.15%)

120.3%

203.04%

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 companys effective performance and they able to
increase their gross profit margin and hence their profit margin. In 2009 operating expenses were
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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. Its after effects remained till two years and company
borrowed large amount of financing from banks and paid off its interests.

20

SWOT ANALYSIS:
STRENGTHS:
-Most of population live in rural areas thats 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 companys 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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