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Internship Report on

Virtual University of
Pakistan
Evaluation Sheet for Internship Report
Fall 2011
FINI619: Internship Report (Finance)
Credit Hours: 3

Name of Student:

Muhammad Jamshaid

Evaluation Criteria

Result

Written Work Status

Pass/Needs
Improvement

(Internship Report)
Students ID:

MC100202381

Presentation & Viva


Voce
Final Result

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Pass
Dear student,

You are declared PASS in your written work

In the Name of ALLAH, Most Compassionate, Ever Merciful

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Internship Report on

FACTORY NAME

Submitted to

: Instructor FINI-619

Submitted by

: Muhammad Jamshaid

VU ID

: MC100202381

Session

: Spring 2010

Subject

: FINI-619

Submitted Date : 13th January 2012

Virtual University of Pakistan

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Letter of Undertaking

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Internship Certificate

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Acknowledgement letter

It is a great honor for me to present this internship report as required for the completion of MBA
(Finance). I feel great pride and pleasure on the accomplishment of this report. All praises,
thanks and acknowledgements are for CREATOR: The ALMIGHTY ALLAH, who has
bestowed upon human being the crown of creation and has endowed them with knowledge and
wisdom,
I would like to express my gratitude towards the members of FACTORY NAME for their kind
co-operation and encouragement which helped me in completion of this project.
I would like to thank the Managing Partner Ch. Masood Iqbal and especially to Mr. Muhammad
Javed (Finance / Accounts Manager). The supervision and support that he gave truly helps the
progression and smoothness of the internship program. The co-operation is much indeed
appreciated. I am also very thankful to my supervisor Mr. Abubakar, Mr. Aadil Majeed and Mr.
M. Attique for help in my internship report.
I am also very great full to all staff of FACTORY NAME for their help, guidance and
encouragement on my report. In this report I have completed the ratio analysis of the
organization which strengthen and clear my concept about accounting ratios and its
implementation. It is very helpful for my future and gives me such confidence in myself. I am
very thankful to VU who assigns us such a great task to groom our abilities and to show our
potential and I also thanks all the staff of the organization who help me a lot to improve my
potential and abilities.

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Executive Summary
I have worked as an internee with FACTORY NAME for six weeks. The owner of this
company is Ch. Masood Iqbal. This company is composed of four managing partners having
great experience related to Rice field. The nature of business is Rice Manufacturing (Husking,
Polishing, Sorting and Grading), and Export of Rice. All the management functions are
performed by this companys management from planning to control. There are mainly five
departments working in this organization. The departments are Production, Export, Lab &
Procurement, Finance / Accounts, Administration and Human Resource Management.
I have worked as an internee in Finance / Accounts Department. In Finance / Accounts
department I assist the Finance officer and worked in his supervision however some of the work
is done independently.
At the end I would like to say that working with FACTORY NAME was a good learning
experience. I came to know that bookish knowledge is one side of the picture and practical
experience is another side of this picture. Both are essential for complete understanding of this
diverse business world.

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Table of contents

The Name of ALMIGHTY ALLAH

Title Page

Letter of Undertaking

Internship Certificate

Acknowledgement

Executive summary

Table of Contents

Introduction of company

Overview of Organization

9-10

Organizational chart

11

Departments of company

12-14

Plan of Internship

15

Training Program

15-19

Ratio Analysis

20-34

Future Prospectus of Organization

35

Conclusion

36

Recommendations for Improvement

37

References and Sources used.

38

Annexes

39-58

o Financial Statements of Iqbal Rice Mills (scan copies)

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Introduction
FACTORY NAME was started its business in 1978. Initially the company had started its one
Husking unit. The core product or specialty product that was processed is Super Rice. This is the
initial and core product of this company. As the specialty of this product is its Quality and
Length,
IQBAL Brand is the brand name of this company. Very soon this product captured many global
markets successfully, almost within two years.
The company deals in all major cities of Pakistan like Faisalabad, Lahore, Karachi, Islamabad
Hyderabad, Multan, and Gujranwala etc.
At present FACTORY NAME has capacity of processing 25 M.T rice per hour and its
warehouses can store 75000 M.T of rice. It has also got ISO 9001-2000 (HACCP) and ISO
2200 certification by Moody International Certification Limited U.K.
I.R.M management believes on self reliance in terms of finance as no long-term borrowings have
ever been obtained.
After gaining competitive edge in domestic market FACTORY NAME focused its eyes on
international markets in 1999.It took only 2 years to become the best Basmati Rice exporter of
Pakistan. Federal government of Pakistan acknowledged this by awarding Special Merit
Trophy by the federal government for the 4 consecutive years, 2003, 2004, 2005 and 2006.

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FACTORY NAME continued the same spirit and won the best businessman awards and gold
medals for years 2006, 2007, 2008 and 2010.
In 2010 export sales of FACTORY NAME were about 55 million US dollars. And it exported
its products to the countries: UAE, Iran, Saudi Arabia, Muscat, Qatar, and etc. Emirates
countries.

Overview of Organization
Brief History of the Organization
Company name:

M/S. FACTORY NAME.

Constitution:

Partnership firm.

Established in:

1978

Registered Office:

3 KM Faisalabad Road
Chiniot.
Phone # 047-6332734, 047-8869283
Fax # 0092-041-8585394

Nature of business:

1- Paddy Husking
2- Processing of Rice (Grading, Sorting and Polishing)
3- Export of Rice.

Management
1) Managing Partner.

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Academic Qualification
Masters in English from Punjab University Lahore
Experience
More than two decades experience in marketing the Rice products and managing of Rice
processing units and Human Resources Career Planning/ development of more than 300
employees.
2-, Partner
3-Hafiz Muhammad Ali, Partner
4-Muhammad Saleem, Partner

Administrative, Production Personnel & Qualifications


1. General Manager Production, (M.SC) 10 years experience
2. G.M Finance 10 years Finance experience

3. G.M Procurement and Lab 15 Years experience.


4. Export Manager (MBA) 8 Years experience.
5. HR & Admin Manager (MBA HRM) 10 years experience.
6. Accountant (ICMA)-8 years experience
7. Assistant Account Manager MBA- 4 years experience
8. Purchase Manager M.Sc 10 years experience
9. Skilled workers- 150
10. Semi skilled workers -55
11. Unskilled labor/drivers/guards -45

Competitors
The FACTORY NAME is offering different dimensions plots to its customers. The competitors
of society are:
MATCO (Pvt.) Ltd
Hassan Corporations.

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Pearl Rice Mills


They are the main competitors of the FACTORY NAME. The main competitor is the MATCO
(Pvt) Ltd. It has the latest technology and a huge setup with good share in market at Global level
as compare to FACTORY NAME.

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Functional Structure of I.R.M


Managing Director

Finance
Department

HR & Admin
Department

Export
Departmen
t

Finance
Manager

HR
Manager

Export
Manager

Accountant

HR Officer

Export
Officers

Finance /Account
Officer

Lab &
Procurement
Department

Marketing
Department

Production
Departmen

Manager Lab
&
Procurement

Manager
Marketing

Production

Manager

Assistant
Manger

Marketing
Officers

Boiler
Department

Electrical
Department

Mechanical
Department

Boiler
Engineer

Electrical
Engineer

Mechanical
Engineer

Operators

Assistant Electrical
Engineer

Operators

Clerical
Staff
Lab
Analysts

Store Manager

Purchase Manager

Store In charge

Purchase Officer

Electricians

Store Keeper

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Labor

Internship Report

The organizational structure of FACTORY NAME fulfills all the requirements of the
organization. Every department has the Head authority. No any department is comes under other
department so there is no any chance of misuse of authority by any person in the organization.

Functions of FACTORY NAME

Production department

Marketing department

Finance department

Human Resource and Administration department

Lab & Procurement department

Export Department

Production Department:
Production department is the backbone of Rice industry. This department has latest machinery,
advanced technology and efficient workforce. In this department, the rice is manufacture under
the experts of this department and than it is processed (process includes Polishing, sorting and
grading of Rice). After the processing it is packed and than moved to other departments for
dispatching the order to the customers.
Marketing department
Marketing is needed in almost all kinds of business to achieve its desired objectives and future
goals. A good marketer contributes a lot towards the success of any company. Therefore, this
department is also as much as important like any other department.
Marketing department of this company is also operated by experts and subordinates.
Activities of marketing department:

Test marketing through sample selection to loyal and satisfied customer

Order placement

New product offerings

Explore new customers by complete understanding of their requirements

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Finance department
Finance is being considered as a life blood of modern business and plays a key role in business
organizations because without finance, there is nothing to plan, organizes, direct, activate and
control.
Finance department of this company is controlled and managed by owner himself and his
subordinates.

Activities of finance department:

Financial planning

Procurement of raw material

Exploring new ways of acquiring capital

Develop plans for cost effectiveness

Negotiating with creditors and customers

Effective utilization of funds

Administration and Human Resource Department:


The duties and responsibilities of the administrative manager mainly depends on how big is the
establishment and the scope of work given to him/her by the management of the firm. In big
offices there is a different department for looking after the administrative works along and they
are not responsible for the accounts. If the office is a small one and managed by an owner,
naturally he will expect the Admin Manager to look after everything.
Everyone knows the importance of the administrative role. They are the glue that holds the
office together and keep the everyday functions running smoothly. This position is a key in
every organization. Functions of the HR department of this company are as follow:

General co-ordination of various things

Maintenance of offices and factory

Vehicle movement

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The Human Resources department of this organization has staff relationship with other
department / managers in the total organization. This department is responsible for advising
management from Managing Director to the lowest line supervisor on all area relating to the
personnel management and industrial relations. This department also performs various functions
of employment, training and development. It represents management in many of the relationships
that affect the organization as a whole. It is also responsible for representing various workers
problems to management. This department is controlled and managed by owner himself and it is
merged along with administration up till yet all the functions of HR are performed under the
guidance of one of the managing partner with the consultations of all the managing partners and
final decision is taken by owner himself regarding any Human Resource related issue.
Lab & Procurement Department
The duties and responsibilities of the Lab & Procurement department are to control the quality of
their products according to the customers demand and International Standards. This department
is responsible to analyze the raw material purchased that whether it is according to our demand
or not and also analyze all Rice finished goods which are dispatched out for sale in local Market
or Export to other country keeping in mind the customers requirements and International
Standards.
Export Department
The function of this department in FACTORY NAME to get orders from abroad, making
contracts, Order completion one per sample and Delivery of goods with preparation of all the
documentation related to export by adopting all the international standards. Other function of this
department is to increase export of their products for obtaining the best reputation in foreign
market.

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PLAN OF INTERSHIP PROGRAM


Branch Name
I have completed my internship In FACTORY NAME (Office: 3-KM Faisalabad Road,
Chiniot.)
Date of Internship
I started my internship from 15th November 2011which completed on 31st December 2011.

DETARTMENT AND DURATION


I have completed my internship in the Finance / Accounts department and perform some of the

tasks of accounts as given below,

Updating of Manual books of Accounts, preparing all kinds of voucher manually & in Oracle

Base Software (Cash Vouchers, Journal Vouchers & Bank Vouchers)

Checking contractor bills, Pay roll procedure.

Sale & Purchased recording in ERP System.

Prepared Documents related to Finance.

Calculation of Markup on advances,

Keeping the record of advances

Keeping the record of pledge given as security against advances.

Bank reconciliation Statement

Daily bank transaction statement

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Department Name

Starting Date

Ending Date

Finance/Accounts

15th November 2011

31th December 201

Training program
I have completed my internship program in Finance/Accounts department and performed
some of the function related to the accounts. First couple of days I assist the Account Officer
who told me that what actually the account department is? What are the functions performed by
this department? I was told; which are the basic books of accounts and how the entries are made
in such books.
During my internship I performed the following tasks:

Maintain Manual Books of Accounts


In first weak of my internship the work assigned to me was to maintain the Manual books
of Accounts like Day Journal, Creditors, Debtors & Staff loan Ledgers. Firstly all types of
vouchers were recorded in Day Journal by me and then all the entries were posted to the relevant
ledger accounts from day journal.

Vouchering:
I have made following types of vouchers, Bank Vouchers, Cash vouchers & Journal
vouchers.
In Bank vouchers I have prepared bank payment vouchers & cheque against payment made to
different creditors & Bank receipt vouchers against payment received from local debtors &
foreign debtors.
In Cash vouchers I have prepare all cash payment & receipt vouchers.
In Journal vouchers I have prepared vouchers for making adjustments such as accruals, and to
record liabilities.
After the preparation of vouchers it is posted to the relevant ledgers accounts. These posting is
made on the accounting software after supervision of Chief Accountant. The organization uses
its own custom made accounting software to record the transaction.

Sale and Purchase Recording

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During my internship I also record all the transactions related to Sale of finish goods and
Purchase of raw material and semi manufactured goods. This all recording is made on
accounting software by me which used by the organization. In Sale transaction firstly the
contracts recorded in software with Name of Customer, Product code, Quantity of bags, Weight,
Rate and the validity of the contract, and than the Delivery order is issued when the customer
demand the product. In last step the loaded quantity of bags and weight the sale is recorded on
daily basis by me and then checked by my supervisor. In Purchase transaction all the contracts
are recorded first and when the raw material arrived all the data entered in software with detail
description Quantity of bags, weight received, receipt note number against contract recorded.

Pay Roll:
During my internship I have learned how to prepare the salary sheet of the staff. The
salary sheet comprises of Name of the Employee, Designation, Gross salary, tax deduction,
advances deduction and leave without pay, leave encashment net salary. The salaries of
management staff is paid through cheques. And I have also learned the daily wages sheet of the
workers on daily wages.

Running Bill Checking:


I have checked the running bills which was received form the contractor for work done
up to a specified period of time. My task was to check all the calculation of the work done either
this is exactly according to the rate which we decided with the contractor.

Preparation of Documents
During my internship I also prepare the documents related to Loan granted and
adjustment such as Cash Finance Loan & Export Refinance Part II Loan.
For granted Cash Finance loan a request letter is typed to the name of the manager of the bank
for granted a required amount from loan account to the current account, for adjustment of Cash
finance loan a request letter is also typed to adjust the loan account with the requested amount
transfer from the Current account.
For granted Export refinance part II loan a set of documents is prepared according to the
predefined procedure of the State Bank of Pakistan. This type of loan is obtained on the
performance of export.

Bank Reconciliation Statement:

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I have learnt from accounts officer during my internship how the Bank Reconciliation
Statement is prepared. In Bank reconciliation statement each transaction of the bank statement is
reconciled with the transaction of Bank accounts ledger which is maintained from company side
and the reason of the reconciliation is to locate the difference of balance between bank account
ledger prepare by the firm and bank statement. The difference is because of some unpresented
cheques which we issued to the creditors against the payment made to them, but they didnt
present the cheque to the bank for payment. The difference which is found is because we
credited the amount in our bank account ledger however it is not debited by the bank. Just like
uncollected cheques that are deposited in bank and the bank has not yet credited to our account.
Another difference which is found of the bank charges that the bank deducted from our account
and firm did not recorded that amount of charges in Bank Account Ledger.

Calculation of Markup:
During my internship I have learned the Calculation of markup on advances in Microsoft excel
sheet, the sheet consist of following columns;
1.
2.
3.
4.
5.
6.
7.

Date of loan granted


Principle amount
Date of maturity
No. of days amounts outstand
Markup rate
Markup amount
Total payable amount included principle & markup

Daily Bank Transaction:


In daily bank transaction a report is prepared relating to the transaction of the bank account.

I have learnt from my Finance officer the procedure for preparing daily bank transaction.

I have call to the bank and received the record of debit & credit transaction of current & loan

account, after receiving transaction from the bank I have prepared the following reports

1. Summery of the Bank Transaction:


In this report all transaction is showing like opening balance of the accounts and added the
receipts against local sale, receipts against export sale, short terms loan granted and deducted
cheque present in the bank, short term loan adjusted from current account, Markup deducted by
bank, withholding tax deducted by bank & other miscellaneous charges deducted by bank

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2. Loan Statement:
In loan statement I put the transaction in the loan accounts like granted & adjustment of loan.
3. Payment Sheet:
Payment sheet is consist of seven columns, 1 Cheque issuing date, 2 Name of the person 4,
Name of the bank 5 cheque number 6 Cheque Amount, 6A cheque amount show in presented
columns which are presented in the bank & 6B cheque amount which are not presented in the
bank.
4. Debtors Receipts:
This report is consist on columns
a) Date of cheque
b) Cheque deposited in the bank date
c) Name of debtors
d) Instrument Bank name
e) Cheque number or Party Deposited, if payment directly deposited by debtors in the bank.
f) Deposited Amount
g) Name of the bank payment deposited
5. Post dated cheque:
This report is consisting of Post dated Cheque received from debtors or cheque which are
deposited in to the bank & not cleared yet.

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Ratio analysis
Ratio analysis can also help us to check whether a business doing better this year than it
was last year; and it can tell us if our business is doing better or worse than other businesses
doing the same things.

Financial Ratios
Financial ratios are useful indicator of a firms performance and financial situation. Most
ratios can be calculated from information provided by the financial statements. Financial ratios
are very useful tool in the hand of management for decision making. Shareholders, investor and
creditors have a keen interest in the financial ratios. Financial ratios can be used to analyze
trends and to compare the firms financials to those of other firms. In some cases, ratio analysis
can predict future bankruptcy.
The followings are some types of financial ratio.
1.
2.
3.
4.
5.

Liquidity Ratio
Financial Leverage Ratio
Profitability Ratio
Activity Ratio
Market Ratios

Liquidity Ratio
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This ratio is used to determine a companys abilities to pay off its short-term debts
obligations. It also shows the companys ability to turn short-term assets into cash to cover debts
when firm needs cash. These ratios consist of following;
Current Ratio

Acid Test / Quick Ratio

Working Capital Ratio

Leverage Ratios
Leverage ratios provide an indication of the long-term solvency of the firm. Leverage ratios
measure the extent to which the firm is using long term debt.
These ratios include:
Time Interest Earned

Debt Ratio

Debt / Equity Ratio

Profitability Ratio
Profitability ratios measure the companys use of its assets and control of its expenses to
generate an acceptable profit in return. It also shows the firms performance whether it is better
or worse. These include;

Net Profit Margin

Gross Profit Margin

Return on Assets

Operating Income Margin

Return on Total Equity

Activity Ratio
These ratios measure the firms ability to convert different accounts within their balance
sheets into cash or sales. It also called Efficiency Ratio. It also shows how effectively the
company utilizes their assets and manages its liabilities. These consist;

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Total Assets Turnover

Operating Cash Flow Ratio

Market Ratios
These ratios show the investor response towards owning the stock of the company.
These include;
Dividend per Share

Earning per Share

Liquidity Ratio
Current Ratio
Current Ratio = Current Assets / Current Liabilities
2011

2010

2009

=2,617,915,474 / 1,895,764,536

=2,131,336,036 / 1,648,619,279 =1,050,496,638 / 607,590,274

= 1.38 Times

= 1.29 Times

= 1.73 Times

Graph of Current Ratio


2
1.5
2011

2010
2009

0.5
0
2011

2010

2009

Interpretation
This ratio is used to determine the companys ability to pay its debts and obligations over the
next 12 months. Generally Current ratio 2:1 is acceptable.

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From above table it is clear that FACTORY NAME the trend is downward however ratio is
more than one which means that the firm has enough resources to pay it debts. The table shows
in 2009 ratio was higher but after that it decreased because of more increase in Current
Liabilities as to Current assets but it is sufficient for the firm.

Acid Test / Quick Ratio


Quick Ratio = Liquid Assets / Current Liabilities
2011

2010

2009

=701,854,243 / 1,895,764,536

=666,156,929 / 1,648,619,279

=541,889,506 / 607,590,274

= 0.37 Times

= 0.40 Times

= 0.89 Times

Working of Liquid Assets


Liquid Assets = Current Assets Inventory
= 2,617,915,474 - 1,906,319,040 - 9,742,191= 701,854,243
= 2,131,336,036 - 1,459,855,278 - 5,323,829= 666,156,929
= 1,050,496,638 - 501,717,535 - 6,889,597 = 541,889,506

2011
2010
2009

Graph of Quick Ratio


1
0.8
2011

0.6

2010

0.4

2009

0.2
0
2011

2010

2009

Interpretation
This ratio determines the companys ability to use its Liquid Assets to pay its short-term
obligation. Quick Ratio should be 1:1. It should be more or equal to one. In case of FACTORY
NAME, the above analysis shows that the Quick Ratio is decreasing and lowers than one which
means firm is facing problems to pay its short term liabilities and relies too much on inventory
and other assets. It is due to Less Liquid Assets as compare to Current Liabilities.

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Working Capital
Working Capital = Current Assets Current Liabilities
2011

2010

2009

=2,617,915,474 - 1,895,764,536

=2,131,336,036 - 1,648,619,279

=1,050,496,638 - 607,590,274

= 722,150,938

= 482,716,757

= 442,906,364

Graph of Working Capital Ratio


800,000,000

700,000,000

600,000,000

500,000,000

400,000,000

300,000,000

200,000,000

100,000,000

2011
2010
2009
2011 2010 2009

Interpretation
Working Capital shows the companys ability to pay off its short-term liabilities. Positive
Working Capital means business is able to pay off its short term liabilities. While Negative
Working Capital means business is unable pay off its short term liabilities. In case of
FACTORY NAME the working capital is positive as shown above in previous three years
which means company is able to pay its short term obligations. In 2011 the positive working
capital is higher as shown above which means company has enough resources to pay its short
term liabilities and also can expand its operations.

Leverage Ratios
Time Interest Earned
Time Interest Earned = Earning before Interest & Taxes (EBIT) / Interest Charges

2011

2010

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2009

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=451,203,080 / 150,010,405

=220,388,367 / 77,948,891

=234,407,296 / 111,128,472

= 3.01 Times

= 2.83 Times

= 2.11 Times

Working for Earning before Interest and Tax:


Earning before Interest & Taxes = Operating Profit Other Expenses Depreciation
2011
2010
2009

= 504,186,306 3,793,476 49,189,750


= 255,465,411 1,805,869 33,271,175
= 282,953,910 1,713,936 46,832,678

= 451,203,080
= 220,388,367
= 234,407,296

Interest Expenses
2011
1. Long Term Financing
2. Short Term Borrowing

150,010,405

2010
77,948,891

Graph of Time Interest Earned Ratio

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2009
111,128,472

Internship Report

3.50
3.00
2.50
2.00

2011

1.50

2010

1.00

2009

0.50
0.00
2011

2010

2009

Interpretation
This ratio is also known as Interest Coverage Ratio. This Ratio indicates how well a company
can cover its interest payment before paying tax. The ratio should be more than 1.5. The ratio is
increasing. In case of FACTORY NAME, the analysiss shows that company is able to meet his
interest obligations because earnings are significantly greater than annual interest obligations.

Debt Ratio
Debt Ratio = Total Debt / Total Assets
2011

2010

2009

=1,895,764,536 / 3,276,445,542

=1,648,619,279 / 2,822,995,201

=607,590,274 / 1,697,218,896

= 0.579

= 0.584

= 0.358

Total Debt = Current Liabilities + Long Term Liabilities


2011
2010
2009

= 1,895,764,536 + 0 = 1,895,764,536
= 1,648,619,279 + 0 = 1,648,619,279
= 607,590,274 + 0
= 607,590,274

Graph of Total Debt Ratio

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0.60
0.50
0.40

2011

0.30

2010

0.20

2009

0.10
0.00
2011

2010

2009

Interpretation
Debt ratio indicates what proportion of debt a company has relative to its assets. Debt ratio more
then 1 indicates that firm has more debt than assets and less than 1 indicates more assets than
debt.
From calculation it is clear that the ratio of FACTORY NAME is less than one in consecutive
three years which means company has more assets than its debts. The above table shows that the
ratio is increasing, and the reason is more increase in debts as compare to total assets however
the ratio is acceptable for the firm.

Debt / Equity Ratio


Debt / Equity Ratio = Total Debt / Shareholders Equity
2011

2010

2009

=1,895,764,536 / 1,310,142,152

=1,648,619,279 / 1,095,999,417

=607,590,274 / 1,004,897,265

= 1.45

= 1.50

= 0.60

Total Debt = Current Liabilities + Long Term Liabilities

2011
2010
2009

= 1,895,764,536 + 0 = 1,895,764,536
= 1,648,619,279 + 0 = 1,648,619,279
= 607,590,274 + 0
= 607,590,274

Graph of Total Debt Ratio

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1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00

2011
2010
2009

2011

2010

2009

Interpretation
This ratio indicates that what proportion of Equity and Debt the firm is using to finance its assets.
From the above table it is clear that the ratio is increasing which means Iqbal Rice Mills assets
are financed through debt rather than Equity. It shows that the reason is increase in Debts as
compare to shareholders equity. In first year 2009 it was less than one which shows that assets
were finance by equity and now the firms assets are financed by debts than equity.

Profitability Ratios
Net Profit Margin
Net Profit Margin = (Net Profit / Sales)*100
2011

2010

2009

=256,182,475 / 5,067,101,571

=129,276,523 / 2,008,672,422

=113,409,529 / 2,345,047,424

= 5.06%

= 6.44%

= 4.84%

Graph of Net Profit Margin Ratio

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7.00
6.00
5.00
4.00

2011

3.00

2010

2.00

2009

1.00
0.00
2011

2010

2009

Interpretation
This ratio indicates how much a firm is efficient and how well it controls its costs and what
portion of sales contribute to the income of the firm. From above calculations it is clear that the
performance of FACTORY NAME is good and the trend is upward. The ratio is acceptable for
the firm and needs to be control over cost more than before.

Gross Profit Margin


Gross Profit Margin = (Gross Profit / Sales)*100
2011

2010

2009

=772,696,109 / 5,067,101,571

=348,614,757 / 2,008,672,422

=372,836,853 / 2,345,047,424

= 15.25%

= 17.36%

= 15.90%

Graph of Gross Profit Margin Ratio

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17.50
17.00
16.50
16.00

2011

15.50

2010

15.00

2009

14.50
14.00
2011

2010

2009

Interpretation
This ratio indicates what the firms policy is and what the true mark-up are. It also shows how
efficiently a firm a controlling its direct cost or expenses. The above analysis shows that
FACTORY NAME ratio is increasing and clears that the company has good control over direct
cost.

Return on Assets
Return on Assets = Net Profit / Total Assets
2011

2010

2009

=256,182,475 / 3,276,445,542

=129,276,523 / 2,822,995,201

=113,409,529 / 1,697,218,896

= 0.078

= 0.046

= 0.067

Graph of Return on Assets Ratio

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0.08
0.07
0.06
0.05
0.04
0.03
0.02
0.01
0.00

2011
2010
2009

2011

2010

2009

Interpretation
This ratio measures how much return a company is generating on the firms assets. The above
analysis shows that FACTORY NAME ratio is good and it is generating enough income on the
assets. It also helps the firm to decide whether or not to start a new project. The ratio is
acceptable in all three consecutive years.

Operating Income Margin


Operating Income Margin = (Operating Income / Net Sales)*100
2011

2010

2009

=451,203,080 / 5,067,101,571

=220,388,367 / 2,008,672,422

=234,407,296 / 2,345,047,424

= 8.9%

= 10.97

= 9.995

Working of Operating Income


Operating Income = Operating Profit Other Expenses - Depreciation
2011 = 504,186,306 (14,577 + 3,778,899) 49,189,750 = 451,203,080
2010 = 255,465,411 (8,120 + 1,797,749) 33,271,175 = 220,388,367
2009 = 282,953,910 (41,101 + 1,672,835) 46,832,678 = 234,407,296

Graph of Operating Income Margin Ratio

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12.000
10.000
8.000

2011

6.000

2010

4.000

2009

2.000
0.000
2011

2010

2009

Interpretation
This ratio indicates what proportion of a firms revenue is left over after deducting all the direct
costs (like raw material, wages and etc). It also indicates the firms pricing strategy and operating
efficiency. From above table it is clear that the ratio of FACTORY NAME is 9.995% in 2009
and then increase and becomes 10.97% but after that is decrease 8.9%. it shows how much this
firm earn on each Rupee of sales.

Return on Equity
Return on Equity = Net Profit / Partners Equity
2011

2010

2009

=256,182,475 / 1,310,142,152

=129,276,523 / 1,095,999,417

=113,409,529 / 1,004,897,265

= 0.196

= 0.118

= 0.113

Graph of Return on Equity

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0.12
0.10
0.08

2011

0.06

2010

0.04

2009

0.02
0.00
2011

2010

2009

Interpretation
This ratio indicates that how much profit a company earned on partners equity. It measures how
efficiently the partners equity used by a firm. From above calculation it is clear that ratio of
FACTORY NAME is increasing. It shows that the firm ratio is on higher side which means the
return on equity of partners is good / acceptable.

Activity Ratio
Total Asset Turnover
Total Asset Turnover = Net Sales / Total Assets
2011

2010

2009

=5,067,101,571 / 3,276,445,542

=2,008,672,422 / 2,822,995,201

=2,345,047,424 / 1,697,218,896

= 1.55

= 0.71

= 1.38

Graph of Total Assets Turnover Ratio

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1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00

2011
2010
2009

2011

2010

2009

Interpretation
This ratio indicates that how efficiently a firm is using its assets to generate income. It shows
how much a firm getting income on One (1) Rupee value asset. In the analysis of FACTORY
NAME it shows that in 2009 it was 1.38 then but in year 2010 it reduces to 0.71 however in
2011 it again improve and becomes 1.55. The ratio is increasing. Higher ratio indicates that the
firm is best utilizing its resources.

Operating Cash Flow Ratio


Operating Cash Flow Ratio = Cash Flow from Operations / Current Liabilities
2011

2010

2009

=-80,977,707 / 1,895,764,536

=-1,007,186,123 / 1,648,619,279

=-143,941,594 / 607,590,274

= -0.04

= -0.61

= -0.24

Graph of Operating Cash Flow Ratio

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0.00
-0.10
-0.20
-0.30

2011

-0.40

2010

-0.50

2009

-0.60
-0.70
2011

2010

2009

Interpretation
This ratio indicates how well current liabilities are covered by the Cash Flow generated from
company operations. The ratio should be more than 1. From above analysis it is clear that
FACTORY NAME is in negative which shows that firm is not generating enough cash to pay
off its short term debts which is a serious situation.

Market Ratios
Dividend per Share
Dividend per Share = Dividend Amount / Number of Equity Shares
Note: In case of FACTORY NAME this ratio can not be calculated

Earning per Share


Earning per Share = Net Income - Dividend on Preferred Stock / No. of Shares Outstanding
Note: In case of FACTORY NAME this ratio can not be calculated

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Future Prospectus of Organization


Future Plan of the FACTORY NAME is to introduce its products in European country
like U.K, USA, Germany, France, Sweden, Canada, Italy and etc to get a huge share market in
Global world. The purpose is to increase its exports with increasing profit of the firm which
provide huge benefits to company.
The firm is also planning to start a new manufacturing unit with processing unit near
Muridke city.

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Conclusion
I would conclude by saying that working as an internee with FACTORY NAME for
seven weeks was a good learning experience. This internship program really helped me to clear
my concepts and also allowed me to share with the management in case of any confusion
regarding the companys operations. The whole management team of this company is very
supportive and intellectual.
From above ratio analysis on FACTORY NAME which is done by me I concluded that
Liquidity Ratio as shown above the firm is facing problem to pay off its short term liabilities and
relies too much on inventory and other assets, if we see the current asset ratio. The liquidity ratio
shows the short term solvency of the firm thats why the creditors have the great concerned with
it.
Leverage ratio indicates that how much a firm is financed through debts. From above
analysis, the Debt ratio and Debt / Equity of FACTORY NAME shows that the firm ratio is
increasing. In starts the company was self reliance than debts but now the companys assets are
financed through debts more then equity.
From ratio analysis of FACTORY NAME it is concluded that Profitability ratio is
higher than standard acceptable ratio but it is not enough for this kind of organization. The Net
profit Margin should be more than this.
Activity ratio shows that the Cash flow form operations is in negative which is serious
condition for the firm.

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Recommendations for FACTORY NAME


As an internee working with FACTORY NAME is a good learning experience to know the
difference between bookish knowledge and practical world. There are certain things that are
going but few needs to be improved. My few recommendations that I want to share with you and
I have already shared all these with the management of this company as well.

1. The firm has enough Working Capital so I recommend that the firm should be expands

their operations as seeing the working capital. The company should increase its Liquid
assets because if we see the Current ratio of the firm it can pay off its short term debts.
Now if we see Acid Test ratio it shows that the firm is facing problem to pay it immediate
liabilities.
2. The Leverage ratio shows that firm was depend on Equity more than debts but after that

now the firm is more dependent on the Debts than equity and it increase year to year. So I
suggest that firm should control their debts to made the firm less levered.
3. I suggest that the management of the firm should control its direct cost while seeing the

profitability ratio. Because the profit margin is less as compare to sale of the firm.
4. Similarly the Firm should also best utilize its operating assets more and more because the

Operating cash flow ratio is negative as shown above which is very serious for the firm to
think and also controls its direct cost on operating assets.

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Reference and Sources used.


Reference Books (Financial Management MGT101, Investment Analysis and Portfolio

Management (FIN630)).
Internet.
Staff and Management of FACTORY NAME.
FACTORY NAME Brushers.

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Annexes
Financial Statements of FACTORY NAME

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