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CORPORATE FINANCE

PRESENTED TO CH. ABDUL KHALIQ

BBA (FINANCE)SUPERIOR UNIVERSITY, LAHORE

MADIHA RASHEED 8206FARYAL BATOOL 8204

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CORPORATE FINANCEPRESENTED TO CH. ABDULKHALIQ

BBA (FINANCE)SUPERIOR UNIVERSITY, LAHORE

MADIHA RASHEED 8206

FARYAL BATOOL 8204

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BATA PAKISTAN LIMITED

Bata Pakistan Ltd. was formed in Pakistan in 1942. It was a newly growing concern all over the

world but in Pakistan it established its feet with in very short time. It was very tuff decision for the

Bata International to start its business in a country that was newly established. But Batas decision

was quite right because there was not so tuff competition in Pakistan at that time which helps them

to make their foots more strong. Now Bata Pakistan is not only providing the quality shoe with in

Pakistan but is also exporting its major portion of production all over the world. With in the country

Bata is facing the competition with Service Industries ltd and other private companies. According to

survey almost 89% of the market is covered by the other organizations and 6% by Service and 5%

by the Bata Pakistan Ltd .Bata Pakistan Ltd. is producing almost 13000 million pairs of shoes

within year but in year 2008 produces 13891 million pairs of shoes which shows the soundness ofthe organization and it strong footing in the Pakistan. Bata is still improving its business.

MISSION STATEMENT OF BATA

To be successful as the most dynamic, flexible and market responsive organization, withfootwear as its core business

BATA will provide its products and services to all the age groups

in the community. Will also provide the finest quality through

customer involvement

VISION STATEMENT OF BATA

To grow as a dynamic, innovative and market driven domestic

manufacturer and distributor, with footwear as our core

business, while maintaining a commitment to the country,

culture and environment in which we operate

Bata Today

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Bata is one of the world leading footwear retailer and manufacturer with operations across 5

continents managed by 4 regional meaningful business units (MBUs). The MBU approach provides

quality resources and support in key areas to the companies operating in similar markets such as

product development, sourcing or marketing support. Each MBU is entrepreneurial in nature, and

can quickly adapt to changes in the market place and seize potential growth opportunities. Bata's

strength lies in its worldwide presence. While local companies are self- governing, each onebenefits from its link to the international organization for back- office systems, product innovations

and sourcing. Although Bata operates in a wide variety of markets, climates and buying power Bata

companies share the same leadership points. Two important ones are product concept development

and constant improvement of business processes in order to offer customers great value and the best

possible service.

Bata today

Serves 1 million customers per day

Employs more than 40,000 people

Operates 5000 retail stores

Manages a retail presence in over 50 countries

Runs 40 production facilities across 26 countries

ORGANISATION

STRUCTURE

Proprietor / Owner

Manager

Supervisor

Employees

FINANCIAL ANALYSIS

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A number of different approaches might be used in analyzing a firms financial performance in a

particular period. To analyze the performance of BATA PAKISTAN LIMITED. I adopted

following three method of

RATIO ANALYSIS

An index that relates two accounting numbers and is obtained by dividing one number by other

Ratio Analysis is an important and age-old technique of financial analysis. It simplifies the

comprehension of financial statements. Ratios tell the whole story of changes in the financial

condition of business. It provides data for inter firm comparison. Ratios highlight the factors

associated with successful and unsuccessful firm. They also reveal strong firms and weak firms,

over- valued and undervalued firms.

It helps in Planning and forecasting. Ratios can assist management, in its basic functions of

forecasting, planning, co-ordination, control and communication. Ratio analysis also makes possible

comparison of the performance of different divisions of the firm. The ratios are helpful in decision

about their efficiency of otherwise in the past and likely performance in future. Ratios also helps in

Investment decisions in the of investors and lending decisions in the case of bankers etc.

Types of Ratios

Following the main types of ratios that we are going to calculate in this assignment,

Liquidity Ratios

Leverage Ratios

Coverage Ratio

Activity Ratios

Profitability Ratios

LIQUIDITY RATIOS

Liquidity ratios are used to measure a firms ability & solvency of the firm to meet short-term

obligations. They compare short-term obligations to short-term resources available to meet these

obligations. It consists of two ratios current & acid test ratio. Let us calculate these for Bata;

Current Ratio

Current ratio is the relationship between current assets and current liabilities. This Ratio is also

known as working Capital ratio. It is calculated as

Current ratio = Current Assets/ Current LiabilitiesBatas Current Ratio

resultsresults 20082008 20072007 20062006

CalculationsCalculations

1,225,784,000 /1,225,784,000 /

1,046,257,0001,046,257,000

1,174,261,000 /1,174,261,000 /

1,017,223,0001,017,223,000

1,038,542,000 /1,038,542,000 /

843,973,000843,973,000

ResultsResults 1.17:11.17:1 1.15:11.15:1 1.23:11.23:1

Interpretation

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Current ratio for Bata Company shows that the Bata has Rs. 1.17 to meet its obligations of Rs. 1. If

we review the last year we will find that current ration of the Bata is continuously increasing which

is a good sign. In 2007, it was 1.15. Whereas the industry ratio is 1.20:1 that is slightly high than

Batas but still Bata is maintaining a good solvency and liquidity ratio.

Quick or Acid Test Ratio

Quick or Acid Test Ratio is the ratio of liquid assets to current Liabilities. True liquidity refers tothe ability of a firm to pay its short-term obligations as when they become due. Quick Ratio is equal

to

Quick or Acid test ratio = Quick Assets/ Current liabilities

Whereas quick assets = Current Assets Store & spare parts Stock in trade

Acid test ratio for Bata

ResultsResults 20082008 20072007 20062006

CalculationsCalculations

785,365,000 /785,365,000 /

1,046,257,0001,046,257,000729,630,000 /729,630,000 /

1,017,223,0001,017,223,000434,474,000 /434,474,000 /

843,973,000843,973,000

ResultsResults 0.75:10.75:1 0.71:10.71:1 0.51:10.51:1

Interpretation

Bata is also maintaining a good acid test ratio as compared to industry ratio i.e. 0.71:1. In year 2008

Batas acid test ratio is 0.75:1 which is continuously increase from year 2007, in 2006 it was .051

than in 2007 it increases to .71:1 and now .75:1 which shows the managements efficiency during

the operating year.

LEVERAGE RATIOS

Ratios that shows the extent to which the firm is financed by the debts

Debt to Equity Ratio

Debt to equity ratio indicates the relationship between the external equities or outsider finds and the

internal equities or shareholder fund. It is calculated to assess the extent to which the firm is using

borrowed money. Debt to equity is simply calculated as

Debt to equity ratio = Total Debts / Shareholders equity

Ratio for Bata

YearsYears 20082008 20072007 20062006

CalculationsCalculations

1,125,244,000 /1,125,244,000 /

363,318,000363,318,000

1,118,829,000 /1,118,829,000 /

325,181,000325,181,000

1,038,542,000 /1,038,542,000 /

843,973,000843,973,000

ResultsResults 3.09:1 or 76:243.09:1 or 76:24 3.44:1 or 78:223.44:1 or 78:22 1.23:1 or 55:451.23:1 or 55:45

Interpretation

According to prudential Regulation this ratio should be 1.5:1 or 60:40, which means the company,

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should have the debts of Rs. 1.5 as against owner equity of Rs. 1. Equity ratio for the Bata in year

2008 is 3.09:1. This ratio in year 2007 was 3.44:1 and in 2006 it was 3.60: 1.Which means company

in mostly relaying on external sources. But as we review the ratios of last three years we observe

that this ratio is continuously decreasing.

Debts to Total Assets Ratio

The Debts to total assets Ratio tells us how much portion of assets is a debt. This ratio servers asimilar purpose to debts to equity ratio. It highlights relative importance of debt financing to the

firm by showing the percentage of the firms that is supported by debts financing. This ratio is

calculated as

Debts to Total Assets ratio = Total Debts / Total Assets

Ratio for Bata

YearsYears 20082008 20072007 20062006

CalculationsCalculations

1,125,244,000 /1,125,244,000 /

1,046,257,0001,046,257,000

1,118,829,000 /1,118,829,000 /

1,453,625,0001,453,625,000

1,078,368,000 /1,078,368,000 /

1,377,805,0001,377,805,000

ResultsResults 0.75:1 or 75%0.75:1 or 75% 0.769:1 or 77%0.769:1 or 77% 078:1 or 78%078:1 or 78%

Interpretation

According to this ratio around 75% of total assets are supported by the debts finance or debts.

Whereas the industry ratio is 73% Bata is going right according to the industry ratio; there is not so

high difference in ratios. But this ratio is also slightly decreasing as we review the ratio of previous

two year i.e. in year 2007 77% and in 2006 78 % of the total assets are financed by the debts. We

can say that people and other financial institutions are very sure about the solvency of the firm and

not hesitating to finance or make investment in Bata Pakistan Ltd.

COVERAGE RATIO

The Ratio that relate the financial charges of a firm to its ability to service, or cover them

Interest Coverage Ratio

Interest Coverage ratio is designed to relate the financial charges of a firm to its ability of pay/cover

them from its earning. Interest Coverage ratio is calculated as

Interest Coverage Ratio = Earnings before Interest & Tax / Financial charges

Ratio for Bata

YearzYearz 20082008 20072007 20062006

CalculationsCalculations 186,256,000 /186,256,000 /

74,010,00074,010,000142,296,000 /142,296,000 /

71,861,00071,861,000123815000 /123815000 /

73,051,00073,051,000

ResultsResults 2.52:12.52:1 1.98:11.98:1 1.69:11.69:1

Interpretation

Coverage ratio shows that the firm has significant profit to pay its financial charges

This ratio shows that Bata has Rs. 2.52 to pay off its financial charges of Rs. 1. This ratio was 1.98

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times in 2007 and 1.69 times in 2006. This ratio is also increasing continuously, in 2008 this ratio

increased by 33% which is a high percentage. It is very important from the lenders point of view. It

indicates number of times interest is covered by profit. It is an index of the financial strength of an

enterprise and high ratio assure the lender a regular and periodical interest income.

ACTIVITY RATIOS

Activity ratios are also known as efficiency or turnover ratios, measure how effectively the firm isusing its assets. Some of the aspects of activity analysis are closely related to

liquidity analysis. In this session we will primarily focus on how effectively the firm is managing

tow specific groups receivables and inventories and its total assets in general.

Receivable Turnover Ratio

Debtor turnover ratio indicates the velocity of debts collection of a firm. In simple words it

indicates the number of times average debts are turned over during a year. Higher the value of debts

turnover, more efficient is the management of debts or more liquid the debtors are and vice versa.

Receivable turnover ratio is calculated as

Receivable/debtors turnover ratio = Annual credit sale / Trade debtors

Ratio for BATA

YearsYears 20082008 20072007 20062006

CalculationsCalculations2,065,502,000 /2,065,502,000 /

674,128,000674,128,0002,187,951,000 /2,187,951,000 /

71,861,00071,861,0002,007,224,000 /2,007,224,000 /

330,089,000330,089,000

ResultsResults 3.06:13.06:1 411:01:00411:01:00 6.08:16.08:1

Interpretation

Above calculations for Bata shows, around 3.06 time debtors are turned over during the year. This

ratio for Bata is declining, as we review previous years, in 2007 this ratio was 4.11 times and in

2006 it was 6.08 times which is not a good sign for a organization like Bata. The industry ratio is

3.51, which is above the turnover ratio for 2008. So management has to think about the recovery of

its debts and make it frequent.

Average Collection Period

Debtor turnover ratio when calculated in term of days is known as receivable turnover in days. It

represents the average number of days for which a firm has to wait before its debtors are converted

in cash. It is calculated as

A.C.P = No. of days in year / Receivable turnover ratio

Ratio for Bata

yearsyears 20082008 20072007 20062006

CalculationsCalculations 03/06/6503/06/65 04/11/6504/11/65 06/08/6506/08/65

ResultsResults 119 days119 days 89 days89 days 60 days60 days

Interpretation

Batas average collection period is not much impressive in year2008 because it is showingcontinuous increase in days to wait before its debtors converted into cash and it is not a good sign

because less the average collection period better for the company. In 2008 Average collection

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period is 119, in 2007 it was 89 days and in 2006 it was 60 days. In the year 2008 the industry ratio

is also less than the Batas. Management has to think seriously to reduce average collection period

to improve its efficiency.

Accounts Payable/Creditor Turnover Ratio

This ratio is against to Debtors turnover ratio. It compares the creditors with the total credit

purchase. It signifies the credit period enjoyed by the firm in paying off debts. In payable turnoverratio less the results better for the company. It is calculated as

Payable Turnover ratio = Annual Credit Purchase / Creditors

Ratio for Bata

YearsYears 20082008 20072007

CalculationsCalculations 867,677,000 / 383,414,000867,677,000 / 383,414,000 846412000 / 358,214,000846412000 / 358,214,000

ResultsResults 2.265:12.265:1 2.362:12.362:1

Interpretation

Bata Pakistan Ltd. is quite efficient in its payable turnover ratio. In year 2008 the ratio is 2.265

times which means almost in year 2.265 time creditors are paid off. Industry ratio is 4.136 times. It

means Bata Company is enjoying a healthy credit period.

PROFITABILITY RATIOS

Profitability ratios are of tow types --- those showing profitability in relation to sale and those

showing profitability in relation to investment. To gather these ratios indicate the overall

effectiveness of operation

Gross Profit Margin

Gross profit ratio, which is also called Profitability in relation to sales, is the ratio of gross profit to

new sales expressed as a percentage. This ratio tells us the profit of the firm relative to sales after

we deduct the producing the goods. It is an measure of the efficiency of the firm operation. Higher

the gross profit ratio better it is. It is calculated as

Gross Profit Margin = Gross Profit / Net Sales

Ratio for BataYearzYearz 20082008 20072007 20082008

CalcualationsCalcualations 689,297,000 /689,297,000 /

2,065,502,0002,065,502,000648,930,000 /648,930,000 /

2,187,951,0002,187,951,000581,463,000 /581,463,000 /

2,007,224,0002,007,224,000

ResultsResults 33 or 33%33 or 33% .296 or 29.6%.296 or 29.6% 289 or 28.9%289 or 28.9%

Interpretation

According to above calculation Gross Profit Margin for Bata is 33.3 % , which is increasing as we

review the previous two years, 29.6 % in 2007 and 28.9 % in 2006. Industry ratio for 2008 is

24.07%. Batas G.P ratio is very good as compared to industry ratio and sill improving,.

Net Profit Margin

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The net profit margin is a measure of the firms profitability of sales after taking account of all

expenses and income tax. This ratio also indicates performance during the financial year. Simply

high the ratio better the firm performance and efficiency. It is calculated as

Net Profit Margin = Profit after tax / Sales

Ratio for Bata

YearsYears 20082008 20072007 20062006

CalculationsCalculations 68,377,000 /68,377,000 /

2,065,502,000 * 1002,065,502,000 * 10046,534,000 /46,534,000 /

2,187,951,000 * 1002,187,951,000 * 10033,954,000 /33,954,000 /

2,007,224,000 * 1002,007,224,000 * 100

ResultsResults 0.031 or 3.31%0.031 or 3.31% 0.021 or 2.10%0.021 or 2.10% 0.0169 or 1.69%0.0169 or 1.69%

Interpretation

Bat is also maintaining a good Net Profit margin ratio, which is 3.31% of sales. Whereas the

industry ratio is 3.11%, less than the Batas company is not showing loss any of the last five yearswhich shows companys strong financial position.

Return On assets

Return on investment is one of the most important ratios considered by the proprietors and

investors. It compares the net profit after tax with Total Assets. Investor is much concerned about

this ratio. Higher the ratio of ROA more secures the place considered for making investment. It is

calculated as

Return On assets = Net profit after tax / Total Assets x 100

Ratio for Bata

TearsTears 20082008 20072007 20062006

CalculationsCalculations68,377,000 /68,377,000 /

1,492,022,000 *1001,492,022,000 *10046,534,000 /46,534,000 /

1,453,625,000 *1001,453,625,000 *10034,474,000 /34,474,000 /

1,377,805,000 *1001,377,805,000 *100

ResultsResults 4.58%4.58% 3.20%3.20% 2.57%2.57%

Interpretation

In this special ratio Bata is quite consistent to rise at it was 2.57% in 1999 which increases to 3.20%

in 2000 and now it reaches to 4.58% which is a huge increase and welcome one for Bata PakistanLtd. Management should have to maintain its policies and strategies, they have adopted during the

year.

Return on Equity

Return on equity is another measure of overall firms performance. It compares net profit after tax

to the equity that share holders have invested in firm. This ratio tells the earning power on

shareholders book value. High the return on equity often reflects the firms acceptance of strong

investment opportunities and effective expense management. It is calculated asReturn On Equity = Net profit After Tax / Shareholders Equity x100

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Ratio for Bata

YearsYears 20082008 20072007 20062006

CalculationsCalculations 68,377,000 /68,377,000 /

363,318,000 *100363,318,000 *10046,534,000 /46,534,000 /

325,181,000 *100325,181,000 *10033,954,000 /33,954,000 /

299,437,000 *100299,437,000 *100

ResultsResults 18.82%18.82% 14.31%14.31% 11.33%11.33%

Interpretation

Bata Company is continuously improving its Return on equity as it was 11.33 in 2006 ,14.31% in

2007 and in year 2008 it increases to 18.82%, which is a positive sign for a organization. It shows a

strong position of firm. It will be helpful for the company to create in investment within the

company from outsiders.

Total Asset Turn over

Total Asset turn over shown the sale revenue per dollar of assets invested. This total asset turnover

ratio tells us the relative efficiency with which firm utilizes its total assets to generate sale. It is

calculated as

Total Asset Turnover = Net Sales / Total Assets x 100

Ratio for Bata

YearsYears 20082008 20072007 20062006

CalculationsCalculations 2,065,502,000 /2,065,502,000 /

1,492,022,0001,492,022,0002,187,951,000 /2,187,951,000 /

1,453,625,0001,453,625,000

2,007,224,000 /2,007,224,000 /

1,377,805,0001,377,805,000

ResultsResults 1.38:11.38:1 1.50:11.50:1 1.46:11.46:1

Interpretation

Bata is also showing efficiency in Total assets turn over because in 2008 Total Asset Turnover ratio

is 1.38:1, which Means Company is generating sale of Rs. 1.38 out of every Rs.1 invested in assets.

Industry ratio is exactly equal to the Batas ratio. This year ratio is decreased as compare it to its last

year ratio i.e. 1.50:1 in 2007 and 1.46:1 in 2006. It is not a good sign and management has to

investigate the reasons for the decrease in this ratio to avoid its effect on coming year.