THE

ISLAMIA UNIVERSITY
OF BAHAWALPUR

Submitted To ; Miss. Sundas Shaheen

Submitted By ;

Muhammad Ijaz
M.B.A (Marketing) 41

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My overall experience of preparing this report was a knowledgeable journey. I learn
a lot about the functions of Ruby Textile Mills Ltd. Apart from this, by actually
conducting this report; I also learnt practical application of what I have been
studying in overall M.B.A.

For completing this project I required the annual reports (5 years) of not only Ruby
Textile Mills Ltd. but also of some other Textile Mills which are benchmark at this
time in the industry in order to estimate the industrial profile, business processes
and SWOT analysis. I got my required data from websites of insurance companies
and from newspapers.

While conducting this report I faced some problems in getting the data as at
websites data is not managed very well. The knowledge of what I have studied in
MBA also came in handy. Once every thing was found out it got very interesting.

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 “I dedicate this work of mine to

my Teachers, My Parents and to

all My Friends, who truly help and

guide me in completing this

project. “

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I am grateful to Allah almighty, for enabling me to fulfill this tiring, but
interesting job for the completion of my report.

The long and arduous task of developing this report was made easier by the help
and guidance of my teachers Dr.Khwaja Amjad Saeed, Mr. Irshad and as well
as Mr. Fida Hussain Bukhari.The whole practice of collecting material for the
report compiling and composing was enjoyable.

I would not be going justice in presenting this report without mentioning the
people around us who have been inextricably related with the completion of this
report

I extend my deep gratitude and heartiest thanks to my teachers and Coordinator

for preparing this report.

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 TABLE OF CONTENTS

Introduction of Company-------------------------------------------06

Main Offices---------------------------------------------------------11

Organizational Hierarchy------------------------------------------12

Board of Advisory Committee------------------------------------13

Management of RTML---------------------------------------------17

Departments & functions-------------------------------------------20

Cash Flow Statements----------------------------------------------35

Financial analysis &Interpretation--------------------------------38

Competitors Analysis-----------------------------------------------51

Conclusion,Obligation,&Recomendation------------------------55

INTRODUCTION

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This report is written on the textile sector of Pakistan. This sector is playing a vital role
in the economy of Pakistan not only by providing large number of employment
opportunities but also major share of export of Pakistan. Pakistan is an agricultural
country and textile sector has major contribution towards its GDP. Cotton is cash crop of
Pakistan and the farmers of Punjab and Sindh mostly depend upon this crop. Due to
international affairs and political reason, the curve of progress of this sector has a
declining trend due to which the economy of Pakistan is suffering badly. After virus
attack in 1992, the farmers of South Punjab and Rural Sindh were unable to meet the
seeds, fertilizers and other expenditures. It is also one of the reasons that textile sector of
Pakistan is in grasp of problems and stepping slowly towards recovery.

Large number of textile units is declared sick industrial units. Faisalabad the centre of
textile products in Pakistan has negative growth rate of textile in these years. Hundred of
textile units are closed during this time and rate of unemployment is enhancing
considerably.

OBJECTIVES OF STUDYING THE ORGANIZATION

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The objectives of studying this organization are being elaborated below:
1. To study the performance of textile sector of Pakistan.
2. To find the reasons of downfall of this sector.
3. To know the view point of textile sector and stuffy their suggestions for uplifting
of this sector.
4. To know the demand of textile sector for the improvement in the textile policy
made by the Government.
5. To make the financial analysis of Ruby Textile Mills Ltd.
6. To give the recommendations for improvement of the Finance & Accounting
System of Ruby Textile Mills Ltd.

OVERVIEW OF THE ORGANIZATION

BRIEF HISTORY

Ruby Textile Mills Limited (RTML) is a company which was established in October
18,1980 as a private limited company and was subsequently converted into public limited
company. the registered office of the company is located at 3-A,SMC Housing
Scoietyu,Shara-e-Faisal,Karachi. RTML’s authorized and paid up Capital is Rs.400
million and Rs. 392 million respectively. The Company is listed at Karachi and Lahore
stock Exchanges.

NATURE OF THE ORGANIZATION

Ruby textile Mills Ltd. is a ‘public limited company’ incorporated under Companies
Ordinance 1984, and listed at Karachi and Lahore Stock Exchanges.

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 VISION STATEMENT

To be company recognized for its art of textile and best business practices.

MISSION STATEMENT

The mission of the company is to operate state of the art textile plants capable of
producing yarn and fabrics.
The company will conduct its operations prudently assuring customer satisfaction and
will provide profits and growth to its shareholders through:
• Manufacturing of yarn and fabrics as per the customer’s requirements and
market demand.
• Exploring the global market with special emphasis on Europe and USA.
• Keeping pace with the rapidly changing technology by continuously
Balancing, Modernization and Replacement (BMR) of plant and machinery.
• Enhancing the profitability by improved efficiency and cost controls.
• Recruiting, developing, motivating and retaining the personnel having
exceptional ability and dedication by providing them good working conditions,
performance based compensation, attractive benefit program and opportunity for
growth.
• Protecting the environment and contributing towards the economic strength of
the country and function as a good corporate citizen.

COMPANY’S QUALITY POLICY

COMMITMENT TO EXCELLENCE
• All of our priorities action and products must be recognized as an
expression of unique quality.

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• We are dedicated to produce fabrics and yarn of the best export quality to
meet the requirement and expectations of our customers.
• We strive for continuous improvement in day-to-day quality work;
organize the training and necessary feedback on our performance.

BUSINESS VOLUME

The principal business of the Company is manufacturing and sale of cotton yarn and
woven fabric. RTML’s production capacity consists of one main segments,
manufacturing. Today Ruby Textile Mills Limited is the 5th largest manufacturing mills
in Pakistan, with most modern and technologically advanced facilities.

IN HOUSE POWER GENERATION

The company has its own natural gas fired, captive power plants. The power generating
capacity of these plants is 4.5 MW. The company has purchased three more generating
sets of 3.0 MW capacities which are under installation and by addition of these
generators the company will be in position to meet its power requirements

EXPORT SALES
Reliance Weaving Mills Limited enjoys excellent reputation in the international as well
as domestic market due to its quality products of extended range. Many of the company’s
customers have a long association with the company and attach a strong brand loyalty to
the company’s products. The company has maintained its export performance during last
several years and is one of the leading exporters of the country.
NUMBER OF EMPLOYEES

The company believes that its dedicated workforce is its biggest asset. At present the
company employs 1400 people. Employee breakup is provided as per their position in
the management hierarchy hereunder.

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 Chairman (01)

Managers (35) Company Secretary (01)

Assistant Managers (85)

Officers (153)

Officials (300)

Workers (825)

PRODUCT LINES

M/S Ruby Textile Mills Ltd has the following product lines.

FABRIC
Grey Woven Fabrics of all construction – with width range 45" to 124",Twill Fabric,
Bedford cord, Satin, Stripe Satin, chessboard, Percales, Honey Comb, Sheeting, Poplin,
Canvas, Bird eye, Stretch Twill, Double Pick Fabrics, Ottomans, Velveteen, Upholstery,
Waffle, Huckaback etc.

YARN
In order to broaden the product range, along with the traditional usage of local Cotton,
cotton of Australian & USA origin are also used to manufacture yarns for high strength,
low-contamination and improved evenness yarns.
Core-Spun stretch and low hairiness yarns are amongst their specialties

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CERTIFICATES & ACCREDITATIONS:

• The Cotton USA and Supima licenses have been obtained to supply Supima
yarns.
• RWML is also Lycra Accredited by M/s Du-Pont.
• Weaving and Spinning Facilities are ISO – 9001: 2000 Certified by M/S SGS.

AWARDS
The company has recently won (in November 2004) the “Special Merit Trophy” from the
country’s Premier due to its excellent export performance.

CREDIT RATING
The Company has been assigned a ‘Medium to Long Term’ Entity Rating at BBB+,
whereas ‘Short Term Credit Rating’ Entity Rating at A-3 by M/s JCR-VIS Credit Rating
Company (Pvt.) Ltd.

ORGANIZATIONAL STRUCTURE
Organizational structure of the Reliance Weaving Mills Ltd. is discussed detailed below:

COMMENTS ON THE ORGANIZATIONAL STRUCTURE

That is sign of good management. There are separate department controlled by the head
of the each department a manager. By the division of the managerial activities the
everyone is entrusted to his respective assignment but however a little bit exchange is
normal , exchange of posts or in case of any employee turnover the colleagues have
preferred to create such environment to get the activity done in case of absence of any
person. While one thing is that all the decisions are being taken at the top level i.e. at the
stage of the C.E.O. and another point which I have noted is that beyond the environment

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of departmentalization no preference is given to retain the professional employees in their
respective professional department. It has created a little bit phonation in the employees.

As for as my visit to the site is concerned and w.r.t. my discussion to mill workers of the
site decision of all kinds are being taken by the G.M. and no any other can just put his
suggestions or convey his point of view to overcome any barrier or to solve any problem..

The span of control is short therefore the grip of administrative authorities is strong on
the management. The chart of account of Reliance Weaving Mills Ltd. is such organized
that the discipline in ideal in the head office employees.

MAIN OFFICES

Basically Ruby Textile Mills Ltd. has one operative unit which is manufacturing unit.
This is a big listed public limited company exporting its major part of production. Main
offices of Weaving Ruby Textile Mills Ltd. Lahore are provided as follows:

Registered Office:
Room # 203-Faiyaz Center, 2nd floor,3-A,
S.M.C.H.S., Shahrah- e- Faisal, Karachi-74400.
Phone (+92-21)35396610, 34387710
Fax: (+92-21)34398810
Email:rtml@khi.wol.net.pk

Head Office:
35-Industrial area, Gulburge-IIILahore.
Phone: (+92-21)3576-1245,3576-1245
Fax: (+92-21)3576-1128,3571-1410
Email:rtml@wol.net.pk

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Mills:
Raiwand –Manga Road,
Raiwand, District Kasur.
Phone: (+92-42)3539-1035,3539-2658,3539-2659
Fax: (+92-42)3539-1037
Email:rtml@lhr.wol.net.pk

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 ORGANIZATION’S (RTML) HIERARCHY

CHAIRMAN

C.E.O

CHIEF FINANCIAL
OFFICER

FINANCE MANAGER MARKETING PURCHASE ACCOUNTS CHIEF INTERNAL

MANAGER TAXATION MANAGER MANAGER MANAGER AUDITOR

ASSISTANT DY. ASSISTANT PURCHASE CHIEF ASSISTANT AUDIT

FINANCE MANAGER MARKETING OFFICER ACCOUNTANT OFFICER
MANAGER TAX. MANAGER
MANAGER

DEPUTY CHIEF ACCOUNTANT

REBATE
ASSISTANT

ACCOUNTS
OFFICERS

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Chairman and Chief Executive:

MR.NOOR ELAHI

Board of Directors:
Mrs.Parveen Elahi
Mrs.Naheed Javed
Mr.Nabeel Javed
Mr.Javed Usman
Mr.Faizan Javed
Mr.Mansoob A.Akhtar
Audit Committee
Mr. Nabeel Javed
Chairman
Mr.Nabeel Javed
Member
Mr. Faizan Javed
Member

Auditors

M/S . Mushtaq & Co.

Chartered Accountants,
Hasrat Mohani Road ,Karachi.

Legal Advisor
M/S Ali Sibtain Fazli &ASSOCIATES

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Bankers
Askari Commercial Bank Limited
Arif Habib Bank Ltd.
Habib Bank Ltd.
Standard Chartered Bank Ltd.
Soneri Bank Ltd.

Registrar and Share Transfer Office

THK Associates (Private) Limited,

Ground Floor, State Life Building-3
Dr.Ziauddin Ahmed Road, Karachi
Tel: 111-000-322
Fax: 021 - 5655595

Registered Office/Head Office

Room # 203-Faiyaz Center, 2nd floor,3-A,

S.M.C.H.S., Shahrah- e- Faisal, Karachi-74400.
Phone (+92-21)35396610, 34387710
Fax: (+92-21)34398810
Email:rtml@khi.wol.net.pk

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 President & Chief Executive

Mr. Mohammad Hussain Hirji

Executive Vice Presidents (Marketing)

Syed Hassan Nadeem

Rana Shahbaz Ahmed

Senior Vice Presidents

Mr. Muhammad Afzal (H.O)

Engr. Ehtesham Malik (Engineering)

Sheikh Abdul Qayyum (Claims)

Mr. Muhammad Iqbal (Reinsurance)

Mr. Waseemullah (Company Secretary/CFO)

Mr.Najam Irshad

Senior Vice Presidents (Marketing)

Ch. Shams-ul-Haq

Mr. Shah Saud Mirza

Mr. Sarfraz Ahmed Tarrar

Vice Presidents

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Maj. (Retd) Muhammad Ajmal Khan

Mr. Ali Munem Shamsi

Mr. Sohail Khalid

Mr.Jamil Ahmed (C.A)

Vice Presidents (Marketing)

Mr. Mubashir-ul-Hassan

Mr. Tahir-ul-Haq

Sh.Muhammad Hanif

Sh.Abdul Wahab

Assistant Vice Presidents

Mr. Ghulam Ashgar

Mr. Waqas Ahmed

Mr. Sohail Younas

Assistant Vice Presidents (Marketing)

Mr.Ikram Zai
Mr.Moeenuddin
Managers
Mr. Tazeem Hussain
Mr. Gulzar Hussain Shah
Syed.Imran Abid (I.A)
Mr.Noor Afsar
Mr.Gulfraz Anis
Mr. Muhammad Ali Soomro

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Mr.Qamar Ikram Sheikh
Mr.Shahid Hussain
Mrs.Tallat Raza
Mrs.Samina Khan
Mr.Shahid Hussain
Mr.Tahir Mahmood
Mr.Faisal Ejaz
Mr.Taqiuddin

STRUCTURE OF THE FINANCE DEPARTMENT

NUMBER OF EMPLOYEES WORKING IN THE FINANCE DEPARTMENT

Finance department performs critical activity of total operation of the company.

Operations of this department are so sensitive as company may flourish or collapse just
because of the decisions of this department. As this critical job is being done in this
department therefore its employees must be qualified, energetic and having sufficient
capabilities of managerial operations. There are ten employees in this department. The
employee chart of company’s finance department is given in figure provided hereunder.

CHIEF FINANCIAL
OFFICER

MANAGER
ASSISTANT FINANCE ACCOUNTS
MANAGER

FINANCE TREASURY
ASSISTANT OFFICE BOY

Figure: Employee chart of finance department

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 FINANCE AND ACCOUNTING OPERATIONS

FUNCTIONS OF ACCOUNTS DEPARTMENT

Accounts Department has the following main functions:

• Book Keeping in computerized environment
• Maintaining records.
• Arrangement and best utilization of funds
• Cash management
• Provides reports for assistance in analysis to top management
decisions.
• Analysis of reports
• Preparation of final accounts
• Arrangement of funds from the banks.
• Preparation of fund flow statement.
• Stock taking normally on monthly basis.
• Stock procurement
• Filling sales tax and income tax returns.
• Discounting of export bills from the bank
• Payment of utility bills and other expenses
• Preparation of annual Financial Statements of the company.
• Provide necessary assistance to the internal and external auditors on
demand
We can say that this department acts as a nervous system. Every matter firstly is brought
in the knowledge of the head of this dept. The Head of this dept. is equipped with a very
experienced Financial Controller who is a C.A (Finalist) and has a ten-year experience in
related fields. All the vouchers, reports and any other document prepared by this dept. are
vouched and signed by him.

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 FUNCTION OF BANKING SECTION

This section is also very important part of the account dept. all the functions that are
related to the banks are handled in this section. Major functions of this section are as
under;
1. Preparation of Bank reconciliation statement daily basis.
2. Vouching of the bank’s debit and credit advice.
3. Preparation of the loan documents.
4. Creation and application of funds adequately.
5. All the works related to the letter of credit.
6. Preparation of documents for Export Re-Finance.

BANK RECONCILIATION STATEMENT

Bank going-clerk collects the statements of the accounts and advice from the bank on
daily basis so that true and fair position could remain in the books.
All these transactions have been incorporated in the co.’s accounts when the treatment
comes, the banking section reconcile it with their accounts. But due to some reasons,
these transactions do not equally matched with the co.’ records. These reasons are:
1. Check issued by the co. to any party but not still presented to the bank.
2. Check deposited but not cashed or cancelled due to some reasons.
3. Any amount debited or credited by the bank but not treated in the co.’s
accounts due to disagree with the bank.

DEBIT AND CREDIT ADVICE

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Banks going clerk collect debit and credit advices from the co. These advices are the
reflection of the transactions between the company and the bank.
When any amount is deducted from the company accounts due to any reason like;

• Deduction of bank charges

• Payment of any amount to the party on behalf of the company
• The adjustment of loan as well as markup.

For these amounts the bank made the Debit Advice, means that certain amount has been
deducted from the co.’s account and handover it to the employees of the co. ultimately
the co. considered these as the expenses and deducts this amount from the banks ledger.
Bank section credits these amounts from the accounts and makes and BDN (Bank Debit
Note) through passing entry, signed it and send to F.M. who checks it and signed it and
than it is send to Director for final approval so that its may be posted in to the computer
in its particulars account.
More over when the bank credit any amount in the company’s account due to some
reasons like;
• Re-imbursement of loan
• Depositing of any amount in the bank by co.
• Depositing of any amount in the bank from any party in the company’s
accounts
• Refund of excess Mark-up if recovered by the bank

For these the bank sends the Credit Advice to the RTML, means that the certain amount
has been credited to the company’s accounts. There is the co. the section treat these
pieces of advices in the company’s accounts of that certain bank and Debit the amount in
the account.

EXPORT REFINANCE LOAN

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Reliance Weaving Mills Limited is an export-oriented company. Its export sales are more
than 90% of its sales. Under the facility provided by the State Bank of Pakistan, it avails
the export finance/ refinance from different banks for exporting its commodities.

EXPORT RE-FINANCE PART-I

The following documents are required to present before the bank to avail that loan.

• Sales contract for which export refinance is to be applied

• Letter of credit opened by the buyer
• Purchase order by the buyer
The above documents are forwarded for the sanctioning of the refinance loan are checked
by the bank for integrity and loan is sanctioned when the loan is sanctioned, the bank
pass an entry in its books by crediting the co. with the export refinance loan amount
which is called reimbursement.

EXPORT RE-FINANCE PART-II

This type of loan is provided against the previous export performance of the co. by
dividing the total sale on 2.4
The following documents are required to present before the bank to avail that loan:
• Statement of EE certified from the SBP
• Promissory note
• Request letter
These loans are much cheaper to other commercial loans because its markup is in ranging
from 10% to 12%.

OPENING OF LETTER OF CREDIT

One of the most important functions of the commercial banks in the world is to finance
the imports and exports trade. There are several ways of financing international trade, of
all the methods available at present, the documentary letters of credit are most important
because they undertake the beneficiaries to obtain money either immediately or within a
mutual agreed period, provided the beneficiary fulfills the conditions lay down in the
letter of credit.

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Article-2 of the uniform custom and practice for documentary credit of the international
chamber of commerce (ICC) defines the documentary credit as under;
“Any arrangement, however, named or described, whereby a bank (the
issuing bank), acting at the request and on the instructions of a customer (the
applicant) or its own behalf is to make payment to or to the order of a third
party (the beneficiary) , or is to accept and pay bills of exchange (draft/drafts)
drawn by the beneficiaries, or authorizes an other bank to negotiate, against
stipulated documents, provided that terms and conditions of credit are
compiled with.”
Form the above definition it means that a documentary letter is a bank’s written
undertaking given to the exporter of the payment of a certain amount of money on behalf
of the importer provided the exporter tenders to the bank or its overseas agent, the
specified document within a specified period in accordance with the terms of
understanding.

LETTER OF CREDIT TREATMENT

The company has to import following items for the continuation of its operation.
1. Machinery
2. Spare parts and Chemicals
The company has to request to open L/C for these imports. All the work related to the
L/C is prescribed in the purchase order and send it to bank duly signed by import
department.
For opening of L/C amount of margin 10% of the total invoice cost and L/C opening
charges are deducted by L/C opening bank. This amount is debited to the L/C account
created for that particular L/C # , by debiting the margin and charges recovered by the
bank. An entry is made.

L/C # XYZ Dr.

Margin Dr.
Bank Cr.
When the imported items come into the counter, bank inform to get release the
documents. By depositing the amount of the L/C is of sight nature. If the L/C is of
deferred (30, 60, 90, 120 days) nature then the rate of the currency or the mark up

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required to deposit by the company in addition to L/C value is decided between the bank
and the company provide some guarantee to the bank or the bank decides on the credit
worthiness of the company.
Amount deposited to the bank is then debited to the L/C account by debiting the bank is
then debited to the L/C account by debiting the bank or payable. An entry is made:

L/C # XYZ Dr.

Bank/Import bill payable Cr.

After releasing the documents these are sent to the agent sitting in Karachi who then
release the shipment from the port by paying all the expenses to cargo, carriers, customs,
sales tax, income tax authorities.
The company sends time to time the amounts to the agent for the particular L/C #. If there
is no payment is made to the bank then bank create the PAD is favor of the company and
recovered form the RWML otherwise make the loan duly a mutual consideration.

L/C # XYZ Dr.

Import bill payable Cr.

Clearing agent after releasing the consignment dispatched it to the company and along
with all documents (bill of entry and receipts of the expenses stated above). The company
after checking all the documents sends the remaining amount if any to the agent. When
all the amounts are paid to the agent for that certain L/C then the entry is made to close
the account of the agent for that particular L/C. the entry is:
L/C # XYZ Dr.
Agent Cr.

EXPORT BILLS NEGOTIATION

This term is specified to the exports. When the company makes export sales, the buyer
opens an L/C in favor of the company. As described earlier the L/C may be of different
kinds from sight to 90& 120 days.

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 FUNCTIONS OF THE FINANCE DEPARTMENT

ACCOUNTING SYSTEM OF THE ORGANIZATION

The Finance department deals with these accounting operations like, Cash & bank,
inward invoicing, outward invoicing, Income and sales tax, Inventory accounts and
payroll.

CASH & BANK

It deals with all the payments and receipts of the funds. Payments are both cash and
through cheque. Similarly receipts are both cash and through cheque. The above
function is being performed at factory and Head office. Cash payments are made to
temporary workers (wages), purchasers against expense summaries, for traveling &
entertainments bills, for machinery maintenance & other minor services and petty cash
payments. Certain payments are being made through cheque as supplier’s bill and
utilities bill after verification by Plant Manager & checking by the Accounts Officer.
Sash receipts from waste material sale and Fair Price Shop sale is received by the
Accounts Officer. Cash receipts from local distributors are also received by him and
deposited in Company’s Bank Account accordingly. The same procedure is in vogue at
Head office.

INWARD INVOICING
Like Cash &Bank Inward invoicing also takes place at factory. This section does
accounting of all the materials stores, spares & supplies. Purchases are classified into
cash purchases and credit purchases.

OUTWARD INVOICING
Outward invoicing deals mainly with the Marketing & Sales function. It also maintains
the customer’s records. This section plays a vital role in preparing of acco9unts. The
following documents are involved with Sales
(i) Order Confirmation (ii) Marketing Order (iii) Invoice.

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EXCISE AND SALES TAX
Reliance Weaving Mills Ltd. Maintains all of the necessary records to submit Monthly
Sales Tax return to the Sales Tax department. The sales tax record of Daily Production
report, Sales tax invoices, Supply register, Gate pass and Monthly sales tax return are
maintained at factory.

INVENTORY ACCOUNTS
This department is concerned with the control of inventory/stock carried by the entire
company. The company have not separate purchase department hence all the purchases
are conducted by storekeeper. Following are the item in the recording entries in the
books.
 Raw material
 Packing material
 Miscellaneous items store
All these materials are kept in the central stores and two storekeeper looks after the store.
All purchases whether on credit or cash purchases arrived at the factory gate.
Storekeeper records the received material in books and also bin ledger cards are used to
record the material.

PAYROLL
Payroll section basically deals with payment of salaries and wages to the employees and
workers. Like other sections, payroll is also computerized. In Reliance Weaving Mills
Ltd following categories of employees and worker:
 Monthly paid workers
 Permanent worker
 Workers on daily wages

FINANCE SYSTEM OF THE ORGANIZATION

27
FINANCE SYSTEM OF THE ORGANIZATION

Finance is the life blood of an organization. To meet the financial requirement of the
company a separate finance deptt. is established under the supervision of general
manager finance (Manager) Finance. Mr. Hamid Mehmood is manager Finance and
finance deptt. falls under the control of Chief Financial Officer (CFO) Sheikh Abrar
Manzoor, who is a qualified Chartered Accountant from institute of chartered
Accountants of Pakistan (ICAP). The duties & functions of typical finance department
can be classified into two categories.
1. Planning
2. Controlling
The first category is PLANNING and the second function is CONTROLLING. These
activities are inter-related and inseparable because if there is no planning there will not be
any control. Therefore, planning and control move together. Planning refers to the
activities that bridge the gap from the starting point to the terminal point. Planning in the
finance department under review refers to the activities of Cash Flow and Budget
preparation. These are the major activities (planning) in any such department.
Further Financial requirements are met through following ways.

Banking Loans and Advances

Receipts and Payments Capital Market
Pledging of Stocks Mortgage of property
Hedging
Brief detail of the above mentioned aspects is given hereunder.

BANKING
To meet it s financial requirements RWML has obtained financial assistance from various
banks like;
Habib Bank Limited Muslim Commercial Bank
Allied Bank Limited United Bank Limited
National Bank of Pakistan Saudi Pak Commercial Bank Limited
Union Bank

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LOANS AND ADVANCES
Loans and advances is another source of meeting the financial requirements of the
RWML. Company meets its requirements through
Muslim Commercial Bank National Bank of Pakistan
United Bank Limited Habib Bank Limited
Allied Bank Limited United Bank Limited
Union Bank Limited

Bonds
RWML being the 1st Co. in Southern Punjab Issued 7.5% bonds. And it was a very
successful offering.

RECEIPTS AND PAYMENTS

Narrowing the collection from debtors period and widening the payment to supplier
period is another source of funds which is also used artistically well by the management
of Reliance Weaving Mills Ltd. This is done in such a way that it provides funds to the
company for some vital days without agitating the supplies. It is the aim of every
effective financial management setup to boost up its collection system and to delay its
payments effectively. The company is also adapting effective modes for its receipt
collection. The delay in payables is not slow enough to affect the company’s goodwill.
Company is using the banking facilities for its receipts and payments. Only the daily
laborers or the officials getting less than 10000 salaries are taking their pay and
allowances through cash. Moreover, except petty expenses all the expenses are being met
through cheques or bank drafts. In case of minimizing the import clearing charges co. is
now using the facility of Telephonic Transfer (TT) and delay in the clearing of L/C bills
and detention charges are being urgently cleared.
Reliance Weaving Mills Ltd. is also using running finance accounts and cash finance
accounts with its bankers to meet its money market and capital market requirements.

CAPITAL MARKETS
Financial Assets exists in the market/economy because an economic units investment in
real assets frequently differs from its savings. The purpose of capital market is efficient

29
allocation of savings to ultimate users of funds. Reliance Weaving Mills Ltd. is
benefiting from lease financing and issue of securities/bonds to capital markets. The
allocation of funds in a sector of economy primarily occurs on the basis of risk & returns.
This factor is influential in the financial management decision of RWML, also.

PLEDGING OF STOCK
Financing against the pledging of stock is one of the major sources of financing in
RWML mostly working capital requirements are met through pledging of stock;
Pledging of Reliance Weaving Mills Ltd. stock with Muslim Commercial Bank
Pledging of Reliance Weaving Mills Ltd. stock with Habib Bank Limited
Pledging of Reliance Weaving Mills Ltd. stock with Allied Bank
Pledging of Reliance Weaving Mills Ltd. stock with Union Bank
Financial requirements are also being met through;
Pledging of finished goods inventory with Muslim Commercial Bank
Pledging of finished goods inventory with Habib Bank Limited
Pledging of finished goods inventory with Allied Bank Limited
Pledging of finished goods inventory with National Bank Limited
Pledging of finished goods inventory with Union Bank

MORTGAGE OF PROPERTY
Demand finance requirements are met with mortgage of property of RWML (Ruby
Textile Mils Ltd.). Money market loans are also obtained to meet the financial
requirements of the company.
As company enjoys very healthy relationships with its corporate associates and believes
in longer term business relationship and believes in mutual cooperative efforts to boost
the economy & contribute to uplift the corporate sector.

BUDGETING
Cash flow budget, Marketing operation budget, Production department budget are
prepared in Reliance Weaving Mill Ltd. Finance System of the organization also covers
the decision relation to the investment, financing and dividend.

30
 USE OF ELECTRONIC DATA IN DECISION-MAKING
Reliance Weaving Mills Ltd. also uses the computer in order to record the information.
Data related to economic activities of the company is recorded in computers and as well
as manually. The company maintains a suitable Management Information System (MIS)
by using electronic data processing for every department. Head of all departments send
reports to the office of General Manager and then it is presented to the Board of Director.

RWML’s Software Specification

These are of two types;
1. System Software
2. Application Software

SYSTEM SOFTWARE
It is the operating system of computers. In RTML, they are using window base operating
system. Window based software installed by the company. It is an operating system. The
basis of system is a supervisor’s level that creates a number of Virtual machines (VMs).
In each of these machines users can run their own program, using the terminal to control,
the VM and also to provide the route by which they input to receive out put from their
VM. Their operating System provides them every good level of security.

APPLICATION SOFTWARE
RTML got their system development in Visual tools. (Like Visual Basic + SQL Server).
It is a very powerful language. They have following systems computerized.
• Accounts system
• Sales System Both local and export.
• Share System
• Yarn Management
• Purchase System
• Inventory System
• Sales Dept. has the following sub-dept.

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  Local Sales
 Cloth
 Rags
 Export Sales
 Cloth
Whenever they need some modification, in their system, their programs do so. They are
using their system under the environment of Online System.
PRESENTATION OF REPORTS
No one system can access computer until using their personal password. So the system of
RWML is also generating a broad no. of reports in confidential condition. Following are
some important reports produced. By this system;
• Listing of all master files
• Listing of all ledgers files
• Sub ledgers Edit lists
• Due balances
• Day Book
• Purchase day book
• Sale day book
• Trail Balance
• Monthly Balances
• Outstanding Cheque
• Trail Balance
• Monthly Profit & Loss Account.

DATA FLOW
In RTML, they are using Online System. In account dept. they are using four vouchers.
These vouchers are as follows;
• Journal Voucher (bill payable)
• Bank Voucher Debit/Credit

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 • Adjustment Voucher
Following are the files that are being maintained there;
• Chart of Account
• Employees
• Buyers
• Suppliers
• Banks
• Letter of Credits ( for Sale & Purchase)
The data about any voucher flow in a way that first of all, it comes to Keypunch
Operator. He recognizes the type of voucher i.e. JV/BV/BDN/BCN. After recognizing
the type, he assigns a specific code to the voucher depending upon that with which entity
this voucher is related. After the keypunch Operator has assigned the code to the voucher
then the accountant check that whether the voucher is assigned the code of a/c right or
not. In no, then it is sent check to the F.M. to correctly assign their code to the voucher. If
yes, them it is again sent to the internal auditor to check voucher, then edit list is
displayed on the accountant’s screen and he checks the voucher entry. If the finds any
error in the entry he asks back the K.P. to make the entry correct. If there is no error in
inputting the voucher then it is sent to be C.E. for final approval.

Data Security
We use the term “data security” to mean protection of the data in the data base against the
unauthorized or accidental disclosures, alteration or destruction. Realizing that perfect
security is unattainable, the objective of data security is to minimize the risk and
probability of loss and disclosure to the lowest affordable level.
There, In RTML, they are securing there data in following ways;
• Backup on daily basis.
• Protecting from unauthorized access
• Watchman
• UPS ( Non-interruptible Power Supply)
• Stabilizer

33
We have already described that TWML is running their computer network under the
environment of W.S. Operating Systems. Their Operating systems provides them the
facility to set different level passwords. Each level may be allocated different rights that
are pre-specified. They are using five levels of data securing and only the authorized
person can access the system up to the extent they have authority. These levels are as
follows;

SYSTEM LEVEL SECURITY

This is highest level of security. It has all the possible rights. It has access to change the
different operating system protocols. It can change the different passwords. It can modify
the levels of rights given to different users. In RTML it is carried by Muhammad Tousef
the head of MIS Department.

MANAGER LEVEL SECURITY

This is the top most level in operational work. This level is also held by manager MIS
Dept. under this level, the manager can perform any kind of activity regarding the
management of the data also hold this level.

USER’S LEVEL SECURITY

This is also called the K.P. level. At this level user of the system have the minimum
rights. Their main work is to input the data and to generate different reports.

MOBILIZATION OF FUNDS

For fulfilling the cash requirement, an efficient cash management system is maintained
by the Reliance Weaving Mills Ltd. In this organization highly qualified financial
experts manage its mobilization of funds by slowing disbursements. This means when
cash has to flow outside the organization, it tries to delay such payments for some days so
that the receiving party doesn’t feel it. Now the Banks has made it more convenient for
the businessman. Banks provide the short-term loan facility in order to meet the short-

34
 term needs. Reliance Weaving Mills Ltd. is also enjoying this facility. Assistant Finance
Manager of the organization tries to purchase maximum raw material on credit with
promise to pay in future. This situation allows company to utilize the fund in other profit
earning activities. The opportunity is availed and suitable amount of money is earned in
shape of profit by delaying the disbursements.

GENERATION AND SOURCES OF FUNDS

Funds are generated by the sale activities of the company during the year. After the
preparation of Profit & Loss Account the amount of generated fund is known. The
source of funds of last five years is presented below for ready reference.

Sources 2010 2009

Capital 205,406,250 205,406,250

Reserves 457,348,084 356,963,536

Long Term Finances/Loans:

From Saudi Pak Investment Co. - Term Finance 40,933,330 11,615,776

From United Bank Limited demand finance I 139,375,000 161,675,000

From United Bank Limited demand finance II 7,873,290 11,813,290

From NBP Ltd. demand finance 105,135,669 119,829,287

From HBL - demand finance 15,199,196 45,533,194

From HBL - Fixed Asset Financing 175,911,990 175,911,990

Short Term Finances/Loans:

Creditors, accrued and other liabilities 89,051,800 105,086,055

Finance of mark up arrangements & cr. Facilities 694,602,080 472,032,230

35
 Reliance Weaving Mills Ltd.
Cash Flow Statement
For the Year Ended September 30, 2010.
2010 2009
Rupees Rupees
Cash flow from operating activities
Cash generated from operations 132,354,184 71,326,144
Finance cost paid (85,309,483) (87,527,678)
Taxes paid (26,853,605) (26,902,424)
Gratuity paid (2,738,703) (1,304,274)
Net cash from operating activities 57,452,393 (44,408,232)
Cash flow from investing activities
Fixed capital expenditure (93,036,233) (274,879,907)
Sale proceeds of fixed assets 8,070,330 4,029,633
Long term security deposits (215,618) -
Net cash used in investing activities (85,181,521) (270,850,274)
Cash flow from financing activities
Redemption of TFCs (42,857,142) -
Proceeds from long term loans - 295,741,277
Repayment of long term finances (78,790,062) (203,031,667)
Liabilities against assets subject to finance lease (13,576,776) (11,789,326)
Dividend paid (15,326,357) (15,288,339)
Net cash used in financing activities (150,550,337) 65,631,945
Net decrease in cash and cash equivalents (178,279,465) (249,626,561)
Cash and cash equivalents at beginning of the year (464,758,832) (215,132,271)
Cash and cash equivalents at the end of the year (643,038,297) (464,758,832)

ALLOCATION OF FUNDS

Analysis of Balance sheet is elaborated below which shows the funds allocated to
different assets and liabilities for the year 2010. The analysis of Balance Sheet shows
that the funds allocation to different assets and liabilities is as under for the year
2010.

36
 LIABILITIES ASSETS
Issued subscribed and paid up capital 205,406,250 Operating fixed assets 1,074,047,252
reserve for bonus shares capital work in progress 54,948,865
capital reserve share premium 136,162,500 long term deposits 2,421,340
general reserve 300,000,000 Current Asset
Un-appropriated Profit 21,185,584 stores, spares and loose tools 72,580,056
Redeemable Capital stock in trade 556,956,873
Long term loans 421,845,190 Trade debts 141,435,098
Liabilities against Finance Lease loans, advances, deposits, 91,390,340
Employee retirement benefits 2,413,983 cash and bank balances 51,563,783
Current Liabilities
short term bank borrowings 694,602,080
current portion of long term liabilities 171,480,455
Creditors, accrued and other liabilities 67,020,033
Provision for taxation 22,031,767
Dividends 3,195,765
Total 2,045,343,607 Total 2,045,343,607

CRITICAL ANALYSIS OF THE THEORETICAL CONCEPTS

RELATING TO PRACTICAL EXPERIENCES

There are many theoretical concepts, which are not used practically in this organization
but the basic accounting and finance operations are applicable practically. As far as
accounting policies and business ethics in the Reliance Weaving Mills Ltd. is concerned,
is according to rules and regulations of the government policies. Legal preceding are
made in accordance with the company ordinance 1984. All matter relates to accounts i.e.
sales tax, excise tax, audit of the company etc. is done practically in this organization. I
analyze that:
Accounting system is designed in such way that there is minimum expectation about
fraud and omission of entries.
a. Accounting system of this organization has made the internal check very strict.
b. The internal audit department of this organization is much effective and provides
useful information for the decision making.
c. There is quick retrieval of posting of entries that works automatically.

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 FINANCIAL ANALYSIS:

Financial analysis is designed to determine the relative strengths and weaknesses of a

Company. Financial analysis concentrates on financial statements analysis, which
highlights the key aspects of a firm’s operation. Financial statements analysis involves a
study of the relationships between income statement and Balance Sheet accounts, how
these relationships change overtime (trend analysis) and how a particular firm compares
with other firms in its industry (comparative analysis). Although financial analysis has
limitation, when used with care and judgment, it can provide some very useful in sight
into the operations of a company. The income statement summarizes the firm’s revenues
and expenses over the past year. Earning per share (EPS) is called “the bottom line”’
denoting that all of the items on the income statement, EPS is the most important.
The Balance Sheet shows the firm’s assets an the claims against those assets. It portrays
the financial condition at a point in time. Assets, found on the left-hand side of the
balance sheet, are typically shown in the order of their liquidity. Claims, found on the
right-hand side are generally listed in the order in which they must be paid.
Trend analysis looks at the trend of single ratio overtime. Trend analysis can provide
clues as to whether the firm’s financial situation is improving, holding constant, or
deterioration Comparative analysis compares the firm’s ratios with industry average
ratios and/or the ratios of leading competitors. Such analysis is another technique for
analyzing a firm’s financial statements. To create common size statements, all income
statement items are divided by sales, and total assets divide all balance sheet items. Thus,
a common size income statement shows each item as a percentage of sales, and a
common size balance sheet shows each item as a percentage of total assets. Different
operation policies, such as the decision to lease rather than to buy equipment may have an
impact on financial ratios. Information on the firm’s non-capitalized lease agreements,
on its pension plan, on its recent acquisitions and divestitures, or its accounting policies,
and so forth can be found in the notes to the financial statements and should be

38
considered by the analyst. In the financial analysis, following three techniques have been
used; these are Ratio analysis, Horizontal and vertical analysis.

TABLE OF DIFFERENT RATIOS

2005 2006 2007 2008 2009 2010

Leverage Ratios:
Debt Equity Ratio 60:40 46:54 60:40 57:43 57:43 47:53
Interest Cover Ratio(times) 1.76 2.46 1.36 1.52 2.00 2.52
Liquidity Ratios:
Current Ratio 47:53 51:49 54:46 51:49 52:48 49:51
Acid Test(Quick) Ratio 0.50 0.71 0.53 0.37 0.31 0.20
Efficiency Ratios:
Total Assets Turnover Ratio (Times) 0.82 1.06 0.85 1.29 1.32 1.40
Fixed Asset turnover(times) 1.67 2.03 1.50 2.01 2.07 2.40
Profitability Ratios:
Gross Profit Ratio 16.14% 24.61% 15.58% 15.30% 12.90% 10.46%
Net Profit Ratio 4.28% 10.95% 1.58% 2.66% 4.15% 4.21%
Inventory Turnover(times) 4.90 5.69 6.44 7.91 5.76 5.00
Return on Capital Employed 10.12% 33.09% 14.33% 16.66% 16.48% 16.85%
Market Value Ratios:
Per Share (Rs.)
Break-up Value 20.80 28.61 23.69 22.84 26.63 32.27
Cash Dividend 1.25 5.25 0.75 0.75 0.75
Earning Per Share 3.13 10.5 2.67 2.82 4.54 5.64

Each above have been applied for the years 2005, 2006, 2007,2008,2009,2010.

COMMENTS
Leverage shall be considered from two view points i.e. operating leverage and financial
leverage. Since if we analyze the income statement ratio of fixed production cost to that
of variable cost in not so high or reasonable. Therefore, as the company is not under
heavy debt and loans are not quite old therefore rate of interest is also reasonable. This is
the vital aspect of the better financial management.
Liquidity ratio shows whether the organization is able to its creditors in the hour of need
or not. Current ratio shows that this organization has current assets of Rs. 0.96 for every

39
Rs. 1 of current liabilities. Quick ratio tells us that in the hour of need this organization
can pay Rs. 20 for every Rs. 1 of current liabilities.
Total assets turnover ratio shows how hard the firm assets are being put to use. It
measures the revenue generated per rupee of assets. For 2004 total assets turnover ratio
is 1.40 times.
Net profit / (loss) indicates that the profit ranges from 1.58% to 10.95% in the last six
years. It indicates that the co. never suffers loss for any of the year; and now continuously
the company’s profit is increasing but the more important is that the company’s business
volume is expending rapidly. This is a sign of rapid growth.
If we overview all the financial ratios of Reliance Weaving Mills Ltd. then it comes to
know that this organization is rapidly expanding its business volume.
Most of earning is paid towards administrative expenses and raw material because of this
liquidity of this company is ultimately affected. And the ratio is less than 1:1.
Graphic depiction of important ratios is given in figures I to VI.

40
 HORIZONTAL & VERTICAL ANALYSIS OF RWML
BALANCE SHEET ANALYSIS

2010 2009 2008 2007 2006

ASSETS
Operating fixed assets 1,074,047,252 1,151,456,788 963,961,057 537,836,670 585,592,036
capital work in progress 54,948,865 11,143,923 40,260,082 475,214,695 67,435,944
long term deposits 2,421,340 4,027,780 4,027,780 3,996,550 650,550
Current Assets:
stores, spares and loose tools 72,580,056 72,746,915 38,527,545 36,333,854 19,641,030
stock in trade 556,956,873 429,009,085 249,798,561 185,452,931 142,680,978
Trade debts 141,435,098 132,478,254 73,023,993 304,471,808 320,084,928
loans, advances, deposits, 91,390,340 91,192,017 96,656,807 87,695,275 58,545,904
cash and bank balances 51,563,783 7,273,398 36,897,243 10,514,208 111,196,417

Total 2,045,343,607 1,899,328,160 1,503,153,068 1,641,515,991 1,305,827,787

LIABILITIES
Issued subscribed and paid up capital 205,406,250 205,406,250 205,406,250 164,325,000 109,550,000
reserve for bonus shares - - - - 27,387,500
capital reserve share premium 136,162,500 41,081,250 41,081,250 41,081,250
general reserve 300,000,000 300,000,000 200,000,000 100,000,000 100,000,000
Un-appropriated Profit 21,185,584 476,817 22,660,143 83,894,927 76,496,986
Redeemable Capital 107,142,858 150,000,000
Long term loans 421,845,190 438,306,846 352,395,341 472,654,396 314,103,910
Liabilities against Finance Lease 12,834,692 25,026,591 34,838,087
Employee retirement benefits 2,413,983
Current Liabilities:
short term bank borrowings 694,602,080 472,032,230 252,029,514 504,643,382 397,588,859
current portion of long term liabilities 171,480,455 144,505,609 91,085,082 86,055,167 62,438,535
Creditors, accrued and other liabilities 67,020,033 135,028,920 124,046,467 114,959,651 147,648,360
Provision for taxation 22,031,767 13,990,566 21,017,438 20,797,245 11,111,902
Dividends 3,195,765 18,522,122 18,404,992 18,266,886 59,501,735

Total 2,045,343,607 1,889,328,160 1,503,153,068 1,641,515,991 1,305,827,787

41
INTERPERTATION
This analysis is describing the five year balance sheet. So, it enables us to observe the
comparative progress of the company in these five years in each face item of the balance
sheet. It is clear from this table that the operating fixed assets have an increasing trend in
the company that these are Rs. 585.60 million in 2006 whereas after 2008 these remains
more then 964 million. As for as the current asset are concerned these are also increasing
as the business is expanding annually so the requirements of funds to met day to day
needs are also increasing which resulted into increase in the current assets.
Share capital of the company was Rs. 109.56 million in the year which was raised up to
163.33 million in the year 2007. Furthermore business expansion necessitated the further
issuance of share capital of 41.8 million and share capital figure reached to Rs. 205.41
million in 2008. Capital Reserves of the firm were also raised up to Rs. 136.16 million in
the year 2010 from 41.08 million in the previous years

General reserves of the co. were also increased from 100 million to 200 million in the
year 2008 and this amount was further raised to Rs. 300 million in the year 2009.

Long term loans are relatively less raised though the firm has expanded its business
volume. As for as, the current liabilities are concerned, the need to meet the business
requirements was raised therefore firm has to depend more on the current liabilities.
These are not bearing high interest rates therefore these are economical then that of the
long term liabilities.

In nutshell the comparative figures of the last five years revealed that the company’s
progress is increasing rapidly in terms of its business worth and also its business volume.
As the company’s total assets were Rs. 130.50 million which are now increased up to
Rs.2045 million which is a good sign.

42
 VERTICAL ANALYSIS OF BALANCE SHEET

2010 2009 2008 2007 2006

ASSETS
Operating fixed assets 52.51 60.62 64.13 32.76 44.84
capital work in progress 2.69 0.59 2.68 28.95 5.16
long term deposits 0.12 0.21 0.27 0.24 0.05
Current Assets:
stores, spares and loose tools 3.55 3.83 2.56 2.21 1.50
stock in trade 27.23 22.59 16.62 11.30 10.93
Trade debts 6.91 6.98 4.86 18.55 24.51
loans, advances, deposits, prepayments and
4.47 4.80 6.43 5.34 4.48
other receivables
cash and bank balances 2.52 0.38 2.45 0.64 8.52
TOTAL ASSETS 100.00 100.00 100.00 100.00 100.00
EQUITIES 2004 2003 2002 2001 2000
SHARE CAPITAL & RESERVES
Issued subscribed and paid up capital 10.04 10.87 13.67 10.01 8.39
reserve for bonus shares 2.10
capital reserve share premium 6.66 2.17 2.73 2.50 0.00
general reserve 14.67 15.88 13.31 6.09 7.66
Un-appropriated Profit 1.04 0.03 1.51 5.11 5.86
Redeemable Capital 0.00 5.67 9.98 0.00 0.00
LIABILITIES:
Long term loans 20.62 23.20 23.44 28.79 24.05
Liabilities against assets subject to Finance
0.00 0.68 1.66 2.12 0.00
Lease
Employee retirement benefits 0.12 0.00 0.00 0.00 0.00
Current Liabilities:
short term bank borrowings 33.96 24.98 16.77 30.74 30.45
current portion of long term liabilities 8.38 7.65 6.06 5.24 4.78
Creditors, accrued and other liabilities 3.28 7.15 8.25 7.00 11.31
provision for taxation 1.08 0.74 1.40 1.27 0.85
Dividends 0.16 0.98 1.22 1.11 4.56
TOTAL LIABILITIES 100.00 100.00 100.00 100.00 100.00

43
INTERPERTATION
This analysis is showing the relationship of each item of the balance sheet in ratio to the
total assets. It is clear from this analysis that how much of the assets are being kept in
which form at this company. The same depiction of the equities side is also provided.

Moreover comparative information of the five years enables us to judge the company’s
progress in this time period. Operating fixed assets were 45% of the total assets in the
year 2006 whereas these are forming a 65% part of the total assets in the year 2007 which
shows that company has increased its fixed assets surely is due to the increase in the
share capital. Company has raised its share capital to fulfill the requirement of funds for
expansion. Long term deposits are also very short which tells us that company has
expanding its business activities therefore it doesn’t have extra funds to put in long term
deposits. As for as the stores of the company are concerned these are also increasing as
compare to the figure of 2008. The reason of such increase is that by the expansion in
business volume it requires more store and stock for ensuring the continuity of operations
which is of intense importance in such industries.

The ratio of stock in trade and trade debts is increasing annually, which is showing that
now company needs more working capital.

On the other side the company has issued its further shares to raise funds in 2007 and
2009 Rs. 54.28 million and 41.09 million respectively to meet the business needs. With
this share capital induction the owner’s equity portion was raised in these years as
compare to 2007. The share capital was 13.67% of the total assets in year 2007 whereas
this ratio was declined in the year 20010 because respective portion of general reserve is
increased from Rs. 200 million to a Rs. 300 million. And further more, the current
liabilities are also increased to meet the working capital needs.

44
 Long term loans are 28.79% in the year 2008 where as this ratio was decreased to 20.62%
in the year 2010.

In nutshell it is clearly understood that the short term liabilities of the co. are increasing
and long term liabilities are decreasing which is a good sign but the negative point of
RWML’s is that its current assets are less then the current liabilities i-e Co. is not in a
position to meet its current liabilities. Rest of the position of the company is sound and
having good repute as well as rapid business growth also.

HORIZENTAL ANALYSIS OF BALANCE SHEET

2010 2009 2008 2007 2006

LIABILITIES
Issued subscribed and paid up capital 187.50 187.50 187.50 150.00 100.00
reserve for bonus shares 100.00
capital reserve share premium
general reserve 300.00 300.00 200.00 100.00 100.00
Un-appropriated Profit 27.69 0.62 29.62 109.67 100.00
Redeemable Capital
Long term loans 134.30 139.54 112.19 150.48 100.00
Liabilities against assets subject to Finance Lease
Employee retirement benefits
Current Liabilities:
short term bank borrowings 174.70 118.72 63.39 126.93 100.00
current portion of long term liabilities 274.64 231.44 145.88 137.82 100.00
creditors, accrued and other liabilities 45.39 91.45 84.01 77.86 100.00
provision for taxation 198.27 125.91 189.14 187.16 100.00
Dividends 5.37 31.13 30.93 30.70 100.00
TOTAL LIABILITIES 156.63 144.68 115.11 125.71 100.00

45
INTERPERTATION
Here I have attempted to show the company’s progress considering the year 2006 as a
base year i-e how much company has expanded its business. It is basically the depiction
of company’s growth form the year 2006 and up to the current year 2010.

Share capital was increased 150% in 2007 as compare to the paid up capital of 2006.
Whereas, the share’s value was increased up 187.50% of the figure in 2006 then it was in
the year 2008 and onward.

General Reserve figure is increased by 300% in last four years. But the un-appropriated
profit is decreased by 73% in the 2010 as compare to the 2006. Long term loans were
also increased in the 2002 but the same were reduced after 2009.

More critical is that the short term borrowings are increased 175% and the major reason
of this increase is that most of the long term loans are achieving their maturity in these
years therefore the current portion of long term liabilities is increased by 274% which is
much higher. This is the major reason of having week current ratio.

Provision for taxation is also increased by 200% (approx) that is due to the expansion of
business growth.

46
 PROFIT AND LOSS ANALYSIS

2010 2009 2008 2007 2006

Sales 2,750,397,914 2,236,762,562 2,032,159,094 1,252,560,023 1,306,887,918
Cost of Goods Sold 2,462,611,361 1,962,481,594 1,721,195,792 1,057,331,258 985,287,197
Gross Profit 287,786,553 274,280,968 310,963,302 195,228,765 321,600,721
Operating Expenses:
Administrative Expenses (30,273,916) (28,341,359) (25,469,915) (27,366,056) (19,089,432)
Distribution and Marketing
(39,805,128) (31,940,503) (64,920,432) (33,830,380) (42,575,769)
Exp.
other operating Expenses (9,861,175) (8,023,011)

Other Operating Income 337,342 13,955,016

Profit from Operation 208,183,676 219,931,111 220,572,955 134,032,329 259,935,520

Finance cost (82,496,217) (111,302,656) (145,384,832) (98,743,210) (105,759,182)

Profit Before Taxation 125,687,459 108,628,455 75,188,123 35,289,119 154,176,338

Taxation (9,897,442) (15,406,312) (21,017,438) (15,566,803) (11,111,902)

Profit After Taxation 115,790,017 93,222,143 54,170,685 19,722,316 143,064,436

INTERPRETATION
Profit and loss of the five years are provided here comparatively. From the above figure
we can see that company’s sales are increasing rapidly which is a sound signal of rapid
business growth. In contravention to the above growth signal the cost of goods sold of
company was also increasing, The company’s sales were increased in 2008 by 800
million (approx) whereas increase in the cost of goods sold was high than that of the
increase in the sales in 2009. Therefore, the gross profit of the company was decreased.

In the year 2010 the sales of the company were reached at peak of Rs. 2750.40 million
where as cost of goods sold of the company was also increasing as the business volume is
expanding continuously. The gross profit of the company decreased in the year 2009 as
compare to the gross profit of 2008. The reason of this is the comparatively more increase
in cost of goods sold than that of the sales.

47
As we now that long term loans were raised in 2007 by 150% that’s why the finance cost
of the company was raised in the preceding year 2008 that was reached to its maximum
of Rs.145 million which reduces the profit before taxation than that of in the year 2006.
Whereas now in 2004 most of the long term loans were paid in 2008 & 2009 the finance
cost is much reduced. Marketing and distribution expenses are controlled in the 2009 &
2010. That is a factor to good profitability of company in these years.

VERTICAL ANALYSIS OF PROFIT & LOSS ACCOUNT

2010 2009 2008 2007 2006

Sales 100.00 122.96 135.34 219.58 210.45

Cost of Goods Sold 89.54 110.10 121.18 196.61 188.43
Gross Profit 10.46 12.26 15.30 15.59 24.61
Operating Expenses:
Administrative Expenses (1.10) (1.27) (1.25) (2.18) (1.46)
Distribution and Marketing Exp. (1.45) (1.43) (3.19) (2.70) (3.26)
other operating Expenses (0.36) (0.36) 0.00 0.00 0.00
Other Operating Income 0.01 0.62 0.00 0.00 0.00
Profit from Operation 7.57 9.83 10.85 10.70 19.89
Finance cost (3.00) (4.98) (7.15) (7.88) (8.09)
Profit Before Taxation 4.57 4.86 3.70 2.82 11.80
Taxation (0.36) (0.69) (1.03) (1.24) (0.85)
Profit After Taxation 4.21 4.17 2.67 1.57 10.95

INTERPERTATION
Above figures are showing gradually decreasing percentage of gross profit, provided that
the sales of the company are increasing annually. So, it is clear that the cost of goods sold
is relatively more increasing than of its sales. In 2010 the operating expenses are just
7.57% of the sales than these were 20% in the year 2006. i-e the increasing of trend in the
operating expenses is relatively slow than the sales. Profit before taxation ratio is more in
the year 2010 than that of just 2.82% and 3.70% in the years 2008 & 2009 respectively; it
is due to reduction of finance cost in current year. Though the gross profit of the
company has a decreasing trend, the profit after taxation ratio is relatively raising which
shows that beyond the annual increase in the cost of goods sold, other operations of the
company are being driven on the right track. It is the vertical analysis of profit and loss
accounts of the company.

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 HORIZONTAL ANALYSIS OF PROFIT & LOSS ACCOUNT

2010 2009 2008 2007 2006

Sales 210.45 171.15 155.50 95.84 100.00
Cost of Goods Sold 249.94 199.18 174.69 107.31 100.00
Gross Profit 89.49 85.29 96.69 60.71 100.00
Operating Expenses:
Administrative Expenses 158.59 148.47 133.42 143.36 100.00
Distribution and Marketing Exp. 93.49 75.02 152.48 79.46 100.00
other operating Expenses
Other Operating Income
Profit from Operation 80.09 84.61 84.86 51.56 100.00
Finance cost 78.00 105.24 137.47 93.37 100.00
Profit Before Taxation 81.52 70.46 48.77 22.89 100.00
Taxation 89.07 138.65 189.14 140.09 100.00
Profit After Taxation 80.94 65.16 37.86 13.79 100.00

INTERPERTATION

This horizontal analysis of the profit and loss account describes the comparative
information of above five year. Sales are 210% more than these were in 2006. It shows
annual increase in the sales volume. It is obvious that the marketing department is
efficient as for as the sales volume is concerned. RWML’S cost of goods sold is also
249% increased. It is an alarming increase in today’s competitive era.

As the Company’s cost of goods sold is 30% extra increased than that of the increase in
sales. Due to the higher cost the selling price of the product is also increased however, the
sales increasing ratio is low than that of cost.
This alarming increase in the cost of goods sold is due to the rise in the prices of raw
material consumed and packing material used. This increasing trend of cost of goods
sold has reduced the company’s gross profit ratio also.

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Company has controlled its marketing and respective administrative expenses in 2010
than that of in the last two years. Therefore, the Co. has better net profit ratio than that of
the last two years.

Over all if we see the company is loosing its profitability as it has more than 80% of the
profits in the year 2008. So we can say that the business is growing in its volume but not
in the profitability.

If we see from the investors point of view whose aim is to maximize their worth. This
business is effectively going on but the Co. is not increasing its profitability annually.

In the year 2004 the operation profits of the company were declined therefore the taxation
cost is also decreased in the year 2010. By reduction in the taxation cost, profit after
taxation rose in the 2010. Which were 37% & 65% in the years 2008& 2009 respectively
raised up to 81% in the year 2010.

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 SIX YEARS GROWTH AT A GLANCE (2005-2010)

PARTICULARS 2005 2006 2007 2008 2009 2010

OPERATIONAL PERFORMANCE:
Weaving
Number of Looms Installed 116 116 212 224 272 272
Number of Looms Worked 116 116 212 224 272 272
Std. Cloth Production(50ppi) into
16,085 16,085 16,085 37,355 42,092 42,092
meters(000)
Actual Cloth Production(50ppi) into
14,340 15,539 14,678 38,838 41,333 46,688
meters(000)
Spinning
Number of Spindles Installed 14,400 14,400 14,400 14,400 14,400 14,400
Number of Spindles worked 14,400 14,400 14,400 14,400 14,400 14,400
Installed Capacity(after conversion20/s
Trial run 4,850 4,850 4,850 4,850 4,850
count)KGS(000)
Actual Yarn Production(after con. 20/s
Trial run 4,234 4,294 4,203 4,124 4,056
count)KGS(000)
PROFIT AND LOSS:
Net Sales(000) 800,382 1,360,888 1,252,560 2,032,159 2,243,856 2,750,398
Gross Profit(000) 129,202 321,601 195,229 310,963 289,381 287,787
Operating Profit(000) 94,610 259,935 134,032 220,572 217,636 208,184
Profit before Tax(000) 40,834 154,176 35,289 75,188 108,628 125,687
Profit after Tax(000) 33,936 143,064 19,722 54,171 93,222 115,790
Dividends Including Bonus Shares(000) 13,694 84,902 12,324 15,405 15,405
Dividend Declared Percentage 12.50% 52.50% 7.50% 7.50% 7.50%
BALANCE SHEET:
Share Capital and Reserves(000)
Shareholders Funds 227,884 313,435 348,220 428,066 505,883 621,673
Capital Reserves - - 41,081 41,081 41,081 41,081
227,884 313,435 389,301 469,147 546,964 662,754
Property Plant and Machinery(000) 334,756 653,028 1,013,051 1,004,221 1,162,601 1,128,996
Current Assets(000) 526,659 652,149 624,468 494,904 722,700 913,926
Current Liabilities(000) 598,707 678,254 744,722 506,583 784,079 958,330
Long Term Loans (000) 341,891 314,104 507,492 527,422 558,284 424,259
INVESTOR INFORMATION :
Per Share (Rs.)
Break-up Value 20.80 28.61 23.69 22.84 26.63 32.27
Cash Dividend 1.25 5.25 0.75 0.75 0.75
Earning Per Share 3.13 10.5 2.67 2.82 4.54 5.64
Market Value per Share
Ratios
Gross Profit Ratio 16.14% 24.61% 15.58% 15.30% 12.90% 10.46%
Net Profit Ratio 4.28% 10.95% 1.58% 2.66% 4.15% 4.21%
Inventory turnover(times) 4.90 5.69 6.44 7.91 5.76 5.00
Fixed Asset turnover(times) 1.67 2.03 1.50 2.01 2.07 2.40

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Total Asset turnover(times) 0.82 1.06 0.85 1.29 1.32 1.40
Price Earning Ratio
Return on Capital Employed 10.12% 33.09% 14.33% 16.66% 16.48% 16.85%
Debt Equity Ratio 60:40 46:54 60:40 57:43 57:43 47:53
Current Ratio 47:53 51:49 54:46 51:49 52:48 49:51
Acid Test(Quick) Ratio 0.50 0.71 0.53 0.37 0.31 0.20
Interest Cover Ratio(times) 1.76 2.46 1.36 1.52 2.00 2.52

COMPETITOR ANALYSIS

To compare this organization with other similar organization; I have selected Allah
Wasaya Textile Mills Limited (AWTML) Multan. The company was incorporated in
Pakistan as a public limited company on January 31, 1985. Its shares are quoted on the
Karachi and Lahore stock exchanges. The company is principally engaged in
manufacturing and sale of yarn and woven fabrics. The comparison between
organizations can be analyzed as under.

COMPARISON OF DIFFERENT RATIOS

NET PROFIT/ (LOSS) RS. In (000)

Year AWTML RTML
2006 -61961 143064
2007 -63472 19722
2008 -46387 54171
2009 -74229 93222
2010 -51414 115790

Financial Charges (%) of Sales

Year AWTML RTML
2006 33.49 8.09
2007 36.03 7.88
2008 18.42 7.15
2009 19.66 4.98
2010 20.43 3.00

Current Ratio
Year AWTML RTML
2006 0.216 1.04

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 2007 0.202 1.74
2008 0.052 1.04
2009 0.038 1.08
2010 0.037 0.96

Quick Ratio
Year AWTML RTML
2006 0.160 0.71
2007 0.190 0.53
2008 0.033 0.37
2009 0.028 0.31
2010 0.023 0.20

Earning Per Share

Year AWTML RTML
2006 -11.97 10.50
2007 -12.27 02.67
2008 -8.96 02.82
2009 -14.34 04.54
2010 -9.94 05.64

COMMENTS
This is the comparison of the two units involving in same business and it shows that
Reliance Weaving Mills Ltd has batter Financial Position then Allah Wasaya Textile
Mills Ltd. RTML is earning profit while AWTML is suffering loss. The ratios stated
above clearly indicate that RTML is performing well as compared to AWTML in the
Textile sector.

FUTURE PROSPECTS OF THE ORGANIZATION

The economic indicators of our economy have shown a healthy trend and the GDP
growth rate has been in excess of 6%pa and this growth rate I expected to be at 8%

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annually in medium term future. The recent upgrading of Pakistan’ long term Sovereign
Credit Ratings by one notch, to ‘B+’ for foreign currency and ‘BB’ for local currency
reflects the sustained economic progress. The shifting of the country’s borrowings from
the IMF to international capital markets also indicates the country’s economics
sovereignty & stability. However rising inflation and simultaneously increasing interest
rates if remained unchecked will be affecting profitability of businesses.

With overall positive indications for the economy’s future and huge infrastructural
investments made by the textile sector in recent years, the future seems to be promising
for the industry. Your management also anticipates a promising future for the company
and is hopeful that the declining trend of the company’s profit margins will be checked
and improved in coming years (Insha-a-Allah) as:
1. with commissioning of the 2nd spinning unit of the company, almost 70% of
the yarn demands will be met in house thus enabling the company to take
advantage of price efficiency and other synergy effects of its increased backwards
integration;
2. to further strengthen its weaving capacity the management decided to add 48
more looms in its weaving unit # 2, This investment will enable the company to
capture more orders without comprising on its quality;
3. the company has also made its presence in the local fabric market where the
company as it ill enable to claim tax depreciation for on-going capital expansion
in proportion to its local sales:
4. the management recognizes the importance of marketing pricing and customer
relationship shills to maximize its shareholders value. A substantial increase in
current year’s marketing expense also evidences management’s effort in this area.

SHORTFALLS/WEAKNESSES OF FINANCE
DEPARTMENT
During the internship period, Following are my findings regarding the weaknesses of the
finance department:

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  Increase in prices of raw material has increased the cost o production and the
company has been suffering from gross loaded for many years. Heavy interest on
loans is also one of the reasons of the increasing cost of production.

 Short term running finances and current liabilities cost in very much to the
company and a comprehensive amount of funds is consumed on interest.

 Long term loans are not arranged for the company in suitable amount as compare
to short-term loans which is required to be arranged. That’s why the company’s
current ratio is lower than the standard.

 The drawbacks of short term financing are:

• Interest rates fluctuates more often

• Refinancing frequently needed

 RTML having liquidity problem may stretch its accounts payable however among
the disadvantages of doing so is the giving up of any cash discount offered which
may increase the probability of lowering its credit rating.

CONCLUSIONS & RECOMMENDATIONS FOR

IMPROVEMENT
Following are the suggestions for improvements in the financial position of the company.
1. Company should maintain a reserve to meet short-term needs. Moreover
short-term loans and finances should be taken very carefully because large
amount of funds are being consumed in this regard by paying interest on them.
Long-term loans should also be arranged from financial institutions on low
interest rates.

2. A training programme is also required to be started for employee to enhance

their working skills and grow the same up to International standards.

3. The cost of production is very high, the company needs more concentration on
reducing the cost of production.

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 4. The company is required to finalize the working of the 2nd spinning unit so
that, the raw material needs can be fulfilled up to 70%. It will contribute much in
reducing the cost.

5. The company has to hedge the foreign currency liabilities which are due
within the next four months. This can be effectively managed by entering into
forward exchange contracts for the management of currency risk.

6. Company should manage its interest rate risk by contracting minimum and
maximum interest rates, it will enable the company to manage the significant
interest rates and cash flow risks exposures.

REFERENCES AND SOURCES USED

Following are the sources and references I have consulted during my internship period.

1. Annual Reports of Reliance Weaving Mills Ltd. Multan, for the last five years
provided by the finance department.

2. Books consulted for the theoretical knowledge

i. Fundamental of Financial Management (James C. Van Horne)
ii. Managerial Finance (Shim & Seagle)

3. Face to Face meeting with the following:

Mr. Mukhtar Blouch

(C.A.-Finalist)
Manager Accounts

Mr. Hamid Mehmood

(MBA-Finance)
Manager Finance

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