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Millat Tractors... (Inventories)
Millat Tractors... (Inventories)
Project Report
Group Members:
Reg. #
Junaid Subhani
L4F14MCOM0017
L4F14MCOM2005
Muhammad Iftikhar
L4F14MCOM0014
Omer Gul
L4F14MCOM0023
Mian Usman
L4F14MCOM0024
Course:
Financial Accounting
Topic:
Millat Tractors
Submitted To:
Prof. Abid Noor
Submission Date:
10/03/2015
Financial Accounting
Page 1
Page 2
Hydraulic Lift Cover, Front Axle Support and Centre Housing are all being machined most
successfully in-house at MTL from locally sourced castings.
In 1992, the production of Millat Tractors was just 8,000 units per annum with variety of only 2
main products, now the annual production is reached from 8,000 units to 45,000 units with
variety of 8-different main models. Moreover, the company looks to the future with optimism
and plans to broaden its customer base. Consequently the opportunities are being explored in
multi-application of engines and tractors in areas other than farming sectors. Mass Production of
Generating Sets was started in 1994, while a 3-Ton Fork Lift Truck branded as Millat, based on
TCM technology was launched in the year 2002.
In addition, Millat Tractors Limited has been the regular recipient of the Corporate Excellence
Award of Management Association of Pakistan and the Top Companies Award of Karachi Stock
Exchange, since early eighties. MTLs Annual Report has been acknowledged as the Best Annual
Report by the Institute of Chartered Secretaries and Admin Association of Pakistan for several
years.
1: Technology
2: Environment
3: Innovation
4: Disaster
5: competitor
6: Agriculture sector
Financial Accounting
Page 3
depreciation
2013
2012
2011
2010
2009
Rs. in thousand
Rs. in thousand
Rs. in thousand
Rs. in thousand
Rs. in thousand
Rs. in thousand
22,698,651
4,010,267
3,175,819
3,172,972
2,138,646
3,296,625
20,133,130
3,433,817
2,639,248
2,875,345
1,977,618
2,945,723
24,863,264
4,431,963
3,584,625
3,914,284
2,670,736
3,990,563
22,199,909
3,982,800
3,143,484
3,336,621
2,284,498
3,402,644
15,910,619
2,421,765
1,755,736
1,752,332
1,215,120
1,841,478
Rs. in thousand
402,660
366,055
366,055
292,844
234,275
&
amortization (EBITDA)
Balance Sheet
Summary:
Share capital
Financial Accounting
Page 4
General reserves
Property,
plant
Rs. in thousand
& Rs. in thousand
equipment
Noncurrent assets
Current assets
Current liabilities
Net working capital
Long term / deferred
liabilities
Profitability Ratios
Gross profit
Operating profit
Profit before tax
Net profit after tax
EBITDA margin
Operating leverage
Return on equity
Return on capital
employed
Return on assets
Liquidity Ratios
Current
Quick / Acid test
Cash to current liabilities
Cash
flow
from
3,306,590
448,375
3,368,710
415,926
2,766,678
435,516
2,467,776
411,759
2,220,776
405,618
Rs. in thousand
Rs. in thousand
Rs. in thousand
Rs. in thousand
Rs. in thousand
944,871
8,732,156
5,331,414
3,400,742
30,148
834,924
9,038,370
5,098,772
3,939,598
28,530
723,226
7,426,242
3,896,657
3,529,585
36,091
749,411
10,604,724
7,555,574
3,049,150
17,913
698,025
5,679,157
3,360,520
2,318,637
51,437
%
%
%
%
%
%
%
%
17.67
13.99
13.98
9.42
14.52
0.92
44.89
45.38
17.06
13.11
14.28
9.82
14.63
1.40
38.31
38.50
17.83
14.42
15.74
10.74
16.05
1.44
57.41
57.76
17.94
14.16
15.03
10.29
15.33
2.20
54.49
54.82
15.22
11.03
11.01
7.64
11.57
1.35
36.05
36.30
31.34
27.95
45.59
28.36
25.83
Times
Times
Times
Times
1.64 : 1
1.12 : 1
0.39 : 1
0.09 : 1
1.77 : 1
1.17 : 1
0.13 : 1
0.04 : 1
1.88 : 1
1.19 : 1
0.10 : 1
-0.01 : 1
1.39 : 1
1.05 : 1
0.15 : 1
0.19 : 1
1.67 : 1
1.03 : 1
0.30 : 1
-0.01 : 1
Times
Days
Times
Days
6.46
57
32.77
11
5.79
63
68.51
5
7.71
47
78.82
5
7.70
47
76.33
5
6.97
52
138.43
3
Times
Days
Times
Times
7.94
46
2.24
34.79
9.76
37
1.96
34.46
15.60
23
2.90
42.09
20.00
18
1.89
39.14
20.52
18
2.35
31.20
Days
22
31
29
34
37
Rs
53.11
49.11
72.96
62.41
41.49
operations to sales
Activity / Turnover
Ratios
Inventory turnover ratio
No. of Days in Inventory
Debtor turnover ratio
No. of Days in
Receivables
Creditor turnover ratio
No. of Days in Creditors
Total assets turnover ratio
Fixed assets turnover
ratio
Operating cycle
Investment / Market
Ratios
Earnings per share
Financial Accounting
Page 5
(after tax)
Price earning
Dividend yield
Dividend payout
Times
%
ratio %
(after tax)
Dividend cover
Cash Dividend per share
Bonus per share
Market value per share:
Year end
During the year:
Highest
Average
Lowest
Break-up value per share
Capital
Structure
9.88
9.81
103.55
9.83
13.32
132.36
8.25
9.49
65.10
7.70
16.10
86.53
6.73
21.30
91.57
Times
Rs
%
1.02
55.00
19.00
0.83
65.00
-
1.54
47.50
-
1.16
65.00
25.00
1.09
45.00
25.00
Rs
524.99
482.85
601.71
480.31
279.24
Rs
Rs
Rs
Rs
646.00
560.50
475.00
118.31
625.80
487.95
350.09
141.01
610.70
500.35
390.00
127.09
529.25
403.63
278.01
143.16
302.00
211.27
120.54
143.88
0 : 100
52.02
0 : 100
499.76
0 : 100
504.83
0 : 100
395.73
0 : 100
46.28
Ratios :
Debt to Equity ratio
Times
Financial
charges Times
coverage.
Financial Accounting
Page 6
Competitor Analysis:
Ratio Analysis
For the year 2013
Ratios
Liquidity :
Millat Tractors
Al Ghazi Tractors
Current ratios
Quick ratios
1.64 : 1
1.12 : 1
6.09
4.99
Times
Times
17.67
13.99
13.98
9.42
14.52
44.89
31.34
22.34
17.76
21.84
14.81
18.18
16.69
22.16
%
%
%
%
%
%
%
4.45
Times
57
82
Days
11
11
Days
46
2.24
49
0.94
Days
Times
34.79
22.90
Times
22
44
Days
53.11
31.94
Rs,
6.65
11.77
83.74
Times
%
%
Profitability
Ratios:
Gross profit
Operating profit
Profit before tax
Net profit after tax
EBITDA margin
Return on equity
Return on Assets
Activity
Turnover Ratios
Inventory turnover 6.46
ratio
No. of Days in
Inventory
No. of Days in
Receivables
Days in Creditors
Total assets
turnover ratio
Fixed assets
turnover ratio
Operating cycle
Investment
Market Ratios
Earnings per share
(after tax)
Price earning
9.88
Dividend yield
9.81
Dividend
payout 103.55
Financial Accounting
Page 7
1.19
15.00
Times
Rs.
524.99
212.43
Rs.
646.00
475.00
246.73
193.89
Rs.
Rs.
0 : 100
52.02
1.01
40.69
Times
Times
Capital
Structure
Ratios:
Debt to Equity ratio
Financial charges
coverage
Trend of Inventory:
1: Inventry turnover
2: inventory Conversion period
Owing to increase in demand for tractors and related agro-implements, inventory of the company
increased exorbitantly. Thus, inventory turnover has been historically higher than the industry
average. As a result, the operating cycle of MTL has also lengthened over the years under
discussion. However, one can see a reversal in the previous trends with ITO reducing to industry
level thus bringing the overall operating cycle in line with the industry trend. This improvement
can be mainly attributed to the contracts for supply of spare parts of Millat generating sets and
Financial Accounting
Page 8
forklift trucks to institutions. The same trend continued in the following years. This is
encouraging given the depressing financial recession that had plagued the economy and posed to
penetrate in this sector.
The inventory turnover of Millat Tractors at 57 days is higher than the industry average of 33.01
days and that of al ghazi is 82 days. This indicates that inventory management at Millat Tractors
is poorer, thus requiring more number of days to sell the entire inventory stock on hand.
However, this can be expected with Millat Tractors' approach of meeting the unmet demand for
locally manufactured tractors. The day sales outstanding for Millat Tractors is also higher at 7.37
days compared to 6.87 days for the industry, due to the higher trade debts of Rs 347 million fort
Millat, compared to Rs 225 million for Al-Ghazi. This implies poorer receivables management at
Millat, although the higher receivables are to be anticipated in line with Millat's higher sales.
Overall, the operating cycle at Millat was recorded at 22 days, compared to 44 days for the
industry.
Hypothecation:
Borrowing costs are recognized as an expense in the period in which these are incurred except to
the extent of borrowing costs that are directly attributable to the acquisition, construction or
production of a qualifying asset. Such borrowing costs are capitalized as part of the cost of that
asset up to the date of its commissioning.
Financial Accounting
Page 9
Short term running finances are availed from various banks against aggregate sanctioned limit of
Rs. 4,414,000 thousand for the 2nd quarter (30 June 2013: Rs. 1,990,000 thousand). These
facilities have various maturity dates up to 31 October 2014 and renewable on the date of
maturity. These facilities carry mark-up rates ranging from one month KIBOR to six months
KIBOR plus 25 to 40 basis points (30 June 2013: one month KIBOR to six months KIBOR plus
25 to 40 basis points) per annum. These facilities along with import credit facility are secured by
way of first pari passu charge for Rs. 5,320,000 thousand on fixed assets and first joint pari passu
hypothecation charge of Rs. 5,890,000 thousand on stocks including but not limited to raw
materials, goods in process and finished goods of the Company. 6.2 The Company also has
aggregate sanctioned import credit facilities negotiated with various banks amount to Rs.
2,550,000 thousand (30 June 2013: Rs. 2,550,000 thousand). These facilities carry mark-up rates
ranging from one month KIBOR to six months KIBOR plus 40 to 50 basis points (30 June 2013:
one month KIBOR to six months KIBOR plus 125 to 150 basis points) per annum. These
available facilities are secured by way of joint pari passu, ranking hypothecation charge over
present and future current assets of the Company.
Short term borrowings are available from various banks against aggregate sanctioned limit of Rs.
2,074,000 thousand for the whole year (2012: Rs. 1,799,000 thousand). The rates of mark up
range between KIBOR plus 0.25% to KIBOR plus 0.5% (2012: KIBOR plus 0.2% to KIBOR
plus 0.5%) per annum.
The Company has facilities for opening of letters of credit and guarantees aggregating to Rs.
2,674,000 thousand (2012: Rs. 2,470,000 thousand) out of which Rs. 941,800 thousand (2012:
Rs. 1,104,780 thousand) remained unutilized at the end of the year.
These facilities are secured by pari passu hypothecation charge over current assets and book
debts of the Company, lien over import documents and counter guarantees of the Company.
Page 10
expected. Businesses that do not have reliable and constant daily inventory turnover, such as
seasonal businesses and heavy equipment businesses, know that cash flow will often be short and
can plan ahead. But more often business owners of all industries run into unexpected situations
where cash on hand is a lifesaver.
Inventory is a liquid asset (hence it being included in the current asset group) in accounting
terms. Companies can usually sell this inventory fairly quickly in order to pay bills and increase
cash to pay other operating bills. Most companies use accounts payable to pay for new inventory
purchases. Therefore, inventory affects working capital on both sides: asset and liability.
Companies are typically unable to purchase large amounts of inventory in order to improve their
working capital position. This metric ensures the company cannot mislead business stakeholders
through simple transactions.
In addition to analyzing the average number of days it takes to make a product (inventory days)
and collect on an account (accounts receivable days) vs. the number of days financed by
accounts payable, the operating cycle analysis provides one other important analysis. You can see
that working capital has a direct impact on cash flow in a business. Since cash flow is the name
of the game for all business owners, a good understanding of working capital is imperative to
making any venture successful.
Financial Accounting
Page 11