second part of report
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INTRODUCTONThe 21st century has witnessed unmatchable development in industrial sector. Further
industrialization benefited the mankind in various ways many shapes but it also put the
man before insurmountable industrial hazardous.
One of the most potent dangers is pollution and global warming. Due to the sensitivity
of the matter and its horrible consequences, the world scientists were compelled to sit
together to avert this threat and to minimize the threat perception. That is why
Atmosphere environment become the talk of the town.
In this context, Sitara Chemical Industries Limited amicably decided to cap hazardous
gas emissions effects and further to take the necessary steps that are atmosphere
friendly.
Fortunately, business of chemicals opened new vistas of success and progress due to
low cost and environment friendly. Within very noticeable time, it stretched its wings
with full vigor and it is to be considered as icon of success. Due to this environment
amicable strategy of Sitar Chemical I selected it for my report
Sitar Chemical Industries Limited was incorporated in 1981 and began producing
caustic soda in 1985, initially at a rate of 30 metric tones Caustic a day. The plants
capacity was gradually increased over years to current level of 545 metric tones a day.In addition, various by-productsfacilities have been added and expanded from time totime to cope with growing demand. Company entered into Textile Spinning Business
in 1995.Its specialty chemicals and export division was established in 2001 and agri
chemicals division in 2003.
Purpose of analysing financial statements
I am a student of MBA at KIMS .Prepration of this report is the requirermentof karachi university Business school and is a part of my exam
Being a students of MBA , I am also interested in the analysis of financial
statements to understand a companys financial position . It is also helpful for
me regarding my course studise.
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Scope and Limitations.
This financial analysis report will
Highlight areas of significant importance
Enable management to address and resurrect critical internal policies
Give a broader view of the financial health of the company to its existing as
well as prospective lenders to make certain credit decisions.
Sources
In the course of the preparation of this assignment, the following materials have been
referred to
Annual Report on Sitara Chemicals limited
Financial statement analysis tools by Meigs and Meigs
Counseling and guidance from worthy Mr. Imran Qureshi.
www.sitara.com.pk
www.wikipedia.org
Report organization
This Report analysis the Profitability. Growth .market share .Gross profit ratios
.Earning per share .price earning ratio of sitara chemicals
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http://www.sitara.com.pk/http://www.wikipedia.org/http://www.sitara.com.pk/http://www.wikipedia.org/ -
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VISION
Strive to develop and employ innovativetechnological solutions to add value
to business with progressive and
proactive approach.
MISSION
Continuing growth and diversificationFor bottom line results with risks
well contained.
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COMPANY PROFILE
Sitar Chemical Industries Limited was incorporated in 1981 and began producing
caustic soda in 1985, initially at a rate of 30 metric tones Caustic a day. The
plants capacity was gradually increased over years to current level of 545 metric
tones a day. In addition, various by-products facilities have been added andexpanded from time to time to cope with growing demand. Company entered into
Textile Spinning Business in 1995.Its specialty chemicals and export division was
established in 2001 and agri chemicals division in 2003.
Core business activities of the Company
Operation of Chlor-alkali plant, wherein Caustic Soda and Chlorine Gas are produced
out of common salt through electrolysis process. Caustic Soda is a basic chemical
having a broad spectrum application in various industrial processes. A number of bi-
products being manufactured are chlorine based.
Spinning units, wherein all types of yarn e.g. Combed, carded, knitting and Slub yarn
are being spun to catering domestic/export market.
Agri application Nutrients and Soil yarn conditioner.
In addition to foreign technology based products various products have been
developed by company R & D people. Such products are covered in Specialty
Chemical and Agriculture products.
Products
Caustic soda solid
Caustic soda liquid (50%)
Caustic soda liquid (33%)
Caustic soda flakes
Bleaching powder (commercial)
Sodium hypochlorite
Liquid chloric acid
Ammonium chloride
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COMPANY INFORMATIONBoard of Directors
Chairman Haji Bashir AhmedChief Executive Mr. Muhammad Adrees
Directors Mr. Javed Iqbal
Mr. Muhammad Anis
Mr. Imran Ghafoor
Mr. Haseeb Ahmed
Mrs. Rukhsana Adrees
Mr. Rashid Zahir
(Nominee Director of Saudi Pak Industrial and
Agricultural Investment Co. (Pvt.) Ltd.)
Company Secretary Mr. Mazhar Ali Khan
Chief Financial Officer Mr. Anwar-ul-Haq (ACA)
Audit Committee
Chairman Mr. Muhammad Anis
Members Haji Bashir Ahmed
Mrs. Rukhsana Adrees
Head of Internal Audit Mr. Muhammad Yameen (FCA
Auditors M/S. M.Yousuf Adil Saleem & Co
Chartered Accountants
Legal Advisor Mr. Sahibzada Muhammad Arif
Bankers Meezan Bank Limited.
National Bank of Pakistan
Allied Bank Limited
United Bank Limited
Bank Alfalah Limited
Dubai Islamic Bank Pakistan Limited
The Bank of Punjab
MCB Bank Limited
Standard Chartered BankFirst Habib Bank Modaraba
Saudi Pak Industrial and Agricultural
Investment Co. (Pvt.) Limited
Saudi Pak Commercial Bank Limited
First National Bank Modaraba
Al-Baraka Islamic Bank B.S.C. (E.C.)
Askari Commercial Bank Limited
Faysal Bank Limited
Registered Office 601-602, Business Centre, Mumtaz Hasan Road,
Karachi-74000
Factories 28/32 K.M., Faisalabad - SheikhupuraRoad,
Faisalabad.
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Industry Overview
Chemical Division:
Over all Chemical industry in Pakistan showed a growing trend and kept pace the
growth of economy in spite of potential slump in Textile Industry. Especially 3rd and
4th quarters ended with positive note though initial quarters were not financially so
significant.
We wish to express our gratitude towards Almighty Allah on successful completion of
our 22MW Power Project. Electricity generation started in April 2007 and cost
benefits are credited in these financial statements for last quarter April 2007 to June
2007.Uninterrupted supply generated by Power Plant will not only reduce cost of our
production but increase the life and efficiency of sophisticated membrane technology.
Production Operations:
All 22, during the year company have produced 137,473 metric tons of Caustic Soda
against last years production of 129,838 metric tons. Further production of specialty
chemicals also witnessed reasonable increase from last years Textile Division
production remained 9,978,032 Kgs of Yarn against 10.991.174Kgs in the last year.
During the year 080 spindles remained operational.
Financial Performance:
Company has achieved a net sales of Rs.4,374 Millions during 2007 under review
against Rs.3,812 Millions in the previous year showing an increase of 14.7% Gross
Profit earned during the year is Rs.1,084 Millions against previous years figure of
Rs.705 Millions. Net Profit before tax accounted for Rs.537 Millions against Rs.358
Millions in the previous year. Company became able to achieve this growth after
commencement of production at power plant and efficient/ economic management of
electricity from other sources. During the year total exports of the company remained
at Rs.55 Millions.
Research and Development:
Company continued its research and development activities at its exclusive R & D
department that constitutes highly professional and fully dedicated staff. During last
few years R & D department introduced various products of which a few have gainedmaturity. In 2000 company started production of Calcium Chloride as pilot project.
Information Technology:Company is determined to implement paperless environment is managing its day to
day affairs of the company. Automated indenting, store issues, all inter office
communication through LAN, systemized managerial reports regarding different
operational matters for better control at top level, departmental expenses reports,
system generated reports for filing with Government Authorities etc. has been
successfully launched.
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Human Resource Development:
Called for to train the staff. Company has nominated 39 employees to attend courses
and workshops Company always welcomed the opportunities for staff training, broading their knowledge, vision and skill and awareness about changing
technological and learning developments. For this purpose 30
workshops/courses/seminars were held during the year under review wherein
renowned consultants of Indo Pak were held at various well known institutions of
Pakistan.
Environment, Health and Safety:
Company is strongly committed to continue improvement of its environmental
management system by adaptation of appropriate pollution prevention and complying
with all relevant legislation. For this purpose company has closed the operation at old
mercury plant during the year. Company is also committed to the slogan of safety
starts from the entrance.
Business Risk and Challenges:
Textile sector, which consumes approximately 42 % caustic soda of total market, is
facing difficulties in Pakistan. Despite the fact Government and APTMA is taking
steps to overcome the problems, company has planned to evolve new avenues as is
evident from export of caustic soda during the year. Growth of other sectors like Soap
& Detergent, Chemicals, Paper & Board, Ghee & Oil and Powder Generation is
expected to mitigate shortfall, if any, in the demand in Textile Industry. Company is
also extending its product line.Errection of new unit of caustic soda may also create anenvironment of competition. But we are certain that it will not affect sale of SCIL as
demand is also on increasing trend.
Future
Outlook:Whereas currently sales of all products are on growing trend and costs are efficiently
controlled, we expect the same continued growth in coming years if all contribution
factors remained favorable
Company is considering different options for diversifying its product line.PVC and
Calcium Carbide projects are actively under consideration and techno commercial
activities are being carried out. Company has started work on erection of CalciumChloride and CPW plants which will be in operation in current year inshallah.Capacity
of Calcium Chloride will increase to 21,000 metric tons per annum from current
capacity of 5,000 metric tons per annum and product quality will meet international
standards..
Contribution to National Exchequer:
During the year, the Company contribution to the national exchequer amounted to
Rs.610 Million in respect of payments toward sales tax and income tax, this does not
include the import duties, withholding tax deducted by the company from employees,
suppliers and contractors and deposited into treasury
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SITARA CHEMICAL INDUSTRIES LIMITED
ANALYSIS OF INCOME STATEMENT
FOR THE YEARS ENDED JUNE 30, 2007 2006 2005 2004
2007 2006 2005 2004
Rupees Rupees Rupees Rupees
Sales4,374,051,8
813,811,890,043
3,942,390,774
3,506,147,629
Cost of Goods Sold3,289,672,1
583,106,772,480
3,042,004,182
2,876,129,382
Gross Profit1,084,379,7
23705,117,56
3900,386,5
92630,018,24
7
Operating Expenses
Selling and Distribution Cost54,814,5
8854,522,87
363,080,4
9130,597,20
2
Administrative Expenses164,803,0
36140,981,54
4129,744,9
89111,121,55
5
Other Operating Expenses39,893,5
5723,904,31
599,571,6
9329,211,66
8
Finance cost317,624,3
73137,785,60
2129,373,6
1298,265,83
7Share of profit of associatedCompany
54,132 359,465
Profit before taxation
507,298,3
01
348,282,69
4
478,615,8
07
360,821,98
5
Other Operating Income29,617,6
049,939,00
19,089,36
09,827,30
6
Operating Income536,915,9
05358,221,69
5487,705,1
67370,649,29
1
Texation163,876,0
2091,709,03
1141,538,1
10132,025,68
6
Net profit for the year aftertaxation
373,039,885
266,512,664
346,167,057
238,623,605
Loss on disposal assets ofdiscontinued Operation
50,067,798
Net profit for the year373,039,8
85266,512,66
4296,099,2
59238,623,60
5
Earning per share 20.11 14.36 15.96 12.86
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SITARA CHEMICAL INDUSTRIES LIMITED
ANALYSIS OF INCOME STATEMENT
FOR THE YEARS ENDED JUNE 30, 2007 2006 2005 2004
2007 2006 2005 2004%age of
Sale%age of
Sale%age of
Sale%age of
Sale
Sales 100.00% 100.00% 100.00% 100.00%
Cost of Goods Sold 75.21% 81.50% 77.16% 82.03%
Gross Profit 24.79% 18.50% 22.84% 17.97%
Operating Expenses
Selling and Distribution Cost 1.25% 1.43% 1.60% 0.87%
Administrative Expenses 3.77% 3.70% 3.29% 3.17%
Other Operating Expenses 0.91% 0.63% 2.53% 0.83%
Finance cost 7.26% 3.61% 3.28% 2.80%
Share of profit of associated Company 0.001% 0.009% 0.000% 0.000%
Profit before taxation 11.60% 9.14% 12.14% 10.29%
Other Operating Income 0.68% 0.26% 0.23% 0.28%
Operating Income 12.28% 9.40% 12.37% 10.57%
Texation 3.75% 2.41% 3.59% 3.77%
Net profit for the year after texation 8.53% 6.99% 8.78% 6.81%
Loss on disposal assets ofdiscontinued Operation 0.00% 0.00% 1.27% 0.00%
Net profit for the year 8.53% 6.99% 7.51% 6.81%
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Profitability
Sales
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PRICE EARNING RATIO
SHARE MARKET PRICE
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ANALYSIS OF INCOME STATEMENT
FOR THE YEARS ENDED JUNE 30, 2007 2006 2005 2004
Revenue section
Dollar and percentage change
Increase or decrease 2007, 2006 2006, 2005 2005, 2004
2007 2006 2005 2004 Amount % 2006, 2005 Amount %
Net sale 4374051881 3811890043 3942390774 3506147629 56216183 14.74 Minus 43624314 12.44Net income 373039885 266512664 296099259 238623605 106527221 39.97 figure 57,475,654 24.08
By making analysis of income statements of last four years, it is seen that sale volume
of Sitara products booming year to year. That is good sign for the company and Net
income also shows an increase with the exception of year 2005, 06. In year 2007 the
inflation rate was 11% and net sale increase by 14% it shows net sale is increasingslightly more than the inflation rate therefore we can say that company is growing.
And capturing its market share.
Cost of good sold and gross profit
The cost of goods sold was 82.03% of sale in 2004 and gross profit was 17.97%, it
might be possible that company purchased raw material at higher cost, or due to high
labor cost or high factory overhead expenses. It might be possible that company needs
to make maintenance of its plant and equipment to enhance production capacity that
will lower the cost of goods. But it is good sign that company sale increased in 2005
as that of 2004 but cost of goods sold decreased from 82.03% to 77.16% from 2004 to2005 and that has a direct affect on gross profit. Gross profit is increase from 17.97%
to 22.84% from 2004 to 2005, it means that management of the company keep vigilant
eyes and well aware about the extra cost of producing one extra unit. We are blind at
that point, either company reduced the number of labor or established advance
technology to increase the production in bulk and reduce the cost of goods sold or
might be possible reduce the factory overhead cost
Operating expenses
Selling expense
Selling and distribution cost is 0.87% of sale in 2004 and it is increase to 1.60% in
2005, but it is dropped down to 1.43% in 2006 and also decreased from 1.43% to
1.25% of sale in 2007. It indicates that the company management is reducing Selling
and distribution cost while increasing its admin expenses year to year, that can lower
down the company profit.
Finance cost
Finance cost for the operation was 2.80% of sale in 2004, 3.28% in 2005, 3.61% in
2006 and almost doubled (7.26%) in 2007 that is not a good sign for the company , it
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might be possible that company is paying more interest on borrowing amount but
output generated from that finance is not satisfactory.
Net income
Net profit for the year of the company was 6.81% of Sale in 2004, 7.51% in 2005,6.99% in 2006 and 8.53% in 2007 if we analyze net profit for these years it is increase
from 6.81% to 7.51% from 2004 to 2005 it is just due to decreasing the cost of goods
sold from 2004 to 2005 and increasing the sale volume even though operating
expenses were increased and loss on disposal assets in 2005 of 1.27% of sale and it
lower down from 7.51% to 6.99% from 2005 to 2006 is due to low sale volume and
cost of goods sold increases and other effect of increase in administrative expense in
2006 that causes the decrease in net profit for the year. It is increased from 6.99% to
8.53% from 2006 to 2007. One effect for increasing profit is due to high sale volume,
low cost of goods sold low selling and distribution cost and high operating income.
Even though increase in administrative expenses and finance cost and taxation could
not put bad effect on net profit for the year as compare to previous year.
Earning per share
2007
Net income 373039885
Share of capital stock outstanding 18553399
Earning per share (373039885 /18553399) 20.11
Earning per share is most widely used of all accounting Ratios .It directly affects
The market value of companys shares .In sitara chemicals earning per shareIncreases year to year .It is good sign for company. It shows that market value of its
share is increasing.
Price Earning Ratio
2007 2006 2005 2004
Current market price per share of stock 159.25 115 114.06 85.13
Earning per share 20.11 14.36 15.93 12.86
Price earning Ratio 7.92 8.01 7.16 6.62
Price earning ratio affects the investors expectations for companys future
Performance .Trend shows that price earning Ratio is slightly increasing from year to
year .This it will be the fortune for Sitara chemical in future prospects.
CONCLUSION.
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o By the financial analysis of the income statement of Sitara chemicals limited .It
is clear that companys financial position is much healthier in comparison to
the prior year income statement so when I analysis the revenue section i reach
on this conclusion that companys sale volume increase more than the inflation
rate which is 11% while sale increase by 14% .Therefore company is growing
o Companys operating expense i-e administrative expense and finance cost is
increases from year to year .It indicate that management is not using the
resources efficiently
o Earning per share shows the market value of companys share. Sitaras earning
per share increases from previous 4 years
o Price earning Ratio is also good .Which is showing the companys position is
better.
o Finally it is obvious that companys over all financial position is very good .Its
sale is increasing day by day that exactly effect the net income but companys
must make the strong strategy to overcome on the operating costs.
RECOMMENDATIONS
o Company should focus to control on the administrative expenses,
o Finance cost is also need to make the policy to overcome on it.
o Proper control on selling expenses will improve the income.
COMPANY INFORMATIONBoard of Directors
Chairman Haji Bashir Ahmed
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