Relience Weaving Mills Ltd

Reliance Weaving Mills Ltd.

RELIANCE WEAVING MILLS LTD is located in Multan. Reliance weaving Mills Ltd. (RWML) is part of the Fatima Group. Fatima Group established RWML on April 7, 1990 as a public limited company and obtained certificate for commencement of business on May 14, 1990. I visited RELIANCE WEAVING MILLS LTD three times for my report and was always warmly welcomed by their management and employees. All machinery installed in the mill is American. Plans and strategies are made in the head Office. Raw materials purchase decision is also made in the Head Office. Employees work in three shifts, whereas these are both permanent and on daily wages. The mills units is supported by different facilities as canteen, store room, laboratory, godown, and many others. The production process is divided into two sections: In this report I have done SWOT analysis of RWML. Good quality with reasonable price is the major strength of RWML. Export sales cover major portion of total sales due to good quality. They contain very low portion of local market. Centralized decision-making is one of the weaknesses of the RWML, but good management covers this weakness in an appreciable manner. So for as Account department is concerned though there is a little bit workload on the employees, but inside friendly environment helps a lot to cover these tasks without fatiguenes and boredom. Finaly I have given some recommendations to cover these threats. My suggestions were highly appreciated by the management of RWML.

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Reliance Weaving Mills Ltd.

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Reliance Weaving Mills Ltd.

INTRODUCTION TO TEXTILE SECTOR Textile includes all the business related with yarn and cloths, so all the business from Cotton Ginning to Cloth and Apparel manufacturing comes under the Textiles. There are different functions of Textiles, which are as under:

Ginning This is the first stage where cotton is separated from the seeds. Raw material of this stage is Cotton Seed. RELIANCE WEAVING MILLS LTD does not deal in this function.

Spinning Raw material of this stage is Ginned Cotton. This cotton is spun to make yarn. Yarn produced in various qualities, this is the main raw material of RELIANCE WEAVING MILLS LTD, which is purchase from local market.

Weaving In weaving unit yarn is converted into cloth through power looms or through hand driven machines. RELIANCE WEAVING MILLS LTD, engaged in this function.

Processing and Dying Cloth is further processed and it could be used for a lot of purposes, like Bed Sheets and Garments etc.

Cutting and Stitching This is a final use of cloth in which Cloth is cut and stitching made by the exporter than it commercializes to various importers of the garments through wide world marketing department.

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Reliance Weaving Mills Ltd.

History of the Textile Industry Whilst farmers were developing new and better methods of agriculture, life in other areas of work had changed little for hundreds of years. Early in the 18th century, most of the population still lived in small, rural settlements. Few people lived in towns, as we now know them. Many people worked as producers of woolen and cotton cloth. They cleaned, combed, spun, dyed and many people worked as producers of woolen cloth. They cleaned, combed, spun, dye and wove the raw material into cloth. They did this work in their own houses. This type of production has become known by the general term of the Domestic (or Cottage) Industry. Work within the Cottage Industry was usually divided up between the members of one family. The women and girls were responsible for cleaning the sheep fleeces, carding the wool and spinning it. The process of weaving was physically hard work and, traditionally, it was the men who were responsible for it. Generally, at regular intervals, a cloth merchant visited each handloom weaver’s cottage. He would bring the raw material and take away the finished cloth to sell at the cloth hall. As soon as the new wool arrived, it was washed to clean out all the dirt and natural oil. After this, it was dyed with color and carded. This was the process of combing the wool between two parallel pads of nails, until all the fibers were laying the same way. Next, the carded wool was taken by the spinner and, using a spinning wheel, the thread was wound onto a bobbin. The unmarried daughters of the household who were called spinsters often performed this part of the process. The term spinster still exists in English to mean an unmarried lady. The spun yarn was then taken to the loom to be woven. In a weaver's cottage, the loom was often to be found on an upper floor. There were large Internship Report

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Reliance Weaving Mills Ltd. windows in the room to let in plenty of daylight. The loom was worked by both hand and foot movements. Working the loom was quite strenuous work, which is why it was traditionally the work of the men of the household.

TEXTILE INDUSTRY IN PAKISTAN Textile is the important sector of Pakistan’s economy. It is playing the important t role in economy of Pakistan and fulfilling the 65% export target.

PERFORMANCE The textile industry which is endowed with a strong base of weaving had started its journey from almost non existence in 1947 with a meager size of 3000 shuttle looms that is too in the unorganized sector with only 10 textile units. The industry has gone through a long way and now possesses 220 units, 45000 looms in which include more or less 30000 shuttles looms. The textile industry is not only catering to the entire local requirement but sharing out 65% of the total foreign exchange earning. Pakistan being the fifth largest cotton producing country provides a strong base for development sustenance of the textile industry. In spite of tremendous growth in all the peripheral areas of the textile industry includes cotton, ginning spinning, processing and made up sector. This industry which is the main pillar of the economy has not attained its optimum potential so far. The textile industry at present is passing through a transition phase. It is sailing smoothly under the protected cover of quota systems. How ever it has to face the rough water to open the sea when globalization of trade is implemented under` WTO agreement in 2004.

CAPACITY PERIOD. 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

INSTALLED OPERATIVE UNITS 55 59 91 105 115 153 166 157

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LOOMS 6600 7080 10920 13125 14375 19125 20750 19480

LOOMS 5500 6100 9128 11125 12950 19556 19840 17850

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PRODUCTION PERIOD

GREY CLOTH IN METERS (000)

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

602250 667950 999516 1218187 1428025 2141382 2172400

CURRENT POSITION OF TEXTILE INDUSTRY With the exception of the period from 1958-59 to 1974-75; the textile industry could not maintain, a sustainable growth, and registered its growing rate at the nominal level in the country. In the organized sector there are 452 textile companies of which 212 are not listed and 240 textile units are listed on KSE/LSE comprising of 157 spinning units, 29 weaving units and 54 composite units. While the total number of textile units both listed and unlisted is however is around 452 approximately. The weaving capacity of the textile industry in our country is static at 9000 shuttle looms for past many years. The capacity of conventional looms is also around 19840, which have no match with quantum jump the industry ahs taken in this spinning sector. Instead of going for value added products the frenzy for setting up spinning projects dictated the mind of the textile industry over the years which took the 4.1 million spindles in 1996-97 instead of going to more value added textile products like dying bleaching units in the country.

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Reliance Weaving Mills Ltd.

CAPACITY UTILIZATION (%) PERIOD 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

LOOMS 79.50 81.00 82.90 85.10 86.20 87.00 88.00 90.00

EXPORTS The textile exports projection in the trade policy 1999-00 worth 6.5 billions $ of major textile products include cotton yarn with the target of 1800 million $, grey cloths 1680 million $, ready made garments 1050 million $, tent and canvas 55 million $, knit wear 950 million $ and made-ups 965 million $. The industry has to achieve these targets in the face of difficult t6rading conditions especially the disturb economies of Asian countries, threat of imposition of anti dumping duties on our gray cloths by the European Union countries, (E.U. has withdraw and anti dumping duty w.e.f 1.01.2002) cotton yarn of 20/s in Japan and constant decrease in imports from South Korea, all together posting an uphill task of achieving the export targets for the textile industry during the financial year. Duty drawback (rebate) is reducing from time to time and changing in sales tax refund to export oriented units, which is very poor sigh for the exporter of the value added items.

PROBLEMS OF THE TEXTILE SECTOR

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Reliance Weaving Mills Ltd. The textile industry has been crisis ridden for some time because of shortage of raw material due to three successive cotton crop failures. The main problems it is facing are as under; 1) The production of lint cotton ahs remained below the target. 2) The shortage and non-availability of the lint cotton in the domestic market has led to the price-hike in domestic market. 3) Competitor’s installation of over capacity in some production lines or closure of spinning capacity due to higher prices and short supply. 4) Docile labor-intensive technology, needed to be changed to cost efficient capital intensive. 5) Lack of institutional finance for modernization efforts.

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Reliance Weaving Mills Ltd.

RELIANCE WEAVING MILLS LIMITED MULTAN GROUP PROFILE The company has been sponsored by FATIMA GROURP in Multan. The sponsors are already engaged in the field of manufacturing Sugar, Cotton lint yarn, Grey cloths. Their company, RELIANCE COMMODITY PVT. LTD has been awarded Best Performance Trophies for the years 1997-98 to 99-00 in the field of export of Molasses declared the top 5 company of the Pakistan. The sponsors have also taken up the managing control of a band new spinning unit at Rawat Distt. Rawalpindi form UBL through bidding.

Following are the companies included in the group: Sr. #

Company Name

1.

FATIMA SUGAR MILLS LTD.

2.

RELIANCE WEAVING MILLS LTD.

3.

RELIANCE COTTON PVT. LTD.

4.

RELIANCE COMMODITIES PVT. LTD.

5.

RELIANCE EXPORT LTD.

6.

RELIANCE FIBRES LTD.

7.

FATIMA FERTILIZER COMPANY LTD.

8.

FAZAL CLOTH MILLS LTD.

9.

AHMED FINE TEXTILE MILLS LTD

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Reliance Weaving Mills Ltd.

COMPANY PROFILE Reliance weaving Mills Ltd. (RWML) is part of the Fatima Group. Fatima Group established RWML on April 17, 1990 as a public limited company and obtained certificate for commencement of business on May 14, 1990. Authorized capital of RWML at the time of incorporation was Rs.250 million and presently RWML has authorized and paid up capital of Rs.700million which has gradually increased and at present subscribed share capital of company stands at Rs. 308109370 , listed at Karachi and Lahore Stock Exchanges and also inducted into Central Depository Company (C.D.C). The company has issued 1st tranche of Term Finance Certificate (TFC’s) of Rs. million in February 2002, which has been fully subscribed. These TFC’s are listed at Karachi Stock Exchange and has also been declared as eligible security in C.D.C. The principal business of the Company is manufacture and sale of cotton yarn and grey woven fabric. RWML production capacity consists of two main segments, Weaving and Spinning, both are ISO-9002 Certified for its quality. Today Reliance weaving Mills Limited is the 3rd largest weaving mill in Pakistan with modern and technologically advanced greige weaving plant. The we4aving units are situated at Multan and the Spinning unit at Rawalpindi. The details are as under:

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Reliance Weaving Mills Ltd.

Weaving units: Weaving unit is situated at Fazalpur; Khanewal Road, Multan commenced its commercial production on May 01, 1993 with 96 Tsudakoma air jet weaving machines imported from Japan along with modern auxiliary machinery to produce high quality cloth for export markets. Further and additional 20 Tsudakoma air jet weaving machines form Japan were installed in 1999 coupled with yarn doubling and twisting machines to produce value added fabrics. The installed production capacity of the unit is approximately 16.085 million meters per annum. Further more, a captive power plant consisting of 2.5 MW Capacities are also installed in the weaving unit-1 by which the company is saving power cost and production losses. During the last financial year, the company has implemented and expansion project for its weaving unit at a cost of a about Rs.500 million, comprising 108 Tsudakoma air jet weaving machines from Japan along with modern auxiliary machinery to produce high quality cloth for export markets. The project started its commercial production from October 01, 2001. The installed production capacity of the unit is approximately 21.70 million meters per annum.

Another 48 air jet looms expansion plan in existing weaving unit # 2 is at advance stage, which will result in increase in production approximately by 9.00 million meters per annum. Now weaving unit comprise of 295 Tsudakoma with production capacity of 57.6 million meters of grey cloth annually.

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Reliance Weaving Mills Ltd.

Spinning Unit: The spinning unit of the RWML is located at Mukhtarabad, Rawat, and District Rawalpindi in the province of Punjab. The unit commenced its commercial production on October 01, 1999 with 14400 spindles with a very good combination of European and Japanese machinery with allied accessories. It produces high quality yarn for in-house consumption and for export markets. The installed capacity after conversion into 20/s count is approximately 4.849 million kgs. The spinning unit has 35,520 spindles with an installed capacity of 12.30 million kgs of yarn converted at 20/s count. Cotton yarn produced is used in weaving units for manufacturing of fabric being sold in local and export market.

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Reliance Weaving Mills Ltd.

ORGANIZATION’S (RWML) HIERARCHY CHAIRMAN

CHIEF EXECTIVE

C.F.O.

FINANCE MANAGER

MKTING MANAGER

PURCHASE MANAGER

ACCOUNTS MANAGER

INTERNAL AUDITOR

CHIEF ACCOUNTANT

DCA

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ASSISTANT ACCOUNTANT

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Reliance Weaving Mills Ltd.

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Reliance Weaving Mills Ltd.

VISION STATEMENT The company is interested to install complete textile finishing plant including bleaching, dyeing, mercerizing, calendaring, folding, printing plant in the existing weaving units at Multan to make it a complete composite unit, which can explore local and international market of high value products. The company would keep its emp0hasis on product and market diversification, values addition and cost effectiveness. We want to fully equip the company to play a meaningful role on the sustainable basis in the economic development of the country.

MISSION STATEMENT The mission of the company is to operate state of the are 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.

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Reliance Weaving Mills Ltd. •

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.

•

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.

THE PROJECT The project of setting up 96 looms was successfully completed and the company commenced commercial production on May 01, 1993. The capacity of the project is 15.50 million Mtrs. Grey Cloth per year. In addition to further 20 looms was a installed in 1997 along with doubling machine and self power generation plant of 2.5 MW was installed in 1999.

PLANT AND MACHINERY IMPORTED The imported plant and machinery for the project are purchased from world renowned manufacturers of textile industry machinery. The production facilities are supported bay a

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Reliance Weaving Mills Ltd. very modern quality control department equipped with laboratory and testing equipment based on latest technology. The imported plant and machinery includes: •

120 Shuttless Looms from Tsudakomna.

•

Humidification Plant & Chilly Equipment from Luwa Switzerland.

•

Overhead Travelling Cleaner from Luwa Switzerland.

•

Sizing machine from Sucker & Mullar Germany.

•

Knotting machine from Tomen Corp. Germany.

•

Air Compressor & Dryer from Atlas Capco Belgium.

•

Warping Machine from Benninger Switzerland.

•

Vaccum Cleaning plant from Germany.

•

Power Generator from UK.

•

3 sets power Generator (Gas) from Caterpillar Switzerland.

The above plant and machinery was imported with the foreign currency financial assistance of Muslim Commercial Bank Limited.

LOCAL The plant and machinery locally purchased up to 20% of the total machinery, which is as under: •

Bailing Press

•

Motor Lifter 2 Nos.

•

Beams 100 Nos.

•

Electric material from semins.

•

Folding Machines 3 Nos.

•

Equipment for workshops.

•

Electric appliances.

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Reliance Weaving Mills Ltd. •

Fire fighting equipment.

Both the imported and local machinery was brand new at the time of purchase.

COST OF PROJECT AND MEANS OF FINANCE

ESTIMATED COST Pak. Rs. In (Million) •

Imported machinery

•

Import incidentals

25.20

•

Local machinery

13.50

•

Land, Building, Others

44.80

•

Total Estimated cost

210.50

294.00

ACTUAL COST •

Imported machinery

199.00

•

Imported incidentals

22.40

•

Local machinery

15.60

•

Land, building, others

47.00

•

Total actual cost

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Reliance Weaving Mills Ltd. The company has successfully completed the project within the projected cost by saving at least 11.00 (m) from the imported machinery due to forward booking of US $ on L/Cs through speculation with the bank.

FINANCING The project has been financed through; P ak.Rs. In (M) •

Share holder’s equity

•

Redeemable capital

•

FC loan I.BR.D Line world bank

146.45

•

Local Bank Loan

13.60

•

Directors Loan

4.80

•

Local suppliers

6.60

•

Actual project cost

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109.55 3.00

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Reliance Weaving Mills Ltd.

COMMERCIAL PRODUCTION The company has commenced commercial production from May 1, 1993.

FINANCIAL YEAR The financial year of the company is from October 1st to September 30th.

RAW MATERIAL The basic raw material for the company is cotton yarn, which is easily available in Pakistan.

LABOUR AND TEACHNICAL KNOW-HOW The textile industry, being the oldest and largest industry in the country, there is cheap labor available, both skilled as well as unskilled. The company has hired experienced team, which is engaged in the running of existing manufacturing facilities.

BUILDING AND CIVIL WORKS Main factory building •

Godowns 4 Nos.

•

Office buildings admin and ISO

•

Labor and staff quarters

•

Power house

The total covered area is approximately 120,120sq. Feet (13,345sq. meters).

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Reliance Weaving Mills Ltd.

UTILITIES SELF POWER GENERATION The project has a self-powerhouse of 2.5MW consisting of 3 power Generators imported from caterpillar to provide smooth power to the Mills.

FEUL Fuel requirement of the powerhouse is Sui Gas which is special installed by company on self finance scheme by cost of Rs.10.055 (M) and also have a diesel generator in case of any electric failure.

WATER The total requirement of water for the project is met out of regular supply form the Tubewell.

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Reliance Weaving Mills Ltd.

PRODUCTION Year/Month

Production

Capacity

Ended 30 September, 1998 30 September, 1999 30 September, 2000 30 September, 2001 30 September, 2002 30 September, 2003 30 September, 2004 30 September, 2005 30 September, 2006 30 September, 2007

(000 Mtrs.) 12104 13255 13065 13530 13680 13193 14339 15539 15980 16587

Attained % 78.00 85.00 84.00 87.00 88.00 85.00 89.00 96.00 96.00 97.20

It is difficult to describe precisely the production capacity in weaving mills since it fluctuates widely depending on various factors such as count of yarn spun looms speed, width and construction of cloth. It also varies according to the production pattern adopted in a particular year.

SALES(Cloth)

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Reliance Weaving Mills Ltd. Year

Total sales

Export sales

% of Export sales

1999 2000 2001 2002 2003 2004 2005 2006 2007

Rs. (million) 123415 402426 448905 667242 727163 723822 800382 1306888 1252560

Rs. (million) 54260 295639 395895 614060 660883 714587 755064 1228367 1115277

To Total sales 43.96 73.46 88.19 92.03 90.89 98.72 94.34 93.99 85.34

Exports are increasing due to increase in demand in various markets because of withdrawl of quota.

COMPANY DIVIDEND POLICY •

The company is declaring regular dividend to its shareholders since previous 5 years.

•

The shareholders of the company are fully satisfied by the company management decisions regarding dividends as well as operational matters.

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Reliance Weaving Mills Ltd. •

Due to regular payment of dividend in each year to the shareholders the market value of the company’s share has increased to its face value to Rs.23 per share.

Following dividends paid by the co. 2004

10% cash dividend

2005

23.50% cash dividend

2006

12.50% cash dividend

2007

52.50% cash dividend

SHAREHOLERS’S RIGHTS None of the holders of the issued shares of the co. has any special or other interest in the property of profits of the company other than of as holder of ordinary shares in the capital of the company.

PROCESS OF WEAVING UNIT RWML UNIT-2 is engaged in the following functions.

WEAVING Different types of the cloths are produced in the Weaving department. Weaving process includes the following steps. •

Yarn receiving and issuing

•

Doubling/twisting

•

Loading on sizing

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Reliance Weaving Mills Ltd. •

Sizing

•

Loom shed

•

Cutting/Folding and Packing

Yarn Receiving and Issuing Following is the process of yarn receiving and issuing: •

Yarn receive

•

Yearn tested through lab

•

Yarn record maintained in computer

•

Yarn requisition/issuing

Yarn Receive First of all in weaving unit yarn received by yarn clerk from the spinning unit. Yarn clerk check and count the bags and arrange its stacking in very arrange manner.

Yarn Tested In Lab After receiving the yarn at least 2 cones are send to the lab to check the weight/quality count and length.

Yarn Record After receiving the correct result of the yarn from lab, it is recorded in stock register maintained in computer.

Yarn Requisition/Issuing Yarn is issued to warping department after receiving the requisition from the General Manager/Production Manager.

YARN DOUBLING/TWISTING The company has own doubler and twister machine in which yarn is doubled and twisted before issuing to warping section. But it must be noted that this process can only be operated due to demand of the certain construction to the cloth.

• WRAPING

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Reliance Weaving Mills Ltd. After receiving the yarn it is loaded on creel frame for the purpose of warping. There is one set in one time comprising of 12 Beams in which yarn warped for sizing. It is called one set ready.

• SIZING In this department one set consisting of 12 beams loaded on the sizing machine where all the chemicals are mixed and thread passed way from this mixture and prepare one full beam at the required length, which is commonly consisting of 55000 to 60000. Following are the chemicals used in the sizing machine: •

P.V.A Imported from Japan

•

Textile wax from B.A.S.F. Pakistan Ltd.

•

Starch from Rafhan Maize FSD.

• The above chemicals are mixed from the sizing machine through revolving machine. After sizing the beams these are transferred to the stock of the sizing department and issued to production department as and when required otherwise these are held in this department with marking of its specification on that beam so that it can easily be located out of various beam’s stock.

• LOOMS SHED In this process, there are 116 looms installed by the company, which is the main process where yarn converted in grey cloth. Beam received from the sizing department is loaded on the loom and vacant beam replace with the beam gater. New beam knotted with the remaining thread of old beam with help of a modern knotting machine. These looms are adjustable. Its width can be or decreased with the requirement of construction of cloth.

• WARP/WEFT Internship Report

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Reliance Weaving Mills Ltd. There are two concepts of warp and weft in the looms shed. Warping is called the running of sized beam in state away and weft is called running of yarn cones in side away.

Machinery operation In the looms shed there are more or less 40 workers are appointed on the looms. Each person is responsible for his three looms regarding breakage of thread, quality of cloth and efficiency of the loom production. This department has all the technical as well as maintenance staff in the loom shed so that any discrepancies may timely be removed and production may not suffer.

• PACKING There are two kinds of cloth packing one is bales shape band and other is in roll. All these packing are made with polythene bags which received from the store room bales are exported to Japan, Hong Kong, China and Taiwan. While roll packing are exported to USA and European countries.

Normal packing 1 Bale = 500 Meters and 600 Yards 1 Roll = 350 Yards

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Reliance Weaving Mills Ltd.

Piece length 1to 10 mtrs use in cut piece sale 11 to 20 mtrs use in local normal sale 21 to 50 mtrs use for export The packing may be changed in accordance with the demand of customers as well as the nature of consignment.

PRODUCTION REPORTS Different reports are prepared when yarn is received from sizing section to completion of cloth. All records are maintained completely. •

Yarn receipt report in weft

•

Sized beam receipt report

•

Waste report Leno (cuttari) Rags (cloth) Cut pieces

•

Daily used report

•

Efficiency report

•

Daily production report

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Reliance Weaving Mills Ltd.

MARKETING MIX Marketing mix is the marketing tasks that the company is to acquire its objectives in the target market.

4 P’S 1. PRODUCT 2. PRICE 3. PLACE 4. PROMOTION

1.

PRODUCT

RWML produces high quality cloth only. They produce all kinds of construction as demanded by to customers. Its exports are more than 90% of its produce and remaining they sell in the local market. They sell to the well known local buyer like Al-Abid Silk Mills ltd. Fateh Textile Ltd. Chenab Ltd., which are the top leading companies of the Pakistan subsequently they export the cloth after processing. RWML take the advantage of second exporter from the govt. department. TYPES OF CLOTH BEING PRODUCED 100% Cotton Grey Cloth of the following main types is being produced. 20*20/108*56=63” 20*16/128*60=61.5” 10*10/80*54=55” 30*30/100*60=72”

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Reliance Weaving Mills Ltd. 2.

PRICE

Pricing is an important element in the marketing process for any company. The price policy of co. should be in such a way that it should produce a reasonable profit for the co. and should satisfy the customer. Following tow factors are very important. •

Fixed cost

•

Variable cost

FIXED COST Fixed cost is the costs which remain always same in total whether produce large quantity or small quantity. Fixed cost per unit rises as the quantity produced decreases and vice versa. Some of the importent factors of fixed cost are; •

Salaries

•

Rent

•

Local taxes

VARIABLE COST Variable cost changes in total with the change in quantity produced. It increases in total as quantity increases but remains same on per unit basis. Some examples are; •

Material cost

•

Labor cost

•

FOH

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Reliance Weaving Mills Ltd.

RWML’S PRICING STRATEGIES RWML adopts following pricing strategies: •

Direct selling

•

Through agent selling.

Direct selling If co. sells directly then price components will be as follows; Fixed cost+variable cost+Desired profit

Through agent selling Through agent selling pricing components are: Fixed cost+variable cost+Desired profit + Middleman’s commission

Pricing Procedure in Local Market RWML sells only extra quality left from the foreign order in the local market. They call tenders when they want to sell the production in the local market. They sell to those person whose tender price will be high.

Pricing Procedure for Export Pricing procedure for export is different from the local procedure they charging the price in foreign factors before charging the mind certain factors before charging the price in foreign market. When any customers want to purchase the products after negotiation they fix the price. Some important factors are inland freight, sea freight clearing charges etc.

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Reliance Weaving Mills Ltd. 3.

PLACE ( Distribution Channels)

RWML exports more than 90% of its product. They are using two types of distribution channels in export.

• Direct channel. RWML====Customer •

Indirect Channel.

RWML==Middleman=====Customer Mostly RWML exports its products through ship. They are alos using other modes of transportation as well: •

Trucking

•

Shipping

•

Air line

Major export countries are as under; 1. Japan 2. Korea 3. Hong Kong 4. USA

SALES PROMOTION RWML has no any promotion media to promote its products, because Japanese machines Tsudakoma are producing only cloth. Mainly Japanese and Hong Kong clients import the cloth form RWML.

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EXORT ORDER EXECUTION

.

Scope: this procedure is applicable for all sorts of cloths being produced. Purpose: To maintain and increase the exports with better quality goods and services.

PROCEDURE Inquiry Customer inquiries are received via telex, Fax and letters and E-mail. These are directly sent to C.E for review. After C.E’s review these are sent to export dept. in charge. After careful analysis, these inquires are replied after C.E.’s approval.

Costing Costing sheet prepares for C.E.’s approval. In absence of C.E. dept. in- charge approves price.

Costing approval C.E. gives approval or may suggest any other price to be offered.

Contract review and issue Section in charge takes following steps before issuing a contract; prepare contract review check sheet. 1. The requirements are adequately defined and involvements of production areas are specified. 2. In house/ out house have the capacity to meet the order requirements?

Prince quotation In getting approval of costing and review of customers requirements, prices are quoted to customers for confirmation.

Confirmation of sale contract

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Reliance Weaving Mills Ltd. If customer confirms the price offered, sale contract is issued to the customer with complete details of price, quality, delivery, payments, terms etc.

Letter of credit (L/C) Customers establish/ open L/C well before shipment time. In case of delivery in receipt of L/C, concerned section in charge reminds customer. After receipt of L/C, these are checked with regard to ordered goods, prices, shipment details, marketing, shipment negotiation etc. discrepancies in L/C are noted and informed to customer for rectification.

Dispatch of goods/cloth Packed cloth is dispatched to the customers. If the shipment is to be custom cleared from Multan dry port, goods are sent to Karachi on trucks with all necessary records. Dispatched goods are detail noted in relevant registers.

Shipment RWML is having all well-known shipping companies namely;

Samin Enterprises. Pre-shipment documents are sent to Samin enterprises next day by dept. these goods are custom cleared at Multan dry port. Documents are sent to clearing agent same day or next6 day and followed up to ensure that these goods are custom cleared without any unnecessary delay. In case of dry port, original bill of loading and 4th copy of shipping bills are collected from office agent for obtaining the rebate timely. If the consignment is cleared from Multan dry port than there is no need of follow up the consignment. Following are the companies, which are used for sea shipment. 1) APL CO. USA 2) UNITED MARINE AGENCIES 3) UNIQUE MARITIME AGENCIES 4) RIAZEDS PVT. LTD. 5) CHUGTAI BAOS. KARACHI

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Reliance Weaving Mills Ltd.

RATE OF SEA FREIGHT HONGKONG

350$

JAPAN

450$

MANILA

375$

USA

950$

CHINA

350$

MIS Reports Balance order instructions are updated periodically. Balance order list up dated fortnightly for their information. Sale comparison reports are updated in computer network on monthly basis, it comprises one month’s status of shipment, party wise and country wise invoice values, complaints and claims.

Customer complaints. After receiving goods, if customer find and defect / fault in the quality of cloth, he complains the same. Complaints are entered in complaint received register after taking complaint it is raised on corrective action and issued to responsible person/ dept. after getting reply, it is informed to the customer. Case is taken to remove the defects and to further restrain the faults. Complaints are processed quality and efficiently. After that claim is valued in US $ and Pak Rs. Than credit the customer account by couching the accounting entry and subsequent paid to customer in shape of FDD or FTT subject to realization the amount of concerned consignment.

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Reliance Weaving Mills Ltd.

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Reliance Weaving Mills Ltd.

ADMINISTARATION DEPARTMENT This is very important department of the organization as named shows, this dept. has to administer all the operations of the organization. Sections of this department are divided into offices as under; •

Labor office

•

Security guard office

•

Gate office

•

Time office

LABOR OFFICE As required by labor dept of the govt. of Pakistan, this office has been setup to deal with all the matters that are related with labor. The dept. is under the labor officer. He is responsible to resolve all the disputes, conflicts, misunderstandings and any other kind of matter, which may arise from time to time with the labor and the immediate supervisor or with any other person in the organization. It is the duty of the labor officer to inform the legal requirements concerning the labor and company affairs as well as any changes in rather labor laws. It is the duty of the labor officer to satisfy itself regarding payment bonus, gratuity, and other benefits to labor and to keep their morale and motivational level high.

SECURITY GUARD OFFICE The main objective of the security office is to safe handling of the goods from /to the mill premises. For the achievement of such objective a team of security guards has been employed by the company. All the keys relating to the mills office, labor colony, (quarters) are lying into the responsibility of the security officer No out side visitor can enter in the mills premises without the permission of the Admin Manager.

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Reliance Weaving Mills Ltd. a) Whenever any visitor wants to enter into the mill, security guard firstly contact with the authority in the mill top grant the permission to enter into the mill’s premises. b) They are the guardians of the every thing of the co. c) They are in uniform of dark army color. d) They sere and check the outward going pass of certain things when these going to out of the mills premises.

GATE OFFICE This office has been made to keep the record of each and every thing coming in and going out of the Mills gate. For this purpose gate office clerk maintains two type of registers called; 1)

Outward going pass register

2)

Inward coming pass register

When every thing including raw material, stores supplies, or any other things comes into the mills premises a document named as I.G.P is made in which information like date of supplier, description, quantity of the material and any other remarks are written. In the same way O.G.P is prepared for out going things etc. and they made a summary on daily basis and fax to head office.

TIME OFFICE 1. It keeps the attendance records, which is than used to calculate the salary to be paid to the workers on monthly basis. 2. It keeps the records of the over time single as well as double, leaves, number of days worked of all the workers and than calculate their over time on the basis of the gross salary of each workers. 3. It keeps the records of gratuity, bonus, pensions and other benefits including CPL (cash paid leave ) to each employee. 4. It keeps the records of Social Security, DOBI, Education Cess etc. of all employees. Internship Report

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Reliance Weaving Mills Ltd. 5. This office keeps and maintain the time record of all the workers.

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Reliance Weaving Mills Ltd.

PREPARATION OF ACCOUNTS Following accounts are prepared in the Accounts Department of “RELIANCE WEAVING MILLS LTD.” 1.

Store Creditor/Purchases

2.

Export Debtor/Realization

3.

Store Consumption

4.

Fuel and Power

5.

Salary and Wages

6.

Site Expansions

7.

Inter Unit

8.

Administration Expenses

9.

Selling Expenses

10. M/up on T.F.C. 11. Social security/E.O.B.I 12. Banks •

HBL

•

FBL

•

FBL (LOAN)

•

ABL

•

SPCB

PETTY CASH FUND Cash is given to Mr. Afzaal hussain the site cashier for meeting the different site expenses and these are; •

Yarn freight

•

Store freight

•

Building capitalized/repair and maintenance

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Reliance Weaving Mills Ltd. •

Labor welfare charges

The balance is maintained up to Rs. 100000 minimum every time.

PURCHASE PROCESS First of all purchase requisition is issued to the different suppliers. Then the quotations are received from the different supplier and evaluated by the purchase manager Mr. Subhan sb. (C.A) then a purchase order is made. Three copies are maintained for the purchase order; •

One to the supplier

•

One to the accounts department

•

One is remained with the purchase department

Purchase includes; •

Raw material (Local)

•

Starch

•

Beveloid

(Local)

•

Softner-52

(Local)

•

Chemical PVA imported (Duepont USA)

•

Yarn (Australia)

(Local)

MAJOR MARKET OF RWML Major market of RWML is differentiated on the basis of sale; Export sale (85%) Export sale is made to; •

Europe

•

Hong Kong

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Reliance Weaving Mills Ltd.

Local sale (15%) Local sale is made to; •

Nishat

•

Chenab

•

Bismillah

•

Nishat (Chunian)

INTERNAL AUDIT Inter audit is done by Mr. Sabir Bhatti Sb. is the ‘Internal Audit Manager’ with his four Assistants; on daily basis of all the vouchers.

STORE INVENTORY SYSTEM A daily purchase report of Store and Spares is received at the Head Office from the site and then it is booked in a bill payable voucher/Store Purchase Voucher by the accounts officer Mr. Muhammad Sulaiman Sb. Site stock inspection is also done at the end of each month by 3 or 4 accountants.

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Reliance Weaving Mills Ltd.

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. Ariticle-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.

L/C TREATMENT IN RWML The company has to import following items for the continuation of its operation. 1. Machinery 2. Spare parts and Chemicals

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Reliance Weaving Mills Ltd. 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 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. Internship Report

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Reliance Weaving Mills Ltd.

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. By making the same treatment in the company’s account. 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 Agent

Dr. 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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Reliance Weaving Mills Ltd.

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Reliance Weaving Mills Ltd.

SWOT ANALYSIS STRENGTHS 1. Imported machinery 2. Strong market image 3. Awareness of product 4. High financial resources 5. Committed and competent staff 6. Strong industrial group

WEAKNESSES 2. Costly management staff 3. De motivated staff 4. No promotional activities 5. No other incentive except saalay and bonus 6. Centralized control 7. Centralized decision making

OPPORTUNITIES 2. Potential in market 3. Market in USA & E.U. due to withdraw of quota 4. Throughout local market in Pakistan

THREATS 1. New entrance 2. Economic instability 3. Tough competition 4. Increasing cost of production 5. War 6. Price fluctuations 7. Political instability

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Reliance Weaving Mills Ltd.

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Reliance Weaving Mills Ltd.

MY LEAARNING ARE AS FOLLOWS 1. How we have to respond and quote prices upon difference inquires from the customer. 2. How the working is being done. 3. Issuance of selling contract to customers 4. After looking on contract, how we have to proceed further in order to fulfillment of desired requirement. 5. How correspondence has to against different orders and different customers. 6. The important matter is to understand the perception from customer and his expectation because it differs from customer to customer and to order. 7. Push up the processing team to help in making timely shipment. 8. Preparation of different sorts of reports 9. How to respond to the assignments given by the CEO. 10. Purchase of yarn and its recording in the books of accounts 11. Payment of petty cash expenses and their recording.

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Reliance Weaving Mills Ltd.

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Reliance Weaving Mills Ltd.

Purpose of Financial Analysis

The purpose of financial statement analysis is to make a quick assessment about a firm’s financial situation .It is also used to identify the major strengths and weaknesses of a business enterprise.

Tools of Financial Statement Analysis (1) Financial Ratio Analysis (2) Common Size Income Statements

Financial Ratios Financial ratios are a ratio of 2 numbers, at least one of which comes from the firm’s financial statements. A financial ratio has very little meaning unless it is compared to some other ratio. Two types of comparisons are cross-sectional analysis and timeseries analysis.

Cross-Sectional Analysis Time-Series Analysis

Compare ratio for firm A at time t to industry average Compare ratio for firm A at time t to ratio for firm A at time t-1, etc.

Financial ratio analysis is a fascinating topic because it can tell us so much about accounts and businesses. When we use ratio analysis we can work out how profitable a

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Reliance Weaving Mills Ltd. business is, we can tell if it has enough money to pay its bills and we can even tell whether its shareholders should be happy!

Ratio analysis can also help us to check whether a business is doing better this year than it was last year; and it can tell us if a business is doing better or worse than other businesses doing and selling the same things. What do we want ratio analysis to tell us? We have to start working on ratio analysis with the following question in our heads: What are we trying to find out? We can use ratio analysis to try to tell us whether the business •

is profitable

•

has enough money to pay its bills

•

could be paying its employees higher wages

•

is paying its share of tax

•

is using its assets efficiently

•

has a gearing problem

•

is a candidate for being bought by another company or investor

And more, once we have decided what we want to know then we can decide which ratios we need to use to answer the question or solve the problem facing us. Users of Analysis Information Now we know the kinds of questions we need to ask and we know the ratios available to us, we need to know who might ask all of these questions! This is an important issue because the person asking the question will normally need to know something particular. Of course, anyone can read and ask questions about the accounts of a business; but in the same way that we can put the ratios into groups, we should put readers and users of accounts into convenient groups.

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Reliance Weaving Mills Ltd. The list of categories of readers and users of accounts includes the following people and groups of people: •

Investors

•

Lenders

•

Managers of the organization

•

Employees

•

Suppliers and other trade creditors

•

Customers

•

Governments and their agencies

•

Public

•

Financial analysts

•

Environmental groups

•

Researchers: both academic and professional

The users of accounts that we have listed will want to know the sorts of things we can see in the table below: this is not necessarily everything they will ever need to know, but it is a starting point for us to think about the different needs and questions of different users.

Investors

To help them determine whether they should buy shares in the business, hold on to the shares they already own or sell the shares they already own. They also want to assess the ability of the business to pay dividends.

Lenders

To determine whether their loans and interest will be paid when due.

Managers

Might need segmental and total information to see how they fit into the overall picture.

Employees

Information about the stability and profitability of their employers to assess the ability of the business to provide remuneration,

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Reliance Weaving Mills Ltd. retirement benefits and employment opportunities. Suppliers and other Businesses supplying goods and materials to other businesses will trade creditors

read their accounts to see that they don't have problems: after all, any supplier wants to know if his customers are going to pay their bills!

Customers

The continuance of a business, especially when they have a long term involvement with, or are dependent on, the business.

Governments and

The allocation of resources and, therefore, the activities of business.

their agencies

To regulate the activities of business, determine taxation policies and as the basis for national income and similar statistics

Local community

Financial statements may assist the public by providing information about the trends and recent developments in the prosperity of the business and the range of its activities as they affect their area.

Financial analysts

They need to know, for example, the accounting concepts employed for inventories, depreciation, bad debts and so on.

Environmental

Many organizations now publish reports specifically aimed at

groups

informing us about how they are working to keep their environment clean.

Researchers

Researchers' demands cover a very wide range of lines of enquiry ranging from detailed statistical analysis of the income statement and balance sheet data extending over many years to the qualitative analysis of the wording of the statements.

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Reliance Weaving Mills Ltd.

Which ratios will each of these groups be interested in?

Interest Group

Ratios to watch

Investors

Return on Capital Employed

Lenders

Gearing ratios / Leverage Ratio

Managers

Profitability ratios

Employees

Return on Capital Employed

Suppliers and other trade creditors Liquidity Customers

Profitability

Governments and their agencies

Profitability

Local Community

This could be a long and interesting list

Financial analysts

Possibly all ratios

Environmental groups

Expenditure on anti-pollution measures

Researchers

Depends on the nature of their study

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Horizontal Analysis

BALANCE SHEET COMMON SIZE HORIZONTAL ANALYSIS

ASSETS: Internship Report

2007

2006 Muhammad Fahim Khan

57

Reliance Weaving Mills Ltd.

(Rupees )

in %

Non-current assets Property, Plant and

1,906,640,987

1,963,229,490

(56,588,503)

-2.88

equipment

1,033,593

-----------

1,033,593

100

Intangible assets

69,999,586

69,999,586

-----------

-----

Long-term investment

2,421,340

2,421,340

------------

-----

Stores, spares and loose tools

103,050,338

92,855,401

10,194,937

10.98

Stock-in-trade

772,397,644

746,643,801

25,753,843

3.45

Trade debts

157,754,493

229,707,309

(71,952,816)

-31.32

Loan and Advances

187,188,985

142,601,992

44,586,993

31.267

Trade deposits and payments

1,122,041

5,804,422

(4,682,381)

-80.67

Short term Investment

125,667,584

523,546

125,615,238

23993

Mark-up accrued

7,088,261

7,088,261

------------

-------

Other receivables

8,289,791

1,612,193

6,677,598

414.19

government

45,560,675

49,793,062

(4,232,387)

-8.50

Cash and bank balances

41,794,462

32,572,103

9,222,359

28.31

Total Current assets

1,449,914,27

1,309,202,09

140,712,18

10.75

TOTAL ASSETS

4 0 4 3,430,009,780 3,344,852,506 85,157,274

2.546

Long-term deposits Current assets

Tax refunds due from

EQUITY AND LIABILITIES:

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2007

2006 (Rupees)

Muhammad Fahim Khan

In %

58

Reliance Weaving Mills Ltd.

Share capital and reserves Authorized Capital 30,000,000 ordinary shares of

30,000,000

-------------

---

Issued, subs and paid-up capital 308,109,370

246,487,500

61,621,870

24.99

Reserves

395,081,250

395,081,250

--------------

-------

Unappropriate profit

165,798,067

195,501,910

70,296,157

35.96

868,988,687

837,070,660

31,918,027

3.81

Long term Finance & other

711,913,668

988,791,218

(276,877,550)

-28

Capital

63,375,000

36,875,000

26,500,000

71.86

Subordinated loans

8,589,216

16,238,327

(7,649,111)

-47

Deferred liabilities

783,877,884

1,041,904,545

(258,026,661)

-24.76

Current liabilities

128,588,478

124,134,603

4,453,875

3.59

Trade and other payables

56,488,753

43,259,876

13,228,877

30.58

Interest and mark-up accrued

1,336,646,814

1,174,824,009

161,822,805

13.77

255,419,164

123,658,813

131,760,351

106.55

1,465,877,301

311,265,908

21.23

85,157,274

2.546

Rs 10 each

30,000,000

Non-current liabilities

Finance under markup arrangement

Current portion of non-current 1,777,143,209 liabilities

Total Liabilities and

3,430,009,78

3,344,852,50

Equity

0

6

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Profit and Loss Account Common size Horizontal analysis 2007 2006 (Rupees) Sales

in %

3,122,414,478 (2,699,848,853)

278,583,883 354,744,842

8.92

Cost of sales

3,400,998,361 (3,054,593,695)

Gross profit

346,404,666

422,565,625

(76,160,959)

-18

Other operating income

39,344,127

17,840,572

21,503,555

120

Administrative expenses

(50,282,001)

(48,421,073)

1,860,928

3.84

Distribution and selling costs

(49,671,260)

(39,031,369)

10,639,891

27.25

Other operating expenses

(6,048,989)

(9,584,861)

(3,535,872)

36.89

Finance costs

(232,381,335)

(199,406,645)

32,974,690

16.54

Profit / (loss) before taxation

47,365,208

143,962,249

(96,597,041)

-67.10

Provision for taxation

(15,447,181)

(20,433,058)

(4,985,877)

-24.40

Profit for the year

31,918,027

123,529,191

(91,611,164)

-74.16

1.04

Earnings per share

13.21

4.01

BALANCE SHEET COMMON SIZE HORIZONTAL ANALYSIS Internship Report

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ASSETS:

2006

2005

(Rupees)

In %

Non-current assets Property, Plant and

1,963,229,490

2,036,092,537

(72,863,047)

-3.59

equipment

2,421,340

2,421,340

--------------

-------

Long-term deposits

1,965,650,83

2,038,513,87

(72,863,047)

-3.57

0

7

12,542,718

15.62

Current assets Stores, spares and loose tools 92,855,401 Stock-in-trade 746,643,801

80,312,683

39,916,901

5.65

706,726,900

25,166,852

12.30

Trade debts

229,707,309

204,540,457

(136,626,854)

-47.64

Loan and Advances

150,177,167

286,804,021

1,911,177

49.08

Trade deposits and payments

5,804,422

3,893,245 (10,722,865)

-17.72

Tax refunds due from government

49,793,062

60,515,927

(1,409,733)

-46.65

Other receivables

1,612,193

3,021,926

70,523,132

100

Short term Investment

70,523,132

------------

31,737,856

37.63

Cash and bank balances

32,572,103

8,434,247

Total Current assets

1,379,688,59

1,354,249,40

25,439,184

1.88

TOTAL ASSETS

0 6 3,345,339,420 3,392,763,283 (47,423,863) -1.398 2006

2005

EQUITY AND LIABILITIES:

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In % Share capital and reserves Authorized Capital 30,000,000 ordinary shares of Rs 10 each

30,000,000

30,000,000

246,487,500

246,487,500

395,081,250

------------

------

395,081,250

195,501,910

------------

------

96,621,469

98,880,441

102.34

837,070,660

738,190,219

98,880,441

126.46

1,025,666,218

1,158,062,811

16,238,327

(132,396,593) -11.43

18,400,700

1,041,904,545

(2,162,373)

1,176,463,511

(134,558,966) -11.44

123,658,813

139,361,140

(15,702,327)

-11.27

1,174,824,009

1,193,844,369

(19,020,360)

-1.59

124,621,517

109,756,482

14,865,035

13.54

43,259,876

35,147,562

8,112,314

23.08

1,466,364,215

1,478,109,553

(31,745,338)

-2.15

3,345,339,42

3,392,763,28

0

3

Issued, subs and paid-up capital Reserves Unappropriate profit

Non-current liabilities Long term Finance & other Capital Deferred liabilities

-11.75

Current liabilities Current portion of long term liabilities Finance under markup arrangement Trade and other payables Interest and mark-up accrued

Total Liabilities and Equity

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(47,423,863) -1.398

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Reliance Weaving Mills Ltd.

Profit and Loss Account Common size Horizontal analysis 2006

2005

(Rupees in) Sales

in % 2,061,671,982 (1,803,756,782)

1,060,742,496

Cost of sales

3,122,414,478 (2,699,848,853)

896,092,071

51.45 49.68

Gross profit

422,565,625

257,915,200

164,650,425

63.84

Other operating income

17,840,572

20,305,651,

(2,465,079)

-12.14

Administrative expenses

(48,421,073)

(27,691,287)

20,729,786

74.86

Distribution and selling costs

(39,031,369)

(38,357,316)

674,053

1.76

Other operating expenses

(9,584,861)

(7,248,742)

2,336,119

32.22

Finance costs

(199,406,645)

(93,157,973)

106,248,672

114.05

Profit / (loss) before taxation

143,962,249

111,765,533

32,196,716

28.81

(20,433,058)

(15,789,023)

4,644,035

29.41

123,529,191

95,976,510

27,552,681

28.71

Provision for taxation

Profit for the year Earnings per share

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5.01

3.89

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Reliance Weaving Mills Ltd.

Vertical Analysis

BALANCE SHEET COMMON SIZE VERTICAL ANALYSIS Internship Report

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Reliance Weaving Mills Ltd.

ASSETS:

2007

2006

Property, Plant and equipment

55.59 %

58.69 %

Intangible assets

0.03 %

--------

Long-term investment

2.04 %

2.04 %

Long-term deposits

0.07 %

0.07 %

Stores, spares and loose tools

3.00 %

2.78 %

Stock-in-trade

22.52 %

22.32 %

Trade debts

4.6 %

6.87 %

Loan and Advances

5.46 %

4.26 %

Trade deposits and short-term payments

0.032 %

0.17 %

Mark-up accrued

0.21 %

0.21 %

Other receivables

0.241 %

0.048 %

Short term Investment

3.66 %

0.016 %

Tax refund due from government

1.33 %

1.49 %

Cash and bank balances

1.22 %

0.97 %

Total Current assets

42.27 %

39.14%

TOTAL ASSETS

100.00%

100.00%

EQUITY AND LIABILITIES:

2006

2005

Non-current assets

Current assets

Share capital and reserves Authorized Capital 30,000,000 ordinary shares of Rs 10 each Internship Report

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Reliance Weaving Mills Ltd. Issued, subscribed and paid-up capital

8.98 %

7.37 %

Reserves

11.52 %

11.81 %

Unappropriate profit

4.83 %

5.84 %

25.33 %

25.03%

Long term Finance and other payables

20.76 %

29.56 %

Loan from related parties- subordinated loans

1.85 %

1.102 %

Deferred liabilities

0.25 %

0.48 %

3.75 %

3.71 %

1.65 %

1.29 %

38.97 %

35.12 %

7.45 %

3.7 %

51.81 %

43.82 %

100 %

100 %

Non-current liabilities

Current liabilities Trade and other payables Interest and mark-up accrued Finance under markup arrangements Current portion of non-current liabilities

Total Liabilities and Equity

Profit and Loss Account Common size vertical analysis 2007 Internship Report

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Reliance Weaving Mills Ltd. Sales

100 %

100 %

Cost of sales

(89.81 %)

(86.47 %)

10.19%

13.53%

11.57 %

10.57 %

(1.48 %)

(1.55 %)

(1.46 %)

(1.25 %)

(0.178 %)

(0.31 %)

(6.83 %)

(6.39 %)

Profit / (loss) before taxation

1.39 %

4.61 %

Provision for Taxation

(0.45 %)

(0.65 %)

Profit for the year

0.94 %

3.96 %

Gross profit Other operating income Administrative expenses Distribution and selling costs Other operating expenses Finance costs

BALANCE SHEET COMMON SIZE VERTICAL ANALYSIS ASSETS:

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2006

Muhammad Fahim Khan

2005

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Reliance Weaving Mills Ltd.

Non-current assets Property, Plant and equipment

58.69 %

60.01%

Long-term deposits

0.72 %

0.07 %

58.76%

60.84%

Stores, spares and loose tools

2.78 %

2.37 %

Stock-in-trade

22.32 %

20.83 %

Trade debts

6.87 %

6.03 %

Loan and Advances

4.49 %

8.45 %

Trade deposits and short-term payments

0.17 %

0.11 %

Tax refund due from government

1.49 %

1.78 %

Other receivables

0.048 %

0.09 %

Short term Investment

2.108 %

--------

Cash and bank balances

0.97 %

0.25 %

Total Current assets

41.24 %

39.92%

TOTAL ASSETS

100.00%

100.00%

EQUITY AND LIABILITIES:

2006

2005

Current assets

Share capital and reserves Authorized Capital 30,000,000 Ordinary shares of Rs 10 each Internship Report

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Reliance Weaving Mills Ltd. Issued, subscribed and paid-up capital

7.37 %

7.27 %

Reserves

11.81 %

11.64 %

Unappropriate profit

5.84 %

2.85 %

25.02 %

21.76 %

Long term Finance and other payables

30.66 %

34.13 %

Deferred liabilities

0.49 %

0.54 %

Current portion of long term liabilities

3.696 %

4.11 %

Finance under markup arrangements s

35.11 %

35.19 %

Trade and other payable

3.73 %

3.24 %

Interest and mark-up accrued

1.29 %

1.036 %

43.83 %

43.57 %

100 %

100 %

Non-current liabilities

Current liabilities

Total Liabilities and Equity

Profit and Loss Account Common size vertical analysis

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Reliance Weaving Mills Ltd.

2006

2005

Sales

100 %

100 %

Cost of sales

(86.47 %)

(87.49 %)

13.53%

12.51%

10.57 %

10.98 %

(1.55 %)

(1.34 %)

(1.25 %)

(1.86 %)

(0.31 %)

(0.35 %)

(6.39 %)

(4.52 %)

Profit / (loss) before taxation

4.61 %

5.42 %

Provision for Taxation

(0.65 %)

(0.77 %)

Profit for the year

3.96 %

4.66 %

Gross profit Other operating income Administrative expenses Distribution and selling costs Other operating expenses Finance costs

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Reliance Weaving Mills Ltd.

INTERPRETATION

 Horizontal Analysis Horizontal analysis of 2007 and 2006 at RWML shows that sales increased by 8.92 but CGS increased by 13.21% that show rising prices of raw material. Due to this factor Gross Profit increased by 18%, but firm was able to reduce its operating expenses, financial charges, taxes and to increase other income by considerable amount. This helped to fill gap created by CGS and as result NPAT increased by 74.25%. While looking to balance sheet, fixed assets decreased by 2.88% but long term investments increased by 30%. Investment in stock in trade decreased by 19.18%. Firm account receivable increased that means firm was not good to collect receivable. Cash balance increased by 28.39%. Non-current liabilities decreased by 13% that shows efficiency. But in the short-term liabilities increased to 49%. Horizontal analysis of 2006 and 2005 at RWML shows that sales increased by 51.45% but CGS increased by 49.68% that show rising prices of raw material. Due to this factor Gross Profit increased by 63.84%, but firm was able to reduce its operating expenses, financial charges, taxes and to increase other income by considerable amount. This helped to fill gap created by CGS and as result NPAT increased by 28.71%. While looking to balance sheet, fixed assets decreased by 2.4% but long term investments increased by 30%.

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Reliance Weaving Mills Ltd.

 Vertical analysis

In Vertical analysis, CGS size has decreased from previous year that is good sign. Size of gross profit in proportion to sales has increased and that is the case with operating profit as well. But taxes and other charges size has decreased in proportion to sales. But important thing to note is that NPAT has increased by 0.94%, 3.96% and 4.66% in 2007, 2006 and 2005 respectively proportion to sales. Investment in fixed assets look to increased slightly but this factor is due to appreciation mainly and

investment in fixed

assets has increased but element of depreciation has reduced its value. Long-term investments and long term loans and advances are decreasing slightly in comparison with previous year. Firm has more inventory than previous year. This is because of increase in sales. Trade debts have lesser weight in total assets than in 2007 a compare to 2006 and 2005. Now interesting thing to note is that value of total current assets in total assets has increased by 2% and 4% in proportion to total assets. SHE has increased from 51% in 2007 to 43.82% in 2006 and 43.57% in 2005 that mean owner’s contribution is equal to that of creditor. Long-term liabilities are decreasing from 34.138% in 2005 to 30.66% in 2006 and 29.56% in 2005.

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Reliance Weaving Mills Ltd.

Ratios Analysis

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Reliance Weaving Mills Ltd.

Ratio Analysis We have to analyze firm from five point of view. •

Liquidity Analysis

•

Activity Analysis

•

Debt Analysis

•

Profitability Analysis

•

Marketability Analysis

LIQUIDITY ANALYSIS FORMULAS i. Current Ratio

=

ii. Acid test ratio or quick ratio

=

Current Asset- Inventory Current Liabilities

i. Inventory turn Over

=

Cost of goods sold Inventory

ii. Average Age of Inventory Inventory turn over

=

No. of working days

iii. Average collection period

=

Account Receivable Average Sale per day

iv. Account receivable turn over

=

Current Asset Current Liabilities

ACTIVITY ANALYSIS FORMULAS

v. Account Payable turn over Internship Report

No. of working days Average Collection period

=

No, of working days Average Payment Period

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Reliance Weaving Mills Ltd.

vi. Fixed asset turn over

=

Net sale Net fixed Asset

=

G.P Net Sale

x 100 x 100

PROFITABILITY RATIOS FORMULAS i) Gross Profit Ratio on Sale ii) Gross profit ratio on cost

=

G.P C.G.S

iii) Operating Profit ratio

=

operating Profit x100 Sale

iv) Net Profit ratio

=

Net Profit after taxes x100 Net sale

v) Return on asset (ROA)

=

Net Profit after taxes x100 Total asset

MARKET ABILITY RATIOS FORMULAS i) Earning Per Share (EPS)

=

N.P.A.T. - Divto P. share Out Standing Stock

ii) Dividend Pay out ratio

=

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Dividend P.S x100 EPS

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Reliance Weaving Mills Ltd.

CALCULATION OF RATIOS LIQUIDITY ANALYSIS It shows the firm’ ability to pay its short-term obligation on time.

CURRENT RATIO 2005 1: 0.74times

2006 1: 0.84times

2007 1: 0.98times

The ratios show that the company’s current liabilities and current assets are almost equal. So the co. is in a position to meet its current liabilities on time.

QUICK OR ACID TEST RATIO 2005 1: 0.75times

2006 1: 0.59times

2005 1: 0.48times

The company’s quick ratio has increased. So the company is liquid position is very strong.

ACTIVITY ANALYSIS Activity analysis shows the speed through which various current accounts are converted into cash and measures the efficiency of management that how productively it is utilizing assets to generate desire results.

INVENTORY TURNOVER RATIO Internship Report

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2005 3.2times

2006 4.8times

2007 6.0times

The co. is converting the inventory 6.0times in 2007 into cash against the conversion of 4.8times of 2006 and 3.2times in 2005. It means that the sale of the co. has been increased.

DEBTOR COLLECTION PERIOD 2005 92 days

2006 87days

2007 44days

Company’s credit collection performance is depended upon L/C by the buyer. So the company’s debtor collection period mostly depends upon the opening of letter of credit.

CREDITOR’S TURNOVER RATIO 2005 10.3 times

2006 11.50times

2007 12.20times

This ratio shows that the co. is making payment to the creditors within reasonable time period.

FIXED ASSETS TURNOVER RATIO Internship Report

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2005 0.93times

2006 1.24 times

2007 2.02 times

PROFITABILITY ANALYSIS The efficiency of the firm can be analyzed through its profits.

GROSS PROFIT RATIO 2005 16.32%

2006 15.59%

2007 15.30%

Cost of goods sold has remain more or less constant while conversion rate of $ is being higher therefore G.P. is very ideal.

NET PROFIT RATIO 2005 1.40%

2006 1.57%

2007 2.7%

The company’ profit is increasing with the passage of time. It is because of its 90% exports.

OPERATING PROFIT RATIO 2005 10.57% Internship Report

2006 10.70%

2007 10.85%

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There is little increase in profit of the co. It is because of hiring of new employees which increases the salaries of the co.

RETURN ON ASSETS 2005 2.69%

2006 3.48%

2007 7.49%

Return on assets ratio has increased because of increase in profits.

MARKETABILITY ANALYSIS EARNING PER SHARE 2005 Rs.2.48

2006 Rs.2.67

2007 Rs.2.82

The shareholders are earning Rs.2.82 against one share in 2007, which is more than in 2006 & 2005.

DIVIDEND DECLARATION 2005 6.7%

2006 7.50%

2007 7.50%

LEVERAGE ANALYSIS Internship Report

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Reliance Weaving Mills Ltd.

Leverage analysis is used to measure the degree of indebt ness (up to what extent the firm is in debtness).

DEBT RATIO 2005 57%

2006 68.78%

2007 76%

DEBT-EQUITY RATIO 2005 186%

2006 322%

2007 220%

RWML is heavily depending on the outsider’s financing.

COVERAGE RATIO ANALYSIS Coverage ratio is used to see the ability of a firm to pay its fixed financial cost.i-e. •

Interest payment

•

Lease payment t

•

Dividend to preferred stockholders

TIME INTEREST EARNED RATIO 2005 1.27times

2006 1.36times

2007 1.56times

RWML is paying interest 1.56times in a year, which is greater than previous years.

DECISIONS ON THE BASIS OF RATIO ANALYSIS Internship Report

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SHORT-TERM CREDITOR On the basis of analysis it is wise to invest as a short-term supplier of funds in RWML because firm’s current ratio and quick ratio are in positive. Moreover the firm’s working capital is positive in both the years.

LONG-TERM INVESTOR As the firm’s debt ratio is good in both the years’ I-e 76%, 72.54% and 68.78% in 2005, 2006 and 2007 respectively.. So, on the basis of this it is wise to invest in RWML as long-term supplier of funds.

LONG-TERM EQUITY INVESTOR As the co. operating and net profit ratios are increasing in both the years and earning per share ratio is also increasing. Moreover the co. is declaring dividend every share and has a strong image in the market, having a good market price of its stock. So RWML is quiet suitable for the investor to invest in it.

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COMMENTS AND SUGGESSIONS  After a short careful analysis, I come to know that the financial position of the co. is much better than the other weaving units in textile industry.

 There is tough competition in textile exports. Buyers are demanding quality and economy in their purchase contracts. They are becoming quality conscious. RWML has vast markets of Japan, USA, Taiwan, H.K therefore co. is going to the installation of 200 looms with complete back up process as well.

 RWML is saving a huge cost in the field of marketing because its Chief Executive is extra vigilant. In this respect co. is saving more of less.

 RWML has no marketing department to promote and introduce its products in international market. There is a crucial need for having disciplined and coordinated program of marketing to boost up the exports.

 There is a need of searching the new customers in international market. So that they can enhance their sale volume because of going to its expansion as double capacity.

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