Final Project of Accounting

Final Project

FINANCIAL STATEMENT ANALYSIS

OF

BATA SHOES AND SERVIS SHOES

AND

A REPORT

SUBMITTED TO THE DEPARTMENT OF MANAGEMENT

SCIENCES,

SUPERIOR UNIVERSITY OF PAKISTAN

IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR

THE DEGREE OF Bachelor IN BUSINESS ADMINISTRATION

Submitted By:

Submitted to:

Sir Luqman

Dedication

we would like to dedicate this project to

our parents who have always encourage

us throughout in our academic career and

make possible for us to stand where we

today.

GROUP MEMBERS :

KASHIF ALI 9215

NAVEED-UL-HASSAN 9243

NAEEM SAJJAD 9212

PIRZADA ARSLAN 9234

ARSLAN GUJJAR 9229

M .IFTIKHAR 9218

We become able to complete this project by blessing of our God and the help of our teacher which give us guiding in every aspect of our project. And sure us that he is available when we need assistance. We would also like to thanks our family as specially our parents for being a patent and encouraging and motivating us. We dedicate this project to our respected teacher Sir Luqman

Common Size Financial Statement discloses the internal

structure of the firm. It indicates the existing relationship

between sales and each income statement account. It shows

the mix of assets that produce income and the mix of the

sources of capital, whether by current or long-term debt or by

equity funding.

The primary objective of financial analysis is to forecast or

determine the actual financial status and performance of a

project

TABLE OF CONTENT

Section I

a) Introduction……………………………………………………. 6

Introduction of Bata shoes ……………………………………. 8

Introduction of Serves shoes………………………………... 9

Project proceedings………………………………………………. 14

1. Ratio Analysis…………………………………………….…………. 14

a) Liquid Ratio…………………………………………………... 15

b) Leverage Ratio………………………………………………… 18

c) Profitability Ratio……………………………………………… 24

d) Activity Ratio………………………………….….………….. 32

e) Market Ratios…………………………………………………. 33

f) Statement of Cash Flow………………………………………. 38

Company’s introduction:

Introduction of Serves shoes company :

Serves e are in leather trade since last 25 years having a tannery. Now they started

manufacturing of shoes of various kinds for men, women, sports, softy shoes, boots and

much other kind of shoes under the choice of buyers

Vision:

“Enabling people to advance with confidence and success”

Mission:

“To make our customer prosper, our staff excels and creates value for shareholders”

Introduction of Bata Shoes Company

Bata Ltd. is a privately owned global shoe manufacturer and retailer headquartered in

Ontario, Canada. The company is led by a third generation of the Bata family. With

operations in 68 countries, Bata is organized into four business units. Bata Canada,

based in Toronto, serves the Canadian market with 250 stores. Based in Paris, Bata

Europe serves the European market with 500 stores. With supervision located in

Singapore, Bata International boasts 3,000 stores to serve markets in Africa, the Pacific,

and Asia, Finally, Bata Latin America, operating out of Mexico City, sells footwear

throughout Latin America. All told, Bata owns more than 4,700 retail stores and 46

production facilities. Total employment for the company exceeds 50,000

VISION

To be the premier organization operating locally and internationally that provided the complete range of financial services to all segment under one roof

MISSION

To develop and deliver the most innovative products manage customer experience deliver quality services that contribute to brand strength establish a competitive advantage and enhance profitability , thus providing value to stake holder of the bank.

Data Processing and Analysis:

We can use several tools to evaluate a company, but we will use one of the most valuable

tool that is “financial ratios Ratios are useful both to internal and external analysts of

the firm. For internal purposes: ratios can be useful in planning for the future, setting

goals, and evaluating the performance of managers. External analysts use ratios to

decide whether to grant credit, to monitor financial performance, to forecast financial

performance, and to decide whether to invest in the company we will use Microsoft Word

and Microsoft Excel work sheets to compute the different ratios and analysis.

Project proceedings:

RATIO ANALYSIS:

(1) PROFITABILITY RATIO’S

(2) Debt & Leverage Ratio’s

(3) Liquidity & Working Capital Ratio’s

(4) shareholder ratio’s

(1)Liquidity & Working Capital Ratio’s

(a)Current Ratio

(b)Quick Ratio

(c) Avg. Inventory Turnover Period

(d)Accounts Receivable Collection Period

(e) Accounts Payable Payment Period

(a) Current Ratio

Current Ratio = Current Assets / Current Liabilities

Current assets normally include cash, marketable securities, accounts receivables, and

inventories. Current liabilities consist of accounts payable, short-term notes payable,

current maturities of long-term debt, accrued taxes, and other accrued expenses

BATA SHOES

SERVIS SHOES

Year 2007 2008

Current Assets 1398003 1652271

Current Liabilities 808720 734907

Current ratio 1.73 2.25

Bata Servis0

0.2

0.4

0.6

0.8

1

1.2

1.4

Quick Ratio 20x7Quick Ratio 20x8

Interpretation

BATA SHOES

The current ratio for the year, 2007 & 2008 is 1.73 & 2.25 respectively this1.73 ratio is

lower which shows low short term.

SERVIS SHOES

The ratios for the last 2 years are 0.840, & 1.280,

(b)Quick Ratio:

Quick ratio=current assets-stock/current liabilities

Year 2007 2008

Current Assets 1591361 2427082

Current Liabilities 1896571 1896571

Current ratio 0.840 1.280

The debt to equity ratio is the most popular leverage ratio and it provides detail around

the amount of leverage (liabilities assumed) that a company has in relation to the monies

provided by shareholders

BATA SHOES

SERVIS SHOES

Bata Servis0

20

40

60

80

100

120

140

160

180

Avg. Inventory Turnover Period 20x7Avg. Inventory Turnover Period 20x8

Year 2007 2008

Current assets-stock 628007 377982

Current liabilities 808720 734907

Quick ratio 0.78 0.51

Year 2007 2008

Current assets-stock 892505 2308826

Current liabilities 1896571 1896571

Quick ratio 0.471 1.218

Interpretation

BATA SHOES

We can see from the above calculations that this ratios continuously decreasing in the

last two years.

SERVIS SHOES

Calculating this debt ratio we can see that it was 0.471 & 1.218 the year, 2007 & 2008

respectively. This shows increasing the ratio of the company

(c)Avg. Inventory Turnover Period:

Avg inventory period = inventory / cost of sales*365

BATA SHOES

SERVIS SHOES

Year 2007 2008

Inventory 769996 1274289

Cost of sales 2327134 2942432

Avg inventory period 120.78 158.08

Year 2007 2008

Inventory 698556 1182566

Cost of sales 3809633 5355170

Avg inventory period 66.92 80.60

Bata Servis0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

Accounts Receivable Collec-tion Period 20x7Avg. Inventory Turnover Period 20x8

Interpretation

BATA SHOES

We can see from the above calculations that this ratios continuously decreasing in the last two years. In

2007 it was 1.66 and in 2008 it was 1.33.

SERVIS SHOES

Analysis shows that this ratio was as high as 1.2 among two years. However, it declined to 1.15 in the year

2008. In 2007 the ratio somewhat increased to 1.85.

(d)Accounts Receivable Collection Period:

Avg account receivable period=trade receivable/sales*365

The capitalization ratio measures the debt component of a company's capital structure, or

capitalization (i.e., the sum of long-term debt liabilities and shareholders' equity) to support a

company's operations and growth. Long-term debt is divided by the sum of long-term

debt and shareholders' equity. This ratio is considered to be one of the more meaningful

of the "debt" ratios - it delivers the key insight into a company's use of leverage.

BATA SHOES

Year 2007 2008

Trade receivable 3482 893

Sales 3964187 5106578

Avg account receivable 0.321 0.064

SERVIS SHOES

Bata Servis0

5

10

15

20

25

30

35

40

45

Gross Profit Margin 20x7Accounts Receivable Collec-tion Period 20x8

Interpretation

BATA SHOES

It is obvious from the above calculations that there is a gradual fall in this ratio over the years.

SERVIS SHOES

The ratios for the last 2 years are, 0.65 and 0.52. Shows below standard of 2:1

(e)Accounts Payable Payment Period:

Year 2007 2008

Trade receivable 1904 2844

Sales 4521147 639323

Avg account receivable 0.15 1.62

Profit Ability Ratio’s

(a)Gross Profit Margin

(b)Net Profit Margin

(c) Assets Turnover Ratio

(d) ROCE

(a)Gross Profit Margin:

Gross profit = gross profit/sales*100

Sales to working capital give an indication of the turnover in working capital per year. A

low working capital indicates an unprofitable use of working capital.

BATA SHOES

SERVICE SHOES

Bata Servis0

2

4

6

8

10

12

14

16

Net Profit Margin 20x7Gross Profit Margin 20x8

Year 2007 2008

Gross profit 1637053 2164116

Sales 3964187 5106578

Gross profit margin 41.29 42.37

Year 2007 2008

Gross profit 711514 1038153

Sales 4521147 6393323

Gross profit margin 15.73 16.24

Interpretation:

BATA SHOES

This liquidity ratio for the years, 2007 & 2008 is, 41.29& 42.37 compared to standard

ratio this ratio is lower which shows low short term liquidity efficiency at the same time

holding less than sufficient current assets mean inefficient use of resources

SERVIS SHOES

The ratios for the last 2 years are, 15.73 &16.24 shows the ratio

(b)Net profit margin:

Net profit margin= PBIT/sales*100

Positive working capital means that the company is able to pay off its short-term

liabilities. Negative working capital means that a company currently is unable to meet its

short-term liabilities with its current assets (cash, accounts receivable and inventory).

Also known as "net working capital", or the "working capital ratio".

BATA SHOES

SERVICE SHOES

Year 2007 2008

PBIT 503999 663822

sales 3964187 5106578

Net profit margin 12.71 12.99

Year 2007 2008

PBIT 236180 878203

sales 4521147 6393323

Net profit margin 5.23 13.74

Bata Servis0

5

10

15

20

25

30

Assets Turnover Ratio 20x7Net Profit Margin 20x8

Interpretation:

BATA SHOES

It is very clear from the above calculations that the working capital of the Bata is

gradually increasing over the years, which shows good short term liquidity efficiency.

SERVIS SHOES

This ratio increased to a great extent in 2007, almost double of the year 2008

(e) Assets turnover ratio:

Assets turnover ratio=sales/cap employment

The interest coverage ratio tells us how easily a company is able to pay interest expenses

associated to the debt they currently have. 

BATA SHOES

Year 2007 2008

sales 3964187 5106578

Cap employed 206334 191251

Assets turnover ratio 19.21 26.70

SERVICE SHOES

Bata Servis0

5

10

15

20

25

30

Assets Turnover Ratio 20x7Assets Turnover Ratio 20x8

Interpretation

BATA SHOES

We can see from this ratio analysis that, this company has covered their interest expenses

19.21 times in 2007 and 26.70 times in 2008. It means they have performed pretty much

same in 2007 and 2008.

SERVIS SHOES

We can see that, this company has covered their interest expenses 7.85 times in 2007 and

12.21 times in 2008.

Year 2007 2008

sales 4521147 6393323

Cap employed 576630 523901

Assets turnover ratio 7.85 12.21

(d)Return on capital employed:

Return on capital employed=PBIT/capital employed*100

The ratio of total debt to total assets, generally called the debt ratio, measures the

percentage of funds provided by the creditors. The proportion of a firm's total assets that

are being financed with borrowed funds.

BATA SHOES

SERVIS SHOES

Interpretation:

BATA SHOES

Calculating the debt ratio, we came to see that this company is highly leveraged one

SERVIS SHOES

Calculating the debt ratio, we came to see that this company is highly leveraged one.

Year 2007 2008

PBIT 503999 663822

Capital employed 191251 206334

Return cap employed 2.64 3.22

Year 2007 2008

PBIT 236180 478203

Capital employed 576630 523901

Return cap employed 0.41 0.913

Earning Per Share- EPS:

Earning Per Share = Profit after Taxation

Number of Shares

The portion of a company's profit allocated to each outstanding share of common

stock. Earnings per share serve as an indicator of a company's profitability. Earnings per

share are generally considered to be the single most important variable in determining a

share's price. It is also a major component used to calculate the price-to-earnings

valuation ratio. 

BATA SHOES

SERVIS SHOES

Price / Earning Ratio:

Price / Earning Ratio = Stock Price Per Share

Year 2007 2008

Profit after Taxation 10084037 15614020

Number of Shares 690000 759000

Earning Per Share 14.61 20.57

Year 2007 2008

Profit after Taxation 3130229 1301301

Number of Shares 650000 799500

Earning Per Share 4.815 1.627

Earning Per Shares

The Price-Earnings Ratio is calculated by dividing the current market price per share of

the stock by earnings per share (EPS). (Earnings per share are calculated by dividing net

income by the number of shares outstanding.)

BATA SHOES

SERVIS SHOES

Interpretation

BATA SHOES

The P/E ratio was 0.54 times in 2006 and increased further to as high as 0.68 times in the

following year. However, in 2008 it declined to 0.49 times which is an alarming signal

for the potential investors.

SERVIS SHOES

The P/E ratio was 2.83 times in 2006 and decreased a little bit in 2007. However, in 2008

it increased as much higher than before to 6.14 times.

Year 2007 2008

Stock price per share 10 10

EPS 14.61 20.57

Price / Earning Ratio 0.68 0.49

Year 2007 2008

Stock price per share 10 10

EPS 4.815 1.627

Price / Earning Ratio 2.07 6.14

Dividend cover:

Dividend Payout Ratio = Earning per share

Dividends per shrare

The percentage of earnings paid to shareholders in dividends.

BATA SHOES

SERVIS SHOES

Year 2007 2008

DPS 2.0014 3.597

EPS 14.61 20.57

Dividend Payout Ratio 0.137 0.175

Year 2007 2008

DPS 00 1.21

EPS 4.815 1.627

Dividend Payout Ratio 00 0.74

.

Conclusion

Financial Statement Analysis is a method used by interested parties such as investors,

creditors, and management to evaluate the past, current, and projected conditions and

performance of the firm. This report mainly deals with two companies. It is required by

law that all private and public limited companies must prepare the financial statements

like, income statement, balance sheet and cash flow statement of the particular

accounting period. The management and financial analyst of the company analyze the

financial statements for making any further financial and administrative decisions for the

betterment of the company