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Common Size Statements Vertical Analysis 31-Sept-12 31-Sept-11 31-Sept-10 31-Sept-09 31-Sept-08Balance Sheet Rupees in
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NON-CURRENT ASSETS Fixed assets Capital work in progress 13,281,922 1.632% 14,503,179 1.900% 1,332,093 0.203% 5,196,841 0.714% 17,925,373 2.485%Operating fixed assets at cost
Total Non Current Assets 375,502,685 46.126% 332,168,534 43.511% 312,944,927 47.677% 329,521,634 45.270% 329,787,878 45.717% CURRENT ASSETS Stores, spares and loose tools
Total Non Current Liabilities 93,012,838 11.425% 79,710,060 10.441% 75,819,871 11.551% 50,478,690 6.935% 56,976,231 7.898% CURRENT LIABILITIES Short term running finances - secured
Cash and bank balances 12,354,863 13,579,771 8,127,597 13,217,682 10,909,851Total Current Assets 438,583,018 431,252,645 343,441,764 398,386,231 391,583,837TOTAL ASSETS 814,085,703 763,421,179 656,386,691 727,907,865 721,371,715EQUITY AND LIABILITIESSHARE CAPITAL AND RESERVESAuthorised capital 100,000,000 100,000,000 100,000,000 100,000,000 100,000,000Issued, subscribed and paid-up capital 50,400,000 50,400,000 50,400,000 50,400,000 50,400,000Reserves 9,635,878 9,635,878 9,635,878 9,635,878 9,635,878Unappropriate Profits 372,529,248 299,459,093 246,193,884 209,806,010 200,794,368Total Equity 432,565,126 359,494,971 306,229,762 269,841,888 260,830,246
NON-CURRENT LIABILITYDeferred Tax
45,360,346 43,565,335
47,253,906
28,478,162
30,700,000
Long term loan - Secured 0 0 0 0 7,368,418Retirement and other benefits 47,652,492 36,144,725 28,565,965 22,000,528 18,907,813Total Non Current Liabilities 93,012,838 79,710,060 75,819,871 50,478,690 56,976,231 CURRENT LIABILITIESShort term running finances - secured 140,987,776 154,794,581 166,615,728 307,671,564 288,711,025Creditors, Accrued and Other Liabilities 146,322,898 166,533,908 103,254,409 87,816,200 89,805,848
HORIZONTAL INCOME STATEMENT
INCOME STATEMENT 31-Sept-12 31-Sept-11 31-Sept-1031-Sept-09
IntroductionSince its inception in 1933, Mitchells has come a long way to reach and sustain its position as one of the top Food and Beverage Company in the industry. Along with its outstanding physical performance it has maintained steady financials even when the country is facing major economic perils. Mitchell’s is the only major food company in Pakistan today with fully integrated operations having its own growing and processing facilities at one location. Modern high-volume industrial equipment, professional management and a trained workforce all combine to ensure that Mitchell’s continues its dominance as the innovator, market leader and trend setter.
Liquidity MeasuresThe liquidity ratios show the ability of a company to satisfy short term financial obligations. The current ratio is an indicator of the company’s priorities and shows how liquid the company is. The current ratio of Mitchell’s fruit farms in 2008 was 0.97 but even while facing adverse economic conditions they have successfully managed to consistently increase the ratio to 0.98 in the next year and by 2012, it had risen to 1.55. A rise in the current ratio means that either the company has increased its current assets while the current liabilities have remained constant, or that the current liabilities
of the company have decreased while the current assets has remained constant. A quick look on the company financials shows that while the current liabilities have fluctuated over the five year period, the overall trend shows that they have fallen. On the other hand, the current assets show a rising trend from 2008 till 2012. This merely strengthens the argument that the company has improved its liquidity position by getting itself out of the danger zone i.e. a liquidity ratio below 1 and is well in the safe zone with a current ratio of 1.55.
The quick ratio provides us with a clearer view of the company’s liquidity position and in the case of Mitchell’s fruit farms; it seems to be in a highly detrimental state. The quick ratio has increased from 0.25 to 0.33. Though this does represent an improvement in the ratio, the company still needs to work on its financial state and reduce its dependence on stock. In comparison to the industry, we can see that Mitchell’s has performed well and can be categorized as one of the top performers of the industry.
Asset Management
The asset management ratios of a company attempt to represent the company’s success in managing its assets to generate sales. These ratios cam provide insight into the company’s management of the credit policy and inventory management. The days in receivables ratio analyses the company’s credit policy and its current state in terms of credit. The days in receivable ratio of the company suggests an improvement in the credit position of the company. In 2008 the company was able to successfully recover its money in 14 days. Now this has fallen down to 12 days. Though there hasn’t been a massive change, it still represents an improvement in the books. Another positive is that the main competitor of Mitchell’s; national foods has a days in receivable ratio of 14.68 compared to 12 of Mitchells fruit farms. At the same time however, the days in payables ratio has showed a steadier more horizontal trend across the five years as the change in the ratio is only by a single day (fallen from 39 days to 38 days). the across the board improvements in all the ratios is apparent in the operating cycle as well which shows a mammoth improvement from 99 days down to 62 days whilst the
cash conversion cycle has also fallen from 60 to 24 days. Here also, the industry average for the cash conversion cycle is below that of Mitchell’s which suggests financial stability for the company.
The fixed asset turnover ratio of Mitchell’s fruit farms is also rising which shows that the company aims to invest in the long run. This improves and strengthens investor confidence which would also improve the company’s position on the stock exchange. The asset turnover ratio has steadily risen over the five year period and currently stands at 2.31 compared to 1.44 from 2008. An increase in the capital structure of the firm means that the company has a long run performance strategy. This means that Mitchell’s is sacrificing its short term gains in order to secure grater long term gains. Similar to this ratio is the total asset turnover ratio which has also steadily increased across the five years due to a rise in both the current assets and the fixed assets and a rise in the total sales as well.
Debt ManagementThe changes in the debt to equity ratio and the debt to asset ratio represent a major change in the capital structure of the business. The overall trend visible in both these ratios is significantly positive, via this we can infer that the company wishes to decrease its reliance on debt and is paying off creditors and decreasing the load rather than taking on more loans and adversely affecting the performance and financials of the company. The debt to equity ratio has fallen from 1.77 to 0.88. The change means that either the debt has fallen or the total equity has risen; and in our case we can see that since the company has paid off its loans thereby decreasing the total debt of the company, the ratio has consistently fallen over the five years. There is a similar situation in the case of the debt to asset ratio where not only has the debt of the company decreased, but this is coupled with an increase in the assets. The ratio has fallen from 63.84% down to 46.86%. This will not only strengthen investor confidence but at the same time it will also improve the company’s position in the market. Also, in comparison to the industry, Mitchells has a lower TIE ratio and a lower debt to equity ratio; both of which suggest that the company is not reliant on loans and that a smaller chunk of the income goes into paying out loans and interest.
Profitability Ratios:The profitability ratios of a company indicate a dollar of income on each dollar of net sales. Similar to ratios in other categories, the gross profit margin and the net profit margin have shown a vast improvement even while the local economy has been stagnant and has faced various obstacles. The gross profit margin indicates a 34.4% increase across the five years which means an annual increase of almost 7%. Similarly, in the case of the net profit margin the margin has increased from 0.80% to 5.75%. This is a whopping increase of 618.75%. This is a marvelous improvement and this further improves the position of Mitchells for the running of the market leader in the food and beverages category. Also, during the same time period, national foods has also improved both its gross profit and net profit margins however the percentage change increase in both the cases is higher of Mitchell’s. The EBITDA margin to sales ratios of both companies have improved which means that now, not only is the income of the company rising, but it is extracting more and more profit from sales. However, in contrast to the industrial average as declared by the state bank of Pakistan it seems that both Mitchell’s fruit farms and its competitors have a lot of catching up to do. The report suggests that the industry average net profit margin for the 2011 fiscal year is 10.38%. This suggests that even though Mitchell’s has performed well, in the previous years, there is still room for further growth.
Market Value Ratios:The market value ratios of a company indicate the performance of a company in a fiscal year. The market value ratios include the EPS, the P.E. ratio and the Book Value/Share ratio. A high PE ratio indicates the growth of the stock and also shows how much an investor is willing to pay off a dollar’s earnings. The P.E. ratio of Mitchell's has shown a steady increase which not only suggests that the company is doing well but that its share has a solid ground in the stock exchange. The Earnings per Share of the company has also risen over the five years which suggests that the overall allocation of profit to shares has increased. In contrast to its major competitor national foods, Mitchell’s has fared well in trying to reach its limits and improve its financial standing.
An analysis of the PE ratios of both companies suggest that whilst both companies have improved their performance, Mitchells has come out n top with not only a higher PE ratio keeping investors happy but has increased its ratio quite significantly. This will therefore not only keep current investors happy but will also attract newer investors.
Conclusion:In my opinion, Mitchells Fruit farms is an excellent company which has proved its credibility not only by smartly investing in the future but also through making sound financial decisions which will attract new investors and therefore be a risk free way of raising capital and further improving on the problems that it faces. . They have realized that optimum profitability and liquidity can only be reached by investing smartly into physical capital. In a troubled economy, Mitchell’s has proved itself to be the market leader in the food and beverages industry by outgrowing and outperforming each and every one of its competitors
DEBT MANAGEMENT RATIOSDebt to Equity Ratio 0.88 1.12 1.14 1.70 1.77Debt to Assets Ratio 0.47 0.53 0.53 0.63 0.64TIE 7.63 3.82 2.84 1.35 1.41PROFITABILITY RATIOSNet Profit Margin 5.75% 4.09% 3.37% 1.12% 0.80%Gross Profit Margin 24.56% 21.97% 22.03% 18.72% 18.28%Return on Capital Employed 33.36% 33.36% 27.96% 22.48% 14.30%Return on Equity 25.05% 20.42% 15.17% 5.21% 3.20%Return on Assets 13.31% 9.62% 7.08% 1.93% 1.16%
MARKET VALUE RATIOS
Earning Per Share 21.5 14.57 9.22 2.79 1.65P.E. Ratio 16.74 5.49 7.48 26.49 35.61Dividend Payout Ratio 31.80% 27.49% 21.55% 33.84% 120.90%Market Price 360 80 69 73.9 58.75Book value per share 8.58 7.13 6.08 5.35 5.18Market value to Book Value 41.95 11.22 11.36 13.80 11.35
Ratio Comparison with Industrial Average and CompetitorFor the fiscal year ended December 2011
Liquidity ratio:Current ratio 0.97Quick Ratio 0.16
Debt managementDebt ratio 1.48Debt/equity ratio 2.1Times Interest Earned 5.61