Azgard Nine Limited-internship Report

1

This report consists of my eight weeks internship at Azgard9 Limited which is situated at Manga, Raiwind Road, near Lahore. Azgard is consistently focusing on improving performance so that risks can be left far behind. Azgard is a responsible entity which ishighly committed to comply with the corporate, envoi mental laws and to conduct their business with utmost honesty and sincerity. At Azgard it is believed that development can only be achieved by equality and respect at work place. They have been doing it for decades and there is no doubt they are reaping its benefits.

The Company’s management, combining innovative strategies, aggressive marketing, creative synergy and visionary approach together with a lean organizational structure capable of efficient response,

succeeded in

establishing Azgard9 as the largest Denim Products Business in the country, with sales to the tune of Rs.6, 628,341,926. Azgard9 has been benefited by the management’s highly responsive approach, increasing its profits significantly since its acquisition from the Government of Pakistan. 2008 posed to be challenging, primarily owing to the high raw material prices, comparatively less productive workforce as 2

compared to the major competing countries, rising fuel prices resulting in higher domestic and International freight costs, and probable rise in minimum wages, these factors are mitigated by Azgard9's stronger business model within the Division and the Company.

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In a rapidly changing educational environment, there is a need to pragmatic tasks as well as the theoretical aspects of the study because the practical work is considered an indispensable with the theoretical study. So keeping this essential Hailey College forced the students towards the internship training as the final requirement of degree. So I also fulfilled this requirement by working in Azgard-9 as an internee. During training in this concern I enjoyed myself a lot because here I know how the incredible work is done practically in big organizations. I think by getting this training all the students really become the real assets of the organizations where they will work in future.

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At first I am thankful to Almighty ALLAH for His help to complete my internship. I pay all of my praises to the great Prophet of Islam, Hazrat Muhammad (P.B.U.H) with whose name my heart is enlightened and I feel the surging waves of real mirth, deep down my soul. Then I’m grateful for the thorough support by my teachers for helping me determine the objective of the report and guiding me though to get to the end. They made me grateful with his valuable suggestions from time to time during my internship.

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I really should thank every other employee of Azgard9, whom I found during different phases of my internship. Most of them have been very open and friendly with me and provided me with the answers I needed from them. They were the constant source of inspiration and encouragement that helped in completion of my internship.

I am also grateful to Prof. Dr.Liaqat Ali, (Principal of Hailey College) who gave me opportunity to work in such a prestigious organization, which is well known in Pakistan

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INTRODUCTION AND HISTORY……………………………………………1 MANAGEMENT OF ORGANIZATION………………………………………8 ACTIVITIES OF ORGANIZATION…………………………………………18 WORK DONE BY ME…………………………………………………………35 FINANCIAL ANALYSIS………………………………………………………37 CONCLUDING REMARKS……………………………………………………83 DILMMAS………………………………………………………………………84 RECEMMONDATIONS……………………………………………………….86 CONCLUSION…………………………………………………………………87 REFEFENCES…………………………………………………………………89

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THIS CHAPTER COVERS:

1.

MISSION STATEMENT OF THE COMPANY

2.

VISION STATEMENT OF THE COMPANY

3.

INTRODUCTION OF THE AZGARD NINE

4.

HISTORY OF AZGARD NINE

5.

HISTORY IN A GRAPH

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MISSION TEXTILE & APPAREL

TO RETAIN A LEADERSHIP POSITION AS THE LARGEST VALUE ADDED DENIM PRODUCTS COMPANY IN PAKISTAN FERTILIZERS

TO BECOME A DIVERSIFIED MANUFACTURER OF BOTH NITROGENOUS AND PHOSPHAIC CONTRIBUTING TO THE DEVELOPMENT OF THE AGRICULTURE SECTOR IN PAKISTAN 9

VISION TEXTILE & APPAREL

TO BECOME A MAJOR GLOBAL FASHION APPAREL COMPANY FERTILIZERS TO BECOME A MAJOR REGIONAL DIVERSIFIED FERTILIZER COMPANY

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AZGARD 9 In the ancient legend “AZGARD” was one of none worlds in Norse Mythology- it was protected by “Heimdall” the son of nine different Mothers each attributing him with a particular skill and power – and thus He would protect Azgard from the powers that be. The significance of Nine for our company is not just based on this Mythology but also connected with the auspicious nature of this number Throughout many different elements in and out of the world today that Be an auspicious and important number in Indian, Chinese, Japanese and Greek cultures for various different reasons. In Chinese culture the number Nine represents ‘Change’ and ‘Transformation’, as in the case with Azgard Nine which is changing and Transforming itself into an entity with new goals, aspirations and targets. Nine in much of ancient Greek methodology also has represented gestation And fulfillment of creation as it does for us at Azgard Nine. The ‘fulfillment Of creation’ for us being the forming of this global entity by nine members on the ninth day of February sowing the seeds for an auspicious and rewarding future. 11

HISTORY The Azgard Nine Limited Group was started as a family business over four generations ago. The Sheikh family, Now in its Forth generation, in one of the oldest business families in the sub continent with experience in many different sectors and having a proven track record of successful leadership in four continents. The gamily began its first operations in 1886 in shamkot, in the Asian sub continent. Although, now, A Public company the family still remains behind the company in everyway, supporting and nurturing its growth into the future and beyond. The current specialized yarn operation was set up in 1972 with the open end spinning and denim weaving operations following in 1995. The final frontier was the garments operation, which cane in to being in 1997.The concept behind the group’s textile ambitions was to be a fully vertical apparel solution provider based in a country that would be able to maintain its competitive advantage in this field for the yards to come (Pakistan is the fourth largest denim producer in the world with an annual production of 200,000,000 meters). This has now been achieved and Azgard in able to offer these services as a single source supplier for all denim and specialized yarn customers. The future is squeezing the brand customers toward a sourcing solution that stems from as small a global map as will allow. We believe it is feasible, in order to not be spread too thin’, to consolidate a position in as few regions as possible in the quest of r practical and economical global sourcing – Azgard Nine limited is that perfect vehicle which can accommodate and 12

achieve this position, therefore realizing the vision that was incepted so many years ago by the guardians of the Azgard group bring the resultant advantages to you the customer.

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THIS CHAPTER COVERS: 1.

BOARD OF DIRECTORS

2.

COMPANY SECRETAY

3.

CHIEF FINANCIAL OFFICER

4.

AUDIT COMMITTEE

5.

MANAGEMENT TEAM

6.

FINANCE COMMITTEE

7.

BANKERS

8.

LEGAL ADVISORS

9.

AUDITORS

10.

REGISTERED OFFICE

11.

PRODUCTION UNITS

BOARD OF DIRECTORS 

Mr. Mueen Afzal 15

Chairman 

Mr. Ahmed H. Shaikh Chief Executive Chief Justice (Retd.) Mian Mahboob Ahmad



Mr. Aehsun M.H. Shaikh



Mr. Ali Jehangir Siddiqui



Mr. Khalid A.H. Al-Sagar



Mr. Mohammed Khaishgi

COMPANY SECRETARY 

Mr. Muhammad Ijaz Haider

CHIEF FINANCIAL OFFICER 

Mr. Abid Amin

AUDIT COMMITTEE 

Chief Justice (Retd.) Mian Mahboob Ahmad



Chairman



Mr. Mueen Afzal

MANAGEMENT TEAM 

Mr. Ahmed H. Shaikh 16



Mr. Tariq Mohammad Khan



Mr. Abid Amin



Mr. Irfan Nazir



Mr. Tahir Munir



Mr. Atif Farooqi



Mr. Usman Rasheed

FINANCE COMMITTEE 

Mr. Ahmed H. Shaikh



Mr. Ali Jehangir Siddiqui



Mr. Tariq Mohammad Khan



HUMAN RESOURSE COMMITTEE



Mr. Ahmed H. Shaikh



Mr. Tariq Mohammad Khan



Mr. Salim Khan

BANKERS 

JS Bank Limited



MCB Bank Limited



Citibank N.A.



ABN Amro Bank



Faysal Bank Limited



Habib Bank Limited



Saudi Pak Industrial & Agricultural 17



Investment Company (Private) Limited



The Hong Kong and Shanghai



Banking Corporation



United Bank Limited



Standard Chartered Bank Pakistan Limited



NIB Bank Limited



National Bank of Pakistan



Allied Bank Limited



My Bank Limited



KASB Bank Limited



Pak Oman Investment Company



Saudi Pak Commercial Bank

LEGAL ADVISORS 

Hamid Law Associates

AUDITORS

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

Rahman Sarfaraz Rahim Iqbal Rafiq



Chartered Accountants



TAX ADVISORS



Faruq Ali & Co.



Chartered Accountants

REGISTERED OFFICE Ismail Aiwan-e-Science Off Shahrah-e-Roomi Lahore, 54600 Ph: +92 (0)42 111-786-645 Fax: +92 (0)42 5761791 PRODUCTION UNITS: Unit I 

2.5 KM off Manga, Raiwind Road, District Kasur. Ph: +92 (0)42 5384081 Fax: +92 (0)42 5384093



Alipur Road, Muzaffargarh. Ph: +92 (0)661 422503, 422651 Fax: +92 (0)661 422652



20 KM off Ferozepur Road,

Unit II

Unit III 19



6 KM Badian Road on Ruhi Nala Der Khurd, Lahore. Ph: +92 (0)42 8460333, 8488862

BOARD OF DIRECTORS Mueen Azfal has been Chairman of the Azgard Board since March 2004. He also serves on the boards of ICI Pakistan Limited, Pakistan Tobacco Co. Ltd., Murree Brewery Co. Ltd., Al-Shifa Trust, Pakistan Philanthropy Centre, Pakistan Poverty Alleviation Fund, Sanjan Nagar Trust, Beaconhouse National University Foundation and Pakistan International Airlines Ltd. Mr. Azfal has extensive experience in the civil service of Pakistan , including acting as Health Secretary between 1995 and 1996. Between 1996 and 1998, Mr. Afzal was Finance Secretary for the Pakistan Ministry of Finance and Economic Affairs. Mr. Afzal holds an M.A. in Philosophy, Political Science and Economics from Oxford University in Oxford, UK. Ahmed H. Shaikh is a director of Azgard as well as PAFL and is Azgard's Chief Executive Officer, positions he has held since January 2003. He also serves on the boards of Ahmad Aehsun (Pvt.) Ltd., Naseer Mughis (Pvt.) Ltd. and Nafees International Tekstil Sanayi ve Ticaret A.S. Mr. Shaikh has been associated with Azgard since its inception in 1992. Mr. Shaikh holds a B.A. in Economics from Brown University in Providence , Rhode Island , USA .

Aehsun M.H. Shaikh is a director of Azgard as well as PAFL and is Azgard's Creative Director, positions he has held since January 1993. He also serves on the 20

board of Azsoft (Private) Limited. Mr. Shaikh has previously worked with Burke Mills Inc., USA as Director from 1998 to 2000. Mr. Shaikh holds an M.A. in Architecture from the Architectural Association School of Architecture, London, UK.

Ali Jehangir Siddiqui has been one of Azgard's directors since August 2004. He has also been the Chairman of PAFL's board of directors since July 2006.He is a member of the board of directors and of the executive committee of Jahangir Siddiqui & Company Limited. He currently serves on the board of Pakistan International Container Terminal Ltd . and has served as a director for Crosby, an investment banking firm in Hong Kong . Mr. Siddiqui holds a B.A. in Economics from Cornell University in Ithaca , New York , USA . Khalid A.J. Al-Sagar has been one of Azgard's directors since October 1997. He also serves on the board of Kuwait Portland Cement Company, Kuwait Supply Company, Modern Bakeries Co., Tele-Card Egypt, First National Bank and Bahrain Flour Mills Co. Mr. Al-Sagar is a graduate from Bonn University , Germany .

Mohammed Kaishgi has been one of Azgard's directors since September 2005. He also serves on the board of TRG Holdings, LLC. He was previously a Senior Investment Officer for five years at the International Finance Corporation . Mr.

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Kaishgi holds an M.B.A. from Harvard Business School and an M.A. in Philosophy, Politics and Economics from Oxford University , Oxford , UK . Chief Justice (Retired) Mian Mahboob Ahmad has been one of Azgard's directors since March 2004. He also serves on the boards of Bank Ismali Pakistan Limited, East West Insurance Co. Ltd., Metropolitan Life Assurance Co. of Pakistan Ltd. and Jahangir Siddiqui & Co. Ltd. He has been associated with the judiciary in Pakistan for over 20 years, having served in various positions including as Chief Justice of the Lahore High Court and the Federal Shariah Court and as the Acting Governor of Punjab. Chief Justice Ahmad holds a B.A. in Law from the University of Punjab in Lahore , Pakistan

SENIOR MANAGEMENT Ahmed Jaudet Bilal is Chief Executive Officer of PAFL. Mr. Bilal holds an M.B.A. from Western International University in the United Kingdom . Before he assumed his position at PAFL in July 2006, between 1996 and 1999 Mr. Bilal was the director of Marketing and Acting Country Manager for American Cyanamid Pakistan . Prior to this, he was the General Manager of Business Development for Becton Dickinson Pakistan Limited between 1999 and 2002 and the Business Manager, Decorative Paints division for ICI Pakistan Ltd. Between 2002 and 2006.. Abid Amin has been Azgard's Chief Financial Officer since February 2007. Previously, he was a Partner at Riaz Ahmed Saqib and Co (Chartered Accountants) 22

from 1999 to 2002. He then joined Bosicor Pakistan Limited as head of treasury and commercial and worked there from 2003 to 2005. Then, until he joined Azgard in 2007, he worked as Group General Manager, Treasury and Commercial with Dewan Mushtaq Group. Mr. Amin is a graduate of St. Patrick's College, Karachi and passed his Chartered Accountants Exam from the Institute of Chartered Accountants of Pakistan in 1998.

Tariq Mohammad Khan is Azgard's Group Director of Finance and is also a director of PAFL. Previously he worked with Dewan Mushtaq Group as Group General Manager, Treasury and Commercial from 1992 to 2000. He then worked with Baluchistan Glass Limited as Group Chief Financial Officer from 2001 to 2003. Mr. Khan then joined Bosicor Pakistan Limited as Group General Manger-Finance in 2003, a position he held until the middle of 2005. Mr. Khan then returned to Dewan Mushtaq Group, again as Group Director-Treasury and Commercial, a position he held until joining Azgard in 2007. Mr. Khan passed his Chartered Accountants Exam from the Institute of Chartered Accountants of Pakistan in 1993 and has also been a Fellow of the Institute of Chartered Accountants of Pakistan since 2002.

Atif Farooqui is Azgard's Managing Director of the denim garments division. He joined Azgard in November 2006 and has previously served as the Worldwide Business Unit Manager, Spare Parts, Accessories and Upgrades for Picanol's 23

( Belgium ) (between July 2003 and August 2005). Between February 2000 and June 2003 he served as Director of Markets, Zone 1 for PPG Industries UK Ltd. Prior to this, Mr. Farooqui held various roles in ICI's UK.

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THIS CHAPTER COVERS: 1. GARMENTS DIVISION 2. GARMENT DIVISION PROCESS FLOW CHART 3. DENIM FABRIC DEVISION (COLLECTION OF FABRIC)

4. DENIM FABRIC PROCESS FLOW CHART 5. SPINNING & SPECIALIZE YARN 6. SPINNING PROCESS 7. THE PROCESS OF RE-ENGINEERING 8. PROJECTS 9. UTILITIES 10. STRATEGY

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GARMENTS DIVISION The garments operation is the newest addition to complement the Azgard portfolio and thus completes the fully vertical aspirations and visions of the group. The operation is manned by the best team of specialists bought in from Italy the garment "Mecca" of the world. The department of garment division started its production in 1996. They are fulfilling the initial minimum order quantity 7000 pieces. But, now the total production of the garment division is per day 12000 pieces. The garment operation is the newest addition to complement. The azgard-9 portfolio and thus completes the fully vertical aspirations and visions of the group.

 Record production for one day is 22500 pieces on dated 16 th March 2007.  Achievement of stitching for the month of March 2007 is 329064 pieces. (Manga Site)  Achievement of stitching for the month of April 2007 is 301441 pieces. (Manga Site)

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27

Garments Division Process Flow Chart

The human capital that created this operation was drawn from the "best of breed" talent pools across the globe in order to bridge the gap between the third and the first world nations. We have gained our Laundry technology and expertise from Italy the creative leaders in garment washing, our sales teams have been selected so they are regionally specific to wherever our customers are located in the world; our machinery has been sourced from Switzerland, Italy, Japan, and the USA. Architects 28

and engineers have been commissioned from the United Kingdom to allow us to compete with the "best of the best" globally.

DENIM DIVISION The department of denim division started its production in 1995. And they are yearly produce 14.4 million meters of fabric. The primary focus and concentration of the denim division is to produce value added fashion forward advanced denim fabrics which are in line with the marker leaders located around the world. But at a prose point that truly offers the best buy to our customers. We are nominated to be the only supplier in Pakistan for some of the largest and most prestigious customers from around the world. Azgard-9 has state of the art manufacturing facilities employing rope dyeing and air jet weaving technology. Our total capacity will be 26 million linear meters by year’s end 2005. Azgard9 launches its denim fabric new collection Bi Annually keeping in view the fashion needs and market trends. The last collection was focused on the following parameters. 1.

100% Organic Cotton.

2.

A large range of New Finishes were developed

3.

New colors were added in the range in which the worth mentioning are I.

The Japanese Indigo a pure indigo Deep Blue shade.

II. Grey Cast: A blend of black and blue to give a peculiar grey blue tone. 29

4. Controlled Stretched fabrics In denim, the fabric production is per month = 2.4 million meters Per annum = 28.8 million meters Achieved looms efficiency 95% + which previously were around 90%. We have the capacity to produce above approx100, 000 (hundred thousand) meters per day. Introduced/developed & designed new weaves structures like Diamond, Herringbone, Reversible, Basket, Met Weaves and Stripes. Also we will introduce light weight qualities from 4.5 oz to 8 oz (Cross Hatch & Fancy wear Denim). We are also planning to introduce a computerized monitoring system, the (RTMS) Real Time Monitoring System. The software development is in process. This system is highly beneficial in order to increase the production and the efficiency of the looms. Through this we can monitor the loom efficiency, loom production, weft and warp breakages and the weaver's performance. After implementing this automated system, we can get the production details FOR THE last 6 month OR 1 year record of the loom's quality wise, beam wise and lot wise through this system. Another system that we are planning to introduce is AUTOMATED Supply Chain Management System (Production Planning Software). This system will help us in having a complete update of the Fabric Shipment that will guide us that how much fabric of the shipment is in stock and how much need to be produced. Also this will help us in yarn stock, for example how much weft and warp yarn is required & also the chemicals stock update. We have strictly implemented to wear Ear Plugs & Face 30

Masks in the weaving sheds for safety measures.

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Denim Fabric Process Flow Chart

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SPINNING & SPECIALIZE YARN The department of specialized yarn started its production in 1972. And they are yearly producing 67 million/ LBS per year. And the department of spinning division started its production in 1995, its produce 400 bags per day. The company focus is on producing fashion oriented yarns developed in close cooperation with our customers and our raw material suppliers so that we can provide products, which are already in demand in the market place. The range includes both Greige cotton and dyed cotton yarns, blended yarns and pure synthetic yarns we also offer organic cotton yarns for those customers who demand it. We are cotton ASA certified and can provide certificates upon request. Our open end yarns are used primarily in the denim sector. They lend themselves perfectly for these applications and have achieved a very high degree of brand loyalty in the markers in which they are sold. Technical data bout machinery and plant equipment and capacities is available in the “technical data” section. Old Auto-clave machine in OE Spinning, Manga site has been re-started after installing new parts. This conditions yarns more effectively in a much shorter time than conventional method. Weigh bridge installation for convenience of the containers

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35

Spinning Process

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THE PROCESS OF RE-ENGINEERING The new finishing and packing area has a straight layout compared to the previous one, which is directly concerned with the flow of work….the better ,smooth and defined the work flow is the more efficiently one can produce …specially when we are producing approximately 15000pcs/day working in 2 shifts and intend to take it up to 35000/day…also the space utilization is far superior and better than the previous one…keeping in view our space shortages hindering expansion, this can be said as an achievement in its own.

PROJECTS 37

Water Proofing at FPR

The FPR waterproofing was successfully completed covering the major areas of washing shed and the corridors. The said project will prevent any major loss during the forthcoming rains. The said waterproofing was done utilizing the existing material as much as possible to reduce the cost.

DOP Offices Main purpose of denim office project is to centralize management staff of Denim Business unit under one roof. The offices shall provide a much better working environment to Denim staff and improve the communication process EUP update Entrance uplift project's holding is over and Projects has resumed the working on the new receiving bay, social security dispensary, security office and security room which shall be built according to corporate standards and also embellish the outlook of Manga site.

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GPE The Garments Production Enhancement project is related to garments division at FPR which consists of using existing abandoned three story building. Currently the GDP is located in finishing hall which causes a lot of operational issues as well as cramped area for production. In the existing area GDP does not have separate allocated space for production. High fashion garment require separate GDP area. After completing this project the garments will have a smooth production flow which will enhance production to 15,000 garments /day. The project will include installation of a new 2000kg lift for shifting of garments upward in the three story building and shoots for quick garment downward shifting.

Tube-well @ FPR At FPR unit, a water turbine 1 cusec is being installed as a standby source to nullify any production loss incase of failure of the existing tube-well. Keeping in view the past problems faced because of present turbine, the new turbine has been thoroughly reviewed from technical aspects, ensuring the smooth operation of facility whenever required. Thorough research is in process for Waste Burning Boiler feasibility by the Projects & Utilities team. The in-house waste from Denim, garments and spinning is being fired and tested for its capabilities of steam generation. A waste burning boiler at a Mureedke Board mill is being utilized for research purposes. 39

UTILITIES An engine at Muzaffargarh had been giving detonation problems from the last couple of months. Allied engineering team is continuously experimenting and confident to get a solution by the end of the month. Major overhaul of a compressor has been carried out at manga, refreshing the air coolers, after coolers, motor alignment and inspecting and rectifying all intricate details. In-house chemical treatment and cleaning of heat exchanger assembly of another engine has been successfully carried out. The engine had rising manifold temperature problems.

The power house team addressed to the issue by taking measures and successfully brought down the temperature back to its limits. LFC (Local fabrication cell) has finished two more projects for its internal customers. Wooden tables for metal free finishing area have been completed and delivered. A steel shed for spinning dept and a hot air exhaust duct are being worked upon currently, which should be delivered by the end of the May. 40

STRATEGY

41

It was pleasure for me to do work in multinational organization, 42

I was mainly entrusted with the duties of the area of purchases and payables in the finance department of weaving division of Azgard-9.

1. Collect all the related documents for the purchase of the yarn and store. And keep these documents in respective files for the proper maintenance of record and for the subsequent audit of the area. 2. To book the invoices received for the yarn and store purchase into the Accounts Payable module of Oracle. In this way, the ledgers of different suppliers are kept updated.

3. I was exposed to the use of Oracle Applications’ Responsibility namely Accounts Payable. 4. It helps to book the supplier’s standard invoice. But at the same time it holds all the subsidiary ledgers of the suppliers along with their control account.

5. It helps to produce a number of standard and customized reports for different purposes as required by the management.

This

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reporting system in oracle is its very distinguished feature and is at the heart of the Management Information System.

6. I learnt a number of SOPs or standard operating procedures that are in practice at the store and godown of M/s KML. These include receipt of goods through inward gate pass or IGP, entry of goods into oracle, printing of store receipt voucher, store issuance to production or administration through store issue note or SIN, goods returned to store through store return note or SRN, raising indents for new purchases through Store Indents, etc.

7. I learnt as to how the oracle value the store at the period-end through weighted average method & gives its value through its standard report.

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Financial Reporting Policies

Company policies with reference to accounting, finance and corporate matters are governed by relevant corporate regulations, Companies Ordinance 1984, and the code of corporate Government It is company resolved to comply with International Accounting Standards for the preparation of financial statements with any departure there from being adequately disclosed. Company is in the process of establishing and efficient Internal Audit Department to enhance the scope of internal control and data generated by the company, it also help in building the confidence of our creditors, financial institutions and other interested organization

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RATIO ANALYSIS

The term "accounting ratios" is used to describe significant relationship between figures shown on a balance sheet, in a profit and loss account, in a budgetary control system or in any other part of accounting organization. Accounting ratios thus shows the relationship between accounting data. Ratio analysis is very important while measuring the performance of the business. These ratios are carried out from the Income statement and balance sheet. Many parties including management, investors and Government are interested in these ratios. The purpose of analysis is to measure the performance of the company and financial health of the organization.

Advantages of Ratios Analysis Ratio analysis is an important and age-old technique of financial analysis. The following are some of the advantages of ratio analysis: Simplifies financial statements: It simplifies the comprehension of financial statements. Ratios tell the whole story of changes in the financial condition of the business

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Facilitates inter-firm comparison: It provides data for inter-firm comparison. Ratios highlight the factors associated with successful and unsuccessful firm. They also reveal strong firms and weak firms, overvalued and undervalued firms. Helps in planning: It helps in planning and forecasting. Ratios can assist management, in its basic functions of forecasting for Planning, co-ordination, control and communications. Makes inter-firm comparison possible: Ratios analysis also makes possible comparison of the performance of different divisions of the firm. The ratios are helpful in deciding about their efficiency or otherwise in the past and likely performance in the future. Help in investment decisions: It helps in investment decisions in the case of investors and lending decisions in the case of bankers etc.

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Limitations of Ratios Analysis The ratios analysis is one of the most powerful tools of financial management. Though ratios are simple to calculate and easy to understand, they suffer from serious limitations. Limitations of financial statements: Ratios are based only on the information which has been recorded in the financial statements. Financial statements themselves are subject to several limitations. Thus ratios derived, there from, are also subject to those limitations. For example; non-financial changes though important for the business are not relevant by the financial statements. Financial statements are affected to a very great extent by accounting conventions and concepts. Personal judgment plays a great part in determining the figures for financial statements. Comparative study required: Ratios are useful in judging the efficiency of the business only when they are compared with past results of the business. However, such a comparison only provide glimpse of the past performance and forecasts for future may not prove correct since several other factors like market conditions, management policies, etc. may affect the future operations. Ratios alone are not adequate. Ratios are only indicators; they cannot be taken as final regarding good or bad financial position of the business. Other things have also to be seen.

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Problems of price level changes: A change in price level can affect the validity of ratios are calculated for different time periods. In such a case the ratio analysis may not clearly indicate the trend in solvency and profitability of the company. The financial statements, therefore, be adjusted keeping in view the price level changes if a meaningful comparison is to be made through accounting ratios. Lack of adequate standard: No fixed standard can be laid down for ideal ratios. There are no well accepted standards or rule of thumb for all ratios which can be accepted as norm. It renders interpretation of the ratios difficult. Limited use of single ratios: A single ratio, usually, does not convey much of a sense. To make a better interpretation, a number of ratios have to be calculated which is likely to confuse the analyst than help him in making any good decision. Personal bias: Ratios are only means of financial analysis and not an end in itself. Ratios have to interpret and different people may interpret the same ratio in different way. Incomparable: Not only industries differ in their nature, but also the firms of the similar business widely differ in their size and accounting procedures etc. It makes comparison of ratios difficult and misleading.

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Ratio Analysis Ratio analysis involves the methods of calculating and interpreting financial ratios to access the firm’s performance and status. The basic inputs to ratio analysis and firm’s income statement and balance sheet for the periods to be examined.

TYPES OF RATIO ANALYSIS Two types of Ratio Analysis are generally carried out, 1.

Cross Sectional Approach, in this approach, the effectiveness of business is

compared with the competitors business of the same period. 2.

Time Series Analysis in which the performance of company over a period is

measured. Ratio Analysis categories: A) Liquidity B) Turnover C) Profitability 50

D) Leverage

LIQUIDITY RATIOS: Liquidity ratios are the ratios for testing short term solvency or financial position of a business. These are designed to test the ability of the business to meet its short term obligation promptly. A class of financial metrics that is used to determine a company's ability to pay off its short-terms debts obligations. Generally, the higher the value of the ratio, the larger the margin of safety that the company possesses to cover short-term debts.

Current Ratio: Current ratio may be defined as the relationship between current assets and current liabilities. This ratio is also known as "working capital ratio". It is a measure of general liquidity and is most widely used to make the analysis for short term financial position or liquidity of a firm. It is calculated by dividing the total of the current assets by total of the current liabilities. Components: The two basic components of this ratio are current assets and current liabilities. Current assets include cash and those assets which can be easily converted into cash within a short period of time, generally, one year, such as marketable securities or readily realizable investments, bills receivables, sundry debtors, (excluding bad debts or provisions), inventories, work in progress, etc. Prepaid paid expenses should also be included in current assets because they represent payments made in 51

advance which will not have to be paid in near future. Current liabilities are those obligations which are payable within a short period of tie generally one year and include outstanding expenses, bills payable, sundry creditors, bank overdraft, accrued expenses, short term advances, income tax payable, dividend payable, etc. However, some times a controversy arises that whether overdraft should be regarded as current liability or not. Often an arrangement with a bank may be regarded as permanent and therefore, it may be treated as long term liability. At the same time the fact remains that the overdraft facility may be cancelled at any time. Accordingly, because of this reason and the need for conversion in interpreting a situation, it seems advisable to include overdrafts in current liabilities. Limitations of Current Ratio: This ratio is measure of liquidity and should be used very carefully because it suffers from many limitations. It is, therefore, suggested that it should not be used as the sole index of short term solvency 1.

It is crude ratio because it measures only the quantity and not the quality

of the current assets. 2.

Even if the ratio is favorable, the firm may be in financial trouble,

because of more stock and work in process which is not easily convertible into cash, and, therefore firm may have less cash to pay off current liabilities. 3.

Valuation of current assets and window dressing is another problem.

This ratio can be very easily manipulated by overvaluing the current assets. An equal increase in both current assets and current liabilities would decrease the ratio 52

and similarly equal decrease in current assets and current liabilities would increase current ratio.

Significance This ratio is a general and quick measure of liquidity of a firm. It represents the margin of safety or cushion available to the creditors. It is an index of the firm’s financial stability. It is also an index of technical solvency and an index of the strength of working capital. A relatively high current ratio is an indication that the firm is liquid and has the ability to pay its current obligations in time and when they become due. On the other hand, a relatively low current ratio represents that the liquidity position of the firm is not good and the firm shall not be able to pay its current liabilities in time without facing difficulties. An increase in the current ratio represents improvement in the liquidity position of the firm while a decrease in the current ratio represents that there has been deterioration in the liquidity position of the firm. A ratio equal to or near 2: 1 is considered as a standard or normal or satisfactory. The idea of having doubled the current assets as compared to current liabilities is to provide for the delays and losses in the realization of current assets. However, the rule of 2:1 should not be blindly used while making interpretation of the ratio. Firms having less than 2 : 1 ratio may be having a better liquidity than even firms having more than 2 : 1 ratio. This is because of the reason that current ratio measures the quantity of the current assets and not the quality of the current assets. If a firm's current assets 53

include debtors which are not recoverable or stocks which are slow-moving or obsolete, the current ratio may be high but it does not represent a good liquidity position.

current ratio Year

current assets/current liabilities 2008 2007 2006 2005

2004

Azgard 9

1.08

1.51

1.14

1.09

1.25

Sapphire

1.28

1.66

1.21

1.21

1.31

Nishat

1.19

1.74

1.38

1.24

0.37

Comments: 54

Current Ratio clears the extent to which the claim of short term creditors can be met by assets that are to become cash within a year. The best standard ratio is 2:1 so, the Azgard Nine has current ratio below standard. There is a mixed trend from 2004 to 2008. Current Ratio of Sapphire is also like Azgard Nine and Nishat. Current ratio shows that how many times current assets are available to meet its current liabilities. Azgard Nine current ratio shows mixed trend and it has grater than 1:1 but only in 2007 it is higher than other years. Sapphire also shows mixed trend in current ratio. Nishat current ratio shows increasing trend in 2004, 2005 and in 2006 and in 2007 but decreases 2008 which shows that it has less current assets or current liabilities increases.

Liquidity or Quick Ratio: Liquid ratio is also termed as "Liquidity Ratio”,” Acid Test Ratio" or "Quick Ratio". It is the ratio of liquid assets to current liabilities. The true liquidity refers to the ability of a firm to pay its short term obligations as and when they become due Components: The two components of liquid ratio (acid test ratio or quick ratio) are liquid assets and liquid liabilities. Liquid assets normally include cash, bank, sundry debtors, bills receivable and marketable securities or temporary investments. In other words they are current assets minus inventories (stock) and prepaid expenses. Inventories cannot be termed as liquid assets because it cannot be converted into cash immediately without a loss of value. In the same manner, prepaid expenses are also excluded from the list of liquid assets because they are not expected to be 55

converted into cash. Similarly, Liquid liabilities means current liabilities i.e., sundry creditors, bills payable, outstanding expenses, short term advances, income tax payable, dividends payable, and bank overdraft (only if payable on demand). Some time bank overdraft is not included in current liabilities, on the argument that bank overdraft is generally permanent way of financing and is not subject to be called on demand. In such cases overdraft will be excluded from current liabilities.

Significance: The quick ratio/acid test ratio is very useful in measuring the liquidity position of a firm. It measures the firm's capacity to pay off current obligations immediately and is more rigorous test of liquidity than the current ratio. It is used as a complementary ratio to the current ratio. Liquid ratio is more rigorous test of liquidity than the current ratio because it eliminates inventories and prepaid expenses as a part of current assets. Usually high liquid ratios and indication that the firm is liquid and has the ability to meet its current or liquid liabilities in time and on the other hand a low liquidity ratio represents that the firm's liquidity position is not good. As a convention, generally, a quick ratio of "one to one" (1:1) is considered to be satisfactory. Although liquidity ratio is more rigorous test of liquidity than the current ratio, yet it should be used cautiously and 1:1 standard should not be used blindly. A liquid ratio of 1:1 does not necessarily mean satisfactory liquidity position of the firm if all the debtors cannot be realized and cash is needed immediately to meet the 56

current obligations. In the same manner, a low liquid ratio does not necessarily mean a bad liquidity position as inventories are not absolutely non-liquid. Hence, a firm having a high liquidity ratio may not have a satisfactory liquidity position if it has slow-paying debtors. On the other hand, a firm having a low liquid ratio may have a good liquidity position if it has fast moving inventories. Though this ratio is definitely an improvement over current ratio, the interpretation of this ratio also suffers from the same limitations as of current ratio

quick ratio Year Azgard 9 Sapphire Nishat

(current assets-stock)/current liabilities 200 8 0.69 0.72 0.84

2007 1. 15 1. 17 1. 33

2006 0. 88 0. 73 0. 96

2005 0. 64 0. 59 0. 78

2004 0.7 1 0.7 6 0.3 7

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Comments: The acid test ratio is also below standard due to heavy short term borrowings. Azgard Nine acid test ratio decreased in year 2005 and in 2008. The quick ratio of Sapphire shows that there is no sufficient liquid asset is available to discharge and settle its current obligation except in year 2007. The rise in current liabilities is due to the expansion of project and short and long term financing. Azgard Nine liquidity is less than standard except in year 2007. Sapphire and Nishat liquidity is not on considerable point. Azgard Nine liquid ratio is more than Sapphire and Nishat which shows that it has more liquidity. Nishat liquidity position is not considerable because it is near to 1 in year 2006 and 2007 which shows that it has liquid assets to meet its current liabilities. Azgard Nine position is not at considerable point. It shows decreasing trend in 2005 and in 2008 and less than 1:1. But it has increasing position in 2004, 2006 and in 2007. 58

Turnover/ Activity ratios: Activity ratios are measures of how well assets are used. Activity ratios -- which are, for the most part, turnover ratios -- can be used to evaluate the benefits produced by specific assets, such as inventory or accounts receivable. Or they can be use to evaluate the benefits produced by all a company's assets collectively. These measures help us gauge how effectively the company is at putting its investment to work. A company will invest in assets – e.g., inventory or plant and equipment – and then use these assets to generate revenues. The greater the turnover, the more effectively the company is at producing a benefit from its investment in assets

Inventory days The number of day’s inventory is also known as average inventory period and inventory holding period. A high number of days inventory indicates that their is a lack of demand for the product being sold. A low days inventory ratio (inventory holding period) may indicate that the company is not keeping enough stock on hand to meet demands. The number of day’s inventory and inventory turnover ratios are included in the financial statement ratio analysis spreadsheets highlighted in the left column, which provide formulas, definitions, calculation, charts and explanations of each ratio.

Inventory Days Year Azgard 9

Inventory Days = Inventory / Cost of Sales*365 2008 2007 2006 2005 2004 221. 177.4 199.3 225.76 208.5 59

08 Sapphire Nishat

2 138.

85

6 91.

90

4 89.3 4 79.1

0

7 96.7 80.0

0

143.4 6 114.4 6

64.3 2 -

Comments: Azgard Nine inventory days increased in 2005 as compare to 2004 and decreased in 2006 and in 2007 and show increasing in 2008 which shows that management is not efficient for managing inventory period. The above diagram shows that in 2004 and 2005 Sapphire has high inventory days required converting stock in sale which shows that Sapphire management is not efficient but it decreases with the passage of times and increase in year 2008 and Nishat trend is equal to Sapphire. They were show increase in 2005 and low in 2006 and in 2007 and it increases in 2008. 60

Debtors Turnover Ratio or Receivables Turnover Ratio: Debtor’s turnover ratio indicates the velocity of debt collection of a firm. In simple words it indicates the number of times average debtors (receivable) are turned over during a year. Significance of the Ratio: This ratio indicates the number of times the debtors are turned over a year. The higher the value of debtor’s turnover the more efficient is the management of debtors or more liquid the debtors are. Similarly, low debtors turnover ratio implies inefficient management of debtors or less liquid debtors. It is the reliable measure of the time of cash flow from credit sales. There is no rule of thumb which may be used as a norm to interpret the ratio as it may be different from firm to firm. Debtor's day Year 2008 Azgard 9 Sapphire Nishat

64 42 25

Trade debtors/Credit sales*365 2007 2006 2005

2004

91

85

84

109

51

54

67

56

18

23

28

56

61

Comments: Graph shows that Azgard Nine has not a good debtor management to receive the debt or collect the receivables and shows positive trend and debtor’s collection period is grater than creditor’s period. Sapphire position is also considerable but Nishat management has more efficient to collect their receivables whish shows efficient debtor management and in 2004 it is at highest point which indicates unfavorable situation regarding to debtor collection period.

Creditors / Accounts Payable Turnover Ratio: This ratio is similar to the debtor’s turnover ratio. It compares creditors with the total credit purchases. It signifies the credit period enjoyed by the firm in paying creditors. Accounts payable include both sundry creditors and bills payable. Same as 62

debtor’s turnover ratio, creditor’s turnover ratio can be calculated in two forms, creditors’ turnover ratio and average payment period.

Significance of the Ratio: The average payment period ratio represents the number of days by the firm to pay its creditors. A high creditor’s turnover ratio or a lower credit period ratio signifies that the creditors are being paid promptly. This situation enhances the credit worthiness of the company. However a very favorable ratio to this effect also shows that the business is not taking the full advantage of credit facilities allowed by the creditors. Creditors days Year Azgard 9 Sapphire Nishat

2008 49 18 22

Trade Creditors/Credit Sales*365 2007 2006 2005 57 93 65 15 31 39 20 21 26

2004 80 25 45

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Comments: Azgard Nine creditor’s days increase in 2004 to 2006 and decrease in 2005 to 2007 and in 2007 and 2008. Azgard Nine credit management is better than Nishat and Sapphire it has 93 days for payment which shows it efficiency in 2006. If we compare creditor’s days to debtors day than we can see that Azgard Nine and Nishat is going better to manage its resources

Total Assets Turnover Ratio The total assets turnover ratio measures the use of all assets in terms of sales, by comparing sales with net total assets. This interactive tutorial walks you through the calculations as well as where on the financial statements to find the numbers.

Formula Year Azgard 9 Sapphire Nishat

Sales/ Total Assets 2008 2007 0. 0.37 28 0. 0.79 82 0. 0.51 43

2006 0. 21 0. 86 0. 53

2005 0. 42 0. 73 0. 52

2004 0. 50 1. 29 1. 40

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Comments: In the above graph we can see that total asset turnover ratio of Azgard Nine Company showing mix trend in the year 2004 to year 2008. Total asset turnover ratio is at highest level in year 2004 and as it compare it with Nishat and Sapphire it is not good even in the last two year 2007, 2008 so we can say it is not using its assets for generating the revenue in a better way than Sapphire and Nishat cement in 2004 to 2008 and 2004 Sapphire total asset turnover ratio at top so they use much of it for generating revenue. But Azgard Nine overall situation regarding to total asset turnover ratio is bad than other two competitor.

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Fixed Assets Turnover Ratio: Fixed assets turnover ratio is also known as sales to fixed assets ratio. This ratio measures the efficiency and profit earning capacity of the concern. Higher the ratio, greater is the intensive utilization of fixed assets. Lower ratio means underutilization of fixed assets

Formula Year Azgard 9 Sapphire Nishat

Cost of sales / Fixed Assets 2008 2007 2006 0 0 0. .86 .60 49 2 2 1. .19 .10 94 1 1 1. .53 .35 29

2005 1. 06 1. 52 1. 01

2004 0. 86 2. 92 2. 92

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Comments: It shows the utilization of fixed assets, Azgard Nine decreasing the utilization of its fixed assets but it has lower times than Sapphire which has more utilization of fixed assets and at highest level in 2004. Nishat shows the decreasing trend in year 2005 and after it increasing trend still 2008. Nishat has less utilization than Sapphire and high utilization then Azgard Nine.

Profitability Ratios: Profitability ratios (also referred to as profit margin ratios) compare components of income with sales. They give us an idea of what makes up a company's income and are usually expressed as a portion of each dollar of sales. The profit margin ratios we discuss here differ only by the numerator. It's in the numerator that we reflect and thus evaluate performance for different aspects of the business: The gross profit margin is the ratio of gross income or profit to sales. This ratio indicates how much of every dollar of sales is left after costs of goods sold.

Gross Profit (GP) Ratio: Gross profit ratio (GP ratio) is the ratio of gross profit to net sales expressed as a percentage. It expresses the relationship between gross profit and sales. Components: The basic components of the calculation of gross profit ratio are gross profit and net sales. Net sales mean those sales minus sales returns. Gross profit would be the difference between net sales and cost of goods sold. Cost of goods sold in the case of a trading concern would be equal to opening stock plus purchases, minus closing 67

stock plus all direct expenses relating to purchases. In the case of manufacturing concern, it would be equal to the sum of the cost of raw materials, wages, direct expenses and all manufacturing expenses. In other words, generally the expenses charged to profit and loss account or operating expenses are excluded from the calculation of cost of goods sold. Significance: Gross profit ratio may be indicated to what extent the selling prices of goods per unit may be reduced without incurring losses on operations. It reflects efficiency with which a firm produces its products. As the gross profit is found by deducting cost of goods sold from net sales, higher the gross profit better it is. There is no standard GP ratio for evaluation. It may vary from business to business. However, the gross profit earned should be sufficient to recover all operating expenses and to build up reserves after paying all fixed interest charges and dividends.

Formula Year Azgard 9 Sapphire Nishat

Gross profit/Sales*100 2008 2007 2006 3 30 24. 4.15 .28 26 1 13 9. 1.57 .02 60 1 16 16. 5.41 .56 54

2005 25. 63 11. 32 18. 77

2004 22. 66 4. 96 4. 96

68

Comments: Gross profit of Azgard Nine Company increasing in 2004 to 2005 and also in year 2007 and 2008 but decrease in 2006, Due to inflation and economic instability in Pakistan and irregular power supply of WAPDA in 2007 and 2008. Gross Profit ratio of three competitors show increasing trend in 2004 to 2005 due to good economic and financial situation of world and good market situation in Pakistan. Sapphire position is more considerable up to 2005 but shows decreasing trend in 2006, 2007 and 2008, and Nishat situation for increase year 2007 but it decrease in all other years.

Operating Profit Ratio: Operating ratio is the ratio of cost of goods sold plus operating expenses to net sales. It is generally expressed in percentage. It measures the cost of operations per dollar of sales. This is closely related to the ratio of operating profit to net sales.

69

Components: The two basic components for the calculation of operating ratio are operating cost (cost of goods sold plus operating expenses) and net sales. Operating expenses normally include (a) administrative and office expenses and (b) selling and distribution expenses. Financial charges such as interest, provision for taxation etc. are generally excluded from operating expenses. Significance: Operating ratio shows the operational efficiency of the business. Lower operating ratio shows higher operating profit and vice versa. An operating ratio ranging between 75% and 80% is generally considered as standard for manufacturing concerns. This ratio is considered to be a yardstick of operating efficiency but it should be used cautiously because it may be affected by a number of uncontrollable factors beyond the control of the firm. Moreover, in some firms, non-operating expenses from a substantial part of the total expenses and in such cases operating ratio may give misleading results.

Formula

Year Azgard 9 Sapphire Nishat

Operating Profit Margin = Operating profit /Sale*100 2008 2007 2006 2005 2004 28.18 23.72 16.26 18.38 16.79 14.42 8.60 8.68 10.43 5.35 37.91 12.66 12.10 17.58 7.56

70

Comments: Azgard Nine company operating profit increasing in 2004 to 2005 and 2007 to 2008 and decreasing in 2006. Operating profit of all three organization show increasing trend in 2004, 2005 and 2007 to 2008 but decreases in 2006 due to increase in operating expenses.

Net Profit/ (Loss) Before Tax: Net profit ratio is the ratio of net profit (after taxes) to net sales. It is expressed as percentage Significance: NP ratio is used to measure the overall profitability and hence it is very useful to proprietors. The ratio is very useful as if the net profit is not sufficient, the firm shall not be able to achieve a satisfactory return on its investment. 71

This ratio also indicates the firm's capacity to face adverse economic conditions such as price competition, low demand, etc. Obviously, higher the ratio the better is the profitability. But while interpreting the ratio it should be kept in minds that the performance of profits also is seen in relation to investments or capital of the firm and not only in relation to sales. Formula Year Azgard 9 Sapphire Nishat

Net profit before tax/Sales*100 2008 2007 9.88 17.37 6.88 3.49 33.20 7.89

2006 25.77 3.31 10.71

2005 17.91 7.15 17.88

2004 12.52 3.45 9.45

Comments: The Net Profit margin tells us the ability of a company to generate the earning after meeting all costs of business. There is an increase in net profit in 2006 as compare to 2004 to 2006. In year 2008 company suffered a minimum net profit. The ratio has decreased as compare to previous year due to increase in cost and 72

expansion of project and finance cost. Sapphire shows the increasing trend in 2005 and in year 2007 to 2008 it decrease in year 2006. Nishat top net profit is in year 2008.

Net Profit/ (Loss) after Tax: Net profit ratio is the ratio of net profit (after taxes) to net sales. It is expressed as percentage Significance: NP ratio is used to measure the overall profitability and hence it is very useful to proprietors. The ratio is very useful as if the net profit is not sufficient, the firm shall not be able to achieve a satisfactory return on its investment. This ratio also indicates the firm's capacity to face adverse economic conditions such as price competition, low demand, etc. Obviously, higher the ratio the better is the profitability. But while interpreting the ratio it should be kept in mind that the performance of profits also be seen in relation to investments or capital of the firm and not only in relation to sales. Components of net profit ratio: The two basic components of the net profit ratio are the net profit and sales. The net profits are obtained after deducting income-tax and, generally, non-operating expenses and incomes are excluded from the net profits for calculating this ratio. Thus, incomes such as interest on investments outside the business, profit on sales of fixed assets and losses on sales of fixed assets, etc are excluded.

73

Formula year Azgard 9 Sapphir e Nishat

Net profit after tax/Sales*365 2008 2007 2006 8.8 16.2 23.4 7 9 1 6.3 2.3 1.6 4 6 9 31.8 7.0 9.9 6 5 5

2005 16.7 6

2004 11.8 9

5.4 1

2.3 1

16.4 2

10.5 9

Comments: The Net Profit margin tells us the ability of a company to generate the earning after meeting all costs of business. There is an increase in net profit in 2006 and in 2005 as compare to 2005 and 2004 respectively. In year 2008 company earned a minimum net profit in last five years. The ratio has decreased as compare to previous year due to increase in sale and expansion of project and finance cost. The other organization has mix trend.

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Return on Assets: Where asset turnover tells an investor the total sales for each $1 of assets, return on assets [or ROA for short] tells an investor how much profit a company generated for each $1 in assets. The return on assets figure is also a sure-fire way to gauge the asset intensity of a business. Companies such as telecommunication providers, car manufacturers, and railroads are very asset-intensive, meaning they require big, expensive machinery or equipment to generate a profit. Advertising agencies and software companies, on the other hand, are generally very asset-light (in the case of a software companies, once a program has been developed, employees simply copy it to a five-cent disk, throw an instruction manual in the box, and mail it out to stores).

Formula year Azgard 9 Sapphire Nishat

Net Income / Total Assets*100 2008 2007 2006 3.28 4.57 4.94 5.01 1.94 1.46 16.19 3.06 5.24

2005 7.03 3.95 8.52

2004 5.96 2.97 14.81

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Comments: This ratio measures the return of total investment of the business. Azgard Nine company show mix trend and in 2005 it is at maximum point than others. Decreasing trend from year 2006 to year 2008. Nishat company return on asset is much better than Azgard Nine and Sapphire. It decreases in 2005 to 2007 and than increase in 2008, it is at highest point in 2008, Sapphire also increases in 2004 to 2005 and than it little decrease in 2006 and at goes down in 2007 and becomes increase in 2008.

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Return on Capital Employed (ROCE) Ratio: Capital employed and operating profits are the main items. Capital employed may be defined in a number of ways. However, two widely accepted definitions are "gross capital employed" and "net capital employed". Gross capital employed usually means the total assets, fixed as well as current, used in business, while net capital employed refers to total assets minus liabilities. On the other hand, it refers to total of capital, capital reserves, revenue reserves (including profit and loss account balance), debentures and long term loans.

Formula Year Azgard 9 Sapphire Nishat

Profit before interest and taxation / Capital Employed *100 200 2008 2007 2006 5 2004 5.87 6.60 8.27 13.00 10.73 10.41 4.46 5.07 8.85 7.25 24.42 4.25 7.29 12.98 (30.48)

77

Comments: Azgard Nine return on capital employed is high 2004 and it increase in 2005 but it has decreased in 2006 to 2008. Sapphire return on capital employed increase in 2004 to 2005 and decreases in 2006 and in 2007 and then it go for increase in 2008. Nishat has less return on capital employed is less than its competitors from 2004 to 2007. And at begging Nishat is going to negative its return of capital employed. In 2008 due to economic crises Sapphire and Azgard Nine return on equity becomes higher then its competitors.

RETURN ON EQUITY CAPITAL (ROE) RATIO: In real sense, ordinarily shareholders are the real owners of the company. They assume the highest risk in the company. (Preference share holders have a preference over ordinary shareholders in the payment of dividend as well as capital. Preference share holders get a fixed rate of dividend irrespective of the quantum of profits of 78

the company). The rate of dividends varies with the availability of profits in case of ordinary shares only. Thus ordinary shareholders are more interested in the profitability of a company and the performance of a company should be judged on the basis of return on equity capital of the company. Return on equity capital which is the relationship between profits of a company and its equity, can be calculated as follows. Equity share capital should be the total called-up value of equity shares. As the profit used for the calculations are the final profits available to equity shareholders as dividend, therefore the preference dividend and taxes are deducted in order to arrive at such profits. Significance: This ratio is more meaningful to the equity shareholders who are interested to know profits earned by the company and those profits which can be made available to pay dividends to them. Interpretation of the ratio is similar to the interpretation of return on shareholder's investments and higher the ratio better is. Formula YEARS Azgard 9 Sapphire Nishat

[(Net profit after tax − Preference dividend) / Equity share capital] × 100 2008 2007 2006 2005 2004 8.86 11.11 12.48 23.97 14.95 11.08 3.59 3.45 10.32 7.40 24.41 4.02 7.73 14.58 2.62

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Comments: In 2005 Azgard Nine Company return on equity ratio is at highest point and better, in 2006 to 2008 it decreases. Sapphire Company also shows mixed trend. It is going higher in 2005 and than decrease in 2006 to 2007 and it becomes higher in 2008. Nishat company return on equity ratio has mix trend. In 2004 it is at lower side and than it increase in 2005 and it decrease in 2006 and it goes down and become more down in 2007 and go to highest point in 2008. It is the highest point then competitors.

LEVERAGES RATIOS: A company can finance its assets either with equity or debt. Financing through debt involves risk because debt legally obligates the company to pay interest and to repay the principal as promised. Equity financing does not obligate the company to pay anything -- dividends are paid at the discretion of the board of 80

directors. There is always some risk, which we refer to as business risk, inherent in any operating segment of a business. But how a company chooses to finance its operations -- the particular mix of debt and equity -- may add financial risk on top of business risk financial risk is the extent that debt financing is used relative to equity. Financial leverage ratios are used to assess how much financial risk the company has taken on. There are two types of financial leverage ratios: component percentages and coverage ratios. Component percentages compare a company's debt with either its total capital (debt plus equity) or its equity capital. Coverage ratios reflect a company's ability to satisfy fixed obligations, such as interest, principal repayment, or lease payments.

DEBT TO EQUITY RATIO: Debt-to-Equity ratio indicates the relationship between the external equities or outsiders funds and the internal equities or shareholders funds. It is also known as external internal equity ratio. It is determined to ascertain soundness of the long term financial policies of the company.

Debt to Equity Ratio

Short Term Debt + Long Term Debt Total Shareholders Equity

YEAR Azgard 9

2008 2.42

2007 1.79

2006 2.51

2005 2.01

2004 1.29 81

Sapphire Fiber

26.86 22.06

19.14 14.34

17.66 12.62

15.54 12.21

12.35 10.99

Comments: Azgard Nine debt to equity ratio is lowest point in 2004 and after that it has decrease its situation in next coming years and increases the ratio, but Sapphire and Nishat shows increasing trend from 2004 to 2008 which shows that they increasing there debts for expansion of project and their short and long term debts increased. 82

It shows that Azgard nine position in debt to equity is better then its competitors.

DEBT SERVICE RATIO OR INTEREST COVERAGE RATIO:

Interest coverage ratio is also known as debt service ratio or debt service coverage ratio. This ratio relates the fixed interest charges to the income earned by the business. It indicates whether the business has earned sufficient profits to pay periodically the interest charges. Significance of debt service ratio: The interest coverage ratio is very important from the lender's point of view. It indicates the number of times interest is covered by the profits available to pay interest charges. Formula YEAR Azgard 9 Sapphir e Nishat

Net Profit Before Interest and Tax / Fixed Interest Charges 2008 2007 2006 2005 2004 0.40

1.08

1.92

2.43

2.73

0.84

0.46

0.31

1.65

1.35

7.05

1.66

2.33

4.99

5.54

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Comments: Interest Cover Ratio shows that how many times interest is earned by the company. Azgard Nine Company shows decreasing trend from 2004 to 2008 which indicates negative sign for the company and it has unavailability the funds to pay interest expense. Sapphire company is in equal position to Azgard Nine, in 2006 and 2007 Interest cover ration of all the company is not very healthy and it shows that the financial costs are very high and earnings are very low. Management must look into the matter and should improve this ratio. In year 2008 Nishat Company earned 7.05 times interest which is higher among all year and easy to pay the interest expense.

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INVESTMENTS / SHARE HOLDER RATIOS: Relationship of gains from investments (including realized capital gains) resulting from insurance operations to earned premiums.

EARNINGS PER SHARE (EPS) RATIO:

Earnings per share ratio (EPS Ratio) are a small variation of return on equity capital ratio and are calculated by dividing the net profit after taxes less preference dividend by the total number of equity shares. Significance: The earnings per share are a good measure of profitability and when compared with EPS of similar companies, it gives a view of the comparative earnings or earnings power of the firm. EPS ratio calculated for a number of years indicates whether or not the earning power of the company has increased. Formula YEAR Azgard 9 Sapphire Nishat

Profit after tax/No. of shares 2008 2007 2006 2.65 3.26 4.97 30.76 10.77 6.70 38.42 7.58 10.22

2005 7.42 14.37 12.86

2004 4.31 8.58 5.17

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Comments: The earning per share of three companies shown mixed trend in above diagram, earning per share of Azgard Nine company increase in 2005 as compare it to 2004 and it is at highest point in this year and than it decrease in 2006, and it goes more down in 2007 and 2008 which mean there is no earning and it going down. Sapphire and Nishat has also same trends but Nishat has better earning per share ratio as compare it to Sapphire and Azgard Nine. It is at highest point in 2008. The earning per share has increased as compared to the previous year. These companies should better mange its financial position and improve its performance to get out this fall in earning per share.

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EARNINGS YIELD The earnings per share for the most recent 12-month period divided by the current market price per share. The earnings yield (which is the inverse of the P/E ratio) shows the percentage of each dollar invested in the stock that was earned by the company. Formula YEARS Azgard 9 Sapphire Nishat

Earning Per Share / Market Price Per Share * 100 2008 2007 2006 2005 2004 4.30 6.26 22.54 23.19 19.16 42.46 11.64 9.57 15.97 12.26 44.69 5.87 9.75 16.92 9.79

Comments: Earning Yield of Azgard Nine, Nishat and Sapphire was at lowest point in 2007 due to economic crises. But it has very good condition in 2004 to 2006.Azgard Nine is at lowest point in 2008 due to economic and financial crises and purchase a project of fertilizers. Return on investment of Sapphire and Nishat were very high in 87

2008.of all these competitors but Sapphire shows a good trend but Azgard nine is less than Sapphire and Nishat.

YEARS Azgard 9 Sapphire Nishat

2008 61.5 6 72.4 5 85.9 7

2007

2006

2005

2004

52.10

22.05

32.00

22.50

92.50

70.00

90.00

70.00

129.20

104.80

76.00

52.80

Comments: Graph shows that market value of share of Nishat Company is high in 2006 to 2007 as compare to Azgard nine and Sapphire. In 2007 it is at highest point, market 88

value of Azgard Nine and Sapphire show mixed trend and Azgard Nine market value of share at high point in 2008 and Sapphire high market value in 2007.

PRICE EARNING RATIO (P/E RATIO): Price earning ratio (P/E ratio) is the ratio between market price per equity share and earning per share. The ratio is calculated to make an estimate of appreciation in the value of a share of a company and is widely used by investors to decide whether or not to buy shares in a particular company

Significance of Price Earning Ratio: Price earnings ratio helps the investor in deciding whether to buy or not to buy the shares of a particular company at a particular market price Generally, higher the price earning ratio the better it is. If the P/E ratio falls, the management should look into the causes that have resulted into the fall of this ratio. Formula YEARS Azgard 9 Sapphire Nishat

Market price per equity share / Earnings per share 2008 2007 2006 2005 2004 23.23 15.98 4.44 4.31 5.22 2.36 8.59 10.45 6.26 8.16 2.24 17.04 10.25 5.91 10.21

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Comments: Price earning ratio of Azgard Nine decreasing from 2004 to 2006 which is not beneficial for the company also unfavorable for the investor and encourage the investors to invest but increase in 2007 and 2008 and at very good position in 2007 and then become better in 2008, Sapphire and Nishat shows mixed trend, Sapphire company maximum price earning ratio in 2006 and lowest in 2008 and Nishat price earning ratio never goes negative and it is at high point in 2007 which encourage the investor, it shows that there is increase in market value of share and decrease in value of earning per share.

COMPANY ANALYSIS: Azgard nine limited fulfills all its targets of supplies in the market and also expands its production with the needs of market. In these days company is in its growth stage. Now the company has three production units including two units for textile produce and one for Fertilizers. The growth in demand of garments in Asia, 90

India and Middle East, particularly supply deficit in Europe and USA has geared up export opportunities for garment Industry of Pakistan. Supply deficit in Europe has resulted in significant demand for Pakistani garment due to Europe’s geography. European’s import authority standards have approved Azgard nine for import to Europe. This demand will also be supported by closing down of some garment units in Europe due to their strict laws governing pollution control and other environment hazards. Being one of the big garment units of Pakistan and due to its high quality Azgard Nine is the prime of choice of the International buyers all over the world. Azgard Nine is committed to provide high quality garment to its international customers and is being exported to Germany, India, Middle East, Europe and Africa. Azgard Nine conveniently meets all the International standards including American, British, Indian and European standards. Azgard Nine is an ISO 9001-2000 and ISO 14001-2004 certified company and follows all rules and regulations of the government. Company’s social performance is also good. It has good cooperation with community and the environment. It is only one company of Pakistan that has install water filtration plant in its production units in MANGA MANDI. Company has a good relation with their workers and also trying for their welfare.

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Company Life Cycle

Last Five Years Sales of the Company

Comments: In the above graph you can see in the year 2008 sale of the company at highest point and it is showing increasing trend from 2004 so company sale is at increasing side in the year of 2004 to 2008 there is no much difference between the sale this increasing trend due to expansion of plant and due to the consumption and the demand in the market so we can say that Azgard nine’s product’s demand is increasing in the local market and international market. 92

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Azgard9 is good growing company in the world, but now it is going downward because of some reasons. Strengths:  Vertical Composite Unit 

Multinational Company dealing with worldwide big brands (e.g.: H&M,Diesel)



Unique washing and dying



Two power supply units

Weaknesses:  Health and safety Environment problems  Manual cutting Opportunities:  Company is going to launch a new local brand in 2009  TQM Implementation is one of its big opportunities. Threats:  Competitors ( CBL, US Denim) 

Political instability in Pakistan

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As we know that energy is key factor for any production unit, and in Pakistan there is lack of energy. This is the main cause of less production in the country; Azgard9 is also facing such type of issues that are under consideration of the committee. Government of Pakistan is increasing the rate of taxes and duties, which is main reason for low imported raw material. The all representatives of the whole textile sector in the country, taking serious notice of the prevailing energy crisis, stated that as a consequence of load shedding the textile production capacity of various sub-sectors has been reduced by up to 30 per cent. The representatives of the all textile associations presented their serious concerns on the huge losses being incurred due to electricity load shedding and the strident rise in the Electricity tariff. They said that the industry has already been crippled due to unprecedented load shedding during winter months. The joint meeting of All Pakistan Textile Mills Association (APTMA), Pakistan Textile Exporters Association (PTEA), All Pakistan Textile Processing Mills Association (APTPMA), Pakistan Cotton Power Looms Association (PCPLA), All Pakistan Textiles Sizing Industries Association (APSIA), and Council of Loom Owners Faisalabad, was held at APTMA House to formulate a joint strategy to address the alarming electricity crisis being faced by the textile industry. The meeting chaired by Javaid Shafiq Siddiqi, Acting Chairman APTMA, was largely participated by the representatives of Textile Industry Associations and related segments including Hosiery, Shuttleless looms etc. 95

The meeting unanimously decided to constitute a joint working group of electricity management for the textile industry in the larger interests of the value chain of the textile industry The joint working group will meet shortly to chalk out a detailed plan to pursue the following goals; immediate total exemption from Electricity load shedding for the textile industry value chain; Rationalization and reduction of electricity tariff and immediate withdrawal of all pending determinations of NEPRA for all DISCOs for the textile industry.

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 There is a need of strong communication within each department and between the departments.  Locate all the sub-departments of HR at same place. It will help to increase coordination between departments.  There should be separate uniform for workers of each department within a specific business unit.  Attendance procedure should be more appropriate. Finger prints should be taken from the employees.  Internees should be free to visit all departments.  There should be proper equipment provided to employees and workers to prevent noise pollution and dusty areas. The workers should be strictly bound to use these equipments.  Stipend should be given to internees.  There should be separate equipment for Training room. 97

 There should be separate cafeteria for female employees.  There should be proper mosque for employees.

The textile & apparel sector is amongst the largest and most significant in Pakistan’s economy, accounting for over 60% of total merchandise exports and providing employment to 38% of large scale manufacturing sector workforce. There is an abundant supply of local raw material as Pakistan is the 4 th largest producer in the world. There is also an abundance of local labor available at a competitive cost when benchmarked against regional competitors. Against this backdrop the industry remains largely fragmented with few large scale integrated players. Worldwide denim production capacity is over 6 billion linear meters. Denim is the world’s largest cotton textile product with estimated per annum global sales of 4 billion units. Azgard Nine is Pakistan’s largest denim products business by sales with a fully vertically integrated Manufacturing chain. From cotton to retail ready apparel products. In house capability for spinning. Weaving, Design, finishing and stitching enables control over the entire value chain and provides a significant competitive advantage in facilitating faster speed to market and control over product quality. With Longstanding relationship with global retailers and brands, and an ability to rapidly build up manufacturing capacity, Azgard nine is well poised to cater to an expected increase in global demand for denim products. 98

The year 2008 proved very challenging due to a globally recessionary climate affecting all facets of the business. While the business remained under pressure, Azgard Nine was able to protect its value added services to its products portfolio. The key focus remained on meeting and indeed finding ways to exceed customer expectations.

In addition to Azgard Nine’s vertical manufacturing capabilities which were already providing customers solution concepts was added. The company now offers the client a choice of full product development, product design and a complete logistics solution. Traditionally the customer has been sourcing supply of the product only. Now the client has the option to source a full supply chain solution directly from the Company. This value enhancement helped Azgard Nine to grow with its existing customers and add new customers as well during a difficult period. Urea industry in 2008 remained structurally short despite a 5% increase in production over 2007 (reaching 4.98 Million Tomes). Late arrival of imports further compounded the shortage across all the provinces. Total imports by the Trading Corporation of Pakistan (TCP) during 2008 aggregated 450000 tons. The shortage was managed by collaboration between the federal & provincial Governments and Fertilizer industry by systematically rationing the available stocks. The government of Pakistan, in an effort to counter shortages utilized the network of national fertilizer marketing limited (NFML) & Utility Stores Corporation of Pakistan for selling 50% of local production during Nov-Dec 2008. Pak American fertilizers ltd. played an active role in coordination with the relevant Government departments to ensure availability of fertilizer in various districts of Punjab and NWFP. 99

Industry Urea sales in 2008 saw an increase of 11% over 2007 and reached 5.5 million tons. This increase is attributed to demand switch by farmers from phosphates to urea due to the unprecedented price increase of phosphate in the international market. The fertilizer industry supported the farmers in passing on various subsidies received. The fertilizer industry also contributed an additional subsidy of Rs. 20.7 billion given by the Government of Pakistan (GOP) in shape of lower gas prices to the fertilizer industry in 2008. The GOP also provided additional subsidy of Rs. 14.5 Billion on account of subsidy on import urea. Thus local Urea prices during 2008 averaged US$ 165.7 per tom, significantly lower than the average international urea price of US$ 550 per ton in 2008

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 http://www.azgard9.com/html/financial-information.htm  http://www.azgard9.com/html/Security-Analyst.htm  http://www.azgard9.com/html/financial-info/2008/Security%20Analys_g

%20  http://www.js.com/pakistan-financial-news-latest_75.asp  http://www.pacra.com  http://www.google.com  http://www.wikkipedia.com  http://www.brecorder.com.pk/index.php?currMIndex=16&currPageNo=1  http://www.yahoo.com 101

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