Final AFS Report

COMPARATIVE ANALYSIS OF FINANCIAL STATEMENTS
SHAHMURAD SUGAR MILLS LTD HABIB SUGAR MILLS LTD
ACKNOWLEDGEMENT
I am very thankful to Almighty Allah (The most Beneficent & Merciful),

who made it possible for me to initiate this report and take it to the highest
level of completion and success. I am also very thankful to Him for giving
the energy and motivation to fulfill the requisite of this report.
I would like to thank Sir Mirza Imtiaz Askari for assigning this
interesting analytical research project & providing the opportunity to learn &
gain most valuable experience from this exercise. I would like to express my
gratitude once again to him for his guidance and support.
I am grateful to my uncle, Mr. Ali Niaz Akhtar, Chief Manager Taxation

& Corporate Affairs, Habib Sugar Mills Ltd., for providing the Annual Reports
of Habib Sugar Mills Limited & Shahmurad Sugar Mills Limited for my project
in a very limited time period, without which this report would not have been
possible. I remain indebted for his worthy cooperation.
Last but not the least; I owe a lot to my parents without whom it
would have been impossible for me to pursue my academic work.
DEPARTMENT OF PUBLIC ADMINISTRATION-UNIVERSITY OF KARACHI 1

Date: Nov 16, 2006
Mr. Imtiaz Askari,

Course Instructor,
Analysis of Financial Statements,
Department of Public Administration,
University of Karachi.
Subject: Letter of Transmittal
Dear Sir,
I am pleased to submit my report on Comparative Analysis of

Financial Statements of Habib Sugar Mills Limited & Shahmurad Sugar Mills
Limited in response to your requirement for the course.
This report is based on the comprehensive analysis of the financial

statements of the above-mentioned public limited companies. All the tools &
techniques of financial parameters, which were being taught in the class, are
employed while conducting the analysis to fulfill demands of the MPA
Degree.
I would like to express my profound thanks to you for providing an

opportunity of practical exposure by assigning such a wide-ranging &
interesting analytical research report. I hope this report meets your
expectation.
Sincerely Yours,
Syeda Hoor-ul-Ain
MPA - FINAL (HONS)

ANALYSIS OF COMPARATIVE FINANCIAL

STATEMENTS
INTRODUCTION
Financial Statements represents the financial position of any
organization & facilitate the management of an organization in taking future
financial decisions. Financial statements are the best approximations of
economic reality because of the selective reporting of the economic events
by the accounting system, compounded by alternative accounting methods &
estimates. Analysis of financial statements helps investors & creditors in
making better economic decisions. The analysis & use of financial statements
is not restricted to analysts, however, managers, auditors, regulators &
educators also benefited from the insights of analytical techniques.
AUTHORIZATION:
The earlier mentioned review helps to deduce that it is necessary

being a student of Finance to analyze the Financial Statements in order to
get the better comprehension of the implementation & comparison of
financial statements through financial techniques. For this purpose my
course instructor Sir Imtiaz Askari has assigned an analytical research report
based on the comparative analysis of the financial statements of two
different companies of the same industry to me for the course of Analysis of
Financial Statements.
 SELECTED COMPANIES:
For conducting the comparative analysis two companies of Sugar

Industry are selected & the names are as under;
• HABIB SUGAR MILLS LIMITED.
Sugar Division:
Habib Sugar Mills Limited was incorporated as a public limited

company in 1962 with its Head office in Karachi and mills located at
Nawabshah, 300 kilometers north east of Karachi.
Messrs, B.M.A. of Germany supplied the original machinery for the

sugar division. The capacity of the plant at its inception was 1500 toms of
sugar cane crushing per day. The mill commenced its production in January
1964 and was the second sugar mill in the province of Sindh. Present
capacity of the mill is 8000 tons of sugar cane crushing per day. The
capacity had been enhanced through balancing, modernization and
replacements (B.M.R).

Over the years, the company was awarded Trophies and Certificates
of Merit by the Karachi Stock Exchange in 1980, 1982, 1983, 1986 and
1990. Further the selection committee of International Gold Mercury Award
selected Habib Sugar mills Limited for their International Award in 1982. The
company was conferred an award for the highest sucrose recovery
throughout Pakistan by the Pakistan Society of Sugar Technologists in their
25th Annual Convention held in 1990.
Distillery Division:
In the year 1967 a Distillery unit was added to produce industrial

alcohol from sugarcane molasses, having a capacity of 65,000 liters/day,
mainly for exports. Messrs Spechim Limited, France, supplied the machinery
and equipment for the Distillery. The division has over the years contributed
handsomely to the profitability of the company, besides boosting its exports.
The production capacity of the Distillery Division is being enhanced to
120,000 liters of industrial alcohol/day and the necessary plans have been
finalized for implementation.
A proud member of the Habib Group, Habib Sugar Mills’ performance

during the past forty years has been satisfactory as is established by the
trend of efficiency, growth in earnings and financial stability. The
shareholders have also been correspondingly rewarded by a consistent policy
towards payment of stock and cash dividends. This success is due to hard
work and excellent efforts put in by the workers, staff members and co-
operation received from the sugar cane growers.
Habib Sugar Mills Limited has acquired ISO 9002 certificate for
manufacture of white refined sugar, molasses and industrial alcohol. The
company continues to attach great importance to a pollution free
environment at the mills premises through installation of fly ash removal
system and slop treatment plant. By the Grace of Allah, successful
operations of these projects have ensured a pollution free environment for
the citizens of Nawabshah.
• SHAHMURAD SUGAR MILLS LIMITED.
Shahmurad Sugar Mills Limited is a public company incorporated in

Pakistan under the Companies Act, 1913 (now Companies Ordinance, 1984).
Its shares are quoted on Karachi Stock Exchange in Pakistan and principally
engaged in the production and sale of refined sugar.
PURPOSE / GOAL:
Every will has its way and every way has its destination. The
destination of the selected way is towards composing a comprehensive &

comparative analytical study in which I am required to make a thorough
analysis of the Annual Reports of the above-mentioned companies & wide-
ranging analysis of Macro Economic Environment of the Sugar Industry
including existing governmental policies regarding the issues of the present
scenario. The purpose of this research project is to build comprehension
about the practices & procedures of capital market that enhances
researching skills & analyzing ability.
SCOPE:
The scope of this research project is to analyze the performance of the

selected companies in relation with the profitability. The scope of this
research focuses on the enhancement of understanding of financial reporting
in order to facilitate improved decision-making.
 METHODOLOGY:
The process of analysis includes the calculation of following financial

parameters/standards in order to measure the performance of the selected
companies;
• Operating Cycle
• Cash Cycle
• Degree of Operating Leverage
• Degree of Financial Leverage
• Breakeven
• Financial Ratios
• Asset Valuation
• Weighted Average Cost of Capital (WACC)
& then comparatively analyzed on the basis of calculated figures.
The plan of this report is as follows: Section 2 presents comprehensive

analysis of macro economic environment of the sugar industry of Pakistan;
on the other hand Section 3 describes the critical analysis of the calculated
empirical results with the graphical representation with the comparative &
time series analysis of the performance of the selected companies; & in the
end the conclusions are summarized in Section 5.

2. MACRO ECONOMIC ENVIRONMENT OF SUGAR

INDUSTRY OF PAKISTAN
INTRODUCTION:
There are 77 sugar mills working in Pakistan, out of which 39 are in
Punjab, 32 in Sindh and 6 in NWFP, having an installed capacity of 5.0
million tones sugar production. Punjab and Sindh are the two major
sugarcane producing provinces in Pakistan. Sugarcane is an important cash
crop and provide raw material to nearly 77 Sugar factories. (Source: Karachi
Stock Exchange, Lahore Stock Exchange & Islamabad stock Exchange)
The country’s sugar industry, starting from only two small units in
1947, now comprises 77 large cane sugar mills and four beet factories, 22
ethanol distilleries; four beet pulp cattle feed plants and 12 board plants.
Another 3 to 4 new mills are in various stages construction. Some of these
factories also generate extra electric power and supply it to the national grid.
The sugar and its by-products industry is the second largest with a
total capital outlay of over Rs100 billion providing employment to more than
120,000 people. More than one million families are the beneficiaries of its
allied industry. (Source: Dawn – Aug 22, 2005)
Pakistan Sugar Mills Association (PSMA) is a registered Association of

70 sugar mills, of which 37 are in Punjab, 28 in Sindh and 5 in NWFP &
according to Monopoly control Authority there are 73 sugar factories are in
operation, of which 39 are in Punjab, 28 in Sindh and 6 in NWFP. (Source:
Monopoly Control Authority)
IMPACTS OF CROP (SUGARCANE) ON THE SUGAR INDUSTRY;

The industry’s raw material, sugar cane, is grown on about one million
hectares, mainly in Punjab, Sindh and NWFP. The cane crop occupies only
four per cent of the total cultivated area. More than 80 per cent of the
industry’s equipments are manufactured locally.
Of all the inputs for sugar cane cultivation, the irrigation water is a
scarce and precious input that is dwindling day by day. Sugarcane is highly
water consumptive crop that remains in the fields nearly 12 months or more.
The sugarcane production, marketing and processing continue to be
confronted with a host of problems. The growers are faced with increasing
input prices, water shortages, along with uncertain output prices etc. As a
result of recurring water shortage, element of risk, in farm production is
increasing. The industry is facing increasing competition from cheap imports,
idle capacity, and periodic fluctuations in the quantity and quality of raw
material. The industry, due to its seasonal production cycle, has been
periodically saddled with large stocks of unsold sugar in the recent past. The

country often resorts to distress imports in stabilizing sugar prices. The
sugar has assumed the status of “political good” like wheat.
The sugarcane crop is beset with many problems: one abysmally low
yield leading to yearly fluctuation in production, and secondly monopolistic
exploitation of sugar cane growers by the powerful sugar syndicate. The
sugar cane highly water consumptive crop, thus losing comparative
advantage in water scarce scenario.
Although sugarcane is water intensive crop, its production increased

by 10.2 percent, as timely rains at the time of sowing and higher prices
received in this year encouraged farmers to plant the crop on a larger area.
Yield of sugarcane also went up by 5.9 percent.
Recent heavy rains throughout Pakistan, and the more rains forecast
for the remaining part of August, have improved the prospects of the rice
and sugarcane crops, standing in the fields at present.
ECONOMIC ENVIRONMENT:
Pakistan is the fourth/fifth largest country in the world in term of area
under sugar cane and production of cane. It is also among the top 10 most
sugar-consuming countries with per capita consumption of 28-30 kg raw
value, which does not include consumption of gur, khandsari, etc.
The industry’s profile shows the important contribution it makes to the

national economy. Even its working efficiency and quality are comparable
with international standards. But to make it more competitive and efficient
and bringing down its cost of production, sugar technology research and
training college should be established.
• CONTRIBUTION TO GDP:
The sugarcane crop serves as a major raw material for production of
white sugar and gur. It is also a cash crop. It occupies about 4 per cent of
the cropped area and contributes about 14 per cent to the value added by
the crop sector in the gross domestic product (GDP). (Source: The Daily
Dawn – Aug 22, 2005)
• FOREIGN EXCHANGE EARNER:

The industry has remained a net foreign exchange earner right with
the export of molasses and occasional export of surplus sugar.
• SUPPLY & DEMAND:

Currently, the industry produces six million tons of sugar but due to
the non-availability of required quantity of raw material, it is hardly able to
work at 50-60 per cent of its capacity. This raises the cost of production and
the country instead of being net exporter, has to import sugar. (Source: The
Daily Dawn – Aug 22, 2005)

At present sugar industry is not meeting the demand of the masses

because the sugar available in the market is quite expensive that costs
people Rs. 39 per Kg. Due to this reason the government of Pakistan allow
the imports of sugar from India that costs people to buy Rs. 36 per Kg. This
showed that domestic sugarcane prices were greater than border prices. In
order to maintain the private profitability level, sugarcane grower needs
protection from world market in future years.
Pakistan should grow sugarcane only to maintain self-sufficiency level,

as it will be cheaper in domestic market than to invest on import of sugar
cane. It will not be feasible for country to grow for export purposes. On the
other hand, the country should increase sugar cane productivity per unit of
resource use especially scarce irrigation water.
• HIGH SUGAR PRICE:

Generally prices of various commodities are increasing due to increase
in the inflation rate but the domestic production cost of sugar is high due to
excessive cane production cost (75 per cent of the total sugar production
cost) as compared to other countries. This is due to low cane yield, low
sucrose recovery percentage, high cost of inputs, rising electricity and diesel
charges, wrong support pricing and policies, delay in payments to growers,
besides under weighing of their produce by the mills causing them an
additional loss.
The prevalent sugar selling rates at the consumer level have reached
to a height never seen before. The continuous escalation has left behind all
previous records of rate rises in previous decades. The incessant hike is yet
to see an end.
According to market sources, local mills are facing the problem of

higher cane prices and are finding it difficult to pull down the rates after
releasing a larger portion of the new crop in the open market.
POLITICAL ENVIRONMENT:
Government has withstood the pressure from Pakistan Sugar Mills
Association (PSMA) and allowed import of sugar. This time, in case of sugar,
the government has kept the interest of the common man in mind.
Pakistan Sugar Mills Association (PSMA) desperately wants to stop

import of sugar entirely; the sugar mills have mounted pressure on the
government either to stop imports completely or at least to impose duty so
that the impact of imports is neutralized. Nevertheless, the high sugar
production cost has made it difficult for the industry to compete with
international producers. Consequently, the political lobby of the PSMA
pressurizes the government to give subsidies up to 30 per cent or more for
enabling it to compete in the international market. On the other hand, they
demand increase in duties on the imported stuff for competing in the

domestic market. This resulted in squeezing the growers and the common
man thus forcing duty free import of sugar.
The government of Pakistan has allowed the import of refined sugar of

400,000 tons & the importers have booked around 270,000 tons of raw and
110,000 tons of refined sugar.
The imports are to supplement domestic production, which is expected

not to exceed 3.2 million tons this year. Annual consumption is around 3.6 m
tons. The government's stocks of 375,000 tons just about balance the
demand with production.
The situation took an ugly turn when the Sindh Government issued
show cause notices to the management of 27 mills on November 18 asking
them to submit the cases of their failure in the start of cane crushing by
November 15 the date fixed by the government for crushing season 2002-
03. The notices threatened the management that if they failed to start
crushing or submit cases for delay within one week, cases under section 21
of the sugar factories control act will be filed against them which provides for
rigorous imprisonment of one year in case of condition. Cane Commissioner
Sindh said in a press interview that the action had been taken in view of the
delaying tactics of the sugar mills causing unrest among the sugar cane
growers. The sugar mills has requested the government either to allow them
to export their surplus stock as agreed earlier or arrange a bridge financing
of 500 million to enable them to buy sugar cane from the growers and start
crushing. So the dead lock is continuing.
 GOVERNMENTAL REGULATIONS:
• Sugar Mills were sanctioned to provide 10 per cent of their

production at cheaper rates to the government for sale at utility
stores.
• Government of Pakistan has established Monopoly Control
Authority through an Ordinance. The purpose of
establishing the Authority was to provide for measures against
undue concentration of economic power, growth of un-reasonable
monopoly power and unreasonably restrictive trade practices.
Under Ordinance No.V of 1970, Monopoly Control Authority is
neither mandated nor authorized to determine prices of
commodities. Prices of essential commodities can be determined by
the Government under Price Control and Prevention of Profiteering
and Hoarding Act, 1977 (XXIX of 1977).
• Monopoly Control Authority is taking notice of consistent increase
in the price of sugar after September, 2005 started to monitor, on
a fortnightly basis, the production, lifting and ex-factory price of
sugar, along with cane price and cane crushed. This information
was collected directly from the mills and from Pakistan Sugar Mills
Association (PSMA) fortnightly statements. Monopoly Control
Authority has been monitoring production of sugar and sale of the

commodity by the sugar mills. Some sugar mills were found
releasing less stock. Show cause notices have been issued to them.
Cases will be decided as per facts and provisions of law.
• The Authority, after completion of due process, passed Orders
directing the concerned undertakings to:- Discontinue restrictive
trade practices and release at least 58.31% sugar (equal to 7
months @ 8.33% per month from October 2005 to April 2006)
Desist from indulging in restrictive trade practices in future. The
undertakings were required to submit compliance of the order of
the Authority by end of May 2006.
• The Authority, after considering facts of the case, sale and lifting of
sugar up to June, submissions of counsel of the undertakings and
the fact that the undertakings had not complied with the Order,
imposed following maximum penalty on 23 sugar mills of Punjab in
terms of the powers vested in it under Section 19 of the Ordinance.
i) Penalty of Rs 100,000 (Rupees One Hundred Thousand) to be
deposited within 7 days of the receipt of the Order, and
ii) In view of the fact that failure to comply with the Order of MCA
is continuous in nature, pay a further penalty of Rs 10,000 (Rupees
Ten Thousand) for every day, starting from the date of issue of this
Order and up to the date the undertaking releases sugar
commensurate with the monthly percentages. This penalty shall be
paid on fortnightly basis.
• Penalty of Rs 100,000 (Rupees One Hundred Thousand) has also
been imposed on four sugar mills of Sindh who havn’t disclosed
their financial data.
TECHNOLOGICAL ENVIRONMENT:
New technological techniques would help a lot in shaping the destiny

of the sugar industry. The sugar industry should focus on manufacturing
value added products e.g. spirits, yeast, acetic acid, citric acid, glucose etc.
as by- products so that these products can be used to facilitate medical/
chemical industry or could be sold to the pharmaceutical firms for further
purification in order to earn additional profits. The development of these
products would help reduce the cost of sugar, which remains the principal
produce. (Source: Economics of Sugarcane Production in Pakistan: A Price
Risk Analysis - International Research Journal of Finance and Economics)
The recurring water shortage is posing a serious challenge to the large

scale cultivation of sugarcane being highly water consumptive crop. It is in
the interest of industry and farmers to curtail its area but promote the
cultivation of improved varieties with rational use of inputs and improved
crop management. The sugarcane is highly water consumptive crop.
 ABSENCE OF RESEARCHING ENVIRONMENT:

In spite of the industry making significant contribution to the national
economy, there is not a single sugar technology research and training

college whereas India has three such colleges. The first institute there was
established as early as in 1926. Even much less sugar producing countries
have their own sugar institutes.
Such a research and training college is an essential requirement where

young engineers and technicians could be trained and research work can be
carried out on the problems facing the industry on the scientific lines.
The federal cabinet gave its approval for establishing such an institute
as early as in 1988-89 but that still remains on paper. However, this needs
to be implemented on priority basis with an allocation of 10 per cent of road
cess/sugar cane development fund.
Sugar cane and sugar yield per hectare of about 48-50 tons and 6-7
tons need to be improved by adopting improved techniques and the latest
agronomic practices, which will not only increase incomes of farmers but and
also ensure adequate supply of raw material to factories. With this, the cost
of sugar production could also be reduced.
ENVIRONMENTAL CHALLENGE:
The sugar industry is facing various challenges including deterioration

of environment due to its industrial activities. The environmental challenge
for the local sugar mills is associated with liquid waste, gaseous emission,
solid waste and noise pollution. All the major departments in sugar
manufacturing: mill house, process house, and powerhouse and boiler house
and for production of industrial alcohol, the distillery stages are responsible
for the waste generation. Table 1: shows the main sources of waste
generation with respect to the sugar manufacturing processes.
Table 1: Waste produce during Sugar Production
Process Step Main Input Wastes and By-Product

Mill House Sugar cane Wastewater from bearing house of the mills contains SS
and oil contents. Also includes washing water used for
floor cleaning, which contains sugar contents, Bagasse
(Solid waste)
Process House Sugar Juice Filter Cake (Solid waste), Washing of different components
such as, Evaporator, Juice heater, Vacuum pan, classifiers,
etc., generate aggressive effluents have high BOD5, COD
and TDS concentrations, Molasses
Boiler House Bagasse, Furnace oil Fly ash, Smoke, Flue gasses, Wastewater of wet scrubbers
Cooling Pond Water & Chemicals Wastewater
Molasses Wastewater (Stillage) containing very high BOD5, COD, SS
Source: Environmental Report of the Sugar Sector of Pakistan by Environmental Technology
Program for industry (ETPI) 2000


The adoption of environmental management system (EMS) as
framework for integrating corporate environmental protection policies,
programs, and practices is proven to be the best tool to cope with pollution
problem in sugar industries of Pakistan.
3. CRITICAL, COMPARATIVE & TIME SERIES ANALYSIS

OF THE EMPIRICAL RESULTS WITH THE GRAPHICAL
REPRESENTATION
OPERATING CYCLE:
The operating cycle of the firm is the sum of the no. of days it takes to
sell inventory & the no. of days until the resultant receivables are converted
to cash.
 TIME SERIES ANALYSIS:
HABIB SUGAR MILLS LTD: The operating cycle of the Habib Sugar Mills
seems fluctuating with the clear difference, enclosed as Annexure “A”. In the
year 2003 & 2002 the company took maximum days to convert their
inventory in to cash due to the reason that the firm’s finished goods remain
unsold for a longer time period. In the year 2002 the firm did not reach to
the breakeven point & its sales remain below the standard breakeven point
with reference to the cost incurred.
The firm is not spending much time in crushing sugarcane; therefore,

the days of raw material remain zero over the last five years.
The WIP management of the firm is also efficient & spending less than
a day in processing sugar.
Operating Cycle of Habib Sugar Mills Ltd.
60
51.36
50
43.64
40 37.46
DAY 30 29.12
S 20 14.96
10
0
2001 2002 2003 2004 2005
YEAR


The huge stock of finished goods remain unsold in the year 2002 &
some inventory also remain unsold even in the year 2003 the firm
breakevens its sales. The company earns less amount of sales revenue
because the sales price of sugar remain depressed due to the over supply
position of sugar in the market. The reason for this may be, the firm being a
local manufacturer is also an exporter, the export sales of the firm declined
with respect to the other years. They receive fewer contracts & their local
sales were also not up to the mark. That’s why their finished goods inventory
remains intact with the firm for more days. In rest of the four years except
2002 the sales of the company were up to the mark & the company earned
profits.
The firm is not selling its goods on lenient credit. The credit terms of
the firm is structured & on average the firms takes 11 days in collecting its
receivables for sugar sales over the last 5 years.
SHAHMURAD SUGAR MILLS LTD: The Shahmurad Sugar Mills Limited is

taking much time in converting their operations in to cash. The major reason
behind is that the firm had been remain incapable in achieving its breakeven
point in the year 2002,2004,2005 & also incurred losses. Its finished good
inventory remains intact with the firm & remained unsold.
On the other hand the days management of the firm for raw material,
WIP & accounts receivables is not bad. The firm’s collection period is smooth
& sound, which indicates that the firm is easily converting its credit sales in
to cash as it took on average 5 days in collecting the receivables.
OPERATING CYCLE OF SHAHMURAD SUGAR MILLS LTD
80 73.05
67.23
61.33
60
50.25 49.96
DAY
40
S
20
0
2001 2002 2003 2004 2005
YEAR
 COMPARATIVE ANALYSIS:
The operating cycle of Habib Sugar Mills Limited is better than the
Shahmurad Sugar Mills Limited because Habib Sugar Mills Limited is
efficiently converting its operations or inventory in to cash & also spending
lesser days & earning profits. On the other hand Shahmurad Sugar Mills
Limited is incurring losses.
 CASH CYCLE:
Cash cycle is all about the credit length of the firm i.e., to the extent
to which the firm uses credit.
HABIB SUGAR MILLS LTD: The Cash cycle of the firm is experiencing
various ups & downs; there is no consistent trend in paying off the payables
or credit.
In the year 2001 & 2005 the company took more time in paying off its
payables than the manufacturing. In the year 2002 & 2003 the credit term
was good. Year 2003 was just ok.
Cash Cycle of Habib Sugar Mills Ltd.
20 19.24
15 12.84
DAY 10
S 5
0.38
0
-2.25 -2.98
-5
2001 2002 2003 2004 2005
YEAR
SHAHMURAD SUGAR MILLS LTD: The cash cycle of the firm is just ok,
from 2001 till 2005 it is showing better trend but it need to be more efficient
because shorter the cycle, the more efficient the firm’s operations & cash
management.
Cash Cycle of Shahmurad Sugar Mills Ltd.
60
50.02
DAY 42.25
40
S 29.23
20 18.13
12.88
0
2001 2002 2003 2004 2005
YEAR


The cash cycle of the Habib Sugar Mills is better that Shahmurad
Sugar Mills for 3 years.
DEGREE OF OPERATING LEVERAGE:
 TIME SERIES & COMPARATIVE ANALYSIS:
HABIB SUGAR MILLS LTD: DOL of the firm initially shows negative
trend then it lifts up & reaches to 2.25%, which is significant because the
variable cost of the firm shoots up in the year 2003 at its maximum due to
the increase in the cost of Fuel & power supply. It causes increase in the cost
of production. The DOL increases because the Sugar Division of the firm
resulted in loss (operating loss) due to the depressed market trend. In the
year 2004 & 2005 the company’s DOL moves towards the better situations
as the company’s variable cost decreased & earned operating profits. The
empirical results of the financial statements are enclosed as Annexure “B”.
DOL OF HABIB SUGAR MILLS

LIMITED
2.5 2.25
2 1.99
1.5 1.32
DOL 1
0.53
0.5
% 0
-0.19
-0.5
2001 2002 2003 2004 2005
YEAR
SHAHMURAD SUGAR MILLS LTD: The firm’s DOL shows negative trend
because the firm is incurring losses with the high Variable Cost in the last
years except 2002, in 2002 the company breakevens its cost with a little
margin but in that year the variable cost remain consistent that’s why the
DOL of 2002 seems like pick the odd one out. The company is not covering
its cost since 2001.

DOL OF SHAHMURAD SUGAR MILLS LTD.

20
0 2.144
-2.85 -4.4
-0.53
-20
DOL %
-40
-60
-80 -77.5
2001 2002 2003 2004 2005
Year
DEGREE OF FINANCIAL LEVERAGE:
DFL is the measure of the riskiness of the firm & determines that the
firm is earning that much profit to pay it financial charges.
HABIB SUGAR MILLS LTD: The DFL of the firm is showing consistent
trend & the firms operating profit is quite sufficient to retire the interest due
of the short-term debt in a timely manner except 2002 where the firm
incurred loss but still in the case the firms DFL stood sound & did not
fluctuate because the firm is not indebted by the long term loan. The firm
only had short-term borrowings in the last 5 years to finance their running &
export expenses.
DFL OF HABIB SUGAR MILLS LIMITED
1.15 1.15
1.1 1.09
1.07 1.07
DFL % 1.05 1.03
1
0.95
2001 2002 2003 2004 2005
Year
SHAHMURAD SUGAR MILLS LTD: The firm’s DFL is showing negative trend
negative trend because the firms is incurring operating loss instead of profit
therefore it can be said that the firm is not in a position to take more debt in
the future as it is unable to retire its existing debt. Although it has retired
some of the portions of the debt but still the performance of the company is
below standard & earned inadequate profit in the year 2004 which is not
sufficient to retire the installments of the debt.

DFL OF SHAHM URAD SUGAR MILLS LTD.
0
-0.03 -0.09 -1.62
DFL -5
-7.85
% -10
-15
-20 -21.25
-25
2001 2002 2003 2004 2005
Year
Habib Sugar Mills Ltd., is earning sound profits & paying out its short
– term financial costs very efficiently. The firm is not having any long-term
debt & earning profits as the capital structure of the firm is a bit costly
because the firm has a huge amount of equity than the debt, which is only
short-term. Without having any long term debt earning profits & running
company efficiently is commendable. Shahmurad Sugar Mills Ltd., is
incurring variable losses that’s why the firm’s DFL is fluctuating very badly.
DFL estimations indicate that there is no comparison between the
performances of Habib Sugar Mills Ltd. & Shahmurad Sugar Mills Limited.
The earlier one is earning profits & the other one is incurring losses.
BREAKEVEN ANALYSIS:
HABIB SUGAR MILLS LTD: The firm breakevens the cost incurred in the
manufacturing process & cost invested in the years 2003, 2004 & 2005. The
Sales crossed the breakeven point in these years. In the year 2002 the firm
incurred loss due to that reason the firm was not in a position to earn the
required sales revenue to cover up the manufacturing & invested cost. In the
year 2001 the firm did not breakevens the cost because of the lower yields
of sugarcane or limited sugarcane plantation due to the shortage of water
irrigation/rainfall. Due to this reason the firm could not incur the estimated
revenues, there was no any problem from the company’s management side.
The empirical results are enclosed as annexure “B”.
SHAHMURAD SUGAR MILLS LTD: The firm breakevens its costs in the
year 2001 & 2003 but after earning sales revenue more than the breakeven
point the company incurred losses because it is over indebted & those


revenues were insufficient to retire its debt therefore the firm was facing the
acute losses.
BREAKEVEN OF HABIB SUGAR MILLS LIMITED
2500 2481
BRE
AKE 2000
2055.39
VEN
1500
1124 1019
1000 845.4
500
0
2001 2002 2003 2004 2005
YEAR
Habib Sugar Mills Ltd., performance is much better than Shahmurad

Sugar Mills Ltd., loss incurred 2001 by both firms is acceptable because in
that year exogenous factors were associated with the cultivation of the crop
therefore the firms incurred huge production cost which leads to cause
problems in covering the cost. Habib Sugar Mills did not breakeven the cost
but was not in loss but Shahmurad sugar Mills ltd., was in loss & in the next
year 2002 incurred a huge loss, This is so because the crop cultivation was
better & the market experienced the depressed price trend & the
procurement prices were higher then the support prices. In the year 2002
Habib Sugar Mills Ltd., was also in loss due to the same reason but from
2003 & onwards it earned healthy revenues. For details see annexure “B”.
SALES OF HABIB SUGAR MILLS LTD
SALE 3000 2812

S 2500
2252
IN 2000
1500
1579 1521
Rs
1000 871
500
0
2001 2002 2003 2004 2005
YEAR

BREAKEVEN SHAHM URAD SUGAR MILLS LTD.
1400 1311
BRE
1200 1096.76 1115.1
AKE
VEN 1000
800 813
600 529
400
200
0
2001 2002 2003 2004 2005
YEAR
SALES OF SHAHMURAD SUGAR MILLS LTD
1400
SALE 1284
S 1200
1068
1000 993
803 826
IN 800
600
Rs
400
200
0
2001 2002 2003 2004 2005
YEAR
WACC:
 TIME SERIES & COMPARATIVE ANALYSIS:
HABIB SUGAR MILLS LTD: WACC of the firm stood consistent in the
early two years & the last two years i.e, in 2001, 2002, 2004, & 2005. In the
year 2003 the WACC decreases very sharply because the firm ROE was
negative that causes decline in the WACC. Another reason would be of this
decline is low profitability in the year due to the high production cost.
SHAHMURAD SUGAR MILLS LTD: WACC of the firm stood consistent in

the early two years & the last two years i.e, in 2001, 2002, 2004, & 2005. In
the year 2003 the WACC increases due the increase in the ROE, which
increases its riskiness.
All together Habib Sugar Mills Ltd., is less riskier than Shahmurad
Sugar Mills Ltd.
WACC OF HABIB SUGAR M ILLS LTD

12
10.38
WA 10 9.03 9.015
CC 8
%
6
4 3.61
2
0.73
0
2001 2002 2003 2004 2005
YEAR
WACC OF SHAHMURAD SUGAR MILLS LTD.
8
7.45
WA
6 5.65 6.04
CC 4.97
% 4 4.156
0
2001 2002 2003 2004 2005
YEAR
RATIO ANALYSIS:
Calculated ratios are enclosed as Annexure “C”.
 SOLVENCY RATIOS:
Habib Sugar Mills Ltd: The Current Ratio & Quick Ratio indicates
that Habib Sugar Mills Ltd has an optimum amount of current assets to retire
its short – term debt or immediate obligations. The overall liquidity of the
firm seems to exhibit a reasonably stable trend, having been maintained at a
relatively consistent over the years. The Liquidity of Habib Sugar Mills Ltd.,
seems to be good.
SHAHMURAD SUGAR MILLS LTD: The liquidity of the firm is OK & & the
firm is in a condition to retire its immediate obligations. But the liquidity of
the Habib Sugar Mills & better than it.

 ACTIVITY RATIOS:
HABIB SUGAR MILLS LTD: Inventory management of the firm is

good as far as raw material is concerned. But the firm needs to put in some
efforts in managing finished goods inventory. Average collection period of
the firm is producing conducive results for the company. Company’s credit
standing is also at a safer side. The firms overall operations are producing
quality results. The firms assets are also increasing the revenues.
SHAHMURAD SUGAR MILLS LTD: Inventory management of the firm is

Ok. The firm is collecting it receivables in an efficient manner but it needs to
give attention towards the management of payables. The firm’s assets are
not producing as good results as the Habib Sugar Mills Ltd., assets are
providing.
 DEBT RATIO ANALYSIS:
HABIB SUGAR MILLS LTD: The firm’s debt ratio is up to the mark &
indicates that the firm is having a debt of quite lesser amount than the
equity. The firm is not at risk but the cost of the firm’s capital structure is
high due to the high amount of equity.
SHAHMURAD SUGAR MILLS LTD: The consistent increase in debt ratio

is quite alarming; it indicates doubts about the firm’s ability to meet interest
& fixed payment obligations. The increased indebtedness caused
deterioration in its ability to pay debt adequately.
 PROFITABILITY RATIOS:
HABIB SUGAR MILLS LTD: The firm earned adequate profits in the
last 5 year except 2002 due to the inability of making breakeven of cost. In
the reat of the years the firms performance is up to the mark & has a
potential to generate more profits.
SHAHMURAD SUGAR MILLS LTD: The firm is incurring losses

consistently in the last 5 years. The same trend in the ROE & ROI indicates
the downward trend in the firm’s sales, which leads it towards huge losses.
ASSET VALUATION:
HABIB SUGAR MILLS LTD: The firm’s assets are of average age, most of
assets like the plant of Sugar Division has provided the 62% services then it needs
some capital expenditure or in the near future like after 2 to 3 year the firm needs to buy
some new assets so that the firm may earn some more profits.


SHAHMURAD SUGAR MILLS LTD: The firm’s assets are in quite in
better condition than the other firm’s assets & can provide fruitful results to
the company but misadministration & mismanagement leads the company to
deterioration i.e losses.
4. CONCLUSION
In the nutshell it can be said that the performance of Habib Sugar
Mills Limited is commendable as compare to the performance of the
Shahmurad Sugar Mills Ltd. Te company is earning profits & can earn more
by adopting sound Marketing & packaging techniques as Dewan Mushtaq
Sugar Mills has adopted.
Shahmurad Sugar Mills ltd., needs to consider its present debt &
should have to forget about taking more debt because the firm is not in a
position to retire its existing loans. Increased indebtedness hinders its way in
earning profits. Management needs to consider its capital structure for the
reduction of the company’s risk.

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COMPARATIVE ANALYSIS OF FINANCIAL STATEMENTS

SHAHMURAD SUGAR MILLS LTD HABIB SUGAR MILLS LTD

I am very thankful to Almighty Allah (The most Beneficent & Merciful),

I am grateful to my uncle, Mr. Ali Niaz Akhtar, Chief Manager Taxation

DEPARTMENT OF PUBLIC ADMINISTRATION-UNIVERSITY OF KARACHI 1

SHAHMURAD SUGAR MILLS LTD HABIB SUGAR MILLS LTD

Date: Nov 16, 2006

Mr. Imtiaz Askari,

Subject: Letter of Transmittal

I am pleased to submit my report on Comparative Analysis of

This report is based on the comprehensive analysis of the financial

I would like to express my profound thanks to you for providing an

DEPARTMENT OF PUBLIC ADMINISTRATION-UNIVERSITY OF KARACHI 2

SHAHMURAD SUGAR MILLS LTD HABIB SUGAR MILLS LTD

ANALYSIS OF COMPARATIVE FINANCIAL

The earlier mentioned review helps to deduce that it is necessary

For conducting the comparative analysis two companies of Sugar

• HABIB SUGAR MILLS LIMITED.

Habib Sugar Mills Limited was incorporated as a public limited

Messrs, B.M.A. of Germany supplied the original machinery for the

DEPARTMENT OF PUBLIC ADMINISTRATION-UNIVERSITY OF KARACHI 3

SHAHMURAD SUGAR MILLS LTD HABIB SUGAR MILLS LTD

In the year 1967 a Distillery unit was added to produce industrial

A proud member of the Habib Group, Habib Sugar Mills’ performance

• SHAHMURAD SUGAR MILLS LIMITED.

Shahmurad Sugar Mills Limited is a public company incorporated in

SHAHMURAD SUGAR MILLS LTD HABIB SUGAR MILLS LTD

The scope of this research project is to analyze the performance of the

The process of analysis includes the calculation of following financial

& then comparatively analyzed on the basis of calculated figures.

The plan of this report is as follows: Section 2 presents comprehensive

DEPARTMENT OF PUBLIC ADMINISTRATION-UNIVERSITY OF KARACHI 5

SHAHMURAD SUGAR MILLS LTD HABIB SUGAR MILLS LTD

2. MACRO ECONOMIC ENVIRONMENT OF SUGAR

Pakistan Sugar Mills Association (PSMA) is a registered Association of

IMPACTS OF CROP (SUGARCANE) ON THE SUGAR INDUSTRY;

SHAHMURAD SUGAR MILLS LTD HABIB SUGAR MILLS LTD

Although sugarcane is water intensive crop, its production increased

The industry’s profile shows the important contribution it makes to the

• FOREIGN EXCHANGE EARNER:

• SUPPLY & DEMAND:

DEPARTMENT OF PUBLIC ADMINISTRATION-UNIVERSITY OF KARACHI 7

SHAHMURAD SUGAR MILLS LTD HABIB SUGAR MILLS LTD

At present sugar industry is not meeting the demand of the masses

Pakistan should grow sugarcane only to maintain self-sufficiency level,

• HIGH SUGAR PRICE:

According to market sources, local mills are facing the problem of

Pakistan Sugar Mills Association (PSMA) desperately wants to stop

SHAHMURAD SUGAR MILLS LTD HABIB SUGAR MILLS LTD

The government of Pakistan has allowed the import of refined sugar of

The imports are to supplement domestic production, which is expected

• Sugar Mills were sanctioned to provide 10 per cent of their

SHAHMURAD SUGAR MILLS LTD HABIB SUGAR MILLS LTD

New technological techniques would help a lot in shaping the destiny

The recurring water shortage is posing a serious challenge to the large

 ABSENCE OF RESEARCHING ENVIRONMENT:

SHAHMURAD SUGAR MILLS LTD HABIB SUGAR MILLS LTD

Such a research and training college is an essential requirement where

The sugar industry is facing various challenges including deterioration

Table 1: Waste produce during Sugar Production

Process Step Main Input Wastes and By-Product

DEPARTMENT OF PUBLIC ADMINISTRATION-UNIVERSITY OF KARACHI 11