Analysis of Finanical Statements Report: Al-Noor Company

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Analysis of Finanical Statements Report: Al-Noor Company


Comparative analysis between companies is only meaningful when there is similarity not only in operations, but also in the accounting policies and methods followed. In the case of qualitative analysis of financial ratios, it is important that the ratios are calculated using accounting measures consistent to both companies. Which means that if there is a difference in the conventions followed by the two companies in preparing their financial statements, then there will be only limited use of the ratios calculated.


In the process of calculating ratios for Al-Noor and Habib, I came across certain limitations in the form of policy differentials. Firstly, Al-Noor values its stock-in-trade at lower of average cost or net realizable value, whereas Habib uses both FIFO and AVCO methods to value its stock. This obviously leads to inventory figures that are not entirely comparable, and hence the ratios calculated also don’t give a conclusive picture.


Second, Al-Noor follows a dividend policy of issuing bonus shares instead of cash, whereas Habib follows no such fixed policy. This discrepancy led to an inability to calculate and compare dividend ratios of the two companies.


Also, the financial statements of the years ’98 and ’99 have been forecasted solely by an individual study made of the past trends, future expectations and company policies. As such, since no expert help or assistance was taken in the projections made, there is no guarantee of accuracy of these projections. Hence the ratios calculated can not be taken as dependable measures of a company’s performance.


The following ratio analysis has been presented keeping these considerations in view. Even though the limitations do not render the ratios completely useless, however it is prudent to state them so that the readers of the report do not take the ratios at their face value or are misled by them.


Qualitative Analysis of Financial Ratios

A qualitative analysis of financial ratios involves a detailed study of the components and trends of the assets or liabilities that have been used to calculate them. Only then will the true reasons behind the changes over the years become apparent.


Following is the qualitative analysis, which has been done in four categories of ratios:

Profitability, which incorporates efficiency ratios, short term and long term debt paying ability ratios which measure liquidity, and  ratios specifically for analysis by investors.



Profitability ratios measure the management’s effectiveness as shown by the returns generated on sales and investments. The specific ratios used to measure profitability of the two companies analyzed are net profit margin, gross profit margin, operating income margin, return on assets, return on equity and total asset turnover.


Net Profit Margin


The net profit margin was consistent during the first two years of my analysis, i.e., 1995 and ’96, but fell considerably in 1997 due to the following two reasons:

– Fall in sales

Sales in the year ’97 fell due to shortage of sugar caused by depressed output of the crop, which was mainly because of unfavorable climatic conditions and shrinkage in the area under cultivation.

– Fall in other income

Other income, which is a major part of Al-Noor’s sources of income, fell considerably in 1997 because of reduction in the recovery of excess freight and in the exchange gain on exports.

For the forecasted years, the net profit margin has been assumed to improve, compared to ’97 because of the expected increase in sales caused due to the increase in the size of cultivated area and thus the production of sugar.

Compared to the industry average of 5.2%, Al-Noor’s 2.3% is very low, which means that the company is not as profitable as compared to the other firms in the industry. It will have to increase sales and reduce costs to bring the ratio in line with the industry average.



In the first two years of analysis, Habib’s net profit margin was increasing. However, in ’97, it decreased from 6.9% to 2.3% because of the reasons given below:

–  Rise in the cost of goods sold

Even though Habib’s sales increased in ’97, the cost of goods sold increased at a higher rate than sales and also as compared to the previous year. The main reason for this rise was the fact that procurement cost of sugar cane went up due to high prices charged by the growers. Also, the plant operated below optimum levels thereby increasing the cost of production on account of higher absorption of fixed overheads.

Rise in financial charges

The liberal imports of sugar allowed the by the government at concessionary rates of import duty caused oversupply situation which resulted in slow take-off of sugar. The company thus had to hold its inventory of finished stocks for a longer period as compared to the previous year. This increased the financial charge burden by a large amount.

For the forecasted years, the net profit margin has been assumed to improve as compared to the previous years because of the expected increase in sales and better performance of the sugar unit.

Compared to the industry averages, Habib is doing very well and shows consistency with the industry’s performance. In ’95 it’s NP margin was slightly lower than that of the industry, but it picked up and exceeded the industry average of 5.24% in ’96. However, Habib’s margin is still lower than that of the top 25% companies in the industry, which shows that it can further increase its performance. The comparison :







Comparison of the two companies’ NP margins shows that the performance of Habib is much better than that of Al-Noor. In all five years, recasted as well as forecasted, Habib’s net profit margin has remained higher than Al-Noor’s. in ’96, especially, Habib’s margin was much higher than Al-Noor’s. This simply shows that Habib is more profitable than Al-Noor. The comparison is shown here.


Operating Profit Margin


The operating income margin of Al-Noor showed a high increase from ’95, the main reason for which was the decrease in the cost of goods sold in 1996. The administration and selling expenses remained consistent. In fact, these expenses show a more or less consistent increase in trend throughout the five years of analysis, which means that the increase in operating income margin till ’98 is due to the changes in the cost of goods sold.

In the forecasted years, the margin is declining because of the assumed increase in the cost of sales at a higher rate than the increase in sales.

Comparing the margins with the latest industry average available, it can be seen that the operating profit margin of Al-Noor is lower than that of the industry. In fact, it is included in the bottom 25% companies as far as this margin is concerned. This means that the company did not control the rising cost of sales during these years.

The comparison with the industry average is given below:



The operating profit margin increased from 10.65% in ’95 to 12.37% in ’96 mainly because of the good performance of the sugar unit. However, it declined to 7.5% in ’97 because of the loss incurred in the Fabric unit as well as the decline in the sugar unit sales.

In the forecasted years, the operating profit margin has been assumed to increase slightly from that in the previous year due to the expected better performance attributed to the increase in sugar output and to the decline in losses.

Compared to the industry average, the operating profit margin of Habib is lower – only slightly higher than the bottom 25% companies in that category. This means that the company shall have to make serious decisions regarding its Fabric unit, which has been reporting losses and the main reason for the decline in the operating profit margin.


Comparison of the two companies shows that the operating profit margin of Al-Noor is higher than that of Habib; the reason for this is the losses reported by Habib in its Fabric unit. In ’97 especially, the Fabric unit reported a loss of about Rs4000, which is one of the major causes of the lower margin. The company should decide the fate of this unit, if it wants to increase the margin. The comparison is given below:


Gross Profit Margin


The gross profit margin of Al-Noor had been increasing in the first three analyzed years. It increased from 16% in ’95 to 20% in ’96, and even higher to about 25% in ’97 mainly because of the decline in cost of goods sold (as a % of sales). CGS, which was about 83% of sales in 1995 declined to 79% of sales in ’96 and to 74% in ’97. It should be noted that sales also declined in these years, but CGS declined at a higher rate.

In the forecasted years, cost of goods sold is expected to increase at a higher rate than the rate of increase in sales, which will result in a slight reduction in the gross profit margin.

On comparing with the industry averages, it can be seen that Al-Noor was not far behind the average gross profit margin prevalent in the industry. Thus this ratio is satisfactory.



The gross profit margin of Habib increased from 13.5% in ’95 to 16.2% in ’96, because of the decrease in cost of goods sold as a percentage of sales. The margin decreased to around 12% in ’97 because CGS increased at a higher rate than the increase in sales, mainly because of the increase in sugarcane procurement cost.

In the forecasted years, the gross profit margin is expected to increase because of the expected increase in the cost of goods sold as a % of sales.

Compared to the industry ratios for ’95 and ’96, Habib’s gross profit margin was very low, which shows that it was not able to control CGS as effectively as other companies.





Comparison between the two companies shows that Al-Noor’s ratios are in a better position than Habib’s. this does not mean that Al-Noor performed better because it didn’t. It simply had lower sales and an even lower CGS, which explains the higher ratios. The graph is given below:



Sales to fixed Assets:


The sales to fixed assets ratio for Al-Noor had been following a decreasing trend throughout the three initial years of analysis. The reason was the decline in sales over these years, coupled with an increase in fixed assets. This shows that Al-Noor had not been generating enough sales as it should have, given the size of its fixed assets.

In the forecasted years, the ratio is expected to increase, given the favorable conditions expected in the industry.

Comparison with industry ratios shows that Al-Noor’s performance is well below industry norms and is one of the bottom 25% companies in this category. It needs to improve its sales position considerably to get the ratios back in line with those of the industry.


The ratio decreased from 1.58 in ’95 to 1.29 in ’96 mainly because sales declined by a large percentage from the previous year. The ratio increased to 1.47 in ’97 not only because sales picked up, but also because fixed assets declined.

In the forecasted years, the ratio is expected to increase because of the higher sales expected as a result of the prevailing boom in the industry.

Comparing the ratio with the industry averages it is evident that Habib did well in ’95, but failed to meet industry standards in ’96. The scenario is, however, expected to increase.



Comparison between the two companies shows that Habib has been able to utilize its fixed assets more effectively than Al-Noor and is performing better, with higher sales and adequate but not excessive fixed assets.


Total Assets Turnover


The total assets turnover of Al-Noor has been decreasing in the first three years of analysis. It fell from 0.93 in ’95 to 0.82 in ’96 and further to 0.55 in ’97. This shows the deteriorating performance of Al-Noor over these years. Assets, which were being increased every year, were not being utilized effectively enough to be able to generate sales, which kept declining till 1997.

In the forecasted years, this ratio has been assumed to increase, showing more productive use of assets, and hence an increase in sales.

Compared to the industry ratios, Al-Noor’s ratios are very low reflecting slack performance. However, the ratios are higher than the bottom 25% ratios in this category. The company must increase the level of sales and utilize the assets it has more efficiently.



Habib’s turnover ratios decreased from 1.11 in ’95 to 0.9 in ’96. The reason for this decline is that Habib increased its total assets by about 1.81%, but sales declined by about 18% in ’96. However, the ratio showed an increase in ’97 because of the high sales recorded by it in that year.

In the forecasted years, since the sales are expected to increase, the TAT has also been assumed to rise accordingly.

On comparison with the industry, it can be seen that Habib’s TAT in ’95 is higher than the industry average for that year. But the ’96 ratio is lower than the industry average because of the reasons already stated.


Comparing the TAT of the two companies, it is evident that Habib is the better player because of its higher sales and efficient performance of assets. The comparison is given below:


Return on Equity


This ratio has been showing a decreasing trend. This company has a policy of declaring stock dividends in the form of bonus shares. This leads to the distribution of earnings over a broader base and thus the return to a single shareholder declined yearly, especially since sales were also declining.

In the forecasted years, the returns are expected to pick up as future sales are expected to increase as a direct result of healthy crop.

Comparison with industry shows that Al-Noor is one of the less profitable sugar mills as far as ROE is concerned. The ’96 sector average for ROE is 13.7% compared to Al-Noor’s low ROE of 5.57%.



The return on equity for Habib had been high in ’95 and ’96, but showed a drop of almost 8% in ’97, even though sales increased. This was due to the fact that the company declared bonus shares as stock dividends.

In the forecasted years, ROE is rising with profits.

Comparison with the industry shows that Habib is at par with the industry averages, thus indicating that the company is one of the profitable ones in the sector.



Habib appears to be the more profitable of the two companies, especially from the perspective of the shareholder. Al-Noor’s returns are expected to increase as seen by the forecasted ratios, however, in comparison with the industry and Habib, Al-Noor still lags behind by around 3%.

Short Term Debt Paying Ability

Short-term debt paying ability measures the liquidity and efficiency of the companies. The ratios used are Accounts Receivable Turnover, Inventory Turnover, Current Ratio, Quick Ratio and Operating Cycle.


Accounts Receivable Turnover (times & days)

The accounts receivable turnover ratios determine the times per year receivables are turned over, or the number of days on the average it takes to turnover the receivables to cash.


The ratio in times for Al-Noor indicates that receivables are turned over to cash at an average of 700 to 800 times per year. This large figure indicates that the rate of conversion to cash is high in year; and the consistent pattern in the 5 years shows that the company has managed to maintain this efficient rate. The figure, however, maybe a bit overstated as the company uses a natural business year. This means that the firm closes its accounts at a time when its receivables and inventory would be the lowest. Thus it would be more realistic to assume that the turnover rate would actually be much lower. The ratio shows a slight slowdown in `97, due to a drop in sales that year. This drop in sales was a direct result of the severe frost in the sugar cane growing area of Punjab, damaging the crop and depressing the level of production and thus the sales of sugar.


The ratios for ’98 and ’99 have been forecasted assuming a healthy crop as expected by the farmers, and thus follow the constant pattern of the previous years.


Converted to number of days, the accounts receivable turnover ratio shows that Al-Noor makes a larger proportion of its sales on cash basis. The credit period shown by the ratio shows that less than a day’s credit is given. Here, too, the ratio may seem a bit unrealistic due to the same reason as the one given above.  However, the ratios signifies good collection policies by the company and is favorable from the liquidity point of view as less cash is tied up in receivables. The trend shows that here too there have not been any large deviations and the company has stuck with its early cash collection policies.


Comparing Al-Noor with the industry shows that Al-Noor offers very strict credit terms, as the sector average is 8 days for ’96, whereas for Al-Noor it is 0.4 days. This may mean that Al-Noor may face a loss in sales because it sticks with a policy of strictly cash sales. But on the other hand it could also mean that the company is very efficient in collection its outstanding debts.





The accounts receivable turnover for Habib shows that on an average, receivables are converted into cash 40-50 times a year. This rate fell in the 2 forecasted years of ’98 and ’99 as trade debts are expected to increase over the period. The company has a policy of selling on credit. This can further be seen by analyzing the accounts receivable turnover in days. The days ratio gives the credit period allowed to debtors, which for Habib is at an average of 8 days over the 5 year period and has increased in the last 2 forecasted years to reach 10 and 9 days for ’98 and ’99.


In comparison with the industry which has a receivable turnover ratio of 8 days, this is quite adequate, as most companies in the industry provide the same credit terms, implying that Habib does not face any disadvantage or advantage in terms of hard or soft credit terms offered.



The comparison between the two companies is limited by the fact that Al-Noor follows a policy of cash sales whereas Habib follows a practice of both cash and credits sales. Hence comparison of the two would be meaningless.



Current Ratio


The current ratio of Al-Noor varies between 0.7 and 0.8 in the 5-year period from ‘95-’99. This shows a constant trend but the detailed analysis will required look into components of Current Assets and Current Liabilities. Al-Noor has large long-term debts. Thus its current liabilities are increasing due to the current maturity on long-term debts and leases. This, plus the low investment in inventories and receivables – Al-Noor follows a cash policy in sales and has little investment in inventory assets – has led the Current Ratio to be less from 1 at a level of 0.7.

Compared to the industry, this ratio is slightly low. This could be a cause for concern, as the level of inventories held by the company is higher than the industry average and thus could prove to be a disadvantage for the company in terms of liquidity.





Habib’s Current Ratio is around 0.7 in ’95 and progressively increases to around 0.9 in ’99. This rising trend can be explained by the increase in the company’s inventory levels. Plus, current liabilities have decreased due to the declining use of short term running finance facility.


A comparison with the industry shows that the company is almost at a parallel level with the entire industry – showing that the company is a liquid contributor to the sector.



As Habib has lesser illiquid levels of assets – inventory, it is the better performer, which is also evident by the way it is keeping up with the industry average. Al-Noor needs to lower its cash levels tied up in receivables and cash.



Quick Ratio


This is a further test of liquidity, which for Al-Noor makes clear that its inventory levels are very high. The drop from Current Ratio to Quick Ratio is sharp – 0.7 to 0.2 – a definite cause for concern if liquidity is important for the firm.

The industry average in comparison with Al-Noor’s is quite high – 0.79 for ’96 with Al-Noor’s 0.29. Al-Noor’s liquidity is affected by its high levels of inventory and receivables.


Habib’s Quick Ratios for the years show that there has been an increase 0.27 in 1995 to 0.32 in 1999. This is because of the declining levels of inventory held and the declining current liabilities. When compares with the current ratio, the drop is from 0.7 to 0.3 – indicating how important inventory-related considerations are to liquidity.


In comparison with the industry averages, Habib’s ratio is again low. To keep up with the efficiency average set by the sector as a whole, Habib needs to pick up its management of current assets.




In comparison with each other, Habib emerges as the more liquid company due to its lesser investment in inventories and receivables. The analysis done for the Current Ratio applies to this ratio as well.




Operating Cycle


The operating cycle for Al-Noor averages 16 days during the 5-year period. The longest period reached is 18 days while the shortest is 13 days. Hence there is consistency in the efficiency of the conversion of sales to receivables, receivables to cash, cash to inventory, and inventory back into sales. A short operating cycle as with Al-Noor, implies that cash is made use of efficiently – there is no idle cash lying around, as transactions involving sales and inventory, do not take time or lead to delays.

The industry average for ’96 is 25 days – which means that Al-Noor is ahead of the industry in terms of efficiency.



For Habib, the operating cycle is of 65 days at an average. This long period is mainly due to the time taken in converting inventory into sales. Hence, the whole cycle is not as efficient. Time and resources are wasted with high levels of investment in inventory.

The industry cycle is 25 days, which further clarifies the inefficient position of Habib, as afar as management of investments of cash in current assets of accounts receivable and inventory is concerned.



The operating cycle of Al-Noor is shorter than Habib’s, mainly because of the credit and cash policy followed by Habib and the cash policy followed by Al-Noor. Both companies, however, are compared with the industry and Al-Noor appears to be more efficient in this respect than Habib.

Inventory Turnover (times & days)


The Inventory Turnover ratio indicates the frequency with which inventory is converted into sales in a year. For Al-Noor, the inventory turnover is at an average of 20 times in the 5-year period with very little deviation. The rate of turnover speaks for the efficiency in management of inventory. In days, this converts to an average of 16 days in the 5-year period.

Compared to the industry average of 17 days in ’96, it can be seen that Al-Noor is quite efficient in managing its inventory level and has not invested heavily into inventory with little change.



Habib’s Inventory Turnover Ratio averages 6-7 times during the 5-year period, which means that inventory is converted into sales 7-8 time each year. Converted into days, the inventory turnover shows an average of 55 days. This period indicates that investment in inventory is tied up for 55 days instead of being utilized in some other productive asset investment.

Compared to the industry, this rate is high, because in ’96 the sector average is at 17 days, whereas Habib shows a period of 60 days. Hence Habib is showing marked slackness in efficiency.



When the two companies are compared, it is shown that inventory management styles differ markedly. Habib keeps high level of inventory, comparing very unfavorably with the industry average, whereas Al-Noor keeps low level of inventory, coming at par with the industry. Hence Al-Noor appears to be the more efficient company.




Long term debt paying ability

The long-term debt paying ability measures the ability of the companies to meet the obligations as they come due. Usually these obligations are in the form of interest payments on borrowings and repayments of principal. Additionally, these ratios give an indication of the extent of debt used in financing operations. The ratios used in analyzing debt-paying ability of Al-Noor and Habib are debt/equity, debt ratio and times interest earned.


Debt to Equity


The debt to equity ratio has been at almost similar levels throughout ’95 to ’97. However, it is forecasted to decrease in the following two years, the reason being that both long-term loans and redeemable capital are decreasing. Additionally, the total shareholders equity is also expected to increase at a higher rate than the total debt. The trend is an improvement as the company is highly geared and it needs to decrease its reliance on debt.

Compared to industry, the firm is highly geared and relies heavily on debt. The industry average is at 1.23 in ’95 and decreases to 0.86 in ’96 compared to the ratio of 1.9 for Al-Noor. Thus the company needs to bring the ratio in line with the industry average by reducing its reliance on debt.



The debt to equity has been on a decreasing trend as the company has been actively trying to reduce its dependence on debt and reduce its leverage position.

The firm’s ratio is very much in line with the industry average if not exactly similar. The firm retired its redeemable capital in 1995 and reduced its long-term loans over the three years increasing the use of equity.



Habib is in a better shape than Al-Noor as it has reached a close to optimum debt to equity ratio. Al-Noor makes extensive use of debt, whereas Habib makes equal use of debt and equity. In this respect Habib faces less risk and keeps up with the industry averages.



Debt Ratio


The debt ratio shows the level of external financing that the company has used, i.e., it shows how leveraged a company is. In case of Al-Noor, 60% of total assets have been financed by borrowings, both short term and long term. This proportion has remained constant throughout the five years analyzed, implying that the company has no plans of changing its debt structure.

The industry ratios available give the level of long term debt in comparison with assets. For ’96, industry average is 18%, and the ratio for Al-Noor is 22%. This shows that Al-Noor’s debt structure is neither too conservative nor too risky as compared to the average companies in the sector.



Habib’s debt ratio shows that half of its total assets are externally financed – with this proportion remaining the same throughout the five-year period. The 50% level could be an indication of the calculated risk the company is taking in its decision to use external borrowing.

As compared to the industry ratios available for long-term debt to assets for ’96, Habib shows a 16% use of debt when industry shows a 18% use of debt. Hence Habib is at par with the sector in its debt structure decision.



Both companies show a consistent rate of borrowing, at almost the same proportion of total assets. Plus, both are at parallel levels with the industry giving a good impression of the debt management practices followed.

Times Interest Earned


Al-Noor’s TIE has been pretty healthy, i.e., over 1 in all the analyzed years. However, as compared with the industry, the ratio is pretty low, the industry average being at 2.24 in ’95 and 2.65 in ’96. Thus the firm will have to improve its performance by either trying to ensure it has more profits left to cover the interest or by trying to reduce interest obligations by reducing the level of borrowing.



Habib’s TIE is at around the level of 1.5 throughout the five year period, except in ’96 when it rose to 3.2 because of decreased use of running finance facility and thus fall in mark-up obligations. This level shows a more than adequate cover provided by profits to the interest obligations.

This fact is evident from the comparison made with the industry, as the industry average is 2.65 in ’96 compared to Habib’s 3.2 indicating the long-term debt paying ability of Habib to be quite good.



In comparison with each other, both Habib and Al-Noor appear to be similarly able to meet their obligations as they come due. Comparison is very pertinent in this case because of the similar nature of both companies’ debt structure.







Analysis for the investor

The investor is interested in financial ratios for what they reveal about the company’s profitability, liquidity, level of risk and management of debt. The basic concerns for the investor are safety of his invested funds and returns generated on them. The ratios which make these aspects of the company clear to the investor are earnings per share, dividends per share, dividend payout, book value per share and degree of financial leverage.


Earnings per share


For Al-Noor, the EPS is falling progressively through the years, from Rs1.38 in ’95 to Rs0.3 in ’97. This is in keeping with the NP margin, which is also declining in these years. Hence the lesser earnings available to investors is due to a fall in profitability of the company.

In comparison with the industry, Al-Noor shows itself to be at a disadvantage, being considerably lower in its level of EPS throughout the five-year period. According to this ratio, Al-Noor is not a profitable venture in for this industry.



The EPS for Habib indicates the level of earnings available to the investor per share of investment. In ’95 and ’96, EPS showed a rising trend, to reach Rs2.68. but due to the increase in the number of shares in ‘97, the EPS dropped to Rs0.84.

The level of EPS shown in the forecasted financial statements is expected to increase together with rising sales.

In comparison with the industry, which showed an average EPS of Rs2.00 in ’96, Habib offers a profitable enough investment and appears attractive to potential investors.



Habib appears to be a better choice for investors with its higher earnings offered and with the better past trend in terms of profitability. It is foreseen that Al-Noor’s EPS will start to increase in the years ’98 and ’99.




Book value per share


The book value per share indicates the amount that will be available to each investor per share in case of liquidation of the company. Hence it is a measure of both riskiness and performance in terms of profitability and worth of the business.

For Al-Noor, the BPS averages at around Rs20 per share throughout the period analyzed; with a high of Rs22.4 in ’95 and a low of Rs19.6 in ’98. The almost level trend indicates that the value of the firm is neither dramatically increasing nor decreasing.

In comparison with the industry, which has an average of Rs20 to Rs22, Al-Noor is seen to be at par in terms of worth with the rest of the companies in the industry.





For Habib, the BPS is at an average of Rs16 to Rs18 for the five years. It is slightly higher in ’96 at Rs20.8. An almost stable worth of the company is shown – no major addition or subtraction in value is undertaken.

In comparison with the industry, where the BPS is around Rs21, Habib is at a very slight disadvantage but not enough to cause concern.



Both the companies show similar book values per share. For the investor, this means that in case of liquidation, both will offer the same level of returns or both will end up recovering the same value for the investor. Hence both are equal in safety from risk and level of debt to the investor.



Dividend Ratio

The dividend ratios are dividends per share and dividend payout, both of which measure direct returns to the shareholder.


Al-Noor does not declare dividends in terms of cash. It however makes bonus issues of shares, usually in ratios of 1:10.


Habib shows variability in the form of returns given to shareholders. In ’95 it gave cash dividends, while in ’96 it declared bonus share issues.



Comparison with the industry for both companies or with each other is hence meaningless and thus not shown here.







Degree of financial leverage


The DFL is used to measure the extent to which the company uses debt. It is a pertinent ratio for investors, because it reveals to them how safe their investment is from default. The higher the DFL, the riskier the investment.



For Al-Noor, the DFL is very high in ’97, showing a greater use of debt – at a level factor of 6 on average for the rest of the years, till ’99. This is a high factor, indicating that together with the potential for swell profits, the leverage factor has the potential to depress them also – looking bad for the investor.



For Habib, the DFL is at an average factor of 2 during the five years. This is safe enough, making it attractive for risk averse investors.



When compared, Al-Noor and Habib show different levels of risk and return to the investors. Al-Noor offers both high risk and high returns, whereas Habib offers stable returns, with low risk. Hence both are attractive for investors of different attitudes towards risk.


Future Prospects

The coming years are expected to be much better for most sugar mills, because of the healthy crop this year. The government has raised the sugar-cane support price for this season from Rs24.50 to Rs36 per 40 kg. and quality premium on sucrose recovery from 27 paisas to 32 paisas for every 0.1% over the benchmark of 8.7% in the Sindh province.

Despite this, the future is expected to bring higher returns, because of the good crop, increase in cultivation and the policy to allow exports to stimulate production.


Both the companies of my analysis have the potential to grow further and expect to do so in the coming few years. Even though the expected boom in the industry has not shown the results that were anticipated, the future still continues to look bright for the industry and it is hoped that the coming years will turn out to be better than the past few years.



After analyzing the performance of the sugar industry, conducting a quantitative analysis of two companies and finally qualitatively analyzing and comparing the two companies with each other as well as the industry, I have come to a number of conclusions that are stated here.


The problems the sugar industry is facing can be lessened, if not entirely resolved, if the government gives a little more attention to the situation. For example, the government can check the unnecessary growth of the industry by stopping project sanctioning on political grounds. Increase in the number of sugar mills is one of the primary reasons for the reduced availability of sugar in these few years.


The government can also undertake efforts to develop new varieties of sugarcane which have a higher yield and recovery. This will result in better returns to growers without increasing support prices, improved capacity utilization by mills, larger sugar production, reduction in cost of production per kilogram of sugar, more revenue for the government, stable prices for the consumers and better dividends to the shareholders.

The country is capable of producing double the quantity consumed domestically. Therefore, export of surplus sugar can also help in earning the much-needed foreign exchange for the country. The government can provide incentives in this regard.


As far as the analysis of the two companies is concerned, the conclusion that I have arrived upon is that Habib is the better company as an investment opportunity. Al-Noor has been facing a difficult time due to reduced sales and other factors discussed in the qualitative analysis. Habib also has been facing hurdles in a number of places, but has been able to stabilize its profits and ensure adequate returns to the shareholders. However, both companies anticipate better times ahead due to the excellent crop situation, increase in the cultivated area and other factors such as export policies and the like.


A lot of research and hard work has gone into the making of this report, and I have learnt a lot about the sugar industry as a whole, the working of a sugar mill, and how to evaluate the performance of one. I hope you enjoyed reading this report as much as I enjoyed preparing it.











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