Ratio Analysis of Mehran

Sugar Mill
Submitted to: Miss Asiya Sherazi

Student ID # 9290

Student ID # 9290
Ratio Analysis of Sugar mills in comparison with Sugar Industry Averages of
Pakistan.

1. Current Ratio
Current ratio of Mehran sugar mill from year 2006 to 2008 were 0.89, 0.64 , 0.83 while
the industry average is 0.87.we can clearly analyze that in the current year and in the
year preceding the previous year the company is performing nearly to the industry
averages which is good sign but in the year 2007 the firm current ratio was 0.64 which is
not up to the industry average this is merely because current asset was procure up to
the level of industry and company pay off the long term liabilities which were long term.

2. Quick Ratio
Companies quick ration in 2006 to 2008 were 0.46, 0.27, 0.21 respectively while
industry average is 0.46. Which suggest despite the fact of having good current ratio
company is maintaining more of merchandize inventory than the industry which is not a
good sign.

3. Receivable turnover days

As compared to the industry average of 16.97 the receivable turnover days of Mehran
sugar were 10.64, 8.68, and 8.55 from 2006 to 2008 which suggest the company is doing
a good job because it is collecting its debt rather quickly but this also indicate that by
recovering the cash quickly from customer or by giving them the lesser credit period the
company might loose its sales revenue because as compared to industry average it
collecting it debt in half of the time period the company should not do this but it should
give its debtor reasonable time as prevailing in the industry to remain competitive in the
industry.

4. Inventory Turnover Days

Mehran sugar mill inventory turnover days are 146, 135, 135 as compared to the
industry average of approximately 82 days which mean company is taking more time in
selling its finished goods stock as compared to the industry average. This is because the
company is not providing enough credit time period than the industry averages and it is
loosing its customers year after year the company should look on it and also that
company is heavily investing on inventory maintain which should be avoided. It can
result in heavy losses to the company.
5. Account Payable turnover Days
Company is maintaining the same account payable turn over of 135 days during the last
three financial years and it is also very high as compared to the industry average of
78.86 days which means company will be having more cash holding days and it can
utilize those days for generating more revenue but on the other hand it bad for the
company because it is loosing its credibility in the creditor minds and company credit
rating will hurt and more and more creditors will not be willing to supply the raw
material to the company or even if they did the they will be charging high prices to the
company for paying them late. The company work upon it.

6. Operating Cycle
Industry average is 98.75 days while the company averages from 2006 to 2008 were
156.64, 141.56, 143.51 days respectively. Company operating cycle is very high as
compared to the industry because of fast collection from customers and taking more
time in converting its finished goods to revenue the company should work on it because
it would certainly affect its cash cycle. And company is also having less cycle each year.

7. Cash Cycle
Industry average is 19.89 days while the company averages from 2006 to 2008 were
30.64, 15.56 and 17.51 days respectively. Company cash cycle is good as compared to
the industry because of fast collection from customers and taking more time in paying
off to creditors which means that company will be having enough cash to pay off its
liabilities on time and company should do that because it is not paying off its debt on
time.
8.