Professional Documents
Culture Documents
ertyuiopasdfghjklzxcvbnmqwert
yuiopasdfghjklzxcvbnmqwertyui
Financial Policies of Lucky Knits
opasdfghjklzxcvbnmqwertyuiopa
Pvt Ltd
Submitted To: Kamran Rabbani
sdfghjklzxcvbnmqwertyuiopasdf
Ghansham
Kessani
ghjklzxcvbnmqwertyuiopasdfghj
Daryl Anthony
Khizer Moosvi
klzxcvbnmqwertyuiopasdfghjklzx
cvbnmqwertyuiopasdfghjklzxcvb
nmqwertyuiopasdfghjklzxcvbnm
qwertyuiopasdfghjklzxcvbnmqw
ertyuiopasdfghjklzxcvbnmqwert
yuiopasdfghjklzxcvbnmqwertyui
opasdfghjklzxcvbnmqwertyuiopa
sdfghjklzxcvbnmqwertyuiopasdf
ghjklzxcvbnmqwertyuiopasdfghj
klzxcvbnmqwertyuiopasdfghjklzx
LETTER OF TRANSMITTAL
SIR KAMRAB RABBANI
Prof. Introduction to Business Finance
Institute of Business Management
Respected Sir,
We are submitting here the Term Project of IBF given to us on the topic
Financial management policies of Lucky Knits Pvt Ltd. The research
on this report has provided us extensive knowledge of our course
concepts as well as its implementation in practical world. We believe
that the report will be in accordance with the guide lines provided for
its preparation.
The following report has prepared us for the financial practices
operated in industries and strategic implementation of almost all the
topics of our course which will help us to a greater extent in our future
professional careers. We owe gratitude to the Finance Manager of
Lucky Knits, Mr. Shiraz Mahmood for providing us with the information
and giving us precious time
We are thankful to you for your assistance in making this report. If you
have any queries regarding the report we will be obliged to discuss it
with you at your request. We will be grateful if you provide us with
suggestions to improve our study.
Yours sincerely,
Ghansham Kessani
Daryl Anthony
Khizer Moosvi
Page | 2
INTRODUCTION -LUCKY
KNITS PVT LTD
INDUSTRY
ANALYSIS
COMPETITION
Competitors: In textile market, there are a lot of competitors of lucky knits. But lucky knits
had a powerful brand image in market. Its due to the YUNUS BROTHERS
because it is a largest conglomerate in Pakistan. Competitors of Lucky knits
are: The little Knit kit Company
Pure Handknit
Rowan
Berreco
St John
Draper Kniting.
OUP VIEW
GROUP VIEW
Page | 3
COMPANY PROFILE
Page | 6
MISSION STATEMENT
Mission of Yunus Brothers:
To provide our customers with products and services of a higher quality and
value, promptly catering to their needs with efficiency and honesty, making
them our partners and allies. In turn, they will reward us with leadership in
sales, generation wealth and prosperity for our employees, associates,
shareholders and the communities that we serve.
OBJECTIVE
We believe in forging long-term relationships with our customers and our
employees. Our main goal is delivering our customers superior customer
service by catering their needs with efficiency and honesty as well as making
allies in every business opportunity.
We believe in excellence: we strive to exceed our customer's expectations.
We believe in sharing and nurturing the development of the communities in
which we have operations. We believe that people are the most valuable
resource we have. We pride ourselves in developing core capabilities striving
to be a partner and success factor for our customers and clients.
WEAKNESSES:
OPPORTUNITIES:
Less competitors
Page | 9
10
Advancements in technology.
Interest loan from Bank Al-Habib at low cost may be an effective tool
for competing in market
THREATS:
Alliance Opposition
Page | 10
11
Working capital
management involve
s the relationship
between a firm's shortterm assets and its
short-term liabilities.
The goal of working
capital management is
to ensure that a firm is
able to continue its operations and that it has sufficient ability to satisfy both
maturing short-term debt and upcoming operational expenses. The
management of working capital involves managing inventories, accounts
receivable and payable, and cash. It consists of three main approaches which
are as following:
1. Aggressive approach: Using short term notes to finance the working
capital
2. Conservative approach: Using long term loan to finance the working
capital
3. Hedging approach: Using short and long term finance against the
working capital
When we interviewed the finance manager asking him about the approaches,
he answered that since the company has a stable business and an
established umbrella company although not as large as huge brands or
renowned mills and industries, thus they use the aggressive approach which
tells that they risk more in order to generate more change either profit or
loss depending on the performance of the business.
The main eye of the company is on exporting its products and incurring profit
with quality service. So that they make sure that they dont have to face
losses as they previously had more risky investments which led to losses in
two consecutive years (2009). They now try to reduce risk elements. For
these reasons the financial manager and staff devote a considerable portion
of their time to working capital matters. The management of cash,
marketable securities, accounts receivable, accruals, and means of short
term financing is the direct responsibility of the finance manager, except
managing inventories. It finances through equity, bank borrowing and
lending via various sources.
Page | 11
12
Current/Fixed Assets
Management
As truly said,
Procedures should be such that
if expensive equipment is
removed, it will be missed within
a reasonable time, and some
record will exist as to who had
access during that period.
Raymond H. Peterson,
Accounting for Fixed Assets, 2nd ed. (New York: John Wiley and Sons, 2002)
The best practices help to seek out potential savings in companys fixed
asset base and save time in the process. These are the guides of the
company:
Establish an accurate baseline of fixed assets
Select the right tool for the job
Rely on accurate depreciation calculations
Stay up-to-date with legislative changes
Produce targeted financial reports
Get trained on the system you employ
Page | 12
13
The manager also told us that they purchase high level of fixed assets. The
trade cycle of the company is of 120 days i.e. 3 times a year. It wholly
includes the collection of yarn, spinning, dyeing, apparel work, making of
products (finishing) and their sale. In short it consists of the activities
involved from production to exporting the yarn. Therefore the company
requires high level of fixed assets to yield greater output.
The manager also told us that this leads them to finance their loans from
banks (if borrowed) and generates enough funds for other miscellaneous
expenses. Depreciation is charged using the reducing balance method. The
whole trade cycle also requires current assets, but investment is a little
greater in fixed assets comparatively. This tells that the company has low
liquidity high profitability and high risk. The purchase of firms fixed assets
are determined by its scale of production. Disposal of asset is recognized
when significant risk and rewards incidental to ownership have been
transferred to buyers
The permanent current assets are the minimum amount of current assets
required by the company to maintain its operations. The major assets on the
banks balance sheet are long term loans, advances, stock in trade, secured
trade debts, cash and loans from associated companies.
We asked the manager about consideration banking and the system used by
them. The manager replied that they use London international banking
standards. The funds are transferred via eFunds transfer as the money is
efficiently transferred abroad and received here. Their main business is
exporting outside Pakistan. Thus they rely on Bank Al-Habib. Being old
customers and project of established group, Bank Al-Habib has provided
them with certain rates according to KIBOR (Karachi Interbank Offered Rate).
Page | 13
14
Other option for generating cash is discounting of receivable bills from Bank
Al-Habib. Since their operations are concerned with customers outside
Pakistan, they have sales in dollars and the difference in currency rates gives
them the advantage. Also, the company uses indirect
cash flow method.
15
When these securities are disposed off or impaired, the related fair value
adjustments previously taken to equity are transferred to profit and loss
account.
Receivable Management
Lucky Knits is an Exporting company. The credit policies for customer are 75
to 180 days. Polices for supplier are 45 to 75 days, collections made by bank
in time due to transaction in LCs. Trade cycle is 120 days. The receivables
are recognized at original invoices less an allowance for uncollectible
amounts. An estimate is made when collection of full amount is no longer
probable. The mode of transfer is through cheque and LCs. All the payments
and receivables abroad are dollar based. The main banking system used by
them is Bank Al-Habib. The interesting point is that when the company
requires funds for its operations, it gets these bills discounted by Bank AlHabib. The export invoices are discounted at 0.25%. This is the way they use
hedging approach. They dont take payments from the banks on the spot,
instead they negotiate with the bank at some rates lets say they will take
the money of all the receipts not at the current prevailing rate but after 3
months at Rs 108 per dollar. Basically they hedge in order to insure
themselves against a negative event.
Credit risk:
The companys overall risk management focuses on the unpredictability of financial
markets. Credit risk is the risk that one party will fail to discharge an obligation and
cause other party to incur financial losses. It arises when a number of financial
instruments or contracts are entered into with the same party, or when the counter
party is engaged in similar business activities. Concentration of credit risk indicates
that relative sensitivity of the companys performance to development affect a
particular industry.
16
Main variable: Yarn in Raw material and Labor wages and incentives.
Page | 16
17
Review:
It has kicked off the second quarter of the ongoing fiscal with a strong
performance. The top line touted growth of 14 percent compared to the
same period of FY12
Lucky knits needs to review its risk policies. It should concentrate on current
asset management as well
The strongest investment of lucky knits is in the discounting of bills at dollar
rate and then hedging the foreign currency. As Bank Al-Habib is their main
bank for carrying transactions, they are offered loans at nominal interest
cost. They are benefitted from certain Intercompany lendings also @ 0%
interest charge
They have a stable receivable turnover which is 3 times a year. This shows
that they have reliable and loyal customers. They have reduced stock out
chances by maintain sufficient amount of safety stock and standardized cost
accounting systems
Being a part of already established name, it should concentrate on social
projects from its own side.
Page | 17