Pak Electron was set up in 1956 as a Public Limited Company with the object of
initially producing transformers, switchgears and electric motors. The designing
and production of the equipment was carried out jointly by ABC experts and PEL
personnel. After the conclusion of Joint Venture Agreement with ABC the
majority of share holding was acquired by Saigol Group in October 1978.
Immediately on take over the new management chalked out both long term and
short term plans to put the company on the path of progress. As apart of long term
plan, Appliances Division was introduced and initially the production of window
type air conditioners was taken up and was well received in the market for its
quality. The company floated its shares to the general public and was listed on
Karachi and Lahore stock exchanges in 1989. Subsequently the production of
refrigerators and deep freezers was started and lately in 1993 the Company has
started the assembly of Compressors for refrigerators and deep freezers under
technical collaboration with Messrs NECCHI COMPRESSOR Italy. The
Company also established a subsidiary, PEL Appliances Limited for the
manufacture of these appliances in Gadoon Amazai Industrial Estate.
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OBJECTIVE OF STUDYING THE ORGANIZATION
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OVERVIEW OF THE ORGANIZATION
History
The Company (PEL DAEWOO Electronics Limited), a Subsidiary of Pak
Electron Limited, was incorporated on 18th April 1994 as a Public Company and
commenced commercial production from 01 June 1995. The principal activity of
the Company is assembling and manufacturing of all sorts of television sets and
components thereof under a joint venture agreement dated 21 December 1993
between Pak Electron Limited - Pakistan and Daewoo Electronics Company
Limited - Republic of Korea.
The PEL Daewoo product was well received in the market and during the first full
year 1996 of its operation we have sold more than 16,000 units. In the year 1996,
imposition of Excise Duty @ 5%, regulatory duty @ 10%, and withdrawal of
Sales Tax exemption on components, and increase in customs duties on import of
components and increase in sales tax from 15% to 18% made the TV industry
unviable. In 1998, Color television manufacturing of PEL Daewoo Electronics
Limited was a victim of smuggling and adverse fiscal pronouncements. This year
the company approached by some multinational manufacturers of color television
sets that already have significant market share in our country.
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televisions assembled by it. The agreement with Sony expired on 26th May 2002
and had not been renewed afterwards.
The Company, during the financial year 2002-03, entered into an Assembly
Agreement with AVIA International, a registered partnership concern at Karachi
(AVIA). As per the salient terms of this agreement, AVIA is responsible to import
the Kits in its own name and to bear all import duties, Federal, Provincial and
Municipal taxes, other levies / charges and all sales taxes. In consideration for the
assembly of television sets, the Company is entitled to receive per television set
conversion charges. Sales tax, as per law, on the conversion charges charged are
claimed by the Company from AVIA and are reflected in invoices. AVIA may
claim this sales tax as Input Tax under the provisions of the Sales Tax Act, 1990.
The duration of agreement with AVIA is five years; however, the duration may be
extended or reduced by the prior written consent of the parties.
The Company, during the financial year 2003-04, entered into an Assembly
Agreement with Bless Electronics (Pvt.) Limited, a registered company at
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Gujranwala (Bless). As per the salient terms of this agreement, Bless is
responsible to import the Kits in its own name and to bear all import duties,
Federal, Provincial and Municipal taxes, other levies / charges and all sales taxes.
In consideration for the assembly of television sets, the Company is entitled to
receive per television set conversion charges. Sales tax, as per law, on the
conversion charges charged are claimed by the Company from Bless and are
reflected in invoices. Bless may claim this sales tax as Input Tax under the
provisions of the Sales Tax Act, 1990. The duration of agreement with Bless is
five years; however, the duration may be extended or reduced by the prior written
consent of the parties.
Business Volume
The business volume of the said organization can be viewed as per the turnover of
the products of the company. In the start of the subsidiary the results from the
sales were so positive and no one was expecting such a down fall in the business
of this subsidiary. The business volume of the organization shown on the basis of
different indicators taken from the balance sheet and income statement of the
company is as under, Figures are shown in thousands.
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Sales/Revenue-Net 32,435 41,508 30,714 14,197 1,038
Number of employees
DEPARTMENTS NOS OF
EMPLOYEES
ENGINEERING 64
HR/ADMIN 22
MARKETING (EXPORT) 08
MARKETING (LOCAL) 28
FINANCE 12
MAIN STORE 14
PROCUREMENT 06
GENERAL SALE 19
QUALITY ASSURANCE 25
PRODUCTION 07
PLANNING & CONTROLLING
205
TOTAL
Product Line
• ‘SONY’ brand color televisions sets for M/S Sony Pakistan (Pvt.) Limited.
• ‘SHAHBAZ’ brand color television sets for M/S Shahnawaz Traders.
• ‘KONKA’ brand color television sets for M/S AVIA International.
• ‘BELVIN’ brand color television sets for M/S Bless Electronics (Pvt.) Limited
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The main business of PEL DAEWOO ELECTRONICS is the production of above
mentioned range of color televisions for the local market as well as for export purposes
under certain agreements.
ORGANIZATIONAL STRUCTURE:
Main offices
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ORGANIZATIONAL CHART
(PEL DAEWOO Electronics Limited)
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Comments on Organizational structure:
Policy guidelines and overall control is vested in the elected Board of Directors which
Companies Ordinance 1984. Presently, PEL Board comprises 7 members, which are
mostly from the saigal family and it represents a family owned business. The family
The Managing Director/Chief Executive has been delegated with such powers and
authorities as are necessary to effectively conduct the business of the organization. The
relationship between the management and the workers remained cordial and the company
was able to successfully meet the targets set. There is functional organizational structure
in operations and the decision is much slow due to this. There is a need to change this
structure because now the era is changing briskly and this structure is not supporting the
changes.
This organization is having a operational hierarchy and the decision making process is
too slow than the other organizations, because the major decisions are vested in the hands
of directors and the higher management working in the parent organization. The
operational management performs its duties in subsidiary and the top management makes
crucial decision from the head office, which cause delay in decisions and the deficiency
in management operations. Here in this office they have four main departments and every
department have its head in the operational area but they have certain boundaries. They
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need to get permission from the project manager beyond the boundaries of their
NOS OF
DESIGNATION
EMPLOYEES
FINACE MANAGER 01
CHIEF ACCOUNTANT 01
ACCOUNTANT 01
I/C STORES 01
I/C EDP 01
ASSISTANT ACCOUNTANT 01
CASHIER 01
COMMERCIAL ASISTANT 01
STORE ASSISTANT 01
DISPATCH CLERK 01
02
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STORE HELPERS
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Finance and Accounts Operations:
In all mixed and capitalists societies the basic aim of business is to earn profit. Such is
also case with PEL DAEWOO Electronics Ltd. In order to calculate the order most of
the companies need to establish their separate accounts and finance departments but due
to a small setup they the same department working under the control of finance manager.
The major functions of finance and accounts department are to control and generate
finance whenever required.
All the accounting activities are routine and assigned to the staff so that the tasks are
performed in a simple systematic way, with as free from errors.
The accrual basis double entry system used. Assistant accountant and cashier with
supporting documents prepare vouchers. The vouchers are verified by the accountant and
then chief accountant approves the vouchers with amount up to Rs.50,000.00. The
approval of vouchers with amount more then Rs.50,000.00 are approved by the finance
manager.
When capital purchases are made, capital proposal form is submitted to the finance
manager by the respective department head. The purchases made after approval. The
cashier maintains the cash and bank record. He prepares the payment and receipt
vouchers. He makes disbursement after getting approval from the authorities. He
maintains physical cash Cheque Books are also in his custody. The finance department
has a separate EDP section for MIS Reporting and computerization accounting.
In the head office Finance department performs different operations related to purchase
and sale of products. To explain these functions it is better to divide operations into
different sections: these sections are as follows.
Cash Office
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This department operates its function in coordination with bank. This section maintained
daily cash transactions and maintained cash flows accordingly. Cashbook is maintained
on daily basis. This department handles cash payment and cash receipt.
Payables
This section is responsible for timely payments of their payables. It performs its
operations in coordination with purchase department and have direct relations with the
suppliers of the raw material and other overhead suppliers. Payable section pays the bills
to the supplier after verifying the quantities and amount of the invoices with the purchase
orders, which are issued by purchase department to the supplier.
Receivables
Costing
This section operates its functions in coordination with store department and prepares the
monthly cost of production report accordingly, in which they integrate total costing of
production department vise gradually. Pak Elektron is using product base costing method,
as it is has vide product lines.
Store
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accordingly. This department also maintains maximum levels, minimum levels, economic
order quantities and safety stock levels. Store department issues stock requisitions to the
purchase department according to the requirement of production department.
Banking
Finance manager of the company handles all banking transactions. Pak Elektron Ltd has
its bank accounts with united bank and allied bank. Payable section and receivable
section is directly linked with finance manager regarding their operations.
Record
In this section all daily transactions are recorded in their accounts. Pak Elektron is using
single entry accounting system. All items are being recorded as per their natural balances,
and separate accounts are prepared. This section is also responsible for the timely
balancing of Trial Balances and provision of annual statements. After the completion of
the statements the finance manager and other higher officials make other financial
decisions.
MOBILIZATION OF FUNDS:
PEL DEAWOO is working as the subsidiary of PEL Electronics, so the major financial
decisions were taken by the holding company. Finance manager is authorized to take the
operational decision and the higher authorities in the parent company make all future
plans. Mobilization of funds is not so obvious in the statement of the PEL DEAWOO
limited.
GENERATION OF FUNDS:
Due to the heavy losses from the start of the business the company is unable to generate
the funds internally. There was no proper provision for reserves and taxations up to 2003
because tax exemption was available up to May 2003 as the project was set up in Hattar
Industrial Estate. The basic source of internal generation of funds was the provision for
depreciation.
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SOURCES OF FUNDS:
Company is using both sources as equity source and debts financing. PEL DEAWOO has
not increased its issued capital since its beginning. From the history it is cleared that
company is operating at loss even more than its equity. In 2004 the accumulated loss is
five times of the equity. Presently company is at its liquidation stage.
In the debts sources of the company there is long term financing, lease financing and
deferred liabilities for gratuity, but in the last year company’s credit standing is weaker
than ever. So, the company is operating through current sources like, short term financing
creditors and provisions.
The sources of funds can easily be understands from equities and liabilities portion of
balance sheet.
ALLOCATION OF FUNDS:
As it is cleared from the asset side of balance sheet that PEL DAEWOO is allocating
most its funds on operating fixed assets. Investment on operating fixed asset is about 80%
of the total. Its current assets specially inventory and cash & bank is as low as the
company is facing operating capital problems. Another characteristic of the company
regarding its allocation is that company has high trade debts and advances and
prepayments, which cause the low efficiency of turnover.
PEL DAEWOO is working as subsidiary of PEL Electronic Ltd and all the major
decision making is in the hands of parent company. No modern decision making
techniques are used in the subsidiary so the process of decision is very slow and it harms
the efficiency of the company.
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CRITICAL ANALYSIS OF THEORATICAL AND PRACTICAL CONCEPTS
theoretical concepts and practical working. For example, in accounting we record the
double aspects of any entry or a business transaction in the journal and then transfer
into the ledgers and other accounting books. But in-practical experience companies
The theoretical concept of finance department is that the finance personnel use
different financial theories in their decision making and think scientifically, but
in the routine working of finance department there is pet format of each activity
which every one has to follow. Each and every employee of the finance department is
from the finance department chart that the only difference between the finance and
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FINANCIAL ANALYSIS
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Analysis
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6. The figures of Current portion of long term liabilities indicate
that the company did not paid the installments to the leasing companies
and the banks on regular basis.
7. The figures of Creditors, Accruals and other Liabilities are
continuously increasing. The major figure is the amount financed by the
holding company. As no payment is being made or expected to be made
to the holding company in the near future, so the balance in the holding
company account should be treated as long term liability.
8. The Project is set-up in Hattar Industrial Estate, District
Haripur, N.W.F.P and enjoyed tax holiday for a period of eight years from
the date of commencement of commercial production under clause 118C
of Second Schedule to the repealed Income Tax Ordinance, 1979 (the
Ordinance). Tax exemption was available upto May, 2003. As the
company did not earned any profit, so provision for taxation is not
required. Year-end tax provision represents minimum tax leviable under
section 113 of the Income Tax Ordinance, 2001.
9. The company produced its own brand colour televisions in
the years 1995 to 1998. From 1999 onward, the company is doing
business on OEM basis for various parties. So the stock in trade in the
early years represent the company’s stock and in the later years the
conversion cost assigned to the stock of third parties.
10. The company was unable to recover the amount from its
debtors of its own brand colour television sets. So the company has to
made provision for bad debts repeatedly and finally the provision for bad
debts is 8.647 million. Minor recoveries are being made. All the
conversion charges from the other parties (OEM Business) has been
recovered normally in time.
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Vertical Analysis of Income Statement
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Analysis
3. The financial charges are the markup on the short term finances, long
term finances and on the balance payable to the holding company. In the
last four years, the major amount is the markup on holding company
balances. The holding company is continuously financing the company
for its operations so it is charging heavy markup. The huge financial
charges are the major cause for heavy losses of the company.
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Horizontal Analysis
Balance Sheet
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Analysis
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7. The figures of Creditors, Accruals and other Liabilities are
continuously increasing. The major figure is the amount financed by the
holding company. As no payment is being made or expected to be made
to the holding company in the near future, so the balance in the holding
company account should be treated as long term liability.
10. The company was unable to recover the amount from its debtors of
its own brand colour television sets. So the company has to made
provision for bad debts repeatedly and finally the provision for bad debts
is 8.647 million. Minor recoveries are being made. All the conversion
charges from the other parties (OEM Business) has been recovered
normally in time.
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Income Statement
Horizontal Analysis
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Analysis
1 In the early years, the cost incurred for manufacturing of the
company’s product were higher than the gross revenues. In the year
2000, when company started the business on OEM basis, the costs
were reduced as the company was earning conversion charges from
different parties. In the last years, the OEM operations were also low,
so the costs could not be covered resulting to the gross loss.
3 The financial charges are the markup on the short term finances,
long term finances and on the balance payable to the holding company.
In the last four years, the major amount is the markup on holding
company balances. The holding company is continuously financing
the company for its operations so it is charging heavy markup. The
huge financial charges are the major cause for heavy losses of the
company.
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Ratio Analysis
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Liquidity Ratios
1. The current and acid test ratios of the company are getting lower
and lower, as the loss of company is increasing and the holding
company is financing the company for its running expenses.
2. At the end, the current and acid test ratios are almost the same as
the company is doing OEM business and it has no its own inventory.
Activity Ratios
1. In the initial years, the inventory turn over of the company was
high, as it had its own inventory but slow sales. The figures are
sluggish because the operations of the company are not continuous.
2. In the initial years, the company was unable to recover the amount
from debtors in time. The provision for bad debts was provided
number of times. When the company started OEM Business, the
debtors turn over was good. In the last year, high figure indicates the
OEM operation started in June 2004, but recoveries made in July
2004.
3. The assets turn over are low because of low operations of the
company.
Leverage Ratios
1. The debt ratio of the company is continuously increased, as the
Holding Company has to finance it for its running expenses because of
low operations of the company.
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Profitability Ratios:
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FUTURE PROSPECTS:
SHORTFALLS
Following are the major short falls of PEL DAEWOO Limited.
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6. PEL DAEWOO is working as subsidiary of PEL Electronic Ltd
and all the major decision making is in the hands of parent company.
No modern decision making techniques are used in the subsidiary so
the process of decision is very slow and it harms the efficiency of the
company.
8. The Financial Charges are too much high because PEL DAEWOO
is unable to pay back the loans, and it has also pay markup on advance
from Holding Company, which is decreasing the worth of the
company badly.
9. PEL DAEWOO is not looking for expanding its sale base and not
going to contract with other distributors, so that its sales are going to
be low and low in subsequent years.
10. PEL DAEWOO is not manufacturing its television for its own
name, as it is not brand name so that the ultimate consumers don’t
have any image of PEL DAEWOO and the company is not caring
about its image in the eye of consumers.
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RECOMMENDATIONS FOR IMPROVEMENTS:
6. The analysis indicates that the Holding Company PEL has to bear
the expenses of PEL DAEWOO without operations being performed
there, so it should finance PEL DAEWOO for import of CKD Kits and
assemble the televisions of its own brand and market it through PEL’s
marketing setup. In this way, the company itself will earn the running
expenses of PEL DAEWOO.
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7. The projected Cash Flow for the year 2005 is annexed. It indicates
that even with the production of 14,400 sets per annum, PEL
DAEWOO can be revived easily.
8. The company was not using the computer software in its decision-
making in the initial days of the operations. Its will take time to build a
new set up for computerization in all of its departments. To cope up
the deficiencies in the operations and compete in the new emerging
environments it is necessary for the organization to have a
computerized setup in all of its departments.
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CONCLUSION:
Except of all its financial position it can be set it is a good setup and a
cooperative staff which help me in making good practical concepts of
business environment.
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REFERENCES & SOURCES USED
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Annexure
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