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ASSIGNMENT # 2

ACTIVITY ANALYSIS OF
HALA ENTERPRISES LTD

SUBMITTED TO:
SIR HAFIZ IMRAN

SUBMITTED BY:
SHAKEEL AHMAD
MB09021 (MBA 4TH MORNING)

UNIVERSITY OF THE PUNJAB


GUJRANWALA CAMPUS
HALA ENTERPRISES LIMITED
ACTIVITY ANALYSIS

1. DEFINITION:
“It is the analysis of how much management is effective to generate sales”
It is divided into two parts:
• Turn over analysis that include following ratios
Asset turnover, Fixed asset turnover, Current asset turnover, Working
capital ratio, Receivables turnover, Inventory turnover
• Period analysis that include following
Collection period, Payment period, Age of inventory, operating cycle

2. YEARS INVOLVED:
• current year 2010
• base year 2009
3. ITEMS INVOLVED:

→ Sales
→total assets
→total fixed assets
→current assets
→working capital
→receivables
→inventory
→ purchases
→payables
4. COMPARITIVE ANALYSIS:
Company with which Hala Enterprises limited has been compared
is Saphhire textiles.
ANALYTICAL TABLE

Name of Current Base year Result Reason for


ratio year (2010) (2009) change
Asset turnover 1.89 1.49 Favorable ↑ sales by
28.66%
Fixed asset 4.87 3.93 Favorable ↑ sales by
turnover 28.66%
Current asset 3.08 2.40 Favorable ↑ sales by
turnover 28.66%
Working 709.85 71.01 Favorable ↓working
capital ratio capital by
87.12%
Receivables 15.29 10.67 Favorable ↑ sales by
turnover 28.66%
↓ receivables by
10.25 %
Inventory 6.19 3.84 Favorable ↓ inventory
turnover by12.34 %
Collection 24 days 34 days Favorable ↑ sales by
period 28.66%
↓receivables by
10.25 %
Payment 76 days 65 days Favorable ↑ purchases by
period 47%
Age of 58 days 94 days Favorable ↓ inventory by
inventory 12.34%
Operating 82 days 128 days Favorable Low inventory
cycle level and early
collection.
CRITICAL ANALYSIS

 The effectiveness of management is favorable in the current period as compared


to the base towards the use of resources of the business.
 The major of efficiency in the current period as compared to previous period is
increases in sales of the company. However in the current period inventory has
been increased but it has not utilized too much extent by the management.
Investment in assets has increased & company is taking benefit of it.
TURN OVER ANALYSIS
 The sale of the company has increased by 16.28% which has become major cause
of favorable position of the company. Company has also invested more resources
in inventory but company is however not utilizing it properly. Company has
decreased its credit term period which seems to be working properly at the
moment. Similarly, working capital has become more properly managed by the
management this year as compared to previous one.
COLLECTION SYSTEM
 The comparison of collection period with its payment period shows that it is
favorable in current year as company had decreased the credit term period in case
of receivable while delaying the payment of the payables to some extent &
utilizing that amount properly. However comparison is efficient for both years but
the difference of time is more favorable in current period.
 The fast collection helps company in lowering the estimated amount of bad debts
as more fast the collection period system is, there is more chances of having less
bad debts. This is giving favorable position to the company in utilizing the cash in
generating revenue.

OPERATING CYCLE
 The operating cycle of the company is adding effectiveness of the management
to partial extent as collection period is favorable in this year but inventory turn
over has led the company towards inefficiency. In current period company has
reduced the number of days to complete its one operating cycle by decreasing
collection period. But due to inefficiency shown in inventory management leads
the company to higher carrying cost of inventory that is giving unfavorable point
to the company

INTER COMPANY COMPARISON

CURRENT COMPANY: HALA ENTERPRISES LIMITED


BASE COMPANY: SAPHHIRE TEXTILE LIMITED

RATIOS CURRENT BASE COMPANY RESULT


COMPANY
Asset turnover 1.89 1.25 Favorable
Fixed asset 4.87 Favorable
2.23
turnover
Current asset 3.08 Favorable
1.84
turnover
Working capital 709.85 Favorable
32.59
ratio
Receivables 15.29 Favorable
11.5
turnover
Inventory turnover 6.19 3.92 Favorable
Collection period 24 days 31 days Favorable
Payment period 76 days 5 days Favorable
Age of inventory 58 days 92 days Favorable
Operating cycle 82 days 123 days Favorable
Overall HALA ENTERPRISES LIMITED. has favorable results as compared to
SAPHHIRE TEXTILE LIMITED.