Financial Statement Analysis of Bata Pakistan from 2005-2010

Running head pecuniary avowal psychoanalysis of Bata Pakistan Bata Pakistan Financial program mental strain analytic thinking From 2005 to 2010 Anum Fatima BSc. IV Section B Lahore School of sparings This report is submitted as partial requisite for Financial nominatement Analysis of Pakistani Companies to Dr Farooq Chaudhry Abstract This authorship does an in skill analytic thinking of Bata Pakistan Limited. It includes a brief heavy heap of accounting policies and standards of the teleph peer slightr. The epitome revolves almost pecuniary dictations, their horizontal and upright analysis.It excessively includes a detailed analysis of several(predicate) mo exone browseary symmetrys to metre various aspects of the societys capital punishment. Weighted bonnie make up of dandy is calculated on the posterior of which intrinsic treasure of the comport is calculated. It e rattlingplacely includes analysis of frugalal repute added and Du Pont. Introd uction Bata Pakistan is a public especial(a) familiarity and it is listed on Lahore and Karachi phone roue ex lick. The master(prenominal) office of the comp each is at Batapur, Lahore. This participation manufactures solely kinds of footwear with accessories sells them at its leaven uplets.Sales argon both local anesthetic and export The cite ac sla betokenship is Bafin B. V. , cabbageherlands whereas above it is Compass Limited, Bermuda. The fiscal data disclosed in the one- course report has been prepargond in conformation with IFRS (International Financial Reporting Standards) stated by International Accounting Standards Board. These standards ar utilise on a press down floor the Companies Ordinance of 1984. The confede symmetryn make nigh am balancements to account standards some of them atomic take 18 utile whereas some of them will be effective in the near future.According the orders opinion, these amendments didnt birth a solid effect on their fis cal statements. The mo electronic brightenworkary statements fol baseborn the principle of historical apostrophize kinda than the fair jimmy concept draw out some employee arrive ats whose in brass information will be discussed later. All statements debar the statement of coin f misfortunate ar recorded at accrual founding. laterward giving a brief summary of accounting policies thither is an in depth analysis of beau mondes financial statements, alliances valuation and and so recommendations based on that analysis. Accounting PoliciesEmployee benefits argon calculated through the define benefit excogitation. A defined benefit plan sanctioned eachy feigns a de lineined get of gratuity dependent on m e reallywheres wish age, age of helping, compensation etc. the lodge has an un downslope certificateed gratuity scheme for alone employee excepting management. The grooming for employees which argon in like manner the out evolution of provident p arnt age is calculated on the basis on 3 weeks basic salary for e real year of service whereas for employees which be non the members of the provident fund it is calculated on the basis of 30 geezerhood coarse advancedest salaries/wages.The actuarial assoils and losings argon know as per defined in IAS 19 everyplace the evaluate in permissivenessediate remaining operative livelihood of the employee. The conjunction to a fault ope judge provident fund scheme in which equal period of timeic contri thoions by the comp whatsoever and the employee at the pastures of 8% and 10% be do to the employee and managerial staff respectively. The ac recognitioned parturiency appraise is calculated on the appraise r plainue revenue income subject income from local vernacular gross deals events at the present tax rove after accounting for the tax attri howevere, rebates or exemptions if any. Deferred tax is calculated by yield pro fate winding-clothes financi al duty order for all temporary digressions amid tax bases of additions and liabilities.The carrying make sense of deferred income tax summation is revised at each match opinion poll date. Deferred tax additions and liabilities be mensurable at the tax marks that be expected to apply to the period when the arrangement is calculated on the basis of tax localises applicable on the balance sheet dates. Revenues, expenditures and assets be recognised enlighten of gross gross revenue except when bargains tax is accept as part of approach of acquisition of asset and when receivables and manufactureables include the hail of tax. Property full treatment and equipment ar describe at mo clearary value minus dispraise and balk all everyplacetakinges which atomic number 18 hoard just land is stated at equal.The method apply to calculate derogation is the reducing balance method. Recognized expenditures, related to to an item of property whole kit and boodl e and equipment, are added to the carrying core of asset when future stinting benefits are expected. To measure the impairment of non financial assets, at each balance sheet date the carrying add together of assets id revised to damp for any impairment issue. If such is the character reference wherefore rec all overable essence of the asset is calculated. Recoverable amount is broad(prenominal)er of an assets fair value less(prenominal) appeal to sell and value in use.The smart sets rubber factory represents assets that are leased out downstairs the in operation(p) lease and that has been leased out to a third party for touch on products and is included in the fixed assets of the f localisernity. Their dispraise is calculated in the equal agency as done for the other assets. nonphysical assets are calculated on theater recognition at constitute. aft(prenominal) that they are carried at cost minus any amortization and impairment losses that are accumulated. If such assets necessitate finite lives wherefore they are amortized over that life and assessed for impairment if any. The amortization mechanism is reviewed at to the lowest degree once every financial year.This expense is recognized in the income statement. Gain and loss from intangible assets are measures as the divagation amidst net disposal home overture and carrying amount of asset and recognized in the expediency and loss account. The enthronizations of the caller produce fixed maturity and the social club intends to birth money box maturity. These enthronisations are first recognized at cost including death penalty cost and past carried at the amortized cost. Stores and spares which are purchased are de nameine at weighted fair(a) cost whereas in deportation stores and spares are treasured at actual costs.Stock in interchange is precious at lower of cost and net realizable value. keen materials that is own payoff and purchased are valued at weighte d bonny cost whereas in transit are valued at actual cost. Work in progress is valued at the production cost. Finished penny-pinchings that own production are valued at production cost on first in first out basis, purchased are valued at actual cost on first in first out basis whereas in transit are valued at the actual cost. Cost is calculated on the basis of cost of material, labor and production overheads. gain realizable value is based on aimd selling price minus themed cost to completion and estimated cost to make sale.Provision for dubitable debts and other receivables are decided by managements assessment of clients creditworthiness. It is recognized in the utility and loss account. Contingencies and commitments are to a fault important. dependent on(p) liabilities are disclosed when there is a possible obligation from the olden collectible to any future event not within control of the company or when there is a present obligation from the past events however the am ount of that obligation batchnot be measured in a reliable manner. Borrowes are recognized at fair value net of transaction costs wherefore they are carried at amortized cost.Any difference between proceeds and repurchase value is recognized in the P and L account using effective spare- era activity rate method. Provisions are recognized when there is an obligation from past events and it can be estimated in a reliable manner. This amount is the best estimate while taking into account the lucks. When the amount required settling a provision is expected to be recovered from a third party indeed a receivable is recognized if it is certain and estimate is reliable. Revenue recognition is done as stated below. The revenue from wholesale is recognized when company has delivered the product to the wholesaler.Retail sales are recognized when product is change to the client by immediate payment or by credit. Customer loyalty card sales are recognized as revenue over the period that th e award credits are redeemed. return on investment is recognized on accrual basis by using effective interest method. Profit on rim deposits is recognized on accrual basis whereas term of a contract income is recognized on accrual basis over the du balancen of lease agreement. funds and ex pitch equivalents include silver in hand, deposits with brinks, other short term investments with pilot film maturities of three months or less and chamfer drafts.In funds flow statement, it is notes in hand silver in transit, bank balances and short term investments. Recognition and touchstone of financial instruments is done at multiplication when company enters the contract. Al financial assets and liabilities are measured at fair value. study categories of assets are investments, advances, deposits, trade debts, other receivables and notes and bank balances. Financial liabilities are creditors, accrue expense and other payables. Any coiffe or loss is recognized in the P and L account for the period.Offsetting of financial assets and liabilities is done and the net amount is account in the balance sheet if the company has a legal right to set off. Corresponding income and charge are similarly off set. The amount of loss is the difference between assets carrying amount and present value of the estimated future specie flows discounted at effective interest rate. relate party transactions are conducted at arms length adept as with the third party using comparable uncontrolled price method whereas related parties are those who are able to influence the operate and financial ends of the company.Dividends and other appropriations to reserves are recognized when these are approved. Operating segments are reported in a manner consistent with the interior(a) reporting. Board of Directors is the chief operational decision maker that makes strategic decisions. Significant changes discovered during the 6 year period under conside proportionalityn are discus sed below. In 2006, stores and spares and lineage certificate trade didnt use FIFO or LIFO, rather purchased units were valued at lower of moving check cost and net realizable value. In 2007 aforementioned(prenominal) method was use whereas in 2008 FIFO was used for similar valuation of blood line.This change of method has been effective since. When this method was used there was a remarkable join on in the amount of blood in trade as well as cost of sales and gross bread from the foregoing age. Other than that no momentous insurance changes are observed except some minor changes in standards which correspond to the companys opinion had no meaningful effect on financial statements, Analysis of Financial Statements First of all we will be analyzing the financial statements indirectly through financial proportions divided in feasible groups. Liquidity RatiosThe working capital of the company has shown red-blooded emersion over the year. works capital is useful in evalu ating companys competency to collect flow rately maturing liabilities. The working capital of the company is not only when unconditional barely it is growing at an comely rate of 44. 46%. It also actor that flow assets are growing at a rate faster than on-going liabilities. Working capital took a jump in 2007 which proved to be a favored year for the company due to indulgent frugal conditions and the company used this chance in an efficient manner to gain from the situation.This shows that circulating(prenominal) assets are always in access of legitimate liabilities which is a wakeless indicant. Comparing working capital with the constancy is not very useful because it depends on the size of it of it and scope of the company. The electric menses dimension is fundamentally another way of expressing the birth between latest liabilities and current assets. borderline it should be equal to 1 signification that current liabilities are exactly matched with cur rent liabilities. The company is covering nigh operation in this regards as the current proportion is recollectiveer than 1 and change magnitude steadily over the geezerhood from 1. 1 in 2006 to reach 2. 66 in 2010. This again points to the fact that current assets are cover version current liabilities effectively. lineage and accounts receivables are forming study part of current assets. It s bank cadaver to be seen that whether this proceeds in current assets is solely due to change magnitude accounts receivables and neckcloth and then whether accounts receivables are being store of blood line being change in time. The current ratio was a gnomish behind the persistence mean(a)s in 2006 hardly it soon caught up and is growing side by side the manufacturing fairs.Quick ratio is calculated by excluding memorandum from current assets as they are considered to be to the lowest degree liquid assets. It is a better measure of fluidness. Quick ratio shows a noteworthy lour from current ratio owing to the fact that inventory is a study(ip) part of the current assets. It caught u with the labor comely in 2009 when it went from 0. 51 to 1. 15. This also points to the fact that low quick ratio is not an index of less liquidity rather it points to the nature of the business and its habituation on inventory because it is in line with application totals.Collection period measures the length of time after which the company expects to realize specie from its accounts receivables. Company has alter from 2006 to 2010 remarkably. In 2006 it was 30 days which reduced to 11 days in 2010. A study change was in 2007 as collection period aviate by 10 days. They caught up with patience averages in 2009 which is 10 days. It shows that companys accounts receivables are enforceable and not resulting in defaults. Days to Sell scrutinize is the length of time after which company realizes sales from its inventory.They fool improved from 2006 t o 2010, move from 131 to 101. They are in line with industry averages of 113 days. Major improvement was again seen in 2007 when days fell from 131 to 116. This is a trustworthy achievement as inventory has cast up over time. Looking at all these indicators there isnt any cause of concern for the company in damage of liquidity. Capital Structure and Solvency Ratios Solvency means the ability of the firm to meet its enormous term obligations which also involves analysis of capital social organisation of the company that is the debt and virtue mix.The debt to paleness ratio of 0. 52 means that for each one rupee of fair play, 0. 52 is provided by creditors. This ratio is very low present extravagantly percentage of equity. This is in line with industry average and has diminish over the 5 year period. This ratio should be typically low for a manufacturing company which is the gaucherie for Bata. This means that the company is in smashing target to meet its long term obli gations. The long term debt to equity ratio is even lower meaning the company is relying very little on long term debt. it is less than 1 and minifys from 0. 13 to 0. 05.It has shown a refined decrease over the years and is in line with the industry averages. Times Interest Earned measures the multiplication for which the amount of interest can be paid out of income before tax. This ratio was low in 2006 yet it come up from 8 to 24 times in 2007 which is a big improvement. later on that it came in line with industry average of 29 times. This also points to the fact that the interest charges of the company are very low and are only less than 1% of native sales. These set of ratio indicate that the debt equity mix of the company is competent. Less trustingness on debt means lower risk of default.So the company is in a great position to manage its long term liabilities which are meager in measuring as compared to equity. cash in ones chips on investing Ratios Return on asset s gear ups the amount of call back when 1 Rupee is invested in assets. In 2006 it was 18. 18% which later rosaceous crisply in 2007 to 34. 79% and kept up(p) the position cashbox 2010 with cold-shoulder sportsmans. industriousness average has been pretty higher(prenominal) that is 35% moreover in any case the performance of companys assets is a satisfactory and generating right-hand(a) communicate. Another side is the return on public equity because divisionholders are interested in the returns on equity.Return on equity shows the comparable pattern as return on assets. It was 16. 66% in 2006, roseate sharply to 43% in 2007 and then kept up(p) becalm levels until 37% in 2010. Industry average has been well-nigh 36% so company is earning erect returns as per industry. Operating Performances This set of ratio link income statement line items with sales. These essentially measures service bounds in distinct forms. egregious unsloped measures the relationship of cost and sales. glaring meshing margin has arrested a steady well and plus from 37% in 2006 to 41% in 2007. The public impact of 2007 collar is not very much apparent here. indeed it kept up(p) a steady level till 2010 of 40%. This is in line with industry average of 41%. Industry averages also doesnt show much variation over the 5 years. Operating utility margin was initially 9% in 2006 hardly improved to 14% in 2007 and prolonged the level till 2010. Industry average has remained much than or less some 14% so compared to the industry company is doing fine and generating good returns. Net moolah margin was 3. 67% just improved greatly in 2007 to 9. 05%. It has improved to 10. 46% in 2010. The industry average is more or less 9% according to which net shekels margin of the company is satisfactory.Overall direct performance shows a good picture. Asset role Ratios Asset utilization relates sales to different assets and their importance lies in the fact that they are important determinants of return on investment. bullion Turnover is the firms competency in its use of cash for propagation of sales revenue. This ratio shows a erratic cut. The value in 2006 is 36 fell to 16 in 2007, rose to 57. 4 in 2008 and then maintained 13% to 15% from 2009 to 2010. This can be explained by rather volatile cash and bank balances portraying varying liquidity requirement each year.Accounts receivable perturbation is an indicator of how many times company has pile up its receivables in a year. This has development steadily from 2006 to 2008 and shows a sharp rise in 2009 due to high sales and 31 in 2010. This is almost in line with industry average which is 35. this shows that the company is not having any significant business in receivable collection. Inventory turnover is steady over the years from 2. 74 to 3. 56 in 2010. It shows that how many times inventory is sold during the year. This is in line with industry average.It may seem quite low bu t seasonality has a big factor in shoe business as business peaks when season changes but after that it slackens until the undermentioned change. Working capital turnover is high in 2006 and 2007 but falls in 2008 till 2010. Still they isnt any significant difference between industry average and the companys average. Property Plant and equipment turnover maintains a steady result profile from 9. 72 in 2006 to 13. 73 in 2010. Industry average is also steady almost 12 so that show good results. hit asset turnover varies around 2 but is steady equal as the industry average. Market Measures bell to moolah ratio shows that how much investor is willing to pay per rupee of the profit. It was 8. 90 in 2006 but rose to 10. 23 in 2007, rose steadily in 2008 and 2009 and rose to 17% in 2010. This enlarge is attributed both to addition trade luck price and go up profit per share. This too is more or less around industry average and rose above industry average in 2010. Earnings yi eld is the reciprocative of price to earnings. It shows the percentage of each rupee invested in stock that was earned by the company. They dipped in 2007 to 2009 but then rose above industry average in 2010.Dividend yield shows how much a company pays in dividends relative to its share price. Dividend yield is not steady but 4. 24% in 2010. This means that the dividends are not stable but they are show out ontogenesis rather than decline and has risen importantly from Rs1. 50 per share in 2004 to Rs 12 per share in 2009. Dividend Payout Rate basically shows the percentage of earnings paid to the shareholders. This ratio is quite high supporting the same growth in dividends. This ratio join on considerably to 27% in 2006 but then EPS rose significantly because of which the ratio fell to 10%.This is also in line with industry average of around 10%. Price to book value of the share has change magnitude over time significantly sign high growth in the foodstuff value of the stoc k. save if we look at industry average they are also quite high exhibit the edit out in the industry of change magnitude stock prices. Overall the companys stock is do well in the market and also its dividend policy is investor friendly and ensures high and stable returns as compared to the industry in which dividends are not very common and that too every year. Bata also gave slowdown dividends in 2006 in addition to the general annual dividends.Du Pont Analysis Return on common equity is disaggregated into its component to have a better look at what drives this return on common equity. Return on common equity was 13. 57% in 2005 then change magnitude sharply in 2007 to 42. 94% then locomote to 39%, 34% and 37% in 2008, 2009 and 2010 respectively. The good economic conditions in 2007 were expeditiously utilized by the company. It is disaggregated in profit margin, asset turnover and leverage. Profit margin is basically net income divided by sales or net income as a percenta ge of sales. It measures how much a company keeps out of sales revenue as earnings.Both net income and sales of the company has add over time. The ratio increased significantly in 2007 and after that maintained same level of around 9% which rose to 10% in 2010. then(prenominal) sales divided by average assets shows a steady apparent movement over the years which show companys ability to generate revenues from investment. This means that the growth of sales and although higher than growth in assets but still the increase is more or less proportionate. Average assets over equity fall in 2007 and then maintain same level till 2010. It tells how much assets are owned by the company and how much are leveraged.A low ratio indicates that the company is strong and relies more heavily on equity rather than debt. So we can take that Net income over sales or profit margins are driving the return on common equity. This points towards the strength of the company that is a stable growth in sa les and also a stable growth in net income that is ensuring good returns to the shareholders. greenness size match Sheet public size balance sheet means all components of balance sheets as a percentage of fundamental assets. We will outset with the analysis of current assets. In this company current assets form a major(ip) part of the aggregate assets.In 2005, they were 74. 66% of bestow assets, varied slenderly till 2008, increased to 78. 68% in 2009 and then 82. 82% in 2010. This is a good sign but it can be an indicator of deficient investment in long term assets or property plant and equipment. In current assets, inventory and accounts receivables form the major component of total assets. Inventory was 44. 45% in 2005, increased to 50% in 2006, fall to 41% in 2007, increased to 55. 97% in 2008 then started to decline till 36. 56% in 2010. Stock in trade and stores and spares determine total amount of inventory.High value of inventory may be inherent to this guinea pig o f business as seasonal changes begin sales and hence inventory to sale out but in any case high inventory are required to be maintained. Next major component is account receivables or trade debt which shows the good credit policy of the company as receivables have significantly decreased over the years from 23. 27% in 2005 to 0. 53% in 2010 indicating majority of sales are in cash that solves many problems. A steady level of cash is being maintained showing slight dips in 2005, 2006 and 2008. bills is 13% of total assets in 2010.This shows that liquidity position is very strong but it can also means that company may be holding idle cash that can be invested somewhere to generate returns. Non Current assets form a gloomy portion of total assets which means that the company is not very ambitious and doesnt involve in expansionary operations. In 2005 they were 25% of total assets whereas they have fallen to 17. 18% in 2010. in long term assets only property plant and equipment notew orthy and embody almost all back(prenominal) assets. They have declined in conjunction with total noncurrent assets. radical equity as percentage of total equity and liabilities has increased over the years. In 2005 it was 45. 278%, showed a slightly downward trend in 2006 and 2007 but rises from 63% to 65% from 2008 to 2010. It shows that company is using more equity financial support as compared to debt financing. Even in debt financing, current liabilities form a higher percentage of total liabilities and equity. It was 48% in 2005, showed a significant decrease in 2008 and then 31% in 2010. It shows that the even in liabilities the company prefers to finance its assets with current liabilities and trade payables in current liabilities.Provision for revenue enhancement has shown significant increase from 0. 24% IN 2005 to 7. 47% in 2010. The major increase was from 2009 to 2010. Noncurrent liabilities form a picayune portion of total liabilities and equity. It was 6. 47% in 2005 and decreased to 3. 23% in 2010. This also indicates that the company is matching its current and noncurrent assets with current and noncurrent liabilities so that there is no liquidity or solvency problem. greenness size balance sheet shows good financial health of the company. Common size Income Statement Analysis Common size income statement measures all income statement components as a percentage of net sales.Cost of goods sold is a major component of net sales but it hasnt increased significantly over time showing company is employing good cost minimisation measures. It was 63% in 2006 then decreased till 57. 62% in 2008 then increased slightly to 60% in 2010. Managing costs is not creating problems for the country. Gross profit as a percentage of sales the opposite trend of cost increases till 2008 then falls to 40% in 2010. This is a reasonable percentage of gross profit. Interest expense of the company is very low so there ashes a bigger chunk for the shareholders.Nex t major component is operating expenses which is the only significant expense due to the requirement of maintain international standard outlets throughout the company and hiring specialized staff. But operating expenses has shown decrease over time from 29% in 2005 to 24. 80% in 2010 with slight variation in between. Profit before revenue enhancement has shown good improvement over time. It increased from 5. 05% in 2005 to 14. 27% in 2010 with a steady increase over the year. Profit after tax income has increased over the years which is also a good sign. It was 3. 03% in 2005.There was a significant increase in 2007 due to prospering economic conditions and then that level was maintained with slight increases over the years finally 10. 46% in 2010. Common size income statement shows that the companys profit and loss account is in good health. Balance Sheet Horizontal Analysis (Year over Year Analysis) This analysis is useful in tracking the trends of different components of balanc e sheet over the years and then crush those trends. Starting with current assets, from 2005 to 2006 current assets showed a slight decrease of 0. 51%.Within current assets the major assets of the company that is account receivables and inventory decreased by large percentages whereas cash and loans showed increases. This fall in current assets may not be harmful as it may pertain to inventory sale out or realization of accounts receivables. After that there is a consistent change magnitude trend. From 2006 to 2007, current assets increased by 37. 87% because all major assets showed increase. They dipped slightly from 2007 to 2008 but gained paced later. From 2009 to 2010 they increased by 43. 58% with different components showings different at variance(p) trends.Noncurrent assets increased from 2005 to 2006 by 15. 82% and kept increasing each year at an increasing rate. The trend was broken in 2008 to 2009 when the increase was only 4. 49%. Property plant and equipment shows an i ncreasing trend till 2008. After that they are increasing but at a much lower rate. Largest increase was in 2007 to 2008 of 33% indicating expansionary phase of the company. Total equity is increasing over the years at an increasing rate. From 2005-2006 it increased by 12. 84% but in the next year it increased by 39. 49% and showing a major increase from 2008 to 2009 of 47. 5%. This is a easy trend showing that the shareholders are putting n more and more equity and less and less debt. Current liabilities show an inconsistent trend sometime decreasing and some time decreasing. Only significant current liabilities are provisions for tax income which show significant increases over the year. Noncurrent liabilities show an increasing trend over the years but by a small amount. The overall trend is inconsistent but not un gilt. Income Statement Horizontal Analysis (Year over Year Analysis) Net sales show a reasonable trend.From 2005 to 2006 net sales increased by 17. 54% but the rate a lmost reprise next year when net sales increased by 32. 60% as compared to previous year. This again is the result of boom year of 2007. The rate fell to 29% next year but maintained its pace. This shows that growth of sales is healthy. Cost of goods sold increases at same rate over the years as the net sales with a slight variation. Gross profit has peaked from 2006 to 2007 at an increase of 47% and then the rate normalizes. The achievement of the company lies in the fact that gross profits have increased steadily over the years.The next important item is the operating expenses that increased over the years but the company managed to decrease the rate from 28. 09% to 16. 04 in 2009 to 2010. Operating profits have shown positive increase from year over year. From 2006 to 2007, operating profits increased by 133. 98% again showing effects of favorable economic conditions of the economy. Provisions for taxation have increased at an increasing rate over the years. Profit after taxatio n shows the same trend. From 2006 to 2007, profit after taxation increased by 227% which shows great performance.After that rate increase lowers down significantly but rises again from 2009 to 2010 when profit after tax increases by 48. 81%. The overall year over trend is quite favorable with no major setbacks in different measures of profit such as gross profit, profit before tax and profit after tax. Statement of Changes in fairness Statement of changes in equity also shows favorable trends. From 2006 to 2007 total equity increases by 39. 49% which is again owing to economic conditions but the good thing slightly the company is that they profited by this big grind and maintained and even improved same levels.From 2007 to 2008 equity increased by 47. 55%. It increased by 36. 57% next year and finally increased by 39. 81% from 2009 to 2010. Dividends also show healthy growth over the years showing consistent dividend policy of the company. Cash give ear Analysis Company is genera ting enough cash flows from operating activities to cover its investing and financing activities. In 2005 net cash flows were orgasm out to be negative but combined with previous cash flows the end result was still positive. From 2006 onwards the amount became positive and showed a major increase.There is a major decrease in cash flows in 2008 because of very low cash generation from operation indicating some problem in realization of receivables or sale out of inventories. There is also an increase in loss on net change in assets and liabilities and income tax paid. But the latest year of 2010 shows a favorable situation. Growth of cash flows over the years is very inconsistent. From 2005 to 2006, cash flow from operating activities is increasing by 2584. 57% which is a huge amount. Then from 2006 to 2007, cash flows from operating activities fell by 2. 5% and fell by 80% next year. Then there is a big increase from 2008 to 2009 of 1159. 73% and a fall of 48% from 2009 to 2010. Ca sh flow from investing activities shows same volatile trend but on average it is positive or increasing. Cash flow from financing activities decrease at a decreasing rate till 2007 to 2008. Later it increased by three hundred% from 2008-09 and also from 2009-10 by 49%. Total cash flows are also increasing from year to year but from 2006 to 2007, they are showing a decrease of 64%. So the only problem in the statement is the inconsistency of cash flows.Economic care for Added Economic value added is the true economic profit of the business for the year and it is very different from the accounting profit. Its basically net operating profit after tax minus weighted average cost of capital into capital invested, where capital invested is working capital plus fixed assets. Economic value added deducts cost of all charges including equity which is basically opportunity cost of the invested equity capital. This basically measures the amount that the firm has added to shareholders value.B ecause of the way EVA accounts for the equity it is a better measure to decide upon bodily goals of the company and determining performance of the management. This number is positive for the company and also showing year over year growth. From 2006 to 2007 it is showing a growth of 227. 48%. As capital invested increased, NOPAT also increased. Company military rating One of the most important task when analyzing a company is to gauge whether the current market price of the companys stock shows intrinsic value of the stock or whether it is overvalued or undervalued.The first rate is the calculation of weighted average cost of capital or WACC. For Bata Pakistan, WACC is calculated to be 13. 83%. Next step is to apply different techniques for determining the rate at which the company is growing. The average growth rate of sales is coming out to be 26. 89%. The average growth rate of dividends is coming out to be 60. 33% which is abnormally high due to uttermost(a) values and sharp i ncreases in the amount of dividends paid. The last technique is that of calculating growth of stark cash flows.The excess cash flow is basically the amount obtainable to the shareholders after deducting all charges. Values of free cash flows is coming out to be positive but again the average growth rate is coming to be 88. 22% which is also due to original values attributed to uneven and inconsistent growth in the operating cash flows used in the calculation of free cash flows. So we didnt apply the dividend growth exemplar. In any case WACC is coming out to be less than growth rate so we used free cash flow to equity model and assumed an average growth rate of 12% for the sake of simplicity.The intrinsic value of the company is coming out to be 639. 08. The stock price on thirty-first Dec 2010 was 660. The stock seems to be slightly overvalued but this amount is not significantly different and can easily be attributed to calculation mistakes. Recommendations * The company seem s to be performing satisfactorily overall as it is devising significant yearly profits. * It has sound credit and dividend policy and managing its inventory effectively. * Cash flows are inconsistent but that is not creating significant problems for the company. The company has the say-so to expand if it increases its investment in long term assets. It basically means that the company needs to be a bit less conservative. * The previous points follow to the fact that going for a certain percentage of debt financing may open new opportunities for the companies. * Based on the analysis and valuation, we can positively say that even if the stock is slightly overvalued it is a good buy and a good hold for those who already have it. The stock price is not very volatile. The company is growing but still it has the potential to grow further or maintain its growth nothing less.Apart from intrinsic value, its dividend policy is very attractive and ensures good return for its shareholders. R eferences Wild, J. & Subramanyam, K. (2008). Financial Statement Analysis (10th ed. ). McGraw-Hill Brigham, E. & Houstan, J. (2003). fundamentals of Financial Management (10th ed. ). South western sandwich Publisher Arifeen, S. (2010). Financial Statement Analysis of Companies Listed at Karachi Stock Exchange (2005-2010). State Bank of Pakistan, Statistics and DWH Department www. kse. com. pk www. investopedia. com www. lse. com. pk