Practical
Practical
Practical
LAHORE
SUBMITTED TO:
SUBMITTED BY:
Group
SEMESTER V
Service Industries Limited
Managerial Accounting Practical
Final Term Report
Acknowledgement:
First, we want to give a big thank you to our awesome teacher, Mr. Ali Raza Elahi! He was
not only our teacher but also part of our group. He helped us all the time, gave us directions,
and made sure we finished our project successfully. He was always there when we needed
him. This project was super helpful for us!
Next, we want to say a big thanks to Mr. Hammad, who is HOD in HR at Servis
Industries Limited. He was nice and helped us with our interview. He gave us all the
information we needed for our project. Thanks, Mr. Hammad!
And we can't forget to thank our classmates and Seniors. They helped us a lot too. Without
their support, we wouldn't have finished our task. Thank you, everyone!
Abstract:
This is a report that three college students from Government College University in Lahore
worked on for their Business Accounting and Finance class. It's a big part of their semester
grade. The goal of the report was to learn about how a company works and to understand the
real-world mechanics of the industry they were studying. They visited production facilities to
see things in action.
The students made a questionnaire with questions about different parts of the company, like
Human Resources, Production, Sales, and Finance. They were lucky because Mr. Hammad,
the HR Manager, and his colleagues were nice. They took the time to answer all the
questions and even talked about some problems and how to solve them. Everything we
learned is in this report.
Company Overview:
Servis is a company from Pakistan that makes shoes and tires. It started in 1941
and has factories in different cities in Pakistan and even in Sri Lanka. They
make shoes under the name Servis Shoes and tires under the name Servis Tyres.
Vision:
To become a Global, World class and Diversified Company which leverages its
brands and its people.
Mission:
Improve market share, quality, diversity, availability, presentation,
reliability, and customer acceptance.
Ensure profitability and growth for shareholders.
Prioritize cost-conscious decision-making without compromising quality.
Create an efficient resource management and business-friendly
environment.
Develop a professional and motivated management team for effective
leadership.
Stay updated with modern technology and designs for production
optimization and international recognition.
Uphold ethical business standards and contribute to national economic
development and charitable causes.
History:
Origins:
Servis started over 50 years ago with friends Ch. Nazar Muhammad, Ch.
Muhammad Hussain, and Ch. Muhammad Saeed.
In 1941, they began with small-scale production in Lahore, making
handbags and sports goods.
Their business flourished, supplying products across India during the
Partition.
Expansion:
Products:
Servis Group has over 450 stores across Pakistan and sells to over 2500
independent retailers.
Less than half of their sales come from tires and tubes.
Associated Companies:
1. S2 Power Limited.
2. S2 Hydro Limited
3. Service Industries Capital (Pvt) Ltd.
4. SIL FZE Gulf
5. Shahid Arif Investments (Pvt) Ltd.
6. SBL Trading (Pvt) Ltd.
7. Service Shoes Lanka (Pvt) Ltd.
8. Servis Foundation.
9. Service Global Footwear Limited.
10. Service Long March Tyres (Pvt) Ltd.
11. JOMO Technologies (Pvt) Ltd.
Group Profile:
About Service Industries Limited (SIL):
SIL has been making tires and tubes since 1970, being a pioneer in
Pakistan.
They focus on motorcycles and bicycles.
SIL is a market leader in bicycles and holds a majority share in the
motorcycle market.
They supply to major motorcycle manufacturers like HONDA and
YAMAHA.
With over 3,300 employees and a turnover of approximately $152 million
per year, they are a low-cost producer.
Global Reach:
SIL is the largest exporter of tires and tubes, selling to over 36 countries.
They've expanded globally with a footprint in various international
markets.
Questions asked from the concerned departments
Production Department:
Questions Asked Related to Production Department:
The organization acquires its raw materials from various origins, including China and
Turkey, as well as local sources. Specifically, Servis Tyres obtains its motorcycle, bicycle,
motor rickshaw, and trolley tires from local manufacturers in Pakistan, such as Servis Tyres.
On the other hand, Servis Shoes imports certain raw materials like rubber, leather, and
synthetic fabrics from overseas to adhere to global standards and fulfil customer expectations.
Consequently, Servis Industries employs a combination of local and international raw
materials, tailoring its approach based on product categories and market demands.
The production time required for each batch is approximately 30 days. This duration accounts
for the varying nature of products, with factors such as peak seasons like Eid and seasonal
changes influencing the production schedule based on demand fluctuations.
Does the production department rely more on manual labour or machinery for its
operations?
In Servis Industries, waste management and recycling practices involve systematic collection
and recycling of discarded materials. The company likely implements specific programs for
recycling materials such as rubber from shoes. Regular audits and compliance with local
waste disposal regulations are essential components of their waste management strategy,
emphasizing a commitment to environmentally responsible practices within the shoe
manufacturing sector.
What are the standards for Quality Management?
Servis Industries maintains elevated quality standards and does not compromise on them,
striving to fulfil client requirements.
Finance Department:
Questions Asked Related to Finance Department:
Reducing variable costs at Servis Industries can enhance profitability and competitiveness.
However, limitations exist:
Quality: Trimming variable costs may compromise product quality, impacting customer
satisfaction and brand image. For instance, using cheaper materials like rubber or leather
might affect durability and safety.
Capacity: Cost reductions may limit business capacity, affecting market share and revenue.
Downsizing labor or equipment could hinder meeting customer demand during peak seasons.
Servis Industries must balance variable costs with quality, capacity, and innovation goals,
considering trade-offs and benefits. Monitoring market trends and competitor strategies is
crucial for adjusting variable costs effectively.
What strategies can be employed to decrease fixed costs?
Fixed costs are beyond control as they hinge on factors like inflation, dollar rates,
government policies, electricity prices, and fuel costs. Despite this, Servis Company takes the
initiative to implement solar systems, distinguishing itself from others.
Negotiating leases and contracts: Seeking better rates or terms from landlords, suppliers, or
service providers, or exploring alternatives with improved value or flexibility.
Reducing staff and consolidating operations: Streamlining the workforce and operations
by eliminating non-core functions, merging, or closing unprofitable units, or adopting remote
working arrangements.
How was the increase in Cost of Goods Sold (CGS) in 2022 compared to 2021?
In 2022, the Cost of Goods Sold experienced a rise compared to 2021, primarily attributed to
inflation, fluctuations in the dollar exchange rate, stringent government policies, and political
instability impacting the prices of various raw materials and fuel.
How is your budget formulated, and does it effectively address your future
requirements and investment plans?
Servis Industries Limited formulates its budget by meticulously analyzing past data while
maintaining a keen focus on future considerations. Prior to the impact of COVID-19, the
budgeting process relied heavily on historical records. However, in the post-COVID era,
there has been a significant shift, and the budget is now crafted with a forward-looking
perspective, emphasizing future endeavors, and adapting to the evolving business landscape.
This strategic approach allows Servis Industries Limited to navigate challenges, capitalize on
emerging opportunities, and ensure financial preparedness for the dynamic market conditions.
Human Resources Department:
Questions Asked Related to Human Resources Department:
What is the hiring policy for labour at your organization? Do you exclusively hire
trained and skilled labour, or is untrained labour also considered?
The minimum criteria for hiring administrative faculty include a graduation degree and
relevant work experience.
(Rupees in thousand)
Cash and bank balances 1,424,59 103. 699,296 Cash and bank
2 72 balances
increased by
725,295
Current Liabilities
Trade and other payables 6,359,206 26.06 5,124,422 Decrease of 1,234,784 is
observed
(Rupees in thousand)
Profit from Operations (PBIT) 4,022,820 117.49% 1,850,571 Increase in Operating profit
shows high profitability
net of taxation
Ratio Analysis
PROFITABILITY RATIOS
Gross Profit Ratio Gross Profit 23.02 % 19.18 It shows the relationship between GP and Sales
x 100
Net Sales
and the efficiency with which a business
produces its products.
After-Tax Profit Ratio Profit after tax 1.02 % 1.30 It shows the overall profitability of business. It
x 100
Net Sales
ensures how efficiently the business is
conducting its operations. High net profit ratio
shows efficient operating expenses and low
finance cost.
Return on Equity (ROE) Pr ofit after tax 4.87 % 4.88 Here, Equity includes Ordinary Share Capital
100
Avg . Equity
and all reserves. This ratio is of great
importance to present and prospective
shareholders as well as management.
Return on Capital PBIT 21.25 % 25.32 Here, Capital employed means Equity and
x 100
Avg . Capital Employed
Employed (ROCE) long-term borrowings. High ROCE shows high
profitability and efficient funds management
Return on Assets (ROA) PBIT 9.99 % 5.55 It measures overall efficiency of a company in
x 100
Avg . Asset s
generating profits using its assets efficiently
LIQUIDITY RATIOS
Ratio Name Formula 2021 Unit 2020 Analysis
Current Ratio Current Assets 0.9 % 0.95 It represents to the margin of safety to the
Current Liabilities
creditors. It is an index of the business financial
stability. High Current ratio determines better
liquidity position.
Quick Ratio Current Assets−Inventory 0.41 % 0.41 It measures business’s capacity to pay off
Current Liabilities
current obligations immediately. High quick
ratio determines longer debtor’s credit period.
ACTIVITY/TURNOVER RATIOS
Inventory Turnover Cost of Sales 3.81 Times 3.02 High inventory turnover ratio determines
Avg . Inventory
Ratio efficient inventory management and high sales
Debtors Turnover Ratio Credit Sales 0.07 Times 0.54 Slightly low debtors’ turnover ratio determines
Avg . Debtors
longer credit periods and slightly poor control
over debtors.
Creditors Turnover Credit Purchases 1.11 Times 0.89 High creditors’ turnover ratio determines timely
Avg . Creditors
Ratio payment to suppliers and credit worthiness
Assets Turnover Ratio Sales 1.05 Times 0.98 A very slight change in assets’ turnover ratio
Avg . Assets
shows slightly less efficient utilization and
productivity of assets
Working Capital Cycle / Inventory Period + Debtors 44.05 Days 51.03 Low working capital shows high inventory
Operating Cycle collection period – Creditors turnover and better control over debtors
payment period
LEVERAGE RATIOS
Ratio Name Formula 2022 Unit 2021 Analysis
Debt to Equity ratio Debt 4.53 % 3.56 It indicates the relationship between external
x 100
Equity
finance and internal finance. High ratio determines
less risk shared by owners and higher debts
Gearing Ratio Debt 81.93 % 78.08 It measures the portion of total finance of a
x 100
Debt + Equity
business relating to the outsiders. Low ratio shows
lower debt and better solvency position
Interest Cover Ratio PBIT 2.17 Times 1.41 It indicates whether the business earned
Interest
sufficient profits to pay periodically the interest
charges. High ratio shows high profitability and
ability to take further debts.
Budget:
We assume that the growth trends in financial year 2023 remains same as we observed in 2022.
Rupees in thousand
Advance income tax - net of provision for taxation (11.76) (71,481) 536,034
(Rupees in thousand)
Current Liabilities
Trade and other payables 26.06 1,234,784 6,359,206
(Rupees in Thousand)
9,874,557 42,599,481
Revenue 30.17
net of taxation