Assessing Financial Health of Traditional Red Brick Kilns of Sindh, Pakistan

Abstract

The objective of this research is to assess financial stability (ratios) and finding optimum debt equity mix, utilization level of labour/capital, availability of investment opportunity and value addition at kilns of Sindh. Sample includes random 90 kilns of (North) Sindh sub divided into small, medium and large sizes. Only three districts are chosen i.e. Khairpur, Sukkur, and Larkana along with Sindhu river. Research is applied with already prepared questionnaire form, and survey technique. There are two types of kiln costs, fixed and variable costs. For small, medium and large kilns VC is 27%, 16%, and 12 % of total COGS (Cost of goods sold)(final cost at a kiln), total production of average bricks is 230429, 2465477 and 7147059 bricks, inventory turnover ratio is 10, 9.6 and 8.7, revenue per employee is 93563, 456719 and 566199 rupees, net working capital is 2691000, 2108725 and 3730857 rupees, net profit is 281808, 3647403 and 14908971 rupees, net profit margin is 0.15, 0.21 and 0.29, payback period (months) is 23.6, 26.9 and 8.3, and BCR is 0.27, 0.35 and 0.52. Maintenance cost to total expense ratio is 1.4% on average for the sample of all 90 kilns. On the average brick kiln industry current ratio is 7. Owner of the kiln gets most of the profit .In the end 10000 bricks are sold 1280 times initial cost of procuring clay. There is insignificant relationship between Credit sales and Net profit at a kiln at adjusted R2 value of 0.018. This industry is labour intensive. Kilns earn by selling bricks as whole lot or in batches because this decreases total spoilage cost. Kilns earn profit by many other activities i.e. via renting assets, advance booking, and selling product directly to consumers without middlemen. Kilns require large initial investment. Kiln industry is dominated by capital lenders. Mostly kiln equity percentage lies between 20- 30% of the total debt equity mix. Least owned are large kilns. Sindh kilns are different from Punjab kilns as they lack in use of efficient fuel (coal), eco friendly technology (zig zag) and government kiln registration. There should be a government tax system at each level of brick kiln value chain. Kilns are run without professionalism as all the inputs are either underutilized or over utilized