GOKALDAS EXPORTS LTD.

INTRODUCTION TO THE COMPANY

VISION
To be a globally reputed apparel manufacturer, evoking distinctive recognition for
Product, Performance, Processes and People.
MISSION
Achieve profitable growth through Innovation, Quality, Consistency and Commitment.

BACKGROUND: GOKALDAS EXPORTS LTD.

Gokaldas Exports was founded by the late Jhamandas Hinduja in Bangalore in 1979.
Hinduja had moved to Bangalore from Pakistan prior to the 1947 partition of India and
established a business that manufactured silk scarves and stoles. On a trip to Copenhagen
in 1971, he had his flash of inspiration that started his success story. One of his business
contacts asked him to copy two shirts, a request, it turned out that was incredibly
fortuitous as the market for silk scarves was increasingly saturated.
GEX, the Company was incorporated on March 1, 2004 by converting the erstwhile
partnership firm Gokaldas India under Part IX of the Companies Act, 1956. Pursuant to
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the order of the Honble High Court of Karnataka dated November 20, 2004, Gokaldas
Exports Private Limited and The Unique Creations (Bangalore) Private Limited have been
amalgamated with the Company, with April 1, 2004 being the appointed date.
The Company is engaged in the business of design, manufacture, and sale of a wide range
of garments for men, women, and children and caters to the needs of several leading
international fashion brands and retailers. The principal source of revenue for the
Company is from export of garments and related products. The company targeted export
markets- primarily The US and Europe and began to expand through partnership
arrangements.

Today, Gokaldas Exports Limited (GEX) is one of the leading apparel exporters of India
serving large global retailers since its inception in the year 1978.GEX, an ISO 9001:2008
certified company, operates from 32 units spread across states of Karnataka, Tamil Nadu
and Andhra Pradesh and has installed capacity to produce more than 2.5 million garments
per month. GEX provides employment to 33,000 people.

GEX blends its manufacturing expertise with state of the art design capabilities to provide
multiproduct offerings; sustained reliability weaved with consistent quality to meet
changing demands from customers at right cost: from design to delivery. GEX has a
diversified product portfolio across various categories of garments for men, women and
children.

Various categories catered to by GEX: The factories are dedicated by buyers and by
products, specializing in creating Outerwear, Blazers and Pants (Formal and Casuals),
Shorts, Shirts, Blouses, Denim Wear, Swim Wear, Active and Sports Wear. Keeping pace
with the requirements of famous labels in 39 countries.

Product strengths - outerwear, bottoms, sportswear, formal suits, trousers, skirts,

and denim wear across all genders.

Global customer base, covering USA, Europe, Latin America, Middle East and
India, servicing almost all major brands.

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RATIO ANALYSIS
INTRODUCTION
A sustainable business and mission requires effective planning and financial management.
Ratio analysis is a useful management tool that will improve your understanding of
financial results and trends over time, and provide key indicators of organizational
performance.
Objective of Ratio Analysis:
The main objective of analysing financial statement with the help of ratios are:
1.

The analysis would enable the calculation of not only the present earning capacity of

the business but would also help in the estimation of the future earning capacity.
2.

The analysis would help the management to find out the overall as well as the

department wise efficiency of the firm on the basis of the available financial
information.
3.

The short term as well as the long term solvency of the firm can be determined with

the help of ration analysis.

4.

Inter firm comparison becomes easy with the help of ratios.

Advantages of Ration Analysis:

Financial statement prepared at the end of the year do not always convey to the reader the
real profitability and financial health of the business. They contain various facts and
figures and it is for the reader to conclude what these figures indicated. Ratio Analysis is
an important tool for analysing these financial statements .Some important advantage
derived by the firm by the use of accounting ratios are:
1.

Help in Financial statement analysis

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It is easy to understand the financial position of a business enterprise in respect of short

term solvency, liquidity and profitability with the help of ratio. It tells us the changes
taking place in the financial condition of the business.
2.

Simplified accounting figures

Absolute figures are not of mush use. They become important when relationships are
established say between gross profit and sales.
3.

Helps in calculating operation efficiency of the business enterprise

Ratio enable the user of financial information to determine operating efficiency of a firm
by relating the profit figure to the capital employed for a given period.
4.

Facilities inter- firm comparison

Ratio analysis provides data for inter- firm comparison. It revels strong and weak firms,
overvalues and undervalues firms as well as successful and unsuccessful firms.
5.

Makes inter- firms comparison possible

Ratio Analysis helps the firm to compare its own performance over a period of time as
well as the performance of different divisions of the firm. It helps in deciding which
division are more efficient than other.
6.

Helps in forecasting

Ratio Analysis helps in planning and forecasting. Ratios provides clues on trends and
futures problems. e.g. if the sales of a firm during the year are Rs. 10 lakhs and he average
stock kept during the year Rs. 2 lakhs, it must be ready to keep a stock of Rs. 3 lakhs
which is 20 % of the Rs. 15 lakhs.
Ratios can be divided into four major categories:

Profitability Sustainability

Operational Efficiency

Liquidity

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Leverage (Funding Debt, Equity, Grants)

Limitations of Ratio Analysis

Ratio Analysis is a useful technique to evaluate the performance and financial position of
any business unit but it does suffer from a number of limitations. These must be kept in
mind while analysing financial statements.

1. Historical Analysis
Ratio Analysis is historical in nature a financial statement on the basis of which
ratios are calculated are historical in nature.

2. Price Level Change

Changes in price level often make comparison of figures of the previous years
difficult. E.g ratio of sales to fixed assets in 2006 would be much higher than in 2000
due to rising prices, fixed assets being expressed on cost.

3. Not Free from bias

In many situations, the accountant has to make a choice out of the various
alternatives available. E.g. choice of the method depreciation, choice in the method of
inventory valuation etc. Since there is a subjectivity inherent in the choice, ratio
analysis cannot be said to be free from bias.

4. Window dressing
Window dressing is slowly the position better than what it is. Some companies, in
order to cover up their bad financial position resort to window dressing. By hiding
important facts, they try to depict a better financial position.

5. Qualitative factors ignored

Ratio Analysis is a quantitative analysis. It ignores qualitative factors like debtors
character, honesty, past record etc.

6. Different accounting practices render ratios incomparable

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The result of two firms are comparable with the help of accounting ratios only if they
follow the same accounting methods. E.g. if one firm changes depreciation on straight
line method while another is charging on diminishing balance method, accounting
ratios will not be strictly comparable.

RATIO ANALYSIS OF GOKALDAS EXPORTS LTD FROM

2010 TO 2014

1. CURRENT RATIOS
Does the enterprise have enough cash on an ongoing basis to meet its operational
obligations? This is an important indication of financial health

1. Definition
Current ratio, also known as liquidity ratio and working capital ratio, shows the
proportion of current assets of a business in relation to its current liabilities.

2. Formula
Current Assets
Current Ratio

=
Current Liabilities

3. Explanation
Current ratio expresses the extent to which the current liabilities of a business (i.e.
liabilities due to be settled within 12 months) are covered by its current assets (i.e. assets
expected to be realized within 12 months). A current ratio of 2 would mean that current
assets are sufficient to cover for twice the amount of a company's short term liabilities
Current assets include cash and those assets which can be converted into cash within a
year. Current assets will therefore include cash, bank, stick (raw materials, work in
progress and finished goods), debtors(less provision), bills receivable, marketable
securities, prepaid expenses, short term loans and advances and accrued incomes.

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Current liability include all those liabilities maturing within one year. Current liabilities
include creditors, bills payable, outstanding expenses, income received in advance , bank
overdraft, short-term loans, provision for tax , proposed dividend and unclaimed dividend.
GEX CURRENT RATIO

Gokaldas Exports Ltd has Current Ratio of 0.63 indicating that it has a negative working

CURRENT RATIO
0.87
0.73
0.63
0.54
0.48

Mar '14

Mar '13

Mar '12

Mar '11

Mar '10

capital and may not be able to pay financial obligations in time and when they become
due. Generally, companies would aim to maintain a current ratio of at least 1 to ensure that
the value of their current assets cover at least the amount of their short term obligations.
If we analyse the four year trend the highest was 0.87 in the year 2010,then too it was
having a negative working capital, the least being in 2013 it went down to 0.48 but has
rose to 0.68 in 2014.

The company currently has very low current ratio it can pay only 68% of its short term
debts, we can see that the company has reduced its inventory level from 2010 Rs 370.79
crore to 2014 Rs 201.92, the current assets also have decreased drastically from 2010 Rs
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513.32 crore to 2014 Rs 239.55 crore, and the companies liabilities have increased from
2010 Rs 88.6 crore to 2014 167.11 crore. Though there is huge growth in current assets
from 2010 Rs 59,998.07 lakhs to Rs 68,190.63 lakhs in 2014.The liabilities have also
increased.

2. QUICK RATIO
1. Definition
Quick ratio establishes the relationship between quick/ liquid assets and current liabilities.

2. Formula

Quick ratio = Quick Assets

Current Liabilities

3. Explanation
It is vital that a company have enough cash on hand to meet accounts payable, interest
expenses and other bills when they become due. The higher the ratio, the more financially
secure a company is in the short term. A common rule of thumb is that companies with a
quick ratio of greater than 1.0 are sufficiently able to meet their short-term liabilities.
In general, low or decreasing quick ratios generally suggest that a company is overleveraged, struggling to maintain or grow sales, paying bills too quickly or collecting
receivables too slowly. On the other hand, a high or increasing quick ratio generally
indicates that a company is experiencing solid top-line growth, quickly converting
receivables into cash, and easily able to cover its financial obligations. Such companies
often have faster inventory turnover and cash conversion cycles.
Finally, the formula assumes that a company would liquidate its current assets to pay
current liabilities, which is not always realistic, considering some level of working capital
is needed to maintain operations.
It is also important to understand that the timing of asset purchases, payment and
collection policies, allowances for bad debt and even capital-raising efforts can all impact

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the calculation and can result in different quick ratios for similar companies. Capital needs
that vary from industry to industry can also have an effect on quick ratios.

QUICK RATIO
2.38

2.52

1.38

1.21
0.78

Mar '14

Mar '13

Mar '12

Mar '11

Mar '10

GEX is currently having a quick ratio of 1.21 in 2014 which is satisfactory , it increased
in comparison to last year where it was in negative (only 0.78). But if we see the overall
trend from 2010 it was having a 2.52 which was above satisfactory. In 2011 also it had
2.38 then it decreased to 1.38 in 2012 further decreasing to 0.78 in 2013 the lowest in
these 5 years. In 2013 the sundry debts had become low as well as the cash in bank was
less compared to 2014.

3. INVENTORY TURNOVER RATIO

1. Definition
The inventory turnover ratio is an efficiency ratio that shows how effectively inventory is
managed by comparing cost of goods sold with average inventory for a period.

2. Formula

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Inventory Turnover = Cost of Goods Sold / Average Inventory

Cost of Goods Sold = Opening Stock+ Purchases+ Carriage Inward +Direct

Wages and Expenses - Closing Stock
* Cost of Goods Sold = Sales - Gross profit
* Average Stock = (Opening Stock + closing stock)/2

3. Explanation
Inventory turnover is a measure of how efficiently a company can control its merchandise,
so it is important to have a high turn. This shows the company does not overspend by
buying too much inventory and wastes resources by storing non-saleable inventory. It also
shows that the company can effectively sell the inventory it buys.
This measurement also shows investors how liquid a company's inventory is. Think about
it. Inventory is one of the biggest assets a retailer reports on its balance sheet. If this
inventory can't be sold, it is worthless to the company. This measurement shows how
easily a company can turn its inventory into cash.
Creditors are particularly interested in this because inventory is often put up as collateral
for loans. Banks want to know that this inventory will be easy to sell.
GEX INVENTORY TURNOVER RATIO

INVENTORY TURNOVER
6.12
5.51
4.04

3.96
3.11

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Mar '14

Mar '13

Mar '12

Mar '11

Mar '10

Gokaldas Exports Ltd has Current Inventory turnover of 5.51.If we analyse the past five
years data the inventory turnover has increased from 3.11 times in 2010 to 5.51times in
2014. The inventory turnover is average for GEX. The highest was in the year 2012 when
it had turned its inventory 6.12 times in a year.

4. TOTAL ASSETS TURNOVER RATIO

1. Definition
The amount of sales or revenues generated per dollar of assets. The Asset Turnover ratio is
an indicator of the efficiency with which a company is deploying its assets.

2. Formula
Asset Turnover = Sales or Revenues / Total Assets

3. Explanation
Total Assets is the sum of all assets, current and fixed. The higher the ratio, the better it is,
since it implies the company is generating more revenues per dollar of assets.

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TOTAL ASSET TURNOVER RATIO

Total Assets

Asset Turnover Ratio

805.01
685.91
477.67

433.81

430.38

2.57
Mar '14

2.13
Mar '13

1.72
Mar '12

1.52
Mar '11

1.42
Mar '10

GEX total asset turnover ratio has gradually increased from 1.42 in 2010 to 2.57 in 2014.
It measures the ability of a company to use its assets to efficiently generate sales. The
higher the ratio indicates that the company is trying to utilize its assets efficiently to
generate sales. We can see that there is a drastic reduction in the current assets in these
five years.

5. NET PROFIT MARGIN

1. Definition
A ratio of profitability calculated as net income divided by revenues, or net profits divided
by sales. It measures how much out of every dollar of sales a company actually keeps in
earnings.

2. Formula
Net Profit Margin =

Net Profit
Sales

3. Explanation
Net profit margin is one of the most closely followed numbers in finance. Shareholders
look at net profit margin closely because it shows how good a company is at converting
revenue into profits available for shareholders.

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Profit Margin measures overall efficiency of a company and shows its ability to withstand
competition as well as defend against adverse conditions such as rising costs, falling
prices,
decline in sales or management distress. Profit margin tells investors how well the
company executes on its overall pricing strategies as well as how effective the company in

controlling its costs.

NET PROFIT MARGIN

Mar '14
-0.64

Mar '13

Mar '12

Mar '11

Mar '10
-0.16

-7.7

Gokaldas
Exports

-11.49
-13.19

Ltd

has Profit Margin of -0.64% in 2014 .This is 27.27% lower than that of the Consumer Goods
sector, and 142.95% lower than that of Profit Margin industry, the Profit Margin for all stocks
is 69.52% lower than the company. After 2010 the net profit was alarmingly going in
negatives, it had reached till -13.19 in 2012. Gokaldas is located in Bangalore, and most of its
factories too due to which the wages are high, cost of production is increasing.

6. DEBTORS RATIO

1. Definition

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Calculate debtors turnover ratio with the help of debtors turnover ratio formula and
examples for accounts receivable turnover ratio days payment.

2. Formula
Debtors Turnover Ratio = Net Credit Sales / Average Trade Debtors
But when the information about opening and closing balances of trade debtors and credit
sales is not available, then the debtors turnover ratio can be calculated by dividing the
total sales by the balance of debtors (inclusive of bills receivables) given and formula can
be written as follows.
Debtors Turnover Ratio = Total Sales / Debtors

3. Explanation
Debtors turnover ratio measures the efficiency of a business in collecting its credit sales.
Generally a high value of accounts receivable turnover is favourable and lower figure may
indicate inefficiency in collecting outstanding sales. Increase in accounts receivable
turnover overtime generally indicates improvement in the process of cash collection on

credit sales.

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DEBTORS TURNOVER RATIO

13.83

13.82
13.62

12.68
12.49

Mar '14

Mar '13

Mar '12

Mar '11

Mar '10

GEX current debtors ratio is 12.68, if we analyse the four years ratio then the ratio has
decreased compared to last two years and from 2010. The least ratio was in the year 2012
12.49. The general turnover trend is quite fast in an average the debtors are converted to
cash in 27 to 35 days. Last year the collection period was 28 days. The higher turnover
ratio and shorter average collection period, the better is the trade credit management and
better is the liquidity of debtors. There is a prompt payment on debtors part.

7. OPERATING MARGIN
1. Definition
A ratio used to measure a company's pricing strategy and operating efficiency.

2. Formula
Operating Margin
=

Operating
Income
Revenue

3. Explanation
Operating margin is a measurement of what proportion of a company's revenue is left over
after paying for variable costs of production such as wages, raw materials, etc. A healthy
operating margin is required for a company to be able to pay for its fixed costs, such as
interest on debt. To determine the quality of a company, it is best to look at the change in
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operating margin over time and to compare the company's yearly or quarterly figures to
those of its competitors. If a company's margin is increasing, it is earning more per dollar
of sales. The higher the margin, the better.

GEX has attained a profit margin of 3.84 in March 2014 an increase from a negative
operating expense of 4.81 in March 2013.The negative operating expense went up to
6.49 in March 2012. But when compared to March 2010 the operating profit was the
highest of 4.32. The companies employee cost in 2010 was Rs 91.21crore and it increased
to Rs. 123.71 crore. The company has reduced its employee cost to Rs 113.93 crore in
2014.Miscelenious expense has increased from Rs 6.37 crore in 2010 to Rs 359.75 crore in
2013. In 2014 it reduced its miscellaneous expense to Rs 103.68 crore are the major reason
due to which they have been able to come out from negative operating expense in 2014.

8. DEBT-EQUITY RATIO
1. Definition
A measure of a company's financial leverage calculated by dividing its total liabilities by
stockholders' equity. It indicates what proportion of equity and debt the company is using
to finance its assets.

2. Formula
Debt-to-Equity Ratio =

Total Liabilities
Shareholders' Equity

3. Explanation
Lower values of debt-to-equity ratio are favourable indicating less risk. Higher debt-toequity ratio is unfavourable because it means that the business relies more on external
lenders thus it is at higher risk, especially at higher interest rates. A debt-to-equity ratio of
1.00 means that half of the assets of a business are financed by debts and half by
shareholders' equity. A value higher than 1.00 means that more assets are financed by debt
that those financed by money of shareholders' and vice versa.
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An increasing trend in of debt-to-equity ratio is also alarming because it means that the
percentage of assets of a business which are financed by the debts is increasing.

DEBT TO EQUITY RATIO

2.55

2.55

1.1
0.86

Mar '14

Mar '13

Mar '12

Mar '11

0.75

Mar '10

GEX has a current debt equity ratio of 2.55 in 2014 it implies low safety margin for
creditors. The owners are putting up less money of their own. It is a danger signal for the
creditors. If the company should fail financially, the creditors would lose heavily. There is
a greater risk in the capital structure would lead to inflexibility in the operations of the
firm as creditors would exercise pressure and interfere in management. GEX has to face
heavy burden of interest payments, particularly in adverse circumstances. It would have to
face very heavy restriction while borrowing money. If we see a 4 year trend in 2010 the
ratio was only 0.75 which was satisfactory to 1.1 in 2012 thereafter the ratio has soared to
2.55 in both the year 2013 & 2014. The book value of the share has reduced drastically
from Rs 133.85 in 2010 to Rs 35.29 in 2014.

9. RETURN ON CAPITAL EMPLOYED

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1. Definition
A financial ratio that measures a company's profitability and the efficiency with which its
capital is employed.

2. Formula
ROCE = Earnings before Interest and Tax (EBIT) / Capital Employed

3. Explanation
Capital Employed as shown in the denominator is the sum of shareholders' equity and debt
liabilities; it can be simplified as (Total Assets Current Liabilities). Instead of using
capital employed at an arbitrary point in time, analysts and investors often calculate ROCE
based on Average Capital Employed, which takes the average of opening and closing
capital employed for the time period.
A higher ROCE indicates more efficient use of capital. ROCE should be higher than the
companys capital cost; otherwise it indicates that the company is not employing its capital
effectively and is not generating shareholder value.

ROCE
7.7
2.97

Mar '14

Mar '13

Mar '12

Mar '11

-9.48

-17.13
-19.66

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Mar '10

GEX has a current ROCE of 7.7 which has increased from last year where it was 17.13
in 2013. In 2013 the ROCE was lower -19.66. In 2010 it was 2.97.The return on capital
employed ratio shows how much profit each dollar of employed capital generates.
Obviously, a higher ratio is more favourable because it means that more dollars of profits
are generated by each dollar of capital employed. The ratio has increased in 2014.

10. INTEREST COVERAGE RATIO

1. Definition
A ratio used to determine how easily a company can pay interest on outstanding debt. The
interest coverage ratio is calculated by dividing a company's earnings before interest and
taxes (EBIT) of one period by the company's interest expenses of the same period.

2. Formula
Interest coverage ratio = EBIT / Interest expenses

3. Explanation
The lower the interest coverage ratio, the higher the company's debt burden and the greater
the possibility of bankruptcy or default. A lower ICR means less earnings are available to
meet interest payments and that the business is more vulnerable to increases in interest
rates. When a company's interest coverage ratio is only 1.5 or lower, its ability to meet
interest expenses may be questionable. An interest coverage ratio below 1.0 indicates the
business is having difficulties generating the cash necessary to pay its interest obligations
(i.e. interest payments exceed its earnings (EBIT)).
A higher ratio indicates a better financial health as it means that the company is more
capable to meeting its interest obligations from operating earnings. On the other hand, a
high ICR may suggest a company is "too safe" and is neglecting opportunities to magnify

INTEREST COVER RATIO

0.83

Mar '14

0.78

Mar '13

Mar '12

Mar '11

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-1.98

-2.01
-2.38

Mar '10

earnings through leverage.

GEX has currently an interest coverage ratio below 1.0, only 0.83 indicates the business is
having difficulties generating the cash necessary to pay its interest obligations (i.e. interest
payments exceed its earnings (EBIT)).But compared to past three years were the ratios were
in negative, it has increased. Even in 2010 it was just 0.78. GEX the interest has increased
from 34.63 in 2010 to 39.96 in 2014.

CONCLUSION

The Company's accumulated losses at the end of the financial year are more than fifty percent
of its net worth and it has incurred cash losses in the current and immediately preceding
financial year.
The company has Profit Margin (PM) of (0.64) % which may suggest that it does not
properly executes on its current pricing strategies or is unable to control all of the operational
costs.
This is way below average.
Gokaldas Exports Ltd recorded loss per share of 1.95. This company had not issued any
dividends in recent years. Gokaldas has been incurring loss from 2008 from the time, it was
also the time when the management was overtook by Blackstone. The buyers will take some
time to have confidence in the new management. The demand in western market has also
reduced due to which profit has reduced and also the costing are sometime approved without
profit percentage.
Advantages of Ratio Analysis
Ratio Analysis simplifies Financial Statements, facilitates inter-firm comparison; makes
intra-firm comparison possible and helps in forecasting
Limitations of Ratio Analysis
Ratio Analysis is historical in nature; changes in price level often make comparison of figures
of the previous years difficult. It is not free from bias. Some companies, in order to cover up
their bad financial position report to window dressing. Ratio Analysis ignores qualitative
factors and different accounting practices render ratios incomparable
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BIBLIOGRAPHY
1. http://www.cliffsnotes.com/more-subjects/accounting/accountingprinciples-ii/financial-statement-analysis/ratio-analysis
2. http://www.moneycontrol.com/stocks/company_info/print_main.php
3. http://faculty.philau.edu/lermackh/financial_analysis.htm
4. http://www.demonstratingvalue.org/resources/financial-ratioanalysis#Operational

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