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ON
Submitted By:
Guidance of:
Divya Prakash
Bansal
MBA (Finance)
Business
Ist Year
Mgmt.
Roll No. 1300122025
Under the
Prof. Atul
Faculty of
Research &
Project Report
ON
COMPARATIVE STUDY OF TEXTILE
INDUSTRIES IN VARANASI
Submitted in partial fulfilment for the requirement for the
award of Masters of Business Administration
Under Guidance:
Prof. ATUL BANSAL
Faculty of business research
Integral university, Lucknow
Submitted By:
DIVYA PRAKASH PANDEY
M.B.A (II SEM)
SESSION: 2013-15
Roll No: 1300122025
INTEGRAL UNIVERSITY
ACKNOWLEDGEMENT
DIVYA PRAKASH
M.B.A 2ND SEMESTER,
ROLL .NO.1300122025
STUDENT DECLARATION
Submitted by:
DIVYA PRAKASH PANDEY
Roll No: 1300122025
MBA 2nd Sem.
INTEGRAL UNIVERSITY
LUCKNOW
PREFACE
CERTIFICATE
The first year project on the topic
COMPARATIVE STUDY OF
TABLE OF CONTENTS
ACKNOWLEDGMENT
TABLE OF CONTENTS
EXECUTIVE SUMMARY
INTRODUCTION
11
15
22
24
EXECUTIVE SUMMARY
VARANASI's garment and textile are two principal industries contributing more
than 60 per cent to total export earnings, accounting for 46 percent of total
manufacturing and employing 38 percent of the manufacturing labor-force.
Exports According to official data, textile manufactures exports increased by
23.31 percent to US$6,417.83 million during the period July-May 2002-03 as
compared to the corresponding period of previous year. Their share in overall
exports stood at 64.88 percent as against 63.70 per cent during July-May 200102, thus further reducing the contribution of other categories to exports. So
looking to the increasing trend researcher is doing financial statement analysis of
selected textile companies in VARANASI. As financial statement analysis provide
deep insight to the financial position of a company, which is favorable for present
and its future of its existence. Financial ratios are widely used to develop insights
into the financial performance of companies by both the evaluators and
researchers. The firm involves many interested parties, like the owners,
management, personnel, customers, suppliers, competitors, regulatory agencies,
and academics, each having their views in applying financial statement analysis
in their evaluations.
This study is about the financial statements analysis of the selected companies in
the textile industry in VARANASI. The study is descriptive in nature. The
researcher has utilized the descriptive method in acquiring information for
collected for the consecutive five years i.e. from 1998 to 2002, in the form of
annual reports from the registrar office, containing; balance sheet, income
statement and profit & loss account. The sample for this particular research is
three different companies; Shri Sarhad Textile Mills LTD, D.M. Textile Mills LTD,
Al- Qadir Textile Mills LTD. This research is based on secondary source of data
and consists of annual reports, articles, web sites, and books.
By analyzing financial statements the findings are really interesting that Al-Qadir
Textile Company is performing much better than the industry norms, where it has
faced several problems in 1998 and 1999. Al-Qadir has the highest ROA and
ROE for the year 2000. The results and data show that Al-Qadir is highly
financed through debt and has improved the debt position, but still it is high the
company needs to increase its shareholders equity. D.M have a negative netprofit margin for 1998 and 1999. D.M shows a good ROA for the year 2001 and
over the years company has reduced its debt burden from 93% to 64%. D.Ms
current ratio is below one, which means on average 0.46 is its current ratio
showing that company has 0.45 paisas in current assets for every Rs.1 in current
liabilities. D.M has continuous negative ratio due to high credit sales. D.M are
enjoying high inventory turnover where Shri Sarhad is below the industry
average. Shri Sarhad is having negative results for the consecutive five years;
high cost of sales is being the reason for this result. Shri Sarhad has debt of
average 72%. Shri Sarhad shows variability in its current ratio. Whereas Shri
Sarhad has positive ratio of net working capital to total assets, this is because of
more assets. Shri Sarhad is in a critical situation where it should try to increase
its sales or reduce its cost of sales.
INTRODUCTION
Financial Statements are useful because they provide information that allows
investors and creditors to make better decisions. However, because of selective
Balance Sheet
Income Statement
The financial statements are interrelated and should be used and analyzed
together. Methods of financial statement analysis may be divided into two general
categories, internal analysis and comparative or external analysis.
Internal analysis uses figures from the financial statements of any one date or
period to gain an understanding of the customer. Comparative analysis may be
used to determine trends when two or more successive sets of figures are
reviewed, or may be used to evaluate a given company's financial statement
against industry standards.
These methods may be used separately or in combination. They are part of the
tools that enable experienced credit professionals to reach a credit decision.
Financial statements should be spread and analyzed, with appropriate ratios and
flows calculated as an aid in the customer evaluation. As an important first step in
internal analysis, the financial statement should be examined for validity and
general correctness. After the statement has been accepted as valid and
reasonably accurate, ratios should be calculated and the figures analyzed.
Internal analysis calls for an examination of items within a single financial
statement for the purpose of judging their significance in relation to the capital of
the company, its method of operation and conditions prevailing within the
industry. The major tools for internal analysis are balance sheet ratios and a
working knowledge of the line of business including the method of operation and
seasonal influences.
Ratios are mathematical aids for appraisal and comparison of financial
statements. They are used to supplement currency amount inspection, to
examine inter-item relationships and to compare a specific company's
performance against its industry standard.
The use of ratios reduces the influence of currency size on analysis since these
comparisons are expressed as a percentage, fraction, decimal, or rates of
turnover. Only the combinations that could be made of the items appearing in
both schedules limit the number of ratios that can be developed from the balance
sheet and income statement. The type of operation represented by the account
and the nature of the risk has an important bearing on what ratios are to be
computed and studied. This analysis compares financial information generated
for five periods.
Since its creation in 1947, the VARANASI Textile Industry has grown into the
largest and most significant economic sector in the country. The textile industry
now contributes 65% of the total exports to the national economy, 46% of its total
manufacturing, and 38% of its total employment.
The Textile Industry will continue to play an important role in the economy of
VARANASI as the country is one of the four largest cotton growers in the world
and availability of large quantity (around 10 million bales per annum) of
reasonable quality is the basis of the development and sustenance of the local
Textile Industry. The VARANASI Textile Industry is also very labor intensive with
low costs of manufacturing and raw materials.
Textile products are a basic human requirement next only to food. In spite of the
governments efforts to diversify export as well as industrial base, the textile
remains the backbone of industrial activity in the country. Its share in the
economy, in terms of GDP, exports, employment, foreign exchange earnings,
investment and contribution to the value added in industry; make it the single
largest determinant of the growth in manufacturing sector with 46 percent share
in overall manufacturing activity. The demand for textiles in the world is around
$18 trillion. VARANASI has emerged as one of the major cotton textile product
supplier in the world market and its share in world yarn trade is about 30 percent
while its share in cotton cloth trade is about 8 percent. However, overall share of
textile exports from VARANASI is around one percent. The share of textile in
VARANASIs exports earnings is 68 percent at its present worth of exports is
around $ 7 billion. The value addition in the sector account for 9 percent of GDP
and it employ 38 percent of industrial workers. During the last three years,
VARANASIs textile sector is preparing itself to face the challenges of the postquota regime in 2005.
The Government of VARANASI has adopted special steps to boost the country's
cotton industry and market through a series of amendments. A standard
committee has been appointed to look into ways to increase quality cotton
production, to provide better crop knowledge to growers and to upgrade grading,
ginning, and pressing systems to international standards.
VARANASI's cotton production in 2001-02 was 10.6 million bales. Cotton
production in 2002-03, declined to 10 million bales. The industry was not a major
player in the global arena and fiber textile producers from India were large
producers. The Central Board of Revenue (CBR) has extended the
compensatory duty drawback on the export of blended fabrics, garments, and
blended yarn from June 30, 2003 to June 30, 2004. Textile industry is now
preparing itself to survive the challenges of new textile market in 2005. The focus
is on value addition, quality, and pricing. A huge investment of US $2 billion has
been made on balancing, modernization, and replacement, which would help the
textile sector to position it in order to survive after 2005. The industry exports one
billion dollars worth of bed wear, knitwear, and readymade garments. In addition,
steps are underway to increase the exports of synthetic textiles.
VARANASI's textile industry will have to face tough competition, both in the
domestic and international markets. China will be the biggest competitor, which
after its accession to the WTO, will corner a very high percentage, which is
estimated to be from 40 per cent to 50 per cent of the global textile market.
Quality, delivery schedules, and price will be the high marks for all textile goods
in the global markets. Increase in productivity will be vital for our textile industry.
VARANASI along with China and India will have advantages, because all these
countries have a plentiful supply of the vital raw material i.e. cotton. (The NEWS,
14th,July 2003)
Financial ratios are a popular way for users of financial statements to develop
insights into the financial performance of companies. By controlling for the effect
of firm size on the level of performance, ratios enable financial statement users to
examine how a firm has performed relative to its peers and relative to its own
historical performance.
A firms ratios can differ from its peers or its own historical performance because
it has selected a different product market strategy, because its management
team has become more effective at implementing its strategy, or because it has
selected a different financial strategy. Sometimes firms can appear to perform
differently because they have selected different accounting methods for reporting
the same underlying economic events. For this reason, a pioneer to effective
financial ratio analysis is the development of a clear understanding of how a
firms accounting decisions compare with those of its competitors, or with its own
decisions in prior years.
In assessing the significance of various financial data, managers often engage in
ratio analysis, the process of determining and evaluating financial ratios. A
financial ratio is a relationship that indicates something about a company's
activities, such as the ratio between the company's current assets and current
liabilities or between its accounts receivable and its annual sales. The basic
source for these ratios is the company's financial statements that contain figures
on assets, liabilities, profits, and losses. Ratios are only meaningful when
compared with other information. Since they are often compared with industry
1- What are the profitability ratios of the textile companies with respect to:
a)
Return on Assets
b)
Return on equity
c)
d)
e)
2- What are the leverage ratios of textile companies with respect to:
a)
b)
c)
d)
3-What are the liquidity ratios of textile companies with respect to:
a)
Current ratio
b)
Quick ratio
c)
Cash ratio
d)
4-What are the efficiency ratios of textile companies with respect to:
a)
b)
c)
Inventory turnover
d)
Receivable turnover
e)
Payable turnover
Common-size analysis
Operating activities
b)
Investing activities
c)
Financing activities
1.4- OBJECTIVES
dimensions directly affect share price. The firms creditors are primarily interested
in the short-term liquidity of the company and in its ability to make interest and
principal payments. A secondary concern of creditors is the firms profitability;
they want assurance that the business is healthy and will continue to be
successful. Management, like stockholders, must be concerned with all aspects
of the firms financial situation. Thus, this study attempts to operate in a manner
that will be favorable to both owners and creditors.
In addition, management uses ratios to monitor the firms financial performance
from period to period. It will also help management to make decisions regarding
dividend policies, investments, lending, borrowings etc.
Sofie Vander Meulen in his study in 2003 states that, investors as well as other
stakeholders heavily rely on a companys financial statements. It is an important
source of information that is readily available to them at a relatively low cost. The
quality of those statements however is highly variable (aggressive reporting or
not, disclosure or not). Therefore, this research would also be obliging for the
companys investors and stakeholders.
Through this research many of the society members will be benefited and it will
be advantageous for the economy. Like investors, researchers, creditors,
management, employees, lenders, suppliers, customers, auditors, and analysts
will equally be able to take assistance from this research.
LIMITATIONS:
1.
doesnt have modern software available to analyze the findings so the result is
based on manual work.
2.
The availability of funds is the one of the limitations while doing this
The time period for the research is very short because it is difficult to
LITERATURE REVIEW
Ratios are a valuable analytical tool when used as part of a thorough financial
analysis. They can show the standing of a particular company, within a particular
industry. However, ratios alone can sometimes be misleading. Ratios are just one
piece of the financial jigsaw puzzle that makes up a complete analysis. (Leslie
Rogers, 1997)
Financial ratios are widely used to develop insights into the financial performance
of companies by both the evaluators and researchers. The firm involves many
interested parties, like the owners, management, personnel, customers,
suppliers, competitors, regulatory agencies, and academics, each having their
views in applying financial statement analysis in their evaluations. Evaluators
use financial ratios, for instance, to forecast the future success of companies,
while the researchers' main interest has been to develop models exploiting these
ratios. Many distinct areas of research involving financial ratios can be
differentiated. (Barne, 1986)
Financial ratios can be divided into several, sometimes overlapping categories.
A financial ratio is of the form X/Y, where X and Y are figures derived from the
financial statements or other sources of financial information. One-way of
categorizing the ratio is on the basis where X and Y come from. In traditional
financial ratio analysis both the X and the Y are based on financial statements.
If both or one of them comes from the income statement the ratio can be called
dynamic while if both come from the balance sheet it can be called static. The
concept of financial ratios can be extended by using other than financial
statement information as X or Y in the X/Y ratio. For example, financial
statement items and market-based figures can be combined to constitute the
ratio. (Salmi, Vitanen, and Olli, 1990)
In trend analysis, ratios are compared over time, typically years. Year-to-year
comparisons can highlight trends and point up the need for action. Trend analysis
works best with three to five years of ratios. The second type of ratio analysis,
cross-sectional analysis, compares the ratios of two or more companies in similar
lines of business. One of the most popular forms of cross-sectional analysis
compares a company's ratios to industry averages. These averages are
developed by statistical services and trade associations and are updated
annually. (Ezzamel, Mar-Molinero and Beecher, 1987)
Financial ratios can also give mixed signals about a company's financial health,
and can vary significantly among companies, industries, and over time. Other
factors should also be considered such as a company's products, management,
competitors, and vision for the future. (Fieldsend, Longford and McLeay, 1987)
There are many different ratios and models used today to analyze companies.
The most common is the price earnings (P/E) ratio. It is published daily with the
transactions of the New York Stock Exchange, American Stock Exchange, and
NASDAQ. These quotations show not only the most recent price but also the
highest and lowest price paid for the stock during the previous fifty-two weeks,
the annual dividend, the dividend yield, the price/earnings ratio, the day's trading
volume, high and low prices for the day, the changes from the previous day's
closing price. The price to earnings (P/E) ratio is calculated by dividing the
current market price per share by current earnings per share. It represents a
multiplier applied to current earnings to determine the value of a share of the
stock in the market. The price-earnings ratio is influenced by the earnings and
sales growth of the company, the risk (or volatility in performance), the debtequity structure of the company, the dividend policy, the quality of management,
and a number of other factors. A company's P/E ratio should be compared to
those of other companies in the same industry. (Garcia-Ayuso, 1994)
Financial statement analysis applies analytical tools and techniques to generalpurpose financial statements and relates data to derive estimates and inferences
useful in business decisions. It is a screening tool in selecting investment or
merger candidates, and is a forecasting tool of future financial conditions and
consequences. It is a diagnostic tool in assessing financing, investing, and
operating activities, and is an evaluation tool for managerial and other business
decisions. Financial statement analysis reduces our reliance on hunches,
guesses, and intuition, and in turn it diminishes our uncertainty in decisionmaking. It does not lessen the need for expert judgment but rather establishes an
effective and systematic basis for making business decisions. (Bernstein and
Wild, 1990)
managements
actions.
Regulatory
agencies
utilize
financial
3.2- DATA
The research data is secondary in nature as for this particular research. The data
is collected for the consecutive five years i.e. from 1998 to 2002, in the form of
annual reports from the registrar office, containing:
Balance sheet
Income statement
TABLE 4. 1
2002
2001
2000
1999
1998
Net Sales
Cost of Sales
Gross Profit
Operating Expense
100%
92.93
7.07
3.22
100%
86.70
13.30
2.63
100%
78.89
21.10
4.71
100%
87.14
12.86
4.50
100%
88.89
11.12
4.49
Operating Profit
Other Income
3.85
0.19
4.04
(3.38)
(0.01)
2.82
10.75
0.11
10.86
(4.79)
(0.30)
5.77
16.40
0.02
16.42
(6.89)
(0.48)
9.06
8.36
0.11
8.46
(9.30)
___-__
(0.84)
6.62
0.10
6.72
(8.23)
___-__
(1.51)
0.79
0.08
1.95
0.50
0.01
4.21
1.07
7.99
0.63
___-__
(1.46)
0.23
0.74
(0.97)
Financial Charges
Workers Participation Fund
Profit/Loss Before Taxation
Taxation:
Current- year
Prior-year
Profit After Tax
Starting with the cost of sales the companys average cost of sales for five years
are 86.91% for five years, moreover which has changed each year as it depends
on many other factors like raw-material consumed, salaries and wages, electricity
used etc. Gross-profit has gradually decreased for the first four years but for the
last year it is maximum with respect to previous years. Similar is the case with
operating expense; the company has reduced its operating expense, in 2001
these expenses are minimum the attractive thing to note here is companys sales
are highest for this year and that is Rs. 707,050,099.
Company has also concentrated its financial obligations by the end of 2002. For
the year 1998 and 1999 profit before taxation is negative additionally that makes
the company to bear loss and for three years reduction can be seen in the profit
both before and after taxation.
Al- Qadir Textile Mills Limited
Common-size Income Statement
For Year 1998 2002
FIGURE 4. 1
PERCENTAGE
100
80
Cost of Sales
60
Gross Profit
40
Operating Expense
20
Operating Profit
0
1998 1999 2000 2001 2002
YEARS
Figure 4.1 shows the common-size analysis of Al-Qadir textile mill, in which sales
are shown as 100 percent and other item as a percentage of sales. When cost of
goods sold is subtracted from the sales we get gross-profit. The companys cost
of sales is lowest for the year 2000, which is the companys best performing year;
and year 2002 as highest cost of sales leaving lowest operating profit.
TABLE 4. 2
Net Sales
2002
100%
2001
100%
2000
100%
1999
100%
1998
100%
Cost of Sales
86.60
85.70
86.40
92.20
93.13
Gross Profit
13.4
14.3
13.6
7.8
6.87
Operating Expense
3.5
3.6
3.3
3.4
4.7
Operating Profit
9.8
10.72
10.34
4.40
2.17
Other Income
0.2
0.36
0.10
0.12
0.16
10.00
11.08
10.44
4.52
2.33
Financial Charges
6.05
5.87
7.89
8.36
12.13
0.01
0.19
0.26
0.13
___-__
___-___
3.75
4.95
2.46
(3.84)
(9.79)
Current- year
0.50
0.50
0.50
0.50
0.50
Prior-year
0.05
0.03
0.42
0.001
Deferred
___-__
___-__
___-__
1.63
__-___
3.21
4.42
1.50
(2.71)
(10.29)
Taxation:
As it can be seen from the profit & loss account of D.M textile in the appendix
section that its sales has always increased but the company has specialized to
reduce its cost of sales, it shows like they are properly utilizing the economies of
scale, by lowering the cost of production, which is also proved by the gross profit
from 6.87% in 1998 it increased to 14.3% in 2001 and 13.4% in 2002. We can
see that there is a reduction in operating expense of a company, which further
provides high operating profit. Financial charges are reduced but due to shortterm borrowing it has increased for the last year 2002. Company has incurred
loss for two years that is for 1998 and 1999 and for other years is also not
making profit after tax of more than 4.42% in 2001.
PERCENTAGE
100
Net Sales
80
Cost of Sales
60
Gross Profit
40
Operating
Expense
20
Operating Profit
0
1998 1999 2000 2001 2002
YEARS
Figure 4.2 shows D.M textile costs of sales that are high for the first two years
and i.e. above 90 % whereas for other three years 2000 to 2002 it is almost
86%. The companys highest operating profits are for the year 2001.
TABLE 4. 3
Net Sales
2002
100%
2001
100%
2000
100%
1999
100%
1998
100%
Cost of Sales
102.71
100.53
112.93
115.75
105.75
(2.71)
(0.53)
(12.93)
(15.75)
(5.75)
Operating Expense
5.54
5.59
10.64
11.43
4.39
(8.25)
(6.12)
(23.57)
(27.18)
(10.14)
2.88
0.49
14.22
0.99
0.16
(5.37)
(5.63)
(9.35)
(26.19)
(9.98)
3.60
2.69
11.19
11.22
3.13
6.52
2.65
3.79
17.76
20.81
2.74
(11.62)
(12.11)
(37.70)
(64.74)
(15.85)
0.50
0.50
0.50
0.50
0.50
(12.12)
(12.61)
(38.20)
(65.24)
(16.35)
Financial Charges
Loss on sale of fixed assets
Other charges
Profit/Loss Before Taxation
Taxation:
Current- year
Profit After Tax
Net Sales
E 80
G
A
T 60
N
E
C 40
R
E
P 20
Cost of Sales
0
-20
Operating Expense
-40
YEARS
The unusual company performance can be observed by the figure 4.3. Costs of
sales are even higher than its sales. The company is bearing loss for five years.
Supreme gross-loss is for the year 1999 and an operating loss of 27.18%.
year with that for current year. Following are the results of the analysis of the
companies common-size balance sheet.
Al- Qadir Textile Mills Limited
Common-size Balance Sheet
For Year 1998 2002
TABLE 4. 4
2002
2001
2000
1999
1998
Current Assets:
Inventory
2.86%
3.14%
4.78%
6.08%
5.67%
Stock in trade
47.67
50.16
58.64
65.28
53.54
Trade Debts
12.05
7.97
1.59
5.47
9.69
10.43
4.64
9.38
19.89
24.58
26.90
34.09
25.60
3.28
6.52
100%
100%
100%
100%
100%
14.42
15.16
25.85
12.27
29.58
57.09
34.30
82.95
79.46
65.68
28.24
35.15
2.23
1.76
0.48
2.40
1.11
Proposed Dividends
1.96
7.99
Unclaimed Dividend
0.40
1.66
__-__
__-__
__-__
100%
100%
100%
100%
100%
Current Liabilities:
Al-Qadir textiles current assets have increased over the years as can be seen
from the balance sheet in the appendix. The company has reduced its inventory
from 5.67% in 1998 to 2.86% in 2002, which is good in a sense as inventory is
the most illiquid form of current assets. Stock in trade is almost 50% of the
current assets for all five years. Trade debts are considerably low as compared
with the industry, but have gradually increased in the year 2002. Advances,
deposits, prepayments, and other receivables show a variation in the data. Last
cash and bank balances have increased for the last three years.
Current liabilities were low in the year 2001 and 2000 of Rs.95, 039,484 and
Rs.94, 565,386 respectively and for other years it has been above Rs. 10 million.
Short-term borrowings are only for two years i.e. 1998 and 1999. Creditors,
accrued, and other liabilities constitute the major portion of current liabilities. The
same data is depicted in the figure 4.4 (a) and figure 4.4 (b).
Al- Qadir Textile Mills Limited
Common-size Balance Sheet
For Year 1998 2002
FIGURE 4. 4 (a)
CURRENT ASSETS
Cash & Bank Balances
PERCENTAGE
100%
Advances, Deposits,
prepayments and other
receivables
Trade Debts
80%
60%
40%
20%
Stock in trade
0%
1998
1999
2000
2001
2002
Inventory
YEARS
FIGURE 4. 4 (b)
CURRENT LIABILITIES
Unclaimed Dividend
100%
Proposed Dividends
80%
60%
40%
20%
0%
1998
1999
2000
2001
2002
Y EAR S
TABLE 4. 5
2002
2001
2000
1999
1998
Inventory
3.68%
6.21%
4.43%
6.35%
9.29%
Stock in trade
44.51
36.57
57.25
54.93
30.96
Trade Debts
7.45
10.02
6.21
39.26
41.13
22.70
36.08
55.42
5.10
6.07
9.41
2.63
4.32
100%
100%
100%
100%
100%
22.12
23.41
23.07
39.75
42.66
Short-term borrowings
19.03
21.09
28.39
20.29
14.79
54.02
48.24
46.50
37.24
38.38
4.82
7.26
2.04
2.72
4.17
Current Assets:
Current Liabilities:
Proposed Dividends
Unclaimed Dividend
0.14
__-__
__-__
__-__
__-__
100%
100%
100%
100%
100%
D.M textile has also increased its current assets for five years. Inventory of the
company shows a decreasing trend as can be seen from the table 4.5, starting
from 9.29% in 1998 it has reduced to 3.68% in 2002, although high in year 2001.
Stock in trade represent the major portion of current assets and show
dissimilarity over the years. There are no trade debtors in 1998 and 1999.
Company has reduced the advances, deposits, prepayments, and other
receivables, which is also the major component of current assets. Average
current liabilities are almost equal to Rs. 80 million for five years and there is less
fluctuation in it.
PERCENTAGE
CURRENT ASSETS
100%
50%
Stock in trade
0%
1998
1999
2000
2001
2002
Inventory
YEARS
The above figure shows the current assets for D.M textile. Where major portion
of current assets is in stock in trade and in advances, deposits, prepayments and
other receivables. In addition, inventory is almost less than 10% for five years.
FIGURE 4. 5 (b)
Unclaimed Dividend
CURRENT LIABILITIES
Proposed Dividends
PERCENTAGE
100%
80%
60%
40%
20%
0%
1998
1999
2000
2001
2002
Current portion of
Long-term Liabilities
YEARS
The current liabilities are more due to creditors, accrued and other liabilities. The
company is also liable to pay current portion of long term liabilities which has
reduced
TABLE 4. 6
2002
2001
2000
1999
1998
49.15%
50.08%
50.01%
48.28%
42.78%
Trade Debts
1.32
0.06
2.61
26.83
Advances, Deposits,
prepayments and other
receivables
Cash & Bank Balances
49.25
49.45
49.69
49.12
30.07
0.28
0.41
0.30
0.13
0.32
100%
100%
100%
100%
100%
1.04
55.35
55.07
59.32
44.74
15.94
41.99
42.44
38.28
52.86
83.02
2.66
2.49
2.40
2.40
__-__
100%
100%
100%
100%
100%
Current Assets:
Inventory
Current Liabilities:
Current portion of Long-term
Liabilities
Short-term borrowings
current assets. Further more the company cash and bank balances remains less
than 1% for all the years.
There are no current portions of long-term liabilities except for the year 1998. The
company have more of the short-term borrowings for all the five years which are
almost of average 46% of current liabilities and 51% of average are creditors,
accrued, and other liabilities.
PERCENTAGE
CURRENT ASSETS
100%
80%
60%
40%
20%
0%
Advances, Deposits,
prepayments and other
receivables
Trade Debts
Inventory
Current Assets:
The companys current assets can only be seen in two colors in the figure 4.6 (a)
reflecting inventory and advances, deposits, prepayments and other receivables.
Moreover some portion of trade debt can be seen in 1998 and 1999.
FIGURE 4.6 (b)
CURRENT LIABILITIES
PERCENTAGE
100%
80%
60%
40%
20%
0%
Creditors,
accrued & other
liabilities
Short-term
borrowings
Current portion of
Long-term
Liabilities
Current
Liabilities:
The same is the case for current liabilities there are more of the short-term
borrowings and creditors, accrued and other liabilities.
TABLE 4. 7
2002
2001
2000
7.07%
13.30%
21.10%
12.86%
11.12%
3.85
10.75
16.40
8.36
6.62
1.95
4.21
7.99
(1.46)
(0.97)
Return on Assets
2.24
5.42
10.12
(2.38)
(2.18)
1999
1998
16.64
Return on equity
39.38
72.03
(10.18)
(16.15)
To know the proportion of revenue that finds its way into profits, we look at profit
margin. Gross-profit, operating-profit and net-profit margin reveals the same
trend. Naturally a firm prefers a high profit margin. A high-price and high-margin
strategy typically results in lower sales, whereas a low-margin but high-volume
strategy can be quite successful.
Al-Qadirs profit margin is greater than its competitors. Companys greater
returns are for the year 2000 in which its gross-margin is 21.10%, operating-profit
of 16.40% and the net-profit margin of 7.99%. Additionally, return on assets
(ROA) and return on equity (ROE) are also high fro the year 2000 but decreases
for the next two years.
PROFITABILITY RATIOS
80
70
Operating Profit
Margin
60
PERCENTAGE
50
Return on Assets
40
Return on equity
30
20
10
0
1998
-10
1999
2000
-20
-30
YEARS
2001
2002
The above figure shows the profitability ratio of the company over the years. It
can be clearly observed that gross-profit, operating-profit and net-profit margin is
on the same trend. Return on equity is at its peak in year 2000.
TABLE 4. 8
2001
2000
1999
1998
13.4%
14.3%
13.6%
7.8%
6.87%
9.8
10.72
10.34
4.40
2.17
3.21
4.42
1.50
(2.71)
(10.29)
Return on Assets
3.05
5.35
1.73
(2.92)
(10.62)
Return on equity
38.6
50.2
15.74
(24.52)
(91.09)
2002
Gross Profit Margin
PROFITABILITY RATIOS
60
40
Gross Profit
Margin
PERCENTAGE
20
0
1998
-20
1999
2000
2001
2002
Operating Profit
Margin
Net Profit margin
-40
Return on Assets
-60
Return on equity
-80
-100
YEARS
The above figure shows the profitability performance of D.M textile mill. The
company did improve its gross-profit over the years. Net-profit margin is going
from negative to positive in the mid of year 1999. Return on equity did also
increased in the same time period giving highest return in the year 2001.
Shri SARHAD Textile Mills Limited
Profitability Ratios
For Year 1998 2002
TABLE 4. 9
2002
2001
2000
1999
1998
(2.71%)
(0.53%)
(12.93%)
(15.75%)
(5.75%)
Operating Profit
Margin
(8.25)
(6.12)
(23.57)
(27.18)
(10.14)
(12.12)
(12.61)
(38.20)
(65.24)
(16.35)
Return on Assets
(1.63)
(2.28)
(3.70)
(5.58)
(4.77)
Return on Equity
(25.41)
(35.73)
(58.24)
(89.39)
(76.30)
The company starting from negative gross-profit margin continues its impact on
profitability ratios. The company is not at all profitable, thus the return on assets
and return on equity are also negative for this reason.
PROFITABILITY RATIOS
10
0
1998
-10
1999
2000
2001
2002
PERCENTAGE
-20
Operating Profit
Margin
-30
Net Profit margin
-40
-50
Return on Assets
-60
-70
Return on Equity
-80
-90
-100
YEARS
The above figure shows the profitability performance of Shri Sarhad mill. The
company remains below the zero percent line, which can be very evidently
observed from the figure the highest loss incurred is in the year 1999.
TABLE 4.10
INDUSTRY
AVE
Shri
RAG
E
AL-QADIR
D.M
SARHAD
13.09
11.194
-7.534
5.58
9.196
7.486
-15.052
0.54
2.344
-0.774
-28.904
-9.11
2.644
-0.682
-3.592
-0.54
20.344
-2.214
-57.014
-12.96
FIGURE 4. 10
AL-QADIR
D.M
(COLONY)
SARHAD
AVERAGE
COMPANIES
The above given table and figure shows the industry average of profitability ratios
for five years. It clearly depicts Al-Qadir textile above the industry average, D.M
textile on the second position but still enjoying being above the industrial norms,
whereas Shri Sarhad is the company below the industry average.
TABLE 4. 15
Current Ratio
2002
1.38
2001
1.29
2000
0.96
1999
0.89
1998
0.64
Quick Ratio
1.34
1.25
0.71
0.86
0.59
Cash Ratio
0.37
0.44
0.24
0.03
0.04
0.38
0.29
-0.05
-0.11
-0.36
Al-Qadirs current ratio has improved each year showing for the last year Rs.1.38
in current assets for every Rs. 1.00 in current liabilities. As some assets are
closer to cash than others, if there is a trouble inventory may not sell at anything
above fire-sale price, thus quick or Acid-test ratio is useful to calculate. The
companys quick ratio has also improved, as there is no much difference after
extracting inventory from its current assets.
A companys most liquid assets are its holdings of cash and marketable
securities, however a low cash ratio may not matter if the firm can borrow on
short notice. Al-Qadirs cash ratio is low as its position is strong in the industry it
can easily handle emergency situations by borrowing money on short notice.
TABLE 4. 16
Current Ratio
2002
0.57
2001
0.52
2000
0.57
1999
0.37
1998
0.30
Quick Ratio
0.53
0.49
0.51
0.36
0.28
Cash Ratio
0.03
0.03
0.05
0.01
0.01
-0.43
-0.48
-0.43
-0.63
-0.69
D.M textile current ratio on average is 0.46, which means the company is
having Rs. 0.46 in current assets for every Rs. 1.00 in current liabilities.
Companys current ratio and quick ratio are also not varied, as its inventory is
low in current assets. Net working capital to total assets is negative due to
large short-term borrowings.
Shri Sarhad Textile Mills Limited
Liquidity Ratios
For Year 1998 2002
TABLE 4. 17
Current Ratio
2002
2.12
2001
2.33
2000
2.52
1999
3.04
1998
2.59
Quick Ratio
1.07
1.16
1.26
1.57
1.45
Cash Ratio
0.01
0.01
0.01
0.004
0.03
1.12
1.33
1.52
2.04
1.36
This companys current ratio illustrate that its currents assets are far more than
its current liabilities. The decrease in current ratio signifies trouble, that
company has drag out its payables by delaying payment of its bill that cause
increase in its current liabilities and decrease in current ratio. Cash ratio is
very poor since company is not having enough money in its current assets.
TABLE 4. 18
AL-QADIR
Current Ratio
D.M
Shri
SARHAD
INDUSTRY
AVERAGE
1.032
0.466
2.52
1.33
Quick Ratio
0.95
0.434
1.302
0.89
Cash Ratio
0.224
0.026
0.0128
0.08
2.5
RATIOS
D.M
1.5
1
0.5
(COLONY)
SARHAD
AVERAGE
-0.5
-1
COMPANIES
The important aspect to note here is that this graph is about liquidity position of
the companies the line above the industry average shows bad performance of
the company and vice versa.
TABLE 4. 19
2002
2001
2000
1999
1998
1.15
1.29
1.27
0.95
0.87
1.59
1.66
1.52
1.15
1.05
132.68
158.59
139.29
76.60
83.64
39.16
123.88
80.41
89.06
57.64
2.51
2.21
1.81
1.28
1.23
Inventory turnover
Receivable turnover
Payable turnover
The asset turnover ratio shows how hard the firms assets are being put to use.
Al-Qadirs asset turnover has increased over time. For Al-Qadir textile each
rupee of assets produce Rs. 1.15 of sales, and each rupee of fixed assets
produce Rs. 1.59 of sales in year 2002.
Efficient firms turn over their inventory rapidly and dont tie up more capital than
they need in raw materials or finished goods. Thus this company is a better
performer in this aspect too.
TABLE 4. 20
2002
2001
2000
1999
1998
0.95
1.21
1.15
1.08
1.03
1.13
1.62
1.43
1.23
1.13
142.27
110.06
118.26
126.39
125.31
15.39
19.39
26.69
24.32
22.57
1.28
1.23
1.04
1.02
1.02
Inventory turnover
Receivable turnover
Payable turnover
D.M textile asset turnover was highest in the year 2001 where each rupee of
assets produce Rs. 1.21 of sales, and each rupee of fixed assets produce Rs.
1.62 of sales. Its inventory turnover is acceptable than the industry norms.
Whereas receivable turnover are much better than any other company.
TABLE 4. 21
2002
2001
2000
1999
1998
0.13
0.18
0.10
0.09
0.21
0.21
0.28
0.15
0.13
0.32
Inventory turnover
0.79
1.03
0.62
0.58
1.61
Receivable turnover
0.77
1.04
0.56
0.49
2.21
Payable turnover
0.18
0.24
0.15
0.14
0.33
Shri Sarhad Textile Company is much below the average efficiency. The
companys asset turnovers are below 1.00 for all the five years. It shows that
they are unable to produce even Rs. 1.00 of sales for each rupee of assets. The
companys inventory turn over is very low due to low sales and very high
inventory level.
FIVE-YEAR COMPANYS AVERAGE
FOR EFFICIENCY RATIOS
TABLE 4. 22
Total asset turnover
Fixed asset turnover
Inventory turnover
Receivable turnover
Payable turnover
AL-QADIR
D.M
Shri SARHAD
INDUSTRY
AVERAGE
1.106
1.084
0.142
0.77
1.394
1.308
0.218
0.97
118.16
124.458
0.926
81.18
78.03
21.672
1.014
33.57
1.808
1.118
0.208
1.04
The above table 4.22 shows the industry average and companies five-year
average efficiency ratios.
TABLE 4. 23
2002
15.14
2001
16.86
2000
29.47
1999
162.98
1998
81.81
39.16
123.88
80.41
89.06
57.64
142.78
183.09
157.73
87.91
94.09
Sales Working-Capital
14.91
25.29
-161.96
-42.54
-9.35
1.59
1.66
1.52
1.15
1.05
1.15
1.29
1.27
0.95
0.87
Sales to Short-term
Liabilities
6.78
9.36
10.98
8.31
9.91
As Al-Qadirs asset turnover is escalating over previous five years. Up till now
this increase in asset earnings makes major variation in turnover for individual
asset components. Cash and equivalents evidence the most significant variability
during this period, which is also evidenced from common-size balance sheet.
Companys account receivables shows a slight improvement in year 2001.
Regarding inventory turnover, company expressed desire to decrease inventories
at every stage of its manufacturing process is revealing itself through an
improved turnover ratio. It is important to note that Al-Qadirs asset and asset
component turnover ratios often compare favorable to industry norms.
TABLE 4. 24
2002
118.57
2001
131.34
2000
64.30
1999
333.09
1998
289.65
15.39
19.39
26.69
24.31
22.57
164.29
128.42
136.89
138.02
134.56
Sales Working-Capital
-7.94
-8.64
-7.94
-5.10
-5.36
1.13
1.62
1.43
1.23
1.13
0.95
1.21
1.52
1.08
1.03
18.04
19.67
12.11
15.95
25.39
Sales to Short-term
Liabilities
D.Ms asset turnover is fluctuating over the years as it has decreased for the last
year 2002. Cash and equivalents also show a fluctuating trend. Account
receivable turnover has decreased for the last year but was better in the previous
years. Inventory turnover ratio has improved continuously for all the years.
TABLE 4. 25
Sales to cash &
Equivalents
2002
2001
136.94
118.44
2000
92.08
1999
1998
180.54
203.29
Sales to Receivables
0.77
1.04
0.56
0.49
1.14
Sales to Inventories
0.77
1.02
0.55
0.50
1.52
Sales Working-Capital
0.71
0.89
0.46
0.36
1.18
0.21
0.28
0.15
0.13
0.32
0.13
0.18
0.10
0.09
0.21
Sales to Short-term
Liabilities
1.60
2.16
1.17
1.63
9.14
Shri Sarhad s asset turnover has decreased. Inventory turnover is much lower
than the industry norms, as companys cost of sales are high and moreover
inventory constitutes about 50% of assets. Receivable turnover is also very low
as more of their sales are on credit. The depressing blow of sales can be seen
throughout the analysis.
TABLE 4. 26
Cash
Flows from
Operating
Activities
2002
Rupees
21,969,593
2001
Rupees
52,872,333
2000
Rupees
74,371,921
1999
Rupees
2,966,040
1998
Rupees
14,007,027
Cash
Flows from
Investing
Activities
(3,841,698)
(1,797,925)
(19,922,155)
(12,790,708)
(7,172,889)
Cash
Flows from
Financing
Activities
(17,386,931)
(32,273,166)
(34,542,709)
7,059,934
(6,876,559)
Increase
(Decrease)
in Cash
740,964
18,801,242
19,907,057
3,228,545
5,993,279
Al-Qadirs operating cash flows is high for the year 2000, reason being low cost
of sales, which have resulted in high profit before taxation. This analysis reveals
cash flows are steady source of cash, with a substantial increase in year 2000.
The cash down turn in year 1999 is due primarily to financial charges. Investing
activities were more in 1999 and 2000, due to major out flow of fixed capital
expenditure. Financing out flows are more for the last three years, where
dividends are paid in year 2001 and 2002.
TABLE 4. 27
2002
Rupees
28,768,565
2001
Rupees
40,351,744
2000
Rupees
17,315,639
1999
Rupees
22,815,401
1998
Rupees
1,836,244
Cash
Flows from
Investing
Activities
(19,665,511)
(16,354,183)
(17,158,917)
(2,171,480)
(4,924,553)
Cash
Flows from
Financing
Activities
(8,637,153)
(26,333,169)
3,986,573
(20,746,316)
3,198,789
Cash
Flows from
Operating
Activities
Increase
(Decrease)
in Cash
465,901
(2,335,608)
4,143,295
(102,395)
110,480
D.M have been able to maintain high cash flows from operations even after
incurring loss before taxation for the year 1998 and 1999. Cash flow has
decreased for the year 2002 because of more payments made to creditors.
Investment has increased for 2001 and 2002 by acquiring fixed assets. Whereas
financing out flow is more for the year 2001 as company made a repayment of
long-term loan.
TABLE 4. 28
2002
Rupees
(6,098,470)
2001
Rupees
230,093
2000
Rupees
(19,908,780)
1999
Rupees
(21,881,180)
1998
Rupees
(993,496)
Cash
Flows from
Investing
Activities
(5,893)
64,047
10,589
1,893,920
(260,035)
Cash
Flows from
Financing
Activities
5,760,173
127
20,251,705
19,632,506
(535,235)
Increase
(Decrease)
in Cash
(344,190)
294,267
358,515
(354,754)
(1,788,766)
Cash
Flows from
Operating
Activities
Shri Sarhad has incurred losses all the way through the years, which has
affected its operating activities. They are not having enough sales even to cover
their production costs. In spite of incurring losses they have an addition to fixed
asset in year 1998 and 2002, that shows an out flow.
1999 and did reduced for two years then again increases in 2002, as they have
more short-term borrowings for the last year. Al-Qadirs liquidity position is far
much better then the industry average.
D.Ms current assets also show an increasing trend, but that is slow with respect
to increase in current liabilities. Current liabilities have accelerated for the reason
of more creditors, accrued and other liabilities.
Shri Sarhad liquidity position is not favorable they have increased their current
assets especially inventories and they are not making enough sales, so if they
sell those assets they cant even recover the cost. And amounts of their liabilities
have increased due to excessive short-term borrowings. They are in a trouble to
meet their short-term obligations.
Shri Sarhad s asset turnover has decreased. Inventory turnover is much lower
than the industry norms, as companys cost of sales are high and moreover
inventory constitutes about 50% of assets. Receivable turnover is also very low
as more of their sales are on credit.