Table on contents

Introduction

Literature Review

Objectives

Significance of study

Method of the study

Limitation

References

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Summary:
The Ratio analysis forms an essential part of the financial statements which is a
vital part of business planning. Most financial ratio analyses focus on firms
belonging to industries that either contribute significantly to economic figures or
posit in a highly competitive business environment. Financial ratio analysis should
be made available to all industries for reasons of comparability and benchmarking.
This project aims to analyze the financial statements of service and textile sector in
Pakistan.Seclect five listed company in each sector for period (2012 to 2016) using
liquidity ratios, activity ratios, leverage ratios, profitability ratios, and market value
ratios.

Keywords:
Activity ratios, leverage ratios, liquidity ratios, market value ratios, profitability
ratios.

Introduction:
This project is based on financial ratio analysis of different sectors in Pakistan and
then comparison their financial ratio.

A financial ratio is a relative magnitude of two selected numerical values taken

from an enterprise's financial statements.

A ratio analysis is a quantitative analysis of information contained in a company’s

financial statements. Ratio analysis is used to evaluate various aspects of a
company’s operating and financial performance such as its efficiency, liquidity,
profitability and solvency.

Financial ratios give the advantage when they are matched up with other matching
ratios. When we are using ratios in order to check the performance of a company
two different approaches are attained they judge due course and they provide the
comparison different companies.

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 Eventually, evaluating a ratio of one company in comparison to another company
is a realistic way to recognize a company’s movement if firm ratios are gradually
improving it implies a positive effect on company’s financial situation. On the
other hand if certain ratios appear to be getting poorer position it indicates that firm
is in declining position.

It is important to judge a company’s ratios in comparison to other industries. If we

are performing comparison of different firms and it shows that one firm’s ratio is
increasing eventually, we must find out whether it is increasing in comparison to
its competitor.

If it isn’t as flushed as its opponents. This indicates that company isn’t is in sound
situation or handled well as its other industry rivals are.(Kousar and Saba, 2012)
did a wise comparison of banks (Salman and Qamar, 2011) used two
pharmaceuticals and compared them by using appropriate financial ratios.

 We here compare the financial position of the Services and textile sector which
one’s performance is superlative as compared to others. We check the impact of
TA and TS on dependent variables i.e. profitability, liquidity, activity and leverage.

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Literature Review
The period 1920’s was the time which shows great interest of analysts about the
use of financial ratios for measuring future financial failures and the effect of
financial statements . (Justin, 1924)

Thought current ratio was the only ratio for the analysis of financial statement.
(Gilman, 1925)

Wall and Dunning in 1928 the first who gave the idea of using many ratios rather
than only current ratio.

Foulke (1931) create and promoted own set of financial ratios successfully. This
set of financial ratios was printed and promptly known as important and projecting
group of ratios.

Bliss described the merge financial ratios with business returns.

Smith and Winakor in 1935 precede the work of Wall and propose that CA to TA
and Net Worth to TA give more accurate result than CR.

Marwin (1942) by using several ratios analyze financial trends of huge successful
and unsuccessful firms. Compared normal ratios of industry with mean ratios of
large unsuccessful firms and find out that the three ratios current ratio, net working
capital to total assets and net worth to debt were able to see failure before actual
failure happened. This study shows the actual power of prediction of ratio analysis
and results were still reliable.

During the 1960s ratios were also used to determine value and characteristics of
firm. Sorter and Becker IN 1964 show their studies in this specialized area
suggested that conservative corporations maintain higher liquidity and solvency
ratios.

In 1964 Holdren shown their studies that Last in First out (LIFO) inventory
valuation, as opposed to First in First out (FIFO) valuation, change the inventory
turnover ratios of a sample of firms but did not affect some other ratios. Nelson in
1963 also described in study that capitalization of leases change a number of ratios.

Beaver (1966) use financial ratios to predict future failure in profile analysis.

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Altman (1968) prompted by giving position to these ratios according to their
weights

Horrigon (1968) predicted these ratios will be very helpful for conducting research
when the income is limited.

Dakin (1972) continues the work of Beaver by adding cash to sale ratio.

O Connor (1973) prefer weighted index instead of using singly used ratios to
predict financial failures but still there is a sign of instability to forecast ROR.

Abdul Khaliq( 1974) criticize by providing evidence about the lack of usefulness
of ratios .

O Connor in 1974 replied ratios are the first step in predicting ROR. After this era
research continues using financial ratios in prediction different aspects as long term
and Short term financial decision making.

Backer and Gosman determined the profitability rations in 1980.

(Dholakia, 1978) level of risk

(Choi, Hino, Min, Nam, Ujiie, Stonehill, 1983) Determine particular ratio is not
adequate to measure performance rather than using a group of ratios

Soenon and Bulke describe a ratio defines a relationship between two facts
numerator and denominator in 1988.

Chin (1997) adds that the relationship between the profitability of a company with
various capital structure variables i.e. cash and marketable securities, receivables,
working capital, long term investment, debt and equity capital etc.

Bar and Siems shown in their research and study bank failure prediction models
include variables that can be categorized under four of the five CAMEL(Capital,
Asset quality, Earning and Liquidity) factors 1996.

Yeh (1996) whether private companies are working more or less as to publically
traded companies.

Deventer and Malatesta (2001) Effect of inflation on financial results.

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Liquidity( Tatoglu, 2003)

S.k. Acarvci (2007) operational and financial performance of public and private
sector

Aftab, Nasr (2008) liquidity and profitability for financial situation and profit/loss

Karacaer, Kapusuzoglu ( 2008) financial analysis.

According to Drake (2010), financial statement analysis is the selection,

evaluation, and interpretation of financial data, along with other pertinent
information, to assist in investment and financial decision-making. Moreover, it is
also the process of identifying financial strengths and weaknesses of the firm.

Bhunia and Roy in 2011 alliance between liquidity and profitability.

H. Malik (2011) association between profitability and liquidity ratios.

Chary, Kasturi and Kumar (2011) argue that the relationship between working
capital and the profitability has been an interesting debate in financial analysis.
Working capital decision affects both liquidity and profitability excess of
investment in working capital may result in poor liquidity. He adds that
management need to trade-off between liquidity and profitability to maximize
shareholders wealth.

Niresh (2012) says that capital structure decision of a bank is similar to that of a
non-financial firm. Although there are considerable inter industry differences in the
capital structure of firms due to the unique nature of each industry business, the
intra-firm variations are attributed to the business and financial risk of individual
firms. Most studies found a negative relationship between profitability and
leverage.

Khan, Sajjad (2012) Relationship between profitability and liquidity ratios Khan,

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Objectives:
There have following objectives in this research Profitability

 Activity Solvency ratio of the company

 to know how ratio analysis helps us proper understanding
 To show how it help us in decision making.
 To examined techniques in financial statement.
 To identify and predict of business company

Significance of study:
The significance of this study is that on its completion, the following benefits will
be derived:

1. The study will help management of all companies to know how ratio analysis
can help them understand the financial contained in financial statements and
enhance their business decisions.

2. This study will help all concerned people to this topic and student that how ratio
analysis is important in decision making furthermore it will help in future research

3. This study will encourage government investors and other institution to use
qualitative techniques like ratio analysis to predict about future planning

Method of the study:

This research will be conducted on ten famous companies of Pakistan the
information for research will be collected from the mangers of the companies and
internet the instruments of the research will be

 Internet
 Data Collection

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Limitation:
The financial result of all businesses is affected by the general economic
conditions competition local factors and the policy adopted by the management,
and thus any ratio or percentage may be considered with these factors in mind.

It should be realized that ratios are only a preliminary step in interpretation and
must be supplemented by rigorous investigation before sage conclusions can be
drawn from them.

Questions?
1. Is ration analysis really predicted of a business performance?

2. Is ratio analysis helpful to loan advancing companies, investors and

shareholders?

3. Are we satisfied with ration analysis that it’s a rally predictor of a running
business?

4. Does financial ratio helps us to unravel the fact hidden in financial statement

References
https://www.investopedia.com/terms/r/ratioanalysis.asp

http://www.123helpme.com/search.asp?text=ratio+analysis

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https://www.scribd.com/document/231644560/Bar-Siems

https://books.google.com.pk

file:///C:/Users/Orazone/Desktop/19.pdf

https://www.ukessays.com/dissertation/literature-review/literature-review-of-history-of-financial-
ratios-finance.php

https://www.jstor.org/topic/financial-
ratios/?refreqid=excelsior%3A1967ddc3ab3c0c4bf55e8d3b613aac01

http://www.fineco.am/pdfs/Seyed_Asghar_Fotoohi_Onji_1299068869.pdf

http://aaajournals.org/doi/pdf/10.2308/accr-10278?code=aaan-site

Beaver, W. 1966. Financial ratios as predictors of failure.

Empirical Research in Accounting: Selected Studies 4: 71–102.

https://www.gsb.stanford.edu/faculty-research/publications/financial-ratios-predictors-failure

file:///C:/Users/Orazone/Downloads/9781601984258-summary.pdf