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Financial Analysis Ratio Analysis of Gul Ahmed Textile

Mills for year 2005
Textile Industry
When we think manufacturing industry, Pakistan, it is the textile industry that immediately come
to the mind that is playing an important role in term of the employment generation and value
added special with strong base of raw material has started its journey from non existence in 1947
with 3000 looms that is too in the unorganized sector, with only one textile unit. It could supply
only 8% of the domestic demand derived from its population 76 million people.

The industry has gone through a long way and now possesses 443 units, 8.4 million spindles and
166,000 rotors. 20,000 shuttle less looms, 200,000 power looms, 8,000 terry towel looms, 7620
canvas looms, 157,000 woolen / worsted installed spindles, 15,000 woolen looms, 12,000
knitting machines, over 600 processing units and over 2500 garments units. The textile industry
at present is a passing through a transition phase. It is sailing smoothly under the protected cover
of the quota system; however it has to face the rough waters of the open sea when globalization
of trade is implemented under WTO agreement in 2004. three years have already gone unnoticed
the fast approaching deadline sounding a note of warning for restructuring of all the segments of
the cotton and textile industries on war footings to enable it to face the future challenges of fierce
competitio0n amongst the low cost Asians manufacturers to capture share of their higher cost
European counter –parts when the gates of the global economies are open.

Textile industry economic contribution

Description Contribution
Exports 64% of total exports (US$ 4.9 billion)
Manufacturing 46% of total manufacturing
Employment 38% total employment
Investment 31% of total investment
Market capitalization 7% of total market capitalization
Interest Rs. 4 billion per annum
Salaries and wages Rs. 40 billion per annum
Contribution to research and development Rs. 116 million per annum
Gross domestic product (GDP) 8.5% of Total GDP

This sounds a triumph like situation at a glance. There is however much more than it meets the
eyes when you go into details, which carry some failures also to weep on. This industry has not
performed as well as it should have. It is struggling for its survival for the past 7years.

Growth of textile sector in Pakistan.

Year No of Spindles (000) Looms (000)
mills
Installed Working % growth Installed Working %
growth
1948 - 78 78 - 3 3 -
1959-59 70 1581 1488 76 26 24 -
1964-65 83 1967 1852 2.82 31 28 333
1974-75 144 3366 2823 .60 29 25 -3.33
1984-85 219 4445 2872 4.05 23 10 -4.17
1994-95 494 8610 6262 2.27 14 5 -6.67
1998-99 442 8358 6631 -.12 10 5 -23.08

Contribution in employment
Textile unit constitute 38% of employment generated by the manufacturing sector while textile
being largest industry has got other forward and back ward relation where it must had played its
role in generating employment in related industries for example shipping industry will definitely
by mainly depended upon textile industry.

COMPANY PROFILE

Company Information

BOARD OF DIRECTORS

BASHIR H. ALIMOHAMMED - Chairman & Chief Executive

A.RAZAK HAJI SATTAR
YASIN HAJI KASSAM
YOUNUS HAJI LATIF
ZAIN BASHIR
ZIAD BASHIR
ABDUL AZIZ YOUSUF

COMPANY SECRETARY
MOHAMMED SALIM GHAFFAR

AUDIT COMMITTEE
A. RAZAK HAJI SATTAR - Chairman
YOUNUS HAJI LATIF - Member
ZAIN BASHIR - Member
BANKERS
ABN AMRO BANK NV
BANK AL HABIB LIMITED
CITIBANK, N.A.
DEUTSCHE BANK AG
HABIB BANK AG ZURICH
HABIB BANK LIMITED
MEEZAN BANK LIMITED
NATIONAL BANK OF PAKISTAN
NDLC-IFIC BANK LIMITED
STANDARD CHARTERED BANK
THE HONGKONG AND SHANGHAI BANKING
CORPORATION LIMITED
UNION BANK LIMITED
UNITED BANK LIMITED

AUDITORS
GARDEZI & CO.
Chartered Accountants

REGISTERED OFFICE
PLOT NO.82
MAIN NATIONAL HIGHWAY
LANDHI, KARACHI-75120

SHARES DEPARTMENT
PLOT NO. HT/3A
LANDHI INDUSTRIAL AREA
KARACHI-75120

MILLS
LANDHI INDUSTRIAL AREA
KARACHI-75120

E-MAIL
finance@gulahmed.com
URL www.gulahmed.com

Directors’ Report
Your Directors take pleasure in presenting 53 rd Annual Report and the audited accounts for the
nine months ended June 30, 2005.

CHANGE IN FINANCIAL YEAR END

As per directive of the Central Board of Revenue, your Company changed the closing date of
financial year from 30th September to 30th June. Hence, the accounts now being presented are
for nine months ended June 30, 2005, whereas the corresponding figures are for full year.

OPERATING RESULTS
Operating results of the Company are noted below:
Rs.000s
Profit after providing depreciation/amortization
of Rs. 275 million 121,908
Less: Provision for taxation 46,000
Profit after taxation 75,908
Add: Unappropriated profit brought forward 4,463
Amount available for appropriation 80,371
Appropriations
General reserves 75,000
Amount carried forward 5,371
80,371
On an annualized basis sales have grown by 17.54%. However the Company’s profit has
decreased due to steep rise in mark-up rates resulting in higher finance cost.

BONUS SHARES
Your Directors are pleased to recommend issue of 10% bonus shares, i.e. in the ratio of one share
for every ten shares held. These bonus shares will be issued out of the capital reserves of the
Company.

RIGHT SHARES
Your Directors have decided to issue 10% right shares on the existing paid- up capital of the
Company (before the issue of bonus shares) in the ratio of one share for every ten shares held.
The right shares will be issued at an issue price of Rs. 20/= per share including premium of Rs.
10/= per share.

The right shares are being issued to improve the liquidity of the Company.
FUTURE PROSPECTS
In the fierce competitive environment as a result of the quota free trade, there are many new
entrants in export market. To succeed we are focusing on efficiency, operational excellence and
pursuing new business opportunities.
The increasing fuel prices and continuing increase in mark-up rates are areas of main concern.

CORPORATE GOVERNANCE
We are pleased to report that your Company has taken necessary steps to comply with the
provisions of the Code of Corporate Governance as incorporated in the Listing Rules of the
Stock Exchanges.
The financial statements, prepared by the management of the company, present fairly its state of
affairs, the result of its operations, cash flows and changes in equity. Proper books of account of
the company have been maintained. Appropriate accounting policies have been consistently
applied in preparation of financial statements and accounting estimates are based on reasonable
and prudent judgment. International Financial Reporting Standards, as applicable in Pakistan,
have been followed
in preparation of financial statements and departure, if any, has been adequately disclosed. The
system of internal control is sound in design and has been effectively implemented and
monitored. The process of review will continue and any weaknesses in controls will be removed.

There are no significant doubts upon the Company’s ability to continue as a going concern.
There has been no material departure from the best practices of corporate governance, as detailed
in the listing regulations.
The key operating and financial data for the last six years, in a summarized from, is annexed.
During the year three board meetings were held and the attendance by each Director is included
in the annual report.

BOARD OF DIRECTORS
At the Extraordinary General Meeting of the Company held on March 28, 2005 election of
directors was held and all the retiring directors, Mr. Bashir H. AliMohammed, Mr. A. Razak Haji
Sattar, Mr.Yasin Haji Kassam, Mr. Younus Haji Latif, Mr. Zain Bashir, Mr. Ziad Bashir and Mr.
Abdul Aziz Yousuf were unanimously elected uncontested.
The present Board of Directors consists of the above noted persons.

PATTERN OF SHAREHOLDING
A statement showing the pattern of shareholding in the Company as at June 30, 2005 is included
in the annual report.

AUDITORS
The present auditors Gardezi & Co., Chartered Accountants, retire and offer themselves for
reappointment.
CONSOLIDATED ACCOUNTS
Consolidated accounts for the nine months ended June 30, 2005 of the Company and its
subsidiaries Gul Ahmed International Limited (FZC) and GTM (Europe) Limited are attached.

ACKNOWLEDGMENT
Your Directors are pleased to record their appreciation for the continued dedication, commitment
and loyalty of the employees of the Company. We also appreciate the assistance and continued
support of the various Government Departments and Bankers.
For and on behalf of the Board

Karachi BASHIR H. ALIMOHAMMED

October 01, 2005 Chairman & Chief Executive
Gul Ahmed Textile Mills Limited

Balance Sheet As At June 30, 2005

Note Note June o0,2005 Sep. 30,2004

Rs.000s Rs.000s
Share capital
Authorized, capital
50,000,000 ordinary
Shares of Rs. 10/- each 500,000 500,000
Issued subscribe and paid up Capital 4 383,325 340733
Reserved 5 1841721 1805053
Inappropriate profit 5371 4463
Proposed bonus share 38332 42592
2268749 2192841
Non-current liabilities
Long term loans 6 2036250 1386906
Deferred liabilities 7 68273 110713

Current Liabilities
Short term bank borrowings 8 4375827 4541962
Current maturity of long term loans 73993 99798
Trade and other payable 9 943201 684018
Provision for taxation 39000 60000

5432021 5385778
Contingencies and commitments 10

9805293 9076238

Note Note June 30,2005 Sep. 30,2004

Rs.000s Rs.000s

Property, plant and equipment

Operating assets 11 3486380 3009318

Capital work-in-progress 12 542129 460301
4028509 3469619

Long Term Investment 13 58450 58450

Long term loans and advances 14 7021 8365

Long term deposits 3560 3560

Current assets

Stores, spares and loose tools 15 338375 356553

Stock-in-trade 16 2408648 2043870
Trade debts 17 1925491 2058428
Loans and advances 18 166061 258548
Deposits and prepayments 19 18935 2478
Other receivables 20 183200 170555
Short term investment 21 551497 546785
Cash and bank balance 22 115546 99027
5707753 5536244

9805293 9076238

PROFIT AND LOSS ACCOUNT

For the period from October 01, 2004 to June 30, 2005

Note Note For nine month For the year ended

ended June 30,2005 sep. 30,2004
Rs.000s Rs.000s

Sales 23 5876261 6665898

Cost of goods sold 24 4912888 5621084
Gross profit 963373 1044814

Operating Express
Administration 25 350789 411309
Distribution cost 26 253435 270558
604224 681867
Operating profit 359149 362947

27 6719 11454
Other operating income
365868 374401

Finance cost 28 236912 109594

Workers profit participation fund 6448 13240
Workers welfare fun 600 900
243960 123734

Profit for the period/year before taxation 121908 250667

Provision after taxation 29 46000 47917

Profit after taxation 75908 202750

Earning per share (Rs.) 1.98 5.29

Gul Ahmed Textile Mills Limited

Ratio Analysis of the Company

Financially ratios can for convenience be divided into four basic groups or categories: liquid
ratios, activity ratios, debt ratios, and profitability ratios. Liquidity, activity, and debt ratios
primarily measure risk, profitability ratios measure return.

Liquidity Ratios
The liquidity of a business firm is measured by its ability to satisfy its short – term obligations as
they come due. Liquidity refers to the solvency of the firm’s over all financial position the case
with which it can pay its bills.

Networking Capital
Networking capital though not actually a ratio is commonly used to measure a firm’s over all
liquidity. It is calculated as follows.

Net working capital = current assets – current liability

The networking capital = capital o
Net working capital = ,168,786,199 – 277,652,492 = 58,866,377
The figure is quite useful for internal control. A time series comparison of the firm’s net working
capital is often helpful in evaluating its operations.

Current Ratio:
The current ratio is one of the most commonly cited financial ratios, measures of the firm’s
ability to meet its short-term obligations.
It is calculated as follows.
For the year in 1999
Current ratio = current assets / current liabilities
=101,242,705 / 157,063,847
= 0.6446

2000
Current ratios = 168,786,119 / 227,652,492 = 0.7414

Quick Ratio (Acid Test)

A measure of liquidity calculated by dividing the firm’s current assets minus inventory by
current liabilities.
The quick ratio of the company is calculated as follows.

1999

Quick Ratio =

= .5219

2000
Quick Ratios =
=0.4805

Activate Ratio
Activity ratios can be used to asses the speed with which current accounts, inventory, accounts
receivable and accounts payable are converted into sales or cash.

Inventory Turnover
Commonly measures the activity, or liquidity of a firm’s inventory. It is calculated as

Inventory turnover =

1999

Inventory turnover =

=27.82 times

Inventory turnover can easily be converted into an average age of inventory by dividing it into
365 days. The number of days in a year. For the SUNRAYS TEXTIEL MILLS LIMITED the
average age of inventory would by (365/27.82) 138.2 days.

2000
Inventory Turnover =
=9.49 times

Average age of inventory = 365 / 9.49 =38.46days

Average Collection Period

Average collection period or average age of accounts receivable, is useful in evaluating credit
and collection policies. It is arrived at by dividing the average daily sales into the account
receivable balance.
Average Collection Period: = accounts receivables/average sales per day

1999
=2,527,379 / 1,700,189.761
=1.4865 or 1.5 days.

2000
Average collection period =4,238,031/1, 3839,349.96
=2.30days

This shows that the companies average collection period has been increased as compared to the
past year of 2000, which is not a good sign for the company.
Fixed Asset Turnover
The fixed asset turnover measures the efficiency, with which the firm has been using its fixed, or
earning, assets to generate sales. It is calculated by dividing the firm’s sales by its net fixed
assets:
Fixed asset turnover = sales / net fixed assets

1999
=612,068,314 / 293,395,271 =2.09 times

2000
=662,165,987/288,368,555 =2.29times
This means that the company turns over its net fixed asset 2.09 times in a year 1999 and in 2000
the net fixed asset turnover is 2.29 times which shows that the higher fixed asset turnover are
preferred, since they reflect greater efficiency of fixed asset utilization. This difference may be
for operating efficiencies.

Total Asset Turnover

It indicates the efficiency with which the firm uses all its assets to generate sales. Generally the
higher a firms total assets turnover, the more efficiently its assets have been used. This measure
is probably of greatest interest OT management, since it indicates whether the firm’s operations
have been financially efficient.
The total asset turnover is calculated as follow for the year.

Total Asset Turnover = Sales / Total Assets

1999 =612,068,314/398,161,034 =1.54 times
2000 =662,165,987/457,589,874 =1.45times

This is acceptable because of nominal change in the company’s therefore turn its assets over 1.45
times a year.

Debt
The debt position of a firm indicates the amount of other people’s money being used in
attempting to generate profit. In general the financial analyst is most concerned with its long-
term debts, since these commit the firm to paying its interest over the long run as well as
eventually repaying the principle borrowed.
The more debt a firm uses in relation to its total assets, the greater its financial average a term
used to describe the magnificent of risk and return introduced through the used of fixed cost
financing such as debt and preferred stock. In other words the more fixed cost debt, or
Financial average a firm uses, the greater will be its risk and expected return.

Debt Ratio
The debt ratio measures the proportion of total assets financed by the firm’s creditors.
Debit ratio can be measured as follow.
Debt ratio = total liabilities / total assets
1999 =388,797,910/396,161,034 =0.89 or 98%
2000 =433,525,717/457,589,874 =0.95 or 95%
This indicates the firm this year has financed 95% of its assets with debts. The higher this ratio,
the more financial leverage the firms have.

Debt – Equity Ratio

The debt equity ratio indicates the relationship between the long-term funds provided by
creditors and those provided by the firm’s owners.
Debt equity ratio = long term debts / stock holder’s equity
1999 = 54,932,816/7,363,124 =7.46
2000 =44,086,926/24,064,157 =1.83

Time Interest Earned Ratio

The time interest earned ratio measures the ability to make contractual interest payments.
The higher the value of this ratio, the better able the firm is fulfills its interest obligations.
Time interest = earning before interest and taxes / interest
1999 =50,687,436/45,555,696 =1.113
2000 =65,980,665/48,395,941 =1.36

Analyzing Profitability
A firm’s profitability can be assessed relative to sales, assets, and equity or share value.

Gross Profit Margin

The gross profit margin measures the percentage of each sales dollar remaining after the firm has
paid for its goods. The higher the gross profit margin the better and the lower the relative cost of
merchandising sold and vice versa.
G. P Margin = G.P / Sale
1999 = 76,037,251/612,068,314 =0.124 or 12%
2000 = 98,458,586/662,165,987 =0.149 or 15%
The CGS has decreased due to more efficient production process, less wastage of material.

Operation Profit Margin

It measures the percentage earned on each sales dollar before interest and taxes.
Operating profit margin = operating profit / sales
1999 =50,377,426/612,066,314 =8.2%
2000 =65,470,942/662,165,987 =9.9%

Net Profit Margin

It measures the percentage of each sales dollar remaining after all expenses, including taxes,
have deducted.
Net profit margin = net profit after taxes / sales
1999 =5,189,659/612,068,314 =0.85%
2000 =16,701,033/662,165,987 =2.5%

Returns on a Total Assets

It measures the overall effectiveness of management in generating profits with its available
assets, also called return on investment.
Return on total assets. = net profit after / total assets
=5,189,689/396,161,034 =1.3%
=16,701,033/457,589,874 =3.6%

Return on Equity
It measure the return earned on the owner’s investment in the firm
Return on equity = net profit after tax / stockholder’s equity
1999 =5,189,659/7,363,124 =70.5%
2000 = 16,701,033 / 24,064,157 =69.4%

Earning Per Share

ESP = earning available for common stock holders / share out standing
1999 = 5, 189, 659, /6,000,000 = 0.89
2000 = 16,701,033/6,000,000 = 2.8

Ratios 1999 2000 Time series

Liquidity 55,821,142 58,866,373 Ok
Networking capital 0.645 0.7414 Good
Current ratio 0.522 0.481 Ok
Quick ratio
Activity 13.42 38.86 Poor
Inventory turnover 1.5 days 2.3 days Ok
Average collection period 2.09 2.3 Ok
Fixed assets turnover 1.54 1.45 Ok
Total assets turnover
Debt 98% 95% OK
DO indebtedness ratios 1.113 1.4 Ok
Time interest earned
Profitability 12% 15% Good
Gross profit margin 8.2% 9.9% OK
OP margin 0.85% 2.5% Very good
Net profit margin 70.5% 69.4% Ok
Return on total assets 0.87 2.8 Good
EPS

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