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Institute Of Business Management

Textile Industry
Hiba Khan Saima Malik Tasneem Mehmood

Institute Of Business Management


Institute Of Business Management


Institute Of Business Management


Executive Summary We selected three major corporations in the textile sector of Pakistan that are Al-Karam, Gul Ahmed, and Saif textile mills. We conducted a ratio analysis of the above mentioned companies with the information extracted from the balance sheets and the income statements. The study focused on finding the one best company in this industry. And so we find out that Al-karam is doing quite well comparatively to the two other firms. For this, we have computed different ratios which have proved to be positive in terms of Al-karam textiles.

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Table of contents
y y y y y y y y Introduction Gul Ahmed Textiles Al Karam Textiles Saif Textiles Income statements Gul Ahmed Textiles Al Karam Textiles Saif Textiles

y Balance sheets y Gul Ahmed Textiles y Al Karam Textiles y Saif Textiles y Ratios of GUL AHMED y Financial analysis of GUL AHMED y Ratios of AL KARAM TEXTILES y Ratios of Saif Textiles y Financial analysis of GUL AHMED y Financial analysis of AL KARAM TEXTILES y Financial analysis of Saif Textiles y Comparative Analysis


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GUL AHMED TEXTILES: The Gul Ahmed Group began trading in textiles in the early 1900s. In 1953, the group decided to enter the field of manufacturing under the name Gul Ahmed Textile Mills Limited, and was incorporated as a privately limited company. In 1972, it was listed on the Karachi Stock Exchange. Since then, the company has made rapid progress and is currently one of the leading composite textile houses in the world. Ideas by Gul Ahmed are the retail venture of Gul Ahmed Textile Mills. Considering the growing trend towards the retail industry in Pakistan, as well as the increase in cotton prices and the need to focus more on value-added products, the company decided to diversify into the country's retail sector in 2003. Ideas offer a range of home textiles and furnishings for the bedroom, kitchen and bathroom, as well as men's and women's apparel. It also provides in-house monogramming, embroidery and tailor-made services. The Ideas flagship store is located in the Clifton area of Karachi, with plans to establish a retail chain throughout Pakistan. All Products:

y y y y

Quilt Covers Cushion Covers Mix Collection 2009 Bed sheet Sets

Fall Winter Collection 2010

y y y y

Bedding ladies Men Garments

Fashion Accessories

y y y y y y

Slippers Scarves Box Ties GMAN Ties without Cufflink LADIES BAGS G-man Cufflinks

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Gul Ahmed Textile mills Ltd Common sized Balance Sheet 2010 (at June 30th) 24.60% 16.60% 58.73% 100% 42.80% 52% 100% 2009 (at June 30th) 22.60% 19.99% 57.05% 100% 45.82% 54.17% 100%


Total equity Total non-current liabilities Total current liabilities Total equity and liabilities Total non-current assets Total current assets Total assets

Gul Ahmed Textile mills Ltd Common sized Income Statement 2010 Net sales Cost of sales Gross profit Distribution expenses Administrative expenses Other income Other expenses Operating profit Financial expenses Profit before taxation Income tax expense Profit of the year 100% -83.30% 16.10% -3.94% -3.63% 0.13% -0.27% 8.39% -4.79% 3.59% -1.17% 2.24% 2009 100% -83.04% 16.96% -4.21% -4.12% 0.16% -0.01% 8.69% -7.47% 1.22% -0.64% 0.57%

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Financial Ratios
2010 Gul Ahmed Liquidity Current Ratio Quick Ratio Leverage Total debt to Total assets ratio Times interest earned Funded debt to net working capital Efficiency Average collection period Inventory turnover Total assets turnover Net worth turnover Net working capital turnover Profitability Net profit margin Gross profit margin Return on total assets Return on Net working capital Return on net worth 0.97 0.39 75.37% Industry 1 0.43 57.20% 4.59 times 2009 Gul Ahmed 0.94 0.44 77.04% 1.00 times Industry 1.08 0.37 67.33% 1.12 times 4.31

61.80% 4.3 days 3.98 1.34 5.47 -87.86 2.42% 16.11% 3.27% 13.28% -213.10%

1.002 63.49% 23.52 days 5.7 1.38 3.138 18.1 10.82% 15.34% 14.27% 7.72% 33.62%

4.16 days 44.56 days 3.57 4.43 1.023 1.11 4.45 2.99 -35.62 50.92 0.57% 16.96% 0.59% 2.50% -20.54% -0.56% 7.30% -0.71% -48.01% -3.26%

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LIQUIDITY RATIOS: A liquidity ratio measures a company's ability to pay its bills. The denominator of a liquidity ratio is the company's current liabilities, i.e., obligations that the company must meet soon, usually within one year. The numerator of a liquidity ratio is part or all of current assets. The current ratio of Gul Ahmed for year 2010 is 0.97 and for year 2009 it is 0.94. When we look at quick ratio, the quick ratio for Gul Ahmed is 0.39 in 2010 and 0.44 in 2009. It shows that Gul Ahmed had enough liquidity to meet its short term liquidity need during the better economic situation as well as in worst economic situation. The factor behind being well in its liquidity ratio is that company is well managed in financing its assets. LEVERAGE RATIOS: The leverage ratios accomplish two things: First, they are a measure of the extent to which firms finance their assets through debt; second, they are indicators of the financial risk of the firm. We have considered three leverage ratios for Gul Ahmed: total debt to total assets, times interest earned, and funded debt to net working capital. Company s datedness increased over the 2009-2010 periods. The times interest earned ratio for Gul Ahmed during 2009() show that it is slightly lesser than the industry average (). Whereas in 2010, Gul Ahmed s times interest earned ratio increased to, which was higher than the industry average of that year. From this, it is concluded that the company has been able to meet its interest obligations from funds available from operations during 2010. The comparatively lower funded debt to net working capital ratio for Gul Ahmed indicates that it follows the industry practice of heavily utilizing credit lines at banks. It appears that the company did not have reasonable funds to meet its funded debt payments although it is performing better than the industry. Taking, the preceding leverage ratios in considerations, it may be concluded that Gul Ahmed is highly leveraged and most of its assets are financed by current debt. EFFICIENCY RATIOS: Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios can calculate the turnover of receivables, the repayment of liabilities, the quantity and usage of equity and the general use of inventory and machinery. The average collection period is far from the median and that shows a loose credit term policies in receiving the payments late but somehow the average collection period reduces close to median in 2010 explaining the improvement in receiving payments. The inventory is kept at good level by ensuring timely supplies to its customers. The Asset turnover seemed to be in a good shape standing just above the median in both years, telling that Gul ahmed is utilising its assets properly in producing the sales. The net working capital turnover is far higher than the median telling that the firm's current assets are sufficienlty utilized in producing high sales. However, the net worth

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turnover being below the median tells that the Gul ahmed is bit high on using debt financing and less efficient in using equity financing.

Profitability ratios Profit margin= 2.42% (2010) and 0.57% (2009) This reflects the firm's managerial efforts at controlling the markets acceptance of the firms product, the effectiveness of its marketing and sales efforts and the firms overall reputation. The profit margin is improving hence the firms profitability is improving. Return on total assets= 3.27% (2010) and 0.59% (2009) This reflects the earnings productivity of the total assets. Here there is an increase. This is because the firm is very profitable as far as its assets are concerned. Return on net working capital=13.28% (2010) and 2.50% (2009) reflects the profitability of managerial decisions regarding investments in net current assets. This is improving in a way that the company is generating profits on its net working capital as compared to 2003.

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INTRODUCTION SAIF Textile Mills Ltd (STM) was incorporated on 24 December 1989 as a Public Listed Company, and commenced commercial production on 1st January 1992. It is principally engaged in the manufacture and sale of Compact cotton and synthetic yarn. SAIF Textiles is uniquely positioned at the premium segment of the market. Product Range:
y y y y y y y y

40/s combed to 140/s combed weaving and knitting. All palletized. Soft wound yarn on Dye/Perforated plastic cones with option of 4 20 and 0 cylindrical cone angles. Contamination free. SUPIMA licensee. Com4 licensee (One of only two in Pakistan) GIZA certification (in process). ISO Certified

Cotton Range:
y y y y

U.S. PIMA (Grade 2 on Green Card Description) GIZA 70 GIZA 88 GIZA 86

y y y y

40/s combed, RKM 28-29 (Tensojet 4), Imperfections below 40, Hairiness below 3.0 (Uster Tester 4). 50/s combed, RKM 28-29 (Tensojet 4), Imperfections below 50, Hairiness below 3.0 (Uster Tester 4). 60/s combed, RKM 28-29 (Tensojet 4), Imperfections below 60, Hairiness below 3.0 (Uster Tester 4). 70/s combed, RKM 28-29 (Tensojet 4), Imperfections below 70, Hairiness below 3.0 (Uster Tester 4)

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Saif Textile Mills Limited COMMON SIZED BALANCE SHEET 2009-2010

FOR 2010 EQUITY AND LIABILITIES SHARE CAPITAL AND RESERVES Issued, subscribed and paid-up capital Reserves (Accumulated loss) / unappropriated profit SURPLUS ON REVALUATION OF PROPERTY, PLANT AND EQUIPMENT 0.05 0.05 0.026 0.036 0.05 0.05 0.045 0.038 2009

NON-CURRENT LIABILITIES Sub-ordinate loan Long term financing Liabilities against assets subject to finance lease Long term deposits Deferred liability - staff retirement benefits CURRENT LIABILITIES Trade and other payables Accrued mark-up and financial charges Short term borrowings Current portion of: long term financing liabilities against assets subject to finance lease ASSETS NON-CURRENT ASSETS Property, plant and equipment Intangible assets Long term loans Long term deposits Deferred taxation

9.04 16.9 0.05 0.01 27.05 3.5 4.66 3.5 41.89 10.62 0.02 60.72

10.75 28.01 0.063 0.015 0.97 3.73 4.5 3.73 34.67 6.26 0.017 49.2

45.44 0.005 0.048 0.145 49.62

56.77 0.011 0.061 0.184 4.87

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CURRENT ASSETS Stores, spare parts and loose tools Stock-in-trade Trade debts Loans and advances Trade deposits and short term prepayments Other receivables Investments Deposit for shares Taxation Taxes refundable Bank balances


1.19 28.97 16.41 0.408 0.11 1.9 0.26 0.467 0.47 0.15 50.37

1.34 17.18 17.13 0.72 0.25 0.069 0.32 0.39 0.57 0.1 38.09

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2009 1 97.01 2.98 3.33 2.62 0.19 0.04 6.1 3.12 9.29 12.41 6.13 18.55 0.216 0.11 3.85 3.52 15.02 0 15.02 -21.21

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2009 Liquidity Ratio: Current Ratio Quick Ratio Efficiency Ratio: Inventory Turnover Receivable Turnover Asset Turnover Leverage Ratio: Equity Ratio Debt Ratio Profitability Ratio: Gross Profit Margin Operating Profit Net profit Margin R.O.A R.O.E Equity Ratios: Price Earnings Ratio Coverage Ratio: Interest Coverage Ratio Debtors collection period (14.91) 36 days 2.52 4.98% 3.89% 2.22% 8.8% 31% 0.29 0.71 3.4 10.1 4.02 1.34 0.35


0.95 0.46

5.4 5.32 2.8

0.07 0.93

(3.9%) (4.2%) (4.22%) 1.19% (141.02%) 1.16 5.27 68 days

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Current Ratio: The current ratio has decreased from 1.34 to 0.95 and so the liquidity has decreased to 0.95 which means that there are not much current assets present to finance the current liabilities. Quick Ratio: In 2010 the Saif textiles quick ratio increased from 0.35 in 2009 to 0.46 in 2010 because of the increase in cash holdings and short term investments as compared to what was in 2009. Inventory turnover The inventory turnover has increased to 5.4 which show that stock is being accumulated very quickly. Account Receivable turnover Accounts receivable turnover remained fallen during over the years. This is because the sales have decreased and receivables have also been decreased. Total Asset turnover: The company s total asset turnover decreased in the year 2010 due to decrease in sales. Debt Ratio: It shows the extent of leverage being used and indicates the percentage of assets financed through borrowing. Liability has increased during the year 2009-2010 so the debt ratio increases. Equity Ratio: Equity Ratio shows the protection to creditors and the extent to leverage being used. Equity ratio was low previously and it has also fallen over the next year which shows that not much protection is being provided to the creditors and if this same position remains the company would not be able to get good sum of loans. Gross profit Margin: The Gross Profit Margin of the company decreased from 2009-2010 that is 4.98% to (3.9%) this shows the company holds huge amounts of stock in inventory. Operating Profit Margin: OPM has fallen in 2010 to (4.2%) which means that expenses have increased very much in 2010.

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Net Profit Margin: The ability of the company to generate Profit has drastically decreased to (4.2%) in 2010 as compared to 2.22% in 2009. It shows that the management is not able to manage its selling and admin expenses efficiently in the year 2010. RETURN ON EQUITY: The firms ROE measures the efficiency at generating profits from every unit of shareholder s equity. The companies ROE shows how well a company uses investment funds to generate earnings growth. The ROE has decreased in 2010 to (141.02%) which means that the company is not generating enough net income to meet its shareholders equity. RETURN ON ASSETS: ROA has fallen considerably from 8.8% to 1.19%. This shows that the company is not utilizing its assets efficiently. The management is not paying attention towards the assets and that s why the ratio has decreased in such number. Price/Earning Ratio: The Price earnings Ratio has decreased over the years. It reflects a very bad indication on the price of the share. It is quite alarming on the market price of the stock. Corrective action should be taken immediately. Debtor s Collection Period: Debtor s collection period is increasing over the years. It has increased in 2010 to 68 days which is almost the previous year s double and therefore indicates a bad sign. The business is not at all able to cover its money quickly from its debtors and so the chances of bad debts are very high.

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Al-Karam Textiles
Al Karam Textile is one of the leading exporters, suppliers & manufacturers of home textile, terry towel, and other variety of towels. The home textile and array of towel products offered by us come in multitudes of colors, sizes and quality counts. We have a flair for manufacturing customized home textile and terry towel as per the specific requirements of our individual clients. You being an importer and/or a buying house, looking for a new-fangled style of towel and home textile products, Al Karam Textile is the answer, equipped with all the resources needed to design and deliver your innovation. We follow total quality management principle, which is replicated, in our wide range of products. Every employee at Al Karam Textile aims at producing zero defect products by getting things right the very first time and every time. Our home textile and terry towel products have established their niche on the platforms of design and utility. To exceed customers expectation is our main goal. Our quality is not only restricted to home textile, terry towels and other towel products but is also embedded in our services. We offer our customers guaranteed Just-In time delivery service. As a manufacturer, exporter & supplier, we are able to offer our clients home textile and wide range of towel products at competitive rates. The efficient and reliable service extended by our expertise has enabled Al Karam to penetrate as well as pilot the competitive textile exporters, suppliers & manufacturers society. Al Karam Textile, the manufacturers, exporters and suppliers of quality towels at competitive rates, has created the largest base for supplying home Textile, terry towels and other variety of towels to gigantic group of importers & wholesalers all around the world. Make Al Karam Textile as your one-stop on-line source for a wide range of quality home Textile and towels. Simply reach us with all your queries relating to home textile and/or terry towel order(s) via email and we provide you with a solution based on competitive prices, high quality and on-time delivery.

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PRODUCTS Apron Beach Towel Egyptian Towel Hand Towel Institutional Towel Kitchen Towel Printed Towel Tea Towel Velour Bathrobe Barmop Children Bathrobe Embrioded Towel Hooded Bathrobe Jacquard Towel Pakistan Cotton Rue Towel Terry Slipper Velour Towel Bath Sheet Towel Combed Cotton Towel Face Cloth Hot Towel Kimono Bathrobe Pipen Beach Towel Bath Towel Egyptian Cotton Glove Hotel Towel Kitchen Glove Polishing Cloth

Shawl Collar Bathrobe Shop Towel Terry Towel Wash Cloth Turkish Cotton

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Description Net Sales Sales Tax Gross Profit Operating Profit Financial Charges Net Profit before Tax Net Profit after Tax 2009 100% 7.77 8.59 5.30 3.445 1.964 0.713 2010 100% 7.31 10.87 7.36 6.141 1.15 0.688

COMMON SIZED BALANCE SHEET For the Years 2009-2010 Assets non-current assets tangible fixed assets operating fixed assets capital work in progress long term investment long term deposits 2009 23.39% 5.45 5.60 0.4256 29% 8.22 5.60 0.4256 _ 2010

Current Assets stores and spares stock-in grade trade debtors advances, deposits and other receivables bank balances liabilities and equity Authorized capital 30,000,000 Ordinary Shares of Rs.10/- each Issued, Subscribed and Paid-up Capital Reserves and Surplus 2.71 17.11 8.0 8.0 3.342 22 .85 0.7531 45.2 8.47 10.53 0.182 0.8522 26.47 13.29 13.43 0.2456

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2009 4.66 1.76 0.471 0.663 1.12


NON-CURRENT LIABILITIES Redeemable Capital - secured (non - participatory) Long term loan - secured Liabilities against Assets Subject to Finance Lease Deferred Liability for staff gratuity Deferred taxation

2010 9.97 2.97 1.439 0.95

2009 CURRENT LIABILITIES Current Portion of redeemable Capital Current Portion of Lease Liabilities Short term borrowings - secured Creditors, Accrued and Other Liabilities Dividend Provisions for Taxation 0.267 1.763 43.47 17.10 0.00000683 6.483


0.267 2.69 29.1 0.00149 0.00000683 8.08

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Financial Ratios

RATIOS 1.LIQUIDITY RATIOS a. Current ratio b.Quick Ratio 2.LEVARAGE RATIOS a. Debt to asset ratio b.Funded to net working capital 3.EFFICIENCY RATIOS a. Average collection period b.inventory turnover c. Total asset turnover d.net worth turnover e.net working capital turnover 4.PROFITABILITY RATIO a. Profit margin b. Return on total assets c. Return on net worth d. Return on net working capital 5.EQUITY RATIO a. price to earning ratio b. dividend payout c. book value per share



1.04 0.4757

0.97 0.2787

0.7381 0.3692

0.80179 1.365

30 days 0.7089 0.000933 2.15 -0.0017583

35 days 0.008109 0.000693 2.56 -0.010899

0.0078 0.6885 0.1792 -0.1643

0.0075 0.53351 0.9853 0.08387

2.11 0.41 $15.12

2.01 0.83 $19.48

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Liquidity ratios A).Current ratio: Total current assets/Total current liabilities =0.97(2010) and 1.04(2009) This explains that in 2010 the liabilities were outweighing the assets however the previous year the assets became more than the liabilities and hence the ratio exceeds 1. b).Quick ratio: (total current assets-inventories)/total current liabilities=0.2787(2010) and 0.4757(2009) This ratio is taken out in order to check the liquidity of the firm. When the inventory was subtracted from the total current assets, giving us a figure of all the current assets other than the stock. This figure was divided by the total current liabilities which gave us a significant decrease in the overall figure value as compared to the current ratio. However, the ratio is decreasing later on in 2010.This means that the stocks have increased. Leverage ratios Total debt to total assets ratio: Total debt/total assets=0.80179(2010) and 0.7381(2009) This tells us about the amount of assets which are debt financed. This means that in the last one year there has been a rise in the amount of assets which are being financed by debt and hence reduction in the ones which have been financed by equity. b. Funded debt to net working capital: Funded debt/net working capital=1.365(2010) and 0.3692(2009) This basically explains the ratio of debt which has a maturity of more than one year divided by the difference between the current assets and current liabilities. Hence the ability of the firm to retire its funded debt using available relatively liquid assets has increased. Efficiency ratios a).Inventory turnover ratio=0.008109(2010) and 0.7089(2009) It is a ratio which tells the effective inventory management policies. Recently, the ratio has reduced in value than the previous one. Either the firm has a lot of inventory or its sales are reducing. b).Total assets turnover=0.000693(2010) and 0.000933(2009) It is a measure of the firm s overall effectiveness in generating sales. The decrease in this ratio is not significant enough. However, it shows that the firms effectiveness in generating sales from assets is decreasing to some extent. c).Net working capital turnover=-0.010899(2010) and -0.0017583(2009) It is a measure of the firms productivity in generating sales. Again here the firm's performance is decreasing in a way that the ratio of conversion of the net working capital to sales is decreasing. However, even this difference is not very significant between these two years. Profitability ratios Profit margin=0.0078(2010) and 0.0075(2009) This reflects the firm's managerial efforts at controlling the market's acceptance of the firms product, the effectiveness of its marketing and sales efforts and the firms overall reputation. The profit margin is improving hence the firms profitability is improving. b. Return on total assets=0.53351(2010) and 0.6885(2009 ) This reflects the earnings productivity of the total assets. Here there is a decrease. This is because

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the firm is not very profitable as far as its assets are concerned. c. Return on net working capital=-0.08387(2010) and -0.1643(2009) Reflects the profitability of managerial decisions regarding investments in net current assets. This is improving in a way that the company is generating profits on its net working capital as compared to 2009 Equity ratios Price to earnings ratio=2.01(2010) and 2.11(2009) This is basically a measure of the desirability of a firm. The more desirable a firm to the investor the higher the P.E ratio. The P.E ratio is slightly decreasing. This is because the ratio of earning per share to price per share is greater in 2009.The higher this ratio the more attractive it is to the investors. b. Debt to equity ratio=0.3481(2010) and 0.4937(2009) shows a decrease in the preceding year 2010.

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Gul Ahmed





Current Ratio




Quick Ratio






Total debt to total Assets ratio





Funded debt to networking capital






Average collection period

43 days

30 days

69 days

50 days

Inventory turnover





Total assets turnover





Net worth turnover





Net working capital turnover






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Net Profit Margin





Return on net worth





Return on Total Assets





Return on Net working capital






price to earnings ratio




book value per share




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Liquidity Ratios: Al-karam has a higher Current ratio as well as Acid Test ratio as compare to Gul Ahmed and Saif, which means that it is in a better shape to meet its current obligations and has more inventory. Gul Ahmed and Saif therefore have lower margin safety to meet its current obligation Leverage Ratios: Saif is in a more risky position than the other two companies as the debt to total assets ratio is higher for it. Furthermore, the funded debt to network capital is also higher for the same. A critical analysis of the available information shows that majority of the investments made in Saif are made on debt rather than invested capital by the owners. Efficiency Ratios: Al-karam seems to be in a better financial standing as compare to its efficiency. The company has a lower turnover ratio for both, the assets and the inventory showing high amount of sales and effectiveness as compare to the other two companies. Profitability Ratios: At the current position, Saif seems to be more profitable, however a critical analysis of previous records leads to the notion that it has been decreasing throughout its journey in the previous years. On the other hand, Al-Karam has been rising in its profitability continuously, showing improvements in return on net worth and return on total assets. Equity: Equity ratios are primary interest to the firm s stockholders and include the price to earnings ratio, dividend payout, and book value per share. The price to earnings ratio, popularly referred to as the P/E ratio, is an overall measure of the desirability of the firm. The more attractive the firm is to the investors, the higher the P/E ratio. The P/E ratio is highest of Al Karam that is 10.65 which is higher than the other textiles ratio. Then comes Gul Ahmed and Saif textiles. Saif is showing a very low equity ratio. Al-karam has been showing improvements in the dividend yield and the book value per share. This shows that the company has been increasing its equity by involving more investors in its base. The company thus shows signs of expansion and higher sense of determination towards acquiring more of the business. The book value per share is highest of Al Karam and lowest of Saif Textiles.

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The ratio analysis of the three companies shows the result that Al-karam has been increasing its equity and its profitability and showing signs of an efficient company. On the other hand, the other two companies i.e. Gul Ahmed and Saif are decreasing its business and going towards loss. Saif even shows signs of bankruptcy in the near future.