final project fm

8/4/2019 Final Project FM

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Final Project

FINANCIAL MANAGEMENT

Topic: Comparative analysis of financial statement between two Textiles

Companies

Submitted by: Samra Batool

Tarteel Aslam

Sundus Riaz

Submitted to: Mam Ghania

Program: BBA (hons)

Date: 28th

-01-2011

OPF Girls College,

Islamabad.


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(Dedication)

This project is dedicated to our beloved parents who always pray for our best future. And

without their prayers, we are nothing. And

Today we realized how selfish we were

hard to accept? Oh, yes it was'

We expect a thank you for the little things we do,

And yet we have never said a single word for the big things they do

we then grumble of the sacrifices we made,

when they did something that can never be paid.

We are so embarrassed;

we don't know what to say.

We can't believe

we are making the same mistakes.

The amazing thing is

after all we have done

they still love us for being their daughters. (Always)


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(Acknowledgement)

At first we would like to extend our sincere and humble gratitude to Allah Almighty. We

were nothing without the help of Allah and to the Holly Prophet MUHAMMAD (PBUH), the

greatest ever Human Ocean, house of knowledge and learning. Finally by the grace of

almighty Allah and his Prophet (PBUH) we did manage to finish this project. We can never

forget the contribution ofMadam Ghania, because she encourages us to make this effort

develop our personality and finally we succeeded to make it. Her contribution toward

development of our personality can never be put into words, for the words get exhausted

but her contribution will not.


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Introduction

In our country textile companies are doing very well business. So many

competitors are in this sector. Lots of new companies entered this

market. From all of them we choose two cement company for our report.

We collect their financial statement & analyze them within three methods &

we identify their comparative advantage.

Scope:

We worked on Ashraf textile mills ltd. & Saiham textile mills ltd for our

report.

Limitation:

We are very happy because we made our report within some limitations

and overcome it almost. For prepare this report we faced some barrier.

When we prepared this report all necessary data is not available. For thiswe assume some of the data to complete the report. On the other hand

when we go to collect the financial statement we were unable to found our

needed statement books. Finally, one limitation was on shortage of

knowledge that was reduced to make this report a better one.

Source ofData:

For our report we collect data for finding & analysis. At first we collected the

annual report & take financial statements of two companies. We also

collected some data from the internet.


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Methodology:

As a rule, we had to follow a particular method for collecting data to

complete the report accurately. At first we make Income Statement,

Balance Sheet & Cash Flow on a excel sheet. Than we analysis the Income

Statement & the Balance Sheet using the common sizing & indexing

method. Finally we used the eleven financial ratios for our ratio analysis.


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Brief Historyof company

SaihamTextileLtd.

Late Syed Sayeed Uddin Ahmed & Begum Hamida Banu, in remembrance

of whom, Saiham Textile Mills Limited has derived the name of the

company; would have been proud to know how well their offspring have

managed and extended the organization.

Saiham Textile Mills was set up in Noyapara, Hobiganj district in the year

1982 with an annual capacity of 7.5 m yards of finished cloth. It was

equipped with modern and sophisticated machineries from Japan. Initially it

was a weaving, dyeing printing and finishing plant. Saiham Textile claims to

be the pioneer in introducing the concept of modern fabrics in Bangladesh.

They were one of the first textile mills to start international standard

polyester fabric, TC fabric, synthetic and Georgette sarees with cross border.

The mother company of the present conglomerate is now comprised of

different industrial concerns. The entrepreneurship of Saiham, consists of

five directors, all from the same family. Although a company run and

managed by relatives, the standard and efficiency of the management does

not compromise on its quality.

Ashraf textile mills ltd.

Ashraf textile mills ltd is one of another company which is run and managed

by relatives, the standard and efficiency of the management does not

compromise on its quality.


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Finding &AnalysisAccording to our report subject our main objective is identifying the

difference between two companies financial statement. Also we want to

find out which company is more stable & which is not

stable. From the financial statement we can find out our

requirements. In below we give our finding & analysis in basis of

companys financial statement.

Analysis of Income Statement, Balance

Sheet between two companies

In below we are going to discuss about the two companies balance

sheet, Income Statement & Cash flow comparison in a briefly :

Balance Sheet Comparison:

Assets:

From the balance sheet of the both companies we can identify that

Ashraf textile had 504,741,251 tk total assets in 2005 but on the other

hand Saiham textile had only 425,320,371 tk total asset in 2003-2004.

Next year Ashraf textile companies total asset was decreased and

Saiham textile companys total assets increase and in 2007 Ashraf

textile reached in 167,726,578 tk whereas in 2005-2006 Saiham textiles

total asset 436,650,516 tk. For the total asset volume we can say that

Saiham textile has more powerful rather than Ashraf textile.


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Liability:

The total liability we saw that Ashraf textile had 623,823,012 tk liabilities

In 2005 & Saiham textile had 152,581,718 tk only in 2003-2004.Bothcompanies liabilities were also increased in next year. But clearly we

can comments that Ashraf textile had least liability than the Saiham

textile. However Saiham textile had the more Net asset than the Ashraf

textile.

Shareholders equity:

We can easily understand that Saiham textile had the more equity and it

was 818,663,635 tk for 2004-06 & Ashraf textile had -1,123,244,182. So we

can say that Saiham textile had the more investment in the market.

IncomeStatement Comparison:

From our income statement we can identify that Saiham textile has aprofit 74,932,529 tk in 2004 & 52,001,246 tk in 2005 & 57,295,427 tk in

2006. From this we can say that the profit is decreasing by next two

years. And this shows that sale for Saiham textile decreasing during the

next two year. On the other hand Ashraf textile is in a loss of-62,609,854 tk

in 2005 & -122,738,787 tk in 2006 & -14,064,257 tk in 2007. They continue

their business in loss where Saiham textile doing their business with

profitability.

Analyzing Common Sizing & Indexing:

In common size analysis we express the various components of a balance

sheet as percentage of the total assets of the company. In addition this can

be done for the income statement, but here items are related to net


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sales. In Ashraf textile balance sheets over the three year span the

percentage of current assets increased. On the other hand Saiham textile

current assets fluctuated. We see that Ashraf textile account receivable

showed a relative decreased from 2005 to 2007.Saiham textile account

receivable fluctuated from 2003-04 to 2005-2006.On the liability & equityportion of the balance sheets, Ashraf textile total debt of the company

decline on a relative basis from 2005 to 2007.but Saiham textile total debt

decreased in 2004-2005 & increased in 2005-2006.

The common size income statement shows the gross profit/loss margin

from year to year. We see that Ashraf textile operating expenses increase

year to year & in 2007 increases sharply. Whereas Saiham textile operating

expenses decreased in 2004-2005 & increase again in 2005-2006.In 2005-

2007. Ashraf textiles net profit had negative percentage, whereas Saihamtextiles net profit increased.

In indexes analysis all financial statement items are 100%. In 2006 & 2007

Ashraf textile current assets indexed is 91.53 & 9.95 whereas Saiham textile

current assets s indexed is 116.26 & 100.93 in 2004-2005 & 2005-2006.

The indexed income statements give much the same picture as the

common size income statements namely, fluctuating behavior. In Ashraf

textile income s t a t e m e n t t o t a l gross loss indexed a r e 100,

196.037491 & 22.46332822 in 2005 , 2006 & 2007.Whereas Saihamtextiles gross profit are 100, 69.3974 & 76.4626 in 2003-04, 2004-05 &

2005-2006


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Financial Statement

Analysis by ratio:

For the performance measurement of Ashraf textile & Saiham textile mills

Ltd. In below we are going to analysis about the two companies financial

statement using ratio analysis. We used 11 methods to analyze the

ratio. Here are belongs:

LiquidityRatio:

i) Current Ratio:Current assets divided by current liabilities. It shows a

firms ability to cover its current liabilities with its current assets. In below

there is the graph of the two textile companys current ratio:

current ratio(Ashraf textile) current ratio(Saiham textile)

2

0.4

ratio 0.2ratio 1

02005 2006 2007

0

2003- 2004- 2005-

Series1 0.32332 0.13204 0.16733

year

Series1 1.044 0.764 0.982

year

From the graph we can see that Ashraf textile current ratio is 0.32 times in

2005 and 0.167 times in 2007. Here we see that current ratio has been

decreased and go down in less than 1. On the other hand Saiham textile

current ratio is 1.044 in 2003-04 & next two year stay remain but it also be

below the 1 and from the Ashraf textile. In the last year for both company

we suggested that the current liabilities cannot be covered if existing current

asset are liquated at their book values.


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ii) Quick Ratio:Current assets less inventories divided by current

liabilities. It shows a firms ability to meet current liabilities with its most

liquid assets.

ratio

Quick ratio(As hraf textile )

0.2

0.15

0.1

0.05

02005 2006 2007

ratio

Quick r atio(Saiham te xtile )

0.4

0.3

0.2

0.1

02003-2004 2004-2005 2005-2006

Series1 0.197173 0.069725 0.138913

year

Series1 0.2643053 0.15642413 0.38213114

year

From the graph we can easily identify that in 2006 Ashraf textile & Saiham

textile quick ratio is decreased dramatically. We say that in the last year of

the both companys quick ratio increased. But Saiham textile has good

position than the Ashraf textile.

FinancialLeveragedebt ratio:

i) Debt-To-Equity:Ratios that show the extent to which the firm is

financed by debt.

Debt to Equity(As hraf textile)

0

Debt to Equity(Saiham textile)

1

Ratio

-10

Ratio 0.5

2005 2006 2007 0

Series1 -5.239 -2.17 -1.2532003- 2004- 2005-

year

Series1 0.559443 0.887395 0.59995

year

If we consider the year 2007 of Ashraf textile, the ratio is -1.253 that

creditors are providing for each tk 1. In the case of Saiham textile in 2005-

2006 the ratio is 0.599 that creditors are providing. So we can say that

Ashraf textile is in a better position than the Saiham textile.


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ii) Debt-To-Total Asset Ratio:

The debt to total asset ratio is derived by

dividing a firms total debt by its total assets.

Sebt to Assets (Ashraftextile)6

Debt to Assets(Saiham textile)

0.6

4

ratio

2

ratio

0.4

0.2

02005 2006 2007

02003- 2004- 2005-

Series1 1.235926 1.854987 4.95805

year

Series1 0.358745 0.470169 0.374981

year

From the graph we can realize that Ashraf textile ratio is more than Saihamtextile in their last three year. We know that the higher the debt to

assets ratio, the greater the financial risk; the lower the ratio, the lower the

risk. So Ashraf textile has more risk than the Saiham textile.

CoverageRatio:i)Interest Coverage Ratio:

Ratio earnings before interest and taxes divided

by interest charges. It indicates a firms ability to cover interest charges. It is

also called times interest earned.

Interest coverage(Ashraftextile) Interest coverage(Saiham textile)

ratio

3

2.5

2

1.5

1

0.5

0 2005 2006 2007

Series1

5

4

3

ratio2

1

02003- 2004- 2005-

Series1 1.7272998 2.7067618 0.3935626

year

Series1 4.3453871 3.1634257 2.5946142

year


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This ratio serves as one measure of the firms ability to meet its interest

payments and thus avoid bankruptcy. The higher the ratio the greater

company could cover its interest payment without difficulty. So analyze after

the two graphs we can said that Saiham textile has more interest coverage

than the Ashraf textile Cement. Ashraf textile ratio is fluctuated highly in2007.

ActivityRatio:

i)Receivable Turnover:The receivable turnover ratio provides insight

into the equality of the firms receivables and how to successful the firm is

in is collections. This ratio is calculated by dividing receivables into annual

net credit sales.

Re ce ivable turnove r(As hraf te xtile ) Receivable turnover (Saiham t extile)

Days

140

120

100

80

60

40

20

02005 2006 2007

Day

50

40

30

20

10

02003-2004 2004-2005 2005-2006

Series1 101 6 125

year

Series1 14 6 42

Year

From the graph we can say that Ashraf textile received their receivable

money from the buyers within 101 days in 2005, 6 days in 2006 & 125 days

in 2007. On the other, Saiham textile received within 14 day in 2003-2004, 6

day in 2004-2005 and 42 days in 2005-2006. Eventually we can say that

Saiham textile was received money within short time rather than the

Ashraf textile.

ii)PAYABLE TURNOVER:There may be occasions when a firm wants

to study in own promptness of payment to suppliers or that of a potential


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credit customer. This ratio is calculated by di vi di ng purchase into

total A/C payable.

Payable turnover(As hraf textile) Payable turnover(Saiham textile)

Days

400000

350000

300000

250000

200000

150000

100000

50000

0

35

30

25

20

Days

15

10

5

2005 2006 2007 02003-2004 2004-2005 2005-2006

Series1 138 276 360420

year

Series1 35 10 15

year

From the graph we can say that Ashraf textile paid their payable money

to the sales within 138 days in 2005, 276 days in 2006 & 360420 days in

2007. On the other, Saiham textile paid within 35 day in 2003-2004, 10

day in 2004-2005 and 15 days in 2005-2006. Eventually we can say that

Saiham textile was paid money within short time rather than the Ashraf

textile.

iii)INVENTORY ACTIVITY:To help determine how effectively the

firm is managing inventory and also to gain an indication of the liquidity ofinventory. This ratio is calculated by dividing inventory into COGS.

Inventory Activity(As hraftextile)Inve ntor y Activity(Saiham te xtile )

400250

300 200

Days 200

100

Days

150

100

050

2005 2006 20070

Series1 60 53 369

year

2003-2004 2004-2005 2005-2006

Series1 170 225 176

year

The figures tell us how many days, on average, before inventory is turned

into accounts receivable through sales. Here we see that Ashraf textile was

faster than Saiham textile in case of inventory activity.


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iv)TOTAL ASSET TURNOVER:The relationship of net sales to total assets

is known as the total asset turnover, or capital turnover.

Total asset turnover(Ashraftextile)Total Asset tu rnove r(Saiham textile)

ratio

0.7

0.6

0.5

0.4

0.3

0.2

0.1

0 2005 2006 2007

ratio

0.8

0.7

0.6

0.5

0.4

0.3

0.2

0.1

0 2003-2004 2004-2005 2005-2006

Series1 0.6780095 0.4476056 0.05087134

year

Series1 0.77632571 0.56348701 0.5969018

year

The median total asset turnover for the industry is 1.66. For this ratio

analysis we saw that Ashraf textile & Saiham textile both are less efficient

than the industry in this regard. On the other hand Saiham textile is in a

better position than the Ashraf textile.

Profitability Ratio:

i)Profitability ratio in relations to sales:The ratio we consider is the gross profit

margin or simply gross profit divided by net sales.

Profitability in ratio to sales(Ashraf te

xtile)

Profitability in re lation to s

ale s(Saiham te xtile )

ratio

4

3.5

3

2.5

2

1.5

1

0.5

0 2005 2006 2007

ratio

1.83

1.82

1.81

1.8

1.79

1.78

1.77

1.76

1.75

1.742003-2004 2004-2005 2005-2006

Series1 2.1829524 2.688959397 3.648320722

year

Series1 1.773060426 1.820902862 1.780171958

year


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It is a measure of the efficiency of the firms operations, as well as an

indication of how products are priced. From the above graphs we saw that

Ashraf textile has relatively more effective at producing and selling products

above cost.

ii)Profitibility ratio in relation to investment:This profitability ratio relates profits to

investment. One of those measures is the rate of return on investment, or

return on asset.Profitability in relation to

investment(Ashraftextile)

Profitability in relation to inve

stment(Saiham textile)

0 0.025

-0.50.02

ratio -1 ratio

0.015

0.01

-1.50.005

-22005 2006 2007

0

2003-2004 2004-2005 2005-2006

Series1 -0.235798631 -0.507839396 -1.707107588Series1 0.023235772 0.018004789 0.023118956

The standard ratio compares for this is nearly 8%. From our analysis we

found that Saiham textile ratio simply fluctuates. Their percentage is not sogood. On the other hand Ashraf textile had negative percentage from

2005-2007.

Conclusion:

We examine the analysis of Ashraf textile & Saiham textile mills ltd. We seethat the liquidity position o f both companies is not good. Comparatively

Saiham textile is better than Ashraf textile mills ltd. Ashraf textile mills

ltd should change their credit policy & properly utilizes its assets. The

profitability ratio of Ashraf textile mills ltd. Is better than Saiham textile

mills ltd. The company should avoid the use of debt; otherwise company

would fall into bankruptcy.


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