Table of Contents

Executive Summary iIntroduction. 1Trend Analysis 1: Apex Spinning & Knitting Mills Ltd. 1Comparative Analysis: Apex Spinning 6Trend Analysis 2: Anlima Yarn Dyeing Ltd. 8Comparative Anlysis: Anlima Yarn 10Trend Analysis 3: Malek Spinning Mills Ltd. . 13Comparative Analysis: Malek Spinning 16Trend Analysis 4: Rahim Textiles Mills Ltd. .. 17Comparative Analysis: Rahim Textiles 20Trend Analysis 5: Square Textiles Ltd. ..23Horizontal Analysis26Vertical Analysis..28Summary & Conclusion ..30

Executive SummaryFinancial ratio is one of the mostly used financial tools to evaluate a companys financial performance. In this report we have used various financial ratios to examine strengths and weaknesses of some of the textile companies in our country. Later in this report horizontal analysis and vertical analysis have also been incorporated to have a better insight into financial performance. Industry evaluation has also been done taking the average of the five companies selected for this report.Textiles industry is one of the pivotal industries in the context of Bangladeshs economy. Each year it helps to strengthen the economy through extensive export operations. So, for the betterment of the countrys economy it is of utmost importance that companies in that particular sector maintain a sound financial performance. Otherwise if those companies cripple it would have an immensely negative impact on our countrys overall financial health. Keeping these issues in mind we have tried to shed light on various aspects of financial situation of a company using various ratio analysis and later horizontal and vertical analysis.Our ratio analysis has revealed various aspects of strengths and weaknesses of various companies. Apex Knitting has shown its strength in asset utilization but suffered from comparatively higher COGS. Anlima Yarn suffers a bit with respect to liquidity ratios and has a bit low ROA. However it managed to yield better ROE through comparatively heavy debt financing. Malek Spinning had serious problem in cash management although recovered a bit in 2011 and they show high dependence on equity financing. Rahim Textiles again suffers a bit from liquidity problem and shows relatively high dependence on equity financing. Square Textiles maintains relatively steady level of financial performance. To some extent it lacks those concerning issues that should alarm the management about disconcerting inefficiency or mismanagement.In the last part we tried to provide some recommendations based on our findings regarding various financial performance issues. Some company needs to check whether their high expenditure on COGS is justifiable or not, few needs to consider whether they are over-utilizing their assets or human resources or not, and few needs to develop a more efficient cash management strategy. Along with those one or two company may give a second thought regarding their financing strategy, whether they should maintaining heavy dependence on equity financing or should try to have some financial leverage by using a bit more debt financing. As stated earlier textiles industry remains at the center of the countrys economy so sound financial analysis is extremely crucial in order to pinpoint problem areas and rectify them whenever needed. This would help the industry to grow further in future.

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IntroductionA financial ratio is a relative magnitude of two selected numerical values taken from an enterprise's financial statements. Often used in accounting, there are many standard ratios used to try to evaluate the overall financial condition of a corporation or other organization. Financial ratios may be used by managers within a firm, by current and potential shareholders of a firm, and by a firm's creditors. Financial analysts use financial ratios to compare the strengths and weaknesses in various companies. If shares in a company are traded in a financial market, the market price of the shares is used in certain financial ratios.In this report we have focused on four main categories of financial ratios: Liquidity Ratios Profitability Ratios Activity Ratios Solvency RatiosThe industry we picked is the textile industry. The names of companies used in the report are: Apex Spinning Mills Ltd. Anlima Yarn Dyeing Ltd. Malek Spinning Mills Ltd. Rahim Textiles Mills Ltd. Square Textiles Ltd.We have used both trend analysis and comparative analysis to evaluate the financial situation of the above mentioned companies. Below are the findings of our research.

Trend Analysis: Apex Spinning & Knitting Mills Ltd.Liquidity RatiosCurrent RatioCurrent Ratio of Apex Spinning & Knitting Mills Ltd is just over 1 and hasnt deviated much over the three years. It means that the company holds sufficient current assets that can be liquidated to meet its current obligation. The figures also imply that only a small portion of the current assets have been financed by long term debt and the rest by current liabilities. Current assets havent piled up in the last years as ratios are just over 1.Over the years the ratio hasnt shown much movement and that indicates that the companys policies pertaining to liquidity have been pretty stable in last three years.Acid-test RatioAcid-test ratio is similar to current ratio except of the fact that the former one doesnt consider inventory in the calculation. So it basically considers the part of current assets that can be almost readily liquidated whenever needed. As the figures are below 1 the company cant meet all of its current obligations without relying on inventories.Over the three years this particular ratio hasnt changed much which indicates consistency in company policy regarding liquidity management.

Profitability RatiosNet Profit Margin RatioThe ratio show is an indicator of companys profitability and efficiency in expense management as compares net profit with net sales. The ratio increased a bit in the year 2010 but dipped in 2011. If we look at the income statement figures then we will see that in 2010 companys net profit increased a bit even though there was a decrease in sales. However, in 2011 just the opposite happened; sales increased while net profit plummeted. So clearly the company hasnt been equally efficient in managing its expense throughout the three years. Either there was a problem associated with COGS or the company may had to bear a bit too much operating expenses. But to see the whole picture we have to look into the following ratio. But so far we can state that in the year 2010 company managed its expenses in a much more efficient manner than in 2011.Gross profit Margin RatioThis ratio shows the relationship between gross profit and sales and helps us pinpoint the problem associated with expense management. However, gross profit margin ratio shows almost the same trend like that of net profit margin ratio. So, to pinpoint the problem area we have showed both operating expenses and COGS as a percentage of sales and it revealed that COGS/Sales percentage increased a bit in 2011 while operating expense/sales percentage decreased. But due to large volume involved with COGS that small increase in the percentage lead lower net profit margin ratio and gross profit margin ratio. Now the company needs to check whether they are using superior raw materials in the production process or just paying higher price for average quality raw materials. If they are purchasing higher quality raw materials then they to be more efficient in other areas such as operational expenses in order to boost their profitability.Return on AssetsReturn on assets refers to companys ability to generate net profit utilizing its assets. Unlike asset turnover this ratio isnt exceptionally high which means even though the company was able to generate huge amount of sales utilizing its assets it also had to bear huge expenses and that had a big impact on its net profit. As we saw earlier the companys COGS consumes a substantial portion of its sales and it may have caused the ROA figure to remain at such level.However, interestingly unlike asset turnover ratio ROA hasnt increased in the year 2011 and reduced instead. The main reason is that in that year even though both sales and assets increased net profit did mainly not due to relatively high COGS. As we stated earlier the company needs to check whether they are using raw materials of superior quality or they are just paying high prices for an average quality raw material.Return on Common Stock EquityThis ration shows how efficient the company has been in utilizing its common equity to generate net income. The pattern of this ratio of Apex Spinning corresponds to that of ROA; increased slightly in 2010 and dropped in 2011. The figures have been pretty stable over the years. For a better understanding of the changes underlying in ROA and ROE we need to conduct DuPont analysis which is presented below.DuPont AnalysisDuPont analysis shows ROE as a multiplication of three ratios a) Net profit margin b) Assets turnover ratio c) Equity multiplier. Judging all these three ratios we can have a better insight into ROE.The analysis reveals that equity multiplier has been relatively stable over the years. Net profit margin among increased slightly among the three which caused a slight increase of ROE in the year 2010. In 2011 even though both asset turnover ratio and equity multiplier increased those were nullified by a decrease in net profit margin ratio which has brought down ROE figure slightly in that particular year. As we have discussed earlier simultaneous increase in Asset turnover ratio and decrease in Net Profit Margin ratio was caused by relatively high COGS in 2011.ROA can also been shown as a multiplication of Asset Turnover Ratio and Net Profit Margin. ROA of Apex Spinning has followed a similar pattern of that of ROE and in this case as well Net Profit Margin was main cause behind the deviations.EPSThe higher the ratio the better is for the company as it indicates better profitability of the entity. EPS has increased slightly in 2010 and again dipped a bit 2011. The number of common stock outstanding was constant over the last few years and hence the deviation was caused by the change in Net Profit of the company.Dividend Payout RatioThis ratio expresses the amount of cash dividend paid as a percentage of net profit. Apex Spinning has consistently paid out a very high percentage of its net income as dividends. Shareholders of the company should be mighty pleased with this kind of payout ratio. The drawback is that the company will be left with very low amount of retained earnings which may in turn hinder companys ability to reinvest in business or expansion. The company needs to keep in mind its growth potential and future needs for investment.P/E RatioExtremely high P/E ratio in 2009 indicates that the company was highly overvalued in that particular year. Even though EPS was very low in 2009 market price of companys stock was much higher. However, the valuation came down to normal level in the latter years.

Activity RatiosReceivables Turnover RatioThe ratio has increased a bit in the year 2011 which means in that year the company showed better efficiency in collecting its receivables compared to previous years. The better efficiency may be a result of more stringent receivables policy or simply more efficiency in collecting its outstanding receivables.Inventory Turnover RatioThis ratio has increased steadily over the years though not by much. Higher inventory turnover ratio implies efficiency in inventory management. Because an increase in this ratio can be caused either of the two events; increase of COGS given inventory remains relatively constant or decrease of inventory given COGS remains relatively constant. So in the former case the company has to make sure that its inventory doesnt much even if there is an increase in production and the latter case the company has to make sure that it reduces its current level of inventories while production remains relatively constant. So we can see from the discussion is either of the cases the company has to show improved efficiency regarding inventory management. In case of Apex Spinning both of the events took place. In year 2010 the company managed to lower down its inventory level while COGS remained relatively constant and in 2011 even though both COGS and inventory increased the change in inventory was much less compared to that of COGS.Asset Turnover RatioAsset turnover ratio indicates a companys efficiency in converting its assets in sales. Apex Spinning Mills ratio increased substantially in the year 2011 mainly due to high increase in sales. The ratio is also close to 200% in all the years which is quite exceptional. All these data reflect the companys superiority in asset management policy and practices. However, the company needs to be very cautious about the fact that whether it is over-utilizing its assets or not. If that is the case then its machineries and equipment may deteriorate a lot faster forcing the company to invest in those areas much earlier than anticipated.Cash Conversion CycleThe ratio is a combination of three ratios DSO, DIH and DPO. It represents the amount of time needed for a company to have cash back in hand. The lower the ratio the better it is for the company as it would imply efficiency in managing payables, receivables and inventories. CCC of Apex Spinning has reduced dramatically over the last three years. Reduced DIH and DSO and increased DPO was the reason behind. This event definitely indicates efficiency in those above mentioned areas but at the same time the company needs to check whether they are missing out any potential buyers or not whom they could avail with a less stringent credit policy.

Solvency RatiosDebt to Total Assets RatioLike equity multiplier this ratio is also a measure of a companys financial leverage. Higher ratio indicates more reliance on debt financing and vice versa.Times Interest EarnedThis ratio shows how easily a company can pay its debt obligations. A company relying heavily on debt financing should have sufficient income to pay its creditors. As for Apex Spinning this ratio has increased a bit over the years. Interestingly both net income before interest and tax and interest expense followed a downward trend in all those years. Furthermore, high debt to asset ratio and equity multiplier ratio in 2011 indicate companys more reliance on debt financing in 2011. Yet TIE ratio kept increasing. So this may indicate firms efficiency in utilizing debt financing, they have been able pursue debt financing at a comparatively lower cost.Equity MultiplierThis ratio shows the companys financing strategy. The higher the ratio the more is the usage of debt financing applied by the company. The trend implies that companys reliance on debt financing was a bit lower in 2010 but it rose again in 2011.

Comparative Analysis: Apex Spinning & Knitting Mills Ltd.Liquidity RatiosCurrent RatioCurrent ratio of Apex Spinning is a bit lower than that of the industry which implies that the company hardly lets its current assets to pile up comparing to the industry. Also at the same time it makes sure that it has enough current assets in hand to liquidate and meet its current obligations.Acid-test RatioAcid-test ratio of the company is also lower than the industry average value. So, we can say that unlike the industry the company cant meet its current obligations without liquidating its inventories.Profitability RatiosNet profit margin ratioCompanys net profit margin ratio is considerably lower than that of the industry average. So clearly the company has to bear comparatively more expenses compared to other companies in the market. We need to look at gross profit margin ratio in order to specify which cost component is causing this event.Gross profit margin ratioCompanys gross profit margin ratio is lower than the industry average as well but not as low as net profit margin ratio is. So, we can now state that COGS is the main reason behind companys comparatively low net profit margin ratio. Other costs such as administrative and selling overhead also play a role at it but not as significant as COGS does. Now the company needs to check out whether they are purchasing superior quality product or are they just paying high prices for an average quality raw material.

Asset Turnover RatioThis ratio is considerably higher than the industry average value. So clearly it indicates that the company is a lot efficient compared to other players in the market when it comes to the question of utilizing assets to generate sales. However, the company does need to make sure that they are not over-utilizing their assets, let it be human resources or machineries. Underpaid but efficient employees can leave the company for better opportunity so they shouldnt let that happen. Over-use of machineries can force them to reinvest in non-current way before the anticipated period.ROACompanys return on assets is a bit lower than the industry average value. To pinpoint the problem we need to look at the DuPont Analysis presented later.ROELike ROA, companys ROE figure is also lower than the industry average value. Now lets have a look at the DuPont analysis to figure out the main reason behind this.DuPont AnalysisLike we said earlier ROE is a multiplication of Net Profit Margin, Asset Turnover Ratio and Equity Multiplier. Among the three ratios only Net Profit Margin is lower than the industry average. So we can state that companys poor expense management is reason behind lower ROE.ROA can be described as a multiplication of Asset Turnover Ratio and Net Profit Margin. Like in the case of ROE here also Net Profit Margin was the cause behind lower ROA. So again expense management issues have caused the company to suffer from a lower ROA despite showing lot efficiency in asset utilization.EPSEPS is a bit higher than the industry average even though the companys net profit margin ratio was poor. This might happen if the company is heavily reliant debt financing. Solvency ratios will enable us to determine whether it is the case or not. But at present we can state that higher EPS enhance companys image among shareholders.Dividend Payout RatioThis ratio is considerably higher than the industry average referring to the fact that the company is paying a lot dividend to its shareholders compared to other companies in the market. So, this information is likely to make shareholders happy. But the drawback is that the company will have lower retained earnings to make new and re-investments.

P-E RatioInterestingly companys P-E ratio is ratio is lot lower that the industry average even though it has comparatively higher EPS and dividend payout ratio. So, this indicates undervaluation of the company in the market.

Activity RatiosReceivables Turnover RatioCompanys receivable turnover ratio is a bit higher than the industry average which indicates efficiency in collecting receivables.Inventory Turnover RatioInventory turnover ratio is higher as well and again it implies efficiency in inventory utilization that contributes into COGS.Cash Conversion CycleCCC is lot lower than the industry average which indicates superior efficiency in managing accounts receivables, payables and inventories. It has resulted due to lower DIH, DSO and slightly higher DPO. However, the company needs to make sure that they arent losing any customers due to strict receivables collection policy and credit terms.

Solvency RatiosDebt to Total Assets RatioCompany uses more debt financing than the average industry and it explains how the firm managed to yield an above industry average EPS even though it suffered from lower Net Profit Margin. More reliance on debt financing gives a firm financial leverage.TIE RatioTIE ratio is slightly less than the industry average. Company needs to be cautious in this regard as they are more dependent on debt financing.Equity MultiplierAs the company is more dependent on debt financing quite expectedly its equity multiplier is a bit higher than the industry average due to comparatively lower amount of equity.

Trend Analysis: Malek Spinning Mills LtdLiquidity RatiosCurrent RatioCurrent Ratio of Maled Spinning Mills Ltd. is just above 1 and hasnt deviated much over the three years. Low values for the current or quick ratios (values less than 1) indicate that a firm may have difficulty meeting current obligations. Low values, however, do not indicate a critical problem. If it has good long-term prospects, it may be able to borrow against those prospects to meet current obligations.Over the years the ratio hasnt shown much movement and that indicates that the companys policies pertaining to liquidity have been pretty stable in last three years.Acid-test RatioAcid-test ratio is similar to current ratio except of the fact that the former one doesnt consider inventory in the calculation. As the figures are below 1 the company cant meet all of its current obligations without relying on inventories.Over the three years this particular ratio hasnt changed much which indicates consistency in company policy regarding liquidity management.

Profitability RatiosNet Profit Margin RatioThe ratio increased a bit in the year 2010 but dipped in 2011. As It is greater than industry average, it shows the company has been equally efficient in managing its expense throughout the three years. Gross profit Margin RatioGross profit margin ratio kept increasing throughout the three years indicating. It is good for the company in one sense that it is managing is COGS in an efficient way but at the same time it needs to make sure that they are purchasing quality raw materials. Otherwise low quality raw materials may result in low quality finished products which in turn would negatively affect the sales figures and profitability of the company. Return on AssetsMalek Spinning Mills asset turnover ratio increased gradually and slightly over the years. However, there is significant increase in sales. Also, the ratio is considerably below 100% in all the years which is somewhat low in comparison with its sales. It seems that the company isnt considering asset turnover with current significance. They are investing for long term profitability. The increasing rates and profits suggest accordingly so.Return on Common Stock EquityThe pattern of this ratio of Malek Spinning Mills corresponds to that of ROA; increased in 2011. For a better understanding of the changes underlying in ROA and ROE we need to conduct DuPont analysis which is presented below.DuPont AnalysisThe analysis reveals that equity multiplier has been relatively stable over the years. Net profit margin among increased slightly among the three which caused a slight increase of ROE in the year 2010. In 2011 even though both asset turnover ratio and equity multiplier increased those were nullified by a decrease in net profit margin ratio which has brought down ROE figure slightly in that particular yearEPSThe higher the ratio the better is for the company as it indicates better profitability of the entity. EPS was low in 2009 increased significantly in 2010. The number of common stock outstanding was constant over the last few years and hence the deviation was caused by the change in Net Profit of the company.Dividend Payout RatioMalek Spinning Mills has paid out a very high percentage of its net income as dividends in 2010. Shareholders of the company should be mighty pleased with this kind of payout ratio. The drawback is that the company will be left with very low amount of retained earnings which may in turn hinder companys ability to reinvest in business or expansion. The company needs to keep in mind its growth potential and future needs for investment.

Activity RatiosReceivables Turnover RatioThe ratio has increased a bit in the year 2011 which means in that year the company showed better efficiency in collecting its receivables compared to previous years. The better efficiency may be a result of more stringent receivables policy or simply more efficiency in collecting its outstanding receivables.

Inventory Turnover RatioThis ratio has increased steadily over the years though not by much. Higher inventory turnover ratio implies efficiency in inventory management. In case of Malek Spinning Mills remained almost steady over last three years.Asset Turnover RatioMalek Spinnings asset turnover ratio increased gradually and slightly over the years. However, there is significant increase in sales. Also, the ratio is slightly below industry average in all the years which is somewhat low in comparison with its sales. It seems that the company isnt considering asset turnover with current significance. They are investing for long term profitability. Cash Conversion CycleCCC of Malek Spinning Mills Ltd. has increased over the last three years. This event definitely indicates efficiency in those above mentioned areas but at the same time the company needs to check whether they are missing out any potential buyers or not whom they could avail with a less stringent credit policy.Solvency RatiosDebt to Total Assets RatioLike equity multiplier this ratio is also a measure of a companys financial leverage. Higher ratio indicates more reliance on debt financing and vice versa.Times Interest EarnedAs for Malek Spinning Mills Ltd. this ratio has increased a bit over the years. Interestingly both net income before interest and tax and interest expense followed a downward trend in all those years. So this may indicate firms efficiency in utilizing debt financing, they have been able pursue debt financing at a comparatively lower cost.Equity MultiplierThis ratio shows the companys financing strategy. The higher the ratio the more is the usage of debt financing applied by the company. The trend implies that companys reliance on debt financing was a bit higher in 2010 but dipped in 2011.

Comparative Analysis: Malek Spinning Mills Ltd.Liquidity RatiosCurrent RatioCurrent ratio of Malek Spinning Mills Ltd. is a bit lower than that of the industry which implies that the company hardly lets its current assets to pile up comparing to the industry. Also at the same time it makes sure that it has enough current assets in hand to liquidate and meet its current obligations.Acid-test RatioAcid-test ratio of the company is also lower than the industry average value. So, we can say that unlike the industry the company cant meet its current obligations without liquidating its inventories.

Profitability RatiosNet profit margin ratioCompanys net profit margin ratio is considerably lower than that of the industry average. So clearly the company has to bear comparatively more expenses compared to other companies in the market. We need to look at gross profit margin ratio in order to specify which cost component is causing this event.Gross profit margin ratioCompanys gross profit margin ratio is higher than the industry average.At present it seems like they have been able to purchase raw materials at a bit lower cost than other competitors without compromising much in the quality as the ratio isnt considerably higher than the industry average. But still the company needs to keep an eye open for any deterioration in the quality of raw materials purchased. Otherwise it will affect sales and profit figures.Asset Turnover RatioThis ratio is considerably lower than the industry average value. So clearly it indicates that the company is not efficient compared to other players in the market when it comes to the question of utilizing assets to generate sales. ROACompanys return on assets is a bit lower than the industry average value. To pinpoint the problem we need to look at the DuPont Analysis presented later.ROELike ROA, companys ROE figure is also lower than the industry average value. Now lets have a look at the DuPont analysis to figure out the main reason behind this.DuPont AnalysisROA can be described as a multiplication of Asset Turnover Ratio and Net Profit Margin. Like in the case of ROE here also Net Profit Margin was the cause behind lower ROA. So again expense management issues have caused the company to suffer from a lower ROA despite showing lot efficiency in asset utilization.EPSEPS is higher than the industry average even though the companys net profit margin ratio was poor. This might happen if the company is heavily reliant debt financing. Solvency ratios will enable us to determine whether it is the case or not. But at present we can state that higher EPS enhance companys image among shareholders.Dividend Payout RatioThis ratio is considerably higher than the industry average referring to the fact that the company is paying a lot dividend to its shareholders compared to other companies in the market. So, this information is likely to make shareholders happy. But the drawback is that the company will have lower retained earnings to make new and re-investments.P-E RatioInterestingly companys P-E ratio is ratio is lot lower that the industry average even though it has comparatively higher EPS and dividend payout ratio. So, this indicates undervaluation of the company in the market.

Activity RatiosReceivables Turnover RatioCompanys receivable turnover ratio is a bit higher than the industry average which indicates efficiency in collecting receivables.Inventory Turnover RatioInventory turnover ratio is higher as well and again it implies efficiency in inventory utilization that contributes into COGS.

Cash Conversion CycleCCC is lot lower than the industry average which indicates superior efficiency in managing accounts receivables, payables and inventories. It has resulted due to lower DIH, DSO and slightly higher DPO. However, the company needs to make sure that they arent losing any customers due to strict receivables collection policy and credit terms.

Solvency RatiosDebt to Total Assets RatioCompany uses more debt financing than the average industry and it explains how the firm managed to yield an above industry average EPS even though it suffered from lower Net Profit Margin. More reliance on debt financing gives a firm financial leverage.TIE RatioTIE ratio is slightly less than the industry average. Company needs to be cautious in this regard as they are more dependent on debt financing.Equity MultiplierAs the company is more dependent on debt financing quite expectedly its equity multiplier is a bit higher than the industry average due to comparatively lower amount of equity

Trend Analysis: Rahim Textiles Ltd.Liquidity RatiosCurrent RatioCurrent Ratio of Rahim Textiles Ltd. is just below 1 and hasnt deviated much over the three years. Low values for the current or quick ratios (values less than 1) indicate that a firm may have difficulty meeting current obligations. Low values, however, do not indicate a critical problem. If it has good long-term prospects, it may be able to borrow against those prospects to meet current obligations.Over the years the ratio hasnt shown much movement and that indicates that the companys policies pertaining to liquidity have been pretty stable in last three years.

Acid-test RatioAcid-test ratio is similar to current ratio except of the fact that the former one doesnt consider inventory in the calculation. As the figures are below 1 the company cant meet all of its current obligations without relying on inventories.Over the three years this particular ratio hasnt changed much which indicates consistency in company policy regarding liquidity management.

Profitability RatiosNet Profit Margin RatioThe ratio increased a bit in the year 2009 but dipped in 2010. As It is lower than industry average, it shows the company hasnt been equally efficient in managing its expense throughout the three years. Either there was a problem associated with COGS or the company may had to bear a bit too much operating expenses. But to see the whole picture we have to look into the following ratio. Gross profit Margin RatioGross profit margin ratio kept increasing throughout the three years indicating. It is good for the company in one sense that it is managing is COGS in an efficient way but at the same time it needs to make sure that they are purchasing quality raw materials. Otherwise low quality raw materials may result in low quality finished products which in turn would negatively affect the sales figures and profitability of the company. Return on AssetsRahim Textiles asset turnover ratio increased gradually and slightly over the years. However, there is significant increase in sales. Also, the ratio is considerably below 100% in all the years which is somewhat low in comparison with its sales. It seems that the company isnt considering asset turnover with current significance. They are investing for long term profitability. The increasing rates and profits suggest accordingly so.Return on Common Stock EquityThe pattern of this ratio of Rahim Textiles corresponds to that of ROA; increased in 2011. For a better understanding of the changes underlying in ROA and ROE we need to conduct DuPont analysis which is presented below.DuPont AnalysisThe analysis reveals that equity multiplier has been relatively stable over the years. Net profit margin among increased slightly among the three which caused a slight increase of ROE in the year 2010. In 2011 even though both asset turnover ratio and equity multiplier increased those were nullified by a decrease in net profit margin ratio which has brought down ROE figure slightly in that particular yearEPSThe higher the ratio the better is for the company as it indicates better profitability of the entity. EPS was high in 2009dropped significantly in 2010. The number of common stock outstanding was constant over the last few years and hence the deviation was caused by the change in Net Profit of the company.Dividend Payout RatioRahim Textiles has paid out a very high percentage of its net income as dividends in 2010. Shareholders of the company should be mighty pleased with this kind of payout ratio. The drawback is that the company will be left with very low amount of retained earnings which may in turn hinder companys ability to reinvest in business or expansion. The company needs to keep in mind its growth potential and future needs for investment.

Activity RatiosReceivables Turnover RatioThe ratio has increased a bit in the year 2011 which means in that year the company showed better efficiency in collecting its receivables compared to previous years. The better efficiency may be a result of more stringent receivables policy or simply more efficiency in collecting its outstanding receivables.Inventory Turnover RatioThis ratio has increased steadily over the years though not by much. Higher inventory turnover ratio implies efficiency in inventory management. In case of Rahim Textilesit remained almost steady over last three years.Asset Turnover RatioRahim Textiles asset turnover ratio increased gradually and slightly over the years. However, there is significant increase in sales. Also, the ratio is slightly below industry average in all the years which is somewhat low in comparison with its sales. It seems that the company isnt considering asset turnover with current significance. They are investing for long term profitability. Cash Conversion CycleCCC of Rahim Textiles Ltd. has increased over the last three years. This event definitely indicates efficiency in those above mentioned areas but at the same time the company needs to check whether they are missing out any potential buyers or not whom they could avail with a less stringent credit policy.

Solvency RatiosDebt to Total Assets RatioLike equity multiplier this ratio is also a measure of a companys financial leverage. Higher ratio indicates more reliance on debt financing and vice versa.Times Interest EarnedAs for Rahim Textiles Ltd. this ratio has increased a bit over the years. Interestingly both net income before interest and tax and interest expense followed a downward trend in all those years. So this may indicate firms efficiency in utilizing debt financing, they have been able pursue debt financing at a comparatively lower cost.Equity MultiplierThis ratio shows the companys financing strategy. The higher the ratio the more is the usage of debt financing applied by the company. The trend implies that companys reliance on debt financing was a bit higher in 2010 but dipped in 2011.

Comparative Analysis: Rahim Textiles Ltd.Liquidity RatiosCurrent RatioCurrent ratio of Rahim Textiles Ltd. is a bit lower than that of the industry which implies that the company hardly lets its current assets to pile up comparing to the industry. Also at the same time it makes sure that it has enough current assets in hand to liquidate and meet its current obligations.Acid-test RatioAcid-test ratio of the company is also lower than the industry average value. So, we can say that unlike the industry the company cant meet its current obligations without liquidating its inventories.

Profitability RatiosNet profit margin ratioCompanys net profit margin ratio is considerably lower than that of the industry average. So clearly the company has to bear comparatively more expenses compared to other companies in the market. We need to look at gross profit margin ratio in order to specify which cost component is causing this event.Gross profit margin ratioCompanys gross profit margin ratio is higher than the industry average.At present it seems like they have been able to purchase raw materials at a bit lower cost than other competitors without compromising much in the quality as the ratio isnt considerably higher than the industry average. But still the company needs to keep an eye open for any deterioration in the quality of raw materials purchased. Otherwise it will affect sales and profit figures.Asset Turnover RatioThis ratio is considerably lower than the industry average value. So clearly it indicates that the company is not efficient compared to other players in the market when it comes to the question of utilizing assets to generate sales. ROACompanys return on assets is a bit lower than the industry average value. To pinpoint the problem we need to look at the DuPont Analysis presented later.ROELike ROA, companys ROE figure is also lower than the industry average value. Now lets have a look at the DuPont analysis to figure out the main reason behind this.DuPont AnalysisROA can be described as a multiplication of Asset Turnover Ratio and Net Profit Margin. Like in the case of ROE here also Net Profit Margin was the cause behind lower ROA. So again expense management issues have caused the company to suffer from a lower ROA despite showing lot efficiency in asset utilization.EPSEPS is higher than the industry average even though the companys net profit margin ratio was poor. This might happen if the company is heavily reliant debt financing. Solvency ratios will enable us to determine whether it is the case or not. But at present we can state that higher EPS enhance companys image among shareholders.Dividend Payout RatioThis ratio is considerably higher than the industry average referring to the fact that the company is paying a lot dividend to its shareholders compared to other companies in the market. So, this information is likely to make shareholders happy. But the drawback is that the company will have lower retained earnings to make new and re-investments.P-E RatioInterestingly companys P-E ratio is ratio is lot lower that the industry average even though it has comparatively higher EPS and dividend payout ratio. So, this indicates undervaluation of the company in the market.

Activity RatiosReceivables Turnover RatioCompanys receivable turnover ratio is a bit higher than the industry average which indicates efficiency in collecting receivables.Inventory Turnover RatioInventory turnover ratio is higher as well and again it implies efficiency in inventory utilization that contributes into COGS.Cash Conversion CycleCCC is lot lower than the industry average which indicates superior efficiency in managing accounts receivables, payables and inventories. It has resulted due to lower DIH, DSO and slightly higher DPO. However, the company needs to make sure that they arent losing any customers due to strict receivables collection policy and credit terms.

Solvency RatiosDebt to Total Assets RatioCompany uses more debt financing than the average industry and it explains how the firm managed to yield an above industry average EPS even though it suffered from lower Net Profit Margin. More reliance on debt financing gives a firm financial leverage.TIE RatioTIE ratio is slightly less than the industry average. Company needs to be cautious in this regard as they are more dependent on debt financing.Equity MultiplierAs the company is more dependent on debt financing quite expectedly its equity multiplier is a bit higher than the industry average due to comparatively lower amount of equity.

Trend Analysis: Square Textiles Ltd.Liquidity RatiosCurrent RatioSquare Textiles Ltd has a current ratio slightly over 1 and has minor deviation over the three years (maintaining centrality around 1.47). It implies that to meet its current requirement, the company holds sufficient current assets that can be liquidated. The figures also imply that a small segment of the current assets have been financed by long term debt and the rest by current liabilities. Current assets havent piled up in the last years as ratios are just over 1.Over the years the ratio hasnt shown considerable movement indicating the companys policies pertaining to liquidity being stable in last three years.Acid-test RatioAs the figures show, they are scattered near around 1, the company is capable of meeting most of its current obligations. It doesnt have to rely exceedingly on inventories.The ratio has changed slightly over the 2010 & 2011. This indicates few changes in company policy regarding liquidity management over that period.

Profitability RatiosNet Profit Margin RatioThe ratio increased greatly in 2010 but dipped slightly in 2011. If we look at the income statement figures then we will see that companys net profit increased accordingly with its sales over 2010 & 2011.Increasing figures with big volumes in consecutive years indicate that the company has been greatly efficient in managing its expense. The operating expense was maintained in accordance with COGS. Only a slight dip in 2011 would indicate that the company ran a bit more efficiently in 2010 than 2011. But this doesnt change the fact that companys production and management are proficient in comparison to market.

Gross profit Margin RatioGross profit margin ratio kept increasing throughout the three years indicating. It is good for the company in one sense that it is managing is COGS in an efficient way but at the same time it needs to make sure that they are purchasing quality raw materials. Otherwise law quality raw materials may result in law quality finished products which in turn would negatively affect the sales figures and profitability of the company. Asset Turnover RatioSquare Textiles asset turnover ratio increased gradually and slightly over the years. However, there is significant increase in sales. Also, the ratio is considerably below 100% in all the years which is somewhat low in comparison with its sales. It seems that the company isnt considering asset turnover with current significance. They are investing for long term profitability. The increasing rates and profits suggest accordingly so.Return on AssetsReturn on assets refers to companys ability to generate net profit utilizing its assets. The significantly increasing figures over the years indicate that company is well capable of doing so. Though a companys COGS consume a substantial portion of its sales, in this case it couldnt affect ROA as the figures were increasing in considerable amount.The ROA decreased slightly in 2011 though. This may indicate that in that year even though both sales and assets increased net profit did not mainly due to relatively high COGS. However, the consistent rates suggest successful maintenance of the companys raw material management according to cash & COGS.Return on Common Stock EquityThe pattern of this ratio of Apex Spinning corresponds to that of ROA; increased significantly in 2010 and dropped minuscule in 2011. The figures have been pretty stable over the years. This shows the company has been efficient in utilizing its common equity to generate net income.DuPont AnalysisThe equity multiplier of Square Textiles Ltd. has been relatively stable over the years. Net profit margin increased slightly among the three which caused a significant increase of ROA in the year 2010. In 2011 even though both asset turnover ratio and equity multiplier increased the ROA figure slightly decreased in that particular year. This may be due to decreased asset allocation/ inventory allocation for other purposes.EPSEPS has increased vastly in 2010 and then dipped a bit 2011. However, regardless of increase, the figures are considerably low, indicating average profitability on the rise towards betterment. The number of common stock outstanding decreased significantly over the last few years and hence the deviation was caused by the change in Net Profit of the company.

Dividend Payout RatioOver the three years, the Dividend payout ratio of Square Textiles Ltd. has decreased significantly. This indicates that the company has high amount of retained earnings & plans on reinvestment. However, the decreasing trend may displease potential shareholders, as they invest into those reinvestments without any significant return. To maintain consistent input of shareholders, the company should increase this payout ratio past business expansion. This will ensure market growth and future investment possibilities. P/E RatioAccording to the tremendously high P/E ratio in 2009, the company was highly overvalued in that particular year. Though EPS was very low in 2009 market price of companys stock was much higher. The evaluation descended to typical in the years following.

Activity RatiosReceivables Turnover RatioThe ratio has increased sequentially in minuscule figures. This means that the company improved its performance in collecting receivables over the years. This increased efficiency supposedly is a plausible result of consistent stringent receivables policy or simply more efficiency in collecting its outstanding receivables.Inventory Turnover RatioThis ratio has decreased moderately from 2009 to 2010, then rose slightly in the following year. The ratio is considerably low. This indicates consistent inefficiency in inventory management. In case of Square Textiles Ltd., over the years the inventory and COGS didnt have any collaborated platform for efficient inventory management. Neither the COGS did increase nor the inventory remained relatively constant, or vice versa. And the inconsistency of the figures over the years shows that the company policy on inventory management wasnt successfully operational. However, increased figures in 2011 may indicate induced efficiency measures. Cash Conversion CycleCCC of Square Textiles has reduced increased significantly in 2010, then decreased vastly in 2011. In 2010, DIH and DSO increased and DPO decreased, resulting into increase in CCC. In the following year, the scenario was opposite. This indicates the company being more efficient in managing payables, receivables & inventories in 2011 than 2010.

Solvency RatiosDebt to Total Assets RatioLike equity multiplier this ratio is also a measure of a companys financial leverage. It rose slightly in 2010 and dipped in 2011 indicating consistency in financial strategy.Times Interest EarnedIn case of Square Textiles Ltd., the ratio rose greatly in 2010 and decreased significantly in 2011. Both net income before interest and tax and interest expense followed an upward trend in all those years. Furthermore, high debt to asset ratio and equity multiplier ratio in 2010 indicate companys more reliance on debt financing in 2010. Consequently TIE ratio kept increasing. But it fall in 2011. This indicates firms higher efficiency in utilizing debt financing in 2010 than 2011. They have been able pursue debt financing at a comparatively lower cost.Equity MultiplierThis ratio shows the companys financing strategy. The higher the ratio the more is the usage of debt financing applied by the company. The trend implies that companys reliance on debt financing was a bit higher in 2010 but it lessened again in 2011.

Comparative Analysis: Square Textiles Ltd.Liquidity RatiosCurrent RatioSquare Textiles have a current ratio that is slightly lower than the industry average indicating to the fact that the company hasnt allowed its current assets to pile up a lot. Acid-test RatioAcid-test ratio is also lower than the industry average. So these two ratios imply the companys efficiency in current asset management. At the same time the company managed to maintain an average acid-test ratio that is more than 1, so they do not need to rely upon their inventories to meet their current obligation.

Profitability RatiosNet Profit Margin RatioNet profit margin ratio is higher than the industry average and that is a sign of efficient management of company expenses. Its also not likely the company is over-using its assets or workforce as there is no big gap between the industry average and the company average. So most likely the company can reap the whole benefit of an increased net profit margin with worrying about the drawbacks.Gross profit Margin RatioGross profit margin ratio is also higher than the industry average and most likely this has a significant role to play behind increased net profit margin. At present it seems like they have been able to purchase raw materials at a bit lower cost than other competitors without compromising much in the quality as the ratio isnt considerably higher than the industry average. But still the company needs to keep an eye open for any deterioration in the quality of raw materials purchased. Otherwise it will affect sales and profit figures.Asset Turnover RatioAsset turnover ratio is also higher than the industry indicating to the fact that the company has been able to generate more sales per tk worth of asset. So this shows better utilization of companys assets. They just need to make sure that they are not over-using machineries otherwise they may have to make unplanned investment due to early deterioration.Return on AssetsReturn on assets of Square Textiles is slightly higher than the industry average and this again means more efficiency and better utilization of companys assets. In DuPont analysis we will have a closer look at the reasons behind this slightly above average ROA.Return on Common Stock EquityROE also shows a better than industry average figure. However, figure here is a bit better than the ROA and increased used of debt financing can be reason for that. Lets have a look at DuPont analysis for further investigation. DuPont AnalysisAll three components of the analysis: Net Profit Margin, Assets Turnover Ratio and Equity Multiplier are better than the industry average. Higher equity multiplier could be reason for better ROE compared to ROA. So clearly the company is utilizing and managing its assets well.As far as ROA is concerned we need to look at two components: Net Profit Margin Ratio and Assets Turnover Ratio. Both of them are higher than the industry average value. This again points at more efficiency policies and practices.EPSEPS is slightly higher than the industry average and it was expected as the company experienced better than average profitability and also relies a bit more on debt financing. Increased EPS should enhance company image.Dividend Payout RatioDividend payout ratio is also higher than the industry average. So, Square Textiles have been paying its shareholders comparatively more dividends than the industry. Its certainly is a good news for the shareholders and may have a role to play in the market price of company share.P/E RatioSurprisingly P-E ratio is way below than the industry average even it has higher than average EPS and dividend payout ratio. So, all these information refers to the fact that shares of Square Textiles are a lot undervalued. If the market works in a somewhat efficient manner than its share price is likely to go up in near future.

Activity RatiosReceivables Turnover RatioUnlike profitability ratios receivables turnover ratio doesnt reflect companys efficiency. Its slightly lower than the industry average. However, it shouldnt be an issue for the company if a less stringent collection and credit policy allow them to retain and attract customers. Inventory Turnover RatioInventory turnover ratio is again slightly lower than the industry average. But the difference isnt large enough to sound an alarm.Cash Conversion CycleCCC is also slightly higher than the industry average. Here is an interesting event going on. Companys DSO is a bit higher than the industry average, however much of that impact has been nullified due to a higher than industry average DPO. So the firm is late in receiving money from its customers but at the same they paying their suppliers a lot later. So, basically they arent doing a bad job in managing their cash conversion cycle.

Solvency RatiosDebt to Total Assets RatioAs the firm relies a bit more on debt financing its debt to total assets ratio is a bit higher than the industry average. This should give the company a tax shield and financial leverage.Times Interest EarnedThis ratio is important in the companys aspect as they are a bit more reliant on debt financing. They are doing a good job here as the ratio is higher than the average. So most likely they are earning enough income to pay for their interest expenses.Equity MultiplierLike debt to total assets ratio equity multiplier is also a bit higher than the industry average due to more use of debt financing.Analysis on Horizontal StatementsWe have considered 2009 as the base year in all the calculation and analysis so that we can observe year to year growth of different sectors of the companies and industry.Income StatementApex Spinning & Knitting Mills Ltd.Even though both sales and gross profit decreased in the year 2010 net income in that year was more than that of the previous year. The only reason that we observe from the horizontal statement is that the company managed to pay a lot less income tax in the year 2010 which enabled them to maintain a better net income figure.Figures in 2011 are equally interesting, the company managed to yield 35% more revenue but most of it was wiped out due to higher COGS resulting in only 7% increase in gross profit. Even that 7% was nullified due to a higher administrative & selling overhead. The company still managed to yield a better net income before tax figure compared to 2009 as they managed to curb their interest expenses and this resulted in a net income figure that is higher than 2009 but slightly lower than 2010.Anlima Yarn Dyeing Ltd.Figures are exceptionally for the company in the year 2010 and 2011 compared to the figures of 2009. The company managed a better performance in almost every department. They even managed to have lower interest expense in 2011 compared to 2009. The main reason might be in the interest expense, even though the managed double the profit figures their interest expense wasnt much in 2010 and in 2011 it in fact went down. So might have resulted in healthy net income figures in 2010 and in 2011.Malek Spinning Mills Ltd.Malek Spinning suffered a lot in 2010 as all the sales and profitability figures are lower than 2009. Things could have been a bit worse if they hadnt managed substantial increase in other income segment. In 2011 even though they managed to yield higher sales the effect was wiped out due to high COGS and administrative and selling expenses. So the company definitely needs to focus on their expense management issues.Rahim Textiles Mills Ltd.The company suffered a lot due to high interest expense in 2010. Even after managing better sales figures they had to accept 81% decrease in net income in 2010 owing to high interest expense and administrative expense. In 2011 the net income figure was a bit better though it was due to higher sales and a lot higher other income figures. They still had to pay a lot interest expense compared to that of 2009.Square Textiles Ltd.The company doubled their net income figure in 2010 mainly due to higher sales figure, much higher gross profit and lower interest expense. So clearly they did a much better job in 2010. Things were pretty much same in 2011, better sales figures, higher gross margin eventually resulting in higher net income compared to 2009.Textile IndustryIndustry as a whole managed to yield better net income in both 2010 and 2011 compared to 2009. Higher sales, higher gross profit, comparatively managed interest expense and lower tax expense were the reasons behind the increase in net income for the year 2010 and 2011.

Balance SheetApex Spinning & Knitting Mills Ltd.Companys total current assets decreased in 2010 even though cash and other receivables rose sharply. Cash figure was a lot high 2011 as well so it indicates the company isnt utilizing its cash properly and missing out on short term investment opportunities. Quite surprisingly the company significantly reduced it long term obligations over the years. However it still had more debt in 2011 due to heavy influence on current liabilities. Even though this would give the company a bit of leverage we must admit that Its quite a risky strategy the company has taken.Anlima Yarn Dyeing Ltd.Accounts receivables of the company rose sharply in 2010 and in 2011 which may be a result of huge credit sales compared to 2009. Still it shows lack of efficiency in managing receivables. This company has also reduced its dependence on long term debt and increased its dependence on short term debt obligations over the three years. Equity has been kept at a steady level.Malek Spinning Mills Ltd.The company shows some serious inefficiency in cash management as its cash figures rose extremely high in 2010. It has been brought down a lot in 2011 still it was much higher compared to 2009. Furthermore the company changed its financing policy twice in the last three years. In 2010 it showed heavy reliance on equity financing and almost halved its debt obligations. Just the opposite happened in 2011, reduced equity considerably and doubled the debt financing compared to that of 2009. They have dramatically changed their policies and practices from 2010 to 2011.Rahim Textiles Mills Ltd.This company also shows a bit cash management issues as cash figure just shot up in 2011. They are certainly missing out some short term investment opportunities. Other than that the rest of figures have been kept quite steady over the past three years.

Square Textiles Ltd.Again cash management is a problem in 2011. Increased dependence on debt financing more compared to equity financing. Both current and long term debt financing have been relied upon.Textile IndustryIndustry as a whole cash management seems to be a problem that needs addressing. More reliance on equity financing has been observed in 2010 and quite the opposite has been seen in 2011. Accounts payable has been exploited a bit in 2011 among the alternatives of current liabilities. Other figures have been relatively stable.

Analysis on Vertical StatementsIncome StatementApex Spinning & Knitting Mills Ltd.COGS percentage is highest and as a result gross profit percentage is lowest among all the firms. So the company needs to check whether they are getting superior quality raw materials or not and if they are purchasing superior quality raw materials then how much value its adding to the company. Except of Anlima Yarn administrative and selling overhead is a bit higher for the company.They need to check whether they are overstaffed or not. Also need to see for redundant machineries if any.Anlima Yarn Dyeing Ltd.COGS and gross profit percentage is pretty similar to the rest of the companies if not a bit higher. However they suffer from high administrative and selling costs which affected its profitability.Malek Spinning Mills Ltd.COGS and gross profit percentage are pretty much similar to the rest of the companies, however in 2011 the company suffers from much reduced gross profit margin due to high COGS.Selling and administrative expenses have been kept in check compared to its competitors.Rahim Textiles Mills Ltd.Gross profit percentage, administrative and selling overhead percentage is pretty much similar to the other companies in the industry. However, the company suffers from lower net profit percentage due comparatively higher interest expense. Square Textiles Ltd.The company managed to yield better gross profit percentage and net profit percentage in 2010 and in 2011 mainly due to lower COGS and slightly lower administrative costs. If the company can deliver quality products retaining and attracting customers then reduced COGS shouldnt be a concerning issue.

Balance SheetApex Spinning & Knitting Mills Ltd.Lower percentage of cash cancelled out the effect of higher percentage of accounts receivables resulting in current assets level that is pretty much similar to industry average except of 2010.The company has been comparatively more reliant debt financing and less reliant on equity financing compared to other companies.Anlima Yarn Dyeing Ltd.The company holds substantially high percentage of fixed assets which is lot higher than other companies. Current asset portion is comparatively lower.They have been interested in debt financing compared to equity financing. Malek Spinning Mills Ltd.Asset segregation is similar to other firms or to the industry average. However the company showed exceptionally high reliance on equity financing in 2010. That tendency was curbed a bit in 2011 still it was much higher than what other companies follow.Rahim Textiles Mills Ltd.Current asset portion is lot smaller and fixed assets comprise most of its assets value. The company is much reliant on debt financing and a lot less on equity financing.Square Textiles Ltd.Figures of Square Textiles dont deviate much from the industry average. Both current assets and fixed assets somewhat corresponds to that of industry average. Financing strategy also somewhat aligns with the industry policy on average except in 2010 when the company showed a bit more reliance on debt financing.

ConclusionWe have reached the end of the report. Based on our findings we can afford to make few recommendations regarding the financial performance of the companies. Apex Spinning should be have a look at its COGS and try to improve its gross profit margin ratio. Anlima Yarn should address its liquidity issues and focus on better utilization of its assets. Malek Spinning should develop better cash management strategy and can afford to use more debt financing. Rahim Textiles can also afford to have more debt financing and should look out for ways to curb its expenses to boost net profit margin ratio. Square Textiles should maintain most of its ongoing policies and no need to take any radical steps as at present they are going pretty smoothly.

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References

Annual Report 2010 11 & 2011 12: Apex Spinning & Knitting Mills Ltd.Annual Report 2009 10 & 2010 11: Square Textiles Ltd.Annual Report 2009 10 & 2010 11: Anlima Yarn Dyeing LtdAnnual Report 2009 10 & 2010 11: Rahim Textiles Ltd.Annual Report 2009 10 & 2010 11: Malek Spinning Ltd.