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Cross sectional analysisCross sectional analysisbetween between

Metro spinning & Saiham textileMetro spinning & Saiham textile

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NameName ID:ID: IntakeIntake SectionSection

Company Profile Company Profile Metro SpinningMetro Spinning

Company ProfileCompany Profile

Vision:Vision:We see Business as a means to the well being of the We see Business as a means to the well being of the shareholders and all other stakeholders, society at shareholders and all other stakeholders, society at large keeping in line with the Nation’s interest.large keeping in line with the Nation’s interest.

Mission Statement:Mission Statement:Our Mission is to provide world-class products to our Our Mission is to provide world-class products to our valued Customers, Maintaining high Ethical Standard valued Customers, Maintaining high Ethical Standard business.business.

Company ProfileCompany Profile

ObjectiveObjectiveOur primary objective is to conduct transparent Our primary objective is to conduct transparent business operation within legal and social framework business operation within legal and social framework with aims to attain the mission with qualitative with aims to attain the mission with qualitative quantitative target in business operation.quantitative target in business operation.

Financial Management policy:Financial Management policy:All Financial Policies like Investments, Dividend All Financial Policies like Investments, Dividend disbursement and other related financial policies are disbursement and other related financial policies are aimed to maximize the value of the organization.aimed to maximize the value of the organization.

Cross sectional analysisCross sectional analysisBetweenBetween

Metro Spinning & Saiham TextileMetro Spinning & Saiham Textile

Liquidity RatioLiquidity Ratio

Current ratio:Current ratio:A measure of liquidity which is calculated by A measure of liquidity which is calculated by dividing the firm’s current assets by its current dividing the firm’s current assets by its current liabilities.liabilities.Current ratio =Current ratio =For Metro Spinning For Metro Spinning 0.68:1 0.68:1

For Saiham Textile 1.19:1For Saiham Textile 1.19:1CommentsCommentsThe current ratio of metro spinning is 0.68:1. It The current ratio of metro spinning is 0.68:1. It means metro spinning has current assets of Tk.0.68 means metro spinning has current assets of Tk.0.68 for meeting current liability of Tk.1. That means the for meeting current liability of Tk.1. That means the current liability of the company is more than the current liability of the company is more than the current assets, so the company is technically current assets, so the company is technically insolvent, therefore it is unable to meet its short-term insolvent, therefore it is unable to meet its short-term obligation. Whereas, the current ratio of Saiham obligation. Whereas, the current ratio of Saiham textile Ltd. is 1.19:1. So we can say that Saiham textile Ltd. is 1.19:1. So we can say that Saiham textile Ltd is more capable to meet its current textile Ltd is more capable to meet its current liability than that of Metro spinning Ltd.liability than that of Metro spinning Ltd.

0

0.5

1

1.5

Metro spinning Saiham textile

Current Ratio

Liquidity RatioLiquidity Ratio

Quick RatioQuick RatioA measure of liquidity calculated by dividing the A measure of liquidity calculated by dividing the firm’s current assets minus inventory by its current firm’s current assets minus inventory by its current liabilities.liabilities.Quick RatioQuick Ratio = = For Metro Spinning For Metro Spinning 0.2:1 0.2:1

For Saiham Textile 0.32:1For Saiham Textile 0.32:1CommentsCommentsThe quick ratio for Metro spinning is 0.2:1. It means The quick ratio for Metro spinning is 0.2:1. It means the company is maintain current assets excluding the company is maintain current assets excluding inventory of Tk.0.2 for current liability of Tk.1 inventory of Tk.0.2 for current liability of Tk.1 which mean it has insufficient current assets for which mean it has insufficient current assets for meeting current liabilities. Whereas the quick ratio of meeting current liabilities. Whereas the quick ratio of Saiham textile Ltd is 0.32:1. It indicates that Saiham Saiham textile Ltd is 0.32:1. It indicates that Saiham textile Ltd is in the better position than the Metro textile Ltd is in the better position than the Metro spinning, but actually both the company is spinning, but actually both the company is technically insolvent because of insufficient current technically insolvent because of insufficient current assets.assets.

Activity RatioActivity Ratio

Inventory turnoverInventory turnoverInventory turnover commonly measures the activity Inventory turnover commonly measures the activity or liquidity of a firm’s inventory.or liquidity of a firm’s inventory.

Inventory turnover Inventory turnover ==

For Metro Spinning For Metro Spinning 0.69 times 0.69 times For Saiham Textile For Saiham Textile 1.61 times 1.61 times

CommentsCommentsThe inventory turnover of Metro spinning Ltd is 0.69 The inventory turnover of Metro spinning Ltd is 0.69 times. It means the firm is able to turn inventory into times. It means the firm is able to turn inventory into sales 0.69 times a year. Whereas the inventory sales 0.69 times a year. Whereas the inventory turnover of Saiham textile Ltd is 1.61 times. So it can turnover of Saiham textile Ltd is 1.61 times. So it can say that Saiham textile is more capable to turn say that Saiham textile is more capable to turn inventory into sales than that of Metro spinning Ltd.inventory into sales than that of Metro spinning Ltd.


Average payment periodAverage payment periodThe average payment period is the average amount The average payment period is the average amount

of time needed to pay accounts payable. It is of time needed to pay accounts payable. It is calculated in the same manner as the average calculated in the same manner as the average

collection period.collection period.

Average payment period = Average payment period =

For Metro Spinning For Metro Spinning 10.75 days10.75 daysFor Saiham Textile For Saiham Textile 25.84 days 25.84 days

CommentsCommentsThe average payment period of Metro spinning is The average payment period of Metro spinning is 10.75 days. It indicates that the company is more 10.75 days. It indicates that the company is more concentrate to pay their due payment. Whereas the concentrate to pay their due payment. Whereas the average payment of Saiham textile Ltd is 25.84 days. average payment of Saiham textile Ltd is 25.84 days. In this regard we can say that the Metro spinning Ltd In this regard we can say that the Metro spinning Ltd is more concentrate to pay their accounts payable.is more concentrate to pay their accounts payable.


Average collection periodAverage collection periodThe average collection period is the average amount The average collection period is the average amount of time needed to collect account receivable.of time needed to collect account receivable.

Average collection period Average collection period ==

For Metro Spinning For Metro Spinning 81.57 days 81.57 days For Saiham Textile For Saiham Textile 21.95 days 21.95 days

CommentsCommentsThe average collection period of Metro spinning Ltd The average collection period of Metro spinning Ltd is 81.57 days. It means the firm is capable to collect is 81.57 days. It means the firm is capable to collect its account receivable on an average of 81.57 days. its account receivable on an average of 81.57 days. Where as the average collection period of Saiham Where as the average collection period of Saiham textile Ltd is 21.57 days. So we can say that The textile Ltd is 21.57 days. So we can say that The Saiham textile Ltd is more efficient to collect its Saiham textile Ltd is more efficient to collect its account reciavable.account reciavable.

0

20

40

60

80

100


Average collection period


Total asset turnoverTotal asset turnoverThe total asset turnover indicates the efficiency with The total asset turnover indicates the efficiency with which the firm uses its assets to generate sales. Total which the firm uses its assets to generate sales. Total asset turnover is calculated as followsasset turnover is calculated as follows

Total asset turnoverTotal asset turnover = =

For Metro Spinning For Metro Spinning 0.32 times 0.32 times For Saiham Textile For Saiham Textile 0.66 times 0.66 times

CommentsCommentsThe total assets turnover of Metro Spinning Ltd is The total assets turnover of Metro Spinning Ltd is 0.32 times. It indicates that the company can 0.32 times. It indicates that the company can generate sales 0.32 times a year by utilizing its total generate sales 0.32 times a year by utilizing its total assets. The more total assets turnover the more assets. The more total assets turnover the more efficient the company. Whereas the total assets efficient the company. Whereas the total assets turnover of Saiham textile Ltd is 0.66 times. So we turnover of Saiham textile Ltd is 0.66 times. So we can say that Saiham Textile Ltd is more efficient to can say that Saiham Textile Ltd is more efficient to generate sales by utilizing its total assets.generate sales by utilizing its total assets.

Debt ratioDebt ratio

Debt ratioDebt ratioThe debt ratio measures the proportion of total The debt ratio measures the proportion of total assets financed by be firm’s creditors. The ratio assets financed by be firm’s creditors. The ratio is calculated as followsis calculated as followsDebt ratioDebt ratio = = For Metro Spinning 65.03%For Metro Spinning 65.03% For Saiham Textile 38.26%For Saiham Textile 38.26%CommentsCommentsThe debt ratio of the Metro spinning Ltd is The debt ratio of the Metro spinning Ltd is 65.03%. It means that the company’s 65.03% of 65.03%. It means that the company’s 65.03% of total assets are collected from the creditors. So total assets are collected from the creditors. So it is more levered firm. The greater the financial it is more levered firm. The greater the financial leverage the greater its risk. Whereas the debt leverage the greater its risk. Whereas the debt ratio of Saiham textile is 38.26%. So it can say ratio of Saiham textile is 38.26%. So it can say that the Saiham textile is in the better position that the Saiham textile is in the better position than that of Metro spinning Ltd.than that of Metro spinning Ltd.

Metro spinning

65%

35%

Debt capital

Equity capital

Saiham Textile

38%

62%

Debt capital

Equity capital

Debt ratioDebt ratio

Time interest earned ratioTime interest earned ratioThe time interest earned ratio measures the firm’s The time interest earned ratio measures the firm’s ability to make contractual interest payments. Time ability to make contractual interest payments. Time interest earned is calculated as followinterest earned is calculated as followTime interest earned ratio =Time interest earned ratio = For Metro Spinning 1.02 timesFor Metro Spinning 1.02 times For Saiham Textile 1.63 timesFor Saiham Textile 1.63 times CommentsCommentsThe time interest earned ratio of the Metro Spinning The time interest earned ratio of the Metro Spinning Ltd is 1.2 times. It indicates that the company is able Ltd is 1.2 times. It indicates that the company is able to meet its interests 1.2 times. The greater the time to meet its interests 1.2 times. The greater the time interest earned ratio the greater the creditors interest earned ratio the greater the creditors confidence to invest. Whereas the time interest confidence to invest. Whereas the time interest earned ratio of Saiham textile Ltd is 1.63 times. So earned ratio of Saiham textile Ltd is 1.63 times. So we can say that the Saiham textile Ltd is in the better we can say that the Saiham textile Ltd is in the better position than that of Metro Spinning Ltd.position than that of Metro Spinning Ltd.

Profitability ratioProfitability ratio

Operating profit marginOperating profit marginThe operating profit margin measures the percentage The operating profit margin measures the percentage of each sales dollar remaining after all costs and of each sales dollar remaining after all costs and expenses other than interest, taxes and preferred expenses other than interest, taxes and preferred stock dividend are deducted. stock dividend are deducted. Operating profit marginOperating profit margin == For Metro Spinning For Metro Spinning 28.31% 28.31% For Saiham Textile For Saiham Textile 14.48% 14.48% CommentsCommentsThe operating profit margin of Metro Spinning Ltd is The operating profit margin of Metro Spinning Ltd is 28.31%. It indicates that the company is generated 28.31%. It indicates that the company is generated Tk. 28.31 of operating profit from each Tk. 100 of Tk. 28.31 of operating profit from each Tk. 100 of sales. Whereas the Saiham textile Ltd is 14.48%. So sales. Whereas the Saiham textile Ltd is 14.48%. So we can say that the Metro Spinning is more capable we can say that the Metro Spinning is more capable to produce more operating profit than the Sahiham to produce more operating profit than the Sahiham textile Ltd.textile Ltd.

Operating profit marg in

0.00%5.00%

10.00%15.00%20.00%25.00%30.00%

Metros pinning

S aihamtextile


Net profit marginNet profit marginThe net profit margin measures the percentage of The net profit margin measures the percentage of each sales dollar remaining after all costs and each sales dollar remaining after all costs and expenses, including interest, taxes and preferred expenses, including interest, taxes and preferred stock dividend have been deducted. Net profit stock dividend have been deducted. Net profit margin is calculated as follows.margin is calculated as follows.Net profit marginNet profit margin == For Metro Spinning For Metro Spinning 5.10% 5.10% For Saiham Textile For Saiham Textile 4.80% 4.80% CommentsCommentsThe net profit margin of the Metro Spinning Ltd is The net profit margin of the Metro Spinning Ltd is 5.10%. It indicates that the company is capable to 5.10%. It indicates that the company is capable to generate net profit of Tk. 5.10 from each sales of Tk. generate net profit of Tk. 5.10 from each sales of Tk. 100. The greater the net profit margins the better for 100. The greater the net profit margins the better for the company. Whereas the net profit margin of the the company. Whereas the net profit margin of the Saiham textile Ltd is 4.80%. So in this regard we can Saiham textile Ltd is 4.80%. So in this regard we can say that Metro Spinning is in the better position than say that Metro Spinning is in the better position than that of Saiham textile Ltd.that of Saiham textile Ltd.

4.60%4.70%4.80%4.90%5.00%5.10%5.20%


Net profti Margin


Earnings per Share (EPS)Earnings per Share (EPS)EPS represent the dollar amount earned on behalf of EPS represent the dollar amount earned on behalf of each outstanding share of common stock- not the each outstanding share of common stock- not the amount of earnings actually distributed to amount of earnings actually distributed to shareholders. shareholders. EPSEPS == For Metro Spinning Tk. 3.77 For Metro Spinning Tk. 3.77 For Saiham Textile Tk. 11.52For Saiham Textile Tk. 11.52 CommentsCommentsThe EPS of the Metro Spinning Ltd is Tk. 3.77. The EPS of the Metro Spinning Ltd is Tk. 3.77. Which indicates the company is able to earn Tk. 3.77 Which indicates the company is able to earn Tk. 3.77 against each share of common stock outstanding. The against each share of common stock outstanding. The higher the EPS the higher the corporate success. higher the EPS the higher the corporate success. Whereas the EPS of Saiham textile Ltd is Tk. 11.52. Whereas the EPS of Saiham textile Ltd is Tk. 11.52. So it can say that the Saiham textile Ltd is in the So it can say that the Saiham textile Ltd is in the better position than that of Metro Spinning Ltd.better position than that of Metro Spinning Ltd.


Return on Total Assets (ROA)Return on Total Assets (ROA)The Return on Total Assets Measures the overall The Return on Total Assets Measures the overall effectiveness of management in generating profits effectiveness of management in generating profits with its available assets.with its available assets.

ROA ROA ==

For Metro Spinning 1.65% For Metro Spinning 1.65% For Saiham Textile 3.16%For Saiham Textile 3.16%CommentsCommentsThe ROA of the Metro Spinning Ltd is 1.65%. The ROA of the Metro Spinning Ltd is 1.65%. Which indicates that the company is able to generate Which indicates that the company is able to generate net profit of Tk. 1.65 by utilizing each total assets of net profit of Tk. 1.65 by utilizing each total assets of Tk. 100. The higher the ROA the more efficient of Tk. 100. The higher the ROA the more efficient of the management. Whereas the ROA of the Saiham the management. Whereas the ROA of the Saiham textile Ltd is 3.16. So we can say that Saiham textile textile Ltd is 3.16. So we can say that Saiham textile is more efficient than that of Metro spinning Ltd.is more efficient than that of Metro spinning Ltd.

0.00%

1.00%

2.00%

3.00%

4.00%


ROA


Return on Equity (ROE)Return on Equity (ROE)The return of Equity measures the return earned on The return of Equity measures the return earned on the common stockholders’ investment. the common stockholders’ investment.

ROEROE ==

For Metro Spinning 4.74%For Metro Spinning 4.74%For Saiham Textile 5.12%For Saiham Textile 5.12%CommentsCommentsThe ROE of the Metro Spinning Ltd is 4.74%. Which The ROE of the Metro Spinning Ltd is 4.74%. Which indicate that the company earns Tk. 4.74 against of indicate that the company earns Tk. 4.74 against of each Tk. 100 of Common stock equity. The higher each Tk. 100 of Common stock equity. The higher this return the better for the owners. Whereas the this return the better for the owners. Whereas the ROE of Saiham Textile Ltd is 5,12%. So we can say ROE of Saiham Textile Ltd is 5,12%. So we can say that the Saiham textile Ltd is in the better position.that the Saiham textile Ltd is in the better position.

4.50%4.60%4.70%4.80%4.90%5.00%5.10%5.20%


ROE

Market ratioMarket ratio

Price/Earning (P/E) RatioPrice/Earning (P/E) RatioP/E measures the amount that investors are willing to P/E measures the amount that investors are willing to pay for each dolar of a firm’s earnings; the higher the pay for each dolar of a firm’s earnings; the higher the P/E ratio, the greater the investor confidence. It is P/E ratio, the greater the investor confidence. It is calculated as followscalculated as followsPrice/Earning (P/E) RatioPrice/Earning (P/E) Ratio == For Metro Spinning 16.18 timesFor Metro Spinning 16.18 timesFor Saiham Textile 26.54 timesFor Saiham Textile 26.54 timesCommentsCommentsThe price earning ration of the Metro Spinning Ltd is The price earning ration of the Metro Spinning Ltd is 16.18 times. That indicates the investors of the 16.18 times. That indicates the investors of the company are currently paying 16.18 times in related company are currently paying 16.18 times in related to EPS to buy a share. The greater the P/E ratio the to EPS to buy a share. The greater the P/E ratio the greater the investors’ confidence towards the greater the investors’ confidence towards the company. Whereas the P/E ratio of the Saiham textile company. Whereas the P/E ratio of the Saiham textile Ltd is 26.54 times. So we can say that the investors Ltd is 26.54 times. So we can say that the investors of the Saiham textile Ltd have more confidence than of the Saiham textile Ltd have more confidence than that of the Metro spinning Ltd.that of the Metro spinning Ltd.

Market ratioMarket ratio

Market/Book (M/B) RatioMarket/Book (M/B) RatioMarket/Book ratio provides an assessment of how Market/Book ratio provides an assessment of how investors view the firm’s performance. investors view the firm’s performance.

M/B ratioM/B ratio ==

For Metro Spinning 0.77 timesFor Metro Spinning 0.77 timesFor Saiham Textile 1.36 timesFor Saiham Textile 1.36 timesCommentsCommentsThe M/B ratio of the Metro Spinning Ltd is 0.77. It The M/B ratio of the Metro Spinning Ltd is 0.77. It indicates that the investors of the company are indicates that the investors of the company are currently paying Tk. 0.77 for each Tk. 1.00 of book currently paying Tk. 0.77 for each Tk. 1.00 of book value of Metro Spinning Ltd. Whereas the M/B ratio value of Metro Spinning Ltd. Whereas the M/B ratio of the Saiham textile Ltd is 1.36.of the Saiham textile Ltd is 1.36.

Major FindingsMajor Findings

1.1. The equity capital of Saiham textile is greater than 50% (62%) the problem is The equity capital of Saiham textile is greater than 50% (62%) the problem is that the firm can be acquired by any other company.that the firm can be acquired by any other company.

2.2. The debt capital of metro spinning is higher that posses higher risk.The debt capital of metro spinning is higher that posses higher risk.3.3. Net profit margin of Metro Spinning is sharply decline because of higher interest Net profit margin of Metro Spinning is sharply decline because of higher interest

on higher debt capital used in capital structure.on higher debt capital used in capital structure.4.4. Earnings per share of Metro spinning (3.77) is less than the Saiham Textile Earnings per share of Metro spinning (3.77) is less than the Saiham Textile

(11.52) because their net profit hugely decline from operating profit because of (11.52) because their net profit hugely decline from operating profit because of higher interest payment.higher interest payment.

5.5. The higher interest payment also affects the return on total assets of Metro The higher interest payment also affects the return on total assets of Metro Spinning.Spinning.

6.6. Both the companies have effective cost management system that result operating Both the companies have effective cost management system that result operating income is slightly decline to operating profit marginincome is slightly decline to operating profit margin

7.7. Both the company is less capable to turn inventory into sales.Both the company is less capable to turn inventory into sales.8.8. Saiham textile is more efficient to collect due money than metro spinning.Saiham textile is more efficient to collect due money than metro spinning.

RecommendationRecommendation

1.1. The Saiham Textile should increase their debt capital slightly more than 50% in The Saiham Textile should increase their debt capital slightly more than 50% in order to reduce the chance of hostile takeover from another company.order to reduce the chance of hostile takeover from another company.

2.2. The debt capital of Metro Spinning should slightly decline to reduce the financial The debt capital of Metro Spinning should slightly decline to reduce the financial distress cost.distress cost.

3.3. The debt capital should decline to reduce the interest payment that adversely The debt capital should decline to reduce the interest payment that adversely affect in profitability ratio of Metro Spinning Ltd.affect in profitability ratio of Metro Spinning Ltd.

4.4. The existing Management body should be continued for both the company.The existing Management body should be continued for both the company.5.5. Both the company can increase inventory turnover by increasing sales by any Both the company can increase inventory turnover by increasing sales by any

means and reducing the inventory into storage.means and reducing the inventory into storage.6.6. Metro spinning can reduce collection period by offering some strategy such Metro spinning can reduce collection period by offering some strategy such

discount to debtors.discount to debtors.7.7. Metro Spinning can increase total assets turnover increasing sale by lowering Metro Spinning can increase total assets turnover increasing sale by lowering

sales price, increasing advertisements.sales price, increasing advertisements.

ConclusionConclusion

After analyzing capital structure and impact of that in profitability of the two After analyzing capital structure and impact of that in profitability of the two industry we find that the high volume of debt capital in capital structure affect industry we find that the high volume of debt capital in capital structure affect negatively in company’s profit. Though, use of debt in capital structure reduces the negatively in company’s profit. Though, use of debt in capital structure reduces the cost of capital of the company. But if the debt amount is used high volume it cost of capital of the company. But if the debt amount is used high volume it adversely affect on profit of the company, and also increase the financial distress adversely affect on profit of the company, and also increase the financial distress cost. So finally it is recommended that debt use in capital structure is obvious and cost. So finally it is recommended that debt use in capital structure is obvious and high volume is not, so the company should use optimum capital structure that will high volume is not, so the company should use optimum capital structure that will generate maximum profit.generate maximum profit.

Thank you to allThank you to allfor being attended patientlyfor being attended patiently

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