Comparison Between Two Major Textile Companies

Executive Summary In this report, I soak up discussed about the twain study cloth organizations that atomic number 18 AL-karam and Gul Ahmed textile mills. I encounter conducted a proportion summary from the information gathered from their fiscal statements. In my study, I found out that AL-Karam is doing relatively intumesce from Gul Ahmed textiles as various proportionalitys prove to be positive in equipment casualty of AL-Karam textiles. Accounting Policies Through accounting st sum upgies and the methods of numeproportionn used in the prepa balancen of this monetary information are the same as those applied in the prepa dimensionn of financial statements for the twelvemonth ended June 30, 2011.These financial statements have been prepared in accordance with clear accounting standards as applicable in Pakistan. Approved accounting standards comprise such International financial Reporting Standards (IFRS) issued by the International Accounting Standards Board as are notified at a lower place the Companies Ordinance, 1984, provisions of and directives issued under the Companies Ordinance, 1984. In case requirements differ, the provisions or directives of the Companies Ordinance, 1984 shall overcome operating summations.Operating assets are verbalise at cost less put in disparagement and any identified balk impairment except leasehold land which is verbalise at cost. No amortization is provided on leasehold land since the lease is renewable at the option of the lessee. Depreciation is supercharged on reducing balance method at rates specified in the post 13. 1. Full yrs depreciation is charged on additions except major additions or extensions to production facilities which are depreciated on pro-rata basis for the close of use during the year and no depreciation is charged on assets in the year of their governance.Structures on lease retail outlets are depreciated over the various(prenominal) lease term. Gains and losses on d isposal of operating assets are included in cyberspace and loss account. hood work-in-progress Capital work-in-progress is verbalize at cost salt away up to the balance sheet troth and represents expenditure incurred on property, plant and equipment in the course of construction. These expenditures are transferred to relevant course of study of property, plant and equipment as and when the asset starts ope balancen. intangible asset assets Intangible assets are stated at cost less accumulated amortization.Amortization is charged over the useful life of the assets on a systematic basis to income applying the hearty line method at the rate specified in note 14. Investments Investments in subsidiary fellowship are stated at cost. The Company reconsiders the carrying amount of money of the investments to evaluate whether there is any indication of balk loss. If such indication exists, the carrying amount is cut down to recoverable amount and the difference is recognize as an expense. Where an handicap loss by and by reverses, the carrying amount of the investment is increased to the rewrite recoverable amount.The reversal of such impairment loss is recognized as an income. GUL AHMED Financial symmetrys 2010 2009 transparentity received balances 0. 97 0. 95 Quick proportionality 0. 39 0. 44 leverage enumeratedebttoTotalassets symmetry 75. 37% 77. 04% Times post get - 1. 00 times Fundeddebtto give noticeworks not bad(p) 61. 80% 63. 49% Efficiency second-ratecollection tip 4. 3 long time 44. 56 days Inventory dis magnitude rate 3. 98 4. 43 Totalassets derangement 1. 34 1. 11 acquit price(predicate) turn over 5. 47 2. 99 lettuce work(a) enceinteturnover -87. 86 50. 92 acquit efficacy winprofit allowance account 2. 42% -0. 56% Grossprofit moulding 16. 11% 7. 30% call backon radicalassets 3. 27% -0. 71% Returnon simoleons operative detonator 13. 28% -48. 01% Returnon win expenditure -213. 10% -3. 26% Ratios Analysis liquidity RATIOS A liquidity proportionality measures the societys ability to pay its bills. The denominator of a liquidity symmetry is the companys oc genuine liabilities, i. e. , obligations that the company must find soon, usually with in one year. The numerator of a liquidity symmetry is part or all of online assets. The flow ratio of Gul Ahmed for year 2010 is 0. 97 and for year 2009 it is 0. 94. When we whole step at quick ratio, the quick ratio for Gul Ahmed is 0. 39 in 2010 and 0. 44 in 2009.It turn outs that Gul Ahmed had enough liquidity to hardlyt its miserable term liquidity need during the separate economical situation as strong as in worst economic situation. The factor behind being well in its liquidity ratio is that company is well managed in financing its assets. supplement RATIOS The supplement ratios accomplish two things First, they are a measure of the extent to which smasheds pay their assets through debt second, they are indicators of the financial preten d of the firm. .We has considered three leverage ratios for Gul Ahmed add together debt to append assets, times raise earned, and funded debt to net working superior.Companys datedness increased over the 2009-2010 percentage points. The times interest earned ratio for Gul Ahmed during 2009 show that it is slightly lesser than the industry average. Whereas in 2010, Gul Ahmeds times interest earned ratio increased to, which was high than the industry average of that year From this, it is think that the company has been able to meet its interest obligations from funds available from operations during 2010. The comparatively lower funded debt to net working pileus ratio for Gul Ahmed indicates that it follows the industry practice of heavily utilizing recognise lines at banks.It appears that the company did not have reasonable funds to meet its funded debt payments although it is performing better than the industry. Taking, the preceding leverage ratios in considerations, it m ay be reason out that Gul Ahmed is highly leveraged and most of its assets are financed by current debt. EFFICIENCY RATIOS Ratios are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios can imagine the turnover of receivables, the repayment of liabilities, the quantity and use of equity and the general use of armoury and machinery.The average collection period is faraway from the median and that shows a loose credit term policies in receiving the payments late but somehow the average collection period reduces close to median in2010 explaining the improvement in receiving payments. The line is kept at effectual level by ensuring timely supplies to its customers. The asset turnover seemed to be in a good shape standing honourable above the median in both years, telling that Gul Ahmed is utilizing its assets properly introducing the gross gross sales.The net working enceinte turnover is far high(prenominal) than the med ian telling that the firms current assets are sufficiently utilise in producing high sales. However, the net worth disturbance being below the median tells that the Gul Ahmed is bit high on utilise debt financing and less efficient in using equity financing. PROFITABILITY RATIOS Profit margin is 2. 42% (2010) and 0. 57% (2009). This reflects the firms managerial efforts at controlling the markets acceptance of the firms product, the posture of its market and sales efforts and the firms boilersuit reputation.The profit margin is improving hence the firms lucrativeness is improving. Return on sum of money assets= 3. 27% (2010) and 0. 59% (2009) this reflects the earnings productivity of the make sense assets. Here there is an increase. This is because the firm is genuinely productive as far as its assets are concerned. Return on net working capital=13. 28% (2010) and 2. 50% (2009) reflects the favorableness ofmanagerial decisions regarding investments in net current assets . This is improving in a way that the company is generating pelf on its net working capital as pard to 2003. AL-Karam TextilesFinancial Ratios Ratios 2009 2010 fluidity Ratios Current Ratio 1. 04 0. 97 Quick Ratio 0. 4757 0. 2787 Leverage Ratios Debt to asset ratio 0. 7381 0. 80179 Funded to net working capital 0. 3692 1. 365 Efficiency Ratios Average collection period 30days 35days Inventory Turnover 0. 7089 0. 008109 Total asset turnover 0. 000933 0. 000693 Net Worth Turnover 2. 15 2. 56 Net working capital turnover -0. 0017583 -0. 010899 favorableness Ratio Profit gross profit margin 0. 0078 0. 0075 Return on Total Assets 0. 6885 0. 53351 Return on Net Worth 0. 1792 0. 853 Return on net working capital -0. 1643 0. 08387 blondness Ratio Price to earning Ratio 2. 11 2. 01 Dividend payout 0. 41 0. 83 Book treasure per part $15. 12 $19. 48 Ratios Analysis Liquidity ratios A) Current ratio Total current assets/Total current liabilities is 0. 97(2010) and 1. 04(2009) . This explains that in 2010 the liabilities were outweighing the assets and the previous year the asset became to a greater extent than the liabilities and hence the ratio exceeds 1. b) Quick ratio (Total current assets-inventories)/total current liabilities is 0. 2787(2010) and 0. 4757(2009).This ratio is taken out in order to check the liquidity of the firm. When the inventory was subtracted from the total current assets, it gave us a work of all the current assets early(a) than the stock. This interpret was divided by the total current liabilities which gave us a significant step-down in the overall figure shelter as compared to the current ratio. However, the ratio is decrease later on in 2010. This bureau that the stocks have increased. Leverage ratios A) Total debt to total assets ratio Total debt/total assets = 0. 80179(2010) and0. 7381(2009). This tells us about the amount of assets which are debt financed.This means that in the last one year there has been a rise i n the amount of assets which are being financed by debt and hence reduction in the ones which have been financed by equity. b) Funded debt to net working capital Funded debt/net working capital=1. 365(2010) and0. 3692 (2009). This fundamentally explains the ratio of debt which has a maturity of much than one year divided by the difference between the current assets and current liabilities. Hence the ability of the firm to recall its funded debt using available relatively liquid assets has increased. Efficiency ratios A) Inventory turnover ratioThe inventory turn over ratio is 0. 008109 (2010) and 0. 7089(2009). It is a ratio which tells the effective inventory focus policies. Recently, the ratio has reduced in value than the previous one. Either the firm has a lot of inventory or its sales are reducing. b) Total assets turnover The total asset turn over ratio of the two year is 0. 000693(2010) and 0. 000933(2009). It is a measure of the firms overall intensity in generating sale s. The decrease in this ratio is not significant enough. However, it shows that the firms effectiveness in generating sales from assets is diminish to some extent. ) Net working capital turnover = 0. 010899(2010) and -0. 0017583(2009). It is a measure of the firms productivity in generating sales. once to a greater extent here the firms performance is decreasing in a way that the ratio of renewal of the net working capital to sales is decreasing. However, even this difference is not precise significant between these two years. Profitability ratios A) Profit margin =0. 0078(2010) and 0. 0075(2009). This reflects the firms managerial efforts at controlling the markets acceptance of the firms product, the effectiveness of its marketing and sales efforts and the firms overall reputation.The profit margin is improving hence the firms profitability is improving. b) Return on total assets =0. 53351(2010) and 0. 6885(2009). This reflects the earnings productivity of the total assets. Her e there is a decrease. This is because the firm is not very profitable as far as its assets are concerned. c) Return on net working capital=-0. 08387(2010) and -0. 1643(2009). This reflects the profitability of managerial decisions regarding investments in net current assets. This is improving in a way that the company is generating profits on its net working capital as compared to2009.Equity ratios A) Price to earnings ratio=2. 01(2010) and 2. 11(2009). This is basically a measure of the zing of a firm. The more desirable a firm is to the investor the higher the P. E ratio it has. The P. E ratio is slightly decreasing. This is because the ratio of earning per share to price per share is greater in 2009. The higher this ratio the more personable it is to the investors. B) Debt toequity ratio=0. 3481(2010) and 0. 4937 (2009) shows a decrease inthepreceding year2010. terminal Ratios Gul Ahmed Al karam Liquidity Current Ratios 0. 97 1. 04Quick Ratio 0. 39 0. 4757 Leverage Total d ebt to total Assets ratio 73. 37% 73. 81% Funded debt to networking capital 61. 80% 36. 92 Efficiency Average collection period 43 days 30 days Inventory turnover 3. 98 0. 7089 Total assets turnover 1. 34 0. 000933 Net worth turnover 5. 47 2. 15 Net working capital turnover -87. 86 -0. 0017583 Profitability Net profit Margin 2. 42% 0. 78 Return on net worth -213. 10% 17. 92 Return on Total Assets 3. 27% 6. 88% Return on Net Working capital 13. 28% -0. 1643 Equity Price to earning ratio 7. 5 10. 85 Book value per share 19. 48 21. 45 The ratio analysis of the two companies shows the result that Al-karam has been change magnitude its equity and its profitability and showing signs of an efficient company. On the other hand, Gul Ahmed is decreasing its business and going towards loss Liquidity Ratios Al-karam has a higher Current ratio as well as Acid Test ratio as compare to Gul Ahmed which means that it is in a better shape to meet its current obligations and has more inventorie s. Gul Ahmed therefore has lower margin safety to meet its current obligation.Efficiency Ratios Al-karam seems to be in a better financial standing as compare to its efficiency. The company has a lower turnover ratio for both, the assets and the inventory showing high amount of sales and effectiveness as compare to Gul Ahmed. Profitability Ratios Al-Karam has been rising in its profitability continuously, showing improvements in return on net worth and return on total assets. Equity Equity ratios are primary interest to the firms stockholders and include the price to earnings ratio, dividend payout, and rule book value per share.The price to earnings ratio, popularly referred to as the P/E ratio, is an overall measure of the desirability of the firm. The more attractive the firm is to the investors, the higher the P/E ratio. The P/E ratio is highest of Al Karam that is 10. 65 which is higher than the other textile ratio, then comes Gul Ahmed. Al-karam has been showing improvements in the dividend yield and the book value per share. This shows that the company has been increasing its equity by involving more investors in its base. The company thus shows signs of expansion and higher sense of determination towards acquiring more of the business.The book value per share is highest of Al Karam. . 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