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Thal Textile Mills

Thal Textile Mills

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Financial Analysis of (Colony) Thal Textile Mills Ltd.
Financial Analysis of (Colony) Thal Textile Mills Ltd.

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Published by: shani27 on Jun 07, 2010
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COLONY) THAL TEXTILE MILLS LTD.

SUBMITTED TO:

Sir Farrukh Naveed
SUBMITTED BY:

Shakir Rashid (27)

M.Com (4th Semester) Department of Commerce The Islamia University Bahawalpur.

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Department of Commerce, The Islamia University of Bahawalpur has always been admirable in its efforts to equip the future executives with arms of creativity, flexibility and adaptability to meet the challenges offered by fast changing business environment. To achieve the above goals the department is providing both text and practical knowledge to its students with its available resources. Text knowledge is very well transferred to the students within the premises of the department; Practical knowledge requires the kind co-operation of various business organization of the country. Faculty members are always trying their best to ask the students to explore the market by assigning different field activities and to prepare a report. This report has been written on the “Colony Thal Textile Mills Ltd.” I have done my best efforts to complete this report efficiently and effectively with all abilities. I hope this report fulfills the criteria and expectations of Department of Commerce. I have tried my best to make it analytical as well as informative.

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All praise for ALLAH, the most merciful and his prophet Muhammad (PBUH) is for every torch of guidance and knowledge for humanity. I offer humblest and sincerest words of thanks to ALLAH Almighty who blessed me with potential and ability to make material contribution to already existing ocean of knowledge. I also grateful to the department of Commerce who gives me the opportunity of completing Financial Analysis Report on “Colony Thal Textile Mills Limited” and enhances my capabilities. This report is very much helpful me as I learn a lot by applying theoretical knowledge in practical field. I would also show our gratitude to our honorable and respected teacher Mr. Farrukh Naveed Who furnished me with the opportunity to complete this report, and thereby consolidating my concepts, enriching my knowledge, establishing my skills and strengthening my confidence, especially his lectures.

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“I dedicate my Financial Analysis Report efforts to my PARENTS & respected Teachers who taught & hold my hands on every step of my life.”

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Ch:N o
1 2 3 4 5 6 7 8 9 10

Contents
Executive Summary Introduction & History Income Statement (5 Years) Balance Sheet (5 Years) Horizontal Analysis of Income statement Vertical Analysis of Income statement Horizontal Analysis of Balance sheet Vertical Analysis of Balance sheet Short term Debt paying Ability Long term Debt paying Ability

Page #
07 08 12 13 14 15 16 17 18 24

11 12

Profitability Analysis Investor Analysis

26 29

5

13 14 15 16

Cash flow Analysis Multivariate Mode (Z-Score) Suggestions & Recommendations Conclusion

29 31 33 34

I assigned to analyze the Financial Statement of any manufacturing Company. I choose COLONY THAL TEXTILE MILLS LTD. A subsidiary of COLONY MILLS

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LTD. In this report I have used different techniques that are necessary to make any investment decision. I worked in different analysis techniques that are recasting, trend analysis, vertical analysis, and ratios including short term liquidity ratios, long term liquidity ratios, profitability ratios, investor’s analysis, cash flow ratios, DU_PONT analysis, & Z_SCORE. By working at this company I find so many useful insights about manufacturing sector.

Manufacturing Industry sector has a good impact on economy of Pakistan. This is most growing industry of Pakistan. This sector contributes a major portion to our export and also the total Gross Domestic Product (GDP). This sector gives great employment to our population.

Introduction of Company:
Colony Thal Textile Mills Limited is a Pakistan-based company. The Company is principally engaged in the manufacturing and sale of yarn. It offers a variety of

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yarn including carded and combed, slab and core yarn, single and double yarn, made from 100% cotton and synthetic material, catering to the needs of knitting and weaving consumers in domestic and international markets. The Colony Group is one of Pakistan's oldest and the most revered business groups. The Group has grown phenomenally and has become a leading player in all the sectors in which it operates. The Group has set up different companies whose activities span various sectors like Textiles, Sugar and Distillery.

History of Company:
The Colony Group was founded in 1986 with a focus on providing high net worth families and individuals with intelligent wealth management and investment guidance. Since its founding, the firm has grown substantially, attracting corporate and institutional clients. Recognizing the importance and success of its investment management capabilities, The Colony Group established Colony Investment Management as a separate division, through which it has built an experienced, talented team of Chartered Financial Analysts and other investment professionals dedicated to delivering out performance over full market cycles. Our proprietary, researchintensive approach is implemented through a defined, systematic, and repeatable investment process.

Mission Statement:
The Company's mission is:

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To install new Machinery and to acquire sophisticated process technology to achieve maximum growth in a competitive quality environment.

To be recognized as and remain a leading, innovative and effective supplier of Textile products.

• •

To explore new Export and Local Markets. To provide our customers with outstanding value, quality, service and delivery.

To ensure a fair return to the investors, shareholders and employees of the Company.

To enable all employees to develop and fulfill their individual goals and aspirations in a safe working environment.

Vision Statement:
(Colony) Thal Textile Mills Limited has a vision to be a trustworthy enterprise dedicated to service, quality and integrity & structured to maintain in-depth competence and knowledge about business, customers and market. Our work force will be the most efficient in the industry through multiple skill learning, the fostering of team work and security of safe work environment.

Officers and Directors:
CHAIR PERSON CHAIRMAN MRS AYESHA TANVEER MR TANVEER A.SHIEKH

DIRECTORS

MR. TANVEER A. SHIEKH

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MRS AYESHA TANVEER MR. M.TAIMOOR TANVEER MS. BEENISH ELAHI MR. SARDAR.M. NAWAZ MR. HADAYAT A.SHEIKH MR. ABRAR H. NAQVI MR. AHMAD SHAIKH

CHIEF FINANCIAL OFFICER COMPANY SECRETORY AUDITORS

MR. GHULAM MURTAZA BHATTI MR. GHULAM MURTAZA BHATTI SARWARS CHARTERED ACCOUNTANTS

REGISTERED OFFICE

7/1 MAIN SHAMI ROAD, LAHORE CANTT. PH (042) 6666634 FAX (042)6687353

Mills

Ismailpur, Bhakkar Ph: +92 0453 510440, 510240 Fax: +92 0453 514200

Colony Thal Textile Mills Ltd.

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Established as a textile manufacturing unit on 24th August, 1946, Colony Mills Limited is engaged in the production and manufacturing of different types of yarns of various counts. The company has a healthy portfolio of income generating assets that crossed total revenues of 7.0 billion rupees in the year ending June 2009.

Product Range:
100% cotton carded and combed yarns; lycra/spandex core spun and slob yarns. 100% polyester and 100% viscose yarns along with various blends, polyester viscose yarn, and yarns of polyester cotton and polyester viscose blends in the range of 6 to 80 Ne (Number English) Counts.

Future Ventures:
A state-of-the-art Open-End Spinning production facility is under construction. It will be the first of its kind facility in the country, with 2,880 rotors capable of producing 15,000 Metric Tons of yarn annually, including slub yarns

2005
Sales - Net 480,959,17 0

2006
881,353,740

2007
777,391,244

2008
374,912,443

2009
120,619,904

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Cost of Sales Gross (Loss) / Profit Operating Expenses: Administrative Exp. Distribution Exp. Total Operating Expenses Operating Loss / Profit Other Charges Other Operating Income Loss/profit from operation Finance cost Profit/(loss) before taxation

454,800,09 1 26,159,079

831,275,710 50,078,030

748,525,643 28,865,601

374,101,001 811,442

132,840,354 -12,220,450

9,775,617 125,830 9,901,447 16,257,632 2,469,945 7,001,278 20,788,965 10,765,653 4,488,930

15,145,884 1,934,522 17,080,406 32,997,624 -20,012,227 177,256 13,162,653 -19,704,199 -6,541,546

13,674,248 544,907 14,219,155 14,646,446 -2,354,513 13,338 12,305,271 -25,931,296 -13,626,025

9,472,060 28,500 9,500,560 -8,689,118 0 0 -8,689,118 -23,867,515 -32,556,633

8,770,025 44,450 8,814,475 -21,034,925 0 14,441,582 -6,593,343 -28,116,755 -34,710,098

Provision for taxation for current year

5,990,687

-3,134,440

-2,971,593

-1,874,562

0

Loss after taxation

10,479,617

-9,675,986

-16,597,618

-34,431,195

-34,710,098

2005
ASSETS: Current Assets Stock-in-trade Stores and spares Trade debtors 65,229,367 10,225,174 27,058,144

2006
84,351,245 11,587,641 16,145,519

2007
85,175,280 13,092,934 18,873,802

2008
52,575,116 13,755,071 22,566,958

2009
56,873,008 13,461,417 20,384,462

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Loans and advances Trade Deposits, prepayments and other receivables Cash and bank balances Total Current Assets Non current assets Assets at cost less accumulated Depreciation Asset Subject to Finance Lease Long term deposits Total Non Current Assets Total Assets LIABILITIES: Current liabilities Current portion of long term liabilities Short term Financing Accrued markup on secured loan Trade and other payables Provision for taxation Total Current Liabilities Non Current liabilities Long term Loans Deferred liability Total Non Current Liabilities Share capital and Reserves Share capital Surplus on Revaluation of Fixed Assets Reserves Accumulated loss Total Share Capital and Reserves Total Liabilities & Equity

929,889 9,631,372 7,076,799 120,150,745 390,659,088 12,621,396 2459199 405,739,683 525,890,428

2,389,556 13,784,760 3,928,220 132,186,941 377,053,935 0 2454443 379,508,378 511,695,319

4,303,149 15,020,068 1,591,438 138,056,671 380,762,927 0 2454443 383,217,370 521,274,041

2942303 6,172,949 3,251,652 101,264,049 368,221,228 0 2454443 370,675,671 471,939,720

3,396,075 6,104,474 3,956,283 104,175,719 322,227,851 27,642,664 2,454,443 352,324,958 456,500,677

20,642,110 68,403,096 2,308,729 95,555,248 10,072,361 196,981,544 191,047,730 2,772,925 193,820,655 55,687,500 164,621,453 17,887,309 103,108,033 135,088,229 525,890,428

25,718,177 83,225,227 1,442,303 79,090,989 7,888,244 197,364,940 187,574,976 1,938,249 189,513,225 55,687,500 142,152,989 17,887,309 -90,910,644 124,817,154 511,695,319

5,947,568 84,339,492 5,202,204 115,384,208 11775200 222,648,672 188,418,710 1987123 190,405,833 55,687,500 140,841,725 17887309 106,196,998 108,219,536 521,274,041

0 73,290,193 4,273,136 65,096,685 9364411 152,024,425 245580525 546,429 246,126,954 55,687,500 139593015 17,887,309 -139379483 73,788,341 471,939,720

0 78,461,577 31,409,537 61,359,625 8,264,411 179,495,150 242,606,225 212,749 242,818,974 55687500 133,512,117 17,887,309 172,900,373 34,186,553 456,500,677

2005
Sales - Net 100% Cost of Sales 100% Gross (Loss) / Profit 100%

2006
183.25% 182.78% 191.44%

2007
161.63% 164.58% 110.35%

2008
77.95% 82.26% 3.10%

2009
25.08% 29.21% -46.72%

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Operating Expenses: Administrative Exp. 100% Distribution Exp. 100% Total Operating Expenses 100% Operating Loss / Profit 100% Other Charges Other Operating Income 100% Loss/profit from operation 100% Finance cost 100% Profit/(loss) before taxation 100% Provision for taxation for current year 100% Loss after taxation 100% -92.33% -158.38% -328.55% -331.22% -52.32% -49.60% -31.29% 0.00% -145.73% -303.55% -725.26% -773.24% -183.03% -240.87% -221.70% -261.17% 63.32% 59.19% -41.80% -31.72% 2.53% 0.19% 0.00% 206.27% 202.97% 90.09% -53.45% -129.38% 172.50% 143.61% 95.95% 89.02% 1537.41% 433.05% 22.65% 35.33% 154.94% 139.88% 96.89% 89.71%

2005
Sales - Net Cost of Sales Gross (Loss) / Profit Operating Expenses: 100% 94.56% 5.44% 0.00%

2006
100% 94.32% 5.68% 0.00%

2007
100% 96.29% 3.71% 0.00%

2008
100% 99.78% 0.22% 0.00%

2009
100% 110.13% -10.13% 0.00%

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Administrative Exp. Distribution Exp. Total Operating Expenses Operating Loss / Profit

2.03% 0.03% 2.06% 3.38%

1.72% 0.22% 1.94% 3.74%

1.76% 0.07% 1.83% 1.88%

2.53% 0.01% 2.53% -2.32%

7.27% 0.04% 7.31% -17.44%

Other Charges

0.51%

-2.2706%

-0.30%

0.00%

0.00%

Other Operating Income Loss/profit from operation Finance cost Profit/(loss) before taxation

1.46% 4.32% 2.24% 0.93%

0.02% 1.49% -2.24% -0.74%

0.00% 1.58% -3.34% -1.75%

0.00% -2.32% -6.37% -8.68%

11.97% -5.47% -23.31% -28.78%

Provision for taxation for current year Loss after taxation

1.25% 2.18%

-0.36% -1.10%

-0.38% -2.14%

-0.50% -9.18%

0.00% -28.78%

2005
ASSETS: Current Assets Stock-in-trade Stores and spares Trade debtors Loans and advances Trade Deposits, prepayments and other receivables Cash and bank balances Total Current Assets Non current assets

2006

2007

2008

2009

100% 100% 100% 100% 100% 100% 100%

129% 113% 60% 257% 143% 56% 110%

131% 128% 70% 463% 156% 22% 115%

81% 135% 83% 316% 64% 46% 84%

87% 132% 75% 365% 63% 56% 87%

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Assets at cost less accumulated Depreciation Asset Subject to Finance Lease Long term deposits Total Non Current Assets Total Assets LIABILITIES: Current liabilities Current portion of long term liabilities Short term Financing Contingencies Trade and other payables Provision for taxation Total Current Liabilities Non Current liabilities Long term finance - secured Deferred liability Total Non Current Liabilities Share capital and Reserves Share capital Share premium Reserves Accumulated loss Total Share Capital and Reserves Total Liabilities & Equity

100% 100% 100% 100% 100%

97% 0% 100% 94% 97%

97% 0% 100% 94% 99%

94% 0% 100% 91% 90%

82% 219% 100% 87% 87%

100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

125% 122% 62% 83% 78% 100% 98% 70% 98% 100% 86% 100% 88% 92% 97%

29% 123% 225% 121% 117% 113% 99% 72% 98% 100% 86% 100% 103% 80% 99%

0% 107% 185% 68% 93% 77% 129% 20% 127% 100% 85% 100% 135% 55% 90%

0% 115% 1360% 64% 82% 91% 127% 8% 125% 100% 81% 100% 168% 25% 87%

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2005
ASSETS: Current Assets Stock-in-trade Stores and spares Trade debtors Loans and advances Trade Deposits, prepayments and other receivables Cash and bank balances Total Current Assets Non current assets Assets at cost less accumulated Depreciation Asset Subject to Finance Lease Long term deposits Total Non Current Assets Total Assets LIABILITIES: Current liabilities Current portion of long term liabilities Short term Financing Accrued markup on secured loan Trade and other payables Provision for taxation Total Current Liabilities Non Current liabilities Long term Loans Deferred liability Total Non Current Liabilities Share capital and Reserves Share capital Surplus on Revaluation of Fixed Assets Reserves Accumulated loss Total Share Capital and Reserves Total Liabilities & Equity 12.40% 1.94% 5.15% 0.18% 1.83% 1.35% 22.85% 74.29% 2.40% 0.47% 77.15% 100%

2006
16.48% 2.26% 3.16% 0.47% 2.69% 0.77% 25.83% 73.69% 0.00% 0.48% 74.17% 100%

2007
16.34% 2.51% 3.62% 0.83% 2.88% 0.31% 26.48% 73.04% 0.00% 0.47% 73.52% 100%

2008
11.14% 2.91% 4.78% 0.62% 1.31% 0.69% 21.46% 78.02% 0.00% 0.52% 78.54% 100%

2009
12.46% 2.95% 4.47% 0.74% 1.34% 0.87% 22.82% 70.59% 6.06% 0.54% 77.18% 100%

3.93% 13.01% 0.44% 18.17% 1.92% 37.46% 36.33% 0.53% 36.86% 10.59% 31.30% 3.40% -19.61% 25.69% 100%

5.03% 16.26% 0.28% 15.46% 1.54% 38.57% 36.66% 0.38% 37.04% 10.88% 27.78% 3.50% -17.77% 24.39% 100%

1.14% 16.18% 1.00% 22.14% 2.26% 42.71% 36.15% 0.38% 36.53% 10.68% 27.02% 3.43% -20.37% 20.76% 100%

0.00% 15.53% 0.91% 13.79% 1.98% 32.21% 52.04% 0.12% 52.15% 11.80% 29.58% 3.79% -29.53% 15.64% 100%

0.00% 17.19% 6.88% 13.44% 1.81% 39.32% 53.14% 0.05% 53.19% 12.20% 29.25% 3.92% -37.88% 7.49% 100%

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Days’ Sales in Receivable = Gross Receivables / Net Sales per Day 2005 2006 2007 2008 2009 Years
Gross receivables Net Sales per Day Ratio (days) 27,058,144 1,317,696 21 16,145,519 2,414,668 7 18,873,802 2,129,839 9 22,566,958 1,027,157 22 20,384,462 330,465 62

The days’ sale in receivables gives an indication of the length of time that the receivables have been outstanding at the end of the year. As there is increasing trend in the years preceding. Its mean the company is becoming less efficient day by day in collecting its receivables. Account Receivable Turnover = Net Sales / Avg. Gross Receivables 2005 2006 2007 2008 2009 Years
Net Sales Average Gross Receivables Ratio (times) 480,959,170 88,721,315 5.42 881,353,740 77,970,741 11.30 777,391,244 61,825,222 12.57 374,912,443 42,951,420 8.73 120,619,904 20,384,462 5.92

Account receivable turnover indicates the liquidity of the receivables. This is the ratio of the number of times that accounts receivable amount is collected throughout the year. High accounts receivable turnover ratio indicates a tight credit policy. A low or declining accounts receivable turnover ratio indicates a collection problem, part of which may be due to bad debts. There is increasing decreasing trend. There is fluctuation in the values.

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A/R Turnover in Days = Avg. Gross Receivables / Net Sales per Day
Years Average Gross Receivables Net Sales per Day Ratio (days)

2005
88,721,315 1,317,69 6 67

2006
77,970,741 2,414,6 68 3 2

2007
61,825,222 2,129,83 9 2 9

2008
42,951,420 1,027,1 57 42

2009
20,384,462 330,46 5 62

This ratio tells us about the time period to collect the account receivable. It is favorable when there is decreasing trend as we are recovering our amount in less time. In above case there is a mixture of decrease and then increasing trend. Company should try to decrease its receivable days.

Days Sales in Inventory= Ending Inventory / CGS per Day
Years Ending Inventory Cost of Goods Sole per Day Ratio (days)

2005
65,229,367 1,246,02 8 52

2006
84,351,245 2,277,4 68 3 7

2007
85,175,280 2,050,75 5 4 2

2008
52,575,116 1,024,9 34 51

2009
56,873,008 363,946 156

The days’ sales in inventory tells you the average number of days that it took to sell the average inventory held during the specified one-year period. You can also think of it as the number of days of sales that was held in inventory during the specified year. In the case of colony textiles there is increasing trend from year 2007 to 2009 and then there is decrease in 2006.

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Inventory Turnover = CGS / Avg. Inventory
Years CGS Average Inventory Ratio (times)

2005
454,800,091 65,229,367 6.97

2006
831,275,710 84,351,245 9.8 5

2007
748,525,643 85,175,280 8.79

2008
374,101,001 52,575,116 7.1 2

2009
132,840,354 56,873,008 2.34

Inventory turnover indicates the liquidity of the inventory. A low turnover implies poor sales and, therefore, excess inventory. A high ratio implies either strong sales or ineffective buying. In the above case it increases in 2006 and then gradually decreasing from 2007 to 2009 that is not positive trend.

High inventory levels are unhealthy because they represent an investment with a rate of return of zero. It also opens the company up to trouble should prices begin to fall.

Inventory Turnover in Days = Avg. Inventory /CGS per Day
Years Average Inventory CGS per Day Ratio (days)

2005
65,229,367 1,246,02 8 52

2006
84,351,245 2,277,4 68 3 7

2007
85,175,280 2,050,75 5 4 2

2008
52,575,116 1,024,9 34 51

2009
56,873,008 363,94 6 156

The inventory turnover figure can be expressed in number of days. In the inventory turnover in days the decreasing trend is favorable. In the above case there is rapid change in the inventory turnover in days and also there is enormous increasing trend which is not favorable.

Operating Cycle=A/R Turnover in Days + Inventory Turnover in Days 20

Years A/R Turnover in Days Inventory Turnover in Days Ratio (days)

2005
67 52 120

2006
32 37 69

2007
29 42 71

2008
42 51 93

2009
62 156 218

The operating cycle is the number of days from cash to inventory to accounts receivable to cash. The operating cycle reveals how long cash is tied up in receivables and inventory. A long operating cycle means that less cash is available to meet short term obligations. In the above case there is positive trend in beginning and then there is increasing trend which is not good.

Working Capital= Current Assets - Current Liabilities
Years Current Assets Current Liabilities Rs.

2005
120,150,745 196,981,544 -76,830,799

2006
132,186,941 197,364,940 -65,177,999

2007
138,056,671 222,648,672 -84,592,001

2008
101,264,049 152,024,425 -50,760,376

2009
104,175,719 179,495,150 -75,319,431

Some use the term working capital ratio to mean working capital or net working capital. Working capital is defined as current assets minus current liabilities. When used in this manner, working capital ratio is not really a ratio. Rather, it is simply a dollar amount. In the above case there is negative trend which shows our current liability are greater than our current assts.

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Current Ratio = Current Assets / Current Liabilities
Years C.A C.L Ratio

2005
120,150,745 196,981,544 0.61

2006
132,186,941 197,364,940 0.67

2007
138,056,671 222,648,672 0.62

2008
101,264,049 152,024,425 0.67

2009
104,175,719 179,495,150 0.58

An indication of a company's ability to meet short-term debt obligations; the higher the ratio, the more liquid the company is. Current ratio is equal to current assets divided by current liabilities. If the current assets of a company are more than twice the current liabilities, then that company is generally considered to have good short-term financial strength. If current liabilities exceed current assets, then the company may have problems meeting its short-term obligations. In the above case there is negative trend in 2009.

Acid Test Ratio = Cash + Marketable Securities + Net Receivable / Current Liabilities
Years Cash+M.S+N.R Current Liabilities Ratio

2005
34,134,943 196,981,544 0.17

2006
20,073,739 197,364,940 0.1 0

2007
20,465,240 222,648,672 0.09

2008
25,818,610 152,024,425 0.1 7

2009
24,340,745 179,495,150 0.14

An acid test ratio indicates whether a firm has enough short-term assets to cover its immediate liabilities without selling inventory. The acid-test ratio is far more strenuous than the working capital ratio, primarily because the working capital ratio allows for the inclusion of inventory assets. There is rapid negative trend as the ratio is decreasing.

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Cash Ratio = Cash Equivalent + M.Securities / Current Liabilities Years 2005 2006 2007 2008 2009
C.E +M.S C.L Ratio 120,150,745 196,981,544 0.61 132,186,941 197,364,940 0.6 7 138,056,671 222,648,672 0.62 101,264,049 152,024,425 0.6 7 104,175,719 179,495,150 0.58

The cash ratio measures the extent to which a corporation or other entity can quickly liquidate assets and cover short-term liabilities, and therefore is of interest to short-term creditors. In the above case there is increasing trend that shows a negative sign.

Sales to Working Capital = Sales / Avg. Working Capital
Years
Sales Average Working Capital Ratio

2005
480,959,170 -70,536,121 (6.82 )

2006
881,353,740 -55,169,961 (15.9 8)

2007
777,391,244 -42,134,362 (18.4 5)

2008
374,912,443 -25,215,961 (14.8 7)

2009
120,619,904 -15,063,886 (8.01)

This ratio shows the amount of cash required to maintain a certain level of sales. It is more effective when tracked on a trend line, so the management can see if there is a long term change in the amount of cash required by the business in order to generate the same amount of sales.

23

Times Interest Earned = Operating Income + Other Income / Intr. Exp. Years 2005 2006 2007 2008 2009
Oprt.I + O.I Interest Exp. Times 23,258,910 10,765,653 2.16 33,174,880 -19,704,199 (1.6 8) 14,659,784 -25,931,296 (0.57) -8,689,118 -23,867,515 0.3 6 -6,593,343 -28,116,755 0.23

The times interest earned ratio indicates the extent of which earnings are available to meet interest payments. A lower times interest earned ratio means less earnings are available to meet interest payments and that the business is more vulnerable to increases in interest rates. In the above case there is little bit increasing trend.

Debt Ratio = Total Debt / Total Assets
Years
T.Debt T.Ass. %

2005
390,802,199 525,890,428 74.31%

2006
386,878,165 511,695,319 75.61%

2007
413,054,505 521,274,041 79.24%

2008
398,151,379 471,939,720 84.36%

2009
422,314,124 456,500,677 92.51%

This ratio indicates the firm’s long term debt paying ability. Its increasing trend is negative. It determines how well creditors are protected in case of solvency. In the above case there is negative trend.

Debt/Equity Ratio = Total Liabilities/Stockholders Equity
Years
Total Lib.

2005
390,802,199

2006
386,878,165

2007
413,054,505

2008
398,151,379

2009
422,314,124

24

S. equity Percentage

238,196,262 1.64%

215,727,798 1.79%

214,416,534 1.93%

213,167,824 1.87%

207,086,926 2.04%

This ratio indicates the firm’s long term debt paying ability. Its decreasing trend is positive. It compares the total debt with the shareholders equity means how well creditors are protected in case of solvency.

Net Profit Margin = Net Profit / Net Sales
Years 2005 2006 2007 2008 2009 25

Net Pr. Net Sale %

10,479,617 480,959,170 0.02%

-9,675,986 881,353,740 -0.01%

-16,597,618 777,391,244 -0.02%

-34,431,195 374,912,443 -0.09%

-34,710,098 120,619,904 -0.29%

This ratio gives a measure of net income Rs. Generated by each Re. of sale. While it is desirable for this ratio to be high. In the above case quick decrease which is not favorable.

Total Assets Turnover = Net Sales / Avg. Total Assets
Years
Net Sales Avg. T. Ast. Times

2005
480,959,170 525,890,428 0.0091

2006
881,353,740 511,695,319 0.017 2

2007
777,391,244 521,274,041 0.0149

2008
374,912,443 471,939,720 0.007 9

2009
120,619,904 456,500,677 0.0026

Total asset turnover measures the activity of the asset and ability of the firm to generate sales through the use of the assets. In the above case there is substantial change in the values of ratio.

Return on Assets = Net Income / Avg. Total Assets
Years
Net I. Avg. total Ass Times

2005
10,479,617 525,890,428 0.0002

2006
-9,675,986 511,695,319 (0.000 2)

2007
-16,597,618 521,274,041 (0.0003)

2008
-34,431,195 471,939,720 (0.00 07)

2009
-34,710,098 456,500,677 (0.0008)

Return on asset measures the firm’s ability to utilize its assets to create profits by comparing profits with the assets that generate the profits. Return on asset in 2003 decrease substantially in the above case.

Operating Income Margin = EBIT / Net Sales
Years
EBIT Net S. %

2005
20,788,965 480,959,170 0.0432%

2006
13,162,653 881,353,740 0.0149%

2007
12,305,271 777,391,244 0.0158%

2008
-8,689,118 374,912,443 -0.0232%

2009
-6,593,343 120,619,904 -0.0547%

26

The operating income margin include only operating income in the numerator. In the above case there is continuously decrease 2007 in the operating income margin percentage.

Operating Asset Turnover = Net Sales / Avg. Operating Ast.
Years
Net Sales Avg.O.A. Times

2005
480,959,170 120,150,745 0.0400

2006
881,353,740 132,186,941 0.0667

2007
777,391,244 138,056,671 0.0563

2008
374,912,443 101,264,049 0.0370

2009
120,619,904 104,175,719 0.0116

This ratio measures the ability of operating assets to generate sales rupees. In the above case values of ratio indicates the substantial decrease.

Return on Operating Assets = Operating Income / Avg. Operating Ass. Years 2005 2006 2007 2008 2009
EBIT Avg.O.A. Times 20,788,965 120,150,745 0.0017 13,162,653 132,186,941 0.0010 12,305,271 138,056,671 0.0009 -8,689,118 101,264,049 (0.0009) -6,593,343 104,175,719 (0.0006)

In the above case it indicates a decreasing trend from year 2005 to onward.

DuPont Return on Operating Assets = Operating Income Margin x Operating Assets Turnover

Years
OPr. I. Margin Opr. Ass. Turn. Percentage

2005
0.0004 0.0400 0.0108%

2006
0.0001 0.0667 0.0022%

2007
0.0002 0.0563 0.0028%

2008
-0.0002 0.0370 -0.0063%

2009
-0.0005 0.0116 -0.0472%

27

Gross Profit Margin = Gross Profit / Net Sales
Years
GP Net Sales Percentage

2005
26,159,079 480,959,170 0.0544%

2006
50,078,030 881,353,740 0.0568%

2007
28,865,601 777,391,244 0.0371%

2008
811,442 374,912,443 0.0022%

2009
-12,220,450 120,619,904 -0.1013%

Sales to Fixed Assets = Net Sales / Avg. Net Fixed Assets
Years
Net Sales A.N.F.A. Times

2005
480,959,170 405,739,683 0.01

2006
881,353,740 379,508,378 0.02

2007
777,391,244 383,217,370 0.02

2008
374,912,443 370,675,671 0.01

2009
120,619,904 352,324,958 0.00

This ratio measures the firm’s ability to make productive use of its property, plant and equipment by generating sales rupees. In the above case the ratio is substantially lesser because of high net sales.

Degree of Financial Leverage = EBIT / EBT
Years
EBIT

2005
20,788,965

2006
13,162,653

2007
12,305,271

2008
-8,689,118

2009
-6,593,343

28

EBT Times

4,488,930 0.046 3

-6,541,546 (0.0201)

-13,626,025 (0.0090)

-32,556,633 0.0027

-34,710,098 0.0019

The degree of financial leverage is the multiplier factor by which the net income changes as compared to the change in EBIT. In the above case there is decreasing trend means in the year 2006 & 2007 the ratio is negative while in 2008 & 2009 is positive.

Operating Cash Flow / Current Maturity of Long Term Debt and Current N/P

Years
Op. cash flow C.M. of LTD & CNP. Times

2005
30,483 125,258 0.0024

2006
-6,443 121,568 (0.00 05)

2007
3,494 267,914 0.0 001

2008
-33,691 180,837 (0.00 19)

2009
20,057 181,395 0.00 11

The operating cash flow/current maturities of long term debt and current notes payable is a ratio that indicates a firm’s ability to meet its current maturities of debt. The higher this ratio, the better the firm’s ability to meet its current maturities of debt.

Operating Cash Flow / Total Debt
Years
Op. C.F. Total Debt Times

2005
-26,705,135 390,802,199 (0.0007)

2006
2,647,468 386,878,165 0.0001

2007
36,621,152 413,054,505 0.0009

2008
-37,247,239 398,151,379 (0.0009)

2009
-11,530,727 422,314,124 (0.0003 )

29

The Operating cash flow/total debt indicates a firm’s ability to cover total debt with the yearly operating cash flow. The higher the ratio, the better the firm’s ability to cover its total debt. In the above case there is significant change in year 2007 then there is decreasing trend in 2008 and 2007 there is considerable change which shows the firm’s ability to cover its total debt.

X1 = Working Capital / Total Assets
Years
W.C T.A Times

2005
51,747,649 525,890,428 0.0010

2006
48,961,714 511,695,319 0.0010

2007
53,717,179 521,274,041 0.0010

2008
27,973,856 471,939,720 0.0006

2009
25,714,142 456,500,677 0.0006

30

X2 = Retained Earning / Total Assets
Years
R.E. T.A. Times

2005
-103,108,033 525,890,428 (0.0020) )

2006
-90,910,644 511,695,319 (0.0018

2007
-106,196,998 521,274,041 (0.0020)

2008
-139,379,483 471,939,720 (0.0030)

2009
-172,900,373 456,500,677 (0.0038)

X3 = EBIT / Total Assets
Years
EBIT T.A. Times

2005
20,788,965 525,890,428 0.0004

2006
13,162,653 511,695,319 0.0003

2007
12,305,271 521,274,041 0.0002

2008
-8,689,118 471,939,720 (0.0002)

2009
-6,593,343 456,500,677 (0.0001)

X4 = Market Value of Equity / Book Value of Total Debt
Years
M.V.E. BV. T.D. Times

2005
135,088,229 390,802,199 0.0035

2006
124,817,154 386,878,165 0.0032

2007
108,219,536 413,054,505 0.0026

2008
73,788,341 398,151,379 0.0019

2009
34,186,553 422,314,124 0.0008

X5 = Sales / Total Assets
Years
Sales T.A. Times

2005
480,959,170 525,890,428 0.0091

2006
881,353,740 511,695,319 0.0172

2007
777,391,244 521,274,041 0.0149

2008
374,912,443 471,939,720 0.0079

2009
120,619,904 456,500,677 0.0026

Z = .012X1 + .014X2 + .033X3 + .006X4 + .010X5
Years
X1 X2 X3 X4 X5 Zscore

2005
0.000012 (0.000027) 0.000013 0.000021 0.000091 0.000110

2006
0.000011 (0.000025) 0.000008 0.000019 0.000091 0.000106

2007
0.000012 (0.000067) 0.000008 0.000016 0.000149 0.000118

2008
0.000007 (0.000041) (0.000006) 0.000011 0.000079 0.000050

2009
0.000007 (0.000053) (0.000005) 0.000005 0.000026 (0.000020)

31

The overall Performance of Colony Thal Textile mills Limited is not satisfactory. The company is facing heavy loses from 2006 to onward. After calculating ZScore it is concluded that there is great chance of bankruptcy in near feature.

 The Company should try to decrease its receivable days.  The Company should try to improve its inventory turnover ratio.  There is negative trend in working capital ratio which shows our current liability is greater than our current assts. So company should try to decrease its liabilities. 32

 If current liabilities exceed current assets, then the company may have problems meeting its short-term obligations so company should improve its current ratio.  There is rapid negative trend as the acid test ratio is decreasing company should also pay attention to improve it.  There is decreasing trend in cash ratio that shows a negative sign. Company should also focus on its improvement.  The company should improve its investor’s analysis ratios so that the investors may attract to invest in their company.  The company should cut down its expenses so that it may earn profit and in the sense would be able to pay dividend which will also help the company to attract investors.  The company should take some step toward doing advertisement to get customer attraction and for increasing sales.  Company cannot convert account receivables into cash quickly. Mostly sales are on credit basis. So company management should take some corrective steps to improve it.  Limitations exist in meeting up the demand of textile. Company should improve its inventory turnover ratio to meet the demand.

Overall the colony thal textile is going in loss. But it is very efficient in some key areas but this efficiency is little in front of industry standards and other key areas.

33

As there are good relationship of supplier and this mill so the company should create a competitive advantage by cutting its expenses and by creating more profit as by becoming cost leader. The result f some ratios are negative which is not good also from the investment perspective. Colony Thal Textile can improve it just by paying some attention on collecting account receivables in less period of time. As also the Thal textile Mills is taking corrective actions in some key areas which will lead the company towards the way of Progress & Prosperity.

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