ELLCOT SPINNING MILLS LIMITED

LIQUIDITY RATIOS

2011 Current ratio Quick ratio 1.33 0.42

2010 1.20 0.34

2009 1.01 0.36

ANALYSIS Current Ratio has increases from 2008-2011 due to increase in their production (Inventory) and firm is gaining liquidity. Due to Inventories is their main part of the Current Assets so Quick Ratio decreases from 2009-2010 due to 0.38% more production as compared with the previous year. But then in 2011 they again boosted( due to 11.53% decrease in production) up quick ratio to 0.42 which indicates their assets are not highly dependable on inventories

LEVERAGE RATIOS 2011 Total Debt To Total Asset Ratio Debt to equity ratio Time interest earned 0.59 33.80% 3.05 2010 0.65 48.97% 1.19 2009 0.7432 54.19 0.02

ANALYSIS:Total Debt decreases from 2009-2011 due to low amount of long term borrowings and high production of yarn result in high Assets. In 2009, the Time Interest Earned was quite alarming situation, which means that company were nearly about to come on 1, due to the repayment of interest on short term borrowings, but subsequently in 2010 Time Interest Earned increased to 1.19 times which ensures that company would

not default on its loans. Whereas it subsequently increased in 2011 by 3.05times which clears that in 2011 the company condition is far better than its previous years to pay off all it’s defaults Due to adopting of ‘Aggressive Style’ their long term debts are decreasing gradually from 20092011. The reason for adopting this approach is due to recent floods occurred in Pakistan and has destroyed crops such as cotton, plus our economy situation etc.

EFFICIENCY RATIO 2011 Avg. Collection Period Inventory turnover: Total assets turnover: 4.46days 193.3 times 2.2 2010 13.7days 143.29 times 1.8 2009 2.77days 70.40 times 1.3

ANALYSIS:Average Collection Period of Ellcot Spinning Mills Limited is quite excellent as by looking at their ratios. From 2009-2011, the company appears to maintain their receivables quite efficiently, by not letting them go more further which clears that inventories stays within the company for the less time period subsequently which is a good sign. Inventory turnover Increasing from 2009-2011 due to purchasing of inventory. In year 2011 the inventory increased 193.3 times which is very good for the company. Total Assets Turnover increasing due to Rs. 27,014,254 were spent on Machinery and other assets from 2009-2011. During the year 2009-2011, net sales value of their yarn increases up to 33.84% over the previous year and stood at 85.81% sales. Average sales price per kg also increased by 33.43% over the previous year. As we can that the assets turnover increased by 0.4 times in 2011 from 2010. This Significant increase in sales is attributing to increase in yarn prices due to increase in the price of the Cotton due to demand in local and as well as in International market. This lead to increase in Total Assets Turnover and as well as in Net worth Turnover because company having high inventory turnover from 2008-2010.

PROFITABILITY RATIOS

Profit margin Return on total assets Return on investment Return on equity

2011 0.86% 3.06% 0.20 0.38

2010 4.03% 7.45% 0.24 0.21

2009 0.041% 0.054% 0.18 0.002

ANALYSIS:Low profit margin resulting in 2009 was due to imposed export ban for two months by the Government and due to the flood arising in 2009.Gross profit for the year increased by Rs.130,829,386/= or 50.39% over the previous year and stood at Rs.390,444,286.After providing Rs.91, 251,659/= for Depreciation (2008-09: Rs. 97,355,364/=), Profit before tax increased by Rs.161, 422,977/= to Rs.166, 677,300/= or 5.27% of sales (2008-09: Rs. 5,254,323/= or 0.22% of sales). Deferred tax provision for current year amounts to Rs.21, 994,443/= (2009: Rs. 3,025,398/=). Tax provision for the current year amounts to Rs.16, 049,465/= (2009: Rs. 5,305,981/=). After tax profit for the current year increased by Rs.127, 636,441/= to Rs.128, 633,392/=. (2009: Rs. 996,951/=). Earning per share (EPS) increased by Rs.11.66 to Rs. 11.75 (2009: 0.09). Whereas the profit margin ratio got decreased in year 2011 by 0.86% which shows that the profit of the company decreased because of the sales of the company in the year. Return on investment The return on the investment of the company got increased in 2010 by 0.24 where as in 2011 it got decrease slightly by 0.04 ratio this shows that the company’s return on investment is less in 2011. Return on equity The return on the equity is high in year 2011 as compare to all three years. Which shows that the profitability rate in year 2011 is high which is 3.8%, this shows that the return on the total equity is high in this year as compare to other’s which clears that the company is increasing profit year by year which is earned from the shareholder’s money. Return on Total Assets: The return on the Total Assets is highest in the year 2010 as compare to the other which shows that the company was getting high percentage of profit over asset in 2010 which is 7.45% where as in the year 2011 the profitability return on the total Assets is 3.06% which is about 4.39% less than the last year which was 2010 which shows that the net profit or the total assets of the company has decreased.