Financial Ratio Analysis

Square Textile Ltd. and Saiham Textile Mills Ltd.

Financial Management | FIN 501 | October 26, 2019

1
 East West University

Submitted To
PROF. SUJIT R. SAHA, PHD
Professor,
Department of Business Administration
East West University

Submitted By:
Suraiya Zabben ID: 2017-1-95-123
Md. Rezwan Arafin ID: 2018-2-91-002
Afrina Jui ID: 2018-1-95-073

Date: 26/10/2019

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October 26, 2019

Prof. Sujit R. Saha, Ph.D.

Professor
Department of Business Administration
East West University
Aftabnagar, Dhaka

Subject: Submission of report on financial ratio analysis of Square textile Ltd. and Saiham
Textile Mills Ltd.

Dear Sir,
We feel immense pleasure in presenting to your good self, the report as part of our course
requirement. We found this report to be truly interesting in many aspects, although writing this
report itself was truly comprehensive learning experience.

We have tried our best to complete the report with respect to the desired requirements. However,
if any further explaining is required, we would be honored to oblige.

Kindly accept this humble effort of bringing forward our findings on the subject matter.

Sincerely Yours,
Suraiya Zabben ID: 2017-1-95-123

Md. Rezwan Arafin ID: 2018-2-91-002

Afrina Jui ID: 2018-1-95-073

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 Table of Contents

Industry Overview 7-8

Company Profile 8
Square Textile ltd. 8
Saiham Textile Mills limited. 8
Objective of Report 8-9
Measure of Profitability 9
Evaluation of Operational Efficiency 9
Ensure Suitable Liquidity 9
Overall Financial Strength 9
Comparison 9
Methodology of Report 9-10
Limitations 10
Financial Report Database 11
Financial Ratio Analysis: Square Textile Ltd. 11
Financial Ratio Analysis: Saiham Textile Mills Ltd. 12
As a Creditor we will focus below point for ratio Analysis 13
Current Ratio 13
Analysis: 14
Debt Ratio 14-15
Analysis: 15
Findings from analysis 15
As a Management people we will focus below point for ratio Analysis 16
Days Sales outstanding 16
Analysis: 17
Inventory Turnover 17-18
Analysis: 18
Total assets Turnover 18-19
Analysis: 19

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FINDINGS FROM ANALYSIS 20
As an Investor we will focus below point for ratio Analysis 20
Net Profit Margin 20
Analysis: 21
Return on assets 21
Analysis: 22
Return on Common Equity 22-23
Analysis: 23
FINDINGS FROM ANALYSIS 23
Summary Analysis and Findings 24
Findings: Square Textile Ltd. 24
Current ratio: 24
Debt Ratio: 24
Inventory Turnover ratio: 25
Days Sales Outstanding (DSO): 24
Total Asset Turnover Ratio: 25
Net Profit Margin: 25
Return on Asset (ROA): 25
Return on Common Equity (ROE): 26
Forcasting of Square Textile Ltd 26
Forcasting of Saiham Textile Ltd 27
Suggestion for Saiham Textile Ltd 28
Conclusion of Saiham Textile Ltd 28
Suggestion of Square Textile Ltd 29
Conclusion of Square Textile Ltd 30

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6
 Part - A

Industry Overview

The textile and clothing industries provide the single source of growth in Bangladesh's rapidly
developing economy. Exports of textiles and garments are the principal source of foreign
exchange earnings. By 2002 exports of textiles, clothing, and ready-made garments (RMG)
accounted for 77% of Bangladesh's total merchandise exports. In 1972, the World Bank
approximated the gross domestic product (GDP) of Bangladesh at US$6.29 billion, and it grew
to $173.82 billion by 2014, with $31.2 billion of that generated by exports, 82% of which was
ready-made garments. As of 2016 Bangladesh held the 2nd place in producing garments just
after China. Bangladesh is the world's second-largest apparel exporter of western fast fashion
brands. Sixty percent of the export contracts of western brands are with European buyers and
about forty percent with American buyers. Only 5% of textile factories are owned by foreign
investors, with most of the production being controlled by local investors. In the financial year
2016-2017 the RMG industry generated US$28.14 billion, which was 80.7% of the total export
earnings in exports and 12.36% of the GDP; the industry was also taking on green manufacturing
practices.

Bangladesh's textile industry has been part of the trade versus aid debate. The encouragement of
the garment industry of Bangladesh as an open trade regime is argued to be a much more
effective form of assistance than foreign aid. Tools such as quotas through the WTO Agreement
on Textiles and Clothing (ATC) and Everything but Arms (EBA) and the US 2009 Tariff Relief
Assistance in the global clothing market have benefited entrepreneurs in Bangladesh's ready-
made garments (RMG) industry. In 2012 the textile industry accounted for 45% of all industrial
employment in the country yet only contributed 5% of the Bangladesh's total national income.
After several building fires and collapses, resulting in the deaths of thousands of workers, the
Bangladeshi textile industry and its buyers have faced criticism. Many are concerned with
possible worker safety violations and are working to have the government increase safety
standards. The role of women is important in the debate as some argue that the textile industry

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has been an important means of economic security for women while others focus on the fact that
women are disproportionately textile workers and thus are disproportionately victims of such
accidents. Measures have been taken to ensure better working conditions, but many still argue
that more can be done. Despite the hurdles, riding the growth wave, Bangladesh apparel making
sector could reach 60 percent value addition threshold relying on the strong backwardly linked
yarn-fabric making factories directly from imported raw cotton, reaching a new height of exports
worth of US$30.61 billion in the fiscal year 2018.

Company Profile

SQUARE TEXTILE LIMITED

Square Textile is a subsidiary company of Square Group. The Company was incorporated as a
public limited company in the year of 1994. . The operation was started in 1997. It was enlisted
in Dhaka Stock Exchange & Chittagong Stock Exchange in 2002. Within a very short time of
span the company achieved some significance success. Square Textile receives Oeko-Tex
standard 100 and ISO-9002 certificates in the year 2000. Authorized capital of the company is tk.
1000 million. It’s paid- up capital is tk. 251.90 million. 1,223 employees are working in this
organization. The business lines of Square Textiles Limited are manufacturing and marketing of
yarn. The Net Profit after Tax is 413735692 BDT of Square Textile in March 2017.

SAIHAM TEXTILE MILLS LIMITEED

Saiham Textile Mills Ltd. is the textile arm of Saiham Group. The company has two
manufacturing units located at Saiham Nagar, Habiganj. . It is established in the domestic and
export market with a wide product range from 100% polyester and viscose spun yarns which are
used for knitting. It was established in 1982 and in 1988 it became a public company. Its head
office is located in Dhaka.

Objective of Report
Interpreting the financial statements and other financial data is essential for all stakeholders of an
entity. Ratio Analysis hence becomes a vital tool for financial analysis and financial
management. Let us take a look at some objectives that ratio analysis fulfils.

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MEASURE OF PROFITABILITY
Profit is the ultimate aim of every organization. So if I say that ABC firm earned a profit of 3
lakhs last year, how will you determine if that is a good or bad figure? Context is required to
measure profitability, which is provided by ratio analysis. Gross Profit Ratios, Net Profit Ratio,
Expense ratio etc. provide a measure of profitability of a firm. The management can use such
ratios to find out problem areas and improve upon them.

EVALUATION OF OPERATIONAL EFFICIENCY

Certain ratios highlight the degree of efficiency of a company in the management of its assets
and other resources. It is important that assets and financial resources be allocated and used
efficiently to avoid unnecessary expenses. Turnover Ratios and Efficiency Ratios will point out
any mismanagement of assets.

ENSURE SUITABLE LIQUIDITY

Every firm has to ensure that some of its assets are liquid, in case it requires cash immediately.
So, the liquidity of a firm is measured by ratios such as Current ratio and Quick Ratio. These
help a firm maintain the required level of short-term solvency.

OVERALL FINANCIAL STRENGTH

There are some ratios that help determine the firm’s long-term solvency. They help determine if
there is a strain on the assets of a firm or if the firm is over-leveraged. The management will
need to quickly rectify the situation to avoid liquidation in the future. Examples of such ratios are
Debt-Equity Ratio, Leverage ratios etc.

COMPARISON
The organizations’ ratios must be compared to the industry standards to get a better
understanding of its financial health and fiscal position. The management can take corrective
action if the standards of the market are not met by the company. The ratios can also be
compared to the previous years’ ratios to see the progress of the company. This is known as trend
analysis.

Methodology of Report
Required Data
We have elaborated different kinds of secondary data in our report.

Data Sources
 Websites (Square Textiles Limited & SaihamTextile Mills Limited)

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 Annual Report

 Booklets and brochures published by two companies.

Data collection process

We have collected data from different data sources from 2015 to 2017 and put in to excel and

Use different kinds of formula that is required for calculating necessary ratio.

Techniques of Analysis
We have used tabular, graphical and ratio analysis for making decision.

Variables
For ratio analysis, we have used different kinds of variables like: Total asset, Shareholders
equity, Net income, Operating expenses etc.

Limitations
The main imitation of the study as under:

⮚ It is a new and developing concept, so it is not possible for all new and developing
companies.
⮚ It is secondary data-based study, so the limitations of the secondary data reveal with this
study.
⮚ As it is a new concept, it becomes hard task and through for accountants and accounting
practitioners for fulfilling all formalities.
⮚ Profitability is affected by many factors, internal as well as external, but the researcher is
taking into consideration only some factors which are relevant to study.

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 Part - B

Financial Report Database

Financial Ratio Analysis: Square Textile Ltd

Items
2015 2016 2017
Fixed Asset 3282 4119 4841
Inventory 1915 1737 1963
Accounts Receivable 2289 1644 1931
Cash & Cash
Equivalents 709 1278 862
Current Asset 5410 5230 5340
Total Asset 8693 9349 10182
Equity 6494 7365 7345
Accounts Payable 7565 7242
Current Liabilities 1981 1766 2612
Total Liabilities 1106 2815 1990
Sales 7701 8250 7758
Cost of Goods Sold 6347 7076 6969
Interest Expenses 26 12 30
Profit Before PPF & WF 1025 922 505
Earnings Before Interest
and Tax 976 878 481
Net Profit 818 740 11
Number of Common
Share 147 178 178
Table: Data from Financial Statements of Square Textile Ltd. from 2015 to 2017.

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FINANCIAL RATIO ANALYSIS: SAIHAM TEXTILE LTD.
Year
Items
2015 2016 2017
Fixed Asset 2026 1929 1879
Inventory 1217 963 1292
Accounts Receivable 239 576 592
Cash & Cash
Equivalents 876 424 25
Current Asset 2422 2109 2468
Total Asset 4448 4038 4348
Equity 2305 2836 2439
Accounts Payable 1336 1589 1392
Current Liabilities 1600 1340 1742
Total Liabilities 2142 1652 1908
Sales 1741 1639 1529
Cost of Goods Sold 1576 1442 1297
Interest Expenses
Profit Before PPF & WF 106 119 132
Earnings Before Interest
and Tax 101 114 126
Net Profit 79 76 92
Number of Common
Share 75 86 90
Table: Data from Financial Statements of Saiham Textile Ltd. from 2015 to 2017.

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As a Creditor we will focus below point for ratio Analysis
CURRENT RATIO
Current ratio provides the best single indicator of the extent to which the claims of
short-term creditors are covered by assets that are expected to be converted to
cash fairly quickly, it is the most commonly used measure of short-term solvency.
It is calculated by dividing the current asset of a company by the current liabilities.

Years Current ratio of Current ratio of

Square Textile Ltd Saiham Textile Ltd

2015 2.73 1.51

2016 2.96 1.57

2017 2.04 1.41

Table: Current Ratio for 2015 to 2017.

Current Ratio
5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
2015 2016 2017

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Analysis:
We can see the Average current ratio for Square Textile Ltd is 2.58 times (2015-
2017) and Saiham Textile Ltd Average Current Ratio is 1.49times (2015-2017).

So, it is good sign for the Square Textile Ltd because they have much more current
ratio against Saiham Textile Ltd. If current ratio is less than one that means the
company have negative net working capital and this is unhealthy sign. If Saiham
Textile Ltd wants to increase their current ratio then they need to increase current
assets against their current liabilities.

DEBT RATIO
Debt ratio measures the percentage of the firm’s assets financed by creditors. It is
calculated by dividing the total liabilities by total assets. The less debt ratio means
the organization is better performing.

Years Debt ratio of Square Debt ratio of Saiham

Textile Ltd Textile Ltd

2015 12.72% 48.15%

2016 18.89% 40.91%

2017 19.54% 43.88%

Table: Debt Ratio for 2015 to 2017.

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 Debt Ratio
70

60

50

40

30

20

10

0
2015 2016 2017

Analysis:

Under 60% of Debt Ratio is called save for the company and Over 80% of Debt is
worried for the company. Here we can see the average Debt Ratio for Square
Textile Ltd is 17.05% (2015-2017) and average Debt Ratio for BPL is 44.31% (2015-
2017).

So according to our understanding this is a good sign for Square Pharmaceuticals

Ltd and Saiham Textile Ltd is stay on save position. If Saiham Textile Ltd wants to
decrease the Debt Ratio then they need to decrease total assets against total
liability or decrease the total liability against total assets.

FINDINGS FROM ANALYSIS

As a Creditor we will credit the money to both the company.

As a Management people we will focus below point for ratio

Analysis

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DAYS SALES OUTSTANDING
DSO is used to evaluate the firm’s ability to collect its credit sales in a timely
manner. It is calculated by dividing accounts receivable by average daily sales.

Years Days Sales Outstanding Days Sales

of Square Textile Ltd Outstanding of Saiham
Textile Ltd

2015 107.01 49.38

2016 71.72 126.59

2017 89.60 139.29

Table: Days Sales Outstanding 2015 to 2017.

Days Sales Outstanding

250

200

150

100

50

0
2015 2016 2017

Analysis:
Cash receipt from customer and Cash paid to supplier, employee, government, and
bank. If producer cannot get that cash at the right time from the customer end
then he will be borrowing money, selling asset to pay the bills. In this case Square

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Textile Ltd needs on average 89.44 days to recovery their outstanding (2015-2017)
and Saiham Textile Ltd needs on average 105.08 days to recovery their outstanding
(2015-2017)

So both companies need to improve the DSO rate to receive the money of credit
sales at earlier . Square Textile is comparatively good than Saiham Tetile Ltd If
both companies want to decrease the DSO then they need to decrease Account
Receivable Amount against annual sales.
Inventory Turnover

A measure of the firm’s short-term obligation without relying on the sale of

inventories is important. It is calculated by subtracting the inventory from the
current assets, then diving by the current liabilities.

Years Inventory Turnover of Inventory Turnover of

Square Textile Ltd Saiham Textile Ltd

2015 3.31 1.29

2016 4.08 1.49

2017 3.55 1.00

Table: Inventory Turnover 2015 to 2017.

Inventory Turnover Ratio

6

0
2015 2016 2017

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Analysis:
The average inventory turnover of Square Textile Ltd is 3.65 times rotated in a last
3 years (2015-2017) and on the other hand the average inventory turnover is 1.26
times rotated in a last 3 years (2015-2017).

So this is good sign for the Saiham Textile Ltd because the profit comes frequently
in a last 3years and bad sign for Square Textile Ltd. If Square Textile Ltd wants to
increase the inventory turnover then they need to increase COGS against
inventory.

TOTAL ASSETS TURNOVER

The total assets turnover ratio measures the turnover of all of the firm’s assets. It is
calculated by dividing sales by total asset.

Years Total Assets Turnover Total Assets Turnover

of Square Textile Ltd of Saiham Textile Ltd

2015 0.89 0.39

2016 0.88 0.40

2017 0.76 0.35

Table: Total Assets Turnover 2015 to 2017.

Total Asset Turnover Ratio

1.4

1.2

0.8

0.6

0.4

0.2

0
2015 2016 2017

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Analysis:
Every taka an assets the Square Textile Ltd generating 0.84-taka sales for last 3
years and every taka an assets the Saiham Textile Ltd generating 0.38 taka sales for
last 3 years.

So the Total Assets Turnover situation is very good for the Square Textile Ltd and
bad for the Saiham Textile Ltd because the higher the better. If Saiham Textile Ltd
wants to increase the total assets turnover then they need to decrease average total
assets .if Saiham Textile Ltd had any assets like that the assets are not used then
they can sell those assets or Saiham Textile Ltd increases their sales against
average total assets .

FINDINGS FROM ANALYSIS

As a management people we will say the outsider to invest to the Square Textile Ltd.

As an Investor we will focus below point for ratio Analysis

NET PROFIT MARGIN

Net profit margin gives the profit per dollar of sales. It is calculated by dividing the
net profit by the sales.

Years Net Profit Margin of Net Profit Margin of

Square Textile Ltd Saiham Textile Ltd

2015 10.62% 4.53%

2016 8.96% 4.63%

2017 5.29% 6.02%

Table: Net Profit Margin 2015 to 2017.

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 Net Profit Margin Ratio
16.00%

14.00%

12.00%

10.00%

8.00%

6.00%

4.00%

2.00%

0.00%
2015 2016 2017

Analysis:
Here we can see the average NPM for Square Textile Ltd is 8.29 %( 2015-2017) and
Saiham Textile Ltd average NPM is 5.06% ( 2015-2017) Definitely the higher profit
margin is better against the lower one .If the profit margin is higher that’s mean
better cost and expense are managed by the company.

So Square Textile Ltd stands on good position and Saiham Textile Ltd Stands on
poor position. If Saiham Textile Ltd wants to increase NPM then they should
increase Net profit against sales.

RETURN ON ASSETS
ROA is calculated by dividing the net income by the total assets.

Years Return on Assets of Return on Assets of

Square Textile Ltd Saiham Textile Ltd

2015 9.41% 1.78%

2016 7.92% 1.88%

2017 4.04% 2.12%

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 Table: Return on Assets 2015 to 2017.

Return on
Asset Ratio
12.00%

10.00%

8.00%

6.00%

4.00%

2.00%

0.00%
2015 2016 2017

Analysis:
Higher ROA is considered better. Higher ROA indicate the company is more
efficient in using Assets to generate profit and Lower ROA indicate the company is
less efficient in using Assets to generate profit.

In this case the average of Return on Assets is of Square Pharmaceuticals Ltd

7.12% (2015-2017) and the average of Return on Assets of Saiham Textile Ltd is
1.92%.

So Square Textile Ltd stands on good position and Saiham Textile Ltd stands on
poor position. If Saiham Textile Ltd wants to increase ROA then they should
increase Net income against total assets.

RETURN ON COMMON EQUITY

The return on common equity or the rate of return on stockholder’s investment is
calculated by dividing the net income available to common stockholders by the
common equity.

Years Return on Common Return on Common

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 Equity of Square Textile Equity of BPL
Ltd

2015 12.60% 3.43%

2016 10.08% 2.68%

2017 5.60% 3.77%

Table: Return on Common Equity 2015 to 2017.

Return on Common Equity Ratio

18.00%
16.00%
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
2015 2016 2017

Analysis:
Higher ROE is considered better. Higher ROE indicates the company is more
efficient in giving more profit to the company owners compared to owner’s
investment and Lower ROE indicate the company is less efficient in giving more
profit to the company owners compared to owner’s investment.

In this case average Return on Equity of Square Textile Ltd is 9.49% (2015-2017)
and the average Return on Equity of Saiham Textile Ltd is 3.29% (2015-2017).

So Saiham Textile Ltd stands on poor position and Square Textile Ltd stands on
good position. If Saiham Textile Ltd wants to increase ROE then they should
increase common stock holders against common equity.
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FINDINGS FROM ANALYSIS
As an investor we will invest to the Square Textile Ltd.

Part – C
Summary Analysis and Findings of Square Textile Ltd & Saiham
Textile Ltd
After analyzing the ratios we have found some important information about the
Square Textile Ltd & Saiham Textile Ltd. They are described below:

Current ratio:
According to the ratio analysis, the current ratio of Square Textile Ltd. is 2.73, 2.96,
and 2.04 during 2015 to 2017. Whereas the for Saiham Textile Ltd is 1.15, 1.57 and
1.41. So, we can say that, the liquidity position of Saiham Textile Ltd is very weak
than Square Textile Ltd and it is not capable of paying its vendors and creditors on
time.

Debt Ratio:
We have analyzed the ratios of Square Textile Ltd for the years of 2015 to 2017 and
found that the debt ratios are too low. Although the ratio showed an upward
trend. So the company should think about collecting external fund.

Also we have analyzed the ratios of Saiham Textile Ltd for the years of 2015 to 2017
and found that the debt ratios are too high. Although the ratio showed a
downward trend. So the company shouldn’t think about collecting external fund.

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DAYS SALES OUTSTANDING:

In this case Square Textile Ltd needs on average 89.44 days to recovery their
outstanding (2015-2017) and Saiham Textile Ltd needs on average 105.08 days to
recovery their outstanding (2015-2017)

So both companies need to improve the DSO rate to receive the money of credit
sales at earlier . Square Textile is comparatively good than Saiham Tetile Ltd If
both companies want to decrease the DSO then they need to decrease Account
Receivable Amount against annual sales.

Inventory Turnover ratio:

The average inventory turnover of Square Textile Ltd is 3.65 times rotated in a last
3 years (2015-2017) and on the other hand the average inventory turnover is 1.26
times rotated in a last 3 years (2015-2017).
So this is good sign for the Saiham Textile Ltd because the profit comes frequently
in a last 3years and bad sign for Square Textile Ltd. If Square Textile Ltd wants to
increase the inventory turnover then they need to increase COGS against
inventory.

Total Asset Turnover Ratio:

The Square Textile Ltd generating 0.84-taka sales for last 3 years and every taka an
assets the Saiham Textile Ltd generating 0.38 taka sales for last 3 years. So the
Total Assets Turnover situation is very good for the Square Textile Ltd and bad for
the Saiham Textile Ltd because the higher the better. If Saiham Textile Ltd wants
to increase the total assets turnover then they need to decrease average total assets
.if Saiham Textile Ltd had any assets like that the assets are not used then they can
sell those assets or Saiham Textile Ltd increases their sales against average total
assets .

Net Profit Margin:

The average NPM for Square Textile Ltd is 8.29 %( 2015-2017) and Saiham Textile
Ltd average NPM is 5.06% ( 2015-2017) Definitely the higher profit margin is better
against the lower one .If the profit margin is higher that’s mean better cost and
expense are managed by the company. So Square Textile Ltd stands on good
position and Saiham Textile Ltd Stands on poor position. If Saiham Textile Ltd
wants to increase NPM then they should increase Net profit against sales.

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Return on Asset (ROA):
The average of Return on Assets is of Square Textile Ltd 7.12% (2015-2017) and the
average of Return on Assets of Saiham Textile Ltd is 1.92%. So Square Textile Ltd
stands on good position and Saiham Textile Ltd stands on poor position. If Saiham
Textile Ltd wants to increase ROA then they should increase Net income against
total assets.

Return on Common Equity (ROE):

The Return on Equity of Square Textile Ltd is 9.49% (2015-2017) and the average
Return on Equity of Saiham Textile Ltd is 3.29% (2015-2017). So Saiham Textile Ltd
stands on poor position and Square Textile Ltd stands on good position. If Saiham
Textile Ltd wants to increase ROE then they should increase common stock
holders against

Forecasting

Forecasting for Square Textile Ltd

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FORECASTING FOR SAIHAM TEXTILE LTD.

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 Part – D

Suggestion For SAIHAM TEXTILE LIMITED:

From the findings we described above, we suggest different actions that the company can follow
to improve the financial performance as the followings: -

⮚ By minimizing the liabilities, cost and collecting accounts receivable immediately the
company can avoid insolvency.

⮚ By reducing the cost of goods sold, the company can improve its inventory turnover ratio.

⮚ By increasing revenue, liquidate asset and accelerating account receivable and with better
inventory management the company can improve its asset turnover ratio.

⮚ The debt of the company is decreasing in a good rate. To escalate this rate of decrease, the
company can reduce its external liabilities as much as possible.

⮚ The company can take measure to make its operation more efficient and control the
expenses in a more efficient way so that it can ensure increase in profitability.

⮚ If the company can increase its profitability by efficient cost management process, it can
increase its EPS and attract more investors to invest in the company.

⮚ For improving the ROE, the company should focus on investing the shareholder’s money
in profitable sectors and make proper utilization of their money. Otherwise the company
will be bankrupted anytime.

Conclusions

In conclusion, it can be said that SAIHAM TEXTILE Ltd. is not in a good financial position.
Though its sales are high, its debt management is not efficient. The debt is too much higher that
the company would be bankrupted anytime. They are making efficient use of their fixed assets in

27
increasing their sales but they should also concentrate on increasing their current assets to
balance between their assets and debt. In addition, the company should try to decrease its debt. If
the company can follow those recommendations stated above, it will be able to improve their
financial performance as well as can achieve strong position in the industry.

Suggestion to SQUARE TEXTILE Limited

From the findings we described above, we suggest different actions that the company can follow
to improve the financial performance as the followings:

⮚ To keep their current ratio stable they can balance it by collecting the
account receivable as soon as possible to pay its creditors on time but when
there are lots of cash in their hand they can invest some of them to avoid the
opportunity cost.
⮚ By reducing the cost of goods sold and lowering the blockage of funds on a
stock the company can improve its inventory turnover ratio.
⮚ To avoid the higher DSO the company can motivate seller by providing
discount opportunity to pay the account receivable early.
⮚ The company is trying to decrease the debt ratio. To escalate this rate of
decrease, the company should reduce the external liabilities and pay out the
accruals to decrease the rate and match with the industry average.
⮚ The Square Textile should minimize their bank loan so that it will reduce
the cost of interest and they may achieve the TIE Ratio at a satisfactory level.
⮚ The profit margin of the Square Textile ltd is still below the industry
average, so they should minimize the costs much possible and increase the
sales to gain more profit.
⮚ As the ROA of Square Textile is good in position they should start the
proper utilization of assets so that it can contribute more to the profit. If the
assets are being utilized properly, the assets will not remain idle as a result it
will contribute to increase the profit.
⮚ Since their ROE is in the satisfactory level from 2015 compared to the
consecutive to the previous year and industry average; the Square Textile
should invest in more profitable sectors and they should also increase the
profit margin to retain this rate of ROE.

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 ⮚ The company should increase the profitability so that they can get a
sufficient rate of EPS to attract the investors. But, only increase of profit
margin is not enough if the cost has not been minimized. So, the Square
Textile should also decrease its cost and increase its profit margin for the
increment of EPS.

Conclusions
In conclusion, it can be said that Square Textile Limited is in a stable financial
position. Though its sales are high, its debt management is efficient. They are
making efficient use of their total assets in increasing their sales and they are also
efficient in credit collection. On the other hand, they have an unstable reserve of
current assets which indicates their inefficiency. The company should follow the
above recommendations unless they will a great crisis in near future in balancing
between debt and assets.

============================

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