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In order to make a judgment and analysis on the financial performance of Sargodha spinning mills from the financial years

2008 to 2010 a comparison needs to be made with the companys main competitor. The main competitor of the company is Quetta Textile Mills (QTM). QTM is a vertically integrated spinning and weaving company that is one of the largest in Pakistan. (Quetta group, 2008) The first thing that needs to be looked at in order to give a fair assessment of the companys financial position is to look at the turnover. The turnover for Sargodha Spinning mills (SSM) has had a significant increase from the financial year 2009 going on to the year 2010. This shows a good trend for the company as the turnover has increased from Rs. 1,402,105,000 to Rs. 1,928,141,000. Sargodha Spinning Mills had a mixed trend for the last three year period. Going on from FY 2008 to FY 2009 the turnover reduced considerably during that period showing that the company did not perform well financially during this period. The turnover for QTM is significantly larger that of its rival SSM. The trend for their turnover has been positive for the last three years and has increased considerably from FY 2008 to FY 2010. This shows that QTM has operates on a much larger scale then its competitor and has operations in wider areas. The first financial statement being scrutinized is the ROCE. The ROCE of SSM has witnessed dramatic changes over the three year period. If we look at the figures from FY 2008 to FY 2009 it went down from 1.21 in FY 2008 to -6.55 in FY 2010. The reason for the losses witnessed during this year the huge increase in the prices of raw materials coupled with low demand in the international market. (Annual report, 2009). Moving on to the FY 2010, the company was witnessed a complete turnaround and has been able to become a very profitable one in just one year. The main reason for this turnaround has been due to the increase in demand of yarn witnessed in the international market. (Directors report, Sargodha Spinning Mills, 2010). There was also a viable increase in the price of yarn which is the main reason for the increase in turnover as the increased prices. The ROCE for 2010 has increased to 23.96 which shows a huge increase and shows how well the company has performed in the previous financial year. This being said however if we compare the ROCE of QTM, it has been significantly higher than that of its main competitor and has been able to grow over the three year period. The ROCE has grown at a steady rate and has been higher at all years in comparison to SSM. When SSM was facing huge losses in 2009 due to decreased demand in the international market it was still able

to have a ROCE of 20.64% which shows that in spite of facing low demand QTM performed significantly better than SSM. Even in the year 2010 when the performance of SSM was exceptional the ROCE of QTM is still significantly higher than that of SSM at the value of 30.13 %. A very similar trend to that of the ROCE can be witnesses in the profitability of the company when we take a look at the operating profit margin and gross profit margin percentages of SSM. The ratio decreasedsignificantly from FY 2008 to FY 2009 of the operating profit margin. The operating profit witnessed a decrease due to higher costs and decreased revenue. The operating profit witnessed a huge increase in FY 2010 which shows that the profitability of the company increased during this period considerably. The value of operating profit margin of QTM has been on the high side showing good profitability over the three years and was able to keep a percentage of 12 in FY 2009 when SSM had -3.3%. However during the period of just one year SSM was able to bring its percentage up to 11.03 % which has come very close to QTMs 13.34% in FY 2010. SSM has managed to come very close to its competitor in just a period of one year and this shows a very good future for the company and its investors. The Gross profit margin is another ratio that looks at the profitability. The trend is identical to that of the operating profit margin. The value for SSM has decreased going on from FY 2008 to FY 2009, from 4.55% to 1.13%. This was due to the decrease in sales in FY 2009. The value of sales increased considerably in FY 2010 to a healthy rate of 15.02%. This is a very good profit margin and shows the company profitability is very high. QTM on the other hand has been able to outperform SSM in this regard also and the most significant difference being in FY 2009 when QTM had a value of 18.30 %. From FY 2008 to FY 2009 the company is facing an incredible amount of losses as seen by the figures of the net profit margin in these three years. the main reason for the overwhelming amount of losses were the inflation in costs, the cost of debt servicing (leading to a high increase in the finance cost), higher oil prices (which were of added importance in the year 2009 as the power generation costs were a huge burden) and lower sales prices due to the slowdown in the global economy. (Brecorder,2009). The company however has managed to pull off a complete 180 degree turn by streamlining its costs and was affected heavily by the external factor which was the increase in the prices of yarn as well as the demand.