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Financial Performance of CMC-Kamal Textile Mills Limited

Abstract
Textiles Industry plays a vital role in the socio-economic development of Bangladesh. CMCKamal Textile Mills Limited as a Textile Industry plays an important role in this regard. But the net profit of this textile has decreased for the last few years. This study was designed to review the financial performance of this textile to test its strengths and weaknesses. The financial performance of this textile is measured in terms of Ratios (Profitability, Liquidity, Solvency and Activity Ratios) Analysis and in terms of Testing Financial Soundness by using Multivariate Discriminate Model (MDM) as developed by Prof. Altman. For the source of data I mainly relied on Annual Reports and Official Records. It was observed from the study of the financial statement of the CMC-Kamal Textile Mills Limited that the profit earning capacity, liquidity position, financial position and performance of the CMC-Kamal Textile were not in sound position and it was also observed that the CMC-Kamal Textile Mills Limited had a lower level position of bankruptcy. The reasons behind this position of the CMC-Kamal Textile Mills Limited were inefficiency of financial management, absence of realistic goal, strict government regulation and increased cost of rawmaterials, labor and overhead. Its financial performance should be improved immediately.

Key Words: Financial Performance, Ratio Analysis, Textiles Industry, Multivariate Discriminate Analysis (MDA), CMC-Kamal Industries Limited.

Introduction
Publicly traded companies are the economic pulse of a nation. Their birth, prosperity and demise generally reflect the financial condition of the country. A fairly reliable index of an economy in its process of growth and development is the rate of growth and decline of publicly traded companies. With the rapid growth of trades, commerce and industries, the number of publicly traded companies are considerably increasing in Bangladesh. These companies play a vital role on the economy of the country. Textile is an important adjunct of industrialization in the country. There are 27 listed Textile Companies in Dhaka Stock Exchange (http:www.dsebd.org/by_industrylisting/) and 22 listed in Chittagong Stock Exchange (http:www.csebd.org/by_industrylisting/). Analyzing the Industrial Life Cycle, it is found that all of the listed companies just reached to the middle stage. No company could reach to the maturity stage. In a word, textile industries of the country are just improving. Garments industry mostly 1

depends on textile product. It is well known that Garments Industry is the main key of earning foreign currency. So textile plays an important role on the export of the country. On the other hand, most of the internal demand of clothes are fulfilled by own textile industry of the country. Performance measurement of Public Enterprises has been the subject matter of discussion for planners, administrators, managers, economists and academics since long. But some lack of clarity about performance and the existence of defensive attitude on the part of those who have to take responsibility for inefficient operations, have the effect of inhibiting both frame discussion and decisive action in this regard (Bunnett, 1987). Financial analysis is the process of identifying the financial strengths and weaknesses of the firm by properly establishing relationship between the items of the balance sheet and the profit and loss account (Pandey, 1991). Financial Statements (income statement, cash flow statement, owners equity statement and balance sheet) contain a wealth of information which, if properly analyzed and interpreted, can provide valuable insights into a firms performance and position. Analysis of financial statements is of interest to lenders, security analysts, managers and others (Prasanna, 1995). Trade creditors are interested in the firms ability to meet their claims. Their analysis will therefore, confine to the evaluation of the firms liquidity position. The suppliers are concerned with the firms solvency and survival. They analyze the firms profitability over time. Long term creditors place more emphasis on the firms solvency and profitability. The investors are most concerned about the firms earnings. So, they concentrate on the analysis of the firms present and future profitability as well as its earning ability and risk (Abu Sina, 1998). But there is a problem that textile industry of Bangladesh depends on foreign country for rawmaterial and technology. Now its the time to make this textile self sufficient for the betterment of the country. At this time, performance of manufacturing enterprise, like textile, needs to be measured and analyzed. But evaluation of performance is not a regular practice in the country. CMC-Kamal Industries Limited as a Textile Industry plays an important role in this regard. But the net profit of this textile has decreased for the last few years. Against this backdrop this study is an attempt to evaluate performance of selected textile for the period under study. To evaluate the financial performance of the textiles the technique of financial analysis has been applied. Financial analysis is the analysis of financial statements of an enterprise. Among the various tools of financial analysis the most important one seems to be the ratio analysis. It is very helpful to gain valuable insight into the financial position, operation and financial problems of a particulars 2

enterprise. Moreover, the researchers used Multivariate Discriminate Analysis developed by Professor Altman to examine the overall financial soundness. Some statistical tools like mean, standard deviation and co-efficient of variance are used to evaluate the performance.

Objective of the study


The primary objective of the study is to assess the performance of the CMC-Kamal Industries Limited. This will also bring into light the state of difference variance faced by the CMC-Kamal Industries Limited during the courses of its working period. Following are the main objective of the studyi. To examine the financial state of affairs of the CMC-Kamal Industries Limited. Limited.
iii. To asses the operational efficiency of the CMC-Kamal Industries Limited. iv. To asses the financial stability of the CMC-Kamal Industries Limited.

ii. To test the financial strengths and weaknesses of CMC-Kamal Textiles Industries

v. To pinpoint the causes of poor financial performance and suggest some measures to overcome the problems.

Methodology of the study Sample was taken from Textiles enlisted in DSE and CSE in Bangladesh. For the study only CMC-Kamal Industries Limited was considered. Because, the objectives of the study are to find out the reasons for the declining trend in profit of the CMC-Kamal Industries Limited and to help the Textile to overcome its problems. The study covers seven years period from 2005 to 2009. The study was based on both primary and secondary data. The primary data was collected through questionnaire, personal interview and discussions with the concerned executives of the selected Textile Limited. Secondary data are the annual reports of the selected Textile Limited and various studies made available through library work. The collected data were analyzed and interpreted with the help of different financial ratios, Multivariate Discriminate Analysis (MDA) and statistical tools like mean, standard deviation and coefficient of variation by using excel and SPSS etc.

Literature Review

Sina (1998) used financial ratios to test the financial strengths and weaknesses of Khulna Newsprint Mills Ltd. He found that due to lack of planning and control of working capital, operational inefficiency, obsolete store, ineffective credit policy, increased cost of raw materials, labor and overhead, the position of the company was not good. Jahur (1995) used financial ratios to measure operational performance of limited company. He used profitability, liquidity, activity and capital structure to measure operational performance. Jahur (1996) used Altmans MDA model to conclude the bankruptcy position of Chittagong Steel Mills Ltd. He found that absences of realistic goals, strict govt. regulation are the main reasons for lowest level of bankruptcy. Ohlson (1980) employed financial ratios to predict a firms crisis. He found that there were four factors affecting a firms vulnerability. These factors were firms scale, financial structure, performance and liquidity. In the article The Assessment of Financial and Operating Performance of the Cement Industry: A Case Study of Confidence Cement Limited, Dipak & Milan (2001) found that the investment in cement was fairly profitable. Salauddin (2001) examined the profitability of the Pharmaceutical Companies of Bangladesh. By using ratio analysis, mean, standard deviation and co-efficient of variation he found that the profitability of Pharmaceuticals sector was very much satisfactory in terms of the standard norms of return on investment. Hye & Rahman (1997) conducted a research to assess the performance of the selected private sector general insurance companies in Bangladesh. The study revealed that the private sector insurance companies had made substantial progress. The study found that the insurance companies were keeping their surplus funds in the form of fixed deposits with different commercial banks due to absence of suitable avenues for investment. Salim & Kabir (1996) examined the financial performance of Bangladesh Shipping Corporation. They found that conversion of long-term debt to equity may improve the financial performance of Bangladesh Shipping Corporation to a greater extent. These studies attest that the ratio analysis and MDA are the good method to evaluate firm performance. Therefore, financial ratio and MDA model were used to measure the financial performance of CMC-Kamal Industries Limited in this paper.

Analysis and Findings


This section has five parts. The first part of the section showed the profitability position of the selected Textile. In the second part the position of liquidity was analyzed. The third part focused 4

on activity ratios. The fourth part showed solvency position and the last part showed the financial soundness of selected textile.

Profitability Ratios
The following table-1 depicts various profitability ratios of the selected textile CMC-Kamal Industries Limited for the period under study. Profitability ratio includes gross profit margin, return on investment, net profit margin, operating profit ratio, return on capital employed and return on total assets. Table-1: Profitability Ratios of CMC-Kamal Industries Limited
Profitability Ratios
Gross Profit
14.10 8.77 13.90 -2.27 10.53 -5.33 10.53 -20.30 14.24 6.40

2005

2006

2007

2008

2009

Minim um
10.53 -20.30

Maxim um
14.24 8.77

Mean
12.6600 -2.5460

Std. Deviation
1.94817 11.52296

C. Variance
3.795 132.779

margin (%) Return on investment (%) Net profit

135.94 1.03

-173.33 9.08

-343.25 -5.25

1136.66 -92.55

33.52 7.10

-1136.66 -92.55

135.94 9.08

-296.7562 -16.1182

504.76277 43.09004

254785.451 1856.752

margin (%) Operating profit (%) Return Capital employed (%) Return on total asset (%) ratio on

0.61

-1.45

-3.11

-10.75

6.10

-10.75

6.10

-1.7182

6.12569

37.524

0.61

-1.45

-3.11

-10.75

6.10

-10.75

6.10

-1.7182

6.12569

37.524

Source: Annual Report and Official Records of the CMC-Kamal Industries Ltd.

Gross Profit Margin


The earnings in terms of sales can be assessed through the profit margin. The gross margin reflects the effectiveness of pricing policy and of production efficiency. Some authors consider that a profit margin ratio ranging from 20% to 30% has been considered as the standard norm for any industrial enterprise. The table-1 shows that the average Gross Profit Margin of CMC-Kamal 5

Industries Ltd during the period was 12.6600% which was lower than standard norm and shown an increasing trend up to 2008. The gross profit ratio ranges from maximum 10.53% in 2008 and 2007to minimum 14.24% in 2005. The higher ratio indicate favorable purchasing and markup policies and the ability of management to develop sales volume .This ratio also indicates that the selected enterprise seems to be in an advantage position to service in the face of falling sales prices, rising cost of production or decline demand for the product. The coefficient of variation reveals that the variation of Gross Profit Margin over the study period is negligible which speaks about the stability of net profit earning of this textile.

Net Profit Margin


The ratio shows the overall profitability of the concern, thats why it is very useful to the shareholders and prospective investors. It also indicates management efficiency in manufacturing, administrating and selling of the products. The calculated ratio in table-1 shows that the Net Profit Margin ranges from maximum 135.94% in year 2005 to minimum -1136.66% in 2009. The average net profit margin was -296.7562% which was very lower than standard norm. The calculated Net Profit Margin ratios in table-1 were all very lower position in the study period. Lower position refers to the companys failure to achieve satisfactory return on owner equity .It also indicates that the efficiency of the concern is very low in position. The coefficient of variation of Net Profit Margin of the selected textile shows that the variation of net profit over the study period was negligible which speaks the stability of net profit earning of the selected textile.

Return on Investment (ROI)


This ratio measures the profitability of enterprise on total investment. The Planning Commission, Government of Bangladesh has declared that the entire existing project in the public sector would have to guarantee a fixed return to 7.5% of the investment. This may be considered as the standard norm for the industrial enterprise. The table-1 shows that the return on investment on an average for the period under study was -2.5460% which was far away from the standard norm. The table-1 also shows that the Return on Investment for the period under study varies from maximum 8.77% in the year 2005 to minimum -20.30% in the year 2009. The ratio shows a declining trend which indicated the inefficiency of the business as a whole. The coefficient of variance of the selected textile was 132.779% which reveals that the variation of Return on Investment over the years under study was negligible i.e. the Return on Investment for the textile under the study period was stable. 6

Operating Profit Ratio


The Operating Profit Ratio establishes the relationship between operating profit and sales. This ratio indicates the portion remaining out of every taka worth of sales after all operating cost and expenses have been met. Higher the ratio the better it is. Operating Profit Ratio ranging 4% to 6% is considered standard norm for the purpose of comparison and control by some authors. The table-1 shows that the average Operating Profit Ratio of the CMC-Kamal Industries Ltd. for the period was 4.64%. The Operating Profit Ratio ranges from maximum
9.08%

in the year 2005to

minimum -92.55% in the year 2009. The calculated ratio showed a decreasing trend and lower rate for some of the years which indicate inefficiency of the concern. The coefficient of variance of
1856.752%

indicates extremely desirable stability position.

Return on Capital Employed


The most independent ratio for assessment of profitability is the return on capital employed. It reflects the overall efficiency with which capital is used. Here, Capital Employed=Equity share capital + Preference share capital+ Undistributed profit+ Reserve and Surplus+ Long term Liabilities- Fictitious Assets A rate of return ranging from 11% to 12% on Capital employed may be considered as reasonable for a selected enterprise. The table-1 represents the return on capital employed ratio of the sample textile for the period under study. The table-1 shows that the average Return on Capital Employed was -1.7182% and the ratio range from maximum 6.10% in the year 2005 to a minimum -10.75% in the year 2009. It is seen from the table that CMC-Kamal Industries Limited had lower Return on Capital Employed as compared with standard norm. The calculated ratios showed a decreasing trend over the years under study. The lower position of the calculated ratio is an indicative of poor earnings in terms of capital employed. It speaks that the management should be more efficient in using the long term fund of owners and creditors. It appears from the table that the coefficient of variance was 37.524% which speaks that the Return on Capital Employed was stable for the study period.

Return on Total Assets


This ratio is calculated to measure the profit after the tax against the amount invested in total assets to ascertain whether assets are being utilized properly or not. Some authors consider 10% to 12% rate of Return on Total Assets as reasonable norm for a profitable firm and this may be considered as reasonable norm for the selected enterprise. The calculated ratios show that the 7

average Return on Total assets was -1.7182% and the ratio ranges from maximum 6.10% in 2005 to -10.75% in 2009. The calculated ratios were far lower than standard norm and showed a decreasing trend during the period of study and lower ratios indicate the assets were not being utilized properly during the period. The coefficient of variance of 37.524% indicates that the variation was extremely stable.

Liquidity Ratios
The Current Ratio, Quick Ratio, Current Assets to Fixed Assets and Net Working Capital to Total Assets are used to assess liquidity position of an enterprise. The table-2 depicts various liquidity ratios of the selected textile for the period under study. Table: 2 Liquidity Ratios of CMC-Kamal Industries Limited Ratios
Current time) Quick time) Current Assets to Fixed Assets (in time) Net Capital Working to Total Ratio (in Ratio (in

2005

2006

2007

2008

2009

Mini mum

Maxim um

Mean

Std. Deviation

C. Variance

1.22 0.69 0.21 0.09

1.07 0.54 0.20 0.10

0.88

0.53

0.41 0.08 0.27 0.29

.41 -.42 .19 .09

1.22 .69 .27 .29

.8218 .1890 .2102 .1570

.34681 .43987 .03474 .08665

.120 .193 .001 .008

-0.42 0.06 0.19 0.11 0.19 0.21

Assets (in time)

Source: Annual Report and Official Records of the CMC-Kamal Industries Limited.

Current Ratio
This ratio is a measure of the firms short term solvency of the firms liquidity. It indicates the ability of the company to meet its current obligations. If the current ratio is too low, the firm may have difficulty in meeting short run commitment as they measure. If the ratio is too high the firm may have an excessive investment in current assets or be under utilizing short term credit. Some authors consider 2:1 as standard norm for current ratio. Table-2 shows that the average current 8

ratio was .8218:1. The current ratio ranges from maximum 1.22:1 in the year 2006to a minimum . 41:1 in the year 2009. The calculated ratios are very lower than the standard ratios and show a declining trend. It indicates the company has least ability to pay current liabilities and no margin of safety. The financial position is very unsatisfactory. The companys short term solvency is threatened.

Liquid (Quick or Acid Test) Ratio


It measures the firms ability to meet short term obligations from its most liquid assets. Table-2 shows that the average liquid ratio was .8218:1 which was very lower than standard norm 1:1. The states that the liquid ratio ranges from maximum .69:1 in the year 2006 to a minimum -.42:1 in the year 2009 which are far away from the standard norm. The calculated ratios showed a declining trend over the year under study. It indicates that the company was financially very weak and had no ability to pay its most immediate liabilities. It is also observed that this position was declining and it is the dangerous signal for the company. In the context of variation of this ratio over the years, it was found that the variation was negligible.

Current Assets to Fixed Assets


Another criterion for liquidity assessment is the ratio between current assets to fixed assets. This ratio will differ from industry to industry and, therefore, no standard can be laid down. A decrease in ratio may mean that trading is slack or more mechanization has been put through. The calculated ratios show a decreasing trend which mean that trading is slack or more mechanization has been put through. From the table-2 it is seen that the average current assets to fixed assets ratio was .2102:1 for the textile under study. The table shows that the ratio ranges from maximum .27:1 in the year 2005 to a minimum .19:1 in the year 2006. The table reveals that the ratio increased in the year 2004but decreased in the subsequent years and again increased in the year 2008. This is concluded from the calculated ratios that the trading was slack or mechanization had been put through in the selected textile. From the coefficient of variation it is clear that the variation of current ratio to fixed assets over the period under study was negligible.

Net Working Capital to Total Assets


From the calculated ratios in table-2 it is clearly seen that the average not working capital to total assets ratio was .1570:1 and the ratio ranges from maximum .29:1 in the year 2009 to a minimum .091 in the year 2008. The calculated ratios were negative for the year 2005 2007and 2008 and 9

showed a declining trend. Such state of affairs indicates the inability and inadequacy of net working capital to cover the total assets of the selected enterprise for the period under review. From the coefficient of variation .008it is seen that the variation in net working capital to total assets was negligible.

Activity Ratios
Activity ratios show the intensity with which the firm uses its assets in generation sales. These ratios indicate whether the firms investments in current and long-term assets are too small or too large. The objective is to have enough assets but not too many. Table-3 shows the various activity ratios of the CMC-Kamal Industries Limited for the periods under study. Table: 3 Activity Ratios of CMC-Kamal Industries Limited
Ratios
Inventory Turnover (in time) Fixed Assets

200 5
6.96

200 6
5.69

2007

2008

2009

Mini mum

Maxi mum
6.96

Mean

Std. Deviation

C. Variance
4.390

4.74

2.32

2.19

2.19

4.3776

2.09513

0.73

6.45

0.57

0.17

0.73

.17

6.45

1.7290

2.64892

7.017

Turnover (in time) Total Assets

0.67

6.36

0.58

0.21

0.95

.21

6.36

1.7546

2.58834

6.700

Turnover (in time)

Source: Annual report and official records of the CMC-Kamal Industries Ltd.

Inventory Turnover Ratio


This ratio is also known as stock turnover ratio, establishes relationship between sales (or cost of goods sold) and the total inventory (or average inventory). A low inventory turnover may indicate an excessive investment in inventories, a high ratio often means that the firm is running out of stock, resulting in poor service to customers. It assists the financial manager in evaluating inventory policy to avoid any danger of over stocking as a prelude to the effective utilization of the resources of the firm. Higher the ratio the better it is because it shows that stock is rapidly 10

turned over. Table-3 shows that the average Inventory Turnover Ratio was 4.3776 times which was lower than standard norm. The table reveals that the Inventory Turnover Ratio ranges from maximum 6.96 times in the year 2009 to 2.74 times in the year 2005. The calculated ratios showed increasing trend over the year except in the year 2004and 2007. It implies excessive inventory levels or a slow moving or obsolete inventories. If it is the obsolete inventories then it has to be written. This will adversely affect the working capital and liquidity position of the firm. The calculated ratios indicate that the sale management of the company couldnt be said to be efficient to sell its product. The coefficient of variation speaks that the variation in Inventory Turnover was negligible.

Net Fixed Assets Turnover


The ratio indicates the extent of generating sales volume in terms of net fixed assets. One author considers that an ideal fixed assets turnover for an enterprise should be 5 times of net fixed assets and hence this may also be considered so far over selected case. The table-3 shows that the average Net Fixed Assets Turnover ratio was 2.40 times which 50% of the standard norm was. The calculated ratio shows that the ratio ranges from maximum 6.45 times in the year 2008 to a minimum .17 times in the year 2005 which was far away from the standard norm. From the calculated ratios it is seen that the ratios showed a declining trend up to 2007and it increased solidly in 2008 and 2009. This low level of ratio indicates poor sales volume in terms of fixed assets. This indicates an inefficient use of fixed capital. From the Coefficient of variation it is seen that the variation was stable.

Total Assets Turnover


Another activity ratio is total assets turnover. This is a measure of the extent of generating sales in terms of the total assets. A standard norm of 200% (i.e. 2 times) of this ratio is considered standard norm by some authors for an industrial enterprise. This may also be taken as such for our selected concern. The table-3 shows that the average total assets turnover ratio was 1.7546 times for the selected textile which was lower than the standard norm. The table reveals that the ratio ranges from maximum 6.36 times in the year 2008 to 1.04 times in the year 2007. Such a low level of total assets turnover ratio indicates that the selected industry generated lower taka of sales per taka of tangible assets which may be an indication of poor use of fixed and circulating capital. In terms of variation in Total Assets Turnover it is revealed that the variation is negligible.

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Solvency Ratios
Debt-Equity ratio, Debt to Total Assets ratio and Time Interest Earned ratio are commonly used solvency ratios. Table-04 shows various solvency ratios for the CMC-Kamal Industries Limited for the study period.

Debt-Equity Ratio
Equity represents a cushion for share-holders. This is a ratio calculated to measure the relative proportions of outsiders funds and shareholder funds invested in the company. This ratio is also known as external-internal equity ratio. The standard ratio is .30032:1. The table-04 shows that the debt-equity ratio ranges from maximum 1.24:1 in the year 2009 to minimum .44:1 in the year 2005 and the average debt-equity ratio was .9136:1. It is observed from the table that the debtequity ratio for all the years were very lower than the standard norm. These low ratios mean that the claims of creditors are lower than those of owners and the company has not liberally used debt to finance its assets. It indicates an inefficient financial management. From the coefficient of variation it is clear that the variation is negligible. Table: 4 Solvency Ratios of CMC-Kamal Industries Limited
Profitability Ratios
Debt-Equity Ratio (in time) Debt to Total Assets Ratio (in time)

2005 1.24 0.52

2006 0.90 0.39

2007 0.91 0.41

2008 1.09 0.48

2009 0.44 0.28

Minimu m .44 .28

Maximu m 1.24 .52

Mean

Std. Deviation

C. Variance

.9136 .4166

.30032 .09166

.090 .008

Source: Annual Report and Official Records of the CMC-Kamal Industries Ltd.

Debt to Total Assets Ratio


The objective of this ratio is to assign what portion of total assets (debt + equity) is collected from debt. Some authors consider that debt to total assets ratio should be 50% for an industrial enterprise. The table-04 shows the debt to total assets ratio for the CMC-Kamal Industries Limited for the study period. It is observed the table that the average debt to total assets ratio was 9.166% only which was far away from the standard norm. The table also shows that the debt to total assets ratio ranges from maximum 52% in the year 2004to minimum 28% in the year 2005. The calculated ratios indicate the claim of creditors was about to very small in percentage to the shareholders. Such a lower ratio of debts to total assets of the selected enterprise reveals the fact 12

that it is less dependent on debt rather than on its own capital for financing its projects. The coefficient of variation shows that the variation was absolutely stable.

Testing Financial Soundness


After examining liquidity, profitability, solvency and activity of sample textile, now it is necessary to examine the overall financial soundness of the textile during the study period. In this context Multivariate Discriminate Analysis (MDA) model as developed by Prof. Altman may be considered worth while. The said model can give some rough idea about the financial soundness of the selected textile. He developed the following equation for judging the financial soundness of an enterprise. Z = 8.81x1 + 1.85x2 + 1.76x3 + 1.17x4 + 3.62x5 Where; X1 : Working Capital / Total Assets X2 : Retained earnings / Total Assets X3 : Earning before interest & taxes / Total Assets X4 : Market value of equity / Total debt X5 : Sales / Total Assets Z : Overall index In order to test the overall financial soundness of the CMC-Kamal Industries Ltd. it needs to calculate the ratios of working capital to total assets, retained earnings to total assets, earning before interest & taxes to total assets, market value of equity to book value of total debt and sales to total assets. The following table-05 depicts the year wise as well as average position of the ratios of working capital to total assets, retained earnings to total assets, earning before interest and taxes to total assets, market value of equity to total debt and sales to total assets. The year wise position of all these ratios excepting market value of equity to total debt had been either negative or to low positive. These resulted in poor financial performance of the sample textile.

Table: 5 Ratios for Testing Financial Soundness of CMC-Kamal Industries Limited


Profitability Ratios 2005 2006 2007 2008 2009 Minimu m Maximu m Mean Std. Deviation C. Variance

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Working Capital to Total Assets (in time) Retained Earnings to Total Assets (in time) Earnings before interest and taxes to Total Assets (in time) Market value of equity to Total Debt (in time) Sales to Total Asset (in time)

0.09

0.10

0.11

0.21

0.29

.09

.29

.1570

.08665

.008

0.03

0.02

-0.01

-0.01

0.03

-.01

.03

.0115

.02154

.000

7.22

-0.01

-0.03

-0.05

0.07

-.05

7.22

1.4394

3.23119

10.441

0.81

1.11

1.10

0.92

2.28

.81

2.28

1.2454

.59304

.352

0.67

0.64

0.58

0.21

0.95

.21

.95

.6098

.26774

.072

Source: Annual Report and Official Records of the CMC-Kamal Industries Ltd. Such lower positions of these ratios indicate very unsatisfactory position. On the other hand the market value of equity to total debt and sales to total assets were 2.66 and 1.255 times respectively which indicate unsatisfactory position of financial performance of the sample industry.

The following table shows the year-wise as well as average position of Zs score of the sample industry during the study period. Table: 6 Analysis of Z score of CMC-Kamal Industries Limited
Profitability Ratios
Z score

2005 8.81

2006 1.85

2007 1.76

2008 1.17

2009 3.62

Minimu m 1.17

Maximu m 8.81

Mean

Std. Deviation

C. Variance

3.4420

3.13941

9.856

After putting the respective average values of x1, x2, x3, x4 and x5, in the aforesaid equations as developed by Prof. Altman, Z score was estimated 8.81, 1.85, 1.76, 1.17 and 3.62respectively for the year 2009, 2008, 2007, 2006, and 2005. The average Z score stood at 1.27 comparing with Prof. Altmans conclusion that firms with Z score above 2.99 were solvent while those below Z score of 1.81 were bankrupt. Average Z score of sample industry equivalent to only 1.27 showed

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the position of bankruptcy at a lower level during the period 2005 to 2009. From the coefficient of variation it is seen that the variation was stable. Therefore, it can be concluded that the overall financial soundness of the sample Industry during the study period had been worst leading to total bankruptcy of the industry.

Conclusion
From the discussion it can be concluded that the financial position and operational performance of the CMC-Kamal Industries Ltd. were not satisfactory. The inefficiency of financial management may be a major cause for such a position of the state of affairs. This view was also substantiated by using Prof. Altmans MDA model. By applying this model it was seen that the overall financial position of the sample industry was at the lower level of bankruptcy. The main reasons attributed to such situation reported to be poor market demands, scarcity of raw materials and lack of their timely procurement, high competition, vanished quota system, management in attention, lack of realistic goals, strict government regulations, political instability, increased price of raw materials and others, adverse environmental factors etc. In order to save the industry from total bankruptcy the financial performance of the industry should be improved as early as possible.

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The followings are the recommendation from the researchers: i. The government may give subsidy to import quality raw materials for textiles in the country. By this way the cost of production will be reduced. As a result profitability will be high. ii. The formalities required for taking loan from various commercial banks and other financial institution may be minimized. iii. In view of growing importance of textiles in the economy of the Bangladesh, arrangement may be made to provide working capital to this sector. There may be provision for short loan from the government. iv. The financial management specially purchase, sales and inventory management have to be motivated, so that they act all the tasks cordially, efficiently and honestly. As a result sale will be increased and cost related with inventory will be reduced as well as level of inventory will be optimum. By this way the profitability of the textile will be increased. v. The industry should regularly make use of ratio analysis and measure should be taken to improve undesirable ratios at least as to the point of standard. vi. Adequate facilities for training of the staffs and workers may be ensured through cooperation of the corporation, Government and existing training institutions. vii. In Bangladesh, industrial policy was found very unsuitable. In such a case, a long term plan relevant to industrial policy and also for textile industry need to be formulated. A committee comprising academicians, economist, industrialists and professional managers can work out long term textile industry policy of the country. viii. The authority of the CMC-Kamal Industries Limited should appoint qualified, trained and experienced management personnel. Due to lack of specified management personnel the performance of the textile is not good. ix. A multiple criteria need to be set up to evaluate the financial performance of the selected textile. A comparison between actual and standard may be made at the year end. Reward and punishment for the concerned managerial personnel may go hand in hand with such evaluation. x. Productivity must be increased for reducing cost of goods sold. xi. Sales management must be efficient for increasing sales volume and a rationale short term credit sales system should be introduced for increasing sales volume which will reduce the obsolete inventory. xii. Government regulations regarding textiles industry should be flexible.

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xiii. xiv.

Operational efficiency should be increased by reducing cost and wastage and Liquidity position of the selected industry should be improved by reducing current

improving operating and management performance. liabilities and by reducing investment in inventory. xv. Realistic goal should be set out by the textile. xvi. A reasonable credit policy should be implemented, so that the main portion of profit does not spend in payment of fixed charges. xvii.Capital structure should be modified by increasing the share of owners capital and decreasing the portion of debt capital. xviii. Management found not to enjoy adequate autonomy. In order to make the textile management duly responsible and accountable, it is the most necessary that they may be given adequate autonomy with the definite targets.

Reference Altman, E.I. (1968), Financial Ratios, Discriminant Analysis and the Prediction of Corporate Bankruptcy, The Journal of Finance, Vol.4, pp. 589-609 Bunnet, A.H.M. (1987), Performance Evaluation of Public Enterprises in Bangladesh, Journal of Business Administration, Vol.13, No.1,p. 1 Chandra, P. (1995), The Investment Game, New Delhi, Mc Graw Hill Publishing Co. Ltd. p.172 Dutta, D.D.Kanti & Bhattacharjee, Dr. Milan Kumar, 2001, The assessment of financial and operating performance of the cement industry: A case study of confidence cement ltd. The Chittagong University Journal of Commerce, volume 16, pp. 1-16

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Hye,Dr.M.A. & Rahman, M.A. (1997) Performance of Selected Private Sector General Insurance Companies in Bangladesh, Chittagong University studies (Commerce), Vol. 13, pp. 137-160 Jahur, Mohammad Saleh & Uddin, Mohammad Mohi (1995) Measurement of operational performance through ratio analysis A case study of Usmania Glass Sheet Factory Ltd, Chittagong, CU studies (Commerce), Vol XI, pp. 245-255 Jahur, Mohammad Saleh & Parveen, Jannat Ara, 1996, An analysis of financial performance of public enterprises- A case study of Chittagong Steel Mills Ltd. CU studies (Commerce), Vol. 12, pp. 173-184 Jain, S.P. & Narang, K.L. Financial Accounting, Kalyani Publishers, Ludhiana, New Delhi, pp V1/27 V1/44. LIN, Wen-Cheng, LIU, Chin-Feng, CHU, Ching-Wu (2005) Performance efficiency evaluation of the Taiwans shipping Industry: An application of DEA, Proceeding of the Transportation Studies, Vol.5, pp. 467-476

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