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THE ORGANIZATION CONCERNED

Shahzad Textile Mills Limited is a textile company which is of their concern that has been introduced right below. They are going to make a full-fledge financial analysis of this textile company in order to check its financial situation in the market. The analysis of each and every major ratio has been involved in this financial analysis. Then furthermore the interpretation of each and every ratio has been given to elaborate it.

An Overview
Shahzad Textile Mills Limited is a renowned textile mill locally as well as in the foreign export markets for the impressive quality of yarn productions, highly competitive prices and matchless professional services. With a total installed capacity of 30,720 spindles, the company is engaged in the productions of ring spun cotton and synthetic blended yarns since it’s inception in 1980. With the passage of time, the company continuously adopted latest and advanced technologies to ensure the best possible quality standards and efficient workings. Shahzad Textile Mills Limited is comprised of two production units, built in the heart of cotton growing belt in Pakistan at convenient locations and are fully equipped with highly sophisticated and most modern spinningmachinery with a capacity to produce around 50 x40’FCLs per month.

Vision and mission

Vision Statement:

They aim at seeing their mills to be a model manufacturing unit producing high quality yam by complying with the requirements of Quality Management

System and continuously improving its effectiveness for total customer’s satisfaction. They wish to play a leading role in the spinning sector by keeping a substantial presence in the export and local markets.

Mission Statement – Action Plan: To install state of the art machinery and to acquire sophisticated process technology to achieve highest quality levels in the competitive business environment.
To make strenuous efforts to enhance profitability of the company and ensuring a fair return to the investors, shareholders and employees. To

exercise maximum care for improvement of quality of their produ cts by employing a team of highly skilled technicians and professional managers/supervisors.
To

strive hard to develop new markets for the sale of their products both in export and local markets.

To

improve customer satisfaction level by adhering strictly to quality requirements of their customers in local and export markets and by improving communications with customers for receiving prompt feed backs about quality of their products.
To

attend to the prompt resolution of customer complaints by taking timely corrective & preventive measures to address the quality complaints.
To

improve logistic facilities for their customers dispatch plan and iss ue all shipments / delivery documents well in time.
To

make comprehensive arrangements for the training of their workers / technicians.
To

promote team work, sense of transparency, creativity in their professionals and technical people.

Products and services

The two independent productions units of the company are involved in the productions of ring spun yarn counts for various applications with details as follows: Unit – 1: This unit presently produces their “Super Unicorn” brand of polyester/viscose blended ring spun yarn counts for weaving and knitting applications. Here, they also have the possibilities to produce 100% polyester and 100% viscose spun yarn counts on special requirements. Unit – 2: This unit produces their “Dynacon” brand of prime quality polyester/cotton blended ring spun yarn counts in various blends like PC 52:48,

PC 65:35, CVC 60:40, CVC 70:30, etc. with Carded/Combed cotton portion to suit weaving and knitting applications. In this unit, they have also have facilities to provide their customers with TFO yarns from 2-ply up to 7-ply for special applications. All the productions are guaranteed for even dyeing. Markets: Beside serving local market requirements of yarn, they are a major exporter from Pakistan and successfully serving a large number of high quality conscious customers in USA, Germany, Portugal, Spain, Hong Kong, S. Korea, Taiwan, China, Japan, Singapore, Sri Lanka, Malaysia, Phillipines, Mauritius, Middle East, etc. Machinery: Machinery in use consists of Blow Room from Trutzschler (Germany), cards from Crosrol UK (MK4), Draw/Simplex Frames from Toyota (Japan), Combers from Rieter (Switzerland), Automatic winders with Splicers & Uster from Murat (Japan), and TFO Twisters from Volkmann (Germany). Quality Control & Laboratory Equipment: The satisfaction of their customers is all important to us and the use of technologically advanced laboratory equipment assures the highest possible quality of yarn. They have a comprehensive periodic testing procedure in place which monitors product quality at every stage of spinning process by frequent sample collections and tests. The laboratory is equipped with HVI-900 with ultra violet light for color shade check of raw cotton and grading. The yarn is checked through the Uster Tester – 3 / Tensorapid and finally, each cone of finished yarn is passed through UV lights capable of detecting even the slightest color variation. Packing & Loading: The finished product is packed with the utmost care by trained personnel, and loaded directly in to containers for export purposes. All packing and loading is done under strict supervision, while maintaining maximum quality and safety standards. To facilitate their customers, they provide yarn packed in 100Lbs and 50Lbs sea-worthy export cartons. They also have facility to provide customers with polythene film shrink wrappedPallet packing to specially accommodate customers in Europe/USA and help them reduce the labor handling costs.

Business practice

Shahzad Textile Mills Limited has laid down the following business ethics and principles, the observance of which is compulsory for all the directors / employees of the company in the conduct of company’s business in order to protect and safeguard the reputation and integrity of the company at all levels of its operations. Any contravention of these ethics is regarded as misconduct. The company will ensure that all the executives and subordinate staff members are fully aware of these standards and principles. Conflict of interest: All staff members are expected not to engage in any activity which can cause conflict between their personal interests and company’s interest, such as:
In

effecting the purchases for company and selling its products the directors and the staff members are forbidden from holding any personal interest in any organization supplying goods or services to the company or buying its products.
The

staff members should not engage in any outside business w hile serving the company.
Staff

members are not permitted to conduct personal business in company’s premises or use company’s facilities for the same.
If

a staff member has direct or indirect relationship with an outside organization dealing with the company he must disclose the same to the management.

Confidentiality: All staff members are required not to divulge any secrets / information of the company to any outsider even after leaving the service of the company unless it is so required by a court of law. During the course of service in company they should not disseminate any information relating to business secrets of the company without the consent of management. Kickbacks: All staff members are strictly forbidden not to accept any favors, gifts or kick backs from any organization dealing with the company. In case if such a favor is considered, in the interest of the company, the same should be disclosed clearly to the management.

The management is responsible for keeping its staff members insured as per government rules and regulations. Coordination among staff members to maintain Discipline: All staff members will work in close coordination with their co-workers. buyers. Members having queries in connection with how to deal with these requirements should consult the management. : The dealings of the company with Government officials. suppliers. Every member will cooperate with other members so that the company’s work is carried out effectively and efficiently. Alcohol. Health and Safety: Every staff members is required to take care of his health and safely and those working with him. No false or fictitious entries should be made or misleading statement pertaining to the company or its operations should be issued. receipts and disbursements should be properly recorded in the books of accounts of the company. agents etc. All cases of non-cooperate among staff members should be reported to the management for necessary and suitable action. Workplace harassment: All members of the staff will provide an environment that is free from harassment and in which all employees are equally respected. Drugs: All types of gambling and betting at the company’s working places are strictly forbidden. not abiding by these prohibitions will attract disciplinary as well as penal action under the law. suppliers. agents and consultants of the company should always be such that the integrity of the company and reputation is not damaged. Also taking of any alcohols or drugs inside the work places is not allowed and any member of the staff. superiors and colleagues. Strict disciplinary action will be taken against those staff members who violate the rules regulations of the company. Work place harassment means any action that creates an intimidating. and strive continuously to improve environmental awareness and protections. hostile or offensive . All agreements with agents.Proper Books of Accounts: All funds. Environment: To preserve and protect the environment all staff members are required to operate the company’s facilities and processes so as to ensure maximum safety of the adjoining communities. Relationship with Government officials. dealers and consultants should be made in writing supported with required evidence.

religious. Australia and other regions of the world. the company is very much concerned on the growing environment and health issues. . disparaging remarks based on gender. Europe. They feel proud to state that their hectic efforts in improvement of quality and service has brought us rewards in terms of a very satisfied customer base spanning across North America.environment which may include sexual harassment. They are firmly committed to play a positive role in this regard and would do their best to make this world a better place to live in for their future generations. Besides the improvements in quality of their products & services. After “Oeko-Tex Standard 100” certification. Far East. Certification & Achievement: Shahzad Textile Mills Limited has always placed special emphasis on maintaining high quality world standards and in this regard ISO 9001:2000 certifications for both units are regularly maintained for last many years which itself is a proof their achievements in quality and service. They are presently in the advance stages to achieve “Oeko-Tex Standard 100” certification from International Association for Research and Testing in the Field of Textile Ecology. their customers will have more confidence in their textile productions and will manufacture / sell their products with a globally acceptable guarantee / mark that their products are free from any harmful substances Health & Safety: Shahzad Textile Mills Limited (STML) undertakes that HSE is a management responsibility and is committed to give priority to the health and safety of all its employees and of other personnel effected and involved in its activities. Asia. or race ethnicity.

high level of safety awareness shall be maintained by means of safety programs. Safety & Environment. WILL: Promote its conviction that accidents can be avoided. Safety & Environment protection. safety review meetings. Employees are required to become familiar with. Train A its personnel in Health. SHAHZAD TEXTILE MILLS LTD. The Chief Executive Officer carries the responsibility for the company’s commitment to Health. and to develop actions & policies that shall suitably prevent recurrence. Minimize risks by investigating incidents to determine their causes and as well as impact. . adhere to and promote the company policies throughout all aspects of their duties. Each and every employee is an integral part of this commitment and it is the responsibility of line managers to ensure that employees and contractors are aware of company HSE policies and procedures. policies and procedures into the key responsibilities of all personnel and ensure that their HSE performance is accurately reflected in their appraisals. Persist and promote protective equipment culture at all STML working areas. Incorporate HSE principles. Develop and implement emergency evacuation procedures to minimize the consequences of accidents at its working areas. internal auditing and general communications.STML also confers its overriding commitment towards minimizing impact of its activities on the natural environment. storage facilities and other locations regularly inspected and audited by management & independent auditors. Have its operating areas. TO CARRY OUT THIS POLICY. both physical and financial. They must also ensure that these policies and procedures are duly enforced.

They are more concerned with recognizing. transportation and disposal of waste materials and minimize pollutant emissions. Encourage its employees to suggest positive changes and improvements in HSE policies and procedures by means of internal protocols and communications. . Actively encourage its employees to participate in the conduct and management of HSE by means of achieving defined objectives and standards. Insists on HSE policy from its suppliers. Safety & Environment policy is built on a “NO BLAME” culture. Provide resources to ensure that the best possible HSE standards are maintained. The company Health. identifying and eliminating risk than they are with looking for someone to blame.Actively participates with government and other responsible institutions in meeting applicable national and international Health. Define practical means for taking into account and minimize environment impact. customers and other business associates. Develop and implement procedures for proper storage. Safety & Environment rules and regulations.

The Organization of Comparison The organization with whom the comparison of Shahzad textile mills is to be done is Shaheen Cotton Mills Ltd. The comparison can only be done by making the financial analysis of this particular cotton mills in a similar way in .

. An Overview Shaheen Cotton Mills Limited. With the passage of time. built in the cotton growing belt in Pakistan at convenient locations and are fully equipped with highly sophisticated and most modern spinning machinery with a capacity to produce around 55 x40’FCLs per month.which the analysis of Shahzad textile mills Ltd is to be done by first of all calculating all the major five ratios and interpreting them one by one thereby gaining a position to make a comparison become their financial situation. highly competitive prices and matchless professional services. is a renowned cotton mill locally as well as in the foreign export markets for the impressive quality of yarn productions.600 spindles. the company is engaged in the productions of ring spun cotton and synthetic blended yarns since it’s inception in 1976. Shaheen Cotton Mills Limited is comprised of two production units. the company continuously adopted latest and advanced technologies to ensure the best possible quality standards and efficient workings. With a total installed capacity of 33.

shareholders and employees. Mission Statement – Action Plan: To install state of the art machinery and to acquire sophisticated process technology to achieve highest quality levels in the competitive business environment. To strive hard to develop new markets for the sale of their products both in export and local markets. To improve logistic facilities for their customers dispatch plan and issue all shipments / delivery documents well in time. They wish to play a leading role in the spinning sector by keeping a substantial presence in the export and local markets. To make strenuous efforts to enhance profitability of the company and ensuring a fair return to the investors. To attend to the prompt resolution of customer complaints by taking timely corrective & preventive measures to address the quality complaints. . To improve customer satisfaction level by adhering strictly to quality requirements of their customers in local and export markets and by improving communications with customers for receiving prompt feed backs about quality of their products. To exercise maximum care for improvement of quality of their products by employing a team of highly skilled technicians and professional managers/supervisors.Vision and mission Vision Statement: They aim at seeing their mills to be a model manufacturing unit producing high quality yam by complying with the requirements of Quality Management System and continuously improving its effectiveness for total customer’s satisfaction.

Advantages: .Ratio analysis is an important and age old technique of financial analysis.) Ratios simply mean a number expressed in terms of another.To make comprehensive arrangements for the training of their workers / technicians. creativity in their professionals and technical people. Following are some of the advantages of ratio analysis. To promote team work. Thus Ratio Analysis shows the relationship between accounting data. A ratio is a statistical yardstick by mean of which relationship between two or various figures can be compared or measured. Ratio can be found out by dividing on number by another number. RATIO ANALYSIS (Shahzad Textile Mills Ltd. sense of transparency.

It helps in investment decisions in the case of investors and lending decisions in the case of investors and lending decisions in the case of bankers’ etc. in its function of forecasting. planning. It helps in planning and forecasting. over-valued under-valued firms.It simplifies the comprehension of financial statements. coordination. control and communications. Ratios highlight the factors associated with successful and unsuccessful firm. Ratios can assist management. Makes inter-firm comparison possible Ratio analysis also makes possible comparison of the performance of different divisions of the firm. It provides data for inter-firm comparison. The ratios are helpful in deciding about their efficiency or otherwise in the past and likely performance in the future. They also reveal strong firms and weak firms. Types of Ratios Analysis: Let us now have a detailed analysis of all the following four ratios for Shahzad Textile Mills Ltd: Liquidity Ratios Leverage Ratios Activity Ratios Profitability Ratios . Ratios tell the whole story of changes in the financial condition of the business.

2006: Current Ratio = 211.802 Current Ratio = 0.611 245.030 Current Ratio = 1.562. It represents the margin of safety or cushion available to the auditor.6666 2005 .292 Current Ratio = 0.118 Comparison over the years / Interpretation: Current ratio is a general and quick measured of liquidity of firm.861 2004 .514 206. It is the index of the firm’s financial stability.990.2005: Current Ratio = 231.423. . It is also an index of the financial solvency and index of strength of working capital.538.443.258.687 235.Liquidity Ratios: Current Ratio: Current Ratio is equal to current assets divided by current liabilities Current Ratio = Current Assets Current liabilities 2006 – 2007: Current Ratio = 155.

562.197.802 Quick Ratio = 0.538.030 Quick Ratio = 0.508 – 1.611 – 103.687 – 78. Quick Ratio = Current assets – Inventories .466. it was 1.118 in 2004-05 and it was 0.2005: Quick Ratio = 231.775 245.121. Acid Test (Quick) Ratio: Acid Test (Quick) ratio is equal to Current assets less inventories divided by current liabilities.322 2005 .514 – 85.292 Quick Ratio = 0. that is.423.6666 in 2006-07.7015 Comparison over the years / Interpretation: .258.The current ratio of the firm is decreasing over the years right from 2004-07 constantly.990.2006: Quick Ratio = 211.032.510 -10.443.634 235.Preapids Current liabilities 2006 – 2007: Quick Ratio = 155.4408 2004 .960 – 1.161 206.171. It gives more liquid amount of assets to cover your liabilities.

304 233.187.511 .578 190. Debt Equity ratio = Long Term Debts Stockholder’s equity 2006 – 2007: Debt equity ratio = 331.501.255.932.The quick test ratio is a very useful measuring of the liquidity position of the firm.913 Debt equity ratio = 1. It means that firm’s ability to pay its short-term obligations or current liabilities immediately and is a more rigorous test of liquidity than the current ratio. Leverage ratios: Debt Equity Ratio: Debt equity ratio is equal to long term debts divided by stockholder’s equity.2005: Debt equity ratio = 316.314.701 216. The quick ratio of the firm as is shown by the above calculations is decreasing over the years.5348 2005 .588 2004 .260.729 Debt equity ratio = 1. the company is getting lesser and lesser liquid current assets to cover its current liabilities.2006: Debt equity ratio = 370. that is.

993 977. The lower the ratio the higher the firm’s financing that is provided by the shareholders and larger the creditors cushion (margin of protection) in the extent of shrinkage of assets values or outright loss. Debt Ratio = Total liabilities Total assets 2006 – 2007: Debt Ratio = 567.57999 2005 . Debt Equity ratio increment is a negative point to management that the more of their business is financed by debts this will increase their financial charges or interest expense and firm’s liquidity and hence decreasing the company’s profit.106 1.064.195. The purpose is to get an idea of the cushion available to outsiders and the liquidity of the firm.963 Debt Ratio = 0.585 .145 Debt Ratio = 0.Debt equity ratio = 1. The interpretation of the ratio depends upon the financial and business policy of the firm.511. The debt ratio of the company has decreased constantly over the years right from 2004-07 which is actually a positive sign for the company.927.2006 Debt Ratio = 616.052.6625 Comparison over the years / Interpretation: This ratio indicates the proprietor’s claims of owners and outsiders against the firm’s assets. Debt Ratio: Debt ratio is equal to total liabilities divided by total assets.

304.608 940.2004 . The debt ratio of the company has remained stagnant almost over the last three years as shown clearly by the above calculations.194 11.569 .2005: Interest coverage Ratio = 26. Times Interest Earned = Profit before Interest and Taxes Interest expense 2006 – 2007: Interest coverage Ratio = 19.331.2006: Interest coverage Ratio = 69.390.923 times 2004 .685. Or how many times the firm has user its earning before interest and taxes to cover the interest expense.2005 Debt Ratio = 523.5564 Comparison over the years / Interpretation: It can be defined as how much sufficient our assets are in retrieving the total debts.154.441 Debt Ratio = 0.311 Interest Coverage Ratio = 1.039 Interest Coverage Ratio = 10.617. Times Interest Earned (Coverage Ratio): It briefs that how many times the firm has earned the interest.65 times 2005 .881.874 6.

97 times 2005 .208.0049 in 2004. It is an index of the financial strength of the enterprise.331.679.875 Interest Coverage Ratio = 5.424.768 17.5. It indicates the number of times interest is covered by the profit available to pay interest charges. increased up to 10 and fell down to 1. But weakness of the ratio may create some problems for the firm’s financial manager in raising funds from the debts sources. A high ratio assures the lender a regular and periodic interest income.037. that is.707.0049 times Comparison over the years / Interpretation: The interest coverage ratio is a very important from the lender point of view. Inventory Turnover ratio = Cost of Goods Sold Avg Inventory 2006 – 2007: Inventory Turnover Ratio = 1.571.65 Activity Ratios: Inventory Turnover Ratio: Inventory Turnover Ratio is equal to Cost of Goods Sold divided by Average Inventory. of times the firm earns interest has fluctuated dramatically.5 . The no.2006: Inventory Turnover Ratio = 804. it was 5.262 22.693 Inventory Turnover Ratio = 45.

5011 . which is quite good because of good management and polices. Inventory Holding Period in months = No of months in a year Inventory turnover ratio 2006 – 2007: Inventory turnover in months = 12 45.839 12.01 times in the year. In year 2007 it is better that is 8.97 Inventory turnover in months = 0.4099 times Comparison over the years / Interpretation: Inventory turn over ratio measures the velocity of conversion of stock into sales.2006: Inventory turnover in months = 12 45.5011 times 2004 . In other words how rapidly inventory is turning into receivables through sales. In 2006 the ratio was low because of over investment in inventories.5 Inventory Turnover Ratio = 49.26102 months 2005 .484.750.2005: Inventory Turnover Ratio = 630.01 times.000.Inventory Turnover Ratio = 45. In 2006 it was 6. Inventory Holding Period in months: Inventory holding period in months is equal to number of months in a year divided by inventory turnover ratio.74 times and in 2007 it was 8.

Inventory turnover in months = 0.181.2005: Inventory turnover in months = 9 (because 9 months ended) 49. where. Net Fixed Assets Turnover Ratio: Net Fixed assts turnover ratio is obtained by dividing sales with net fixed assets.182 months Comparison over the years / Interpretation: Inventory turn over ratio measures the velocity of conversion of stock into sales. which is quite good because of good management and polices. In year 2007 it is quite good and in 2006 it was better that is 56 days in a year to move inventory through sales. In other words how rapidly inventory is turning into receivables through sales.294 Fixed asset turnover ratio = 1. In 2006 it was 54 days times and in 2007 it was 46 days.939 times 2005 .100. (Net fixed assets = Total fixed Assets – Accumulated Depreciation) Net Fixed Asset Turnover Ratio = Sales Net Fixed assets 2006 – 2007: Fixed asset turnover ratio= 1.111 567.2006: .4 Inventory turnover in months = 0.2637 months 2004 .187.

566.145 Total asset turnover ratio = 1.5148 times 2004 .100.Fixed asset turnover ratio = 909.76 in 2007 Total Asset Turnover: Total asset turnover ratio measures that how much sales are generated through the total assets of the organization.784.784.111 977.346 600.800.2006: Total asset turnover ratio = 909.346 1.355 480.483 Fixed asset turnover ratio = 1.125 times 2005 .181.2005: Fixed asset turnover ratio = 693.963 .4437 times Comparison over the years / Interpretation: Fixed asset turnover ratio measures sales productivity and plant and equipment utilization.511.565. Total Asset Turnover Ratio = Sales Total assets 2006 – 2007: Total asset turnover ratio= 1.927.052.36 to 2. It is clear that this ratio is declining from 2006 which is 4.280 Fixed asset turnover ratio = 1.

751 times 2005 .51. increases there are more revenue generated per rupee of total investment in asset.740.51 sales per rupees of investment in total assets.355 940.481.2005: Total asset turnover ratio = 693.99 times respectively.441 Total asset turnover ratio = 0.5 Receivables Turnover Ratio = 66. Receivables Turnover Ratio = Net credit Sales Avg Receivables 2006 – 2007: Receivables Turnover Ratio = 1. So as time is going by this ratio is decreasing which means company performance is not up to mark in terms of profits. As the ratio. The ratio was 1. The firm ability to produce a large volume of sales on a small total asset based is an important part of the firms overall performance in terms of profits. 1.800. 2006.7377 times Comparison over the years / Interpretation: It shows that firms must manage its total assets efficiently and should generate maximum sales through their proper utilization.Total asset turnover ratio = 0.8643 times 2004 .2006: . In 2007. In 2007.111 16. Receivables Turnover Ratio: Receivables turnover ratio is equal to net credit sales divided by average receivables.390.100.181. the ratio indicates that it is producing RS 1.

784.571 times Comparison over the years / Interpretation: Receivables turnover ratio measures the average length of time it takes a firm to collect credit sales in percentage terms.800.2006: .300.5 Receivables Turnover Ratio = 32. Average Collection Period in months = No of months in a year Receivables turnover ratio 2006 – 2007: Receivables turnover ratio in months = 12 66.2005: Receivables Turnover Ratio = 693.179 months 2005 .355 21.193.435 Receivables Turnover Ratio = 59.346 15.751 Receivables turnover ratio in months = 0.19 times Average Collection Period in months: Average collection period in months is equal to months in year divided by Receivables turnover ratio.Receivables Turnover Ratio = 909. So Receivables is better in 2006 as compare to 2007 which is 18.565.88 times 2004 .

2007: Payable Turnover Ratio = 751.630.049 Payable Turnover Ratio = 1.357 .Receivables turnover ratio = 12 59.511 591.780.067 569.2763 months Comparison over the years / Interpretation: Average collection period shows the average length of time it takes affirm to collect credit sales in months. But it is best in 2007 which is 20 days.2969 times 2005 .225. From above analysis it is clear that average collection period was 17 days respectively in year an2006. Payables Turnover Ratio: Payable turnover ratio is equal to net credit purchases divided by average payables.2005: Receivables turnover ratio = 9 (9 months ended) 32.88 Receivables turnover ratio = 0.2 months 2004 .684.57 Receivables turnover ratio = 0.2006: Payable Turnover Ratio = 598. Payables Turnover Ratio = Net credit Purchases Avg payables 2006 .

914 Payable Turnover Ratio = 0.Payable Turnover Ratio = 1.2006: Payable Turnover Ratio in months = 12 1.2005: Payable Turnover Ratio = 457.051 Payable Turnover Ratio in months = 11.949 times Comparison over the years / Interpretation: The firm pays off its payables out of its cash 15. Avg Payment Period in months = No of months in a year Payables turnover ratio 2006 – 2007: Payable Turnover Ratio in months = 9 1.757.4 months 2004 .051 times 2004 .2005: Payable Turnover Ratio in months = 9 .4 months 2005 .326.068 481.22 times in a year.2969 Payable Turnover Ratio in months = 9. Avg Payment Period Ratio in months: Payable turnover ratio in months is equal to months in year divided by payable turnover ratio.

849 X 100 1.2005: .(9 months ended) 0.111 Gross profit margin = 5.In 2006 it is 24 days and in year 2007 it was 33 days.100.57 % 2004 .2006: Gross profit margin = 105.48 months Comparison over the years / Interpretation: It shows or represents the no of days taken by the firm to pay to its debtors.346 Gross profit margin = 11.473. If it is higher than it is beneficial for the management.784.578 X 100 909.309. In 2007 it is best which means that the company is taking the advantage of credit facilities allowed by the creditors. .181.67 % 2005 . Profitability Ratios: Gross Profit Margin: Gross profit margin is equal to the ratio of gross profit to sales. In year 2006 the company was having low ratio.949 Payable Turnover Ratio in months = 9. Gross Profit Margin = Gross Profit Sales 2006 – 2007: Gross profit margin = 62.

100.154. Operating Profit Margin = EBIT/Operating Profit Sales 2006 – 2007: Operating Profit Margin = 19.73 % and in 2007 it increased to 10.2005: .78% 2005 . Operating Profit Margin: Operating Profit Margin is equal to earning before interest and tax divided by sales.843.355 Gross profit margin = 9.847 X 100 9.2006: Operating Profit Margin = 69.516 X 100 693.22 %.097.617.111 Operating Profit Margin = 1.800.Gross profit margin = 63. In 2006 it increased slightly to 7. The gross profit is sufficient to recover all operating expenses and to build up reserve after paying all fixed interest charges and all dividends.194 X 100 1.181.6 % 2004 .616 Operating Profit Margin = 7.799.196% Comparison over the years / Interpretation: Gross profit margin or gross profit ratio is the ratio of gross profit to net sales expressed as percentage.

223 X 100 1.81 % 2005 .784.939.866.355 Operating Profit Margin = 3. Net Profit Margin = Net Profit Sales 2006 – 2007: Net Profit Margin = 74.800.181.09 % 2004 .800. Net Profit Margin: Net Profit Margin is equal to net profit divided by sales.84 % Comparison over the years / Interpretation: This used to show the profitability without concern for taxes and interest.2005: Net Profit Margin = 48. In 2006the operating profit ratio was 5. In 2006 operating profit ratio increased by 1.100.05% and in 2007 the net profit ratio is 7.2006: Net Profit Margin = 91.Operating Profit Margin = 26.039 X 100 909.355 .54% in 2007relative to 2006 Higher ratio shows firm’s capacity to with stand adverse economic condition without caring taxes and interest.111 Net Profit Margin = 6.569 X 100 693.66 % and increased by 2.59 %.685.436 X 100 693.782.346 Net Profit Margin = 10.

Net Profit Margin = 7. Earning per share = Earning Available for Common Stock Holders No.419.556.569 Earning per share = Rs.66%. In 2006 net profit ratio increased by 0. Earning per share: This ratio shows that how much amount per share does a common stock holder attains.1.74/share 2004 .552.2006: Earning per share = 23. Of Common Stock Shares 2006 – 2007: Earning per share = (26. In 2006 the net profit ratio is 1.136) 13.157 13.569 Earning per share = Rs.95) / share 2005 .It shows the firm’s ability to turn each rupee of sale into profit. (1.552.2005: Earning per share = (3.03 % Comparison over the years / Interpretation: This used to show the overall profitability and hence it useful to the proprietors.995 % and in 2007 the net profit ratio is 2.569 . Higher the ratio betters for the organization .552.795 % relative to 2007 .733) 13.079. Higher ratio shows firm’s capacity to with stand adverse economic condition.

23) /share Comparison over the years / Interpretation: This ratio shows the worth of the share.6.11.95) Price Earning Ratio = (Rs.465 2004 .96.74 Price Earning Ratio = Rs.2006: Price Earning Ratio = 19.25 (0. Price Earning Ratio = Market price per share Earning per share 2006 – 2007: Price Earning Ratio = 13 (1.Earning per share = Rs.66) 2005 . As we can see that the worth of the shares of SHTM has increased.2005: Price Earning Ratio = 22.23) Price Earning Ratio = (Rs.95 1.739) Comparison over the years / Interpretation: . EPS is almost twice to the 2003 in 2007 Price earning ratio: It equals to the ratio of market price per share divided by earning per share. (0.

7.These ratios results show that in 2007Rs.91 have to be spent in order to earn Rs.1 profit.91 were to be spent in order to earn Rs.) Types of Ratios Analysis: Let us now have a detailed analysis of all the following four ratios for Shaheen Cotton Mills Ltd: Liquidity Ratios Leverage Ratios Activity Ratios Profitability Ratios Liquidity Ratios: Current Ratio: Current Ratio = Current Assets Current liabilities .1 of profit. 6. But in year 2006the position had improved a little bit showing that Rs. RATIO ANALYSIS (Shaheen Cotton Mills Ltd.

729.Preapids Current liabilities 2006 – 2007: .2005: Current Ratio = 240.133.615 Current Ratio = 1.2006: Current Ratio = 251.00605 Comparison over the years / Interpretation: Current ratio is a general and quick measured of liquidity of firm.489. It represents the margin of safety or cushion available to the auditor.962 190. It is also an index of the financial solvency and index of strength of working capital.814. Which shows that the current ratio of the firm has been increasing over the years.003. Firm's Current ratio has been increasing over the years right from the 2004 – 2007. Acid Test (Quick) Ratio: Quick Ratio = Current assets – Inventories .784 Current Ratio = 1.040.441 Current Ratio = 0.176 249.6544 2005 .0075 2004 . It is the index of the firm’s financial stability.2006 – 2007: Current Ratio = 124.264 239.

615 Quick Ratio = 0 .2511 2005 .230.589 249.298 239.176 -141.962-75.2006: Quick Ratio = 251.Quick Ratio = 124. It means that firm’s ability to pay its short-term obligations or current liabilities immediately and is a more rigorous test of liquidity than the current ratio.386 190.040.622.496.5803 Comparison over the years / Interpretation: The quick test ratio is a very useful measuring of the liquidity position of the firm.544-139. The calculations above clearly shows that the quick ratio of the firm has been decreasing over the years due to the increase in prepaids and inventories which is a negative point for the company Leverage / Debt ratios: Debt Equity Ratio: Debt Equity ratio = Long Term Debts .724.489.441 Quick Ratio = 0.784 Quick Ratio = 0.021 – 839.2005: Quick Ratio = 240.133.915.998-13.003.100.264 .814.44005 2004 .

Stockholder’s equity 2006 – 2007: Debt Equity ratio = 216.265.2005: Debt Equity ratio = 272.0654 2004 .622 51.2006: Debt Equity ratio = 254.545 53.1316 Comparison over the years / Interpretation: This ratio indicates the proprietor’s claims of owners and outsiders against the firm’s assets.741.177 2005 .620 Debt Equity ratio = 4. Debt Equity ratio increment is a negative point to management that the more of their business is financed by debts this will increase their financial charges or interest expense and firm’s liquidity and hence decreasing the company’s profit.565. The interpretation of the ratio depends upon the financial and business policy of the firm. Debt Equity shows the relationship between the external equities or outside funds and internal equities and shareholder’s funds.055.262 62. The lower the ratio the higher the firm’s financing that is provided by .171. The purpose is to get an idea of the cushion available to outsiders and the liquidity of the firm.355.235 Debt Equity ratio = 4.841 Debt Equity ratio = 5. The debt equity ratio of the firm has been fluctuating over the years right from 2004 – 2007 with maximum in the year 2004-05 thereby decreasing in the next year and increasing finally.

Times Interest Earned (Coverage Ratio): Times Interest Earned = Profit before Interest and Taxes .488.877 772.837. that is.855 Debt Ratio= 0. We can observe in our analysis that the debt ratio of the firm is decreasing over the years which is a good sign for the company.277. Debt Ratio: Debt Ratio = Total liabilities Total assets 2006 – 2007: Debt Ratio= 406.6607 Comparison over the years / Interpretation: It can be defined as how much sufficient our assets are in retrieving the total debts.2005 Debt Ratio= 511306.219 Debt Ratio= 0.2006 Debt Ratio= 503.the shareholders and larger the creditors cushion (margin of protection) in the extent of shrinkage of assets values or outright loss.251.329 773.884 Debt Ratio= 0.6125 2005 . the company uses less of its total liabilities for its current assets.063 664.896.6519 2004 .

072.3391 times 2004 .6 times 2005 .Interest expense 2006 – 2007: Interest coverage Ratio = 21.150.356 times Comparison over the years / Interpretation: The interest coverage ratio is a very important from the lender point of view.2006: Interest coverage Ratio = 35. The times interest earned by the company in 2007 returns to the level where it was in 2004.580. of times the company earns its interest fluctuates from over the years right from 2004 – 2007. A high ratio assures the lender a regular and periodic interest income. It indicates the number of times interest is covered by the profit available to pay interest charges.2005: Interest coverage Ratio = 38.366. . But weakness of the ratio may create some problems for the firm’s financial manager in raising funds from the debts sources.605 Interest Coverage Ratio = 3.495.871.380 Interest Coverage Ratio = 4.316 Interest Coverage Ratio = 3.210 11. The no.081 8.47 6. It is an index of the financial strength of the enterprise.

488.680 9.74 times and in 2007 it was 8. which is quite good because of good management and polices.530 8.5 Inventory Turnover Ratio = 82.789. In 2006 it was 6.273 12.01 times in the year.30times 2005 .884.116.430 Inventory Turnover Ratio = 98.2005: Inventory Turnover Ratio = 577.01 times.75times 2004 . In 2006 the ratio was low because of over investment in inventories.405.273 Inventory Turnover Ratio = 46.2006: Inventory Turnover Ratio = 810. .778. In other words how rapidly inventory is turning into receivables through sales.363. In year 2007 it is better that is 8.Activity Ratios: Inventory Turnover Ratio: Inventory Turnover ratio = Cost of Goods Sold Avg Inventory 2006 – 2007: Inventory Turnover Ratio = 873.732 times Comparison over the years / Interpretation: Inventory turn over ratio measures the velocity of conversion of stock into sales.

Net Fixed Assets Turnover Ratio: Net Fixed Asset Turnover Ratio = Sales .1220months 2005 .75 Inventory turnover in months = 0. In 2006 it was 54 days times and in 2007 it was 46 days. In year 2007 it is quite good and in 2006 it was better that is 56 days in a year to move inventory through sales.1450months 2004 .Inventory Holding Period in months: Inventory Holding Period in months = No of days in a year Inventory turnover ratio 2006 – 2007: Inventory turnover in months = 12 98.2006: Inventory turnover in months = 12 82. which is quite good because of good management and polices. In other words how rapidly inventory is turning into receivables through sales.192 months Comparison over the years / Interpretation: Inventory turn over ratio measures the velocity of conversion of stock into sales.30 Inventory turnover in months = 0.2005: Inventory turnover in months = 9 (9 months ended) 46.73 Inventory turnover in months = 0.

753.945 664.277.15 times Comparison over the years / Interpretation: Fixed asset turnover ratio measures sales productivity and plant and equipment utilization.748.308.028 Fixed asset turnover ratio = 2.24 times 2004 .908 Fixed asset turnover ratio = 3.2005: Fixed asset turnover ratio = 644.781 272.123 299.36 to 2.Net Fixed assets 2006 – 2007: Fixed asset turnover ratio= 931.308.433.855 .160 Fixed asset turnover ratio = 3.945 283.801.063.2006: Fixed asset turnover ratio = 886.76 in 2007 Total Asset Turnover: Total Asset Turnover Ratio = Sales Total assets 2006 – 2007: Total asset turnover ratio= 931.29 times 2005 . It is clear that this ratio is declining from 2006 which is 4.

833 times Comparison over the years / Interpretation: It shows that firms must manage its total assets efficiently and should generate maximum sales through their proper utilization.2006: Total asset turnover ratio = 886. In 2007.123 773.884 Total asset turnover ratio = 1. the ratio indicates that it is producing RS 1.51 sales per rupees of investment in total assets.51.748. The ratio was 1. 2006.308. As the ratio.122 .945 10.433.219 Total asset turnover ratio = 0. increases there are more revenue generated per rupee of total investment in asset.14 times 2004 . 1.2005: Total asset turnover ratio = 644.781 772.837. In 2007. So as time is going by this ratio is decreasing which means company performance is not up to mark in terms of profits.99 times respectively. Receivables Turnover Ratio: Receivables Turnover Ratio = Net credit Sales Avg Receivables 2006 – 2007: Receivables Turnover Ratio = 931.148.40 times 2005 .Total asset turnover ratio = 1.251. The firm ability to produce a large volume of sales on a small total asset based is an important part of the firms overall performance in terms of profits.

115 Receivables Turnover Ratio = 219. So Receivables is better in 2006 as compare to 2007 which is 18.433.611 times Comparison over the years / Interpretation: Receivables turnover ratio measures the average length of time it takes a firm to collect credit sales in percentage terms.2006: .77 Receivables turnover ratio in months = 0.5 Receivables Turnover Ratio = 286.19 times Average Collection Period in months: Average Collection Period in months = Days in a year Receivables turnover ratio 2006 – 2007: Receivables turnover ratio in months = 12 91.249.781 4.77 times 2005 .035.123 2.2005: Receivables Turnover Ratio = 644.Receivables Turnover Ratio = 91.557.748.2006: Receivables Turnover Ratio = 886.130 months 2005 .677 times 2004 .

Payables Turnover Ratio: Payables Turnover Ratio = Net credit Purchases Avg payables 2006 .080.283 times 2005 . From above analysis it is clear that average collection period was 17 days respectively in year an2006.2007: Payable Turnover Ratio = 588.517.849 507.732 458. But it is best in 2007 which is 20 days.0546months 2004 .776 Payable Turnover Ratio = 1.397.Receivables turnover ratio = 12 219.611 Receivables turnover ratio = 0.2005: Receivables turnover ratio = 9 (9 months ended) 286.283 times .2006: Payable Turnover Ratio = 651.678 Receivables turnover ratio = 0.603 Payable Turnover Ratio = 1.328.0314 months Comparison over the years / Interpretation: Average collection period shows the average length of time it takes affirm to collect credit sales in months.

2005: Payable Turnover Ratio in months = 9 (9 months ended) 0.283 Payable Turnover Ratio in months = 9.2005: Payable Turnover Ratio = 442.206 484.283 Payable Turnover Ratio in months = 9.22 times in a year.353months 2004 .9132 Payable Turnover Ratio in months = 9. Avg Payment Period Ratio in months: Avg Payment Period in months = No of Days in a year Payables turnover ratio 2006 – 2007: Payable Turnover Ratio in months = 12 1.353months 2005 .5 Payable Turnover Ratio = 0.441.2006: Payable Turnover Ratio in months = 12 1.094.471.8554 months Comparison over the years / Interpretation: .2004 .9132 times Comparison over the years / Interpretation: The firm pays off its payables out of its cash 15.

317.415 * 100 931.In 2006 it is 24 days and in year 2007 it was 33 days.969.903.850 X 100 644. In 2007 it is best which means that the company is taking the advantage of credit facilities allowed by the creditors. Profitability Ratios: Gross Profit Margin: Gross Profit Margin = Gross Profit Sales 2006 – 2007: Gross profit margin = 57. . In year 2006 the company was having low ratio.101 * 100 886.It shows or represents the no of days taken by the firm to pay to its debtors.781 Gross profit margin = 8.2005: Gross profit margin = 66.945 Gross profit margin = 6.748.21 % 2005 .433.2006: Gross profit margin = 76. If it is higher than it is beneficial for the management.308.3 % Comparison over the years / Interpretation: .60 % 2004 .123 Gross profit margin = 10.

081 * 100 886. In 2006 it increased slightly to 7.66 % and increased by 2.433.945 Operating Profit Margin = 2.781 Operating Profit Margin = 3.871. In 2006the operating profit ratio was 5.Gross profit margin or gross profit ratio is the ratio of gross profit to net sales expressed as percentage.30% 2005 .308.366.2006: Operating Profit Margin = 35. The gross profit is sufficient to recover all operating expenses and to build up reserve after paying all fixed interest charges and all dividends.647 *100 931. Operating Profit Margin: Operating Profit Margin = EBIT/Operating Profit Sales 2006 – 2007: Operating Profit Margin = 21.2005: Operating Profit Margin = 38.22 %.210 X 100 644.05% and in 2007 the net profit ratio is 7.98 % Comparison over the years / Interpretation: This used to show the profitability without concern for taxes and interest.123 Operating Profit Margin = 5.73 % and in 2007 it increased to 10.98 % 2004 .54% .580. In 2006 operating profit ratio increased by 1.59 %.748.

35) * 100 931.2005: Net Profit Margin = (129.85%) 2004 .748.2006: Net Profit Margin = (113.679.55%) 2005 .781 Net Profit Margin = (12. Higher ratio shows firm’s capacity to with stand adverse economic condition.110) * 100 886.8) % Comparison over the years / Interpretation: This used to show the overall profitability and hence it useful to the proprietors. In 2006 net profit ratio increased by 0.It shows the firm’s ability to turn each rupee of sale into profit.795 % relative to 2007 . In 2006 the net profit ratio is 1. Higher the ratio betters for the organization .308.433.469.945 Net Profit Margin = (10. .123 Net Profit Margin = (20.961.749) X 100 644. Net Profit Margin: Net Profit Margin = Net Profit Sales 2006 – 2007: Net Profit Margin = (986.995 % and in 2007 the net profit ratio is 2.in 2007relative to 2006 Higher ratio shows firm’s capacity to with stand adverse economic condition without caring taxes and interest.66%.

9 /share Comparison over the years / Interpretation: This ratio shows the worth of the share.Earning per share: Earning per share = Earning Available for Common Stock Holders No.729.0.344 Earning per share = Rs.2006: Earning per share = 5.018.380.578.34/share 2004 . As we can see that the worth of the shares of SHTM has increased.031 14. Of Common Stock Shares 2006 – 2007: Earning per share = (8.706.729.2005: Earning per share = 12. EPS is almost twice to the 2003 in 2007 Price earning ratio: Price Earning Ratio = Market price per share Earning per share 2006 – 2007: .355 13.58) 2005 . (0.473 Earning per share = Rs. 0.344 Earning per share = Rs.439) 14.

91 were to be spent in order to earn Rs.1 of profit.20.1 profit.Price Earning Ratio = 6 (0.867 1.2005: Price Earning Ratio = 8.9.34 Price Earning Ratio = Rs.(10.25 0.7.2006: Price Earning Ratio = 7 0. 6.0075 2006-07 0.00605 2005-06 0.166 Comparison over the years / Interpretation: These ratios results show that in 2007Rs.118 1.6544 . But in year 2006the position had improved a little bit showing that Rs.9 Price Earning Ratio = Rs.91 have to be spent in order to earn Rs.58 2004 .58) Price Earning Ratio = Rs.344) 2005 .6606 0. INDUSTRY ANALYSIS (comparison through graphical interpretation) Activity Ratios: Current Ratio: Current Ratio 2004-05 Shahzad Shaheen 1.

182 0.5803 2005-06 0.3 Comparison: Inventory Holding Period: Inventory Holding Period (months) 2004-05 Shahzad Shaheen 0.261 0.4099 46.973 98.145 2006-07 0.732 2005-06 45.4408 0.7015 0.2637 0.3227 0.192 2005-06 0.2511 Inventory Turnover Ratio: Inventory Turnover Ratio (Times) 2004-05 Shahzad Shaheen 49.7537 2006-07 45.Comparison: Quick Ratio: Quick Ratio 2004-05 Shahzad Shaheen 0.44005 2006-07 0.5011 82.122 .

77 Comparison: Average Collection Period: Average Collection Period (months) 2004-05 Shahzad Shaheen 0.2 0.0314 2005-06 0.571 286.13 Comparison: Payables Turnover Ratio: Payables Turnover Ratio (times) .2763 0.Comparison: Receivables Turnover Ratio: Receivables Turnover Ratio (Times) 2004-05 Shahzad Shaheen 32.677 2006-07 66.179 0.61 2005-06 59.88 219.0546 2006-07 0.751 91.

4437 2.051 1.15 2005-06 1.283 2006-07 1.5148 3.9397 3.949 0.2004-05 Shahzad Shaheen 0.9132 2005-06 1.283 Comparison: Net Fixed Assets: Net Fixed Assets Ratio 2004-05 Shahzad Shaheen 1.2969 1.24 2006-07 1.29 .

353 Comparison: Total Assets Turnover: .Comparison: Average Payment Period: Average Payment Period (months) 2004-05 Shahzad Shaheen 9.4 9.8554 2005-06 11.4 9.351 2006-07 9.48 9.

147 2006-07 1.6519 2006-07 0.5888 4.0654 2006-07 1.8643 1.5799 0.1316 2005-06 1.6625 5.177 .585 0.125 1.Total Assets Turnover 2004-05 Shahzad Shaheen 0.7377 0.5348 4.6607 2005-06 0.5564 0.833 2005-06 0.4 Comparison: Debt Ratio: Debt Ratio 2004-05 Shahzad Shaheen 0.6129 Comparison: Debt Equity Ratio: Debt Equity Ratio 2004-05 Shahzad Shaheen 1.

356 2005-06 10.923 4.0049 3.65109 3.Comparison: Times Interest Earned: Times Interest Earned (times) 2004-05 Shahzad Shaheen 5.6 .3391 2006-07 1.

P.Comparison: G.P. Margin .Margin: G.

60% 2006-07 5.20% 10.67% 6.2004-05 Shahzad Shaheen 9.30% 2005-06 11.57% 8.21% .