RASHMEEN NAEEM

FINANCIAL ANALYSIS OF SAPPHIRE FIBRES LIMITED

ID:26071
PRESENTED TO : SIR MOHSIN ALI TAJAMMUL
ABOUT

 Sapphire Fibers Limited was incorporated in Pakistan on June 05, 1979 as a

Public Company under the Companies Act, 1913 (now the Companies Act, 2017).
The Company is principally engaged in manufacturing and sale of yarn, fabrics
and garments.
RATIOS

RATIOS   2019 2020 2021

Current: Current Assets/Current Liabilities 1.012 1.062 1.214
Quick: Current Assets-Inventories/Current Liabilities 0.576 0.503 0.516
Inventory Turnover: Sales/Inventories 3.148 2.948 2.425
Recievables Turnover: Receivables/Annual sales*365 71 36 36
Total Assets Turnover: Sales/Total Assets 0.623 0.655 0.674
Times Interest Earned: EBIT/Interest Charged 1.805 2.033 3.777
ANALYSIS

 Current Ratio for the company has increased. It is easier for the company to pay
off its liabilities with available current assets.
 Quick Ratio for the company seems to be low when compared with the Current
Ratio which shows that company has piled up a large quantity of inventories
 Inventory Turnover ratio has also decreased over time which further proves that
it takes longer than before for the company to convert its assets into sales.
ANALYSIS

 Receivable Turnover ratio decreased and remained constant till now. Hence,
currently the company is doing better than before and recovers cash faster.
 Asset Turnover ratio has increased. This shows greater ability of the company to
generate revenue from its assets and that the company is using its assets more
efficiently than previously.
 Times Interest Earned ratio has increased over the years. This ratio shows the
company’s ability to meet its debt obligations with the help of current income.
Higher the TIE is, the better the company is doing. Also, Higher TIE is also
attractive to the investors.
 HORIZONTAL
AND
VERTICAL ANALYSIS.
 In horizontal analysis of balance sheet, an increase of inventories was seen from 10% to 66%.
 Receivables are also decreasing from 47% to 36%.
 Cash increases from 10% to 15%.
 Conclusively, current assets are increasing from 10-24%, out of which inventories contribute the most
to this increase.
 Moreover, Long term borrowings have almost doubled from 27 to 46%.
 Accounts Payables have increased from 10 to 43%.
In conclusion, even though Current assets have increased but company should specifically focus on
increasing cash in hand to later pay its creditors. Also, long term borrowings should be decreased as they
add up the interest cost and it will take longer to be debt free for the company. An overall analysis would
suggest that the company is gradually exhausting its assets while increasingly becoming dependent on
external financing options. In this scenario, the company may be headed for asset deficiency where a
company’s liabilities may exceed its assets. Gradually decreasing assets and increasing liabilities may
indicate that the company is heading towards financial stress with some red flags like the company's
financial health might be in jeopardy include negative cash flows, declining sales, and a high debt load.
RECOMMENDATIONS
-Company needs to run effective marketing campaigns in order to increase their Sales and decrease the
piled up inventory. Also, rather than stocking up the inventory for longer periods, it is better for the
company to:

1. Strengthen relations with suppliers to get the inventory at relevant times.

2. Encourage customers to pre order.
3. Use FIFO.
4. Introduce smart pricing strategies.
-Asset turnover ratio has increased which specifically gives creditors and investors an insight about the
company’s internal management. To further improve it or maintain it, company should go for liquidating
assets by selling those items that do not add to the bottom line regularly
-Times interest earned ratio can also be inefficiently high. A business can choose to not utilize excess
income for reinvestment in the company through expansion or new projects, but rather pay down debt
obligations. For this reason, a company with a high times interest earned ratio may lose favor with long-
term investors.