shahzad & shaheen

8/2/2019 shahzad & shaheen

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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 financialsituation 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 its inceptionin 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

x40FCLs per month.

Vision and mission

Vision Statement:


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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 customerssatisfaction. They wish to play a leading role in the spinning sector by

keeping a substantial presence in the export and local markets.

Mission StatementAction 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 products 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.


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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:

Unit1: This unit presently produces their Super Unicorn brand ofpolyester/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.

Unit2: This unit produces their Dynacon brand of prime qualitypolyester/cotton blended ring spun yarn counts in various blends like PC 52:48,


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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 & Usterfrom 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 Tester3 / Tensorapid and finally, each cone offinished 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 speciallyaccommodate customers in Europe/USA and help them reduce the labor

handling costs.

Business practice


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Shahzad Textile Mills Limited has laid down the following business

ethics andprinciples, the observance of which is compulsory for all

the directors / employees of the company in the conduct of companys businessin 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 companys 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 orservices 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

companys premises or use companys facilities for the same.

If a staff member has direct or indirect relationship with an

outside organization dealing with the company he must disclosethe 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.


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Proper Books of Accounts:All funds, receipts and disbursements should be properly recorded in the books

of accounts of the company. No false or fictitious entries should be made or

misleading statement pertaining to the company or its operations should be

issued. All agreements with agents, dealers and consultants should be made in

writing supported with required evidence.

Relationship with Government officials, suppliers, agents etc. :The dealings of the company with Government officials, suppliers, buyers,

agents andconsultants of the company should always be such that the integrity

of the company and reputation is not damaged. Members having queries in

connection with how to deal with these requirements should consult the

management.

Health and Safety:

Every staff members is required to take care of his health and safely and thoseworking with him. The management is responsible for keeping its staff

members insured as per government rules and regulations.

Environment:To preserve and protect the environment all staff members are required to

operate the companys facilities and processes so as to ensure maximum safetyof the adjoining communities, and strive continuously to improve

environmental awareness and protections.

Alcohol, Drugs:All types of gambling and betting at the companys working places are strictlyforbidden. Alsotaking of any alcohols or drugs inside the work places is not

allowed and any member of the staff, not abiding by these prohibitions will

attract disciplinary as well as penal action under the law.

Coordination among staff members to maintain Discipline:All staff members will work in close coordination with their co-workers,

superiors and colleagues. Every member will cooperate with other members so

that the companys work is carried out effectively and efficiently. All cases of

non-cooperate among staff members should be reported to the management fornecessary and suitable action. Strict disciplinary action will be taken against

those staff members who violate the rules regulations of the company.

Workplace harassment:All members of the staff will provide an environment that is free from

harassment and in which all employees are equally respected. Work place

harassment means any action that creates an intimidating, hostile or offensive


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environment which may include sexual harassment, disparaging remarks based

on gender, religious, or race ethnicity.

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 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, Europe, Far East, Asia, Australia and otherregions of the world.

Besides the improvements in quality of their products & services, the company

is very much concerned on the growing environment and health issues. 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.

They are presently in the advance stages to achieve Oeko-Tex Standard 100certification from International Association for Research and Testing in the

Field of Textile Ecology. After Oeko-Tex Standard 100 certification, theircustomers 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.


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STML also confers its overriding commitment towards minimizing impact of

its activities on the natural environment.

The Chief Executive Officer carries the responsibility for the companys

commitment to Health, Safety & Environment. Each and every employee is anintegral 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. They must also ensure that these policies and procedures are duly

enforced.

Employees are required to become familiar with, adhere to and promote the

company policies throughout all aspects of their duties.

TO CARRY OUT THIS POLICY, SHAHZAD TEXTILE MILLS LTD. WILL:

Promote its conviction that accidents can be avoided.

Minimize risks by investigating incidents to determine their

causes and as well as impact, both physical and financial, and to

develop actions & policies that shall suitably prevent recurrence.

Train its personnel in Health, Safety & Environment protection.

A high level of safety awareness shall be maintained by means

of safety programs, safety review meetings, internal auditing andgeneral communications.

Persist and promote protective equipment culture at all STML

working areas.

Develop and implement emergency evacuation procedures to

minimize the consequences of accidents at its working areas.

Have its operating areas, storage facilities and other locations

regularly inspected and audited by management & independentauditors.

Incorporate HSE principles, policies and procedures into the key

responsibilities of all personnel and ensure that their HSE

performance is accurately reflected in their appraisals.


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Actively participates with government and other responsible

institutions in meeting applicable national and international

Health, Safety & Environment rules and regulations.

Define practical means for taking into account and minimize

environment impact.

Develop and implement procedures for proper storage,

transportation and disposal of waste materials and minimize

pollutant emissions.

Actively encourage its employees to participate in the conduct

and management of HSE by means of achieving defined

objectives and standards.

Encourage its employees to suggest positive changes andimprovements in HSE policies and procedures by means of

internal protocols and communications.

Provide resources to ensure that the best possible HSE standards

are maintained.

Insists on HSE policy from its suppliers, customers and other

business associates.

The company Health, Safety & Environment policy is built on a NO BLAMEculture. They are more concerned with recognizing, identifying and eliminating

risk than they are with looking for someone to blame.


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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


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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.

An Overview

Shaheen Cotton Mills Limited, is a renownedcotton 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 33,600 spindles, the company is engaged in the

productions of ring spun cotton and synthetic blended yarns since its inceptionin 1976. With the passage of time, the company continuously adopted latest and

advanced technologies to ensure the best possible quality standards and

efficient workings.

Shaheen Cotton Mills Limited is comprised of two production units, 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 x40FCLs per month.


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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 customerssatisfaction. They wish to play a leading role in the spinning sector by keeping

a substantial presence in the export and local markets.

Mission StatementAction 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

products 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 issue all shipments / delivery documents well in time.


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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.

RATIO ANALYSIS

(Shahzad Textile Mills Ltd.)

Ratios simply mean a number expressed in terms of another. A ratio is a

statistical yardstick by mean of which relationship between two or variousfigures can be compared or measured. Thus Ratio Analysis shows the

relationship between accounting data. Ratio can be found out by dividing on

number by another number.Ratio analysis is an important and age old technique

of financial analysis. Following are some of the advantages of ratio analysis.

Advantages:


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It simplifies the comprehension of financial statements.

Ratios tell the whole story of changes in the financial condition

of the business.

It provides data for inter-firm comparison. Makes inter-firmcomparison possible

Ratio analysis also makes possible comparison of the

performance of different divisions of the firm. The ratios are

helpful in deciding about their efficiency or otherwise in the past

and likely performance in the future.

Ratios highlight the factors associated with successful and

unsuccessful firm. They also reveal strong firms and weak firms,

over-valued under-valued firms.

It helps in planning and forecasting. Ratios can assist

management, in its function of forecasting, planning, co-

ordination, control and communications.

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.

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


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Liquidity Ratios:

Current Ratio:

Current Ratio is equal to current assets divided by current liabilities

Current Ratio = Current Assets

Current liabilities

20062007:

Current Ratio = 155,423,687

235,258,292

Current Ratio = 0.6666

2005 - 2006:


245,562,802


2004 - 2005:


206,990,030


Comparison over the years / Interpretation:

Current ratio is a general and quick measured of liquidity of firm. It represents

the margin of safety or cushion available to the auditor. It is the index of the

firms financial stability. It is also an index of the financial solvency and index

of strength of working capital.


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The current ratio of the firm is decreasing over the years right from 2004-07

constantly, that is, it was 1.118 in 2004-05 and it was 0.6666 in 2006-07.

Acid Test (Quick) Ratio:

Acid Test (Quick) ratio is equal to Current assets less inventories divided by

current liabilities. It gives more liquid amount of assets to cover your liabilities.

Quick Ratio = Current assetsInventories - Preapids

Current liabilities

20062007:

Quick Ratio = 155,423,68778,466,9601,032,634

235,258,292

Quick Ratio = 0.322

2005 - 2006:

Quick Ratio = 211,443,611103,171,510 -10,775

245,562,802

Quick Ratio = 0.4408

2004 - 2005:

Quick Ratio = 231,538,51485,121,5081,197,161

206,990,030




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The quick test ratio is a very useful measuring of the liquidity position of the

firm. It means that firms ability to pay its short-term obligations or current

liabilities immediately and is a more rigorous test of liquidity than the current

ratio.

The quick ratio of the firm as is shown by the above calculations is decreasingover the years, that is, the company is getting lesser and lesser liquid current

assets to cover its current liabilities.

Leverage ratios:

Debt Equity Ratio:

Debt equity ratio is equal to long term debts divided by stockholders equity.

Debt Equity ratio = Long Term Debts

Stockholders equity

20062007:

Debt equity ratio = 331,932,701

216,260,913

Debt equity ratio = 1.5348

2005 - 2006:


233,187,729


2004 - 2005:


190,255,511


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This ratio indicates the proprietors claims of owners and outsiders against the

firms assets. The purpose is to get an idea of the cushion available to outsidersand the liquidity of the firm. The interpretation of the ratio depends upon the

financial and business policy of the firm.

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.

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 firms liquidity and hence decreasing the companys

profit. The lower the ratio the higher the firms financing that is provided bythe shareholders and larger the creditors cushion (margin of protection) in the

extent of shrinkage of assets values or outright loss.

Debt Ratio:

Debt ratio is equal to total liabilities divided by total assets.

Debt Ratio = Total liabilities

Total assets

20062007:

Debt Ratio = 567,195,993

977,927,145

Debt Ratio = 0.57999

2005 - 2006

Debt Ratio = 616,064,106

1,052,511,963

Debt Ratio = 0.585


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2004 - 2005

Debt Ratio = 523,304,608

940,390,441

Debt Ratio = 0.5564


It can be defined as how much sufficient our assets are in retrieving the total

debts. The debt ratio of the company has remained stagnant almost over the last

three years as shown clearly by the above calculations.

Times Interest Earned (Coverage Ratio):

It briefs that how many times the firm has earned the interest. Or how many

times the firm has user its earning before interest and taxes to cover the interest

expense.

Times Interest Earned = Profit before Interest and Taxes

Interest expense

20062007:

Interest coverage Ratio = 19,617,194

11,881,311

Interest Coverage Ratio = 1.65 times

2005 - 2006:


6,331,039


2004 - 2005:



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5,331,875



The interest coverage ratio is a very important from the lender point of view. It

indicates the number of times interest is covered by the profit available to pay

interest charges. It is an index of the financial strength of the enterprise. A high

ratio assures the lender a regular and periodic interest income. But weakness of

the ratio may create some problems for the firms financial manager in raisingfunds from the debts sources.

The no. of times the firm earns interest has fluctuated dramatically, that is, itwas 5.0049 in 2004, increased up to 10 and fell down to 1.65

Activity Ratios:

Inventory Turnover Ratio:

Inventory Turnover Ratio is equal to Cost of Goods Sold divided by Average

Inventory.

Inventory Turnover ratio = Cost of Goods Sold

Avg Inventory

20062007:

Inventory Turnover Ratio = 1,037,707,262

22,571,693

Inventory Turnover Ratio = 45.97 times

2005 - 2006:

Inventory Turnover Ratio = 804,424,768

17,679,208.5


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2004 - 2005:


12,750,484.5



Inventory turn over ratio measures the velocity of conversion of stock into

sales. In other words how rapidly inventory is turning into receivables through

sales.

In 2006 it was 6.74 times and in 2007 it was 8.01 times. In 2006 the ratio was

low because of over investment in inventories. In year 2007 it is better that is

8.01 times in the year, which is quite good because of good management and

polices.

Inventory Holding Period in months:

Inventory holding period in months is equal to number of months in a year

divided by inventory turnover ratio.

Inventory Holding Period in months = No of months in a year

Inventory turnover ratio

20062007:

Inventory turnover in months = 12

45.97

Inventory turnover in months = 0.26102 months

2005 - 2006:


45.5011


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2004 - 2005:


(because 9 months ended) 49.4





sales.

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, which is quite good because of good management and polices.

Net Fixed Assets Turnover Ratio:

Net Fixed assts turnover ratio is obtained by dividing sales with net fixed

assets, where,

(Net fixed assets = Total fixed Assets

Accumulated Depreciation)

Net Fixed Asset Turnover Ratio = Sales

Net Fixed assets

20062007:

Fixed asset turnover ratio= 1,100,181,111

567,187,294

Fixed asset turnover ratio = 1.939 times

2005 - 2006:


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Fixed asset turnover ratio = 909,784,346

600,565,280


2004 - 2005:

Fixed asset turnover ratio = 693,800,355

480,566,483



Fixed asset turnover ratio measures sales productivity and plant and equipment

utilization. It is clear that this ratio is declining from 2006 which is 4.36 to 2.76

in 2007

Total Asset Turnover:

Total asset turnover ratio measures that how much sales are generated through

the total assets of the organization.

Total Asset Turnover Ratio = Sales

Total assets

20062007:

Total asset turnover ratio= 1,100,181,111

977,927,145

Total asset turnover ratio = 1.125 times

2005 - 2006:

Total asset turnover ratio = 909,784,346

1,052,511,963


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2004 - 2005:


940,390,441



It shows that firms must manage its total assets efficiently and should generate

maximum sales through their proper utilization. As the ratio, increases there are

more revenue generated per rupee of total investment in asset. The firm ability

to produce a large volume of sales on a small total asset based is an importantpart of the firms overall performance in terms of profits. In 2007, 2006. The

ratio was 1.51, 1.99 times respectively. In 2007, the ratio indicates that it is

producing RS 1.51 sales per

rupees of investment in total assets. So as time is going by this ratio is

decreasing which means company performance is not up to mark in terms of

profits.

Receivables Turnover Ratio:

Receivables turnover ratio is equal to net credit sales divided by average

receivables.

Receivables Turnover Ratio = Net credit Sales

Avg Receivables

20062007:

Receivables Turnover Ratio = 1,100,181,111

16,481,740.5

Receivables Turnover Ratio = 66.751 times

2005 - 2006:


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Receivables Turnover Ratio = 909,784,346

15,193,435


2004 - 2005:


21,300,565.5



Receivables turnover ratio measures the average length of time it takes a firm

to collect credit sales in percentage terms. So Receivables is better in 2006 as

compare to 2007 which is 18.19 times

Average Collection Period in months:

Average collection period in months is equal to months in year divided by

Receivables turnover ratio.

Average Collection Period in months = No of months in a year

Receivables turnover ratio

20062007:

Receivables turnover ratio in months = 12

66.751

Receivables turnover ratio in months = 0.179 months

2005 - 2006:


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Receivables turnover ratio = 12

59.88

Receivables turnover ratio = 0.2 months

2004 - 2005:


(9 months ended) 32.57



Average collection period shows the average length of time it takes affirm to

collect credit sales in months. From above analysis it is clear that average

collection period was 17 days respectively in year an2006. But it is best in 2007

which is 20 days.

Payables Turnover Ratio:

Payable turnover ratio is equal to net credit purchases divided by average

payables.

Payables Turnover Ratio = Net credit Purchases

Avg payables

2006 - 2007:

Payable Turnover Ratio = 751,225,511

591,630,049

Payable Turnover Ratio = 1.2969 times

2005 - 2006:


569,684,357


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2004 - 2005:


481,757,914



The firm pays off its payables out of its cash 15.22 times in a year.

Avg Payment Period Ratio in months:

Payable turnover ratio in months is equal to months in year divided by payable

turnover ratio.

Avg Payment Period in months = No of months in a year

Payables turnover ratio

20062007:

Payable Turnover Ratio in months = 9

1.2969

Payable Turnover Ratio in months = 9.4 months

2005 - 2006:


1.051


2004 - 2005:



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It shows or represents the no of days taken by the firm to pay to its debtors. If it

is higher than it is beneficial for the management.

.In 2006 it is 24 days and in year 2007 it was 33 days. In year 2006 the

company was having low

ratio. 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 is equal to the ratio of gross profit to sales.

Gross Profit Margin = Gross Profit

Sales

2006

2007:

Gross profit margin = 62,473,849 X 100

1,100,181,111

Gross profit margin = 5.67 %

2005 - 2006:


909,784,346


2004 - 2005:


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693,800,355

Gross profit margin = 9.196%


Gross profit margin or gross profit ratio is the ratio of gross profit to net sales

expressed as percentage. In 2006 it increased slightly to 7.73 % and in 2007 it

increased to 10.22 %. The gross profit is sufficient to recover all operating

expenses and to build up reserve after paying all fixed interest charges and all

dividends.

Operating Profit Margin:

Operating Profit Margin is equal to earning before interest and tax divided by

sales.

Operating Profit Margin = EBIT/Operating Profit

Sales

20062007:

Operating Profit Margin = 19,617,194 X 100

1,100,181,111

Operating Profit Margin = 1.78%

2005 - 2006:


9,097,843,616

Operating Profit Margin = 7.6 %

2004 - 2005:


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693,800,355



This used to show the profitability without concern for taxes and interest. In

2006the operating profit ratio was 5.05% and in 2007 the net profit ratio is 7.59

%. In 2006 operating profit ratio increased by 1.66 % and increased by 2.54%

in 2007relative to 2006 Higher ratio shows firms capacity to with stand

adverse economic condition without caring taxes and interest.

Net Profit Margin:

Net Profit Margin is equal to net profit divided by sales.

Net Profit Margin = Net Profit

Sales

20062007:

Net Profit Margin = 74,939,223 X 100

1,100,181,111

Net Profit Margin = 6.81 %

2005 - 2006:


909,784,346


2004 - 2005:


693,800,355


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This used to show the overall profitability and hence it useful to the proprietors.

Higher the ratio betters for the organization .It shows the firms ability to turneach rupee of sale into profit. In 2006 the net profit ratio is 1.995 % and in

2007 the net profit ratio is 2.66%. In 2006 net profit ratio increased by 0.795 %

relative to 2007 . Higher ratio shows firms capacity to with stand adverseeconomic condition.

Earning per share:

This ratio shows that how much amount per share does a common stock holderattains.

Earning per share = Earning Available for Common Stock Holders

No. Of Common Stock Shares

20062007:

Earning per share = (26,419,136)

13,552,569

Earning per share = Rs. (1.95) / share

2005 - 2006:

Earning per share = 23,556,157

13,552,569

Earning per share = Rs.1.74/share

2004 - 2005:


13,552,569


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Earning per share = Rs. (0.23) /share


This ratio shows the worth of the share. As we can see that the worth of the

shares of SHTM has increased. 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.

Price Earning Ratio = Market price per share

Earning per share

2006

2007:

Price Earning Ratio = 13

(1.95)

Price Earning Ratio = (Rs.6.66)

2005 - 2006:

Price Earning Ratio = 19.95

1.74

Price Earning Ratio = Rs.11.465

2004 - 2005:


(0.23)

Price Earning Ratio = (Rs.96.739)



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These ratios results show that in 2007Rs.7.91 were to be spent in order to earn

Rs.1 profit. But in year 2006the position had improved a little bit showing that

Rs. 6.91 have to be spent in order to earn Rs.1 of profit.

RATIO ANALYSIS

(Shaheen Cotton Mills Ltd.)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


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20062007:


190,729,441


2005 - 2006:


249,133,615


2004 - 2005:


239,040,784



Current ratio is a general and quick measured of liquidity of firm. It represents

the margin of safety or cushion available to the auditor. It is the index of the

firms financial stability. It is also an index of the financial solvency and indexof strength of working capital.

Firm's Current ratio has been increasing over the years right from the 20042007. Which shows that the current ratio of the firm has been increasing over

the years.

Acid Test (Quick) Ratio:

Quick Ratio = Current assetsInventories - Preapids

Current liabilities

20062007:


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Quick Ratio = 124,814,962-75,496,998-13,622,386

190,724,441


2005 - 2006:

Quick Ratio = 251,003,176 -141,230,544-139,589

249,133,615

Quick Ratio = 0 .44005

2004 - 2005:

Quick Ratio = 240,489,264 - 100,915,021839,298

239,040,784



The quick test ratio is a very useful measuring of the liquidity position of the

firm. It means that firms ability to pay its short-term obligations or currentliabilities immediately and is a more rigorous test of liquidity than the current

ratio.

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


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Stockholders equity

20062007:

Debt Equity ratio = 216,171,622

51,741,235

Debt Equity ratio = 4.177

2005 - 2006:


62,565,620


2004 - 2005:


53,055,841



This ratio indicates the proprietors claims of owners and outsiders against the

firms assets. The purpose is to get an idea of the cushion available to outsidersand the liquidity of the firm. 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 shareholders funds. The debt equity ratio of thefirm has been fluctuating over the years right from 20042007 with maximum

in the year 2004-05 thereby decreasing in the next year and increasing finally.

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 firms liquidity and hence decreasing the companys

profit. The lower the ratio the higher the firms financing that is provided by


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the shareholders and larger the creditors cushion (margin of protection) in the

extent of shrinkage of assets values or outright loss.

Debt Ratio:

Debt Ratio = Total liabilities

Total assets

20062007:

Debt Ratio= 406,896,063

664,277,855

Debt Ratio= 0.6125

2005 - 2006

Debt Ratio= 503,488,877

772,251,884

Debt Ratio= 0.6519

2004 - 2005

Debt Ratio= 511306,329

773,837,219

Debt Ratio= 0.6607


It can be defined as how much sufficient our assets are in retrieving the total

debts. We can observe in our analysis that the debt ratio of the firm isdecreasing over the years which is a good sign for the company, that is, the

company uses less of its total liabilities for its current assets.

Times Interest Earned (Coverage Ratio):

Times Interest Earned = Profit before Interest and Taxes


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Interest expense

20062007:


6,072,316


2005 - 2006:


8,150,380


2004 - 2005:


11,495,605



The interest coverage ratio is a very important from the lender point of view. It

indicates the number of times interest is covered by the profit available to pay

interest charges. It is an index of the financial strength of the enterprise. A high

ratio assures the lender a regular and periodic interest income. But weakness of

the ratio may create some problems for the firms financial manager in raisingfunds from the debts sources.

The no. of times the company earns its interest fluctuates from over the years

right from 20042007. The times interest earned by the company in 2007returns to the level where it was in 2004.


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Activity Ratios:


Inventory Turnover ratio = Cost of Goods Sold

Avg Inventory

20062007:


8,884,430

Inventory Turnover Ratio = 98.30times

2005 - 2006:


9,789,488.5

Inventory Turnover Ratio = 82.75times

2004 - 2005:


12,363,273





sales.

In 2006 it was 6.74 times and in 2007 it was 8.01 times. In 2006 the ratio was

low because of over investment in inventories. In year 2007 it is better that is

8.01 times in the year, which is quite good because of good management and

polices.


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Inventory Holding Period in months:

Inventory Holding Period in months = No of days in a year

Inventory turnover ratio

20062007:


98.30

Inventory turnover in months = 0.1220months

2005 - 2006:


82.75

Inventory turnover in months = 0.1450months

2004 - 2005:







sales.

In 2006 it was 54 days times and in 2007 it was 46 days. In year 2007 it is quitegood and in 2006 it was better that is 56 days in a year to move inventory

through sales, which is quite good because of good management and polices.

Net Fixed Assets Turnover Ratio:

Net Fixed Asset Turnover Ratio = Sales


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2005 - 2006:


772,251,884


2004 - 2005:


773,837,219



It shows that firms must manage its total assets efficiently and should generate

maximum sales through their proper utilization. As the ratio, increases there are

more revenue generated per rupee of total investment in asset. 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. In 2007, 2006. The

ratio was 1.51, 1.99 times respectively. In 2007, the ratio indicates that it isproducing RS 1.51 sales per

rupees of investment in total assets. So as time is going by this ratio is

decreasing which means company performance is not up to mark in terms of

profits.


Receivables Turnover Ratio = Net credit Sales

Avg Receivables

20062007:


10,148,122


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2005 - 2006:


4,035,115


2004 - 2005:


2,249,557.5



Receivables turnover ratio measures the average length of time it takes a firm

to collect credit sales in percentage terms. So Receivables is better in 2006 as

compare to 2007 which is 18.19 times

Average Collection Period in months:

Average Collection Period in months = Days in a year

Receivables turnover ratio

20062007:

Receivables turnover ratio in months = 12

91.77

Receivables turnover ratio in months = 0.130 months

2005 - 2006:


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219.678

Receivables turnover ratio = 0.0546months

2004 - 2005:





Average collection period shows the average length of time it takes affirm to

collect credit sales in months. From above analysis it is clear that average

collection period was 17 days respectively in year an2006. But it is best in 2007

which is 20 days.


Payables Turnover Ratio = Net credit Purchases

Avg payables

2006 - 2007:


458,517,776


2005 - 2006:


507,397,603



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2004 - 2005:


484,471,094.5



The firm pays off its payables out of its cash 15.22 times in a year.

Avg Payment Period Ratio in months:

Avg Payment Period in months = No of Days in a year

Payables turnover ratio

20062007:


1.283

Payable Turnover Ratio in months = 9.353months

2005 - 2006:


1.283

Payable Turnover Ratio in months = 9.353months

2004 - 2005:






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It shows or represents the no of days taken by the firm to pay to its debtors. If it

is higher than it is beneficial for the management.

.In 2006 it is 24 days and in year 2007 it was 33 days. In year 2006 the

company was having low

ratio. 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

20062007:

Gross profit margin = 57,903,415 * 100

931,308,945


2005 - 2006:

Gross profit margin = 76,317,101 * 100

886,433,781


2004 - 2005:


644,748,123




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Gross profit margin or gross profit ratio is the ratio of gross profit to net sales

expressed as percentage. In 2006 it increased slightly to 7.73 % and in 2007 it

increased to 10.22 %. The gross profit is sufficient to recover all operating

expenses and to build up reserve after paying all fixed interest charges and all

dividends.

Operating Profit Margin:

Operating Profit Margin = EBIT/Operating Profit

Sales

20062007:

Operating Profit Margin = 21,871,647 *100

931,308,945

Operating Profit Margin = 2.30%

2005 - 2006:

Operating Profit Margin = 35,366,081 * 100

886,433,781


2004 - 2005:


644,748,123



This used to show the profitability without concern for taxes and interest. In

2006the operating profit ratio was 5.05% and in 2007 the net profit ratio is 7.59

%. In 2006 operating profit ratio increased by 1.66 % and increased by 2.54%


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in 2007relative to 2006 Higher ratio shows firms capacity to with standadverse economic condition without caring taxes and interest.

Net Profit Margin:

Net Profit Margin = Net Profit

Sales

20062007:

Net Profit Margin = (986,679,35) * 100

931,308,945

Net Profit Margin = (10.55%)

2005 - 2006:

Net Profit Margin = (113,961,110) * 100

886,433,781

Net Profit Margin = (12.85%)

2004 - 2005:

Net Profit Margin = (129,469,749) X 100

644,748,123

Net Profit Margin = (20.8) %


This used to show the overall profitability and hence it useful to the proprietors.

Higher the ratio betters for the organization .It shows the firms ability to turneach rupee of sale into profit. In 2006 the net profit ratio is 1.995 % and in

2007 the net profit ratio is 2.66%. In 2006 net profit ratio increased by 0.795 %

relative to 2007 . Higher ratio shows firms capacity to with stand adverse

economic condition.


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Earning per share:

Earning per share = Earning Available for Common Stock Holders

No. Of Common Stock Shares

20062007:


14,729,344

Earning per share = Rs. (0.58)

2005 - 2006:


14,729,344

Earning per share = Rs.0.34/share

2004 - 2005:


13,706,473

Earning per share = Rs. 0.9 /share


This ratio shows the worth of the share. As we can see that the worth of the

shares of SHTM has increased. EPS is almost twice to the 2003 in 2007

Price earning ratio:

Price Earning Ratio = Market price per share

Earning per share

20062007:


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(0.58)

Price Earning Ratio = Rs.(10.344)

2005 - 2006:


0.34


2004 - 2005:


0.9



These ratios results show that in 2007Rs.7.91 were to be spent in order to earn

Rs.1 profit. But in year 2006the position had improved a little bit showing that

Rs. 6.91 have to be spent in order to earn Rs.1 of profit.

INDUSTRY ANALYSIS (comparison through graphical interpretation)

Activity Ratios:

Current Ratio:

Current Ratio

2004-05 2005-06 2006-07

Shahzad 1.118 0.867 0.6606

Shaheen 1.00605 1.0075 0.6544


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Comparison:

Quick Ratio:

Quick Ratio

2004-05 2005-06 2006-07

Shahzad 0.7015 0.4408 0.3227

Shaheen 0.5803 0.44005 0.2511


Inventory Turnover Ratio

(Times)

2004-05 2005-06 2006-07

Shahzad 49.4099 45.5011 45.973

Shaheen 46.732 82.7537 98.3

Comparison:

Inventory Holding Period:

Inventory Holding Period

(months)

2004-05 2005-06 2006-07

Shahzad 0.182 0.2637 0.261

Shaheen 0.192 0.145 0.122


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Comparison:


Receivables Turnover Ratio

(Times)

2004-05 2005-06 2006-07

Shahzad 32.571 59.88 66.751

Shaheen 286.61 219.677 91.77

Comparison:

Average Collection Period:

Average Collection Period

(months)

2004-05 2005-06 2006-07

Shahzad 0.2763 0.2 0.179

Shaheen 0.0314 0.0546 0.13

Comparison:


Payables Turnover Ratio (times)


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2004-05 2005-06 2006-07

Shahzad 0.949 1.051 1.2969

Shaheen 0.9132 1.283 1.283

Comparison:

Net Fixed Assets:

Net Fixed Assets Ratio

2004-05 2005-06 2006-07

Shahzad 1.4437 1.5148 1.9397

Shaheen 2.15 3.24 3.29


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Comparison:

Average Payment Period:

Average Payment Period

(months)

2004-05 2005-06 2006-07

Shahzad 9.48 11.4 9.4

Shaheen 9.8554 9.351 9.353

Comparison:

Total Assets Turnover:


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Total Assets Turnover

2004-05 2005-06 2006-07

Shahzad 0.7377 0.8643 1.125

Shaheen 0.833 1.147 1.4

Comparison:

Debt Ratio:

Debt Ratio

2004-05 2005-06 2006-07

Shahzad 0.5564 0.585 0.5799

Shaheen 0.6607 0.6519 0.6129

Comparison:

Debt Equity Ratio:

Debt Equity Ratio

2004-05 2005-06 2006-07

Shahzad 1.6625 1.5888 1.5348

Shaheen 5.1316 4.0654 4.177


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Comparison:

Times Interest Earned:

Times Interest Earned (times)

2004-05 2005-06 2006-07

Shahzad 5.0049 10.923 1.65109

Shaheen 3.356 4.3391 3.6


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Comparison:

G.P.Margin:

G.P. Margin


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2004-05 2005-06 2006-07

Shahzad 9.20% 11.57% 5.67%

Shaheen 10.30% 8.60% 6.21%

Documents

shahzad & shaheen