Company Background

Square Textile Ltd. Overview: Square Textile Ltd. started its journey by establishing the first unit in 1997. One year later the second unit was established. Square Textile is a subsidiary company of Square Group. The company was incorporated as a public limited company in the year of 1994. The operation was started in 1997. It was enlisted in Dhaka Stock Exchange and Chittagong Stock Exchange in 2002. Within a very short time of span the company achieved some significant success. Square Textile receives Oeko-Tex standard 100 and ISO-9002 certificates in the year 2000. Authorized capital of the company is tk. 1000 million. Its paid up capital is tk. 251.90 million. More than 1,223 employees are working in this organization. The business lines of Square Textiles Limited are manufacturing and marketing of yarn. The factory is located in Saradagong, Kashimpur, Gazipur, Bangladesh. Its office is located at Uttara in Dhaka. Product and Services: As stated earlier the business line of the company is manufacturing and marketing of yarn. It manufactures: 100% Cotton Ring Span Yarn For Hosiery 100% Cotton OE Rotor Yarn For Hosiery Knit Fabrics For 100% export oriented readymade garments industry

It also performs the following services: Dying and post Mercerization Fabric Dying

The final output is marketwise by Square Fashion Ltd. The Square Fashions Ltd. provides: Readymade Knit Apparels like T-shirts, Polo shirts, Tank tops, pajamas, Sport wear, Mens and Ladies fashion wear, kids wear etc. HR Textile Mills Ltd. Overview: HR Textile Mills is a vertical public limited company engaged in manufacturing of knitwear products. It is a part of the famous Pride Group, Bangladesh. Pride Group is a vertical textile group engaged in the manufacture and export of knitwear products to the European Union, the

USA and Canada. The group is also engaged in production and marketing of saris, kids wear, ladies' wear, home furnishing and other textile products through a chain of 66 retail outlets spread all over Bangladesh. As of date, Pride Group consists of H.R. Textiles Mills Limited, Fashion Knit Garments Limited, Dacca Textiles Limited, Pride Limited, Urban Truth and MODA. It was established in 1958 by Halimur Rahman. H.R. Textiles Mills is a Lycra assured factory. It is one of the pioneer composite knitwear companies in Bangladesh. The facilities have a complete North-American and European state-of-the-art setup, thoroughly engineered, and are capable of manufacturing a whole range of knit fabrics and Garments

Theoretical Review
Ratio Analysis 1. Liquidity Ratios: Ratio that relates the firms cash and other assets to its current liabilities. A) Current Ratio

Company Name Year Current Assets Current Liabilities Current Ratio

Square Textile 2011 2012 6,371,106,117 5,450,698,872 4,034,826,920 2,584,353,232 1.58 2.11

HR textile 2011 714,793,046 708,522,756 1.01 2012 807,232,633 771,932,204 1.05

Current Ratio
2.5 2 1.5 1 0.5 0 2011 2012 Square Textile HR textile

Comment: Square textiles current ratio in 2011 was 1.58 and in 2012 it increased to 2.11. In 2012 companys current liabilities decreased in large amount thats why current ratio increased. On the other hand HR Textiles Current ratio increased from 1.01 to 1.05 at the same time due to current assets increased more than current liabilities.

B) Quick Ratio

Company Name Year Current Assets Current Liabilities Inventories Current Assets-Inventories Quick Ratio

Square Textile 2011 2012 6,371,106,117 5,450,698,872 4,034,826,920 2,584,353,232 1,902,471,712 1,651,754,805 4,468,634,405 3,798,944,067 1.11 1.47

HR textile 2011 2012 714,793,046 807,232,633 708,522,756 771,932,204 78,500,199 125,824,453 636,292,847 681,408,180 0.89 0.88

Quick Ratio
1.5

Square Textile HR textile

0.5

0 2011 2012

Comment: In year 2011 Square Textiles quick ratio was 1.11. In year 2012 it increased to 1.47 . On the other hand, at the same time period HR Textiles quick ratio decreased from 0.89 to 0.88.

2. Asset Management Ratios: Ratios that measures how effectively a firm is managing its assets. A) Inventory Turnover Ratio
Company Name Year Cost Of Goods Sold Inventories Inventory Turnover Ratio Square Textile HR textile 2011 2012 2011 2012 7,942,084,250 7,357,660,293 1,553,115,036 1,426,244,288 1,902,471,712 1,651,754,805 78,500,199 125,824,453 4.17 4.45 19.78 11.34

Inventory Turnover Ratio

20 15 10 5 0 2011 2012 Square Textile HR textile

Comment: In 2012 the ratio of Square Textiles is in higher position 4.45 that was 4.17 in 2011. This suggests that Square textile was holding excessive stocks of inventory in 2011; on the other hand HR Textiles ratio is decreased from 19.78 to 11.34 that mean HR textile is holding excessive stocks of inventory in 2012. Excess stocks are, of course, unproductive and represent an investment with a low or zero rate of return.

B) Fixed asset turnover ratio=

Company Name Year Sales Net Fixed Asset Fixed Asset Turnover Ratio

Square Textile 2011 9,391,822,689 2,483,823,461 3.78 2012 8,741,773,216 2,631,811,191 3.32

HR textile 2011 1,787,093,874 439,916,150 4.06 2012 1,618,091,942 395,945,629 4.09

Fixed Asset Turnover Ratio

5 4 3 2 1 0 2011 2012 Square Textile HR textile

Comment: This ratio measures how efficient the firm is in utilizing its fixed assets to generate sale. The higher the ratio the better it is. In 2012 the ratio of Square Textiles is 3.32. It was higher 3.78 in 2011. At the same time HR Textiles ratio increased from 4.06 to 4.09.

C) Total asset turnover ratio =

Company Name Year Sales Total Assets Total Assets Turnover Ratio

Square Textile 2011 9,391,822,689 8,854,929,578 1.06 2012 8,741,773,216 8,082,510,063 1.08

HR textile 2011 1,787,093,874 1,154,709,196 1.55 2012 1,618,091,942 1,203,178,262 1.34

Total Assets Turnover Ratio

2 1.5 Square Textile 1 0.5 0 2011 2012 HR textile

Comment: Square textiles total asset turnover ratio is increased from 1.06 (2011) to 1.08 in 2012 and HR Textiles ratio decreased from 1.55 to 1.34.To become more efficient, sales should be increased, some assets should be disposed of, or a combination of these steps should be taken.

3. Debt Management Ratios: Analyze the companys use of debt.

A) Debt to Asset Ratio=

x 100

Company Name Year Total Debt Total Assets Debt-Asset Ratio Debt Ratio (%)

Square Textile 2011 2012 4,640,065,885 5,314,697,645 8,854,929,578 8,082,510,063 0.5240 0.6576 52.40 65.76

HR textile 2011 828,374,597 1,154,709,196 0.7174 71,74 2012 825,775,140 1,203,178,262 0.6863 68.63

Debt Ratio (%)

80 70 60 50 40 30 20 10 0 2011 2012

Square Textile HR textile

Comment: From debt ratio analysis we can measure of the percentage of the firms asset financed by creditors. Creditors prefer low debt ratios because the lower the ratio, the greater the cushion against creditors losses in the event of liquidation. From the analysis we can see that,

both Square textiles and HR Textiles mills ltd. has more than 50% of debt. So, it is not a good sign for the companies. B) Time interest earned ratio =

Company Name Year EBIT Interest Earned Times Interest Earned Ratio

Square Textile 2011 2012 1,024,874,985 1,035,048,961 48,803,570 49,288,046 21.00 20.99

HR textile 2011 71,016,755 3,381,750 21.00 2012 65,055,106 3,097,862 21.00

Times Interest Earned Ratio

21 20.998 20.996 20.994 20.992 20.99 20.988 20.986 20.984 2011 2012

Square Textile HR textile

Comment: It measures the extent to which earnings before interest and taxes (EBIT), also called operating income, can decline before the firm is unable to meet its annual interest costs. Square textiles Times-interest-earned ratios of two years are 21.00 and 20.99 percent respectively in year 2011 and 2012, and HR Textiles 21.00 both years, which indicate companies, are covering its interest charges by a high margin of safety. C) Debt to Equity Ratio=

Company Name Year Total Debt Total Equity Debt-Equity Ratio

Square Textile 2011 2012 4,640,065,885 5,314,697,645 4,635,087,878 5,308,232,046 1.001 1.0012

HR textile 2011 828,374,597 326,334,599 2.54 2012 825,775,140 377,403,122 2.19

Debt to Equity Ratio

3 2.5 2 1.5 1 0.5 0 2011 2012 Square Textile HR textile

Comment: From the year 2011 to 2012, Square Textiles debt / equity ratio remain almost unchanged 1.001 times of equity but HR Textiles debt / equity ratio fell by a significant percentage, showing that the firm is achieving its desired capital structure by reducing its level of debt. In 2011, debt was 2.54 times of equity, which fell to 2.19 times in 2012. Overall, both companies should reduce the gap between debt and equity of the firm.

4. Profitability Ratios: Ratios showing the effect of liquidity, asset management and debt management on operating results. A) Gross profit ratio=
Company Name Year Gross Profit Sales Gross Profit Ratio Gross profit Ratio (%)

x 100
Square Textile 2011 2012 1,449,738,439 1,366,112,923 9,391,822,689 8,741,773,216 0.1544 0.1562 15.44 15.62 HR textile 2011 261,344,529 1,787,093,874 0.1462 14.62 2012 240,413,296 1,618,091,942 0.1486 14.86

Gross Profit Ratio (%)

16 15.5 Square Textile 15 14.5 14 2011 2012 HR textile

Comment: It measures the percentage of each sales unit remaining after the firm has paid for its goods. The higher the ratio, the better it is. Here both companies gross profit margin ratio was lower in 2011 relatively year 2012. For Square Textiles it increases from 15.44 to 15.62 and for HR Textiles it increases from 14.62 to 14.86. B) Net profit margin =
Company Name Year Net Income Sales Net Profit Margin On Sales Net Profit Margin On Sales (%)

x100
Square Textile 2011 2012 824,830,674 828,993,757 9,391,822,689 8,741,773,216 0.0878 0.0948 8.78 9.48 HR textile 2011 57,489,754 1,787,093,874 0.0322 3.22 2012 52,663,657 1,618,091,942 0.0325 3.25

Net Profit Margin on Sales (%)

10 8 6 4 2 0 2011 2012 Square Textile HR textile

Comment: This ratio measures the amount of profit generated by total sales and net income / loss. Higher ratio represents better position. The Net profit ratios of Square textile in 2012 is higher than 2011. It indicates the company has higher selling to generate higher profit.

C) Return on Total asset (ROA) =

x100

Company Name Year Net Income Total Assets Return On Total Assets Return On Total Assets (%)

Square Textile 2011 2012 824,830,674 828,993,757 8,854,929,578 8,082,510,063 0.0931 0.1026 9.31 10.26

HR textile 2011 57,489,754 1,154,709,196 0.0498 4.98 2012 52,663,657 1,203,178,262 0.0438 4.38

Return on Total Assets (%)

12 10 8 6 4 2 0 2011 2012 Square Textile HR textile

Comment: This ratio measures the efficiency of a firm to use its assets to generate revenue and a higher ratio indicates better position. For Square textiles mills ratio was low in 2011 and higher in 2012 indicates the managements efficiency to utilize firms assets to generate profit. HR textile mills decreasing ratio trend indicates the managements inefficiency to utilize firms assets to generate profit.

D) Return on equity (ROE) =

Square Textile Company Name Year Net income Common Equity Return On Common Equity Return On Common Equity (%) 2011 824,830,674 4,635,087,878 0.1779 17.79 2012 828,993,757 5,308,232,046 0.1562 15.62

x100
HR textile 2011 57,489,754 326,334,599 0.1762 17.62 2012 52,663,657 377,403,122 0.1395 13.95

Return on Common Equity (%)

20 15 Square Textile 10 5 0 2011 2012 HR textile

Comment: This ratio measures the return on total stockholders equity and excludes debt in the dominator and uses either pretax income or net income. Higher the ratio is the better for the firm. However both HR and Square textiles mills Ltd has lower ROE in 2012 than in 2011.

5.Market Value Ratios: Ratios that relate the firms stock price to its earnings and book vaue per share.

A) Earning Per Share(EPS)=

Company Name Year Net income Common Shares Outstanding Earnings Per Share

Square Textile 2011 2012 824,830,674 828,993,757 97,405,993 116,887,192 8.46 7.09

HR textile 2011 57,489,754 22,000,000 2.61 2012 52,663,657 25,300,000 2.08

Earnings Per Share

10 8 6 4 HR textile 2 Square Textile 0 2011 2012 Square Textile HR textile

Comment: This ratio shows earning per share available to the shareholders. For both Square Textiles and HR Textiles the EPS is decreased in 2012, but Year 2011 had higher Earning per Share. It is not in a good condition.

B) Price/Earning (P/E) Ratio =

Company Name Year Market Price Per Share EPS Price Earnings Ratio

Square Textile 2011 2012 111.20 102.80 8.46 7.09 13.14 14.49

HR textile 2011 2012 33.40 34.90 2.61 2.08 12.79 16.78

Price Earning Ratio

20 15 10 5 0 2011 2012 HR textile Square Textile Square Textile HR textile

Comment: The P/E ratio measures the amount that investors are willing to pay for each unit of firms earnings. The level of this ratio indicates the degree of confidence that investors have in the firms future performance. The higher the P/E ratio indicate the greater the investor confidence. Both companies price earnings ratio was in poor condition in 2011. In 2012 P/E ratio increases to a significant level. CAPITAL STRUCTURE Company Name Year Total Assets(Tk) Total Debt (Tk) Total Equity (Tk) Debt to Asset Ratio (%) Debt to Equity Ratio Market Price per Share(Tk) Earnings Per Share (Tk) Square Textile 2011 8,854,929,578 4,640,065,885 4,635,087,878 52.40 1.001 111.20 8.46 2012 8,082,510,06 3 5,314,697,64 5 5,308,232,04 6 65.76 1.0012 102.80 7.09 2011 1,154,709,19 6 828,374,597 326,334,599 71.74 2.54 33.40 2.61 HR textile 2012 1,203,178,26 2 825,775,140 377,403,122 68.63 2.19 34.90 2.08

Capital Structure of Square Textile

10,000,000,000 8,000,000,000 6,000,000,000 4,000,000,000 2,000,000,000 0 Total Assets(Tk) Total Debt (Tk) Total Equity (Tk) 2011 2012

Capital Structure of H R Textile

1,500,000,000 1,000,000,000 500,000,000 0 Total Assets(Tk) Total Debt (Tk) Total Equity (Tk)

2011 2012

Capital Structure is the combination of debt and equity that a firm uses to finance its assets or investments. The main components of capital structure are Debt to Asset ratio and Debt to Equity ratio. Debt to Asset Ratio: In 2011, Square Textiles 52.40% of its assets were financed by debt, which increased to 65.76% in 2012. The trend is indicating that the company is increasing its level of debt. On the other hand in 2011, HR Textiles 71.74% of its assets were financed by debt, which decreased to 68.63% in 2012. The trend is indicating that the company is decreasing its level of debt. Debt / Equity Ratio: From the year 2011 to 2012, Square Textiles debt / equity ratio remain almost unchanged 1.001 times of equity but HR Textiles debt / equity ratio fell by a significant

percentage, showing that the firm is achieving its desired capital structure by reducing its level of debt. In 2011, debt was 2.54 times of equity, which fell to 2.19 times in 2012. Overall, both companies should reduce the gap between debt and equity of the firm. Effect of Capital Structure on Market Price of Share The market price of shares of Square textile Ltd. is in a falling tends in these two years but HR textile Ltd. is in a rising tends in these two years. From 2011 to 2012 there was sharp rise in the market price of HR textile, whereas there was a sharp fall in the market price of Square textile, which indicates that reduction of the debt burden is making firm more attractive to the investors. So companies should continue with their debt reduction strategy until they reach their desired level of debt / equity.

Recommendation:
Square textiles and HR textiles earnings per share in 2012 is higher indicating good return for the shareholders from high net income of the company. But companies also have to keep in mind that all the profit cannot be distributed to shareholders but save it for future. It is termed as Retained Profits. The net income after tax and interest should be reserved for future benefits. Price/Earnings ratio holds a huge gap compared to its standard. This indicates high risk for the firm. The increase in the ratio was lower and maintains a fixed structure.HR also should focus on the market price. Till 2011 the market price of share was constant but this would not last. Also companies are not meeting its standard ratio which may also prove risky for any further future growth prospects. This would fail to attract investors and Square textile and HR textile should follow certain strategies to reach its standard ratio. Firms should be enough successful so that there is higher growth possibilities. The risk-averse investors would be unlikely to invest in these shares

Conclusion The profitability situation of both Square textile and HR textile are not so good. They need a lot of recovery. They need to develop their strategies and focus more on improving net profits, high sales and ensure high return on asset and equity. Square textile and HR textile are not in a sound liquid position where they are weak in meeting their current obligations. There is a need for improving the liquid assets if companies have to run debt-free. Both firms should consider in managing debts in such a way that does not put an obligation rather becomes easier through increasing sales, issue of stocks etc. Overall company should try maintaining a good condition so that it attracts more investors from their high returns for shareholders. Textile is one of the oldest and most prolific industries in Bangladesh. Bangladesh is one of the leading exporters of ready-made garments in the world and earning nearly 76% of its foreign currency through exporting textiles and ready-made garments. Bangladesh is now second largest readymade garments manufacturer after China, by the next five years Bangladesh will become largest readymade garments manufacturer but due to accident the foreign country does not want to import our country. So that reason Bangladesh faces economic crises. The current position of textile industry is very poor. Most of the garment factories worker faces safety problem. Lack of safety many workers died by many accident. Like Rana plaza collapsed, Tazrin garments fire. So government should concern about this.

Square textiles weighted average cost of capital: 2011 WACC=Debt ratio*cost of debt+ (1-debt ratio)*cost of equity =.5240*15.3+ (1-.5240)*9.42 =82.47 2012 WACC=Debt ratio*cost of debt+ (1-debt ratio)*cost of equity =.6576*15.8+ (1-.6576)*9.67 =103.78

H.R textiles weighted average cost of capital: 2011 WACC=Debt ratio*cost of debt+ (1-debt ratio)*cost of equity =.7174*13.5+ (1-.7174)*10.5

=104.61 2012 WACC=Debt ratio*cost of debt+ (1-debt ratio)*cost of equity =.6863*14.1+ (1-.6863)*10.61 =106.03

Questionnaires: 1. To which company you would extend short-term credit? Ans: For short term credit we would like to extend H.R Textiles because in 2008 & 2009 H.R Textiles paid dividend 66tk per share. There is no growth but they maintain a consistency, but in 2010 the company failed to keep the consistency & reduced the amount compared to the previous year. The same indications also happen in the last 2011 & 2012. In this scenario the growth rate is become low. Current market price is 41.5tk, in 2012 market price is 34.90Tk & 2011 market price is 33.40tk. So the current market value is better than the previous year. Liquidity factors are strong & risk factors are very small, so we can go for short term credit for this company. 2. To which company you would extend long-term credit? Ans: For Long-term credit we would like to extend Square Textiles Ltd. Square textile is announcing dividend in last 5 years. But the amount of dividend reduces every year except 2012. However the dividend was decreased in a marginal amount. Increase no. of shares is one of the reasons behind lower amount of compared to that of previous year. The company increased the no. of shares for strengthening their paid up capital & expanding the business. The paid up capital become twice during the last 3 years through bonus issuance. On the other hand company provide dividend to their shareholders. It was only possible for doing flourishing business in the industry. As a result in 2012 the company offered more dividend than the previous year. They have good liquidity, strong brand image, diversified product line, regular repayment, history & professional management team etc. So we can extend long-term credit for this company. 3. To which companys manager you would award performance bonus?

Ans: From our report analysis we see that Square textiles Ltd maintain consistency in their industry. The increased their no. of share than the other competitors. All these happen because their managers are more efficient so they deserve performance bonus. There is no doubt that pay-for-performance can be an important contributor to organizational effectiveness. It can be a significant motivator of performance and can attract and retain the best performers. But in order to accomplish these important objectives, significant amounts of pay need to be tied closely to performers. When individuals perform well, their pay must go up, and when they perform poorly, their pay must stay the same or go down. 4. Which companys stock you will buy? Ans: Studying this two companys market condition we see that Square textiles maintain consistency in the market. So we would like buy Square textiles stock.

An Assignment On SQUARE TEXTILS LTD & H.R TEXTILS LTD

Submitted To:
Dr. Sarwar Uddin Ahmed School of Business Independent University, Bangladesh (IUB)

Submitted By:

Course Name: Course ID No: MBA

Date of Submission: 7th April, 2014

LETTER OF TRANSMITTAL
7th April, 2014 To Dr. Sarwar Uddin Ahmed Instructor School of Business Independent University Bangladesh Subject: - Submission of the report on Square Textiles Ltd & H.R Textiles Ltd. Dear Sir, With due respect and humble submission, i, would like to inform you that, there is the dissertation report on Square Textiles Ltd.; which was assigned to me to submit under the program. It was a great pleasure for me to do the assigned job. I made every endeavor to prepare this report accurate & tried my level best to accumulate relevant and insightful information. This report really helps me to gather practical and theoretical knowledge in Human Resource Management. In finally, i am very grateful to you for your kind and generous guidance to make the report successful. Sincerely Yours,

Master of Business Administration

Acknowledgement
Many people have contributed in a variety of ways in the preparation of this Assignment. Without the help of them, it was impossible to finish our Assignment.

At first, all praise to almighty god. We are thankful to our almighty god who gives us strength to complete this Assignment.

Then, we would like to pay gratitude and want to give especial thanks to our respected course faculty for helping us in all ways to complete us report. We are highly pleased for giving us such an opportunity.

Finally, thanks to our group members for their co-operation.