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Topics: Comparative analysis of financial statement between two Textile Companys

Submitted to: Ms. Tarana Majid Lecturer, Faculty of Business Administration Eastern University Dhaka

Submitted by:
Imran Hossain
062200043 Md. Matiur Rahman Maruf 062200024 Farhana Banu 062200020 Hasan Mahmud 062200008 S.M. Roman Sharif 062200063

Date of submission:

11-05-2008

1.0 Introduction:
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In our country textile companies are doing very well business. So many competitors are in this sector. Lots of new companies entered this market. From all of them we choose two cement company for our report. We collect their financial statement & analyze them within three methods & we identify their comparative advantage.

1.1 Origin: This is the report comes from our FIN-245 subject. The
course instructor Ms. Tarana Majid orally authorized the task of preparing the report to a group of student. She gave this report to learn the way to analyze the financial statements. To follow the syllabus of our subject so we have to do some relevant study based on our report. Thats why this topic comes forward.

1.2 Scope: We worked on Ashraf textile mills ltd. & Saiham textile
mills ltd for our report.

1.3 Limitation: We are very happy because we made our report


within some limitations and overcome it almost. For prepare this report we faced some barrier. When we prepared this report all necessary data is not available. For this we assume some of the data to complete the report. On the other hand when we go to collect the financial statement we were unable to found our needed statement books. Finally, one limitation was on shortage of knowledge that was reduced to make this report a better one.

1.4 Source of Data: For our report we collect data for finding &
analysis. At first we collected the annual report & take financial statements of two companies. We also collected some data from the internet.

1.5 Methodology: As a rule, we had to follow a particular


method for collecting data to complete the report accurately. At first we make Income Statement, Balance Sheet & Cash Flow on a excel sheet. Than we analysis the Income Statement & the Balance Sheet using the common sizing & indexing method. Finally we used the eleven financial ratios for our ratio analysis.

2.0 Brief History of company:


Saiham Textile Ltd. Late Syed Sayeed Uddin Ahmed & Begum Hamida Banu, in remembrance of whom, Saiham Textile Mills Limited has derived the name of the company; would have been proud to know how well their offspring have managed and extended the organization. Saiham Textile Mills was set up in Noyapara, Hobiganj district in the year 1982 with an annual capacity of 7.5 m yards of finished cloth. It was equipped with modern and sophisticated machineries from Japan. Initially it was a weaving, dyeing printing and finishing plant. Saiham Textile claims to be the pioneer in introducing the concept of modern fabrics in Bangladesh. They were one of the first textile mills to start international standard polyester fabric, TC fabric, synthetic and Georgette sarees with cross border. The mother company of the present conglomerate is now comprised of different industrial concerns. The entrepreneurship of Saiham, consists of five directors, all from the same family. Although a company run and managed by relatives, the standard and efficiency of the management does not compromise on its quality. Ashraf Textile mills Ltd. Ashraf textile mills ltd is one of the another company which is run and managed by relatives, the standard and efficiency of the management does not compromise on its quality. Addressed: Ashraf Textile Mills Ltd. New DOSH, Mohakhali Dhaka - 1212 Ph : 9887051-53 Fax : 9887033

3.0 Findings & Analysis:


According to our report subject our main objective is identifying the difference between two companies financial statement. Also we want to find out which company is more stable & which is not stable. From the financial statement we can find out our requirements. In below we give our finding & analysis in basis of companys financial statement.

3.1 Analyze of Income Statement, Balance Sheet between two companiess:


In below we are going to discuss about the two companies balance sheet, Income Statement & Cash flow comparison in a briefly :

3.1.1 Balance Sheet Comparison:


Assets: From the balance sheet of the both companies we can identify that Ashraf textile had 504,741,251 tk total assets in 2005 but on the other hand Saiham textile had only 425,320,371 tk total asset in 2003-2004. Next year Ashraf textile companies total asset was decreased and Saiham textile companys total assets increase and in 2007 Ashraf textile reached in 167,726,578 tk whereas in 2005-2006 Saiham textiles total asset 436,650,516 tk. For the total asset volume we can say that Saiham textile has more powerful rather than Ashraf textile. Liability: The total liability we saw that Ashraf textile had 623,823,012 tk liabilities in 2005 & Saiham textile had 152,581,718 tk only in 2003-2004.Both companies liabilities were also increased in next year. But clearly we can comments that Ashraf textile had least liability than the Saiham textile. How ever Saiham textile had the more Net asset than the Ashraf textile. share holders equity we can easily understand that Saiham textile had the more equity and it was 818,663,635 tk for 2004-06 & Ashraf textile had -1,123,244,182. So we can say that Saiham textile had the more investment in the market.

3.1.2 Income Statement Comparison:


From our income statement we can identify that Saiham textile has a profit 74,932,529 tk in 2004 & 52,001,246 tk in 2005 & 57,295,427 tk in 2006. From this we can say that the profit is decreasing by next two years. And this shows that sale for Saiham textile decreasing during the next two year. On the other hand Ashraf textile is in a loss of -62,609,854 tk in 2005 & -122,738,787 tk in 2006 & -14,064,257 tk in 2007. They continue their business in loss where Saiham textile doing their business with profitability.

3.1.3 Analyzing Common Sizing & Indexing:


In common size analysis we express the various components of a balance sheet as percentage of the total assets of the company.In addition this can be done for the income statement,but here items are releted to net sales.In Ashraf textile balance sheets over the three year span the percentage of current assets increased.On the other hand Saiham textile current assets fluctuated. We see that Ashraf textile account receivable showed a relative diccreased from 2005 to 2007.Saiham textile account receivable flactuated from 2003-04 to 2005-2006.On the liability & equity portion of the balance sheets, Ashraf textile total debt of the company decline on a relative basis from 2005 to 2007.but Saiham textile total debt diccreased in 2004-2005 & increased in 2005-2006. The common size income statement show the gross profit/loss margin from year to year. We see that Ashraf textile operating expenses increase year to year & in 2007 increases sharply.whereas Saiham textile operating expenses diccreased in 2004-2005 & increase again in 2005-2006.In 2005-2007 Ashraf textiles net profit had negetive percentage, whereas Saiham textiles net profit increased. In indexes analysis all financial statement items are 100%. In 2006 & 2007 Ashraf textile current assets indexed is 91.53 & 9.95 whereas Saiham textile current assets s indexed is 116.26 & 100.93 in 2004-2005 & 2005-2006. The indexed income statements give much the same picture as the common size income statements namely, fluctuating behavior. In Ashraf textile income statement total gross loss indexed are 100, 196.037491 & 22.46332822 in 2005 , 2006 & 2007.Whereas Saiham textiles gross profit are 100, 69.3974 & 76.4626 in 2003-04, 2004-05 & 2005-2006.
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4.0 Financial Statement Analysis by ratio:


For the performance measurement of Ashraf textile & Saiham textile mills Ltd. In below we are going to analysis about the two companies financial statement using ratio analysis. We used 11 methods to analyze the ratio. Here are belongs:

4.1 Liquidity Ratio:


i) Current Ratio: Current assets divided by current liabilities. It shows a firms ability to cover its current liabilities with its current assets. In below there is the graph of the two textile companys current ratio:

curre n t ra tio(Ash ra f te x tile )


0.4 r atio 0.2

cur re nt r atio(Saiham te xtile )


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ratio 1

2005

2006

2007

2003- 2004- 2005-

Series 1 0.323320.132040.16733 ye ar

Series 1 1.044 0.764 0.982


y ea r

From the graph we can see that Ashraf textile current ratio is 0.32 times in 2005 and 0.167 times in 2007. Here we see that current ratio has been decreased and go down in less than 1. On the other hand Saiham textile current ratio is 1.044 in 2003-04 & next two year stay remain but it also be below the 1 and from the Ashraf textile. In the last year for both company we suggested that the current liabilities cannot be covered if existing current asset are liquated at their book values.

ii)Quick Ratio: Current assets less inventories divided by current liabilities. It shows a firms ability to meet current liabilities with its most liquid assets.
Quick ratio(Saiham textile)
0.4 0.3 ratio 0.2 0.1 0 Series1 2003-2004 0.2643053 2004-2005 2005-2006

0.1 564241 0.3821 1 3 31 4 year

Quick ratio(Ashraf textile) 0.2 0.15 ratio 0.1 0.05 0 2005 2006 2007 Series1 0.197173 0.069725 0.138913 year

From the graph we can easily identify that in 2006 Ashraf textile & Saiham textile quick ratio is decreased dramatically. We say that in the last year of the both companys quick ratio increased. But Saiham textile has good position than the Ashraf textile.

4.2 Financial Leverage debt ratio:


i)Debt-To-Equity: Ratios that show the extent to which the firm is financed by debt.
Debt to Equity(Ashraf textile) 0 Ratio -10 2005 2006 2007

De bt to Equity(Saiham te xtile )
1 R atio 0.5

2003-

2004-

2005-

Series1 -5.239 -2.17 -1.253 year

Series1 0.559443 0.887395 0.59995 year

If we consider the year 2007 of Ashraf textile, the ratio is -1.253 that creditors are providing for each tk 1. In the case of Saiham textile in 20052006 the ratio is 0.599 that creditors are providing. So we can say that Ashraf textile is in a better position than the Saiham textile.

ii) Debt-To-Total Asset Ratio: The debt to total asset ratio is derived by dividing a firms total debt by its total assets.
Sebt to Assets (As hraf textile) 6 4 ratio 2 0 ratio 0.2 0 De bt to As s e ts (Saiham te xtile ) 0.6 0.4

2005

2006

2007

2003-

2004-

2005-

Series1 1.235926 1.854987 4.95805 year

Series1 0.358745 0.470169 0.374981 year

From the graph we can realize that Ashraf textile ratio is more than Saiham textile in their last three year. We know that the higher the debt to assets ratio, the greater the financial risk; the lower the ratio, the lower the risk. So Ashraf textile has more risk than the Saiham textile.

4.3 Coverage Ratio:


i) Interest Coverage Ratio: Ratio earning before interest and taxes divided by interest charges. It indicates a firms ability to cover interest charges. It is also called times interest earned.

Interest coverage(Ashraf te xtile)

Inte re st cove rage (Saiham te xtile ) 5

3 2.5 2 ratio 1 .5 1 0.5 0 2005 2006 2007 Series1

4 ratio 3 2 1 0 200320042005-

.7272998 2.706761 0.3935626 8 Series1 1 year

Series1 4.3453871 3.1634257 2.5946142 year

This ratio serves as one measure of the firms ability to meet its interest payments and thus avoid bankruptcy. The higher the ratio the greater company could cover its interest payment without difficulty. So analyze after the two graphs we can said that Saiham textile has more interest coverage than the Ashraf textile Cement. Ashraf textile ratio is fluctuated highly in 2007.

4.4 Activity Ratio:


i) Receivable Turnover: the receivable turnover ratio provides insight into the equality of the firms receivables and how to successful the firm is in is collections. This ratio is calculated by dividing receivables into annual net credit sales.
Receivable turnover(Ashraf textile)

Re ce ivable tur nove r (Saiham te xtile ) 50

1 40 1 20 1 00 Days 80 60 40 20 0 Series1 2005 1 01 2006 6 year 2007 1 25

40 Day 30 20 10 0 Series1 2003-20042004-20052005-2006 14 6 Ye ar 42

From the graph we can say that Ashraf textile received their receivable money from the buyers within 101 days in 2005, 6 days in 2006 & 125 days in 2007. On the other, Saiham textile received within 14 day in 2003-2004, 6 day in 2004-2005 and 42 days in 2005-2006. Eventually we can say that Saiham textile was received money within short time rather than the Ashraf textile.
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ii) PAYABLE TURNOVER: There may be occasions when a firm wants to study in own promptness of payment to suppliers or that of a potential credit customer. This ratio is calculated by dividing purchase into total A/C payable.
P ayable turnover(Ashraf textile)

P y le tu o e a a te tile a ab rn v r(S ih m x )
3 5

4 000 00 35 0000 3 000 00 25 0000 D y as 2 000 00 1 00 5 00 1 00 000 5 000 0 0 Se s1 rie 2005 1 38 2006 27 6 ye r a 2007 360420
Dy as

3 0 2 5 2 0 1 5 1 0 5 0 Sr s eie 1 2 0 -2 0 03 04 3 5 2 0 -2 0 04 05 1 0 ya er 2 0 -2 0 05 06 1 5

From the graph we can say that Ashraf textile paid their payable money to the sales within 138 days in 2005, 276 days in 2006 & 360420 days in 2007. On the other, Saiham textile paid within 35 day in 2003-2004, 10 day in 2004-2005 and 15 days in 2005-2006. Eventually we can say that Saiham textile was paid money within short time rather than the Ashraf textile. iii) INVENTORY ACTIVITY: To help determine how effectively the firm is managing inventory and also to gain an indication of the liquidity of inventory. This ratio is calculated by dividing inventory into COGS.
Inventory Activity(Ashraf textile) 400 300 Days 200
Days

Inventory Activity(Saiham textile)

250

200

1 50

100 0 Series1 2005 60 2006 53 year 2007

1 00

50

369
Series1

2003-2004 1 70

2004-2005 225 year

2005-2006 1 76

The figures tell us how many days, on average, before inventory is turned into accounts receivable through sales. Here we see that Ashraf textile was faster than Saiham textile in case of inventory activity. iv) TOTAL ASSET TURNOVER: The relationship of net sales to total assets is known as the total asset turnover, or capital turnover.
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Total asset turnover(Ashraf textile)

Total Asset turnover(Saiham textile )

0.7 0.6 0.5 ratio 0.4 0.3 0.2 0.1 0 2005 2006 0.4476056 year 2007 0.050871 34

0.8 0.7 0.6 0.5 ratio 0.4 0.3 0.2 0.1 0 2003-2004 2004-2005 0.56348701 year 2005-2006 0.596901 8

Series1 0.6780095

Series1 0.77632571

The median total asset turnover for the industry is 1.66. For this ratio analysis we saw that Ashraf textile & Saiham textile both are less efficient than the industry in this regard. On the other hand Saiham textile is in a better position than the Ashraf textile.

4.5 Profitability Ratio:


i) PROFITABILITY RATIO IN RELATION TO SALES: The ratio we consider is the gross profit margin or simply gross profit divided by net sales.
Profitability in ratio to sales (Ashraf textile) Profitability in relation to sales(Saiham textile)

4 3.5 3 2.5 ratio 2 1 .5 1 0.5 0 Series1 2005 2.1 829524 2006 2007
ratio

1 .83 1 .82 1 .81 1 .8 1 .79 1 .78 1 .77 1 .76 1 .75 1 .74 Series1 2003-2004 1 .773060426 2004-2005 1 .820902862 year 2005-2006 1 .7801 958 71

2.688959397 3.648320722 year

It is a measure of the efficiency of the firms operations, as well as an indication of how products are priced. From the above graphs we saw that Ashraf textile has relatively more effective at producing and selling products above cost.

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ii)PROFITABILITY RATIO IN RELATION TO INVESTMENT: this profitability ratio relates profits to investment. One of those measures is the rate of return on investment, or return on asset.
Profitability in relation to investm ent(Ashraf textile)
0

Profitability in relation to investment(Saiham textile)


0.025 0.02 0.01 5

-0.5

ratio

-1

ratio 0.01

-1 .5

0.005 0 Series1

-2

2005

2006

2007 -1 .7071 07588

2003-2004 0.023235772

2004-2005 0.01 8004789 year

2005-2006 0.0231 8956 1

Series1 -0.235798631 -0.507839396 year

The standard ratio compares for this is nearly 8%. From our analysis we found that Saiham textile ratio simply fluctuates. Their percentage is not so good. On the other handAshraf textile had negative percentage from 20052007.

5.0Conclusion:
We examine the analysis of Ashraf textile & Saiham textile mills ltd. We see that the liquidity position is nit good both of the company. Comparatively Saiham textile better than Ashraf textile mills ltd. Ashraf textile mills ltd. should change the credit policy & proper use of its assets. The profitability ratio of Ashraf textile mills ltd. Good than the Saiham textile mills ltd. The company should avoid the use of debt; otherwise company would be fall into bankruptcy.

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6.0Bibliography:
i) Annual report-Ashraf textile mills ltd. For the year of 2005, 2006 & 2007. -Saiham textile mills ltd. For the year of 20032004, 2004-2005 & 2005-2006. ii) Fundamental of financial management (Twelfth edition) -James C. Van Horne & John M Wachowicz, JR.

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