THE ORGANIZATION CONCERNED

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

An Overview
Shahzad Textile Mills Limited is a renowned textile mill locally as well as in the foreign export markets for the impressive quality of yarn productions, highly competitive prices and matchless professional services. With a total installed capacity of 30,720 spindles, the company is engaged in the productions of ring spun cotton and synthetic blended yarns since its inception in 1980. With the passage of time, the company continuously adopted latest and advanced technologies to ensure the best possible quality standards and efficient workings. Shahzad Textile Mills Limited is comprised of two production units, built in the heart of cotton growing belt in Pakistan at convenient locations and are fully equipped with highly sophisticated and most modern spinningmachinery with a capacity to produce around 50 x40FCLs per month.

Vision and mission

Vision Statement:

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

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

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

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

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

To

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

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

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

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

To

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

Products and services

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

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

Business practice

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

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

members are not permitted to conduct personal business in 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 disclose the same to the management.

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

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 and consultants 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 those working 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 safety of 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 strictly forbidden. Also taking 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 for necessary 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

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 other regions 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 100 certification from International Association for Research and Testing in the Field of Textile Ecology. After Oeko-Tex Standard 100 certification, their customers will have more confidence in their textile productions and will manufacture / sell their products with a globally acceptable guarantee / mark that their products are free from any harmful substances

Health & Safety:

Shahzad Textile Mills Limited (STML) undertakes that HSE is a management responsibility and is committed to give priority to the health and safety of all its employees and of other personnel effected and involved in its activities.

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 an integral part of this commitment and it is the responsibility of line managers to ensure that employees and contractors are aware of company HSE policies and procedures. 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 A

its personnel in Health, Safety & Environment protection.

high level of safety awareness shall be maintained by means of safety programs, safety review meetings, internal auditing and general 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 & independent auditors.
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.

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 and improvements 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 BLAME culture. They are more concerned with recognizing, identifying and eliminating risk than they are with looking for someone to blame.

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

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 renowned cotton 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 inception in 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.

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 customers satisfaction. They wish to play a leading role in the spinning sector by keeping a substantial presence in the export and local markets. Mission Statement Action Plan:
To

install state of the art machinery and to acquire sophisticated process technology to achieve highest quality levels in the competitive business environment.
To

make strenuous efforts to enhance profitability of the company and ensuring a fair return to the investors, shareholders and employees.
To

exercise maximum care for improvement of quality of their 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.

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 various figures 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:

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-firm comparison 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, coordination, 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

Liquidity Ratios: Current Ratio: Current Ratio is equal to current assets divided by current liabilities Current Ratio = Current Assets Current liabilities

2006 2007: Current Ratio = 155,423,687 235,258,292 Current Ratio = 0.6666 2005 - 2006: Current Ratio = 211,443,611 245,562,802 Current Ratio = 0.861 2004 - 2005: Current Ratio = 231,538,514 206,990,030 Current Ratio = 1.118 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.

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 assets Inventories - Preapids Current liabilities 2006 2007: Quick Ratio = 155,423,687 78,466,960 1,032,634 235,258,292 Quick Ratio = 0.322

2005 - 2006: Quick Ratio = 211,443,611 103,171,510 -10,775 245,562,802 Quick Ratio = 0.4408 2004 - 2005: Quick Ratio = 231,538,514 85,121,508 1,197,161 206,990,030 Quick Ratio = 0.7015 Comparison over the years / Interpretation:

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 decreasing over 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 2006 2007: Debt equity ratio = 331,932,701 216,260,913 Debt equity ratio = 1.5348 2005 - 2006: Debt equity ratio = 370,501,304 233,187,729 Debt equity ratio = 1.588 2004 - 2005: Debt equity ratio = 316,314,578 190,255,511

Debt equity ratio = 1.6625 Comparison over the years / Interpretation: 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 outsiders and 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 by 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 is equal to total liabilities divided by total assets. Debt Ratio = Total liabilities Total assets 2006 2007: 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

2004 - 2005 Debt Ratio = 523,304,608 940,390,441 Debt Ratio = 0.5564 Comparison over the years / Interpretation: 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 2006 2007: Interest coverage Ratio = 19,617,194 11,881,311 Interest Coverage Ratio = 1.65 times 2005 - 2006: Interest coverage Ratio = 69,154,874 6,331,039 Interest Coverage Ratio = 10.923 times 2004 - 2005: Interest coverage Ratio = 26,685,569

5,331,875 Interest Coverage Ratio = 5.0049 times

Comparison over the years / Interpretation: 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 raising funds from the debts sources. The no. of times the firm earns interest has fluctuated dramatically, that is, it was 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 2006 2007: 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

Inventory Turnover Ratio = 45.5011 times 2004 - 2005: Inventory Turnover Ratio = 630,000,839 12,750,484.5 Inventory Turnover Ratio = 49.4099 times Comparison over the years / Interpretation: 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 2006 2007: Inventory turnover in months = 12 45.97 Inventory turnover in months = 0.26102 months 2005 - 2006: Inventory turnover in months = 12 45.5011

Inventory turnover in months = 0.2637 months 2004 - 2005: Inventory turnover in months = 9 (because 9 months ended) 49.4 Inventory turnover in months = 0.182 months Comparison over the years / Interpretation: 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 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 2006 2007: Fixed asset turnover ratio= 1,100,181,111 567,187,294 Fixed asset turnover ratio = 1.939 times 2005 - 2006:

Fixed asset turnover ratio = 909,784,346 600,565,280 Fixed asset turnover ratio = 1.5148 times 2004 - 2005: Fixed asset turnover ratio = 693,800,355 480,566,483 Fixed asset turnover ratio = 1.4437 times Comparison over the years / Interpretation: 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 2006 2007: 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

Total asset turnover ratio = 0.8643 times 2004 - 2005: Total asset turnover ratio = 693,800,355 940,390,441 Total asset turnover ratio = 0.7377 times Comparison over the years / Interpretation: It shows that firms must manage its total assets efficiently and should generate maximum sales through their proper utilization. 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 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 2006 2007: Receivables Turnover Ratio = 1,100,181,111 16,481,740.5 Receivables Turnover Ratio = 66.751 times 2005 - 2006:

Receivables Turnover Ratio = 909,784,346 15,193,435 Receivables Turnover Ratio = 59.88 times 2004 - 2005: Receivables Turnover Ratio = 693,800,355 21,300,565.5 Receivables Turnover Ratio = 32.571 times Comparison over the years / Interpretation: Receivables turnover ratio measures the average length of time it takes a firm to collect credit sales in percentage terms. 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 2006 2007: Receivables turnover ratio in months = 12 66.751 Receivables turnover ratio in months = 0.179 months

2005 - 2006:

Receivables turnover ratio = 12 59.88 Receivables turnover ratio = 0.2 months 2004 - 2005: Receivables turnover ratio = 9 (9 months ended) 32.57 Receivables turnover ratio = 0.2763 months Comparison over the years / Interpretation: Average collection period shows the average length of time it takes affirm to collect credit sales in months. 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: Payable Turnover Ratio = 598,780,067 569,684,357

Payable Turnover Ratio = 1.051 times 2004 - 2005: Payable Turnover Ratio = 457,326,068 481,757,914 Payable Turnover Ratio = 0.949 times Comparison over the years / Interpretation: 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 2006 2007: Payable Turnover Ratio in months = 9 1.2969 Payable Turnover Ratio in months = 9.4 months 2005 - 2006: Payable Turnover Ratio in months = 12 1.051 Payable Turnover Ratio in months = 11.4 months 2004 - 2005: Payable Turnover Ratio in months = 9

(9 months ended) 0.949 Payable Turnover Ratio in months = 9.48 months Comparison over the years / Interpretation: 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: Gross profit margin = 105,309,578 X 100 909,784,346 Gross profit margin = 11.57 % 2004 - 2005:

Gross profit margin = 63,799,516 X 100 693,800,355 Gross profit margin = 9.196% Comparison over the years / Interpretation: Gross profit margin or gross profit ratio is the ratio of gross profit to net sales expressed as percentage. 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 2006 2007: Operating Profit Margin = 19,617,194 X 100 1,100,181,111 Operating Profit Margin = 1.78%

2005 - 2006: Operating Profit Margin = 69,154,847 X 100 9,097,843,616 Operating Profit Margin = 7.6 % 2004 - 2005:

Operating Profit Margin = 26,685,569 X 100 693,800,355 Operating Profit Margin = 3.84 % Comparison over the years / Interpretation: 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 2006 2007: Net Profit Margin = 74,939,223 X 100 1,100,181,111 Net Profit Margin = 6.81 % 2005 - 2006: Net Profit Margin = 91,866,039 X 100 909,784,346 Net Profit Margin = 10.09 % 2004 - 2005: Net Profit Margin = 48,782,436 X 100 693,800,355

Net Profit Margin = 7.03 % Comparison over the years / Interpretation: 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 turn each 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.

Earning per share: This ratio shows that how much amount per share does a common stock holder attains. Earning per share = Earning Available for Common Stock Holders No. Of Common Stock Shares 2006 2007: 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: Earning per share = (3,079,733) 13,552,569

Earning per share = Rs. (0.23) /share Comparison over the years / Interpretation: 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: Price Earning Ratio = 22.25 (0.23) Price Earning Ratio = (Rs.96.739) Comparison over the years / Interpretation:

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

2006 2007: Current Ratio = 124,814,962 190,729,441 Current Ratio = 0.6544 2005 - 2006: Current Ratio = 251,003,176 249,133,615 Current Ratio = 1.0075 2004 - 2005: Current Ratio = 240,489,264 239,040,784 Current Ratio = 1.00605 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. Firm's Current ratio has been increasing over the years right from the 2004 2007. Which shows that the current ratio of the firm has been increasing over the years. Acid Test (Quick) Ratio: Quick Ratio = Current assets Inventories - Preapids Current liabilities 2006 2007:

Quick Ratio = 124,814,962-75,496,998-13,622,386 190,724,441 Quick Ratio = 0.2511

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 - 100,915,021 839,298 239,040,784 Quick Ratio = 0.5803 Comparison over the years / Interpretation: 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 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

Stockholders equity 2006 2007: Debt Equity ratio = 216,171,622 51,741,235 Debt Equity ratio = 4.177 2005 - 2006: Debt Equity ratio = 254,355,262 62,565,620 Debt Equity ratio = 4.0654 2004 - 2005: Debt Equity ratio = 272,265,545 53,055,841 Debt Equity ratio = 5.1316 Comparison over the years / Interpretation: 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 outsiders and 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 the firm has been fluctuating over the years right from 2004 2007 with maximum in the year 2004-05 thereby decreasing in the next year and increasing finally. 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

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 2006 2007: 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 Comparison over the years / Interpretation: 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 is decreasing 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

Interest expense 2006 2007: Interest coverage Ratio = 21,871,47 6,072,316 Interest Coverage Ratio = 3.6 times 2005 - 2006: Interest coverage Ratio = 35,366,081 8,150,380 Interest Coverage Ratio = 4.3391 times 2004 - 2005: Interest coverage Ratio = 38,580,210 11,495,605 Interest Coverage Ratio = 3.356 times

Comparison over the years / Interpretation: 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 raising funds from the debts sources. The no. of times the company earns its interest fluctuates from over the years right from 2004 2007. The times interest earned by the company in 2007 returns to the level where it was in 2004.

Activity Ratios: Inventory Turnover Ratio: Inventory Turnover ratio = Cost of Goods Sold Avg Inventory 2006 2007: Inventory Turnover Ratio = 873,405,530 8,884,430 Inventory Turnover Ratio = 98.30times 2005 - 2006: Inventory Turnover Ratio = 810,116,680 9,789,488.5 Inventory Turnover Ratio = 82.75times 2004 - 2005: Inventory Turnover Ratio = 577,778,273 12,363,273 Inventory Turnover Ratio = 46.732 times Comparison over the years / Interpretation: 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 = No of days in a year Inventory turnover ratio 2006 2007: Inventory turnover in months = 12 98.30 Inventory turnover in months = 0.1220months 2005 - 2006: Inventory turnover in months = 12 82.75 Inventory turnover in months = 0.1450months 2004 - 2005: Inventory turnover in months = 9 (9 months ended) 46.73 Inventory turnover in months = 0.192 months Comparison over the years / Interpretation: 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 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 Asset Turnover Ratio = Sales

Net Fixed assets 2006 2007: Fixed asset turnover ratio= 931,308,945 283,063,160 Fixed asset turnover ratio = 3.29 times 2005 - 2006: Fixed asset turnover ratio = 886,433,781 272,801,908 Fixed asset turnover ratio = 3.24 times 2004 - 2005: Fixed asset turnover ratio = 644,748,123 299,753,028 Fixed asset turnover ratio = 2.15 times Comparison over the years / Interpretation: 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 = Sales Total assets 2006 2007: Total asset turnover ratio= 931,308,945 664,277,855

Total asset turnover ratio = 1.40 times 2005 - 2006: Total asset turnover ratio = 886,433,781 772,251,884 Total asset turnover ratio = 1.14 times 2004 - 2005: Total asset turnover ratio = 644,748,123 773,837,219 Total asset turnover ratio = 0.833 times Comparison over the years / Interpretation: It shows that firms must manage its total assets efficiently and should generate maximum sales through their proper utilization. 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 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 = Net credit Sales Avg Receivables 2006 2007: Receivables Turnover Ratio = 931,308,945 10,148,122

Receivables Turnover Ratio = 91.77 times 2005 - 2006: Receivables Turnover Ratio = 886,433,781 4,035,115 Receivables Turnover Ratio = 219.677 times 2004 - 2005: Receivables Turnover Ratio = 644,748,123 2,249,557.5 Receivables Turnover Ratio = 286.611 times Comparison over the years / Interpretation: Receivables turnover ratio measures the average length of time it takes a firm to collect credit sales in percentage terms. 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 2006 2007: Receivables turnover ratio in months = 12 91.77 Receivables turnover ratio in months = 0.130 months

2005 - 2006:

Receivables turnover ratio = 12 219.678 Receivables turnover ratio = 0.0546months 2004 - 2005: Receivables turnover ratio = 9 (9 months ended) 286.611 Receivables turnover ratio = 0.0314 months Comparison over the years / Interpretation: Average collection period shows the average length of time it takes affirm to collect credit sales in months. 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: Payables Turnover Ratio = Net credit Purchases Avg payables 2006 - 2007: Payable Turnover Ratio = 588,328,732 458,517,776 Payable Turnover Ratio = 1.283 times 2005 - 2006: Payable Turnover Ratio = 651,080,849 507,397,603 Payable Turnover Ratio = 1.283 times

2004 - 2005: Payable Turnover Ratio = 442,441,206 484,471,094.5 Payable Turnover Ratio = 0.9132 times Comparison over the years / Interpretation: 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 2006 2007: Payable Turnover Ratio in months = 12 1.283 Payable Turnover Ratio in months = 9.353months 2005 - 2006: Payable Turnover Ratio in months = 12 1.283 Payable Turnover Ratio in months = 9.353months 2004 - 2005: Payable Turnover Ratio in months = 9 (9 months ended) 0.9132 Payable Turnover Ratio in months = 9.8554 months Comparison over the years / Interpretation:

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 2006 2007: Gross profit margin = 57,903,415 * 100 931,308,945 Gross profit margin = 6.21 % 2005 - 2006: Gross profit margin = 76,317,101 * 100 886,433,781 Gross profit margin = 8.60 % 2004 - 2005: Gross profit margin = 66,969,850 X 100 644,748,123 Gross profit margin = 10.3 % Comparison over the years / Interpretation:

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 2006 2007: 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 Operating Profit Margin = 3.98 % 2004 - 2005: Operating Profit Margin = 38,580,210 X 100 644,748,123 Operating Profit Margin = 5.98 % Comparison over the years / Interpretation: 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 = Net Profit Sales 2006 2007: 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) % Comparison over the years / Interpretation: 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 turn each 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.

Earning per share: Earning per share = Earning Available for Common Stock Holders No. Of Common Stock Shares 2006 2007: Earning per share = (8,578,439) 14,729,344 Earning per share = Rs. (0.58) 2005 - 2006: Earning per share = 5,018,031 14,729,344 Earning per share = Rs.0.34/share 2004 - 2005: Earning per share = 12,380,355 13,706,473 Earning per share = Rs. 0.9 /share Comparison over the years / Interpretation: 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 2006 2007:

Price Earning Ratio = 6 (0.58) Price Earning Ratio = Rs.(10.344) 2005 - 2006: Price Earning Ratio = 7 0.34 Price Earning Ratio = Rs.20.58 2004 - 2005: Price Earning Ratio = 8.25 0.9 Price Earning Ratio = Rs.9.166 Comparison over the years / Interpretation: 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 Shahzad Shaheen 1.118 1.00605 2005-06 0.867 1.0075 2006-07 0.6606 0.6544

Comparison: Quick Ratio:

Quick Ratio 2004-05 Shahzad Shaheen 0.7015 0.5803 2005-06 0.4408 0.44005 2006-07 0.3227 0.2511

Inventory Turnover Ratio:

Inventory Turnover Ratio (Times) 2004-05 Shahzad Shaheen 49.4099 46.732 2005-06 45.5011 82.7537 2006-07 45.973 98.3

Comparison: Inventory Holding Period:

Inventory Holding Period (months) 2004-05 Shahzad Shaheen 0.182 0.192 2005-06 0.2637 0.145 2006-07 0.261 0.122

Comparison: Receivables Turnover Ratio:

Receivables Turnover Ratio (Times) 2004-05 Shahzad Shaheen 32.571 286.61 2005-06 59.88 219.677 2006-07 66.751 91.77

Comparison:

Average Collection Period:

Average Collection Period (months) 2004-05 Shahzad Shaheen 0.2763 0.0314 2005-06 0.2 0.0546 2006-07 0.179 0.13

Comparison: Payables Turnover Ratio:

Payables Turnover Ratio (times)

2004-05 Shahzad Shaheen 0.949 0.9132

2005-06 1.051 1.283

2006-07 1.2969 1.283

Comparison: Net Fixed Assets:

Net Fixed Assets Ratio 2004-05 Shahzad Shaheen 1.4437 2.15 2005-06 1.5148 3.24 2006-07 1.9397 3.29

Comparison:

Average Payment Period:

Average Payment Period (months) 2004-05 Shahzad Shaheen 9.48 9.8554 2005-06 11.4 9.351 2006-07 9.4 9.353

Comparison: Total Assets Turnover:

Total Assets Turnover 2004-05 Shahzad Shaheen 0.7377 0.833 2005-06 0.8643 1.147 2006-07 1.125 1.4

Comparison: Debt Ratio:

Debt Ratio 2004-05 Shahzad Shaheen 0.5564 0.6607 2005-06 0.585 0.6519 2006-07 0.5799 0.6129

Comparison:

Debt Equity Ratio:

Debt Equity Ratio 2004-05 Shahzad Shaheen 1.6625 5.1316 2005-06 1.5888 4.0654 2006-07 1.5348 4.177

Comparison: Times Interest Earned:

Times Interest Earned (times) 2004-05 Shahzad Shaheen 5.0049 3.356 2005-06 10.923 4.3391 2006-07 1.65109 3.6

Comparison: G.P.Margin:

G.P. Margin

2004-05 Shahzad Shaheen 9.20% 10.30%

2005-06 11.57% 8.60%

2006-07 5.67% 6.21%