finalcial ratio analysis of padma textile mills
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in this report i try to analyze the various terms of finance....may be this will help some one......TRANSCRIPT
Financial ratio analysis of padma textile mills ltd
Fin 245
Prepared by
Md. Raihan ChawdhuryId# 052200021
Group# 2
Prepared forMs. Tamanna khan
Faculty memberFaculty of business administration
Eastern universityDhaka
September 30,2007
ToMs. Tamanna KhanFaculty MemberFaculty of Business Administration,Eastern University
madam,
Here the Report you asked to do. I did the report on ratio analysis of padma textile mills ltd. I took help from the company’s annual report. I also took balance sheet, income statement, and cash flow statement from annual report of padma textile mills ltd and some other information from Internet.
Thank you for assigned me this report & I request you to accept this.
Sincerely
Md. Raihan Chawdhury
Executive summary
The primary purpose of ratios is to point out areas needing further
investigations. Ratios will not carry meaningful business reasoning if
there is no supporting quantitative and financial information.
I have collected data from the annual report of the company and
some definition from net. At first I put the data in excel sheet and
took the data to the table for each individual ratio. I make the chart
by using Ms. excel then analyze the data according to the chart then I
interpreted my decision several point of view.
Current ratio compares assets which will become liquid within
approximately twelve months with liabilities which will be due for
payment in the same period and is intended to indicate whether there
are sufficient short term assets to meet the short- term.
The acid test ratio serves as a supplement to the current ratio in
analyzing liquidity. It is provide a more penetrate. The debt to equity
ratio tell us that creditors are provide how much of financing for each
1 TK being provided by shareholders ting measure of liquidity than
does the current ratio. The long term debt to capitalization ratio tells
us the relative importance of long term debt to the capital structure
of the firm. The debt to assets ratio serves a similar purpose to the
debt to equity ratio. It highlights the relative importance of debt
financing to the firm by showing the percents of the firms assets that
is supported by debt financing. Coverage ratio is designed to relate
the financial changes of a firm to its ability to service. This ratio
serves as one measure of the firm’s ability to meet its interest
payment and thus avoid bankruptcy. Fore more information please
read the report
Table of contents
Executive summaryChapter page no Chapter 1…………………………………………………………………….1 1.1 Introduction………………………………………………………………………………1 1.1.1purpose of the report…………………………………………………………………1 1.1.2scope…………………………………………………………………………………...1 1.1.3 Limitation………………………………………………………………………………2 1.1.4 Source and methods of collecting information……………………………………..2 1.1.5 About the company…………………………………………………………………...2 Chapter 2……………………………………………………………………….3 2.1Analysis ……………………………………………………………………………………3 2.1.1common sizing…………………………………………………………………………3 2.1.2 Indexing……………………………………………………………………………….6 2.1.3 Ratio analysis…………………………………………………………………………9. 2.1.3.1 Liquidity ratio…………………………………………………………………….9 2.1.3.1.1 Current ratio………………………………………………………………..9 2.1.3.1.2 Acid test ratio……………………………………………………………..10. 2.1.3.2 Leverage ratio………………………………………………………………….10 2.1.3.2.1 Debt to equity……………………………………………………………..10 2.1.3.2.2 Debt to total asset………………………………………………………...11 2.1.3.3 Coverage ratio …………………………………………………………………12 2.1.3.3.1 Interest coverage…………………………………………………………12 2.1.3.4 Activity ratio …………………………………………………………………...12 2.1.3.4.1 Receivable turnover……………………………………………………………..............12 2.1.3.4.2 Receivable turnover in days (RTD)…………………………………………………….13 2.1.3.4.3 Inventory turnover (IT)…………………………………………………………………..14 2.1.3.4.4 Inventory turnover in days………………………………………………………………15 2.1.3.4.5 Total assets turnover (Capital)…………………………………………………………15 2.1.3.5 Profitability ratio……………………………………………………………….16 2.1.3.5.1 Net profit Margin………………………………………………………………………...16 2.1.3.5.2 Return on investment (ROI)…………………………………………………………...17 2.1.3.5.3 Return on Equity (ROE)………………………………………………………………...17
Chapter 3……………………………………………………………………18 3.1 Conclusion……………………………………………………………18 Bibliography Appendix
Chapter 1
1.1 Introduction
1 .1.1purpose of the report
There are four main purposes of preparing this report.
These are:
How to make a formal report
How to do team work
How to communicate with business people &
Also learn some of the business techniques.
Besides, I also have some other objectives such as I want to give
people some basic ideas about the financial condition of padma
textile mills ltd I also try to find out the overall condition of padma
textile mills ltd.
1.1.2 Scope
In this report I analyzed different types of ratio to
find the financial condition of padma textile mills ltd. I also try to find
out the position of padma textile mills ltd in the market
1.1.3 Limitation
I prepared this report only based on the
annual report of padma textile mills ltd. So was not possible for me to
analyze the financial data properly. That’s the reason why some
analysis can’t give the appropriate result. But I should try my best to
find out the real condition of the textile mills.
1.1.4 Source and methods of collecting information
I
prepared the report only based on secondary data. Because here we
analyze the financial data.
1.1.5 About the company
The Padma Textile Mills Ltd. (the
"Company"), a member of the BEXIMCO Group, was incorporated in
Bangladesh as a public limited company. It commenced commercial
operation in 1990 and went for public issue of shares in 1992. During
the year, the principal activities of the company were manufacturing
of yarn (cotton, polyester and polycotton) by its textile spinning mills
and sales thereof. The no. of employees at the end of 2005 is 2676.
The registered office of the Company is located at House No.17, Road
No.2, Dhanmondi Residential Area, and Dhaka. The industrial units
are located at Tatki of Narayanganj and at Beximco Industrial Park in
Sarabo of Gazipur.
Chapter 2
2.1Analysis
2.1.1common sizing
Balan
ce
Sheet common Size
2001 2002 2003
200
4
200
5
Asset
Current asset
Cash & Cash equivalance 0% 0% 0% 0% 0%
Trade debtors 30% 36% 39% 46%
50
%
Inventories 20% 17% 18% 18%
18
%
Advance,Deposits,Prepay
ments 6% 5% 4% 5% 5%
TOTALCurrent asset 55% 58% 62% 69%
73
%
Fixed asset 0% 0% 0% 0% 0%
Property,Plant &
Euipment 44% 42% 38% 31%
269
%
Cost 75% 76% 76% 67%
67
%
Accumulate Depriciation 31% 34% 37% 36%
40
%
Long term security
deposits 0% 0% 0% 0% 0%
Total non current asset 45% 42% 38% 31%
27
%
Total Asset
100
% 100% 100%
100
%
100
%
Liabilities 0% 0% 0% 0% 0%
Current Liabilities 0% 0% 0% 0% 0%
Short term loans from
bank (Secure) 30% 29% 29% 21%
22
%
Long term loans- current
Maturity(Secured) 6% 6% 5% 2% 3%
Accured expense 2% 2% 2% 2% 2%
Other creditors 2% 2% 2% 1% 1%
Total Current Liabilities 39% 40% 39% 26%
28
%
Non-current liabilites 0% 0% 0% 0% 0%
Long term loans-Net of
current Maturity 24% 23% 24% 41%
38
%
Securities Deposists
from distributors 0% 0% 0% 0% 0%
Total Non-current
liabilites 24% 23% 25% 41%
39
%
TOTAL LIABILITIES 62% 63% 64% 67%
66
%
SHAREHOLDERS EQUITY 0% 0% 0% 0% 0%
Issued share capital 1% 9% 9% 8%
10
%
Share premium 5% 5% 5% 4% 4%
Tax holiday resurve 10% 10% 10% 8% 8%
Retained Earnings 22% 14% 13% 12%
12
%
Accumulated profit-As
per the statement of
changes in equity 13% 14% 13% 0% 0%
TOTALShareholder Equity 38% 37% 36% 33% 34
%
TOTAL SHAREHOLDERS
EQUITY&LIABILITIES
100
% 100% 100%
100
%
100
%
Income statement
common sizing
200
1
200
2
200
3
200
4
200
5
Revenue
100
%
100
%
100
%
100
%
100
%
Cost of revenue
80
%
81
%
82
%
82
% 81%
Gross profit
20
%
19
%
18
%
18
% 19%
operating expence 2% 2% 2% 1% 2%
Administrative
expence 2% 2% 2% 1% 2%
Distribution
(selling)cost 0% 0% 0% 0% 0%
Profit from
operation
18
%
17
%
16
%
16
% 18%
Contribution to
workers
participation/welfar
e funds 1% 0% 0% 0% 0%
Finance cost
11
%
11
%
10
% 9% 11%
Net profit before
tax 7% 6% 5% 6% 6%
Income tax expence 2% 1% 1% 1% 1%
Net profit(after
tax)for the year
transferred to
statement of
changes in equity 5% 5% 4% 5% 5%
Earning per share
(per value tk. 10/)
(adjusting EPS of
2001,2002.2003,20
04,2005) 0% 0% 0% 0% 0%
Number shere used
to computes EPS 1% 2% 2% 2% 2%
2.1.2 Indexing
Balance sheet
indexing
200
1 2002
200
3
200
4
200
5
Asset
Current asset
Cash & Cash equivalence
100
% 45%
255
%
167
%
239
%
Trade debtors 100 129 114 139 110
% % % % %
Inventories
100
% 92%
111
%
117
%
100
%
Advance,Deposits,Prepay
ments
100
% 86%
100
%
133
%
105
%
TOTALCurrent asset
100
%
111
%
112
%
132
%
107
%
Fixed asset
Property,Plant &
Euipment
100
%
101
% 96% 96%
883
%
Cost
100
%
108
%
105
%
105
%
101
%
Accumulate Depriciation
100
%
118
%
116
%
114
%
112
%
Long term security
deposits
100
%
101
%
108
%
100
%
100
%
Total non current asset
100
%
101
% 96% 96% 88%
Total Asset
100
%
107
%
105
%
118
%
101
%
Liabilities
Current Liabilities
Short term loans from
bank (Secure)
100
%
105
%
106
% 86%
103
%
Long term loans- current
Maturity(Secured)
100
%
110
%
101
% 45%
147
%
Accured expense
100
%
137
%
103
% 93%
104
%
Other creditors
100
%
149
% 84% 78% 85%
Total Current Liabilities
100
%
109
%
104
% 80%
106
%
Non-current liabilites
Long term loans-Net of
current Maturity
100
%
104
%
112
%
198
% 96%
Securities Deposists
from distributors
100
%
1000
%
100
%
100
%
100
%
Total Non-current
liabilites
100
%
105
%
112
%
197
% 96%
TOTAL LIABILITIES
100
%
108
%
107
%
126
%
100
%
SHAREHOLDERS EQUITY
Issued share capital
100
%
1000
%
110
%
105
%
125
%
Share premium
100
%
100
%
100
%
100
%
100
%
Tax holiday resurve
100
%
107
%
100
%
100
%
100
%
Retained Earnings
100
% 67%
102
%
112
% 97%
Accumulated profit-As
per the statement of
changes in equity
100
%
111
%
102
% 0%
TOTALShareholder Equity
100
%
105
%
103
%
106
%
105
%
TOTAL SHAREHOLDERS 100 107 105 118 101
EQUITY&LIABILITIES % % % % %
Income statement
indexing
200
1
200
2
200
3
200
4
200
5
Revenue
100
%
101
%
103
%
101
%
87
%
Cost of revenue
100
%
103
%
105
%
100
%
85
%
Gross profit
100
%
96
%
93
%
101
%
96
%
operating expense
100
%
99
%
101
%
72
%
124
%
Administrative
expense
100
%
103
%
103
%
75
%
129
%
Distribution
(selling)cost
100
%
86
%
92
%
57
%
93
%
Profit from
operation
100
%
95
%
92
%
105
%
94
%
Contribution to
workers
participation/welfar
e funds
100
%
33
%
69
%
183
%
83
%
Finance cost
100
%
100
%
100
%
92
%
102
%
Net profit before
tax
100
%
95
%
81
%
127
%
83
%
Income tax expense
100
%
64
%
87
%
137
%
96
%
Net profit(after
tax)for the year
transferred to
statement of
changes in equity
100
%
105
%
80
%
125
%
80
%
Earning per share
(per value tk. 10/)
(adjusting EPS of
2001,2002.2003,20
04,2005)
100
%
61
%
64
%
151
%
80
%
Number share used
to computes EPS
100
%
110
%
100
%
131
%
100
%
2.1.3 Ratio analysis
2.1.3.1 Liquidity ratio
2.1.3.1.1 Current ratio;
The current ratio of padma textile
Mills has increased here. In 2001 it
Was 1.44 but in 2005 it increased
To 2.64.the average current ratio
Of the industry is 1.94. It shows
The healthy improvement of the
Padma textile ltd. The liquidity of
Padma textile mills increased. From the chart we can see that, In
2001, 02, &03 it was increased slightly but in 2004 it increased
dramatically. It may be happened because current asset or liabilities.
From indexing we can see that in current asset Cash & Cash
equivalence, advanced, deposit, prepayment increased but creditors’
expense in current liabilities decreased. That why the liquidity
condition of padma textile mills ltd has increased.
2.1.3.1.2 Acid test ratio
This ratio serves as a supple
ment to the current ratio in
analyzing liquidity. From the
ratio analysis we can see that
the acid test ratio of padma
textile mills has increased from 2001 to 2005. In 2001 it was .92 but
in 2005 it was2.00. The average acid test ratio is 1.4. That means the
condition of 2005 ratio is better than the average. From the graph we
can see that the liquid current asset position of padma textile mills is
in improved position. Because of good current ratio it may be
happened.
2.1.3.2 Leverage ratio;
2.1.3.2.1 Debt to equity;
Here we can see that the debt to
Equity ratio was increased to
1.64 to 2.07 in between 2001 to
2004. It was little bit decreased in 2005. That means in 2005 1.97 of
financing for each 1tk being provided by the shareholders. Creditors
would generally like this Ratio to be low, because the lower the ratio,
the higher the firms financing, that is being provided by shareholders.
The average debt to equity ratio was 1.82.but in 2005 it was 1.97,
which is more than the average. That means padma textile may
experienced difficulty with creditors, because of high debt ratio.
2.1.3.2.2 Debt to total asset;
In 2001 62% of the firm’s asset
Were financed with debt and
The remaining 38% of the
Financing comes from share
holders equity. But in 2005 66% of the firm’s assets were financed
with debt and the remaining 34%of the financing comes from
shareholders equity. This debt ratio desire that if padma textile mills
were liquidated than assets could be sold to 62% in 2001 and 66% in
2005 on dollar before creditors would face a loss.. so I think the
percentage of finance provided by shareholders equity is lower and
the financial risk is high. So people can’t want to invest in padma
because of high financial risk, which is not acceptable for the investor.
2.1.3.3 Coverage ratio
2.1.3.3.1 Interest coverage
From the graph we can
See that interest coverage
Of padma decreased
From 4.43 to 3.22 in
between 2001 to2003.
It was increased in 2004, which was 5.45 but in 2005 it decreased
to3.5.The average interest coverage was 4.14, which is greater than
2005.this situation happened, because EBIT of padma textile mills
was decreased from 2001 to 2003. In 2004 it was increased to 5.45
but because of some extra expense the EBIT has gone down to3.5.
2.1.3.4 Activity ratio
2.1.3.4.1 Receivable turnover:
The five years receivables turnover of padma textile mills is 2.06,
1.61, 1.45, 1.05 and .83. The average receivables turnover is 1.4.
Here we can see that the (RT) has decreased in every year and in
2005 it was .83. That means it take a long time between the typical
sales and cash collection.
2.1.3.4.2 Receivable turnover in days (RTD)
The receivables turnover has
decreased every year, so longer time was required to collect the cash.
In the graph we can see that the RTD was increased day by day. In
2001 it was 147.76 but in 2005 it increased to438.68.in 2005 the
receivable turnover of padma was low, which was .83. May be that’s
why it need long time. I think it is not good for the company. If
receivable turnover need a long time to come, then the debt and
financial risk of the company will increase and it affect the investor. It
may happen because the product of padma textile may not so quality
product, or the consumer or buyer may face some problem in this
product, and that’s why buyers took more time for payments.
2.1.3.4.3 Inventory turnover (IT)
From the ratio analysis
we can see that the inventory of padma has gone between ups and
down. In 2001 it was 2.47 but in 2005 it decreased to 1.91. It means
that in 2001 2.47 times inventory is turned over into receivables but
in 2005 only 1.91 times inventory is turnover into receivables through
cash. That means the inventory turnover management of padma
textiles is less efficient. It also may happen because of lower
management system of padma. The employees may not careful to
their work. They may not force their buyers to make inventory into
cash. That’s may be the reason why this condition occurs.
2.1.3.4.4 Inventory turnover in days
The inventory
turnover tells us how many days on average before inventory is
turned into account receivables through sales. In 2001 padma need
131.24 days which means that padma has slower turning its
inventory. It also shows us that the clients of padma are not so good.
It also indicates that there may be some lackings on the management
of the industry. That why the time of turnover increased every year,
and it reached to191.24 in 2005.from the graph we can see that from
2001 to 2005 it fluctuates little and last it rose to 197.25.
2.1.3.4.5 Total assets turnover (Capital)
From the graph we
analyze that the capital of padma has decreased from .62 to .42 in
between 2001 to2005. The average total asset turnover is .53. It tells
us that the padma textile generates less sales revenue per dollar of
asset investment than does on average. Padma is less efficient in
total asset turnover. From our previous analysis of receivables and
inventory activity, we suspect that excessive investment in
receivables and inventories may be responsible for this problem. If
padma could generates the same sales revenue with fewer dollar
invest in receivables and inventories than the total asset turnover
would improved.
2.1.3.5 Profitability ratio
2.1.3.5.1 Net profit Margin
In 2001 to 2005 the
net profit of padma textile is 5% and the average net profit is 4.8%.
For padma’s roughly 5% out of every sales dollar constitute after tax
profit. Padma’s net profit margin is above the average which indicates
that it has a higher sales profitability.
2.1.3.5.2 Return on investment (ROI)
Here the return of investment or
earning power is decreased in 2001 it was 3% and in 2005 it is 2%. It
may happen because of low total asset turnover.
2.1.3.5.3 Return on Equity (ROE)
Here the return on equity
is lower in 2002 it was 9% but in 2005 it becomes 6% that means
investment opportunity of padma textile is not so strong and the
expenses arrangement is not so effective. The average ROE is 7.8%
which was greater than 2005.The average ROE takes us that it was
padmas condition was better in average.
Chapter 3
3.1 Conclusion
The overall condition of the padma textile mills was
not so good. Though the current and quick ratio of the company is
improved condition but the debt ratio is high, that means the financial
risk of the company is high. If the company want develops the
condition then they must improve their management system, look
carefully to their receivables, and total asset. Otherwise the company
will face a great problem
Bibliography
Van Horne,James C. ,Fundamental of financial management, New
delhi-100 00, Prentice-hall of India private limited, 2006