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Financial ratio analysis of padma textile mills ltd

Fin 245

Prepared by

Md. Raihan Chawdhury


Id# 052200021
Group# 2

Prepared for
Ms. Tamanna khan
Faculty member
Faculty of business administration

Eastern university
Dhaka
September 30,2007

To
Ms. Tamanna Khan
Faculty Member
Faculty 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 summary
Chapter 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 common Size


ce
Sheet
200 200
2001 2002 2003 4 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 & 269
Euipment 44% 42% 38% 31% %
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%
100 100 100
Total Asset % 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 0% 0% 0% 0% 0%
from distributors
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 100 100 100
EQUITY&LIABILITIES % 100% 100% % %

Income statement

common sizing
200 200 200 200 200
1 2 3 4 5
100 100 100 100 100
Revenue % % % % %
80 81 82 82
Cost of revenue % % % % 81%
20 19 18 18
Gross profit % % % % 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 18 17 16 16
operation % % % % 18%
Contribution to
workers
participation/welfar
e funds 1% 0% 0% 0% 0%
11 11 10
Finance cost % % % 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
200 200 200 200
1 2002 3 4 5
Asset
Current asset
100 255 167 239
Cash & Cash equivalence % 45% % % %
100 129 114 139 110
Trade debtors % % % % %
100 111 117 100
Inventories % 92% % % %
Advance,Deposits,Prepay 100 100 133 105
ments % 86% % % %
100 111 112 132 107
TOTALCurrent asset % % % % %
Fixed asset
Property,Plant & 100 101 883
Euipment % % 96% 96% %
100 108 105 105 101
Cost % % % % %
100 118 116 114 112
Accumulate Depriciation % % % % %
Long term security 100 101 108 100 100
deposits % % % % %
100 101
Total non current asset % % 96% 96% 88%
100 107 105 118 101
Total Asset % % % % %
Liabilities
Current Liabilities
Short term loans from 100 105 106 103
bank (Secure) % % % 86% %
Long term loans- current 100 110 101 147
Maturity(Secured) % % % 45% %
100 137 103 104
Accured expense % % % 93% %
100 149
Other creditors % % 84% 78% 85%
Total Current Liabilities 100 109 104 80% 106
% % % %
Non-current liabilites
Long term loans-Net of 100 104 112 198
current Maturity % % % % 96%
Securities Deposists 100 1000 100 100 100
from distributors % % % % %
Total Non-current 100 105 112 197
liabilites % % % % 96%
100 108 107 126 100
TOTAL LIABILITIES % % % % %
SHAREHOLDERS EQUITY
100 1000 110 105 125
Issued share capital % % % % %
100 100 100 100 100
Share premium % % % % %
100 107 100 100 100
Tax holiday resurve % % % % %
100 102 112
Retained Earnings % 67% % % 97%
Accumulated profit-As
per the statement of 100 111 102
changes in equity % % % 0%
100 105 103 106 105
TOTALShareholder Equity % % % % %
TOTAL SHAREHOLDERS 100 107 105 118 101
EQUITY&LIABILITIES % % % % %

Income statement

indexing
200 200 200 200 200
1 2 3 4 5
100 101 103 101
Revenue % % % % 87%
100 103 105 100
Cost of revenue % % % % 85%
100 96 93 101
Gross profit % % % % 96%
100 99 101 72 124
operating expense % % % % %
Administrative 100 103 103 75 129
expense % % % % %
Distribution 100 86 92 57
(selling)cost % % % % 93%
Profit from 100 95 92 105
operation % % % % 94%
Contribution to
workers
participation/welfar 100 33 69 183
e funds % % % % 83%
100 100 100 92 102
Finance cost % % % % %
Net profit before 100 95 81 127
tax % % % % 83%
100 64 87 137
Income tax expense % % % % 96%
Net profit(after
tax)for the year
transferred to
statement of 100 105 80 125
changes in equity % % % % 80%
Earning per share 100 61 64 151 80%
(per value tk. 10/) % % % %
(adjusting EPS of
2001,2002.2003,20
04,2005)
Number share used 100 110 100 131 100
to computes EPS % % % % %

2.1.3 Ratio analysis

2.1.3.1 Liquidity ratio

2.1.3.1.1 Current ratio;

The current ratio of padma textile current ratio

Mills has increased here. In 2001 it Series1

Was 1.44 but in 2005 it increased 3.00


2.00
ratio

To 2.64.the average current ratio .


100

0.00
Of the industry is 1.94. It shows 2000 2001 2002 2003 2004 2005 2006
year
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’
Acid Test (dquick)
expense in current liabilities decreased. That why the liquidity
Acid Test (dquick)

condition of padma textile mills


3.00ltd has increased.
2.00
rarios

.
100
0.00
2000 2001 2002 2003 2004 2005 2006
2.1.3.1.2 Acid test ratio year

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;


Debt to equity

Debt to equity
2.1.3.2.1 Debt to equity;
.
400
ratios

Here we can see that the debt to .


200
-
2000 2001 2002 2003 2004 2005 2006
Equity ratio was increased to year

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.
Debt to total assets

Debt to total assets

2.1.3.2.2 Debt to total asset;70%


ratios

65%
In 2001 62% of the firm’s asset 60%
2000 2001 2002 2003 2004 2005 2006

Were financed with debt and year


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

Interest coverage

From the graph we can .


600

See that interest coverage400


.
ratios

Interest coverage
.
200
Of padma decreased 0.00
2000 2001 2002 2003 2004 2005 2006
From 4.43 to 3.22 in year

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:
Receivable turnover

Receivable turnover

3.00
.
ratios

200
.
100
0.00
2000 2001 2002 2003 2004 2005 2006
year

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)

Receivable turnover indays (RTD)

Receivable turnover indays (RTD)

600.00
400.00
RTD

200.00
0.00
2000 2001 2002 2003 2004 2005 2006
year

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)

Inventory turnover (IT)

Inventory turnover (IT)

3.00
.
ratios

200
.
100
0.00
2000 2001 2002 2003 2004 2005 2006
year

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
Inventory turnover in days

Inventory turnover in days

300.00
200.00
RTD

100.00
0.00
2000 2001 2002 2003 2004 2005 2006
year

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)

Total assets turnover (Capital)

0.80
0.60
Total assets
ratios

0.40
turnover (Capital)
0.20
0.00
2000 2001 2002 2003 2004 2005 2006
ye ar
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

Net profit Miurgin

Net profit Miurgin

10%
ratios

5%
0%
2000 2001 2002 2003 2004 2005 2006
year

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
Return margin is above the average which indicates
on investment (ROI)

Return on investment (ROI)


that it has a higher sales profitability.
4%
ROI

2%
0%

2.1.3.5.2 Return
2001
on2002investment
2000 2003
year
2004
(ROI)
2005 2006
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)

Return on Equity (ROE)

Return on Equity (ROE)

10%
ratios

5%

0%
2000 2001 2002 2003 2004 2005 2006
year

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