Study on overall financial performance of Vijay textile limited.

Submitted to:

Prof. Madana Mohan

Submitted by:

Harsh Jain

PGDM, Sem- 2

Roll- 5130

Sec- ‘c’
 BONAFIDE CERTIFICATE

Certified that this summer project titled “A STUDY OF OVERALL FINANCIAL

PERFORMANCE OF VIJAY TEXTIES LIMITED”, SECUNDERABAD is the

bonafide work of HARSH JAIN (Regn. No.-5130) who carried out the research under

my supervision. Certified further that to the best of my knowledge the work reported

here in, does not form any part of other thesis or dissertation on the basis of which a

degree or award conferred on an earlier occasion on this or any other candidate.

Dr. SABYASACHI RATH PROF. MADANA MOHAN

(Director) (Faculty guide)

 ACKNOWLEDGEMENT

I would like to express my heartfelt thanks to Mr. VIJAY KUMAR GUPTA managing
director and Mr. SUSHEEL KUMAR GUPTA executive director of VIJAY TEXTILE
LIMITED for providing me an opportunity to do the project in their esteemed
organisation.

This project would not have been successfully completed without my faculty Mr. M.
MADANA MOHAN who extended his wholehearted support and encouragement
throughout my project work.

I am grateful to Mr. S. NAGARJUNA and all the employees in finance department of

VIJAY TEXTILES LIMITED who have directly or indirectly contributed for the
completion of my project.

Finally, I would like to thanks my parents and friends who encourage me always and
support throughout the entire project whichever I had done in my life.
 CONTENTS
1. ABSTRACT

2. INTRODUCTION

3. COMPANY PROFILE

4. FINANCIAL STATEMENT

5. RESEARCH METHODOLOGY

6. OBJECTIVES

7. SCOPE

8. LIMITATIONS

9. DATA ANALYSIS

10. FINDINGS

11. SUGGESTIONS

12. CONCLUSION

13. REFERENCE
 ABSTRACT

VIJAY TEXTILE LIMITED is the profitable leading organisation and succeeds over the
Competition in the market.

The study is necessary to look after its financial position with its own figures for the five
years (2005 to 2009) and analyse them for it success. The study insists to identify the
company position and to give suggestion to improve it.

The main objectives of this project work are to find out the comparative balance sheet,
income statement etc.

The analysis is based upon the secondary data and the study period is limited to that
extent. At last, it has been found out that company has good financial position.
 INTRODUCTION

In our present day economy, finance is defined as the provision or money at the time

when it is required. Every enterprise, whether big, medium or small, needs finance to

carry on its operation and to achieve its targets. In fact, finance is so indispensable today

it is rightly said that it’s the life-blood of industry. Without adequate finance, no

enterprise can possibly accomplish its objectives.

Since finance is viewed as the most important factor in every enterprise, therefore

the management requires special mention and attention. The conventional approach to

finance function in business highlights the procurement of funds on the most economic

and favourable terms to the concern, but it ignores the efficient and proper use of the

needed for various ventures and project. How much to allocate, when to allocate and

how to allocate the required funds to a particular project deserves special attention in

every concern. The management has to look in to the book and corner of each project,

the amount of funds necessary for them and the source from which to arrange. Financial

management plays vital role in procurement allocation and control of funds.

The basis for financial planning and analysis is financial information. Financial

information is needed to predict, compare and evaluate the firm’s earning ability. It is

also required to aid in economic decision making investment and financing decision-

making. The financial information of an enterprise is contained in the financial

statements or accounting reports.

It contains summarized information of the firm’s financial situation to owners,

creditors and general public. Preparation of these statements is the responsibility as

possibly because; they are very useful to judge the financial efficiency of the company.
 PARTIES INTERESTED IN FINANCIAL STATEMENT

Analysis of financial statements is not only useful to the company but also covers the

wide range of different aspirants.

MANAGEMENT:

Management is over burdened with the date rather than the information. The analysis

statement gives the information to management in brief and preside manner, with this

information the company can self evaluate their performance and find out any variances

until budgets. So these statements in term helpful for solving any deviations in the

budgets.

SHARE HOLDERS:

Shareholders are the real owners with the help of these statements they can analyses the

growth and earnings of their own company.

POTENTIAL INVESTORS:

The people under this category are very much keen on, these statements for the return in

short term and ratios these statements are very much required for them.

DEBENTURE HOLDERS:

These statements will be helpful for them to analyse how safe their investments. It will

give not only the companies ability, to pay the interest but also to redeem the same.
CREDIT INSTITUTION:

Companies financial requirements are being fulfilled by these organization before

investing. These institutions are very much required of the solvency and potentiality of

the company. These needs will be fulfilled by preparing these statements.

CREDITORS:

Creditors are the one, who are inter over with the companies day to day operations. They

too need the ability of the company to discharge their debts by the company. Financial

statements are helpful in this regard to the creditors.

EMPLOYEES AND TRADE UNIONS:

The profit of the company in term as an effect in the pay structure of the employees.

Bonus generally linked with the profits earned by the company. The financial statement

gives this information to the employees of the organization or company.

GOVERNMENT:

To know whether particular industry is in progress or not can be measured by these

statements. In term of the government will be in a position to show the progress of the

nation as a whole.

TAX AUTHORITIES:

Financial statements are very helpful for the income tax and sales tax authorities to

determine revenue receivable from the companies. Financial statements help them a great

deal.
RESEARCHERS:

These are the documents for the future projections. So these are esteem value to scholars

undertaking research business affairs and practices. After duly recognizing the

importance of financial statement analyses, this topic has been those as the focus of

project. It analyses the various facts like ratios, working capital of VIJAY TEXTILE

LIMITED.

COMPANY PROFILE

VTL was incorporated on 02 February 1990 and subsequently converted into a Public

Limited Company for which it obtained a fresh certificate of incorporation on 17 June

1994.

In fact, the Promoters of the Company chiefly Mr. Vijay Kumar Gupta after inheriting

the family business of over four decades old have been able to transform it in to its

present size and stature. Initially the family firms were in the business of trading in

textiles and they gradually developed in to manufacturing outfit by obtaining the grey &
processing of the fabric. The major activity consisted of purchase of Polyester Yarn from

large Mumbai market, conversion of Yarn into Grey Cloth on job contracts with the

Weaving Contractors at Bhiwandi in Maharashtra and then getting the Grey Cloth

processed in to finished fabrics from Textile Processors at Hyderabad. The Finished

Fabric thus manufactured was marketed under the brand name of “VIJAY” throughout

India.

VTL established its brand name in the major domestic market and created a strong sales

network for its brand of products. With this strong backdrop it then ventured into full-

fledged manufacturing of Processed Textiles by setting up its own facilities in June 1993

and commenced the operations from September 1993 onwards. The Process House of the

Company was setup at APIIC Developed Industrial Estate in Kattedan, Hyderabad in a

land admeasuring 2 Acres fully owned by the company.

The manufacturing facility at Kattedan was in operation up to June 2006, after which it

has converted the premises by using the infrastructure available for its all India

wholesale trade operations, facilitating dispatching of goods to the dealers across the

country.

As consequent to Government directives the Company decided to set a new

manufacturing facility at Rajapoor Village, Balanagar Mandal Mahaboobnagar District.

The new project site was chosen for variety of reasons like proximity to twin cities and

its location along the national highway, whereby all infrastructural facilities are within

easy reach. There are other textile units including a spinning unit coming-up in this belt.

The new unit is conceived to keep pace with technological advancements and with a
commitment to ecology for locating the unit in the back drop of green belt in an

extremely environment friendly ambience. This new facility gives the Company an edge

to expand it manufacturing facilities and add many more value added products. The

Company has also set up additional facilities for production of wider width of cloth at

the Rajapoor factory site.

And bring more value addition to its wide range of exclusive products the company has

also added fully automatic Embroidery Unit within the premises of its manufacturing

unit by importing world class machinery from Japan.

The Company has its Corporate Office at Secunderabad and besides it has a very

exclusive factory retail outlet in the sub-ground floor of the same premises with a total

area of around 30000 SFT fully owned by the company.

The Company has amended its Memorandum and Articles of Association of the

Company for entering into new line of business i.e. development of infrastructure

projects. The Company has already entered into agreement for its first project “Tech-

Park” which shall be ready for lease to Software/IT Companies in the last quarter of the

financial year 2008 – 2009. The Company hopes to earn a tax free income of about RS.

18.00 crores per annum from this venture alone. The Company shall derive various

advantages as envisaged under the Scheme of Central Government for development of

Soft ware Technology Parks such as tax free holiday and various other incentives thus

improving its income and profitability to a considerable extent. The Tech-park project is

expected to be operational in the current financial year.

 FINANCIAL STATEMENT

ACCOUNTING

Accounting process involves recording, classifying and summarizing various business

transactions. The day to day transactions of a business are recorded in different

subsidiary books. These transactions are posted into various ledger accounts and the

balances are taken out at the end of financial period. The aim of maintaining various

records is to determine the profitability of the enterprise from operations of the business

and also to find out its financial position.

DEFINITION

The definition for financial statement says that “The financial statements provide a

summary of the accounts of a business enterprise, the balance sheet reflecting the assets,

liabilities, and capital as on certain date and the income statement showing the results of

operation during a certain period”.

The term financial statement refers to

1. Balance sheet.

2. Profit and loss account (income statement}

3. Statement of retain earning.

4. Profit and loss appropriation account

5. Fund flow statement.

6. Cash flow statement.

BALANCE SHEET

Balance sheet is the most significant financial statements. It indicates the financial

condition or the state of affairs of a business at a particular moment of the time. More

specifically, balance sheet contains information about resources and obligation of a

business entity and about its owner interest in the business at a particular point of time.

Thus, the balance sheet of a firm prepared on 31 December 19XI reveals the firm’s

financial position on this specific date. In the language of accounting, balance sheet

communicates information about assets, liabilities and owners’ equity for a business firm

as on a specific date. It provides a snapshot of the financial position of the firm at the

close of the firm’s accounting period.

PROFIT AND LOSS

Balance sheet is considered as a very significant statement by bankers and other lenders

because it indicates the firm’s financial solvency and liquidity, as measured by its

resources and obligations. However, creditors, particularly bankers and financial

analyst in India have recently started paying more attention to the firm’s earning

capacity as a measure of its financial strength. The earning capacity and potential of a

firm are reflected by its profit and loss account. The profit and loss account is a “score –

board” of the firm’s performance during a period of time. The generally accepted

convention is to show one year’s events in the profit and loss account. Since the profit

and loss account reflects the results of operations for a period of time, it is a flow

statement. In contrast, the balance sheet is a stock or status statement as it shows assets,

liabilities and owners’ equity at a point of time.

Profit and loss account presents the summary of the summary of revenues, expenses and

net income (or net loss) of a firm. It serves as a measure of the firm’s profitability.

Revenues are amounts which the customers pay to the firm for providing them goods

and services to customers. The cost of the economic resources used to earn revenues

during a period of time are called expenses. Thus, to determine net income (or net loss),

the accounting system matches expenses incurred during the accounting period against

revenues earned during that period. This matching of expenses with revenue is called

matching concept. The time period for which matching is done is called the accounting

period. Normally, the accounting period for the business firm’s is of one year’s duration.

TREND ANALYSIS

In financial analysis the direction of changes over a period of years is of crucial

importance. Time series or trend analysis of ratio indicates the direction of change. This

kind of analysis is particularly applicable to the items of profit and loss account. It is

advisable that trends of sales and net income may be studied in the light of two factors:

the rate of fixed expansion or secular trend in the growth of the business and the general

price level. It might be found in practice that a number of firms would show a persistent

growth over a period of years.

For trend analysis, the use of index numbers is generally advocated. The procedure

followed is to assign the number 100 to items of the base year and to calculate percentage

changes in each item of other years in relation to the base year. This procedure may be

called as “trend- percentage method”.

WORKING CAPITAL

There are two concepts of working capital

a. Gross working capital.

b. Net working capital.

GROSS WORKING CAPITAL

Gross working capital refers to the firm’s investment in current assets. Current assets

are the assets which can be converted into cash within an accounting year (or operating

cycle) and include cash, short term securities, and debtors, (accounts receivable or book

debts) bill receivable and stock (inventory).

NET WORKING CAPITAL

Net working capital refers to the difference between current assets and current

liabilities. Current liabilities are those claims of outsiders which are expected to mature

for payment within an accounting year and include creditors (accounts payable), bills

payable, and outstanding expenses. Net working capital can be positive or negative. A

positive net working capital will arise when current assets exceed current liabilities. A

negative net working capital occurs when current liabilities are in excess of current

assets.
RATIO ANALYSIS

Ratio analysis is one of the techniques of financial analysis where ratios are used as a

yardstick for evaluating condition and performance of a firm.

MEANING:

Ratios are expressed in mathematical terms between figures, which are connected with

each other in same manner. Ratio can be expressed in two ways.

1. Times

2. Percentage.

CURRENT RATIO:

The ratio of current assets to current liabilities is called current ratio. In order to

measure the short – term liquidity or solvency of a concern, comparison of current assets

and current liabilities is inevitable. Current ratio indicates the ability of a concern to

meet its current obligations as and when they are due for payment.

An ideal current ratio is 2:1.The ratio of 2 is considered as a safe margin of solvency due

to the fact that if the current assets are reduced to halftime. 1 instead of 2 then also the

creditors will be able to get their payments in full.

CURRENT RATIO = CURRENT ASSETS/CURRENT LIABILITIES.

QUICK RATIO:

Quick ratio is calculated by comparing the quick assets which current liabilities. Quick

assets refer to assets which are quickly convertible into cash current assets, other than

stock and prepaid expenses are considered as quick assets. The ideal liquid ratio is

1:1.This ratio is also an indication of short – term solvency of the company. A

comparison of quick ratio with current ratio shall indicate the inventory holdups.

QUICK RATO = QUICK ASSETS/CURRENT LIABILITIES

NET PROFIT RATIO:

This ratio is called net profit to sales ratio. It is a measure of management efficiency in

operating the business successfully from the owner’s point of view. It indicates the

return on shareholders investments. Higher the ratio better is the operational efficiency

of the business concern.

The net profit ratio margin is indicative of “managements ability to operate the

business with sufficient success not to recover from revenues of the period, the cost of

merchandise, the expenses of operating the business and the cost of the borrowed funds,

but also to leave a margin of reasonable compensation to the owners for providing their

capital at risk”.

NET PROFIT RATIO = NET PROFIT/NET SALES X 100

DEBTORS COLLECTION PERIOD

The average collection period measures the quality of debtors since it indicates the speed

of their collection. The shorter the average collection, the better the quality of debtors,

since a short collection period implies the prompt payments by debtors.

DEBTORS COLLECTION PERIOD = TOTAL RECEIVABLES/CREDIT SALES X

365

CURRENT ASSETS TURN OVER RATIO

Assets are used to generate sales. Therefore, a firm should manage its assets efficiently to

maximize sales. Therefore, a firm should manage its assets is called assets turnover.

CURRENT ASSETS TURN OVER RATIO = SALES/CURRENT RATIO

RESEARCH METHODS 

The methodology followed in this study involves techniques of financial analysis such as

comparative balance sheet, comparative income, common size and balance sheet, ratio’s

analysis and comparison of working components with the fixed standards.

The study is completely based on secondary date obtained from the VIJAY TEXTILE

LIMITED. The financial statements (annual report) for 2 years from 2007 to 2009 were

collected from the VIJAY TEXTILE LIMITED which is based for the study.
 OBJECTIVES

1. To draw the significant relationship between increase or decrease of income and

expenditure with respect to different activities.

2.To study the changes which take place in the revenue account during the years and their

trends.

3. To study the growth rate which take place with respect to each activity?

4. To analysis the profitability and solvency position of the company for past two years.

5. To evaluate the financial statements of past two years.

6. To critically analysis the financial performance of the VIJAY TEXTILE LIMITED

with the help of ratios.

7. To highlight the short coming in the area of finance with the of the trend analysis,

compare balance sheet analysis commensurate balance sheet analysis and put for the

recommend action with the view to increasing efficient of the VIJAY TEXTILE

LIMITED.

8. To assess the working capital employed by the VIJAY TEXTILE LIMITED.

 SCOPE

1. Studying the financial statements analysis needs and its implication for the VIJAY

TEXTILE LIMITED.

2. Impact of ratio analysis for VIJAY TEXTILE LIMITED.

3. To study how the short term funds and long term funds generated.
 LIMITATIONS

1. Time has been a limiting factor and it has been difficult to analysis the various aspects of

Finance with the prescribed time.

2. Financial statements are only in terms of reports. They are not final because the exact

Financial position can be known only when the business is closed.

3. Financial statements are prepared on the basis of certain accounting concepts and

conventions any changes in the method or procedure of accounting limits the utility of

Financial statements.

4. The number of parties interested in the financial statement is large and their interest

differs. The financial statements cannot meet the purpose of parties interested in them.

5. The authenticity of the financial statements has not been checked with the book of

accounts of the company

 DATA ANALYSIS

VERTICAL COMMON SIZE BALANCE SHEET:

Equity & 2009 2008 2007 2006 2005

liabilities
Share capital
Authorised
capital (6,00,000
shares of Rs. 10
each)
Issued and paid 0.96% 0.88% 0.88% 0.97% 1.27%
up capital
General reserve 28.72% 24.98% 21.99% 21.03% 23.21%
Unappropriated 1.75% 0.88% 2.15% 1.85% 1.46%
profits
31.42% 26.74% 25.03% 23.85% 25.93%
Loans from 2.85% 2.34% 2.93%
sponsers and
relatives
Non-current
liabilities
Long term 16.24% 17.93% 22.84% 36.04% 27.85%
financing secured
Liabilities against 0.26% 0.34% 2.37%
assets
Long term 0.45% 1.20% 2.48%
murabaha
Deferred 6.50% 5.49% 4.76% 3.53% 32.71%
liabilities
Total long term 23.00% 25.76% 30.98% 41.11% 65.41%
liabilities
Current liabilities
Trade and other 6.04% 5.35% 5.26% 9.85% 6.82%
payable
Mark up accrued 1.45% 0.98% 0.86% 0.91% 0.79%
loans
Short term 28.43% 30.78% 27.07% 16.70% 26.73%
borrowings
Current portion 6.80% 9.81% 10.29% 6.90% 3.37%
of long term
borrowings
Provision for 0.58% 0.52% 0.68% 0.91%
taxation
Total current 42.73% 47.50% 44.00% 35.04% 38.62%
liabilities
100% 100% 100% 100% 100%
Non-current
assets
Property plant 55.02% 54.12% 58.51% 68.82% 55.20%
equipment
Capital work in 0.09% 0.17% 0.27% 0.77% 0.88%
progress
Long term 0.01% 0.01% 0.01% 0.01% 0.13%
investment
Long term loans 0.33% 0.25% 0.27% 0.20% 0.27%
Long term 0.96% 0.09% 0.07% 0.30% 0.62%
deposits
56.41% 56.64% 59.13% 70.11% 57.10%
Current assets
Stores spares and 1.26% 1.46% 0.83% 0.79% 1.03%
tools
Stock in trade 25.52% 28.26% 24.59% 19.22% 33.14%
Trade debts 14.17% 12.26% 10.96% 5.85% 6.84%
Loans and 0.18% 0.29% 1.42% 1.94% 1.81%
advances
Trade deposit and 0.71% 0.59% 0.81% 0.62% 0.35%
short term
Other recievables 0.16% 0.17% 0.15% 0.01% 0.28%

Taxation 0.61% 1.80% 0.48% 0.69% 0.26%

Cash and bank 0.72% 0.54% 1.63% 0.77% 0.52%
balances
Total current 43.60% 45.37% 40.87% 29.89% 43.90%
assets

Total assets 100% 100% 100% 100% 100%

VERTICAL COMMON SIZE INCOME STATEMENT:

2009 2008 2007 2006 2005

Sales 100% 100% 100% 100% 100%

Cost of goods 86.88% 88.22% 86.47% 84.20% 82.34%
sold
Gross profit 13.12% 11.77% 13.53% 15.80% 17.66%
Other 0.07% 0.28% 0.04% 0.62% 0.05%
operating
income
Income before 13.20% 12.06% 13.58% 16.42% 17.71%
operating
expenses
Operating
expenses
Distribution 1.18% 1.22% 0.81% 1.02% 1.11%
cost
Administrative 1.58% 1.45% 1.51% 1.64% 2.72%
expenses
Other 0.14% 0.12% 0.28% 0.36% 0.99%
operating
expenses
Finance cost 7.66% 6.35% 5.71% 6.90% 4.15%
Total 10.56% 9.18% 8.30% 9.93% 8.96%
operating
expenses
Profit before 2.63% 2.87% 5.27% 6.49% 8.75%
tax

Provision for 0.43% 0.52% 0.50% 0.78% 1.23%

taxation
Current year 0.00% 0.07% 0.06% 0.02% 0.00%
Prior year 0.06% 0.59% 1.31% 0.58% 0.00%
Deferred 0.50% 1.04% 1.76% 1.34% 1.23%

Profit after tax 2.14% 1.84% 3.52% 5.15% 7.52%

Vertical Analysis of Balance sheet and Income Statement:

The vertical common size analysis of balance sheet shows that long-term assets remain
with 55%-60% range during last eight years and current assets remain 40%-45%
during that period. The major contributor to long-term assets is plant and equipment
which is about 50% of total asset on average it increased from 2005 to 2009 and after
that it showed a decline due to some financial constraints of the
firm.

The major contributors to short-term assets are stock in trade and trade debt with
share of with average share of 25% and 16% respectively. Trade debt increased with
the passage of time which shows the lacking ability to collect receivable on time. On the
other hand of balance sheet the major there is 70% and 30% share of debt and equity
respectively. The major contributor to debt is current liabilities is which is 40% of total
right hand side of balance sheet on average, and these liabilities have increased at a
steady pace during the last five years. Long-term debt of the confirm contribute 30% on
average to total right hand side of balance sheet and it has increased from 2005 to 2009
and thereafter it drop down significantly due to respective decrease in fix assets during
same period of time. The vertical common size analysis of income statement shows that
cost of goods sold is about 85% of total sales on average which leave 15% gross profit
on average for firm during last five years. Operating expense are about 9% of total sales
and major contributor to operating expense is finance cost which has increased
continuously since 2005 mainly because of increased finance lease of assets. The net
operating profit of company remained on average about 6% during 2005 to 2009 and
after that it decreased to average of 2% for 2007 to 2009, this is mainly because firm is
unable to generate much gross profit because of high cost of production which right
very low margin for operating expense hence lead to low net profit.
RATIO ANALYSIS:

Liquidity ratios

Year 2009 2008 2007 2006 2005

Avg. 42.85 43.78 38.73 24.72 48.15
collection
period
Avg. 88.85 114.44 100.54 96.38 296.35
inventory in
days
Payable 21.04 21.67 21.50 49.39 60.95
days
Current 0.58 0.50 0.69 0.84 0.50
ratio
Quick ratio 0.21 0.22 0.33 0.26 0.12
Cash flow 0.19 0.04 -0.08 0.60 -0.12
liquidity
ratio

Analysis of Liquidity ratios:

Current ratio of Vijay textile limited show that firm is in week position of pay of its
short term liabilities as the current ratio for industry is higher than the company and
company own ratio is much more less then 1. The average current ratio for industry in
eight year is 0.85 and average Current ratio for the firm is 0.65. Quick ratio describe
the same picture that firm is not a good position to payoff its short-term
liabilities, the average Quick ratio for industry in eight years is 0.47 and for the
company it is 0.34. The cash flow liquidity ratio for the company also show that
company’s cash flow are not enough to meet the liquidity requirement of the firm as the
average CFLR for the industry is 0.27 and for the company it is 0.15. Avg. Collection
Period ratio of the firm show that on average it took company 39 days to collect its
receivables and if we compare it with industry it took 34 days which show that company
is able to collective its receivables in good time.
Payable days show that it took firms on average 33 days to payoff its liabilities and it
took other firms in industry about 35 days to pay their liabilities which show that firm
has enough cash to payoff its liabilities. The major weakness of the VTL is in current
ratio, quick ratio and CFLR, which can be improve by keeping more current assets and
generating positive operating cash flows. Firms average collection period is much longer
than its average payable period so firm should work in this area to decrease average
Collection period in days and negotiate with its suppliers to increase it payable days
which will provide more liquidity to the company.

Efficiency ratio
Year 2009 2008 2007 2006 2005
Inventory 4.11 3.19 3.63 3.79 1.23
turnover
Receivable 8.52 8.34 9.42 14.76 7.58
turnover
Payable 17.35 16.85 16.98 7.39 5.99
turnover
Fixed assets 2.14 1.87 1.75 1.23 0.87
turnover
Total assets 1.21 1.02 1.03 0.86 0.50
turnover

Analysis of Efficiency ratio

Inventory turnover of firm shows that firm is able to convert its inventory into sales on
average 4.1 times a year whereas the industry is converting inventory into sales 5.74
times a year which show that firm is not up the industry benchmark. This is mainly
because firm is not able to make more sells as compare to industry in past five years.
Receivable turnover show that firm on average is able to convert receivables into sales
9.8 times a year whereas industry converts receivables into sales 12.88 times a year.
Payable turnover of the firm shows that firm paid its liabilities on average in 12.8 times
whereas industry is paying its liabilities in 15.38 days which shows firm strength to pay
but underutilization of credit term and payment period.
Solvency ratio
Year 2009 2008 2007 2006 2005
Debt ratio 0.66 0.73 0.75 0.76 72.2
Long term 0.94 0.95 0.95 0.95 0.94
debt
capitalisatio
n
Debt to 2.09 2.74 3.00 3.19 4.01
equity

Analysis of Solvency ratios

The debt ratio of the firm shows that 65% of the assets are financed by debt and 35%
are financed by equity on average during last five years, whereas the debt ratio for
industry during the same period was 50% of equity and 50% of debt. This shows that
firm is using more debt as compare to industry which can make firm more risky
investment. Long-term to debt capitalization ratio show that long term debt is
Contribute on average 94% to total debt for the firm and for the industry in contribute
about 88.7% on average. Debt to equity ratios shows that firm debt is 2.3 times of its
equity and in industry the average is 1 times which shows the over dependency of firm
on debt financing.
The firm can issue from equity to lower the burden of debt financing because debt
financing can make firm more risky as the firm exceeds industry averages in debt ratio.

Coverage ratio
Year 2009 2008 2007 2006 2005
Interest 1.72 1.90 2.38 2.38 4.27
earned
Cash -0.64 0.59 0.21 -2.52 7.45
coverage

Analysis of Coverage ratios

The coverage ratios of the firm show that firm’s ability to service its financial got week
due to increased financial charges and stagnant operating profits. The firm TIE ratio on
average is 3.5 for last five years and industry average for TIE ratio was 1.61 which
shows that firm is still competent enough to meet industry standards. Cash coverage
ratio of the firm shows that in this aspect firm also going down because of negative
operating cash flows and increased finance charges, but still firm hold competitive
position in the industry as its average of 1.10 is completive to industry average of 1.17.

Profitability ratio
Year 2009 2008 2007 2006 2005
G.p. margin 0.13 0.12 0.14 0.16 0.18
Operating 0.26 0.29 0.53 0.65 0.87
profit
margin
Net profit 0.02 0.02 0.04 0.06 0.09
margin
Cash flow 0.12 0.02 -0.05 0.23 -0.20
margin
Return on 0.08 0.07 0.15 0.19 0.14
equity
Return on 0.03 0.02 0.04 0.04 0.04
assets
Cash return 0.14 0.02 -0.05 0.20 -0.10
on assets
EPS 26.96 21.30 41.26 45.86 29.45
Dividend 0.07 0.12 0.06 -0.11 -0.17
payout ratio

Analysis of Profitability ratio

Gross profit margin ratios shows that on average firm’s earn GP margin of 14% which
is greater than the industry GP margin of 10%, however firm’s GP margin have
remained almost stagnant in past five years. Operating profit margin for the firm on
average is 5.62% and for the industry it is 5.85% which shows that this industry
provide low operating profit margin. Net profit margins for the firm came down
drastically during these five years from 9% to 2% and on average firm earn a net profit
of 5% which is better than industry average net profit of 3%.
Return of assets for the firm on average is 5% whereas return on assets on average for
the industry is 10% on average which shows that firm has sufficient amount of assets
but utilization is not so proper.
Return of equity for the firm on average is 14% and for the industry this average is
9.2% and the main reason behind this difference is firm capital structure where firm is
having less portion of equity as compare to industry.
Earning per share for the shows a variable trend as do its sales and net income, the
average EPS for the firm during last eight years is 30/share whereas for the industry
average EPS is 2.25 which is significantly different from company’s EPS and this is
mainly because of less number of share issued by company as we known that firm’s
capital structure is more financed by debt then equity.

Suggestions for investors and creditors

Vijay textile limited is currently having some problem regarding its liquidity and
efficient utilization of resource as the company has liquidity and efficiency ratios lower
than the industry. Although company’s profitability is very much competitive with the
industry which company a good option for investors to invest.
Vijay textile is backed by strong group which make it financially more stable and as its
payable in day’s ratio is quite high and very much competitive with the industry, it
makes VTL a safe and sound option for creditor to lend their money.

Conclusion:

Vijay textile limited is one the major players in the textile industry and most of its financial
indicator shows that the company is very much competitive as compare to industry. VTL can
create a very good place if it focuses on innovation and product differentiation. On the
operational ground VTL should increase the efficiency of it assets and try to control its
expenses especially the cost of Production.

References:

Google.com
Paksearch.com
Wikipedia.com
Scribd.com