Investment Banking

Muhammad Fahad
16SBBAM0068

Financial Statement Analysis

In this we analyze the Quetta Textile Mills. The results are following

Current ratio
2015 2016 2017 Industry average
0.87 0.68 0.40 0.96

The company ratio shows that company performance was very critical and it is fully relying
on debt also company condition is that company has not the ability to pay its current
liability. Also, in 3years company has low ratio then the market.

QUICK RATIO
2015 2016 2017 Industry average
0.11 0.09 0.08 0.534

It gives more critical condition of the market means company totally invest their money in
the inventory and with cash company has only pay 8% of the liability.

INVENTORY TURNOVER
2015 2016 2017 Industry average
(2.65) (1.64) 3.43 2.5

This shows more difficult condition of the company, in 2015 and 2016 shows company did
not sold their inventory but 2017 shows good results. Also, as compare to market company
perform well in 2017 and sold many.

AVERAGE COLLECTION PERIOD

2015 2016 2017 Industry average
11.98 8.31 9.96 37.1

It is a good part for the company that company easily and rapidly recover their money from
the market but on the other hand it is also a factor that reduce the sales

AVERAGE PAYMENT PERIOD

2015 2016 2017 Industry average
223 287 270 75.9

It is gives very bad condition that company pay very lately the reason is that company
Inventory turnover is negative means company has less able to pay their debt that why its
payment period is high.
TOTAL ASSETS TURNOVER
2015 2016 2017 Industry average
0.96 0.52 0.70 0.78

We also saw that it is also fluctuate every year but it is nearest to market so we say that
fluctuation occur due to market

DEBT RATIO
2015 2016 2017 Industry average
0.65 0.91 0.85 0.252

This is show company highly finance by the debt that why company also did not able to pay
its current liabilities.

TIME INTEREST EARNED RATIO

2015 2016 2017 Industry average
(0.52) (4.19) (4.45) 2.94

Here we saw the company’s highly debt financing disadvantage, we saw that company in all
3 years did not able to pay its Interest payment on debt.

GROSS PROFIT MARGIN

2015 2016 2017 Industry average
6.03 (21.96) 19.16 8.6%

Here we saw that company got high profit in 2017 which is very high as compare to market,
it shows that company work on cost cutting project.

OPERATING PROFIT MARGIN

2015 2016 2017 Industry average
(3.42) (32.73) (27.15) 6.8%

Here we saw that company is it at loss because company operation is very costly.
NET PROFIT MARGIN
2015 2016 2017 Industry average
3.18 (32.67) (27.08) 3.28%

Here we saw that due to high debt finance company did not pay their debt and company
face the high loss

EPS
2015 2016 2017 Industry average
(30.15) (131.96) (110.01) 3.64

Due to high loss company EPS also goes to loss which is shown here.

ROA
2015 2016 2017 Industry average
(0.03) (0.19) 0.19 2.55
Here we saw that company ROA also is in negative means company did not utilize its asset
efficiently.

ROE
2015 2016 2017 Industry average
(0.15) (0.87) (2.00) 5.84
Here we also saw that company ROE is also in negative which is shown that company need
to work on company investment methods

Conclusion
As an investor, I did not invest here because company operations are costly also company
did not utilize their funding also did not generate the sales.

Negative working capital

Negative working capital is closely tied to the concept of current ratio which is calculated
as a company's current assets divided by its current liabilities. If a current ratio is less than 1,
the current liabilities exceed the current assets and the working capital is negative.
If working capital is temporarily negative, it typically indicates that the company may have
incurred a large cash outlay or a substantial increase in its accounts payable as a result of a
large purchase of products and services from its vendors. However, if the working capital is
negative for an extended period of time, it may be a cause of concern for certain types of
companies, indicating that they are struggling to make ends meet and have to rely on
borrowing or stock issuances to finance their working capital.
Its negative working capital good or bad:
It is not always bad to have negative working capital. It is by design that certain companies
with established brands, apart from the industries mentioned above, have negative working
capital because they are able to bargain very well with their suppliers. The major advantage
is the holiday from bank financing; it saves the interest cost by getting the current assets
financed by the suppliers. However, in the long term negative working capital could
probably pose a problem. If a company always has more current liabilities than current
assets its liquidity ratios may be not be lucrative. To conclude, working capital alone will not
provide the long-term picture. As an investor, one needs to look at a company’s financial
statements over the period of a few years with various other indicators apart from working
capital.