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Square Textiles Ltd

Square Textiles was incorporated in 1994 as a private limited company under the
Companies Act, 1913 now repealed and re-enacted as the Companies Act, 1994. The
Company was listed in Dhaka Stock Exchange Ltd. (DSE) and Chittagong Stock
Exchange Ltd. in 2002. It starts operation in 1997 and business line in manufacturing
and marketing of yarn. The company has authorized capital Tk 1,000 million and paid
up capital Tk 588.20 million. Square Textiles Ltd declared cash dividend at the rate of 25
per cent and Stock Dividend (Bonus Share) at the rate 20 per cent for its shareholders for
the year ended December 31, 2007 at its 13th Annual General Meeting (AGM) held at
Bangladesh. The gross profit, net profit (before tax) and net profit (after tax) for the year
2007 were Tk 582.85 million, Tk 411.12 million and Tk 352.44 million respectively. Net
income rises to 1.04 per cent during 2007. The shareholders equity increased by 14.09
per cent while total assets increased by 11.62 per cent during the year under review over
2007. The company contributed an amount of Tk 80.32 million to the national exchequer.
The company contributed substantially to the foreign exchange reserve of the country
through its marketing operation during 2007.This amounted to Tk 920.65 million.

Capital Structure

Ratios 2008 2007 2006 2005 2004 Average

OPM 14.78% 20.31% 19.63% 20.89% 12.68% 17.66%


NPM 8.08% 10.69% 13.31% 11.13% 7.84% 10.21%
ROA 5.01 8.27 9.00 9.88 7.83 8.00
ROE 14.72 16.8 19.70 18.48 11.15 16.17
EPS 6.90 7.99 10.17 7.45 7.17 7.94
D/E 0.55 0.68 0.66 0.13 0.27 0.46
D/T. Asset 0.25 0.31 0.30 0.08 0.14 0.21
TIER 3.21 3.31 6.65 7.14 4.42 4.95
CFCR 0.33 0.49 0.97 1.29 0.66 0.75

Table: 1 (Capital Structure of Square Textile)

Analysis of Debt and Operating Profit Related Ratios:

Operating Profit Mergin and Net Profit Margin (From Table: 1): OPM increases in
8.21% 2005 From 2004. But in 2006 it decreases 1.26 % and in 2007 in increases
0.68%.Finally it decreases 5.53%, and the average figure was 17.66 %. Again NPM
increases from 2004-2006. It decreases 2.62 % in 2007 and 2.61 % in 2008 from
previous year. Because the turnover is increasing 20.90% during 2008 over 2007 when it
fell by 3.03% over 2006.However gross margin and net margin fell by 7.75% to 15.18%
during the year 2008 as against a rise of 80% to 22.93% during the previous year. Due to
the sharp fell in gross margin, increase in operating expenses and higher other income,
no loss due to fire and non provision of deferred tax the net profit decreased by 32.89%
only he previous year.

Return on Equity and Return on Asset (From Table 1): Return on asset indicate the
firm’s ability to use the assent and gaining the profit. ROE defines how the company
use the share holders portion in the company. If Both ROA and ROE increase the
company is gaining profit. Square Text tiles ROA increases from 2004-2005 .But in
2007 in Decreases 2007-2008.Average is 8.00 which indicating the financing of the
asset is is not good. The condition is same in the ROE position. Shareholders are getting
less from from their financing capital.

Debt-Equity and Debt to Total Asset: Benchmark: “1”; D/E ratio for Square textile
average is only 0.46 & it is highest i.e. 0.68 in the year 2007 and it is in decreasing
trend. D/Total asset is the same condition. If The ratio of D/TA is less than 1 the
company is solvent. But it is more than the company may fall debt burden. A ratio
greater than “1” indicates the company’s assets are mainly financed with debt, while a
ratio less than “1” indicates the company’s assets are primarily supplied with equity. The
higher the ratio, the more leverage a company has, also indicating that it is aggressively
financing its assets with debt. The benefits are two-fold: This may mean that their
earnings are/will be more volatile and at a higher risk of defaulting (going bankrupt), but
also means a higher potential payout to the company’s investors and shareholders.

TIER and CFCR : The lower the interest coverage ratio, the higher the company's debt
burden and the greater the possibility of bankruptcy or default. The standard is 8 .From
table 1 of Square Textiles we observe that the interest coverage is not good. The
company cannot long term loan financing properly. From year 2004-2009 it position
was high in 2005. From Table:1 we have seen the Cash Flow Conversion Cycle Ratio is
less than one which implies more repayment of principle and interest than the operating
cash flow it generates. Cash Flow Coverage Ratio the Company is not good. We also
found that OCF is greater than FCFF in every year . Considering this two thing we can
conclude that the company is growing.

Fig: OPM, ROA and ROE of Square Textile


Fig: D/E and D/TA of Square Textile

Fig: TIER and CFCR of Square Textile