ratio analysis of kohinoor textile mills, compare with pakistan's textile industry

Kohinoor Textile Mill

Acknowledgement

At First we like to thank our beloved Allah we would like to thank our Professor Miss Munazza Asad for giving us the opportunity to enhance our knowledge on the subject. We are also grateful for his support and encouragement all throughout.We also thank our peer members who have enriched our knowledge with immense discussions on the topic.

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Table of ContentsExecutive Summary.........................................................................................................................4

Industry Overview...........................................................................................................................5

History.........................................................................................................................................5

Industry Sectors...........................................................................................................................5

Government Initiatives................................................................................................................6

Exports.........................................................................................................................................6

Competition.................................................................................................................................6

Kohinoor Textile Mill......................................................................................................................6

Vision Statement..........................................................................................................................7

Mission Statement.......................................................................................................................7

Liquidity Ratio.................................................................................................................................7

Current Ratio...............................................................................................................................7

Quick Ratio..................................................................................................................................8

Asset Management...........................................................................................................................9

Inventory Turnover......................................................................................................................9

Days sales outstanding...............................................................................................................10

Fixed asset turnover...................................................................................................................10

Total Asset Turnover.................................................................................................................11

Debt Ratio..................................................................................................................................12

Times Interest Ratio...................................................................................................................12

Fixed Charge Coverage Ratio....................................................................................................13

Profitability....................................................................................................................................14

Net Profit Margin.......................................................................................................................14

Return on Asset..........................................................................................................................14

Return on Equity........................................................................................................................15

Market Value.................................................................................................................................15

Price Earning.............................................................................................................................15

Market/ Book.............................................................................................................................16

Interpretation of Trend analysis.........................................................................................16

Balance Sheet.............................................................................................................................16

Income Statement:.....................................................................................................................17

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References......................................................................................................................................18

Appendix A....................................................................................................................................19

Appendix B....................................................................................................................................20

Appendix C....................................................................................................................................21

Appendix D....................................................................................................................................22

Appendix E....................................................................................................................................23

Appendix F....................................................................................................................................24

Appendix G....................................................................................................................................25

Executive Summary

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This project is based on measuring the financial position of the Kohinoor Textile Mills and then

compares it with the industry. Industry that we chose is Textile industry. In which we takes a

three different companies named as DIN textile mills, Artistic Denim Mills, and Nishat Chunian

Limited. Kohinoor Textile Mills is currently facing a problem in making sensible profit.

For this purpose, we are taking a balance sheet’s and profit and loss account’s values of four

different companies and then using ratio analysis and trend analysis to find the current position

of the company by investor’s point of view.

Currently the company and as well as the industry is facing a worst situation in the history of

industry due to the increasing in tax and increasing in the price of raw materials.

Findings of this report are company is in loss in 2010, their market share price is down, and

expenses are increases as compared to the previous year.

Industry Overview

Pakistan is the fourth largest cotton producer in the world. Because of its plentiful, indigenous

cotton supply, the textile industry is central to the Pakistani economy and is both a source of

employment and a source of exports. Pakistan's industrialization began in the 1950s with the

textile industry at its center. Today, textiles account for 38 percent of total manufacturing and 8

percent of GDP. The textile industry employs almost 40 percent of the industrial workforce.

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Despite the critical role textiles play in the economy, most textile manufacturers are cottage or

small-scale industries. Pakistan relies on outside engineering and manufacturing expertise and

must purchase most of its equipment abroad. Recognizing the importance of the textile industry

to the nation's economy, the Pakistani government began taking steps in 2005 to rebuild the

competitiveness of this critical industry.

History

The Pakistani textile industry depends on domestic agriculture to supply its raw materials, thus

the success of the cotton crop is critical to the health of the textile industry. Cotton accounts for

14 percent of land under cultivation in Pakistan. Pakistan has suffered from a number of cotton

failures over the years, beginning in the early 1990s. These crop failures drove up the price of

cotton, and this coupled with a market recession and tightened finance regulations led to a

weakened textile industry.

Industry Sectors

The spinning sector is where the majority of Pakistan's textile industry isconcentrated. Over the

years, spinning expanded while weaving declined. The rapid expansion of the spinning sector

was hastened by access to cheap raw materials---cotton---and cheap labor. This sector's

profitability was furthered by a protectionist fiscal policy and export subsidies. In keeping with

increased spinning capacity, cotton production has increased tremendously. The textile industry's

weaving sector is comprised of towels, bedding and hosiery and has been adversely affected by

tariffs and inflation over the years. The garment sector has undergone considerable

modernization and has developed great export potential.

Government Initiatives

In 2005, the Pakistani government created a special textile sub-committee in order to formulate a

new textile strategies and policy in the hopes of revamping the textile industry. The sub-

committee submitted a report entitled "Textiles Vision 2005" which included a number of

recommendations including improved product quality, equipment upgrade, developing human

resources, aggressive targeting of new markets and development of high-powered leadership for

the textile sector.

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Exports

Cotton and yarn are Pakistan's primary textile exports. The textile industry accounts for over 60

percent of Pakistan's total exports. The All Pakistan Textile Mills Association is the organization

that regulates the industry, which is currently facing a number of challenges, including the need

to improve quality.

Competition

Pakistan must compete with other producers similar in conditions and comparative advantage.

The Pakistani Textile industry's biggest competitors are China, India, Indonesia and Turkey. The

cost of power in Pakistan is comparatively high.

Kohinoor Textile MillThe Company commenced operation in 1953 as a private limited company and became a public

limited company in 1968. The initial capacity

of its Rawalpindi unit comprised 25,000

spindles and 600 looms. Later, fabric

processing facilities were added and spinning

capacity was augmented. Additional

production facilities were acquired on the

Raiwind-Manga Road near Lahore in District

Kasur and on the Gulyana Road near Gujar

Khan, by way of merger.

The Company's production facilities now comprise 151,902 ring spindles capable of spinning a

wide rang of counts using cotton and Man-made fibers. The weaving facilities at Raiwind

comprise 204 looms capable of weaving wide range of greige fabrics.

Units are capable of dyeing and printing fabrics for the home textile market. The stitching

facilities produce a diversified range of home textiles for the export market. Both the dyeing and

stitching facilities are being augmented to take advantage of greater market access.

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Fully equipped laboratory facilities for quality control and process optimization have been up at

all three sites. The Company has been investing heavily in Information Technology, training of

its human resources and preparing its management to meet the challenges of market integration.

Kohinoor Textile Mills Limited continues to ensure that its current competitive position is

maintained as well as supporting the ongoing improvement process in our endeavor to maintain

world best practice manufacturing.

Vision Statement

The Kohinoor Textile Mills Limited Stated Vision Is To Achieve And Then Remain As The

Most Progressive And Profitable Company In Pakistan In Terms Of Industry Standards And

Stakeholders Interest.

Mission Statement

The Company Shall Achieve Its Mission Through A Continuous Process Of Having Sourced,

Developed, Implemented And Managed The Best Leading Edge Technology, Industry Best

Practice, Human Resource And Innovative Products And Services And Sold These To Its

Customers, Suppliers And Stakeholders.

Liquidity Ratio

Current Ratio

The ratio is mainly used to give an idea of the company's ability to pay back its short-term

liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher

the current ratio, the more capable the company is of paying its obligations. A ratio under 1

suggests that the company would be unable to pay off its obligations if they came due at that

point. While this shows the company is not in good financial health, it does not necessarily mean

that it will go bankrupt - as there are many ways to access financing - but it is definitely not a

good sign.

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The current ratio can give a sense of the efficiency of a company's operating cycle or its ability to

turn its product into cash. Companies that have trouble getting paid on their receivables or have

long inventory turnover can run into liquidity problems because they are unable to alleviate their

obligations. Because business operations differ in each industry, it is always more useful to

compare companies within the same industry.

Year 2009 2010

Kohinoor Textile Mills 0.59 0.51

Industry Average 0.70 0.58

To pay RS 1 liability the Kohinoor Textile Mill has RS 0.51 assets in the year 2010 and the

industry average was 0.58 and if we see in the year 2009 then we come to know that if Kohinoor

Textile Mills has to pay RS 1 liability then it has 0.59 and if we compared it from the industry

then we have 0.70. Though company average is greater then the company but we know that if the

ratio is less then 1 then it is not good for the company as well as for the industry too. The main

thing we have to do is Kohinoor Textile Mills should decrease liabilities and increase assets to be

in better position. It is necessary for company and as well as the creditors point of view.

Quick Ratio

This ratio is an indicator of a company's short-term liquidity. The quick ratio measures a

company's ability to meet its short-term obligations with its most liquid assets. We know that the

higher the quick ratio, the better the position of the company.

The quick ratio is more conservative than the current ratio, a more well-known liquidity measure,

because it excludes inventory from current assets. Inventory is excluded because some

companies have difficulty turning their inventory into cash. In the event that short-term

obligations need to be paid off immediately, there are situations in which the current ratio would

overestimate a company's short-term financial strength.

Year 2009 2010

Kohinoor Textile Mills 0.43 0.43


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The quick ratio of Kohinoor Textile Mill for the year of 2010 is 0.43 which is less than that of

industry i.e. 0.47 and if we talk about for the year of 2009 them we came to know that quick ratio

of Kohinoor Textile Mill was 0.43 and the industry has 0.41. So the conclusion is that the

Kohinoor Textile mill has lesscash and more inventories, so company and industry both are in a

bad position. The industry average i.e. 0.41 is less than Kohinoor Textile Mill in 2009 but is

more in 2010 that is 0.47. So Kohinoor Textile Mill must reduce inventory to compete with

industry.

Asset Management

Inventory Turnover

A ratio showing how many times a company's inventory is sold and replaced over a period. This

ratio should be compared against industry averages. A low turnover implies poor sales and,

therefore, excess inventory. A high ratio implies either strong sales or ineffective buying.

High inventory levels are unhealthy because they represent an investment with a rate of return of

zero. It also opens the company up to trouble should price begin to fall or we can say the

company must take a look on its marketing strategies.

Year 2009 2010

Kohinoor Textile Mill 3.63 4.04

Industry 3.65 4.42

The inventory turnover of Kohinoor Textile Mill is 3.63 that is less than industry average that is

3.65 in 2009 and we talk about the year 2010 then we come to know that the company has 4.04

and this is less as compared to industry turnover ratio that is 4.42. TheKohinoor Textile Mill

takes less days to sale the inventory and replace new inventory.

Days sales outstanding

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This is a measure of the average number of days that a company takes to collect revenue after a

sale has been made. A low DSO number means that it takes a company fewer days to collect its

accounts receivable. A high DSO number shows that a company is selling its product to

customers on credit and taking longer to collect money.

Due to the high importance of cash in running a business, it is in a company's best interest to

collect outstanding receivables as quickly as possible. By quickly turning sales into cash, a

company has the chance to put the cash to use again - ideally, to reinvest and make more sales.

The DSO can be used to determine whether a company is trying to disguise weak sales, or is

generally being ineffective at bringing money in. For most businesses, DSO is looked at either

quarterly or annually.

Year 2009 2010


Industry 46.15 50.47

Number of days sale outstanding of Kohinoor Textile Mill in 2009 is 44.74 days is less than that

of industry that is 46.15 days. And if we talk about the year 2010 then the company has 44.69

and industry has 50.47. Which means that the company is getting its receivables inless days as

compared to industry which is good for the company.

Fixed asset turnover

Fixed asset turnover is financial ratio of net sales to fixed assets. The fixed-asset turnover ratio

measures a company's ability to generate net sales from fixed-asset investments - specifically

property, plant and equipment (PP&E) - net of depreciation. A higher fixed-asset turnover ratio

shows that the company has been more effective in using the investment in fixed assets to

generate revenues.

This ratio is often used as a measure in manufacturing industries, where major purchases are

made for PP&E to help increase output. When companies make these large purchases, prudent

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investors watch this ratio in following years to see how effective the investment in the fixed

assets was.

Year 2009 2010



Fixed Asset turnover ratio of company in 2009 is 1.64 and the industry ratio is 1.94 that is

greater than the Kohinoor textile mill while in 2010 company has 2.04 and industry has 1.69 this

ratio shows the better performance in 2010. It means that the company is using its fixed assets

much effectively. The ratio is very good for the company as compared to industry.

Total Asset Turnover

The amount of sales generated for every rupee’s worth of assets. Asset turnover measures a

firm's efficiency at using its assets in generating sales or revenue - the higher the number the

better. It also indicates pricing strategy: companies with low profit margins tend to have high

asset turnover, while those with high profit margins have low asset turnover.

Year 2009 2010


Industry 1.25 1.19

The Kohinoor’s total asset turnover ratio is 0.62in 2009 and industry average ratio is 1.25. If we

talk about the year 2010, then we came to know that Kohinoor has 0.63 and industry average is

1.19.So as a conclusion, we can say that the total asset turnover is bad for Kohinoorand they

should formulate such strategies that can be effect on their assets or use their assets much

effectively to make revenue.Debt Management

Debt Ratio

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This is a ratio that indicates what proportion of debt a company has relative to its assets. The

measure gives an idea to the leverage of the company along with the potential risks the company

faces in terms of its debt-load.

A debt ratio of greater than 100% indicates that a company has more debt than assets;

meanwhile, a debt ratio of less than 100% indicates that a company has more assets than debt.

Used in conjunction with other measures of financial health, the debt ratio can help investors

determine a company's level of risk.

Year 2009 2010

Kohinoor Textile Mill 58.76% 67.44%

Industry Average 71.52% 82.25%

The Kohinoor Textile Mill was using 58.76% debt and 42.24% equity for financing in the year

2009 and in the year 2010 the company is using 67.44% debt and 33.56%. This is less than

industry average but if we take a company alone then this is not good for the company. They

should increase their equity and reduce financing from debt.

Times Interest Ratio

A metric used to measure a company's ability to meet its debt obligations. It is calculated by

taking a company's earnings before interest and taxes (EBIT) and dividing it by the total interest

payable on bonds and other contractual debt. It is usually quoted as a ratio and indicates how

many times a company can cover its interest charges on a pretax basis. Failing to meet these

obligations could force a company into bankruptcy.

Ensuring interest payments to debt holders and preventing bankruptcy depends mainly on a

company's ability to sustain earnings. However, a high ratio can indicate that a company has an

undesirable lack of debt or is paying down too much debt with earnings that could be used for

other projects. The rationale is that a company would yield greater returns by investing its

earnings into other projects and borrowing at a lower cost of capital than what it is currently

paying for its current debt to meet its debt obligations.

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The lower the ratio, the more the company is burdened by debt expense. When a company's

interest coverage ratio is 1.5 or lower, its ability to meet interest expenses may be questionable.

An interest coverage ratio below 1 indicates the company is not generating sufficient revenues to

satisfy interest expenses.

Year 2009 2010



By seeing above ratio in the table, we find out that Kohinoor Textile Mill and as well as the

industry has a very bad situation. Currently they didn’t meet their interest expense.

Fixed Charge Coverage Ratio

This is a ratio that indicates a firm's ability to satisfy fixed financing expenses, such as interest

and leases.

Year 2009 2010



Fixed charge ratio of company and industry is almost the same. So currently both have faced a

very bad situation. Both of them are not getting much from fixed assets.

Profitability

Net Profit Margin

It measures how much out of every rupee of sales a company actually keeps in earnings.Profit

margin is very useful when comparing companies in similar industries. A higher profit margin

indicates a more profitable company that has better control over its costs compared to its

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competitors. Profit margin is displayed as a percentage; a 20% profit margin, for example, means

the company has a net income of RS 0.20 for each rupee of sales.

Year 2009 2010

Kohinoor Textile Mill 2.6% -5.2%


The net profit margin ratio shows how much of sales is net profit? In this case we get to know

that in 2009 the company’s ratio is 2.6%, this is very low as compared to industry that is 6.59%

and in 2010 the company’s net profit margin is -5.2% and the industry have 2.19%. This is also

very low as compare to industry. The company should increase net profit and decrease its

expenses.

Return on Asset

ROA tells you what earnings were generated from invested capital (assets). ROA for public

companies can vary substantially and will be highly dependent on the industry. This is why when

using ROA as a comparative measure, it is best to compare it against a company's previous ROA

numbers or the ROA of a similar company.

The assets of the company are comprised of both debt and equity. Both of these types of

financing are used to fund the operations of the company. The ROA figure gives investors an

idea of how effectively the company is converting the money it has to invest into net income.

The higher the ROA number, the better, because the company is earning more money on less

investment.

An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to

how efficient management is at using its assets to generate earnings. Calculated by dividing a

company's annual earnings by its total assets, ROA is displayed as a percentage. Sometimes this

is referred to as "return on investment".

Year 2009 2010

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Return on asset shows how much return company is getting on his assets. The ROA of Kohinoor

is less than industry.

Return on Equity

The amount of net income returned as a percentage of shareholders equity. Return on equity

measures a corporation's profitability by revealing how much profit a company generates with

the money shareholders have invested. The ROE is useful for comparing the profitability of a

company to that of other firms in the same industry.

Year 2009 2010



Return on equity shows that the owners and management is getting on their investment. This

ratio for Kohinoor is much lower than industry average.

Market Value

Price Earning

A valuation ratio of a company's current share price compared to its per-share earnings. In

general, a high P/E suggests that investors are expecting higher earnings growth in the future

compared to companies with a lower P/E. However, the P/E ratio doesn't tell us the whole story

by itself. It's usually more useful to compare the P/E ratios of one company to other companies

in the same industry, to the market in general or against the company's own historical P/E. It

would not be useful for investors using the P/E ratio as a basis for their investment to compare

the P/E of a technology company (high P/E) to a utility company (low P/E) as each industry has

much different growth prospects. It is important that investors note an important problem that

arises with the P/E measure, and to avoid basing a decision on this measure alone. The

denominator (earnings) is based on an accounting measure of earnings that is susceptible to

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forms of manipulation, making the quality of the P/E only as good as the quality of the

underlying earnings number.

Year 2010

Kohinoor Textile Mill 2.98%

Industry Average 1.84%

Price Earning shows how much investors are willing to pay per rupee of reported profits. The

ratio of Kohinoor is more than industry.

Market/ Book

Year 2010

Kohinoor Textile Mill 0.57%

Industry Average 1.36%

Market/ Book ratio shows how much investoris willing to pay for company. This ratio is low for

company as compare to industry.

Interpretation of Trend analysis

Balance Sheet

Currents assets are increasing by 23.26%. Main decreasing trends can be seen in cash -1.83%

while stock in trade increases by 25.63%. Both seem valuable to the company. On the other

hand net fixed asset is increased by 5.46%. Increased in fixed asset is due to decrease in

vehicles and office equipment as shown in the note 14 of the annual report.

All these changes in the assets have caused a net increase of 2.16% in the total asset which

shows a positive trend in the assets. This is good for the company.

Current liabilities are increasing by 17.22% while total liabilities are increasing by above

20.16%. The trend of Liabilities and equity portion is also positive and it is increasing by 31.09%

which is obviously same as that of increase in Net assets where net equity is increasing by

8.98%.

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Income Statement:

Net sales in 2010 have increased by 20.90% as compared to that in 2009. So, sales have a

positive trend. Cost of Goods has decreased this time than the sales and their decrease in trend

is 17.18%. It is much good and the gross profit has increased to 37.03%. It is good as well as

we have a positive trends of Net sales & COGS. The main increasing trend can be observed in

operating expense that in above 40.81% and it don’t seem beneficial for the company at all, and

on the other one is other operating income that has a very negative trend. Other operating

income has decreased to -60.90%. It is apparently very bad for the company.

But the drastic decreasing trend in the finance cost and the increasing trend in taxation that

is17.47% and 1.75% respectively, increasing in taxation has caused a handsome decrease in

the profit of the company. The profit for the year of Kohinoor Textile Mill is facing a decreasing

trend and has decreased to about 3.91%.

A decreasing trend of operating income has resulted in the decrease of EPS in 2010 to 58.12%

as compared to that of 2009.

ROI =

NetIncomeSales

× SalesTotalAssets =

NetIncomeTotalAssets

ROI=

NetIncomeTotalAssets = 1.628986%

ROE=

Net Pr ofitEBT

× EBTEBIT

× EBITSales

× SalesAssets

× AssetsEquity =

Net Pr ofitEquity

ROE=

Net Pr ofitEquity = 8.266553%

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References

http://www.ehow.com/about_5055213_textile-industry-pakistan.html

http://pakistan-stocks.blogspot.com/2010/12/nishat-chunian-share-price-01-03_04.html

http://pakistan-stocks.blogspot.com/2010/12/number-of-textile-companies-listed-at.html

http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?

ticker=KTML:PA

http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?

ticker=DINT:PA

www. investopedia .com/

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http://www.investopedia.com/

http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?ticker=DINT:PA

http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?ticker=DINT:PA

http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?ticker=KTML:PA

http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?ticker=KTML:PA

http://pakistan-stocks.blogspot.com/2010/12/number-of-textile-companies-listed-at.html

http://pakistan-stocks.blogspot.com/2010/12/nishat-chunian-share-price-01-03_04.html

http://www.ehow.com/about_5055213_textile-industry-pakistan.html


Appendix A

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Appendix B

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Appendix C

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Appendix D

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Appendix E

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Appendix F

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Appendix G

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ratio analysis of kohinoor textile mills, compare with pakistan's textile industry

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