textile processing sector

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http://www.businessteacher.org.uk/free-accounting-essays/textile-processing-sector/

Textile processing sector

CHAPTER 1

1.0 History/Background

Textile Processing Sector has been operative virtually since the very inception of Pakistan in

1947. With the sudden upsurge of Textile industry in Pakistan during the fifth and sixth decades

when quite a few Textile Spinning and Composite Units started picking up roots and Power

Loom Units sprang up like mushroom in Pakistan in the unorganized sector, in every nook and

corner, whose number rose to about 0.3 million plus. As out of necessity, a proportionatenumber of Processing Units was required for dyeing, bleaching, printing, sunforising, finishing,

packing and packaging of the raw-fabric which was being mass-produced by the unorganized

Power Loom Sector. And this was the occasion when the entrepreneurs and pioneers of the

Processing Sector rose to the occasion and, remarkably enough, came out with flying colours.

Despite their meager resources, they succeeded not only in making the country self-sufficient in

dress and apparel, but also in providing quality fabrics to the International Export Market while

their quality was second to none.( All Pakistan Textile Processing Mills Association

(APTPMA),2008. http://www.sana.cc/aptpma/)

Increase in the cotton production and expansion of textile industry has been impressive in

Pakistan since 1947. Cotton - bales increase from 1.1 million bales in 1947 to ten million bales

by 2000. Number of mills increased from 3 to 600 and spindles from about 177,000 to 805

million similarly looms and finishing units increased but not in the same proportion. It employs

50% of industrial labor force and earns 65% foreign exchange of total exports. Pakistan's textile

industry experts feel that Pakistan has fairly large size textile industry and 60-70% of machines

need replacement for the economic and quality production of products for a highly competitive

market. But unfortunately it does not have any facility for manufacturing of textile machinery of

balancing modernization and replacement (BMR) in the textile mills which need to think about

joint ventures for the production of complete spinning units with china, Italy and production of

shuttle less looms (Projectile) with Korea, Taiwan and Italy.

Cotton textile industry has been premier industry in Pakistan and a major source of export

earning and employment. It also helps in value addition to the manufacturing sector of the

economy. During the six years between 1993 and 1998, production of yarn (in quantity terms)
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registered a steady annual growth rate of 302% in Bangladesh and 405% in India. On the

contrary, Pakistan registered a growth rate of 101% per annum in yarn production although it

ranked third after China and India in the global yarn production during the same six years. In

exports, while Taiwan, India and the republic of Korea registered an annual increase of 18.1%,

27.7% and 5.4% respectively during 1993-1998, Pakistan registered a negative growth of 4.8%one important development was that till 1997, Pakistan was the world's largest exporter yarn

followed by India. However, in 1998, India gained the NO 1 position, leaving Pakistan at NO 2 In

the case of cotton cloth production, a number of Asian countries have been emerging in the

international market to compete with Pakistan. These countries are Bangladesh, India, Taiwan,

Indonesia, Thailand, Turkey, Sri Lanka and Iran. Notwithstanding the above fact, current

stagnation in the local textile industry can be overcome through efforts, consistent with charges

occurring in the international market. It must be appreciated that all successive governments

since the birth of cotton textile industry in Pakistan have been encouraging the textile exporters

to penetrate into new market and also to broaden the base of exportable commodities byincluding value added textile goods so that reliance on exports of cotton, cotton yarn and coarse

fabrics gradually become minimal.

Reflecting on the state of affairs, Abid Chinoy, Pakistan cloth merchants Association (PCMA)

Chairman, Appreciated government's efforts to encourage new exports and finding new

markets, which need aggressive export marketing. The steps taken on the monetary front, such

as the frequent devaluation of Pak rupee in terms of dollar could not improve the cost

competitiveness of exportable products due to increase in prices of the local and imported

inputs of the local textile industry, and also due to inelastic demand for the Pakistan's exports. It

has been rightly mentioned in the latest stage bank of Pakistan's annual report (FY01) that,

Over the years Pakistan's exports receipts have been vulnerable on account of the narrow

base of exportable items, concentrated

markets and low value addition this indicated that the growth in the country's overall exports,

including textile products which contributed more then 60% of total export receipts each year,

could to be related some cosmetic and ad hoc measure like devaluation of Pak rupee and

concession export credits. The first textile commission, which was constituted by the first

material law government in 1960 had, inter-alia, recommended that an economic size textile unit

should preferably have 25,000 spindles and 500 looms. No new mill with only 12,500 spindles

and without looms should be sanctioned. However, no need was paid to the advice by the

sanctioning authorities with the result that an excess capacity had tented to build up in the

spinning sector.

During the period 1973 to December 1992, some 71 spinning units with 1,136, 835 spindles,

6,600 rotors ands 7,329 looms were closed down. In 1992, a foreign consultant form was hired


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by the government to look into the stagnating conditions in the local textile industry. One of the

observations of the foreign consultant was Pakistan has failed to make real progress in the

international market and is being over taken by many of the neighboring competitor countries.

The spinning sector, traditionally the core of the industry, is already in the crisis with many

spindles lying idle and mills being forced to close. Worse still, this sector will be hit by theprojected decline of its major markets in Japan and Hong Kong in the coming years.

Another important strategic recommendation given by the foreign consultant very much relevant

to the current conditions: It is vital that companies play very positive role in the markets, which

each one having its own marketing activity, whose job is to understand the need of the

customers and the ever changing competitive dynamics of the markets. In order to improve

exports, Pakistan's Readymade Garments Manufacturers and Exporters Association (PRGMEA)

has urged the commerce minister Abdul Razzak Dawood to set up an Apparel Board for the

promotion of export of woven and kit garments which fetch US$ 2.5 billion foreign exchange for

the country. The industry experts are of the opinion that in the order to have a strong industrial

base, Pakistan economy need investment upswing. Pakistan's economic growth performance

during recent years has been dismal: as against the average growth rate of 6.1% in the 1980s,

the half and 4.0% in the 2nd half of the 1990s. The major micro-economic instability factors like

high inflation rate, budgetary deficit, continuous depreciation of rupee, economic sanctions, etc.

could not help the investment process. Such an environment cannot be conducive to investment

and growth. Exporters of textile products have found the target of US$ 10.4 billion set by the

government for the year 2002-2003, as achievable and termed it a realistic approach. The

textile sector which constituted 69% of total export during 2001-2002, believes that enhanced

quota by the European Union and Turkey would make this possible to fetch another US$1 billion

this year.

The rise in export of value-added products from Pakistan was another point of encouragement

for the textile sector. The export of value-added products rose to 57.4% from 53.9% last year-a

clear sign that we are moving in the right direction, said the Chairman of all Pakistan textile

mills association. The trade policy is considered an acceptable paper, but in the industry does

not fine anything that could lead to a high level exports achievement and remove trade

imbalance. Pakistan's textile sector earned US$5.77 billion during the outgoing year, compared

with US$5.577 BILLION OF 2000-2001 indicating a growth of 0.69%. Textile vision 2005 has

identified the present status and opportunities to make in roads in conventional and hew

markets and has developed sectoral recommendations, hence the sectoral committees set up

by the federal textile Board (FTB) would play an important role be ensuring the availability of

quality raw materials on competitive prices and improvement in designing, and would adopt

quality standards and increase productivity levels. It would attract foreign brands and promote


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Pakistani brands with world-class standers. With such a positive trend, Pakistan's textile sector

is getting rid of old impediments and gearing itself up for the new opportunities in the new trade

regime. (History of Pakistan Textile

Industry.2008.http://www.textileguides.com/merchandising/22-merchandising/94-history-of-

pakistan-textile-industry)

1.1 Contribution Of Textile Industry In PakistanEconomy

The share of textile industry in the economy along with its contribution to exports, employment,

foreign exchange earnings, investment and value added makes it the single largest

manufacturing sector for Pakistan. It contributes around 8.5 percent to GDP, employs 38

percent of the total manufacturing labor force, and contributes between 60-70 percent to total

merchandise exports. Indeed, with exports reaching about $8.6 billion in 2004-05, Pakistan is

one of the largest textile exporters in the world.

The variety of products ranges from cotton yarn to knitwear. Garment made-ups and bed wear

are the most important export products with an export value of about $1.35 billion each.

Knitwear, ready made garments and cotton yarn also have important shares in total exports.

Overall, the US and the EU are Pakistan's largest trading partners accounting for 25 percent

and 20 percent share of Pakistani exports respectively. Other major importers include China,

UAE and Saudi Arabia. Textile trade is classified into two broad categories i.e. textile which

include yarn, fabric and made-ups, and clothing which represents readymade garments.(TextileSector- Overview,2004-2005, http://www.pakboi.gov.pk/word/Textile.doc)

CHAPTER # 2

2.0 GUL Ahmed Textile

2.1 Company History

The story of textiles in the subcontinent is the story of Gul Ahmed. The group began trading in

textiles in the early 1900's. With all its know-how and experience, the group decided to enter the

field of manufacturing and Gul Ahmed Textile Mills Ltd. was incorporated as a private limited

company, in the year 1953. In 1972 it was subsequently listed on the Karachi Stock Exchange.

Since then the company has been making rapid progress and is one of the best composite

textile houses in the world. The mill is presently a composite unit with an installed capacity of
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130,296 spindles, 223 wide width air jet looms, and a state of the art processing and finishing

unit.

2.2 Corporate Profile - Business Activities

2.2.1 Textiles

In the textile field, activities start from the spinning of cotton as well as man made fibers and

extend to weaving, processing and finishing of all types of cotton and blended fabrics, bed linen,

home furnishings, garment manufacturing, etc.

2.2.2 Management

Management of the group is professionally qualified and broadly experienced. The directors

have held top positions in various textile bodies, export committees and have also assisted the

Government of Pakistan in some of the major trade talks with EC and USA authorities.

2.2.3 Bankers

Main bankers of the group are:

Allied Bank Limited

Bank Al Habib Limited

Barclays Bank Plc, Pakistan

Citi Bank, N.A.

Faysal Bank Limited

Habib Bank Limited

Habib Metropolitan Bank Limited

Hsbc Bank Middle East Limited


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Meezan Bank Limited

National Bank Of Pakistan

Nib Bank Limited

The Royal Bank Of Scotland Limited

Standard Chartered Bank (Pakistan) Limited

United Bank Limited

2.2.4 List Of Membership Of Trade Bodies And

Organization

The Karachi Stock Exchange (Guarantee) Limited.

Lahore Stock Exchange (Guarantee) Limited.

All Pakistan Textile Mills Association.

Pakistan Cotton Fashion Apparel Manufacturers & Exporters Association.

All Pakistan Bed sheets & Upholstery Manufacturers Association.

Karachi Cotton Association.

Chamber of Commerce & Industry, Karachi.

Employees Federation of Pakistan.

All Pakistan Textile Processing Mills Association (Corporate Profile,2008.http://www.gulahmed.com/html/sec_1024/corp.html)

2.3 Products


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Gul Ahmed's fine textile products represent a unique fusion of the century old traditions of the

east and the latest textile technology of the west. The purest of cotton fibers, produced from the

fertile lands of the Indus Valley, are spun, woven and processed into the finest quality cotton

and blended products through a combination of latest technology, skills and craftsmanship of

this traditional industry.

2.3.1 Bed-Linen

Quilt covers ,duvet covers, flat and fitted sheets, pillow covers, valance sheets, bolster case with

all sorts of fancy confectioning, embroidery and embellishments, packed to buyers' specific

requirement.

2.3.2 Curtain

Ready made curtains lined, un-lined and tap top curtains, plain or fully accessorized with

tiebacks, pelmets, cushion covers, in different styles of confectioning and embroidery, packed to

buyers' specific requirement.

2.3.3 Fabric

Running meter fabrics, packed to specific requirement.

2.3.4 Yarn

1. Gul Ahmed specializes in medium-to-fine-count cotton yarns and is also capable of producing

yarns using a wide variety of synthetic fibers including polyester, rayon and other man-made

fibers (Products,2008,http://www.gulahmed.com/html/sec_1024/product.html)

CHAPTER # 3

3.0 Kohinoor Textile Mills

3.1 Company History

Founded in the early 1950s in Pakistan, Kohinoor is a dynamic and efficient manufacturing

company. We aim to be the preferred partner of business in all of the markets we serve by
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anticipating the needs of our customers and building value for our stakeholders. (Kohinoor

Textile Mills2008.http://www.kmlg.com/kmlg/index.php)

The Kohinoor Maple Leaf Group was born from the trifurcation of the Saigol group of companies

and is a reputable and leading manufacturer of textiles. Kohinoor Textile Mills limited (KTML)

incorporated in Pakistan and are listed on three stock exchanges of the country. (KohinoorTextile Mills2008.http://www.kmlg.com/kmlg/history.php)

3.2 Mission Statement

The Kohinoor Textile Mills Limited stated mission is to achieve and then remain as the most

progressive and profitable Company in Pakistan in terms of industry standards and stakeholders

interest. 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 itscustomers, suppliers and stakeholders. (Kohinoor Textile

Mills2008.http://www.kmlg.com/kmlg/mission.php)

3.3 KTML Textiles

KTML was established in 1953 at Rawalpindi and is one of the oldest companies of Pakistan

with over 50 years experience in textile manufacturing. It was initially set up as a spinning and

weaving project with 25,000 spindles and 600 looms. However, after decades of aggressive

expansion and modernization KTML has emerged into a fully vertically integrated home textilescompany with state of the art capabilities for spinning, weaving, dyeing, printing and stitching.

The company has a diverse customer base with sales in both the local and export markets. The

main international markets include Asia, Europe, USA and Australia. (Kohinoor Textile

Mills2008.http://www.kmlg.com/kmlg/textiles.php)

CHAPTER#4

4.0 CONTRIBUTION OF TEXTILE INDUSTRY INECONOMY

The share of textile industry in the economy along with its contribution to exports, employment,

foreign exchange earnings, investment and value added makes it the single largest

manufacturing sector for Pakistan. It contributes around 8.5 percent to GDP, employs 38
http://www.kmlg.com/kmlg/index.phphttp://www.kmlg.com/kmlg/index.phphttp://www.kmlg.com/kmlg/index.phphttp://www.kmlg.com/kmlg/history.phphttp://www.kmlg.com/kmlg/history.phphttp://www.kmlg.com/kmlg/history.phphttp://www.kmlg.com/kmlg/mission.phphttp://www.kmlg.com/kmlg/mission.phphttp://www.kmlg.com/kmlg/mission.phphttp://www.kmlg.com/kmlg/textiles.phphttp://www.kmlg.com/kmlg/textiles.phphttp://www.kmlg.com/kmlg/textiles.phphttp://www.kmlg.com/kmlg/textiles.phphttp://www.kmlg.com/kmlg/mission.phphttp://www.kmlg.com/kmlg/history.phphttp://www.kmlg.com/kmlg/index.php


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percent of the total manufacturing labor force, and contributes between 60-70 percent to total

merchandise exports.

The Pakistan textile industry contributes more than 60 percent to the country's total exports that

sum around 5.2 billion US dollars. The industry contributes approximately 46 percent to the totaloutput produced in the country. In Asia, Pakistan is the 8th largest exporter of textile products.

The contribution of this industry to the total GDP is 8.5 percent. Moreover, it provides

employment to 38 percent of the work force in the country, which amounts to a figure of 15

million. .(Textile Sector- Overview,2004-2005,htp://www.pakboi.gov.pk/word/Textile.doc)

4.1TEXTILE INDUSTRY IN THE CURRENT ECONOMICSCENARIO

The All Pakistan Textile Mills Association (APTMA) needs to enhance the quality of its products,upgrade the technology used, and encourage effective Research and Development (R&D) in

order to compete internationally. However, APTMA argues other factors such as high interest

rates and cost of inputs, non conducive government policies, and non-guaranteed energy

supplies hinder their competitiveness.

Critics argue that the indolent attitude of the industrialist in the 1990s has led up to the current

crisis. If the textile industrialist had worked with the government towards implementing policies

that prepared for the current international scenario, Pakistan textile industry would have

boomed. Instead, the industry suffers from severe technological obsolescence,' insufficientR&D, falling cotton crop, and an unclear path forward.(Govt not fully conversant with problems

of textile industry,2009,http://jang.com.pk/thenews/jul2009-weekly/busrev-06-07-2009/p7.htm)

The lack of R&D in the cotton sector of Pakistan has resulted in low quality of cotton in

comparison to rest of Asia. Because of the subsequent low profitability in cotton crops, farmers

are shifting to other cash crops, such as sugar cane. In Punjab alone, the cotton area sown this

season was less by 1.14 percent as compared to the last year. Textile owners argue that

although the Cotton Vision 2015 targets 20 million bales till 2015, it is an ambitious target as in

reality cotton production is decreasing each year. It is the lack of proper R&D that has led to

such a state. They further accuse cartels, especially the pesticide sector, for hindering proper

R&D. The pesticide sector stands to benefit from stunting local R&D as higher yield cotton is

more pesticide resistant.

Moreover, critics argue that the textile industry has obsolete equipment and machinery. The

inability to timely modernize the equipment and machinery has led to the decline of Pakistani


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textile competitiveness. APTMA has highlighted that the Pakistan textile industry faces tough

competition from the Indian, Bangladeshi and Chinese textile industries and local policies have

resulted in Pakistani textiles facing a critical condition.

For instance, Bangladesh, India and China enjoy comparatively low interest rates than Pakistan.The prevailing rates are as following, 8.5 to 9.0 per cent in Bangladesh, 5.25 per cent in India

(market rate is 10.25 per cent, however exemption of 5 percent is provided to the textile

industry) and 5.58 per cent in China. Meanwhile, in Pakistan, the last three to four years has

seen the interest rates to have risen more than 150 percent, to 13.25 percent. The increase has

essentially crippled the small time textiles owner, while seriously hindering growth of the textile

tycoons. This has led to textile owners accusing the government and banks for maintaining

detrimental policies. I believe that it is imperative that the new government takes actions that

have a positive impact on the industry as textile provides employment to approx 38 per cent of

our working class. A coherent plan should be devised by the Pakistani government that allows

some sort of exemption/concession such as in India; the Export-Import Bank was set up for the

purpose of financing and facilitating the industries, especially textile.

Industrialists also argue that the non-guaranteed supply of power by WAPDA (Water and Power

Development Authority) is another problem that negatively affects the textile industry. Although,

some textile units have built their own energy generating plants to cut cost (these units run on

gas), small units production depends entirely on the electricity supply of WAPDA. The textile

industry suffered heavy financial losses in Dec, Jan and Feb quarter, because of the

inconsistent electricity supplies. The lack of production subsequently resulted in the industry not

meeting its target for the quarter, massive financial losses were borne by textile owners and

sadly, it hit the most vulnerable: workers on daily wages. Their frustration was observed

recently, when the WAPDA and MEPCO (Multan Electricity Power Company)offices in Multan,

were torched by daily wage workers, [see related post]. Textile owners as well as workers

passionately assert that the inconsistent supplies have and are destroying business across

Pakistan. They also highlight that the high cost of the utilities has making Pakistani textile

uneconomical in the international market.

All things considered, it is apparent that the Pakistani Textile Industry is facing an uncertain

environment. The increase in input cost of minimum wage by 50 percent, increasing interestrates, non-guaranteed energy supplies, lack of R&D and reduction in cotton production has had

a negative impact on the industry's competitiveness internationally. In order to sustain the

Textile Industry, the new Pakistani government has a tough task ahead and needs to urgently

implement a suitable long-term strategy that provides a level-playing field against their regional

competitors. (Insight into the Problems Facing Pakistan's Textile Industry,2008,
http://changinguppakistan.wordpress.com/2008/04/15/power-cuts-incite-violence-in-multan/http://changinguppakistan.wordpress.com/2008/04/15/power-cuts-incite-violence-in-multan/http://changinguppakistan.wordpress.com/2008/04/15/power-cuts-incite-violence-in-multan/http://changinguppakistan.wordpress.com/2008/04/15/power-cuts-incite-violence-in-multan/


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http://changinguppakistan.wordpress.com/2008/04/17/contribution-insight-into-the-problems-

facing-pakistans-textile-industry-by-abida-mukhtar/)

CHAPTER # 5

FINANCIAL ANALYSIS

5.0 ABSOLUTE FIGURE ANALYSIS

5.0.1 Balance Sheet Of GUL & KTM:

Current Assets

Years 2001 2002 2003 2004 2005 2006 2007 2008

Total Current

AssetsGUL3,373,537 2,950,889 3,176,273 5,536,244 5,707,753 5,497,495 5,277,007 6,464,312

KTM 1,331,025 2,121,847 2,563,232 3,169,575 3,170,105 3,939,417 4,547,065 5,757,221

Non Current Assets:

Years 2001 2002 2003 2004 2005 2006 2007 2008

Total Fixed

Assets2,587,9362,473,7962,660,3643,079,6933,555,4114,520,4544,807,2335,933,390

KTM 1,390,9332,592,8793,033,0675,388,6405,645,5517,400,5729,936,9887,758,101

Current Liabilities:


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Years 2001 2002 2003 2004 2005 2006 2007 2008

Total Current

Liabilities 3,282,1432,871,5833,102,7685,385,7785,432,0215,481,3915,555,2177,151,112

KTM 1,510,2892,304,5402,868,9372,780,6933,106,5443,855,5964,231,0495,477,572

ABSOLUTE FIGURE ANALYSIS

5.0.2 Income Statement Of GUL & KTM

Sales:

Years 2001 2002 2003 2004 2005 2006 2007 2008

Net

Sales(GUL)4,996,0235,765,7015,566,8626,665,8985,876,2618,101,6739,798,33811,650,143

Net

Sales(GUL)2,473,6284,322,8685,035,8945,380,2984,584,9526,903,6257,140,1677,558,322

Cost Of Goods Sold:

Years 2001 2002 2003 2004 2005 2006 2007 2008

Cost of Goods

Sold(GUL)3,781,7874,534,7454,498,0775,621,0844,912,8886,937,0208,372,4379,951,072


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Cost of Goods

Sold(KTM)2,142,8423,824,5874,353,7904,664,7254,025,8315,881,8186,094,6416,395,622

Gross Profit:

Years 2001 2002 2003 2004 2005 2006 2007 2008

Gross

Profit(GUL)1,214,2361,230,9561,068,7851,044,814963,3731,164,6531,425,9011,699,071

Gross

Profit(KTM)330,786 498,281 682,104 715,573 559,1211,021,8071,045,5261,162,700

5.1 Ratio Analysis

5.2 CATEGORIES OF FINANCIAL RATIOS

The accounting ratios can be grouped in to five categories:

1. Liquidity Ratios shows the extent to which the firm can meet its financial obligations.

2. Asset Management Ratios shows that how effectively the firm is managing its assets.

3. Debt Management Ratios shows the extent to which a firm uses debt financing or Financial

leverages.

4. Profitability Ratios relates profits to sales and assets.

5. Market Value Ratios are a measure of the return on investment.

5.2.1 LIQUIDITY RATIOS


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5.2.1.1 Current Ratio

Current Ratio shows a firm's ability to meet current liabilities with its current assets.

Formula:

Current Ratio = Current Assets / Current Liabilities

Ratio Analysis 2001 2002 2003 2004 2005 2006 2007 2008

Current Ratio(GUL) 1.0278461.0276181.02369 1.027938 1.05076 1.0029380.949919 0.903959

Current Ratio(KTM)0.8813050.9207250.8934431.139851 1.02046 1.02174 1.07469 0.972872

Analyses

1:1 ratio is usually considered satisfactory because the entity will be able to meet its current

liabilities if the realization of the assets is slightly deteriorated. Looking into the year of 2001 and

2002 we have observed that current assets fluctuate from year 2001 upto 2008 as in 2002

current assets were PKR 2950889 where as in 2001 it was PKR 3373537 same situation waswith the liability that liability was decreased in 2002 as compared in 2001 so both the equations

were fabricated same rule was applied till 2006 where as in 2007 current assets were increased

up to PKR 5277007 and in 2008 the current assets were 6464312 which shows constant

increase in 2007 to 2008 approximately 23% on the other hand the current liabilities of the

company shows increase of approximately 29% from year 2007 to 2008. In current liabilities

Trade and other payables show an increase of 29% approx while short term borrowing of the

company Increase 30% as compared to the year 2007.

In the same composite textile industry we looked at gul ahmed textile and now we focus on

Kohinoor textile mill for comparison. In 2001 to 2003 current ratio of the company shows slight

fluctuation and was not up to the bench mark and the reason being is that in 2001 the current

liabilities of the company stood at 1,510,289 and shows the increase of 52% approx where as

the current asset of the company was in increased by 59% approx in 2002 than in 2001 which

shows its affect on current ratio of the company. In 2004 the current assets of the company rise

approximately 24% while the current liabilities of the company were decreased by 3% approx


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which shows its affect on the current ratio of the company.Whereas from 2005 to onwards

current ratio of the company fluctuated normally from year to year. According to our analysis we

come to know that Gul Ahmed management shows much intention towards its current ratio as

compared to KTM.

5.2.1.2 Acid Test Ratio

Acid Test Ratio or Quick Ratio shows a firm's ability to meet current liabilities with its most liquid

assets.

Formula:

Quick Ratio = Current Assets - Inventories

Current Liabilities

Ratio Analysis 2001 2002 2003 2004 2005 2006 2007 2008

Acid Test Ratio(Gul) 0.6438570.59639 0.6440040.5822410.545051 0.4762160.474434 0.428298

Acid Test

Ratio(KTM) 0.4916340.594163 0.4895260.6852580.51302 0.4743110.592699 0.614318

A 1:1 Ratio Is Usually Considered Satisfactory

Analysis

Acid test ratio shows companies true picture towards its obligations. Gul Ahmed textile mill

current ratio in the year 2001 was 1:1.03 while when we subtract its stock from current assets

we come to know that the company tight its cash in stock the value of the stock of the company

is approx 39% of total where as the situation remains the same in 2002 and 2003. In 2004 the

acid test ratio of the company shows simultaneously decrease up to 2008 which shows its

management focus more towards stock.


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Whereas if you look at KTM in 2001 the company have invested less in stock whereas in 2002

the company's stock was increased as compare to 2001 which shows slightly change in acid

test ratio and there was a normal fluctuation from 2003 to onwards. If you look in the year of

2004 its current assets were increase as compared to 2003 and

the reason being is that it has invested more in Advances deposits, prepayments & other

receivables approx of 44% where as its current liabilities were decrease by approx 3.1% as

compared to 2003 which reflects its effect on companies acid test ratio. In 2005 there was not

much increase in the current assets as compared to 2004 but there was an increase in current

liabilities of the company approx 12% which had an net effect on acid test ratio.

Over all KTM performance in terms of management is not upto the standard as compared to

gulahmed they have not been able to utilize there resources efficiently. Gul Ahmad Textile acid

test ratio is not satisfactory as companies immediate cash resources are not sufficient to meet

its current obligations.

If you look from 2001 onwards the company's cash resources are decreasing almost every year

and in 2006 onwards it is decreased even more. There was a slight improvement in 2003 but

after that its cash resources again goes on decreasing. Whereas if you look at KTM despite of

the fact that its values are below the bench mark but still KTM position in 2002 was much better

than in 2001. If you look at the eight year in glance you will find that KTM after every successful

year there is a downward trend. In 2004 company was in much better position but from 2004

onwards its current liabilities was more than its obligations.

5.2.2 ASSET MANAGEMENT RATIO

5.2.2.1 Inventory Turnover Ratio

The ratio indicates in number of times per period, at which the inventories are sold. The number

of day's sales in inventory indicates the average time taken to sell the inventories.

Formula:

Inventory Turnover Ratio = Cost of Goods Sold

Inventory


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Ratio Analysis 2001 2002 2003 2004 2005 2006 2007 2008

Inventory Turnover

Ratio(GUL) 0.75678 0.93833 0.62849 0.54601 0.43599 0.62738 0.69275 2.92549

Inventory Turnover

Ratio(KTM)3.6889814.523274 4.1569213.788318 2.487056 3.327056 3.56711 3.848415

Bench Mark

A 3 days is usually considered satisfactory

EXPLANATION

If you look at KTM performance with reference to bench mark it was not so good in beginning

years as enterprise was selling its inventory in more than three days which later it was

increased by four days but if you look at 2004 up to 06 the enterprise performance was good

and inventories was sold in less number of days than prior years

where as in 2007-08 again companies inventory turnover ratio was above the bench mark which

was not satisfactory. Where as if you look at gulahmed its conversion was remarkable they were

converting there inventories into cash less than a day which is an healthy sign for the company

where as if you look at 2008 the companies faces problem in selling there products due to many

reasons.

5.2.2.2 Average Collection Period: Receivable

The average collection period ratio represents the average number of days for which a firm has

to wait before its debtors are converted into cash.

Formula:

Days Sales Outstanding = Accounts Receivables X 365

Sales


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Ratio Analysis 2001 2002 2003 2004 2005 2006 2007 2008

Days Sales

Outstanding(GUL) 0 0 7.0612569.33896311.37934 7.7538379.397439 2.170204

Days Sales

Outstanding(KTM)49.9062853.54265 42.4824457.0825 34.71437 25.1324422.37086 32.53823

Explanation

In 2001 gul ahmed collection period was 89 days which was not good in terms of industrystandards and as we compare it with the year 2002 we found that the management did a

remarkable job and reduce its collection period to 47 days despite of the fact that there sale was

much more approx 15.4% increase than the prior year which shows improvement in there

working capital where as if you look in 2004 the sales of the company shows upward movement

as compared to 2003 on the other end collection period also increases which reflects that the

management may offer more credit period to there customers to boast there sales as shows in

the financial statement. Where as from 2006 onwards we found that the management did a

remarkable job and reduce its collection period to 83 days despite of the fact that there sale was

approx 38 % more than in prior years.

In 2001 KTM collection period was 44 days which was satisfactory as we compare it with the

year 2002 we found that the management did a remarkable job and reduce its collection period

to 41 days despite of the fact that there sale was much more approx 75% increase than the

prior year which shows improvement in there working capital where as if you look in 2003

onwards sales also increases but not as much as it was increased in 2002 as compared to

2001. If you look in 2005 the sales of the company was decreased approx 15% and the same

trend was followed onwards.

Over all KTM's collection period reflects that companies strategy was to boost there sales via

increase credit periods in order to attract customers, as sales increases collection period also

increases and as sales decreases collection period also decreases as shown in there financial

statements.

5.2.2.3 Average Collection Period: Payable


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Formula:

Days Sales Outstanding = Accounts Payable X 365

CGS

Ratio Analysis 2001 2002 2003 2004 2005 2006 2007 2008

Days Purchases Outstanding

(GUL)

58 days44 days53 days29 days42 days 41 days38 days42 days

Days Purchases Outstanding

(KTM)

54 days52 days38 days25 days36 days 31 days23 days32 days

Gul Ahmed payable days in 2001 is 58 days as shown above which means we are paying our

creditors in 58days on the other hand companies receivable collection period is 89days which

shows other companies management do not perform up to the mark this leads to the cash flow

problem to the company and also affect the working capital of the company. If you look onwards

you will find that companies number of days have been decreased more than in previous yearswhich means that company is allowing more credit period to boost their sales as shown in the

figure.

Ktm management's intention toward cash flow management and working capital is more than

gulahmed in years 2001 up to 2003 they were receiving debts in less days and paying to their

creditors in more days which strengthen there working capital. In 2004 and 05 the sales of the

company shows downward stream because companies tight there credit period to there

customers which reduces there sales which shows in

the figure, from 2006 to 2008 companies management shows there interest to boost the sales

by allowing more credit to there credit period and increase there sales on the other hand it

affects the company's cash flow and working capital.

5.2.2.4 Fixed Asset Turnover


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Formula:

Fixed Asset Turnover = Sales

Fixed Assets

Ratio Analysis 2001 2002 2003 2004 2005 2006 2007 2008

Fixed Asset

Turnover(GUL)1.9305052.33071 2.0925192.1644681.652766 1.7922262.038249 1.963488

Fixed Asset

Turnover(KTM) 1.7783951.667208 1.6603310.9984520.812135 0.93285 0.718544 0.974249

Analysis

Fixed turnover of the gulahmed company shows positive intention of the management towards

there asset usage they generate revenue two times from their assets by using efficient means. If

you look onwards the company's management perform more efficiently and from the same

assets they generate more sales. Where as in 2006 the companies sales were increased by

38% and their assets were increase by 27% but the assets were not increased as rapidly as

sales and affects the company's asset turnover.

Fixed turnover of the KTM shows negative intention of the management towards there asset

usage. If you look onwards the company's management perform more inefficiently and from the

same assets they generate less sales. So KTM needs to look at their asset utilization so that

their efficiency increases and that affects the company's performance.

5.2.2.5 Total Asset Turnover

Formula:

Total Asset Turnover = Sales

Total Assets


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Ratio Analysis 2001 2002 2003 2004 2005 2006 2007 2008

Total Asset

Turnover(GUL) 0.8380521.062864 0.9537790.7736710.634369 0.8087160.971649 0.939702

Total Asset

Turnover(KTM)0.9087680.916886 0.8998610.6286710.520092 0.6087860.492967 0.559241

Explanation:

The total assets turnover has dropped below 0.5 last year of KTM, primarily due to greaterindulgence in research activities by the company. This increased the acquisition of plants and

equipment and simultaneously the research and evaluation assets of KTM in 2008, adding to

the non-current assets. Side by side, the impact of an abnormal increase in cash and bank

balances was reflected in larger current assets.

Total asset turnover of the gulahmed company shows positive intention of the management

towards there asset usage they generate revenue two times from their assets by using efficient

means. If you look onwards the company's management perform more efficiently and from the

same assets they generate more sales. Where as in 2006 the companies sales were increasedby 38% and their assets were increase by

27% but the assets were not increased as rapidly as sales and affects the company's asset

turnover.

5.2.3DEBT MANAGEMENT RATIO

5.2.3.1 Debt Ratio

Formula:

Debt Ratio = Total Debts

Total Assets


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Ratio Analysis 2001 200220032004200520062007 2008

Debt Ratio (GUL) 20% 14% 17% 24% 21% 18% 21% 20%

Debt Ratio (KTM)11% 10% 10% 6% 7% 8% 7% 10%

This ratio is an indicator of the financial stability of the enterprise. The lower is the debt ratio

more comfortable the creditors will feel as regards security of their debts. Too excessive debt to

total assets may expose an entity to insolvency.

Bench Mark

15% is usually considered satisfactory

Gul ahmed debt ratio was high in 2001 as compared to bench mark but the enterprise did mark

ably well in 2002 and its debt ratio was lower which gives good confidence to the creditors but

later in 2003-04 it was again raised where as slight improvement was shown in 2005 and 06

which again was geared up in 2007 and 08 so over all except 2002 the companies debt ratio

was higher which was not a good sign for the creditors as well as for the enterprise.

The asset utilization of KTM is not so efficient which is effecting in all aspects of assetmanagement ratios so KTM needs to look at their asset utilization which can effect increase its

efficiency in terms of its asset management.

5.2.3.2 Times Interest Earned Ratio

Formula:

Times Interest Earned Ratio = EBIT

Interest Charges

Ratio Analysis 2001 2002 2003 2004 2005 2006 2007 2008


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Times Interest

Earned Ratio (GUL)2.5567722.00858 2.8661373.0258541.499705 1.0230471.550538 1.275555

Times Interest

Earned Ratio (KTM)1.1364681.192106 1.5814363.9215411.852153 1.7922480.953153 1.148249

Explanation

This ratio is also a measure of long-term solvency of the entity. The ratio indicates company's

ability to pay interest charges out of profits. The higher the rations the more confident are debt

holders to receive there interest

In 2001 gulahmed was in great position to give interests to the debt holders as there profit

margin was higher but after that from 2002 to 2006 the profit margin of the company goes on

decreasing where as in 2006 is almost 0% which was a great threat to the debt holders which

means company profit was near to zero later in 2007 and 2008 company was in much better

position but not as good as it was seven years back.

5.2.4 PROFITABILITY RATIO

5.2.4.1 Profit Margin

Formula:

Profit Margin = Net Income Available For Common Stock Holders

Sales

Ratio Analysis 2001 2002 2003 2004 2005 2006 2007 2008

Profit Margin (GUL) 10.38%6.94%6.86%3.76%2.07%0.15%2.68% 1.73%


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Profit Margin (KTM)1.17% 1.28%3.32%8.27%3.22%5.14%-0.40% 1.73%

ExplanationThe Profit Margin of both KTM and GUL Ahmed textile mills have decreased disastrously

because of increased in the prices of production activities e.g. increase in the price of electricity,

increase in the prices of gas, increase in the price of yarn.etc

5.2.4.2 Basic Earning Power:

Formula :

BEP = EBIT

Total Assets

Ratio Analysis 20012002 200320042005200620072008

Basic Earning Power (GUL) 14% 15% 10% 4% 4% 5% 7% 8%

Basic Earning Power (KTM)9% 7% 8% 7% 4% 7% 4% 7%

5.2.4.3 Return On Asset:

Formula:

ROA = Net Income

Total Assets

Ratio Analysis 2001 2002 2003 2004 2005 2006 2007 2008


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Return On Assets (GUL) 8.702%7.380%6.542% 2.909%1.316%0.124%2.600%1.628%

Return On Assets (KTM)8.88% 7.29% 8.12% 6.98% 3.64% 7.08% .97% 7.50%

Explanation

This is the basic ratio to measure profitability. In this ratio profitability is related to assets

employed.

Return on Assets and Return on Equity of the company can be brought up from its current

levels to that of its competitors, thus indicating the untapped potential of GUL AHMED TEXTILE

have shown a downward trend since year 2001 and are lacking behind the industry. GUL

AHMED is not utilizing the assets and equity to the maximum capacity. ROA can be brought up

to increase the profitability.

5.2.4.4 Profit Margin On Sales

Formula:

Pretax Margin Ratio = Net Profit before Taxes

Sales

Ratio Analysis 2001 2002 2003 2004 2005 2006 2007 2008

Pretax Margin Ratio (GUL) 10.38% 6.94%6.86%3.76%2.07%0.15%2.68% 1.73%

Pretax Margin Ratio (KTM)1.17% 1.28%3.32%8.27%3.22%5.14%-0.40% 1.73%

Explanation:


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Profit margin for both the companies have shown a downward trend because of increase in the

prices of byproducts used in the textile industry i.e. yarn etc. Also increase in the prices of

electricity, labor, gas, etc.

These things effect directly on the profitability of the companies that's why profit margin of boththe companies have decreased disastrously.

CHAPTER # 6

6.1 HORIZONTAL ANALYSIS OF GUL AHMED TEXTILE

EXPLANATION

This analysis show us the clear picture of GUL AHMED TEXTILE and gives us all the answers

of our questions that why the net income is decreasing disastrously because in the graph we

can see all the thing which have an impact on net income. Like cost of goods sold have

increased Administrative and selling expenses have increased financial charges have increased

so the income of the company have decreased .

6.3 HORIZONTAL ANALYSIS OF KOHINOOR TEXTILEMILLS

EXPLANATION

This analysis show us the clear picture of KOHINOOR TEXTILE MILLS and gives us all the

answers of our questions that why the net income is decreasing disastrously because in the

graph we can see all the thing which have an impact on net income. Like cost of goods sold

have increased Administrative and selling expenses have increased financial charges have

increased so the income of the company have decreased .

CHAPTER # 7

Textile Industry In The Current Economic Scenario

7.1 An analysis of the current situation and imperatives for developing a Long Term Textile

Policy


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Pakistan's economy is confronted with the problem of chronic negative trade balances. The

government wants to mobilize all its resources to establish a solid export base. The Textile

sector, being the major foreign exchange earner, can serve as a launch pad.

The textile sector exports have been stagnant for the past five years. Exports have oscillatedbetween US $4.5 - 5.5 billion. US $5 billion has been a psychological barrier for the textile

industry of Pakistan.

The Multi Fibre Arrangement (MFA) phase out in the year 2005 is likely to result in providing

level playing field with the removal of quotas and lowering of tariff barriers. It will be a threat to

textile manufacturers on one-hand and open news vistas of opportunities for efficient players on

the other hand.

7.2 Sector ObjectiveKeeping in view the above factors, a long term Textile Vision has been created to serve as a

broad target to revamp the textile industry of the country. The defined objective is:

An open, market driven, innovative & dynamic textile sector which is:

Internationally Integrated

Globally Competitive

Fully equipped to exploit the opportunities created by the MFA phase out

And which enables Pakistan to be amongst the top five textiles exporting countries in Asia.

(Sector Objective - Textile Vision,2009,http://www.smeda.org/publications/textile_vision.php)

7.3 Importance Of Textile Industry

According to the ECONOMIST intelligence report of August 2003 for Pakistan the following

observations have been made: Despite Government efforts to diversify exports and widen the

industrial base, the industrial sector remains dominated by the Textile sector. Textile Sector still

represents 46% of total manufacturing and provides 68% of Pakistan's Export receipts.

The strong performance stemmed from two factors :
http://www.smeda.org/publications/textile_vision.phphttp://www.smeda.org/publications/textile_vision.phphttp://www.smeda.org/publications/textile_vision.phphttp://www.smeda.org/publications/textile_vision.php


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Increase in import quotas especially by U.S.A, EU and TURKEY

Textile industry has invested over US$1.5 billions in new technologies and modernization in

the last 3 years.

Efficiency and the innovation in textile is the only hope to get the country out of economic

problems.

CHAPTER # 8

PROBLEMATIC AREAS

8.1 Present Status Of Pakistan (Textile EngineeringSector)

The Pakistan Textile Engineering Sector is underdeveloped and under utilized. Mostly it caters

in the form of spares, components for modernization and machines used in cottage or small

scale industries.

A cursory look at the structure of Pakistan Textile Industry shows that most of them are cottage

industry, small/medium industrial units and few large integrated states of art units. The number

of units which fall under each category varies from sub-sector to sub-sector. Similarly the Textile

Engineering Units also vary from small, medium and large in size. The Textile Engineering

Industry comprises approximately 80% small work shops, 15% medium engineering Units and

5% large Engineering Units. It will not be out place to mention that the large engineering units

are in Public Sector. The small and medium Engineering Units work on reverse Engineering

principles, only few work according to Engineering Drawings and still fewer have Testing or

Quality Control facilities.

On the basis of initial survey of Textile Engineering Units (Not complete yet), approximately 500

units are engaged all over Pakistan, employing approximately 50000 work force which is mostly

skilled. Even under the present conditions and without any support, Pakistan Textile

Engineering Industry is providing import substitution worth around one billion US dollars. This

sector also exports to small and medium Textile Units in Bangladesh, Iran, Sri Lanka, etc.The

Textile Engineering Sector is throttled through taxes on raw material, import of components,

electronic and electrical parts.

Competition


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The present Textile Engineering Industry is up against competition from smuggled, under

invoiced, and mis-declared components, parts and accessories. For example, in case of second

hand machinery, there is little or no check and the competition mainly rests on lower price.

Machines smuggled especially from China, India, Taiwan are not better in quality but are selling

cheaper. A bold initiative is needed which can boost the production as capacity and markets arethere, only change in environment is need.

8.2 Finishing Look And Control Components

The products manufactured locally, when displayed against foreign goods - offer a poor look -

primarily because of the unsightly finishing of welding seams, electroplating, painting and other

surface treatments. In addition, the adoption of wrong design parameters, or the attempt to

reduce the cost of production, lead to the incorporation of under-sized electrical motors and

electric / electronic control panels.

Quality Control

There are very few units which have their own material testing facilities, or have an access to

any such service from out side. Although reverse engineering is practiced, yet this copying is

done without adequate material testing. This results in poor quality or in many cases in an

undue over - engineering. A great stress on quality control is being laid by all the major

importing countries, especially in the wake of ISO 9000 series. There is, therefore, a need of

assisting the local textile engineering the relevant institutions, such as PSI, NPC, CTL, etc.

8.3 Assistance Of Present Institutions

To encourage the local textile industry an access to the modern practices in the specialized

areas of manufacturing processes, productivity enhancement and quality control, an institutional

mechanism should be set up which provides the industry an adequate and industry-friendly

assistance from such organizations as MIRDC, PITAC, CTL and PSI, etc. In addition such

institutions as Pak-Swiss Training Centre and Pak-German Training Centre, as well as the

Small Scale Industrial Estates should be encouraged to provide the industry necessary

technical assistance and production aids such as tools, jigs, fixtures, gauges, etc. for

productivity improvement and quality control.

8.4 Employment Opportunities


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Keeping in view the linkage of the Engineering Sector to other sectors of economy, it can be

safely assumed that every one person employed in Engineering will add at least 2 more persons

in the over all economy. There is ample scope for qualified engineers in mechanical, electric

and electronics disciplines to boost this sector.

8.5 Need For Training Institutions

Diploma Level Courses on the pattern of Pak-Swiss Training Centre in Karachi should also be

opened in the Textile Institutions in Faisalabad and Karachi and more such courses should be

introduced in the Polytechnics in areas like Multan, Hyderabad, Lahore and Gujranwala.

8.6 Exhibitions

Most of these small workshops are shy or afraid of getting registered or displaying their

products, mainly from the fear of the revenue collection, labor controlling and other government

regulating agencies. This fear keeps them away from the mainstream Industry. This also leads

to the lack of interaction among the small scale, medium scale and higher level industry for a

purposeful vendor development.

National Exhibitions held annually can be very helpful in bringing out the skills, the range of

products and opportunities of group collaboration. It will help the planners and large scale

engineering industry in defining the way for developing skills in order to make this sector strong

and viable. This will culminate a Vendors List which can be recommended to foreign suppliersinterested in coming to this market and starting assembling / manufacturing on large scale.

The interaction between the foreign textile manufacturing industry could also be enhanced by

facilitating the indigenous Textile Engineering Industry to participate in the specialized

Exhibitions and fairs being held in those countries.

8.7 SE-Commerce Gateway MOU With Chinese Co.

The E-commerce Gateway has signed a memorandum of understanding (MOU) with a Chinesecompany Global Enterprise Consulting to launch a business a match making' service in

Pakistan and China.

According to E-commerce Gateway Pakistan. "This service includes seeking of agents,

distributors, buyers, suppliers or joint venture partners in Pakistan or Middle east for Chinese

companies that intend to do business in these markets".


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The service will include all kinds of facilitation required to help increase the Chinese exports to

the Middle East and South Asian markets. (Trends in Textile Engineering Industry of

Pakistan2009, http://www.ptj.com.pk/Web%202004/03-2004/trend.html)

CHAPTER # 9

FUTURE OUT LOOK

Pakistan textile industry is facing problems of low productivity due to its obsolete textile

machineries. To overcome this problem and to stand in competition, Pakistan Textile Industry

will require high investments. Pakistan is on the road to invest in processing sector, but

traditional sectors are also demanding high amount of investments. There is a continuous trend

of investing in spinning since many years. Although, trend towards investment in Air Jet weaving

segment is increasing day by day.

'Pakistan's textile industry estimates that around Rs1, 400 billion (US$32 billion) of investment

was required till 2010 in order to achieve the government's export target.'(Textile Industry:

Backbone of Country,2009,

http://www.streetdirectory.com/travel_guide/16592/business_and_finance/pakistan_textile_mac

hinery_industry.html)

9.1 Future Opportunities

Our main competitors in primary textile products with the advantage of large engineering sector

in this region are China and India. The only country in this region without strong engineering

base is Pakistan and our dependence upon outside Engineering Industry keeps our cost of

production higher with low engineering skills.

Looking into the future a strong competition from China and India for this market requirements

can be used to involve them to start assembly plants under their guidance and cooperation.

Some progress in the direction has led to the development of a Task Force in the Ministry ofIndustries and Textile Engineering is growingly lucrative for investors, local and foreigners.

CHAPTER # 10

RECOMMENDATION TO GENERAL PUBLIC:


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It is recommended to general public that the investment in the securities of these companies is

not risk free.

textile processing sector

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