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    4863682 financial-analysis-on-annual-report-on-two-company 4863682 financial-analysis-on-annual-report-on-two-company Document Transcript

    • Topics: Comparative analysis of financial statement between two TextileCompany’s1.0 Introduction:In our country textile companies are doing very well business. So manycompetitors are in this sector. Lots of new companies entered this market.From all of them we choose two cement company for our report. We collecttheir financial statement & analyze them within three methods & we identifytheir comparative advantage. 1.1 Origin: This is the report comes from our FIN-245 subject. Thecourse instructor Ms. Tarana Majid orally authorized the task of preparingthe report to a group of student. She gave this report to learn the way toanalyze the financial statements. To follow the syllabus of our subject so wehave to do some relevant study based on our report. That’s why this topiccomes forward. 1.2 Scope: We worked on Ashraf textile mills ltd. & Saiham textilemills ltd for our report. 1.3 Limitation: We are very happy because we made our reportwithin some limitations and overcome it almost. For prepare this report wefaced some barrier. When we prepared this report all necessary data is notavailable. For this we assume some of the data to complete the report. Onthe other hand when we go to collect the financial statement we were unable 1
    • to found our needed statement books. Finally, one limitation was onshortage of knowledge that was reduced to make this report a better one. 1.4 Source of Data: For our report we collect data for finding &analysis. At first we collected the annual report & take financial statementsof two companies’. We also collected some data from the internet. 1.5 Methodology: As a rule, we had to follow a particularmethod for collecting data to complete the report accurately. At first wemake Income Statement, Balance Sheet & Cash Flow on a excel sheet. Thanwe analysis the Income Statement & the Balance Sheet using the commonsizing & indexing method. Finally we used the eleven financial ratios for ourratio analysis. 2
    • 2.0 Brief History of company:Saiham Textile Ltd.Late Syed Sayeed Uddin Ahmed & Begum Hamida Banu, in remembranceof whom, Saiham Textile Mills Limited has derived the name of thecompany; would have been proud to know how well their offspring havemanaged and extended the organization.Saiham Textile Mills was set up in Noyapara, Hobiganj district in the year1982 with an annual capacity of 7.5 m yards of finished cloth. It wasequipped with modern and sophisticated machineries from Japan. Initially itwas a weaving, dyeing printing and finishing plant. Saiham Textile claims tobe the pioneer in introducing the concept of modern fabrics in Bangladesh.They were one of the first textile mills to start international standardpolyester fabric, TC fabric, synthetic and Georgette sarees with cross border.The mother company of the present conglomerate is now comprised ofdifferent industrial concerns. The entrepreneurship of Saiham, consists offive directors, all from the same family. Although a company run andmanaged by relatives, the standard and efficiency of the management doesnot compromise on its quality.Ashraf Textile mills Ltd.Ashraf textile mills ltd is one of the another company which is run andmanaged by relatives, the standard and efficiency of the management doesnot compromise on its quality.Addressed:Ashraf Textile Mills Ltd.New DOSH, MohakhaliDhaka - 1212Ph : 9887051-53Fax : 9887033 3
    • 3 .0 Findings & Analysis:According to our report subject our main objective is identifying thedifference between two companies financial statement. Also we want to findout which company is more stable & which is not stable.From the financial statement we can find out our requirements.In below we give our finding & analysis in basis of company’s financialstatement.3.1 Analyze of Income Statement, Balance Sheetbetween two companies’s:In below we are going to discuss about the two companies balance sheet,Income Statement & Cash flow comparison in a briefly :3.1.1 Balance Sheet Comparison:Assets:From the balance sheet of the both companies we can identify that Ashraftextile had 504,741,251 tk total assets in 2005 but on the other hand Saihamtextile had only 425,320,371 tk total asset in 2003-2004. Next year Ashraftextile companies total asset was decreased and Saiham textile company’stotal assets increase and in 2007 Ashraf textile reached in 167,726,578 tkwhereas in 2005-2006 Saiham textile’s total asset 436,650,516 tk. For thetotal asset volume we can say that Saiham textile has more powerful ratherthan Ashraf textile.Liability:The total liability we saw that Ashraf textile had 623,823,012 tk liabilitiesin 2005 & Saiham textile had 152,581,718 tk only in 2003-2004.Bothcompanies’ liabilities were also increased in next year. But clearly we cancomments that Ashraf textile had least liability than the Saiham textile. However Saiham textile had the more Net asset than the Ashraf textile.share holder’s equitywe can easily understand that Saiham textile had the more equity and it was818,663,635 tk for 2004-06 & Ashraf textile had -1,123,244,182. So we can saythat Saiham textile had the more investment in the market. 4
    • 3.1.2 Income Statement Comparison:From our income statement we can identify that Saiham textile has a profit74,932,529 tk in 2004 & 52,001,246 tk in 2005 & 57,295,427 tk in 2006. Fromthis we can say that the profit is decreasing by next two years. And thisshows that sale for Saiham textile decreasing during the next two year. Onthe other hand Ashraf textile is in a loss of -62,609,854 tk in 2005 & -122,738,787 tkin 2006 & -14,064,257 tk in 2007. They continue their business in loss whereSaiham textile doing their business with profitability.3. 1.3 Analyzing Common Sizing & Indexing:In common size analysis we express the various components of a balancesheet as percentage of the total assets of the company.In addition this can bedone for the income statement,but here items are releted to net sales.InAshraf textile balance sheets over the three year span the percentage ofcurrent assets increased.On the other hand Saiham textile current assetsfluctuated. We see that Ashraf textile account receivable showed a relativediccreased from 2005 to 2007.Saiham textile account receivable flactuatedfrom 2003-04 to 2005-2006.On the liability & equity portion of the balancesheets, Ashraf textile total debt of the company decline on a relative basisfrom 2005 to 2007.but Saiham textile total debt diccreased in 2004-2005 &increased in 2005-2006.The common size income statement show the gross profit/loss margin fromyear to year. We see that Ashraf textile operating expenses increase year toyear & in 2007 increases sharply.whereas Saiham textile operating expensesdiccreased in 2004-2005 & increase again in 2005-2006.In 2005-2007Ashraf textile’s net profit had negetive percentage, whereas Saiham textile’snet profit increased.In indexes analysis all financial statement items are 100%. In 2006 & 2007Ashraf textile current assets indexed is 91.53 & 9.95 whereas Saiham textilecurrent assets s indexed is 116.26 & 100.93 in 2004-2005 & 2005-2006.The indexed income statements give much the same picture as the commonsize income statements – namely, fluctuating behavior. In Ashraf textileincome statement total gross loss indexed are 100, 196.037491 &22.46332822 in 2005 , 2006 & 2007.Whereas Saiham textile’s gross profitare 100, 69.3974 & 76.4626 in 2003-04, 2004-05 & 2005-2006. 5
    • 4.0 Financial Statement Analysis by ratio:For the performance measurement of Ashraf textile & Saiham textile millsLtd. In below we are going to analysis about the two companies financialstatement using ratio analysis. We used 11 methods to analyze the ratio.Here are belongs:4.1 Liquidity Ratio:i) Current Ratio: Current assets divided by current liabilities. It shows afirm’s ability to cover its current liabilities with its current assets. In belowthere is the graph of the two textile company’s current ratio: current ratio(Ashraf textile) current ratio(Saiham textile) 2 0.4 rat io 1 ratio 0.2 0 0 2003- 2004- 2005- 2005 2006 2007 Series1 0.32332 0.13204 0.16733 Series1 1.044 0.764 0.982 year yearFrom the graph we can see that Ashraf textile current ratio is 0.32 times in2005 and 0.167 times in 2007. Here we see that current ratio has beendecreased and go down in less than 1. On the other hand Saiham textilecurrent ratio is 1.044 in 2003-04 & next two year stay remain but it also bebelow the 1 and from the Ashraf textile. In the last year for both companywe suggested that the current liabilities cannot be covered if existing currentasset are liquated at their book values. 6
    • ii)Quick Ratio: Current assets less inventories divided by current liabilities.It shows a firms ability to meet current liabilities with its most liquid assets. Quick ratio(Ashraf textile) Quick ratio(Saiham textile) 0.2 0.4 0.15 0.3 ratio 0.1 rat io 0.2 0.05 0.1 0 0 2005 2006 2007 2003-2004 2004-2005 2005-2006 Series1 0.197173 0.069725 0.138913 Series1 0.2643053 0.15642413 0.38213114 year yearFrom the graph we can easily identify that in 2006 Ashraf textile & Saihamtextile quick ratio is decreased dramatically. We say that in the last year ofthe both company’s quick ratio increased. But Saiham textile has goodposition than the Ashraf textile.4.2 Financial Leverage debt ratio:i)Debt-To-Equity: Ratios that show the extent to which the firm is financedby debt. Debt to Equity(Ashraf textile) Debt to Equity(Saiham textile) 0 1 Ratio R at i o 0.5 -10 2005 2006 2007 0 2003- 2004- 2005- Series1 -5.239 -2.17 -1.253 Series1 0.559443 0.887395 0.59995 year yearIf we consider the year 2007 of Ashraf textile, the ratio is -1.253 thatcreditors are providing for each tk 1. In the case of Saiham textile in2005-2006 the ratio is 0.599 that creditors are providing. So we can say thatAshraf textile is in a better position than the Saiham textile. 7
    • ii) Debt-To-Total Asset Ratio: The debt to total asset ratio is derived bydividing a firm’s total debt by its total assets. Sebt to Assets (Ashraf textile) Debt to Assets(Saiham textile) 6 0.6 4 0.4 ratio ratio 2 0.2 0 0 2005 2006 2007 2003- 2004- 2005- Series1 1.235926 1.854987 4.95805 Series1 0.358745 0.470169 0.374981 year yearFrom the graph we can realize that Ashraf textile ratio is more than Saihamtextile in their last three year. We know that the higher the debt to assetsratio, the greater the financial risk; the lower the ratio, the lower the risk. SoAshraf textile has more risk than the Saiham textile.4.3 Coverage Ratio:i) Interest Coverage Ratio: Ratio earning before interest and taxes dividedby interest charges. It indicates a firm’s ability to cover interest charges. It isalso called times interest earned. Interest coverage(Ashraf textile) Interest coverage(Saiham textile) 5 3 4 2.5 2 3 ratio r at i o 1.5 2 1 Series1 1 0.5 0 0 2003- 2004- 2005- 2005 2006 2007 Series1 1.7272998 2.7067618 0.3935626 Series1 4.3453871 3.1634257 2.5946142 year yearThis ratio serves as one measure of the firm’s ability to meet its interestpayments and thus avoid bankruptcy. The higher the ratio the greatercompany could cover its interest payment without difficulty. So analyzeafter the two graphs we can said that Saiham textile has more interestcoverage than the Ashraf textile Cement. Ashraf textile ratio is fluctuatedhighly in 2007. 8
    • 4.4 Activity Ratio:i) Receivable Turnover: the receivable turnover ratio provides insight intothe equality of the firm’s receivables and how to successful the firm is in iscollections. This ratio is calculated by dividing receivables into annual netcredit sales. Receivable turnover(Ashraf textile) Receivable turnover (Saiham textile) 50 140 40 120 100 30 Day 80 Days 20 60 40 10 20 0 0 2003-2004 2004-2005 2005-2006 2005 2006 2007 Series1 101 6 125 Series1 14 6 42 year YearFrom the graph we can say that Ashraf textile received their receivablemoney from the buyers within 101 days in 2005, 6 days in 2006 & 125 daysin 2007. On the other, Saiham textile received within 14 day in 2003-2004, 6day in 2004-2005 and 42 days in 2005-2006. Eventually we can say thatSaiham textile was received money within short time rather than the Ashraftextile.ii) PAYABLE TURNOVER: There may be occasions when a firm wants tostudy in own promptness of payment to suppliers or that of a potential creditcustomer. This ratio is calculated by dividing purchase into total A/Cpayable. Payable turnover(Ashraf textile) Payable turnover(Saiham textile) 35 4 00 00 0 30 350 00 0 25 3 00 00 0 250 00 0 20 D a ys D a ys 2 00 00 0 15 15000 0 10 1 00 0 00 50 00 0 5 0 0 2 00 5 2 006 20 07 2003-2 004 2004-2005 2005-2006 Series1 138 276 3 60 420 Series1 35 10 15 ye a r ye a rFrom the graph we can say that Ashraf textile paid their payable money tothe sales within 138 days in 2005, 276 days in 2006 & 360420 days in 2007.On the other, Saiham textile paid within 35 day in 2003-2004, 10 day in2004-2005 and 15 days in 2005-2006. Eventually we can say that Saihamtextile was paid money within short time rather than the Ashraf textile. 9
    • iii) INVENTORY ACTIVITY: To help determine how effectively the firmis managing inventory and also to gain an indication of the liquidity ofinventory. This ratio is calculated by dividing inventory into COGS. Inventory Activity(Saiham textile) Inventory Activity(Ashraf textile) 400 250 300 200 Days 200 150 Days 100 100 50 0 2005 2006 2007 0 2003- 2004 2004- 2005 2005- 2006 Series1 60 53 369 Series1 170 225 176 year yearThe figures tell us how many days, on average, before inventory is turnedinto accounts receivable through sales. Here we see that Ashraf textile wasfaster than Saiham textile in case of inventory activity.iv) TOTAL ASSET TURNOVER: The relationship of net sales to totalassets is known as the total asset turnover, or capital turnover. Total Asset turnover(Saiham textile) Total asset turnover(Ashraf textile) 0.8 0.7 0.7 0.6 0.6 0.5 0.5 0.4 r at i o r at i o 0.4 0.3 0.3 0.2 0.2 0.1 0.1 0 0 2005 2006 2007 2003-2004 2004-2005 2005-2006 Series1 0.6780095 0.4476056 0.05087134 Series1 0.77632571 0.56348701 0.5969018 year yearThe median total asset turnover for the industry is 1.66. For this ratioanalysis we saw that Ashraf textile & Saiham textile both are less efficientthan the industry in this regard. On the other hand Saiham textile is in abetter position than the Ashraf textile. 10
    • 4.5 Profitability Ratio:i) PROFITABILITY RATIO IN RELATION TO SALES: The ratio weconsider is the gross profit margin or simply gross profit divided by netsales. Profitability in ratio to sales(Ashraf Profitability in relation to textile) sales(Saiham textile) 4 1.83 3.5 1.82 3 1.81 1.8 2.5 1.79 rat i o 2 rat io 1.78 1.5 1.77 1 1.76 0.5 1.75 0 1.74 2005 2006 2007 2003- 2004 2004- 2005 2005- 2006 Series1 2.1829524 2.688959397 3.648320722 Ser ies1 1.773060426 1.820902862 1.780171958 year yearIt is a measure of the efficiency of the firm’s operations, as well as anindication of how products are priced. From the above graphs we saw thatAshraf textile has relatively more effective at producing and selling productsabove cost.ii)PROFITABILITY RATIO IN RELATION TO INVESTMENT: thisprofitability ratio relates profits to investment. One of those measures is therate of return on investment, or return on asset. P ro f i t ab i l i t y i n rel at i o n t o Profitability in relation to i nves t ment ( A s hr af t ext i l e) investm ent(Saiham textile) 0 0.025 0.02 - 0.5 0.015 ratio -1 rat io 0.01 - 1.5 0.005 -2 0 2005 2006 2007 2003- 2004 2004- 2005 2005- 2006 Series1 -0.235798631 - 0.507839396 -1.707107588 Ser ies1 0.023235772 0.018004789 0.023118956 year yearThe standard ratio compares for this is nearly 8%. From our analysis wefound that Saiham textile ratio simply fluctuates. Their percentage is not sogood. On the other handAshraf textile had negative percentage from2005-2007. 11
    • 5.0Conclusion:We examine the analysis of Ashraf textile & Saiham textile mills ltd. We seethat the liquidity position is nit good both of the company. ComparativelySaiham textile better than Ashraf textile mills ltd. Ashraf textile mills ltd.should change the credit policy & proper use of its assets. The profitabilityratio of Ashraf textile mills ltd. Good than the Saiham textile mills ltd. Thecompany should avoid the use of debt; otherwise company would be fall intobankruptcy. 12
    • 6.0Bibliography:i) Annual report- -Ashraf textile mills ltd. For the year of 2005, 2006 & 2007. -Saiham textile mills ltd. For the year of 2003-2004, 2004-2005 & 2005-2006.ii) Fundamental of financial management(Twelfth edition) -James C. Van Horne & John M Wachowicz, JR. 13
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