Spinning sector of pakistan Faisal and Reliance mills analysis

Spinning Sector of Pakistan |
Financial Statements Analysis
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ACKNOWLEDGEMENTS
‘‘In the name of Allah most merciful and beneficent’ “We
raise in degree of rank whom so ever we pleased; and our
every pressure of knowledge is one, most knowing”. (Al-
Quran)
At First we like to thank our beloved Allah. Then we would like to
thank our Professor Maam Beenish for giving us the opportunity to
enhance our knowledge on the subject. We are also grateful for her
support and encouragement all throughout. We also thank our group
members who have enriched our knowledge with immense efforts
and want to appreciate the praise-worthy efforts and the assistance
of some people who have kindly helped us out in the completion of
this report. They definitely include our parents, teachers and friends.

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Table of Contents
Introduction of Spinning sector
Faisal spinning mill Limited
Introduction
Ratio Analysis
Reliance Cotton Spinning Mill
Introduction
Ratio Analysis
Cummulative Industry Analysis
Recommendations
Conclusion
Horizontal and Vertical Analysis
References

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Introduction:
 Cotton Spinning
The spinning sector is a vital part of textile industry, a great contributor to the national
economy. In this sector manufacturing process are performed where fibre are converted
into yarn. Spinning is the twisting together of drawn out strands of fibre to form yarn.
This is the largest textile segment in terms of number of listed units. There are 106 listed
companies on KSE - 23% of the total spinning population. Most of these companies are
owned by business families or group of individuals.
The objective of this report is to analyse the different companies of the Spinning Sector
in Pakistan. The data from the past six years (i.e. from 2009 to 2014) of these companies
is taken. The ratios and cash flows are given the higher importance to know the financial
health of the companies.
Two companies are selected from a pool of companies in the Spinning Sector of
Pakistan. The selection of the companies is based on the two factors: the SIZE of the
company in all those years and the business cycle of all the companies end on the 30th
June. The names of these companies are:
 Faisal Spinning Mills Limited (Umer group)
 Reliance Cotton Spinning Mills Limited (Sapphire group)
Sapphire Group (SG) owns 79% stake in SFL through direct and indirect shareholding.
Mr. Mohammad Abdullah, the chairman of the group, founded SG when he migrated
to Pakistan after the partition. The group is mainly concentrated in the textile industry.
Within the industry, it has significant presence in spinning, weaving and other value
added segments.. The entities constituting Sapphire Group include Sapphire Rextile
mills Limited, Reliance Cotton Spinning Mills Limited, Diamond Fabrics Limited,
Amer Cotton Mills (Pvt.) Limited, Sapphire Power Generation Limited, Sapphire
Finishing Mills Limited, and Sapphire Electric Company Limited.
Let us examine all the companies one by one to know their financial attractiveness. In
the end, a cumulative Analysis will be done to know the relative importance of each
company in the sector.

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Faisal Spinning Mills Limited
Introduction:
Faisal Spinning Mills Limited was incorporated in Pakistan in 1982, the Umer Group
of Companies with headquarters in Karachi, Pakistan, has been at the forefront of
industry in Pakistan for many years. Through dedicated efforts, hard work and by the
grace of God, Umer Group is one of the leading groups in textile industry of Pakistan.
The group today is broadly diversified and is involved in Textile ( Weaving and
Spinning ),Power Generation, Footwear manufacturing/Retail, Leather manufacturing,
Leather Garments, Dairy milk and construction activities. The group today enjoys an
annual turnover of over USD 300 million.
Faisal Spinning Mills Limited is a Pakistan-based company, which is engaged in the
manufacturing and sale of yarn and fabric. The Company's segments are Spinning,
Weaving and Power Generation. The Company's production facilities are located at
Nooriabad District, Dadu in the province of Sindh and Feroz Watwan, District
Sheikhpura in the Province of Punjab. The Company offers textile products to local and
international markets. The Company is a part of the textile group of Umer Group.
Umer Group has a total of five spinning mills with an installed capacity of over 160,000
spindles supported by the latest European and Japanese machinery.
The company follows the fiscal year. So, all of its financial statements are made on June
30.

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The market price of Faisal spinning Mills is 152.13. The company is enjoying the
benefits from the 100,000 outstanding shares. The Authorized capital of the company
is constant Rs. 120,000,000 in all that time periods.
Financial statements are audited by M/s Mushtaq and Company Chartered Accountants
407, Commerce Centre, Hasrat Mohani Road, Karachi.
“Ratio Analysis OF FINANCIAL STATEMENTS”
In this section, different elements of the financial statements would be studied to know
the financial health of the company. The analysis will focus on the ratios of the
company..
Liquidity Ratio:
Liquidity ratios measure a company’s ability to meet its maturing short-term
obligations.
 Current Ratio:
This ratio reflects the number of times short-term assets cover short-term liabilities and
is a fairly accurate indication of a company's ability to service its current obligations.
The company has managed to increase its liquidity over the years. In 2009, the company
has current assets of only Rs. 1,206,600,842. But they have made efforts to increase the
current assets. Till 2011, they have increased their current assets to Rs.1733161857.
This increase is made possible by increasing the two elements of the current asset i.e.
Bank Balances and Stock in Trade.
The company also made efforts to decrease the current liabilities. In 2010, the liabilities
were Rs.1, 193,096,967. But company has made effort to decrease them. And In 2014,
they were able to decrease them to Rs.1, 127,597,339.
In 2014, the company have above average ratio, as compared to the company average
(Current Ratio 1.58). This is good sign.

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Activity Ratios:
Activity ratios are financial analysis tools used to gauge the ability of a business to
convert various asset, liability and capital accounts into cash or sales.
 Cash Conversion Cycle:
The cash conversion cycle attempts to measure the amount of time each net input dollar
is tied up in the production and sales process before it is converted into cash through
sales to customers.
The cash conversion cycle of the company is on the rising trend. This is due to the
increasing inventory. In 2009, the Average Age of Inventory was 0.0775 days. Then,
there is a tremendous increase comes in 2010 that pushes the Average Age of Inventory
to 73 days. After that there is a rising trend. Until 2013, the Average Age of Inventory
reaches to 104 days. At last in 2014, management took some actions to reduce it and it
reduces to95 days, which results in diminishing trend of Cash Conversion Cycle
In 2014, Cash Conversion Cycle is above average as compared to the company average
of 52 days. This is not a good sign.
2009 2010 2011 2012 2013 2014
Series1 0.9701 1.0828 1.4220 1.5985 1.9785 2.4843
0.9701 1.0828
1.4220
1.5985
1.9785
2.4843
0.0000
0.5000
1.0000
1.5000
2.0000
2.5000
3.0000
Years

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 Fixed Asset Turnover:
The fixed-asset turnover ratio measures a company's ability to generate net sales from
fixed-asset investments.
The Fixed Asset Turnover shows a rising trend from 2009 to 2011. This is due to the fact
that the increase in sales is more than the increase in the fixed assets The company had sales of
Rs. 4,271,908,981 in 2009. But, it has managed to increase sales to Rs. 9,137,111,608
in 2011.
After this company shows diminishing trend from 2011 to 2014.The diminishing trend
from 2011 to 2014 is due to the fact that there is more increase in the fixed assets than
the sales. The prominent element in the fixed assets which increase in those years is
“Capital Work in Progress” and “Long-term Investment”
In 2014, the company have close to average ratio, as compared to the company average
(Fixed Asset Turnover 3.6). This is a good sign.
2009 2010 2011 2012 2013 2014
Series1 -6.5463 54.8652 45.8889 48.2280 95.6889 75.9978
-6.5463
54.8652
45.8889 48.2280
95.6889
75.9978
-20.0000
0.0000
20.0000
40.0000
60.0000
80.0000
100.0000
120.0000
Years

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 Total Asset Turnover:
Total Asset Turnover explains efficiency with which a company is deploying its assets
in generating revenue.
The Total Asset Turnover shows a rising trend from 2009 to 2011. This is due to the
fact that the increase in sales is more than the increase in the total assets. The company
had sales of Rs.4, 271,908,981 in 2009. But, it has managed to increase sales to
Rs.9137111608in 2011.
Then company shows a diminishing trend from 2011 to 2014. This is due to the fact that
increase in total assets is more than the increase in the sales. In 2011, the company had
total assets of Rs.3591462075. But company has managed to increase the total assets to
Rs.5838416604 in 2014. Both kinds of assets (i.e Short Term & Long Term) showed an
increase in their accounts.
In 2014, the company have close to average ratio, as compared to the company average
(Total Asset Turnover 1.87)
2009 2010 2011 2012 2013 2014
Series1 2.6298 3.1713 4.9169 4.0779 3.7996 3.2204
2.6298
3.1713
4.9169
4.0779
3.7996
3.2204
0.0000
1.0000
2.0000
3.0000
4.0000
5.0000
6.0000
Years

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Gearing Ratio/Leverage Ratio:
Gearing is a measure of financial leverage, demonstrating the degree to which a firm's
activities are funded by owner's funds versus creditor's funds.
 Debt Ratio:
The debt ratio compares a company's total debt to its total assets, which is used to gain
a general idea as to the amount of leverage being used by a company.
The debt ratio shows a decaling trend from 2009 to 2014. This is due to the fact that the
assets have constantly increasing in all those years. These increasing assets were due to
increasing equity. The liabilities have also shown some increase but their increase is
lesser as proportion to increase in assets.
In 2009, the total was Rs.2831025105. But company is getting more and more assets
every year. In 2014, the total assets reach to Rs.5838416604.
In 2014, the company have below average ratio, as compared to the company average.
This is a good sign.
2009 2010 2011 2012 2013 2014
Series1 1.5090 1.7661 2.5441 2.1150 1.6676 1.6752
1.5090
1.7661
2.5441
2.1150
1.6676 1.6752
0.0000
0.5000
1.0000
1.5000
2.0000
2.5000
3.0000
Years
Faisal Spinning Mills Limitedle

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 Time Interest Earned Ratio:
Time Interest Earn ratio is a measure of a company's ability to honour its debt payments.
There is only two sharp increase in the graph. In 2011, the TIE ratio increases because
the company managed to increase its sales which causes its EBIT to increase. At the
same time, some liabilities were paid off which reduce the interest expense.
From 2010 to 2014 there is a decrease and increasing in
 Equity Multiplier:
The equity multiplier is a measurement of a company’s financial leverage. Companies
finance the purchase of assets either through equity or debt, so a high equity multiplier
indicates that a larger portion of asset financing is being done through debt.
2009 2010 2011 2012 2013 2014
Series1 %60.27 %47.50 %43.22 37.29% %40.85 %39.15
60.27%
47.50% 43.22%
%37.29 40.85% 39.15%
%0.00
%20.00
%40.00
%60.00
%80.00
Year
Faisal SpinningMills Limited
2009 2010 2011 2012 2013 2014
Series1 1.0004 1.0021 4.3806 3.0121 6.7003 3.7359
1.0004 1.0021
4.3806
3.0121
6.7003
3.7359
0.0000
1.0000
2.0000
3.0000
4.0000
5.0000
6.0000
7.0000
8.0000
YEAR

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The Equity Multiplier shows a decreasing trend from 2009 to 2012 after that it show
little increasing trend. This is due to the fact that the total assets have constantly
increased in all those years. In 2009, the total assets were Rs. 2,831,025,105Till 2014,
the total assets reach to Rs. 5,838,416,604 There is a prominent increase in equity in all
those years.
The total liabilities show an enormous increase in 2013, which gives a boast to this
graph
In 2014, the company have close to average ratio; as compared to the company average
.This is a good sign
Profitability Ratios:
A profitability ratio is a measure of profitability, which is a way to measure a company's
performance.
 Profit Margins:
Profit margins measures how much out of every dollar of sales a company actually
keeps in earning.
In 2010, the company has shown an increase in sales and net income. But the increase
in Net Income is more than the increase in the sale. The net income increased from
Rs.65, 360,140 to Rs.402, 630,406. In 2011 and 2012 again profit margin show
decreasing trend.
2009 2010 2011 2012 2013 2014
Series1 2.7343 2.0380 1.7613 1.5947 1.6905 1.6433
2.7343
2.0380
1.7613
1.5947 1.6905 1.6433
0.0000
0.5000
1.0000
1.5000
2.0000
2.5000
3.0000
Year

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The company has shown net income Rs. 298,997,452 in 2012, that became the reason
for less profit margin as compare to others time periods. Then company tried to recover
from the situation and managed to increase net income in 2014. This increase in Net
Income gave some boost to ratio.
In 2014, the company have close to average ratio, as compared to the company average.
 Return on Assets:
Return on assets is studied to know how efficiently management is using its assets to
generate earnings
The graph shows a peak in 2011, this is due to increase in the net income. The company
has enjoyed net income of Rs.658, 553,965 in 2011. While on the other hand, in 2012
the company has less net income of Rs.298, 997,452 which became the reason for low
return on asset
In 2014, the company have below average ratio, as compared to the company average
2009 2010 2011 2012 2013 2014
Series1 0.0153 0.0782 0.0721 0.0392 0.0948 0.0611
0.0153
0.0782
0.0721
0.0392
0.0948
0.0611
0.0000
0.0100
0.0200
0.0300
0.0400
0.0500
0.0600
0.0700
0.0800
0.0900
0.1000
year

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 Return on Equity Ratio:
Return on equity (ROE) is a ratio that provides investors insight into how efficiently a
company is managing the equity.
The company Return on Equity reaches to the highest mark in 2011. This is due to the
fact that the company has shown a higher increase in net income from Rs.65,360,140 to
Rs.402,630,406.
Then it shows a decreasing trend in 2012, due to the decreasing income. In 2012 the
company has shown a low net of Rs.298,997,452. So the ratio becomes low as compare
to 2011. Then company tried hard to recover and it has managed to increase its net
income in 2014, which has a positive effect on its ROE.
In 2014, the company have managed the average ratio, as compared to the company
average. This is a good sign
2009 2010 2011 2012 2013 2014
Series1 0.0231 0.1381 0.1834 0.0829 0.1581 0.1023
0.0231
0.1381
0.1834
0.0829
0.1581
0.1023
0.0000
0.0200
0.0400
0.0600
0.0800
0.1000
0.1200
0.1400
0.1600
0.1800
0.2000
Year

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 Earning Per Share:
Earning Per Share gives a thorough look about a company's profit allocated to each
outstanding share of common stock.
The company Earning Per Share reaches to the highest mark in 2011. This is due to the
fact that the company has shown an increase in net income from Rs.65, 360,140 to
Rs.402,630,406.
Then it shows a diminishing trend in 2012, due to the decreasing income. In 2012 the
company has low net income. So the ratio becomes less as compare to 2011. Then
company tried hard to recover and it has managed to increase its net income in 2014,
which has a positive effect on its EPS.
There is no increase in the outstanding shares of the company. The outstanding shares
remain at 100,000,000.
In 2014, the company has above average ratio, as compared to the company average.
2009 2010 2011 2012 2013 2014
Series1 0.0631 0.2815 0.3230 0.1321 0.2672 0.1681
0.0631
0.2815
0.3230
0.1321
0.2672
0.1681
0.0000
0.0500
0.1000
0.1500
0.2000
0.2500
0.3000
0.3500
Year

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 Market to Book Ratio:
Market to Book Ratio is used to find the value of a company by comparing the book
value of a firm to its market value.
The Market to Book Ratio shows a decreasing trend in 2010. This is to the fact that
company did not perform well in 2009. So in proceeding years the company was not
able to build a positive word of mouth in the market. But after that market to book ratio
is show an increasing trend from 2011 to 2014.
In 2009, there was only net income of Rs.65,360,140 that put a bad news regarding the
company in market.
In 2014, the company have managed above average ratio, as compared to the company
average .This is a good sign.
 Cash Flow From Operating Activities:
2009 2010 2011 2012 2013 2014
Series1 6.5360 40.2630 65.8554 29.8997 80.4615 59.7260
6.5360
40.2630
65.8554
29.8997
80.4615
59.7260
0.0000
10.0000
20.0000
30.0000
40.0000
50.0000
60.0000
70.0000
80.0000
90.0000
Year
2009 2010 2011 2012 2013 2014
Series1 0.3001 0.2059 0.2342 0.2798 0.4064 0.5151
0.3001
0.2059
0.2342
0.2798
0.4064
0.5151
0.0000
0.1000
0.2000
0.3000
0.4000
0.5000
0.6000
year

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Cash flow from operating activities shows the company’s ability i.e. company’s ability
to pay the interest and contractual payments.
The company showed negative cash flow from operating activities in 2013.
In 2014 company learn from the past bad experience and generate positive cash flow
from operations. As the company is not generating the positive cash from the operating
activities. So it would not be able to pay the contractual payments.
After studying all the ratios and cashflow, decisions would be made whether
ShortTerm or Long-term debt financing should be given to company or equity
financing should be done
2009 2010 2011 2012 2013 2014
Series1 331,035,04 539,871,99 295,579,45 444,639,39 -192,410,8 865,377,35
331,035,042
539,871,996
295,579,450
444,639,399
-192,410,819
865,377,357
-400,000,000
-200,000,000
0
200,000,000
400,000,000
600,000,000
800,000,000
1,000,000,000
Year

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Financial
Ratios
2010 2011 2012 2013 2014 Industry
Average
Remarks
Current Ratio 1.08 1.422 1.598 1.98 2.48 1.58 Good
Quick Ratio 0.45 0.47 0.48 0.53 0.55 0.86 Bad
Cash
Conversion
Cycle
54days 45days 48days 95days 75 Days 52 Days Bad
Inventory
Turnover
5.59 5.61 5.87 4.06 4.49 5.12 Bad
Fixed Asset
Turnover
3.17 4.91 4.07 3.79 3.22 3.63Times bad
Total Asset
Turnover
1.78 2.54 2.11 1.66 1.67 1.87 Not Bad
Debt Ratio 47.50% 49.22% 37.29% 40.85% 39.15% 44.7 % Good
Time Interest
Earned Ratio
1.00 4.38 3.01 6.70 3.73 3.30 Good
Equity
Multiplier
2.03 1.76 1.59 1.69 1.64Ti
mes
1.91Times Good
Return on
Asset
13.81% 18.34% 8.29% 15.68% 10 % 11.02% Not Bad
Profit Margin 7.70 7.21 3.92 9.40 6.1 % 6.01% Good
Gross profit
ratio
16.74 13.67 11.27 15.21% 13.07% 14% Bad
Return on
Equity
28.1% 32.30% 13.21% 26.72% 16.81% 21 % Bad
Earnings Per
Share
40.26 65.85 29.89 80.46Ti
mes
59.7Ti
mes
47.1Times Good
Dividend
yield
0.03 0.05 0.08 0.16 0.18 0.1 Good
Market/Book
Ratio
(Times)
0.21 0.23 0.27 0.41 0.51 0.32 Good
As the company is generating the positive cash from the operating activities. So it would
be able to pay the contractual payments. This is due to the fact that company has used
their total assets efficiently. Both fixed assets turnover and total asset turnover are close

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to average.The firm has also decrease the debt burden, which is a good sign with a
positive cash flow from operating activities.
which shows that the company would not default in future. The company is also using
its equity well and it is close to the average. High profit margin becomes the reason of
high return on equity. Eventually the Earning per share is also good for the company.
Company is also enjoying a nice market to book value.
“Reliance Cotton Spinning Mills Ltd.”
Introduction:
Reliance Cotton Spinning Mill Limited is one of the leading, renowned and recognized
Textile Mills in creating, developing and manufacturing of products right from basic to
variety of high quality yarn thus responding to emerging trends in the spinning industry
and exporting yarn to International market.
They have the technology to transform the dreams of absolute quality into reality. Their
in-house, world-class quality control lab has helped achieve the 5% world yarn standard
for quality based on International USTER standards. Our quality management starts in
raw material sourcing from the manufacturers as a club member and insurance of final
parameters by strict Process Orientation and guides throughout the entire production
process including shipping and delivery.
What sets the company apart is an un-compromised commitment towards total quality
management, combined with endeavours in product development plus an ongoing
investment in state of the art equipment. To further cultivate the perspective of absolute
quality in fine count with Special Fibbers., RCSM is committed to maintain its advanced
quality control capabilities by taking every step forward in quality management, and
this is a contribution we intend to make, today & beyond.
Financial Statements are audited by M. yousaf Adil SALEEM and Company
Chartered Accountants.
“Ratio ANALYSIS OF FINANCIAL STATEMENTS”
In this section, different elements of the financial statements would be studied to know
the financial health of the company. The analysis will focus on the ratios After
discovering about the financial health of the company, decisions would be made about
which company is better than average.

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Liquidity Ratio:
Liquidity ratios measure a company’s ability to meet its maturing short-term
obligations.
 Current Ratio:
This ratio reflects the number of times short-term assets cover short-term liabilities and
is a fairly accurate indication of a company's ability to service its current obligations.
The company has managed to increase its liquidity over the first three year. In 2009, the
company has current assets of only Rs.903, 571,780
Till 2011, they have increased their current assets to Rs.1, 402,604,121. This increase
is made possible by increasing the two elements of the current asset i.e. Cash & Bank
Balances and Stock in Trade. The company has increased its current liabilities from
2012 to 2014, which became the reason of its lower current ratio. In 2012, the current
liabilities were Rs.1, 247,684,340. On the other hand in 2014, they have increased to
Rs.2, 266,956,937. The Trade & other payable and Short-term borrowing have shown
prominent increase in its accounts and became the reason for increase in current
liabilities.
This is not a good sign.
Activity Ratios:
convert various asset, liability and capital accounts into cash or sales.
2009 2010 2011 2012 2013 2014
Series1 1.0842 1.1350 1.2313 1.0370 1.0819 0.9595
1.0842 1.1350
1.2313
1.0370 1.0819
0.9595
0.0000
0.2000
0.4000
0.6000
0.8000
1.0000
1.2000
1.4000
Years
Reliance Cotton Spinning Mills Limited

Page | 22
The cash conversion cycle attempts to measure the amount of time each net input dollar
is tied up in the production and sales process before it is converted into cash through
sales to customers.
The cash conversion cycle of the company is on the declining trend. This is due to the
decreasing of inventory. In 2009, the Average Age of Inventory was 173 days. But in
2014, it decrease to 137 days. There is also a lower cash conversion cycle in 2013,
because somehow company managed to maintain its Average Age of Inventory to 120
days. But in 2014, the Average Age of Inventory reaches to 137 day, due to increased
inventory.
In 2014, Cash Conversion Cycle is below average as compared to the company average
(Cash Conversion Cycle 168.5). This is a good sign.
fixed-asset investments.
The Fixed Asset Turnover shows amix trend. This is due to the ever changing sales and
changing fixed assets in different time periods. The diminishing trend from 2009 to
2010 is due to the fact that there is more increase in the fixed assets than the sales.
The prominent element in the fixed assets which increase in those years is “Property,
Plant and Equipment”.
2009 2010 2011 2012 2013 2014
Series1 228.9186 185.4985 187.5256 145.9763 122.1877 141.0396
228.9186
185.4985 187.5256
145.9763
122.1877
141.0396
0.0000
50.0000
100.0000
150.0000
200.0000
250.0000
Years

Page | 23
In 2010, the company had sales of Rs.1753876366. But, it has managed to increase
sales to Rs.2,613,863,539 in 2011.Which increases its efficiency. Then in 2012,
company cannot use the asset efficiently to generate sales and its efficiency decreases.
Then in 2013 again a rise in sales comes, which gives boast to efficiency. In 2014, the
company has increased the total assets but cannot generate enough sales from it. So, a
declining trend is shown
in generating revenue.
The Total Asset Turnover shows a rising trend from 2010 to 2011. This is due to the
fact that the increase sales are more than the increase total assets. The company had
sales of Rs.1, 544,922,778 in 2009. But, it has managed to increase sales to Rs.
2,613,863,539 in 2011.
Then company shows a diminishing trend from 2013 to 2014. This is due to the fact that
increase in total assets is more than the increase in the sales. In 2011, the company had
total assets of Rs.2, 400,888,895. But company has managed to increase the total assets
to Rs.4, 203,199,419 in 2014. Both kinds of assets (i.e Short Term & Long Term)
showed an increase in their accounts.
2009 2010 2011 2012 2013 2014
Series1 2.61 2.23 2.62 1.96 2.34 2.09
2.61
2.23
2.62
1.96
2.34
2.09
0.00
0.50
1.00
1.50
2.00
2.50
3.00
year

Page | 24
It is not a good sign.
Gearing Ratios:
 Debt Ratio:
The debt ratio shows a decreasing trend from 2009 to 2011. This is due to the fact that
the assets have constantly increased in all those years. In 2009, the total assets were
Rs.1495111306.Till 2011; it reaches to the level of Rs.2400888895. They were mostly
financed by equity. From 2011 to 2013, there is a stable trend. And both assets and
liabilities increase with same pace.
But in 2014, the total liabilities show a tremendous increase and reaches to Rs.2,
396,313,028. There is a prominent increase in both types of liabilities.
This is a good sign.
2009 2010 2011 2012 2013 2014
Series1 1.0333 1.0073 1.0887 0.9831 1.1744 1.0097
1.0333
1.0073
1.0887
0.9831
1.1744
1.0097
0.8500
0.9000
0.9500
1.0000
1.0500
1.1000
1.1500
1.2000
Years

Page | 25
 Time Interest Earned Ratio:
Time Interest Earn ratio is a measure of a company's ability to honour its debt payments.
There is only one sharp increase in the graph. In 2011, the TIE ratio increases because
the company managed to increase its sales which causes its EBIT to increase. At the
same time, some liabilities were paid off which reduce the interest expense.
This is not a good sign
2009 2010 2011 2012 2013 2014
Series1 57.50% %54.81 49.42% %50.08 %50.35 %57.01
57.50%
54.81%
49.42% %50.08
%50.35
%57.01
%44.00
%46.00
48.00%
%50.00
%52.00
54.00%
56.00%
%58.00
60.00%
Year
2009 2010 2011 2012 2013 2014
Series1 2.5119 2.4235 5.1592 1.7426 3.1869 1.8512
2.5119 2.4235
5.1592
1.7426
3.1869
1.8512
0.0000
1.0000
2.0000
3.0000
4.0000
5.0000
6.0000
year

Page | 26
 Equity Multiplier:
The equity multiplier is a measurement of a company’s financial leverage. Companies
finance the purchase of assets either through equity or debt, so a high equity multiplier
indicates that a larger portion of asset financing is being done through debt.
The Equity Multiplier shows a decreasing trend from 2009 to 2011. This is due to the
fact that the liabilities have constantly decreasing in all those years. In 2009, the total
liabilities were Rs.859,702,159. In 2012, equity Multiplier shows an increasing trend
from 2012 to 2014. This is due to the fact that the liabilities have constantly increasing
in all those years. In 2014, the total liabilities are Rs. 2,396,313,028.
In 2014, the company have above average ratio, as compared to the company average.
Profitability Ratios:
A profitability ratio is a measure of profitability, which is a way to measure a company's
performance.
 Profit Margins:
Profit margins measures how much out of every dollar of sales a company actually
keeps in earning.
2009 2010 2011 2012 2013 2014
Series1 2.3530 2.2130 1.9770 2.0031 2.0139 2.3262
2.3530
2.2130
1.9770
2.0031 2.0139
2.3262
1.7000
1.8000
1.9000
2.0000
2.1000
2.2000
2.3000
2.4000
Year

Page | 27
In 2010, the company has shown an increase in sales and net income. But the increase
in Net Income is more than the increase in the sale. The net income increased from
Rs.137,703,182 to Rs.476,532,191.
This graph show a higher trend of profit margin in 2011 and after this period it shows
that there is a low profit margin in 2012. This diminishing trend is due to the decrease
in the net income.
Then company tried to recover from the situation and managed to increase net income
in 2013. This increase in Net Income gave some increase to ratio. But again profit
margin is decreasing in 2014
 Return on Assets:
Return on assets is studied to know how efficiently management is using its assets to
generate earnings
The graph shows a peak in 2011, this is due to increase in the net income. The company
has enjoyed net income of Rs.476,532,191 in 2011. While on the other hand, in 2012
the company show lower return on their asset, it means that company not use their assets
efficiently to generate earning,
2009 2010 2011 2012 2013 2014
Series1 0.0931 0.0785 0.1823 0.0281 0.0802 0.0296
0.0931
0.0785
0.1823
0.0281
0.0802
0.0296
0.0000
0.0200
0.0400
0.0600
0.0800
0.1000
0.1200
0.1400
0.1600
0.1800
0.2000
year

Page | 28
 Return on Equity Ratio:
Return on equity (ROE) is a ratio that provides investors insight into how efficiently a
company is managing the equity.
The company Return on Equity reaches to the highest mark in 2011. This is due to the
fact that the company has shown a tremendous increase in net income from
Rs.143,868,898 to Rs.476,532,191.
Then it shows a diminishing trend in 2012, due to the decreasing income. While on the
other hand, in 2012 the company show lower return on their equity, it means that
company not use their equity efficiently to generate return.
Then company tried hard to recover and it has managed to increase its net income in
2013, which has a positive effect on its ROE. But again in 2014, the return on equity is
decreasing.
In 2014, the company has below the average ratio, as compared to the company
average. This is not a good sign
2009 2010 2011 2012 2013 2014
Series1 0.0962 0.0791 0.1985 0.0276 0.0941 0.0299
0.0962
0.0791
0.1985
0.0276
0.0941
0.0299
0.0000
0.0500
0.1000
0.1500
0.2000
0.2500
Year

Page | 29
 Earning Per Share:
Earning Per Share gives a thorough look about a company's profit allocated to each
outstanding share of common stock.
The company Earning Per Share reaches to the highest mark in 2011. This is due to the
fact that the company has shown a tremendous increase in net income from
Rs.143,868,898 to Rs.476,532,191.
Then it shows a diminishing trend in 2012, due to the decreasing income. Then it shows
a diminishing trend in 2012, due to the decreasing income. While on the other hand, in
2012 the company show lower return on their equity, it means that company not use
their equity efficiently to generate return.
Then company tried hard to recover and it has managed to increase its net income in
2013, which has a positive effect on its EPS.
There is no increase in the outstanding shares of the company. The outstanding shares
remain at 102,920,000.
In 2014, the company has below the average ratio, as compared to the company average.
2009 2010 2011 2012 2013 2014
Series1 0.2264 0.1750 0.3924 0.0553 0.1896 0.0695
0.2264
0.1750
0.3924
0.0553
0.1896
0.0695
0.0000
0.1000
0.2000
0.3000
0.4000
0.5000
Year

Page | 30
 Market to Book Ratio:
Market to Book Ratio is used to find the value of a company by comparing the book
value of a firm to its market value.
The Market to Book Ratio shows a decreasing trend in 2010. This is to the fact that
company did not perform well in 2009. So in proceeding years the company was not
able to build a positive word of mouth in the market. But in 2013 and 2014, the market
to book ratio is show an increasing trend.
In 2014, the company have managed close to average ratio, as compared to the company
average .This is a good sign.
Cash flow from operating activities shows the company’s ability i.e. company’s ability
to pay the interest and contractual payments.
2009 2010 2011 2012 2013 2014
Series1 13.9787 13.3796 46.3012 6.9766 30.0111 12.1996
13.9787 13.3796
46.3012
6.9766
30.0111
12.1996
0.0000
5.0000
10.0000
15.0000
20.0000
25.0000
30.0000
35.0000
40.0000
45.0000
50.0000
Year
2009 2010 2011 2012 2013 2014
Series1 0.4535 0.3215 0.2822 0.2901 0.4305 0.5403
0.4535
0.3215
0.2822 0.2901
0.4305
0.5403
0.0000
0.1000
0.2000
0.3000
0.4000
0.5000
0.6000
year

Page | 31
The company showed negative cash flow from operating activities in 2009 and 2014.
The loss of Rs. 29,497,831 in 2009 became the reason for negative cash flow from
operating activities in 2009.
In 2014, it seems like the company did not learn anything from the past. In 2014
company again have negative cash flow from operating activity. The loss of
Rs.285,296,197 in 2014 became the reason for negative cash flow from operating
activities in 2014.
2009 2010 2011 2012 2013 2014
Series1 -29,497,83 114,703,71 146,819,97 115,415,92 72,291,645 -285,296,1
-29,497,831
114,703,718
146,819,976
115,415,929
72,291,645
-285,296,197
-350,000,000
-300,000,000
-250,000,000
-200,000,000
-150,000,000
-100,000,000
-50,000,000
0
50,000,000
100,000,000
150,000,000
200,000,000
Year

Page | 32
Ratio 2010 2011 2012 2013 2014 Industry
Averages
Current Ratio 1.14 1.23 1.04 1.08 0.95 1.39 Bad
Quick Ratio% 0.28 0.33 0.47 0.43 0.31 0.82 Bad
Cash
Conversion
Cycle
185.49 187.52 145.9
7
122.18 141 Days 168 Days Goo
d
Inventory
Turnover
2.01 2.14 2.23 2.17 2.90 2.29
Fixed Asset
Turnover
2.23 2.62 1.96 2.34 2.09 2.30
Times
Bad
Total Asset
Turnover
1.08 0.98 1.17 1.01 1.00 1.04 Bad
Debt Ratio 54% 49% 50% 50% 57% 53 % Bad
Time Interest
Earned Ratio
(Time)
5.15 1.74 3.2 1.85 1.85 2.81 Bad
Equity
Multiplier
2.21 1.97 2.0 2.01 2.32Time
s
2.14Time
s
Bad
Return on
Asset
8% 20% 2.7% 1.0% 3 % 8% Bad
Profit Margin 8% 2% 2% 8% 3% 8% Bad
Gross profit 22.52% 28.22% 14.38
%
16.53% 9.83% 18.29%
Return on
Equity
17.50% 39.24% 5.53% 18.96% 6.95% 14.67 % Bad
Earnings Per
Share
13.38 46.3 6.98 30 12.20Tim
es
20Times Bad
Market/Book
Ratio
0.32 0.28 0.29T
imes
0.43Time
s
0.54Time
s
0.38
Times
Goo
d
Dividend
yield
0.02 0.03 0.05 0.08 0.08
Cashflow
from
Operating
Activities
-
285,296,19
7
--- Bad

Page | 33
As the company is not generating the positive cash from the operating activities. So it
would not be able to pay the contractual payments. This is due to the fact that company
has not used their assets efficiently. Both fixed assets turnover and total asset turnover
are below the average.
The firm has also increase the debt burden, which is not a good sign with a negative
cash flow from operating activities which shows that company would default in future.
Low profit margin becomes the reason for low return on equity. Eventually the Earning
per share is also low for the company. They have managed to maintain a high
market/book value but investment cannot be made on one ratio.
“ CUMMULATIVE INDUSTRY ANALYSIS”
Introduction:
This section will focus on all the two mills that we have discussed earlier. In company
analysis, we compared the mills with their company average. But in industry analysis,
the comparison would be on the industry average. All the companies will be compared
with the industry average and studied.
 Current Ratio. Faisal Spinning Mills managed to have above average ratio
because current assets are more than liabilities in 2014. Reliance Spinning Mills
has decreasing ratio in 2014 because of increase in current liabilities.
 Quick Ratio
0
0.5
1
1.5
2
2.5
3
2010 2011 2012 2013 2014 Industry Avg
current ratio %
faisal Current Ratio reliance Current Ratio

Page | 34
Both Companies have below average ratio because current assets are lower in 2014
of faisal mill.Reliance mill has lower ratio because sales price of yarn decrease nad
inventory sold out at lower cost.
Activity Ratios:
convert various asset, liability and capital accounts into cash or sales. It includes
Faisal Spinning Mills has more than average cash conversion cycle. While on the other
hand, Reliance have longer cash conversion cycle.
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
items 2010 2011 2012 2013 2014 Industry
Average
quick ratio%
faisal reliance
0
54 45 48
95
75
52
00
185.49 187.52
145.97
122.18
141
168
0
0
50
100
150
200
items 2010 2011 2012 2013 2014 Industry
Averages
CCC (days)
faisal reliance

Page | 35
fixed-asset investments. Reliance Spinning Mills and Faisal Spinning Mills have below
average ratios in all the years. Faisal mill has more fixed asset investments increase as
compared to sales.
in generating revenue. The efficiency of Faisal Spinning Mill is decreasing with time
because non current assets are not utilizing maximum.Reliance Spinning Mill has not
used their assets efficiently and they have below average ratio over the year
0
1
2
3
4
5
6
items 2010 2011 2012 2013 2014 Industry
Averages
fixed asset Turnover
faisal reliance

Page | 36
 Inventory Turnover
A low turnover implies poor sales and, therefore, excess inventory. A high ratio implies either
strong sales or ineffective buying. Reliance mill has below average ratio which shows company
has poor sale as compared to industry average. Faisal inventory turnover is increasing because
of more sales.
Gearing Ratios:
0
0.5
1
1.5
2
2.5
3
items 2010 2011 2012 2013 2014 Industry
average
Total Asset Turnover
faisal reliance
0
1
2
3
4
5
6
7
2010 2011 2012 2013 2014 Industry
Averages
times
faisal Inventory Turnover reliance Inventory Turnover

Page | 37
 Debt Ratio:
Faisal Spinning Mills has decreased their debt burden over the years because this year
credit sales are less .On the other hand, Reliance Spinning Mills are getting more and
more debt every year because trade debt is due from local and foreign customers against
supply of yarn.
Time Interest Earned Ratio In 2014, the Faisal Spinning Mill has some how
managed to have average time interest earned ratio this is due to the some increase in
the interest expense over the year. In 2010, the Finance Cost was Rs.211118416, but it
has increase afterwards. Till 2014, the Finance Cost reaches to the level of
Rs.231376766. Reliance Spinning Mills has lost their ability to service the debt in
every year. At last in 2014, both the companies have below average ratio.
0
0.1
0.2
0.3
0.4
0.5
0.6
items 2010 2011 2012 2013 2014 Industry
Averages
Debt Ratio
faisal reliance

Page | 38
 Profitability Ratio
 Net Profit
Faisal Spinning Mill are enjoying nice profits. So in 2014, they have above average
ratios. Reliance Mill net profit has decreased in 2014 as compared to last year beacause
of higher raw material cost and hike in fuel and power cost.Therefore lower ratio than
industry. The profitability of faisal company has decreased due to slowness in spinning
division and increase finance cost and depreciation expense. Lower of demand of cotton
and yarn from China is the main factor of sluggish yarn and cotton market
 Gross Profit
0
1
2
3
4
5
6
7
8
items 2010 2011 2012 2013 2014 Industry
Average
Time Interest Earned Ratio
faisal reliance
0
0.02
0.04
0.06
0.08
0.1
items 2010 2011 2012 2013 2014 Industry
Averages
Profit Margin
faisal reliance

Page | 39
Reliance mill has lower gross profit ratio than average because of
high cost of goods sold e.g direct and indirect cost. Faisal mill gross
profit has reduced because of increase in CGS.
Reliance mill and faisal mill both have lower return on asset ratio as compared to industry
which shows company’s management is not efficient at using its assets effectively to generate
earnings. ROA for public companies can vary substantially and will be highly dependent on
the industry.
0
0.05
0.1
0.15
0.2
0.25
0.3
items 2010 2011 2012 2013 Value
(2014)
Industry
Averages
Gross profit
faisal reliance%
0
0.05
0.1
0.15
0.2
0.25
items 2010 2011 2012 2013 2014 Industry
Averages
Return On Asset%
faisal reliance

Page | 40
Reliance mill and faisal have lower return on equity because of lower
net income. Profit after tax is less of both companies.
 Earning per share
Eps for Reliance mill in 2014 has reduced to (12.20) as compared to last year(30.01)
beacuase profit has fallen. Faisal Eps ratio is less because of lower net income.
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.45
items 2010 2011 2012 2013 2014 Industry
Averages
Return on Equity
faisal reliance
0
10
20
30
40
50
60
70
80
90
items 2010 2011 2012 2013 Value (2014) Industry
Averages
EPS
faisal reliance

Page | 41
As the market/ book ratio of Reliance and Faisal Mill rati have increased in 2014 which
means company is a good investment for investors
The ratio of a company’s total assets to its stockholder’s equity. Reliance mill has
higher equity multiplier indicates that a larger portion of asset financing is being
done through debt. Faisal mill has good ratio because of increase in equity in 2014
and debt burden is reduced.
.
0
0.1
0.2
0.3
0.4
0.5
0.6
items 2010 2011 2012 2013 2014 Industry
Averages
Market ratio
faisal reliance
0
0.5
1
1.5
2
2.5
items 2010 2011 2012 2013 2014 Industry
Averages
Equity Multiplier
faisal reliance

Page | 42
Dividend yield is a way to measure how much cash flow you are getting for invested in an
equity position. Reliance mill has low yield ratio it means company is paying lower to
investors for their investments as compared to faisal spinning mill. They pay their
investors highly than average which will attract
Reliance Spinning Mills and Faisal Spinning Mills have not been able to compete well
in the market and suffers from below average ratio.
Faisal Spinning Mills are generating the positive cash from the operating activities.
While Reliance Spinning Mills have not been able to carry on their operations
effectively. In 2014, they are earning a negative cash flow from operating activities.
This is not a good sign.
0
0.02
0.04
0.06
0.08
0.1
0.12
0.14
0.16
0.18
0.2
2010 2011 2012 2013 2014 Industry
Averages
%
faisal Dividend yield reliance Dividend yield

Page | 43
Recommendations
 Strong reforms to face various challenges including that of
energy, investment, insecurity and law and order
 Higher discount rate must be decreased for competitive in
international market.
 Technology must be up gradaded to produce quality finished
products. The share of Pakistan's textiles products in the world
markets are declining year by year due to lack of technology.
 New projects should be launched to control Shortage of
electricity, gas supply.
 Pricing pressure in international market.
 Quality of cotton should be improved.
 CONCLUSION
Textile industry has been going through one of the toughest periods in
the decade. It has been facing multiple challenges like comparative
lower cost of doing business in neighboring countries, absence of
export incentives from the Government and higher energy cost.
However, the management of your company is vigilant with the
prevailing circumstances and will continue to put all its efforts to
mitigate the negative impacts by planning full utilization of production
capacity, diversification of product range, adopting aggressive
marketing strategy and developing strong customer relation
References
http://www.investing.com/equities/reliance-cotto-financial-summar

Page | 44
https://pkfinance.info/kse/fundamentals/rcml
http://www.scstrade.com/
http://www.investopedia.com/
http://www.psx.com.pk/index.

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