The document provides financial information for four textile companies - Square Textile Ltd, Evince Textile Ltd, Al-Haj Textile Ltd, and H.R. Textile Mills Ltd. It analyzes various financial ratios for the companies over three years (2013-2014, 2015-2016, 2016-2017) to understand their financial performance and position. The ratios examined include current ratio, inventory turnover ratio, and average collection period. Current ratios for Square and Al-Haj textiles were above benchmarks in recent years, while H.R. textile's ratio was below 1, indicating potential liquidity issues. Inventory turnover declined for most companies from 2015-2016 to 2016-2017, except for H.
The document provides financial information for four textile companies - Square Textile Ltd, Evince Textile Ltd, Al-Haj Textile Ltd, and H.R. Textile Mills Ltd. It analyzes various financial ratios for the companies over three years (2013-2014, 2015-2016, 2016-2017) to understand their financial performance and position. The ratios examined include current ratio, inventory turnover ratio, and average collection period. Current ratios for Square and Al-Haj textiles were above benchmarks in recent years, while H.R. textile's ratio was below 1, indicating potential liquidity issues. Inventory turnover declined for most companies from 2015-2016 to 2016-2017, except for H.
The document provides financial information for four textile companies - Square Textile Ltd, Evince Textile Ltd, Al-Haj Textile Ltd, and H.R. Textile Mills Ltd. It analyzes various financial ratios for the companies over three years (2013-2014, 2015-2016, 2016-2017) to understand their financial performance and position. The ratios examined include current ratio, inventory turnover ratio, and average collection period. Current ratios for Square and Al-Haj textiles were above benchmarks in recent years, while H.R. textile's ratio was below 1, indicating potential liquidity issues. Inventory turnover declined for most companies from 2015-2016 to 2016-2017, except for H.
The document provides financial information for four textile companies - Square Textile Ltd, Evince Textile Ltd, Al-Haj Textile Ltd, and H.R. Textile Mills Ltd. It analyzes various financial ratios for the companies over three years (2013-2014, 2015-2016, 2016-2017) to understand their financial performance and position. The ratios examined include current ratio, inventory turnover ratio, and average collection period. Current ratios for Square and Al-Haj textiles were above benchmarks in recent years, while H.R. textile's ratio was below 1, indicating potential liquidity issues. Inventory turnover declined for most companies from 2015-2016 to 2016-2017, except for H.
1 Table of Contents Acnologyment .....................................................................................................................................3 Executive Summary.............................................................................................................................4 Introduction.........................................................................................................................................5 Company Description..........................................................................................................................6 Ratio Analysis.................................................................................................................................7-16 Recommendations..............................................................................................................................17 Conclusion..........................................................................................................................................17
2 Acknowledgement
All praises to almighty Allah, who has bestowed his kindness upon us by giving us the chance, time, courage, and strength to carry out and finish this huge task within deadline. We would like to thank those who have contributed to it a lot.
We sincerely acknowledge our debt to Dr Fahim Faisal, honorable faculty of Department of
Accounting and Finance, North South University to give us the opportunity to work on this project and submit the report. We owe particular thanks to Dr Fahim Faisal for his valuable suggestions and encouragement.
Then we must thank all of our respondents for cooperating with us by giving information of the entire question about this topic. Without their help it was not possible to complete this report.
Finally, we must not lose the chance of expressing our sincere appreciation to some of our friends, who shared and inspired us all the time.
3 Executive Summary
The report has been prepared as per the instruction of our course instructor to fulfill the course requirement. The purpose of this report is to analyze the financials to analysis ratio trends, and finally the enterprise value of two companies, mainly competitors, of the same industry.
The textile industry was of our choice and the four competitors we have selected are Square Textile Ltd, Evince Textile Ltd, Al-Haj Textile Ltd and H.R. Textile Mills Ltd. Although none of the companies are the market leaders, all are rival competitors and both have the potentiality to reach the peak in the competition.
The report shortly focuses on the companies’ overall backgrounds followed by the major focus of interpreting and comparing the various trends of different ratios and forecasting balance sheets & income statement. Briefly, 5 major classes of ratios have been analyzed for each of the companies and later on they have also been compared with each other. At the end of the report we have drawn a conclusion which gives us a holistic picture of where each company stands in terms of financial health and ability to meet financial obligations.
We start by providing the company backgrounds and the objectives of our report. We have also included executive summary, acknowledgement and table of content.
4 Introduction
This report is a comprehensive study that covers the various trends ratios of four competitors in the Textile industry from a financial perspective. The working and interpretations are thorough and conclusions have been drawn based on the facts and figures. Before we move on to the company backgrounds, to give you a better understanding of this report, our objectives and methods of collection of information and analysis are as follows.
Industry: Textile
Objectives: 1. Fully analyze the financial data of the four companies. 2. Calculate the 10 major different ratios from provided financial information. 3. Interpret the trends of ratios for the two companies and give a comparative analysis. 4. Try to understand which company is better off in financial terms. 5. Be able to explain how the companies are efficiently utilized their assets, equity and profit margin.
Methodology:
1. The figures in this report have been accumulated from annual reports collected from the websites of the companies. 2. Interpretations, workings and analysis have been done by explaining the graphs and drawing conclusions.
5 Company Description
Square Textile Limited
Square textile Limited is one of the largest export oriented Readymade Garments Industries of Bangladesh. The main business line of the company is manufacturing and marketing of yarn. The company has a total capacity of 59472 installed spindles and 3960 rotor heads.
Evince Textiles Limited
The main activities of company are concentrated in Manufacturing, Dyeing and Finishing of 100% cotton woven Fabric and exporting the same as a deemed exporter.
H.R. Textile Mills Limited
This is a public limited company incorporated in Bangladesh under the companies Act 1913 on 3 December 1984 under the entrepreneurship of the Pride Group. The company owns textile mills and its principal activities are knitting, processing and finishing off textile products and making garments. The production capacity for the current year is 28 lac pcs for Finishes Garments and 1980 MTs for knit Fabrics.
Al-Haj Textile Mills Limited
Al-haj textile mills limited is one of the ancient manufactures of cotton yarn in Bangladesh. The company was incorporated as a private limited company in Bangladesh. On 1983 it was made into a private limited company. Its manufacturing united are situated in Ishurdi, (Pabna) having a total 20160 installed spindles and 800 rotor heads.
6 Ratios
Liquidity Ratio: It's Calculated to measure the company's ability to make i's short-term liability. It also shows the firm's ability to convert assets into cash.
Current Ratio: Current Asset ÷ Current Liability
Current Ratio 3.5
2.5
1.5
0.5
0 2013-2014 2015-2016 2016-2017
Square H.R Textile Evince Al-Haj
Interpretation: Square and Al-Haj textile, both firms have done good in terms of the benchmark of 1.9 in their most recent years. Though the Evince textile has done good in year 2015-16 but their current ration has decreased in 2016-17. On the other hand, our fourth company, H.R. textile’s current ratio has remained more or less same over the last 3 years and it is less than the benchmark. That means, Square textile has 2.05 taka, Al-Haj textile has 2.89 taka, Evince textile has 1.39 taka for every taka of their liabilities as of 2016-17. The higher it is, the better.
Analysis: Compared to their most recent years, all the firms have experienced a slight decrease 7 in their current ratios except Al-Haj textile. However, Al-Haj textile has done better among all the companies whereas H.R textile is in bad condition as their Current ratio is less than 1 in last 3 years. So, there is a chance that they may fall in liquidation problem.
Inventory turnover Ratio: Cost of Goods Sold ÷ Inventory
Interpretation: Benchmark of the industry is 3.96. From the graph we can see, in the year 2015-16 all the companies’ inventory turnover ratio was above the industry benchmark but in next year it has decreased except H.R. Textile. The more it is, the better.
8 Analysis: Compared to their most recent years, all the companies have seen a significant decrease in their inventory turnover while H.R textile's one increased. Their performance had dropped in 2015-16 but before that and after that their performance is good in the industry.
Average Collection Period: Accounts Receivable ÷ Average Sales Per Day
Interpretation: Square, H.R and Evince have taken respectively 90, 67 and 122 days on average to collect their credit sales respectively in 2016-17. But Al-Haj textile’s collection period is very low, in the year 2016-17, its collection period was 3 days which is very good as we know the lower it is, the better. Analysis: According to their recent year performances, Square and Evince has experienced an increase in their average collection period while H.R textile has done the opposite. But Al-Haj’s
9 collection period remained more or less same over the last 3 years. They are also performing well comparing to the others in this category on average for last 5 years.
Interpretation: Square, H.R textile, Evince and Al-haj have generated 0.76, 1.09, 0.55, 0.53 Paisa respectively out of each taka of their investments for 2016-17. The more it is, the better for it means the firm has utilized its assets more efficiently.
Analysis: H.R textile has experienced increase in its total asset turnover while the picture is completely different for all other companies on the basis of their most recent year performances. However, they are doing quite the similar to each other under this category.
Interpretation: Benchmark is 0.50. square, H.R textile, evince and Al-haj has respectively 27 Taka, 75 Taka, 48 taka and 54 Taka out of their every 100 Taka in total asset in 2016-17
Analysis: all the companies have maintained their consistency in terms of their performance over the last 3 years. However, H.R textile has more debt investments compared to all the companies in their last 3 years states.
Recommendation: Both H.R textile and Al-Haj should reduce some of their debts by selling some shares in the market and increasing equity. They sure will be deprived of their tax- deductible opportunities, but they must think about their priorities first, which is to ensure that they don't get bankrupt in recent future. Excess interest burden can lead them astray.
Gross Profit Margin: Gross Profit ÷ Sales
11 Gross Profit Margin 0.3
0.25
0.2
0.15
0.1
0.05
0 2013-2014 2015-2016 2016-2017
Square H.R Textile Evince Al-Haj
Interpretation: Benchmark is 0.157. Square, H.R textile, evince and Al-haj has earned a gross profit of 10 taka, 14, taka, 22 Taka, 14 Taka out of their each 100 taka sales in their most recent calendar years. This can be used to pay their operating, interest and tax expenses. The more it is, the better for they will have more money available to bear their costs and also more money will be available to the stockholders as net profit.
Analysis: Considering their most recent years' performances, both the firms have experienced a slight fall in their gross profit margin although Square seems to be in a bad position than others in last year.
Net Profit Margin: Net Profit ÷ Sales
12 Net Profit Margin 0.6
0.5
0.4
0.3
0.2
0.1
0 2013-2014 2015-2016 2016-2017
Square H.R Textile Evince Al-Haj
Interpretation: Square, H.R textile, evince and Al-haj has earned a net profit of 05 taka, 02 Taka, 07 taka and 13 taka out of their each 100 taka sales as it stands at the end of 2016-17. This is the money available to the shareholders. The higher it is, the better for they will be more capable to satisfy their existing shareholders and also attract potential ones in the market.
Analysis: Al-haj has experienced a drop in their net profit margin in their most recent year. They have been experiencing ups and downs in this category of ratio for last 3 years. But others have been through a constant downfall in this category of ratio for the last 3 years. Nothing changed their lot in their most recent years for obvious reasons. Comparing to the net profit margin, Al-Haj textile is doing good in recent years.
Return on Assets (ROA): Net Income ÷ Total Assets
13 Return on Total Asset 0.14
0.12
0.1
0.08
0.06
0.04
0.02
0 2013-2014 2015-2016 2016-2017
Square H.R Textile Evince Al-Haj
Interpretation: Square, H.R textile, evince and Al-haj has earned respectively 4 taka, 2 taka, 4 taka and 7 taka only out of their 100 taka investments in 2016. The higher it is, the better for it means they have been managing their assets more efficiently.
Analysis: None of their ratios look lucrative for the potential shareholders to invest in their shares for all of them have a very low return on assets. Square and Evince textile have seen a slight down fall in their ROA recently after having a slight upward journey in 2015-16 while the summary for H.R textile is a constant over 3 years. However, none of their lots have much to offer as it seems and they aren't showing any signs of a dramatic turn of events in the near future as well. But comparing to all, Al-Haj textile is doing better and can be good option for the investors.
Return on Equity (ROE): Net Income ÷ Total Common Stockholders' Equity
Interpretation: This ratio is calculated to calculated for the common stockholders only, neither for the firm nor the preferred stockholders. The common stockholders have earned 5 taka, 9 taka, 8 taka and 15 taka respectively from Square, H.R ,Evince and Al-Haj textile common stocks for each 100 taka of their investments in their most recent years.
Analysis: Square and evince have seen a decrease in ROE in their most recent years after reaching their peak in 2015-16 for a very short period of time while H.R textile and Al-Haj have been experiencing a decrease from year 2015-2016.
Recommendation: Al-Haj is having a healthy profitability ratio but others are not having healthy profitability ratios in their past 3 years' performances which means that they have some serious issues here which they should resolve fast. For this purpose, they must increase their net income. Either they can decrease their sales or they can cut their costs of goods sold and operating expenses. Since cutting sales may affect the net income in the long run, reducing costs seems to be a more realistic approach to overcome the problem for both the firms.
Price -Earning Ratio: Market Price Per Share ÷ Earnings Per Share
15 Price Earning Ratio 70
60
50
40
30
20
10
0 2013-2014 2015-2016 2016-2017
Square H.R Textile Evince Al-Haj
Interpretation: It shows the firm's value in the market comparing to its dividends. It demonstrates how much the investors trust in the company's potential to grow in the near future and how much confidence they hold in the company in terms of its performance. The higher the ratio, the better it is for the firm. However, it's not good if the firm has a ratio anything more than 30 for this will make the investors think that the earning in the company is too low. Square, H.R textile, evince and Al-haj have respectively 27, 22, 12, 53 times the price per share in the market to its EPS in year 2016-17. That means square is doing okay in the market than others.
Analysis: Square and H.R textile are having a better lot with their share price in the market compared to their offered EPS for the past years, because the have not pass the benchmark of 30 in 2016-17 which is good. But Al-Haj’s Price earning ratio is too high which may cause problem in future for them.
Recommendation 16 None of the firms are really struggling much with their market ratios except Evince textile. So, they should try to regain their trust in their potential investors in the market by perhaps performing better than they are doing right now. In contrast, others really should eye for providing more dividends to their shareholders or at least incur more EPS. Or else, they might get into trouble soon which they can achieve by reducing their expenses and earning more net income.
Conclusion
Both, Square and Al-Haj have pretty similar scenarios in all the sections of ratios as it stands. In some sectors, they are doing good, but in some of the sectors, they are lagging behind. They should improve their performance in all the challenging sectors to recover from their falls and grow further in the future. But as their profitability ratio is in very good position so they have higher chance to grow. But other two companies need to take care of lots of things. However, if one has to choose currently, I think, investing in Square and Al-Haj are wiser among the four considering their performances to their share prices in the market. But they need to improve a lot, there is no denying that. Both of these companies have the potentiality to become the market leader someday if they emphasize on their efforts and overcome the shortcomings.
