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Analysis of Financial statements Term-project Report

This file contains term-project report of AFS; the subject of study is financial analysis of Bhanero textile mills limited for the last eight years

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Term Project Report

Financial analysis of Bhanero textile mills limited

for last eight years

ACKNOWLEDGEMENT

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I am very grateful to our course Instructor who provided us guidance and support during the report, instructed us on every step about how to complete the report following a thoroughly professional format, while providing an extremely valuable learning experience for us and actually making us think over the subject. Hopefully this report will serve to its best.

I would also like to thank my group member especially our group leader Yusra Tariq for making this learning experience a thoroughly productive and enjoyable one.

Thank you,

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LETTER OF TRANSMITTAL

Wednesday, 25th of November, 2009

Syed Maqbool-ur-Rehman

Course instructor

Analysis of Financial statements

Institute of Business Management

Korangi Creek

Karachi.

Mr. Syed Maqbool-ur-Rehman

We are pleased to inform you that the final report you assigned for has been completed and is ready for your examination. This report as per your instruction has covered all the authentic areas of concern and contains all the relevant information. I would dearly like to thank you for the faith you showed in our capabilities and the encouragement you gave us when assigning us the report.

Yours truly,

Mohammad Arif

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Table of Contents

Introduction 7

Products................................................................................................................................................................................................................... 7

Installed capacity..............................................................................................................................................................................................7

Vision....................................................................................................................................................................................................................... 7

Mission.................................................................................................................................................................................................................. 7

Plant location........................................................................................................................................................................................................... 8

Head Office.............................................................................................................................................................................................................. 8

SWOT Analysis 9

STRENGTHS.......................................................................................................................................................................................................... 9

Weaknesses........................................................................................................................................................................................................... 10

Opportunities......................................................................................................................................................................................................... 11

Threats................................................................................................................................................................................................................... 12

PEST Analysis 13

Analysis of capital structure of Bhanero Textile mills limited 14

Director’s report Analysis 14

Auditor’s report Analysis 15

Vertical Common Size Balance sheet 16

Vertical Common size Income statement 18

Vertical Analysis of Balance sheet and Income Statement19

Horizontal common Size Balance sheet 20

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Horizontal Common size Analysis of Balance sheet and Income statement 23

Ratio Analysis 24

Liquidity Ratios 24

Graphical presentation of liquidity Ratios..............................................................................................................................................................24

Analysis of Liquidity ratios.....................................................................................................................................................................................25

Efficiency ratios 26

Graphical presentation of efficiency Ratios...........................................................................................................................................................26

Analysis of Efficiency ratios....................................................................................................................................................................................27

Solvency ratios 28

Graphical presentation of solvency Ratios.............................................................................................................................................................28

Analysis of Solvency ratios.....................................................................................................................................................................................29

Coverage ratios 30

Graphical presentation of coverage Ratios............................................................................................................................................................30

Analysis of Coverage ratios....................................................................................................................................................................................30

Profitability ratio 31

Graphical presentation of Profitability Ratios........................................................................................................................................................31

Analysis of Profitability ratio..................................................................................................................................................................................32

Future outlook for investors and creditors............................................................................................................................................................33

Conclusion 33

References 34

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Introduction

Established in 1982, Umer Group of Companies headquartered in Karachi, Pakistan, today enjoys an annual turnover of 9 billion Pakistani rupees – approximately US $150 million. The group has invested more than US $10 million in recent years to expand its textile facilities to meet the international demand for its yarns and fabrics. The Umer Group is involved in textile, power generation, footwear, and tannery and construction activities. The textile group comprises of three companies: Bhanero Textile Mills Ltd., Faisal Spinning Mills Ltd, and Blessed Textile Ltd., all three operating both spinning and weaving facilities. The spinning and weaving mills are equipped with state-of-the-art laboratory equipment to test every step of the spinning process to ensure high quality.

Products Bhanero textile produces yarn for the domestic industry, in-house consumption and export to the European Union and Far East. They also produce yarn using organic cotton, linen cotton and are certified vendors for supima, DuPont and Cotton USA.

Installed capacityBhanero Textile mills have a total of five spinning mills with an installed capacity of 140,000 spindles supported by the latest European and Japanese machinery. Bhanero textile mills weaving mills feature more than 500 air-jet weaving machines from Japan and Belgium. Greige fabrics – produced for sheeting, denim and apparel – range from 170 centimeters to 340 centimeters in width. The weaving mills produced over 6 Million meters of fabric monthly.

Vision“A Premier Quality Company, Providing Quality Products and Maintaining an Excellent Level Of Ethical and Professional Standards.”

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Mission“To become a leading manufacturer of textile products in the International & local markets and to explore new era to Achieve the highest level of success.”

Plant location

Unit I is situated atKotri, Distric Dadu, SindhTel: (+92-221) 870-013

Unit II & III is situated atFeroz Watwan, Sheikhupura, PunjabTel: (+92-496) 731-728

Head Office Umer HousePlot 23, Sector 23/1,S.M. Farooq Road, Korangi Industrial AreaKarachi, PakistanPhone: +92 (021) 5115177-80Fax: +92 (021) 5115190-91

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SWOT Analysis

STRENGTHS

State of the art equipment

Bhanero Textile Mills limited have imported the latest machinery from Europe and Japan. Their machinery comprises of equipment used in spinning and weaving. Bhanero textile mills weaving mills feature more than 500 air-jet weaving machines from Japan and Belgium. Greige fabrics – produced for sheeting, denim and apparel – range from 170 centimeters to 340 centimeters in width. The weaving mills produced over 6 Million meters of fabric monthly. Therefore, their products are capable of meeting international standards of weaving, dyeing and printing, for example using dyes that do not irritate the skin. This is being done to get a competitive edge over rival firms so that when the WTO promulgates free economy in the whole world, BTML will have no problem in competing with international competitors.

Diverse product range

Bhanero Textile has built a reputation for manufacturing high quality and diverse products and this is displayed in their product line. They have high-end products like bed-sheets, pillow cases, curtains, and fashion wear which are exported only, as well as medium-end clothing products like organic cotton, linen cotton which cater to the men and women’s preferences respectively for design and fashion.

Availability of cheap labor

Although their workers are paid better than other workers in the same industry, their wage rate is still much lower than what workers get in other countries.  This, coupled with their modern machinery, gives them the competitive edge over rival firms in the global marketplace.

Access to high quality cotton

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Bahnero Textiles produces yarn for its fabrics, as it has a composite spinning unit, for its medium-end products it uses the short staple cotton. Short staple cotton is a category of cotton which is readily available in Pakistan and which is of a very high quality. Al-Karam can use this category of cotton in its textiles for use in the composite plant for processing.

Weaknesses

Weak R&D facilities

There is hardly any investment in research and development in the Bhanero Textiles, or indeed in any other Pakistani industry, which puts Pakistani textile companies at a significant disadvantage in the world forum. Pakistan’s main competitors, India and China, on the other hand have been investing heavily in BMR for a longer period of time and so have infrastructure already in place to exploit the situation that is expected to arise in 2005 with the abolishment of quotas.

Lack of HR development

Modern technology in the textile sector requires educated and trained technicians. Similarly, modern management techniques are a major need, particularly in areas of Marketing, Finance and Human Resource Management.

Centralized decision making

The decisions are made by the upper management which is weakness of the BTML because they have no proper idea about the situation and their decision can be not fruitful for the company. The work culture in BTML textiles is like that of a traditional ‘Seth’ owned company.

Small international market share

Although Bhanero has strong market share nation wide but it has small market share in the global textile industry due to the sound competitors like china, and Bangladesh etc

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Weak Brand Name

Bhanero Textiles still don’t have established big name for themselves in the textiles and garments industry. Their brand name is not very strong in the Pakistani mass and industrial market as well as in the international market.

Opportunities

Organization can expand product lines

Bhanero Textile not dealing in knitwear they can expand their product line by producing knitwear. They have plants and the extra cost for the production will be low for BTML, And they also have better market repute.

Organization can capture untapped market segments from around the world

The company has the opportunity to capture the untapped market segment like all other firm in the industry are having the same opportunity. The local and international untapped segments have much potential for the company to exploit them.

Organization can reduce the cost by proper utilization of resources

If the cost of different matters which is not utilizing properly is controlled by the Bhanero Textile management can reduce its cost by efficiently utilizing the resource that are not utilized properly and by introducing the improved inventory management standards..

Big opportunities in the local low-end marketThe low-end market is very much lucrative for the company to capture it as much of the textile companies are not producing products for that segment of market.

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Threats

Political & Economic instability

Political & economic instability effects Bhanero Textile because the exports are dependent on the socio-economic conditions of the country if the country is not performing well company can suffer loses and due to the quota system the company can be restricted by the government to export.

Globally Economic instability

Because of the global economic instability the export of Pakistan textile sector have gone down which also have affected BTML in worse way. Dumping system which is rising on daily basis in the world can create many problems for the company and any uncertainty in the world like 9/11 may affect also the overall export.

Tough international and national competitors

Textile industry in Pakistan is very completive locally so the tough competition is faced by Bhanero Textile mills in the local market and in the international market BTML facing tough competition from China, India and Bangladesh.

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PEST Analysis

Political instability

The political situation of Pakistan is not stable and after the war on terror it has gone worse especially for the business sector, and due to inconsistent policies of government every new government set different trade policies with make difficult for the businesses to grow and be consistent in their performance. Govt. should apply sustainable policies for the beneficial of the exporters as well as the investors.

Economic situation

The economic condition of Pakistan affect the textile industry directly and due to week economic condition textile industry is also not performing well. Increasing inflation rate make the cost of production high and thus reduce the profit margin of the investor.

Social situation

The change in the lifestyle of the people affects the demand of BTML product and especially the demand for exports is affected by the changing fashions and style in the importing countries so the company is needed to be contemporary to meet the changing demand of customers.

Technological factor

Technological advancement in all the sectors of the country has changed the entire socio-economic environment. Especially in the textile sector there is a lot of technological development, but we still need more development to meet the demand of outside world.

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Analysis of capital structure of Bhanero Textile mills limitedCapital structure analysis shows that on average Bhanero textile is 70% debt financed and 30% equity financed. Debt mainly consists of long-term secured borrowing, financial leases, and long-term murabaha. Currently BTML have total debt of Rs. 2060007523 and

Equity of Rs. 984716498

Director’s report Analysis The analysis of director’s report of Bhanero Textile shows the following findings.

About EconomyThe director first shows his concerns over the situation of Pakistan’s economy. According to director’s recent report Pakistan’s economy is going through a very critical period of time due to global and domestic economic recession. According to director economic conditions will also impact the local textile industry as the demand for the products will be low in near future from the outside world. The crisis hampered Pakistani exports and led to the uncertainty that followed the melt down coupled with devaluation and the closure of capital market not only slowed down the foreign direct investment. GDP have grown by 2.4 percent in financial year 2008-09, the worst since financial year 2000-01.

About Textile IndustryPakistan's textile industry is also going through one of the toughest periods in decades. The global recession which has hit the global textile really hard is not the only cause for concern. Serious internal issues plague Pakistan's textile industry. The high cost of production resulting from an incessant rise in the energy costs has been the primary cause of concern for the industry. Depreciation of Pakistani rupee during last year and half has significantly raised the cost of imported inputs. Furthermore, double digit inflation and high cost of financing has seriously impaired the growth in the textile industry. Textile products like knitwear, fabric and readymade garments account for over half of the Pakistani exports. Tough competition in international markets and falling industrial output at home have hampered the exports this year. Exports of textile products decreased to 7.58% during current fiscal year as compared to last year.

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Major concernsThe most major concern of the company and industry is short fall of power supply in the country which is affecting the textile industry more than any other industry due to which the production costs are going up and textile sector can’t produce the timely product for local and international market. Other concerns for the textile industry are lowering demand for local products from international market, tough competition from India, china and Bangladesh.

Future plansAccording to director in the latest annual report In view of the current economic scenario where the cost of financing and production is rapidly increasing and recent expansion of the company, no further expansion is under consideration in near future.

Auditor’s report AnalysisM. Adil Yousaf & Co is the auditor of Bhanero textile mills limited. The auditor report present an unqualified opinion about the financial reporting of BTML and they express that proper books of accounts have been kept by the company as required by the Companies Ordinance, 1984, and are in agreement with the books of account and are further in accordance with Generally accepted accounting principle (GAAP). In auditor’s opinion, and to the best of their information and according to the explanations given to them, the balance sheet, profit and loss account, cash flow statement and statement of changes in equity together with the notes forming part thereof conform with approved accounting standards as applicable in Pakistan and give the information required by the Companies Ordinance, 1984, in the manner so required and respectively give a true and fair view of the state of the company's affairs in respective year.

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Vertical Common Size Balance sheet EQUITY AND LIABILITIESSHARE CAPITAL AND RESERVESAuthorized capital6,000,000 (2006: 6,000,000) 2009 2008 2007 2006 2005 2004 2003 2002ordinary shares of Rs.10 eachIssued, subscribed and paid up capital 0.96% 0.88% 0.88% 0.97% 1.27% 2.22% 3.28% 3.35%General Reserves 28.72% 24.98% 21.99% 21.03% 23.21% 35.01% 40.74% 41.66%Unappropriated profits 1.75% 0.88% 2.15% 1.85% 1.46% 4.41% 8.19% 0.01%

31.42% 26.74% 25.03% 23.85% 25.93% 41.63% 52.21% 45.02%

Loans from sponsors and relatives 2.85% 2.34% 2.93%

NON CURRENT LIABILITIESLong term financing – secured 16.24% 17.93% 22.84% 36.04% 27.85% 8.17% 10.71% 4.92%Liabilities against assets subject to finance lease 0.26% 0.34% 2.37% 6.96% 0.25% 2.11%Long term murabaha 0.45% 1.20% 2.48% 0.26% 1.43% 1.46%Deferred liabilities 6.50% 5.49% 4.76% 3.53% 32.71% 3.33% 9.04% 9.06%Total long term liabilities 23.00% 25.76% 30.98% 41.11% 65.41% 18.72% 21.42% 17.55%CURRENT LIABILITIES 0.00%Trade and other payables 6.04% 5.35% 5.26% 9.85% 6.82% 9.51% 9.66% 9.15%Mark-up accrued on loans and other payables 1.45% 0.98% 0.86% 0.91% 0.79% 1.15% 1.45% 1.67%Short term borrowings – secured 28.43% 30.78% 27.07% 16.70% 26.73% 24.49% 9.73% 17.19%Current portion of long term borrowings 6.80% 9.81% 10.29% 6.90% 3.37% 4.56% 3.71% 6.89%Provision for taxation 0.58% 0.52% 0.68% 0.91% 1.09% 3.28% 2.52%Total current liabilities 42.73% 47.50% 44.00% 35.04% 38.62% 40.79% 26.37% 37.43%CONTINGENCIES AND COMMITMENTS

100% 100% 100% 100% 100% 100% 100% 100%

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Vertical analysisASSETS

2009 2008 2007 2006 2005 2004 2003 2002NON CURRENT ASSETSProperty, plant and equipment 55.02% 54.12% 58.51% 68.82% 55.20% 41.22% 52.55% 46.73%Capital work in progress 0.09% 0.17% 0.27% 0.77% 0.88% 11.95% 2.13% 6.02%LONG TERM INVESTMENT 0.01% 0.01% 0.01% 0.01% 0.13% 0.02% 0.03% 0.03%LONG TERM LOANS 0.33% 0.25% 0.27% 0.20% 0.27% 0.72% 0.94% 0.81%LONG TERM DEPOSITS 0.96% 0.09% 0.07% 0.30% 0.62% 1.42% 0.19% 0.78%

56.41% 54.64% 59.13% 70.11% 57.10% 55.33% 55.84% 54.37%

CURRENT ASSETSStores, spares and loose tools 1.26% 1.46% 0.83% 0.79% 1.02% 1.16% 1.72% 1.32%Stock in trade 25.52% 28.26% 24.59% 19.22% 33.14% 26.81% 17.77% 20.49%Trade debts 14.17% 12.26% 10.96% 5.85% 6.54% 9.81% 17.63% 15.15%Loans and advances 0.18% 0.29% 1.42% 1.94% 1.81% 5.25% 4.47% 7.30%Trade deposits and short term prepayments 0.75% 0.59% 0.81% 0.62% 0.35% 0.00% 0.00% 0.00%Other receivables 0.16% 0.17% 0.15% 0.01% 0.28% 1.17% 1.33% 0.35%Taxation 0.61% 1.80% 0.48% 0.69% 0.26% 0.00% 0.00% 0.00%Cash and bank balances 0.72% 0.54% 1.63% 0.77% 0.52% 0.46% 1.24% 1.03%Total current Assets 43.60% 45.37% 40.87% 29.89% 43.90% 44.67% 44.16% 45.63%

Total Assets 100% 100% 100% 100% 100% 100% 100% 100%

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Vertical Common size Income statement 2009 2008 2007 2006 2005 2004 2003 2002 Sales 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%Cost of goods sold 86.88% 88.22% 86.47% 84.20% 82.34% 90.94% 84.45% 84.30%Gross profit 13.12% 11.77% 13.53% 15.80% 17.66% 9.06% 15.55% 15.70%Other operating income 0.07% 0.28% 0.04% 0.62% 0.05% 0.16% 1.14% 0.01%income before operating expenses 13.20% 12.06% 13.58% 16.42% 17.71% 9.21% 16.69% 15.70% Operating expenses Distribution cost 1.18% 1.22% 0.81% 1.02% 1.11% 2.31% 2.93% 2.93%Administrative expenses 1.58% 1.49% 1.51% 1.64% 2.72% 0.97% 1.43% 2.75%Other operating expenses 0.14% 0.12% 0.28% 0.36% 0.99% 0.21% 0.52% 0.30%Finance cost 7.66% 6.35% 5.71% 6.90% 4.15% 2.04% 2.23% 4.07%total operationg expenses 10.56% 9.18% 8.30% 9.93% 8.96% 5.54% 7.11% 10.05%Profit before tax 2.63% 2.87% 5.27% 6.49% 8.75% 3.68% 9.58% 5.65% 0.00% Provision for taxation 0.43% 0.52% 0.50% 0.78% 1.23% 1.91% 2.22% 2.00%Current year 0.00% 0.07% 0.06% 0.02% 0.00% 0.96% 1.64% 1.40%Prior year 0.06% 0.59% 1.31% 0.58% 0.00% 2.35% 0.12% 0.95%Deferred 0.50% 1.04% 1.76% 1.34% 1.23% 0.52% 0.70% 0.35% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Profit after tax 2.14% 1.84% 3.52% 5.15% 7.52% 5.59% 7.36% 3.66%

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Vertical Analysis of Balance sheet and Income StatementThe vertical common size analysis of balance sheet shows that long-term assets remain with 55%-60% range during last eight years and current assets remain 40%-45% during that period. The major contributor to long-term assets is plant and equipment which is about 50% of total asset on average it increased from 2002 to 2006 and after that it showed a decline due to some financial constraints of the firm. The major contributors to short-term assets are stock in trade and trade debt with share of with average share of 25% and 16% respectively. Trade debt increased with the passage of time which shows the lacking ability to collect receivable on time. On the other hand of balance sheet the major there is 70% and 30% share of debt and equity respectively. The major contributor to debt is current liabilities is which is 40% of total right hand side of balance sheet on average, and these liabilities have increased at a steady pace during the last eight years. Long-term debt of the confirm contribute 30% on average to total right hand side of balance sheet and it has increased from 2002 to 2006 and thereafter it drop down significantly due to respective decrease in fix assets during same period of time.

The vertical common size analysis of income statement shows that cost of goods sold is about 85% of total sales on average which leave 15% gross profit on average for firm during last eight years. Operating expense are about 9% of total sales and major contributor to operating expense is finance cost which has increased continuously since 2003 mainly because of increased finance lease of assets. The net operating profit of company remained on average about 6% during 2002 to 2006 and after that it decreased to average of 2% for 2007 to 2009, this is mainly because firm is unable to generate much gross profit because of high cost of production which right very low margin for operating expense hence lead to low net profit.

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Horizontal common Size Balance sheetEQUITY AND LIABILITIES SHARE CAPITAL AND RESERVES Authorized capital 6,000,000 (2006: 6,000,000) 2009 2008 2007 2006 2005 2004 2003ordinary shares of Rs.10 each Issued, subscribed and paid up capital 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%General Reserves 105.88% 113.33% 115.38% 118.18% 116.03% 127.04% 100.00%Unappropriated profits 183.35% 40.64% 128.45% 165.27% 57.97% 79.52% 119878.03% 108.23% 106.61% 115.77% 119.94% 109.03% 117.89% 118.60% Loans from sponsors and relatives 112.00% 79.72% 100.00% NON CURRENT LIABILITIES Long term financing – secured 83.43% 78.35% 69.89% 168.83% 596.31% 112.84% 222.47%Liabilities against assets subject to finance lease 0.00% 18.44% 59.69% 4194.76% 11.91%Long term murabaha 0.00% 41.10% 62.93% 1676.33% 26.81% 100.00%Deferred liabilities 108.90% 115.05% 148.74% 14.09% 1719.21% 54.48% 102.04%Total long term liabilities 82.21% 83.00% 83.12% 81.98% 611.48% 129.22% 124.84%CURRENT LIABILITIES Trade and other payables 103.98% 101.56% 58.90% 188.46% 125.44% 145.61% 107.90%Mark-up accrued on loans and other payables 136.05% 113.70% 104.25% 150.49% 120.62% 117.30% 88.37%Short term borrowings – secured 85.07% 113.49% 178.76% 81.50% 191.03% 372.36% 57.86%Current portion of long term borrowings 63.88% 95.16% 164.36% 267.40% 129.36% 181.40% 55.09%Provision for taxation 0.00% 109.75% 85.44% 97.25% 146.46% 48.99% 132.75%Total current liabilities 82.84% 107.74% 138.50% 118.37% 165.68% 228.70% 72.04%CONTINGENCIES AND COMMITMENTS Total liablities and owner's equity 92.09% 99.79% 110.31% 130.44% 175.03% 147.84% 102.27%ASSETS 2009 2008 2007 2006 2005 2004 2003

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NON CURRENT ASSETS Property, plant and equipment 93.62% 92.31% 93.78% 162.64% 234.39% 115.95% 115.01%Capital work in progress 48.65% 61.31% 38.67% 114.11% 12.95% 829.39% 36.19%LONG TERM INVESTMENT 100.00% 88.24% 106.25% 12.60% 1144.32% 100.91% 91.67%LONG TERM LOANS 118.78% 93.30% 149.42% 97.69% 65.22% 113.37% 118.27%LONG TERM DEPOSITS 1023.43% 128.98% 24.56% 63.38% 76.03% 1127.35% 24.59%Total non current assets 95.07% 92.22% 93.04% 160.15% 180.62% 146.51% 105.02% CURRENT ASSETS Stores, spares and loose tools 79.61% 174.88% 115.93% 101.59% 153.42% 99.96% 133.33%Stock in trade 83.15% 114.69% 141.17% 75.63% 216.34% 223.05% 88.71%Trade debts 106.45% 111.63% 206.46% 116.77% 116.62% 82.29% 119.06%Loans and advances 56.46% 20.14% 80.70% 139.95% 60.27% 173.56% 62.67%Trade deposits and short term prepayments 116.31% 72.87% 144.57% 232.09% Other receivables 85.62% 115.38% 3072.54% 2.56% 41.18% 129.64% 387.05%Taxation 31.18% 374.98% 76.08% 350.24% Cash and bank balances 122.32% 33.32% 233.11% 195.19% 196.03% 55.01% 123.00%Total current Assets 88.49% 110.78% 150.83% 88.81% 172.04% 149.53% 98.99% Total Assets 92.09% 99.79% 110.31% 130.44% 175.03% 147.84% 102.27%

Horizontal Common Size income Statement

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2009 2008 2007 2006 2005 2004 2003Sales 91.96% 101.26% 75.88% 43.97% 130.25% 93.19% 90.13%Cost of goods sold 93.38% 99.24% 73.89% 43.00% 143.85% 86.54% 89.97%Gross profit 82.51% 116.40% 88.57% 49.14% 66.82% 159.95% 90.99%Other operating income 358.33% 14.39% 1166.57% 3.71% 385.76% 685.23% 0.62%income before operating expenses 84.03% 113.99% 91.77% 47.43% 67.76% 168.79% 84.82% Operating expenses Distribution cost 95.06% 67.16% 95.09% 48.19% 270.43% 118.11% 90.09%Administrative expenses 86.79% 102.54% 82.76% 72.70% 46.59% 136.89% 173.44%Other operating expenses 79.99% 232.92% 99.69% 118.86% 27.65% 230.99% 51.74%Finance cost 76.22% 90.99% 91.75% 26.41% 64.16% 101.78% 164.60%total operationg expenses 79.96% 91.55% 90.71% 39.70% 80.44% 119.65% 127.43%Profit before tax 100.34% 185.67% 93.46% 59.23% 54.77% 242.76% 53.20% Provision for taxation 110.37% 98.08% 118.02% 68.77% 203.26% 108.12% 81.18%Current year 2892.58% 80.85% 28.30% 0.00% 158.97% 77.19%Prior year 901.09% 224.83% 33.65% 0.00% 4.64% 729.96%Deferred 192.33% 171.49% 58.03% 0.00% 125.35% 45.38% Profit after tax 79.02% 193.67% 111.16% 64.22% 96.81% 122.74% 44.77%Earing per share - Basic & diluted 79.01% 193.71% 111.15% 64.22% 96.81% 122.72% 44.78%

Horizontal Common size Analysis of Balance sheet and Income statementThe horizontal analysis of balance sheet shows that on the left hand side of balance sheet the plant and equipment increased from 2002 to 2006 about very rapid pace with average growth more than 30% and after that it stated to decrease from 2007 to 2009 and show a steady decrease. Next item that showed a significant change from long term assets of firm is long term deposit which increased at a bumper rate in some years and decrease in some year, the major increase in recent year is of about 1000%. In the current assets the major changes are in trade debt which shows a steady growth rate of about 10% and cash also shows a positive growth in all years except in 2007 and 2004 which shows the increasing liquidity requirements of the firm. The right hand side of balance sheet shows the changes in liabilities and equity capital, the major change in equity portion is in general reserve which grew at a steady pace and the retained earning account show variable increase and decrease depending on the payment of dividends. Liability portion of right hand side of balance sheet shows that long-term financing increased at a huge rate from 2002 to 2006 and show a steady decrease thereafter. Deferred liabilities also shows an steady increase which show that firm in not able to pay the liabilities in time.

The Income statement horizontal analysis reveals the findings that sales have not increased at a continuous rate it show a variable trend of increase and decrease which shows that firm is still unable to grow at a steady rate. As net profit is directly related to sales so this item also shows a variable trend of increase and decrease.

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Ratio Analysis

Liquidity Ratios Year 2009 2008 2007 2006 2005 2004 2003 2002Avg. Collection Period 42.85 43.78 38.73 24.72 48.15 31.70 41.33 38.52Avg. Inventroy in days 88.85 114.44 100.54 96.38 296.35 95.22 49.33 61.81Payable Days 21.04 21.67 21.50 49.39 60.95 33.78 26.80 27.61Current Ratio 0.58 0.50 0.69 0.84 0.50 0.50 1.07 0.50Quick Ratio 0.21 0.22 0.33 0.26 0.12 0.23 0.94 0.39Cash flow liquidity ratio 0.19 0.04 -0.08 0.60 -0.12 -0.07 0.68 -0.04

Graphical presentation of liquidity Ratios

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Analysis of Liquidity ratiosCurrent ration of Bhanero textile mills limited show that firm is in week position of pay of its short term liabilities as the current ratio for industry is higher than the company and company own ratio is much more less then 1. The average current ratio for industry in eight year is 0.85 and average Current ratio for the firm is 0.65. Quick ratio describe the same picture that firm is not a good position to payoff its short-term liabilities, the average Quick ratio for industry in eight years is 0.47 and for the company it is 0.34. The cash flow liquidity ratio for the company also show that company’s cash flow are not enough to meet the liquidity requirement of the firm as the average CFLR for the industry is 0.27 and for the company it is 0.15. Avg. Collection Period ratio of the firm show that on average it took company 39 days to collect its receivables and if we compare it with industry it took 34 days which show that company is able to collective its receivables in good time. Payable days show that it took firms on average 33 days to pay off its liabilities and it took other firms in industry about 35 days to pay their liabilities which show that firm has enough cash to payoff its liabilities.

The major weakness of the BTML is in current ratio, quick ratio and CFLR, which can be improve by keeping more current assets and generating positive operating cash flows. Firms average collection period is much longer then its average payable period so firm should work in this area to decrease average collection period in days and negotiate with its suppliers to increase it payable days which will provide more liquidity to the company.

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Efficiency ratiosYear 2009 2008 2007 2006 2005 2004 2003 2002Inventory turnover 4.11 3.19 3.63 3.79 1.23 3.83 7.40 5.91Receivable turnover 8.52 8.34 9.42 14.76 7.58 11.51 8.83 9.48Payable Turnover 17.35 16.85 16.98 7.39 5.99 10.81 13.62 13.22Fixed Assets turnover 2.14 1.87 1.75 1.23 0.87 2.04 2.79 2.64Total asset turnover 1.21 1.02 1.03 0.86 0.50 1.13 1.56 1.44

Graphical presentation of efficiency Ratios

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Analysis of Efficiency ratiosInventory turnover of firm shows that firm is able to convert its inventory into sales on average 4.1 times a year whereas the industry is converting inventory into sales 5.74 times a year which show that firm is not up the industry benchmark. This is mainly because firm is not able to make more sells as compare to industry in past eight years. Receivable turnover show that firm on average is able to convert receivables into sales 9.8 times a year whereas industry converts receivables into sales 12.88 times a year. Payable turnover of the firm shows that firm paid its liabilities on average in 12.8 times whereas industry is paying its liabilities in 15.38 days which shows firm strength to pay but under utilization of credit term and payment period.

The fixed asset turnover shows that it firm’s fixed asset turnover for last year on average is 1.92 times and for the industry it is 1.18 times, this is mainly because of low percentage of fix assets for the firm.

Firm can increase its efficiency by increasing its inventory turnover as it is below industry average and firm should increase its receivable turnover by implementing more efficient receivable collection management system and firm should also increase its sells as it is a basic requirement of improve efficiency of any firm.

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Solvency ratiosYear 2009 2008 2007 2006 2005 2004 2003 2002debt ratio 0.66 0.73 0.75 0.76 72.2 0.60 0.48 0.55long-term to debt capitalization 0.94 0.95 0.95 0.95 0.94 0.92 0.91 0.92debt to equity 2.09 2.74 3.00 3.19 4.01 1.43 0.92 1.22

Graphical presentation of solvency Ratios

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Analysis of Solvency ratiosThe debt ratio of the firm shows that 65% of the assets are financed by debt and 35% are financed by equity on average during last eight years, whereas the debt ratio for industry during the same period was 50% of equity and 50% of debt. This shows that firm is using more debt as compare to industry which can make firm more risky investment. Long-term to debt capitalization ratio show that long term debt is contribute on average 94% to total debt for the firm and for the industry in contribute about 88.7% on average. Debt to equity ratios shows that firm debt is 2.3 times of its equity and in industry the average is 1 times which shows the over dependency of firm on debt financing.

The firm can issue from equity to lower the burden of debt financing because debt financing can make firm more risky as the firm exceeds industry averages in debt ratio.

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Coverage ratios2009 2008 2007 2006 2005 2004 2003 2002

times interest earned 1.72 1.90 2.38 2.38 4.27 4.51 7.48 3.86cash coverage -0.64 0.59 0.21 -2.52 7.45 3.95 -2.64 2.38

Graphical presentation of coverage Ratios

Analysis of Coverage ratiosThe coverage ratios of the firm show that firm’s ability to service its financial got week due to increased financial charges and stagnant operating profits. The firm TIE ratio on average is 3.5 for last eight years and industry average for TIE ratio was 1.61 which shows that firm is still competent enough to meet industry standards. Cash coverage ratio of the firm shows that in this aspect firm also going down because of negative operating cash flows and increased finance charges, but still firm hold competitive position in the industry as its average of 1.10 is completive to industry average of 1.17.

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Profitability ratio2009 2008 2007 2006 2005 2004 2003 2002

G.P Margin 0.13 0.12 0.14 0.16 0.18 0.09 0.16 0.16Operating profit margin 0.26 0.29 0.53 0.65 0.87 0.37 0.96 0.56Net Profit Margin 0.02 0.02 0.04 0.06 0.09 0.06 0.09 0.04Cash flow Margin 0.12 0.02 -0.05 0.23 -0.20 -0.05 0.11 -0.02Return on Equity 0.08 0.07 0.15 0.19 0.14 0.15 0.22 0.12Return on Assets 0.03 0.02 0.04 0.04 0.04 0.06 0.11 0.05Cash return on Assets 0.14 0.02 -0.05 0.20 -0.10 -0.05 0.17 -0.03EPS 26.96 21.30 41.26 45.86 29.45 28.51 34.99 15.67Dividend payout ratio 0.07 0.12 0.06 -0.11 -0.17 -0.35 -0.14 -0.32

Graphical presentation of Profitability Ratios

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Analysis of Profitability ratioGross profit margin ratios shows that on average firm’s earn GP margin of 14% which is greater than the industry GP margin of 10%, however firm’s GP margin have remained almost stagnant in past eight years. Operating profit margin for the firm on average is 5.62% and for the industry it is 5.85% which shows that this industry provide low operating profit margin. Net profit margins for the firm came down drastically during these eight years from 9% to 2% and on average firm earn a net profit of 5% which is better than industry average net profit of 3%.

Return of assets for the firm on average is 5% where as return on assets on average for the industry is 10% on average which shows that firm has sufficient amount of assets but utilization is not so proper. Return of equity for the firm on average is 14% and for the industry this average is 9.2% and the main reason behind this difference is firm capital structure where firm is having less portion of equity as compare to industry.

Earning per share for the shows a variable trend as do its sales and net income, the average EPS for the firm during last eight years is 30/share whereas for the industry average EPS is 2.25 which is significantly different from company’s EPS and this is mainly because of less number of share issued by company as we known that firm’s capital structure is more financed by debt then equity.

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Future outlook for investors and creditorsBhanero textile mills limited is currently having some problem regarding its liquidity and efficient utilization of resource as the company has liquidity and efficiency ratios lower then the industry. Although company’s profitability is very much competitive with the industry which company company a good option for investors to invest.

Bhanero textile is backed by strong Umer group which make it financially more stable and as its payable in days ratio is quite high and very much competitive with the industry, it makes BTML a safe and sound option for creditor to lend their money.

Conclusion

Bhanero textile mills limited is one the major players in the textile industry and most of its financial indicator shows that the company is very much competitive as compare to industry. BTML can create a very good place if it focus on innovation and product differentiation. On the operational ground BTML should increase the efficiency of it assets and try to control its expenses especially the cost of Production.

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References http://www.umergroup.com/textile/bhanero/Financial_Reports/financials.html

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