final project rashid ali

IMPACT OF WORKING CAPITAL MANAGEMENT ON PROFITABILITY OF FIRM

Rashid Ali (Col/MBA Executive)Roll No. AL-539019Registration # 11-PTS-04680 Cell # 0321-5104028

Department of Business Administration, Faculty of Social SciencesAllama Iqbal Open University

ABSTRACT

Administration of working capital alludes to administration of current resources and of current liabilities. Firms may have an ideal level of working capital that augments their worth. Former confirmation has decided the relationship between meeting expectations capital and execution. This study expands the writing. The working capital was dictated by the money change cycle and position of working capital, demonstrated by the current degree, brisk proportion, and stock to current resources. The execution was measured regarding productivity by profit for aggregate resources, and relationship between living up to expectations capital administration and benefit was explored by utilizing board information investigation for an example of cotton industry. Evaluated mathematical statement by the board information strategy to acquire the evaluations of the parameters of pooled model was sought logical variables to gauge their impact on firm execution. Results show that high interest in inventories and receivables lead to lower benefit and current resources for aggregate resources lead to higher gainfulness. The results infer that solid relationship between living up to expectations capital administration and execution.

DEDICATION AND ACKNOWLDGEMENT

Although, this study is an individual effort, yet it would not have been made possible without the help and guidance of God Almighty and few very nice people.

I feel all that much obliged to Mr. Ahmed Imran Hunjra who oversee this exploration from start to finish through and prompt and in addition redressed me on incalculable events and demonstrated to me the ropes as best practices to go about completing examination. I am all that much thankful to Mr. Majid Rashid program supervisor COL-EMBA/EMPA to providing for me a chance to gain from intelligent and fit employees of college to comprehend and take in the global administration science research philosophies and methodologies.Finally I might want to commit this expert paper to my Father and Mother there is no doubt without their amazing raised and influence, I would not have the capacity to accomplish this point of reference in my life. I would also dedicate this work to my wife and family for their continuous support though out my Master of Business Administration.

CERTIFICATE (from supervisor)

The project report entitled The Impact of Capital Working on Companys Profitability at COL Executive Master of Business Administration conducted by Rashid Ali. Roll No AL-539019, Registration No. 11-PTS-04680, Semester Autumn 2014 has been completed under my guidance and I am satisfied with the quality of students research work.

Supervisor,

_______________________Name: Ahmed Imran HunjraDate:

ALLAMA IQBAL OPEN UNIVERSITYCommonwealth MBA Programme for Executive

ATTESTATION OF AUTHORSHIP

I Rashid Ali Roll No. AL-539019, Registration 11-PTS-04680 An understudy of COL Master of Business Administration Program in Allama Iqbal Open University, gravely pronounce that my task Report entitled the Impact of working Capital on Company's Profitability is my own work and that, to the best of my insight and conviction, it contains no material beforehand distributed or composed by someone else. This report is not submitted as of now and might not be submitted in future for acquiring a degree from same or an alternate University or Institution. In the event that it discovered to be replicated/ copied at later phase of any understudy enlisted in the same of whatever other University, I might be at risk to face legitimate activity before Unfair Mean Committee (UMC), according to AIOU/HEC Rules and Regulations, and I comprehend that on the off chance that I am discovered liable, my degree will be canceled.

____________________Name: Rashid Ali Programme: COL / MBA

TABLE OF CONTENTSChapter No. 1Introduction1.1 Background1.2 Profitability1.3 Problem Identification1.4 Statement of Problem1.5 Research Question1.6 Objectives of Study1.7 Significance of Study

Chapter No. 2Literature Review2.1Review of Literature2.2Theoretical Framework2.3Hypothesis

Chapter No. 3Research Methodology3.1Data Set and Sample3.2Variables3.4Comparative Balance Sheets

Chapter No. 4Data Analysis and Interpretation4.1Demographic Data and Return Percentage4.2Table Summarizing Data4.4Narrative Describing most important findings

Chapter No. 5Findings, Conclusions & Recommendations5.1Summary of Findings5.2Conclusions5.3Recommendations5.4Limitations and Future Research 5.5References5.6Appendix

Chapter # 1Introduction

1.1Background:Working Capital is an important part of any business and organization and it plays a Important role on the liquidity and productivity of the organization. Working capital means to manage the liquidity as the current assets should meet the current obligations of the company efficiently and effectively. However firms with excessively few current resources may bring about deficiencies and challenges in keeping up smooth operations (Horne and Wachowicz, 2000). Productive working capital administration includes arranging and controlling current resources and current liabilities in a way that takes out the danger of powerlessness to meet due fleeting commitments from one perspective and evade unnecessary interest in these benefits then again (Eljelly, 2004). Numerous overviews have demonstrated that administrators invest impressive time on everyday issues that include working capital choices. One explanation behind this is that current resources are brief speculations that are persistently being changed over into other resource sorts (Rao, 1989). As to current liabilities, the firm is in charge of paying these commitments on an auspicious premise. Liquidity for the continuous firm is not dependent on the liquidation estimation of its advantages, but instead on the working money streams produced by those benefits (Soenen, 1993). Taken together, choices on the level of diverse working capital segments get to be visit, dull, and tedious. Working Capital Management is an exceptionally touchy range in the field of budgetary administration (Joshi, 1994). It includes the choice of the sum and arrangement of current resources and the financing of these benefits. Current resources incorporate each one of those benefits that in the typical course of business come back to the manifestation of money inside a brief time of time, usually inside a year and such impermanent speculation as may be promptly changed over into money upon need. The Working Capital Management of a firm to some extent influences its gainfulness.

A definitive goal of any firm is to expand the benefit. Anyway, saving liquidity of the firm is an imperative destination as well. The issue is that expanding benefits at the expense of liquidity can bring genuine issues to the firm. Subsequently, there must be a tradeoff between these two goals of the organizations. One goal ought not to be at expense of the other on the grounds that both have their imperativeness. On the off chance that we couldn't care less about benefit, we can't get by for a more drawn out period. Then again, on the off chance that we couldn't care less about liquidity, we may confront the issue of indebtedness or chapter 11. Therefore meeting expectations capital administration ought to be given fitting thought and will at last influence the gainfulness of the firm.Firms may have a perfect level of working capital that opens up their value. Inconceivable stock and a liberal trade credit methodology may provoke high arrangements. Greater stock decreases the threat of a stock-out. Trade credit may enable arrangements because it allows customers to assess thing quality before paying (Long, Maltiz and Ravid, 1993, and Deloof and Jegers, 1996). A substitute piece of working capital is records payable. Delaying portions to suppliers allows a firm to assess the way of bought things, and can be a shabby and versatile wellspring of financing for the firm. Of course, late portion of receipts can be exorbitant if the firm is offered a refund for in front of timetable portion. An unmistakable measure of Working Capital Management (WCM) is the cash positon cycle, i.e. the time slack between the utilization for the purchases of unrefined materials and the gathering of offers of finished items. The more broadened this time slack, the greater the enthusiasm for satisfying desires capital (Deloof, 2003). A more augmented Important cycle may construct benefit in light of the way that it prompts higher arrangements. Regardless, corporate profit might moreover lessen with the Important cycle, if the costs of higher enthusiasm for satisfying desires capital trip speedier than the benefits of holding more inventories and/or surrendering more trade credit to customers. This discussion of the imperativeness of working capital organization, its different parts and its results for profit drives us to the issue explanation which we will be separating.Working capital is the excess of current assets over current liabilities. Working capital (WC) is a financial source which represents operating liquidity available to a business, organization or other entity. The (Current Assets - Current Liabilities) are called working capital (Current Assets Current Liabilities = Working Capital). If the current assets of the company not meet the current obligations of the company then a company has working capital deficiency, also called the working capital deficit. The working capital have two aspects first one is Working Capital is positive then it means the company is able to pay the short term obligations and Negative working capital means the company is unable to pay the short term obligations.1.2ProfitabilityProfitability means a firms earnings from its resources, it also means how much returns a firm achieved by the investment on its assets (ROA). There are two possible understanding of resources concept:

1. Concept of Balance Sheet2. Managing Pattern Concept

There are two understanding of resources. Excess of present sources over present obligations are called the net resources or net present sources. Working investment is really what a part of long lasting finance is kept in and used for supporting present actions.The balance piece definition of resources is significant only as an indication of the organization's present solvency in repaying its lenders. When firms speak of shortage of resources they in fact possibly imply lack of cash sources. In fund flow analysis and increase in resources, as traditionally defined, symbolizes employment or application of resources.

1.3 Problem IdentificationThe working capital straightforwardly hits the benefit of the organization. The profit for resources which is identified with the benefit of the organization and the Inventory turn-over, Average accumulation period, normal installment period is identified with the working capital. Productive working capital administration which identifies with arranging and controlling current resources and current liabilities. A more extended money transformation cycle may be building the benefit because of higher deals. These segments of working capital which influences the benefit of the organizations (Deloof, 2003). The target of working is to have the ideal parity of every segment. Best administration of money, receivables, inventories, payables and credit discharge stores (Filbeck, Kreuger 2004). (Nasir & Rehman, 2007) says the funds straight strikes the productivity of the companies and to manage the present resources and present obligations. Operating investment involve long lasting and short-term funds long lasting means the amount of present resources required to meet the firm long lasting minimum requirements (Van Horn, 2005: 205). Narware (2004) describes the connection of funds and productivity with the help of ratio's and mathematical tools there is a significant connection between productivity and funds.The management of working capital is an important part of financial management because it directly affects the profitability of the company. The management of current assets in such a way to meets the short term obligation of the company is called the working capital. When the working capital is manage in the best way than the profitability of the company is also increase. This study related to the working capital management and profitability of the textile sector of Pakistan. The study based on secondary data which gathered from the annual reports of the companies. The companies are listed in the Karachi Stock Exchange and the data we use in 2007 to 2011. 1.4 Statement of ProblemThe purpose of study will be to investigate whether any relationship exists between working capital management and profitability in the textile companies listed at Karachi Stock Exchange, Pakistan. It will also be evaluated, that how much profitability impact on working capital.1.5 Research Questiona. Is the Average collection period affects the company's profitability?b. Is the Average payment period affects the company's Profitability?

1.6 Objectives of Studya. To find out whether relationship exist between working capital management and profitability.b. To check the impact of working capital management in textile sector of Pakistan.1.7 Significance of the StudyWorking capital is the key of the company profitability. Profitability of firms not distributed internal financing, working capital affect the firm's external financing requirements. This study will help to Investors for using working capital policy as information for specific sector of Pakistan. The working capital management policy may be useful in assessing the company's long-term earnings prospects.

Chapter # 02Literature Review2.1Review of LiteratureThe working capital management is the important factor for the profitability. Some researchers are performed to be analyzing of the connection of funds control with the productivity. Smith (1980) argued, the funds control impacts the productivity of Pakistani companies the results is comes to increase the companys value.Smith, (1980) defined a big investment in the current assets increase the profitability and lowers the risk but as well as lower profitability obtained. Carpenter and Brown (1983) said that there is no straight line connection between the level of present resources and income methodical risk of the US firms; (Rao, 1989) which is relevant to the present responsibilities the companies is accountable for spending the responsibilities a chance to time foundation. Blinder and Maccini, (1991). Czyzewski and Hicks (1992) gave the analysis on the highest return on Assets hold the higher cash balance. Soenen, (1993) defined this relationship on US firms a negative relationship on trade cycle length with return on assets. Smith and Begemann, (1997) studied on industrial firm's Johannesburg Stock Exchange he describes the decrease in the total current liabilities divided by gross fund led to an improvement in return on assets and vice versa. After this research a Shin and Soenen, (1998) to expand the time period and size he investigated a large sample of US firms 58,985 and period is 20 years i.e. start from 1975 to 1994 after that there is a significant negative relationship with its profitability.Lamberson, (1995) said maintain at the proper level of working capital component i.e. accounts receivables, accounts payable and inventories. Jose et al, (1996) there is a significant negative relationship exist between the profitability and cash conversion cycle. Deloof and Jegers, (1996) said that another part of the funds is records payables. If postponing transaction to providers allows the company to evaluate the high quality of buy products. However, the transaction of delayed accounts can be very expensive if the companies are provided a lower price for the beginning expenses. The well-known evaluate of Working Control Management(WCM) is the cash transformation pattern, i.e. the time lag between the expenses for the buys of raw components and the selection of revenue of completed products. Gardner et al, (1986) and Weinraub and Visscher, (1998). The working capital management is very important because its affects on the profitability and risk of the firm's. Shin & Soenen, (1998) to emphasize the effective funds control is very important for make the value for the investors. The funds control has an important effect on the productivity and assets both. (Wang 2002) work on the Japanese and Taiwanese firms and defines the way of working capital management has a significant impact on the profitability of the companies and increase in profitability by decreasing the number day's accounts receivable and inventors. Deloof (2003) he takes a example size of 1009 of non financial companies of The country. His result is revealed that there is a bad connection between the A/R and Stock convert over with total managing benefit. He is recommended that the administrator can improve the productivity through improve the records due and short the records receivables and stocks. Eljelly, (2004) defined the efficient working capital management involve in the planning and controlling the current assets and liabilities. In such a manner to remove the risk of inability to meet the short term obligations. Gosh and Maji (2004) he says that the degree of utilization of current assets was positively associated with the profitability of the all the company under that study. Filbeck and Kruger, (2005) a company can decrease the finance cost and increase the funds to expansion the projects to invest the amounts in the current assets. Shah and Sana (2006) described that there is a bad connection between funds and productivity percentages except regular payment period which is favorably related to the total benefit amount. Padachi (2006) describes the working capital management impact the firm's profitability. The working capital management is expected to contribute positively to the creating of firm's value. Then indicate that high investment in inventories and accounts receivables to the associated with low profitability. Lazaridis and Tryfonidis (2006) he fined the relationship between working capital management and corporate profitability of the firms listed at Athens Stock Exchange. He concludes that there is statically significant relationship between profitability measures by the cash conversion cycle and gross operation profit. Nasir & Rehman (2007) investigated in the studies the effect of funds control on the productivity of the companies by taking the data of 94 detailed companies at (CURRENT ASSETS - CURRENT LIABILITIES) for the interval of 6 years since 1999 to 2004. The common payment interval and regular selection interval with the current rate, stock revenues and also cash transformation pattern as funds control guidelines and size, debt rate and set resources rate are the control factors. He found the significant negative connection productivity and funds control of the companies. Afza and Nazir (2008) defined the factors which are determining the working capital management. And conclude the negative relationship between profitability and working capital management. The administration of working capital will be characterized as the "administration of current resources and current liabilities, and financing these current resources. " Working capital administration is essential for making quality for shareholders. Administration of working capital administration was found to have a noteworthy effect on both productivity and liquidity in studies in distinctive nations.

Long et al. created a model of exchange credit in which hilter kilter data drives great firms to amplify exchange credit with the goal that purchasers can check item quality before installment. Their example contained all modern (SIC 2000 through 3999) organizations with information accessible from COMPUSTAT for the three-year period finishing in 1987 and utilized relapse examination. They characterized exchange acknowledge arrangement as the normal time receivables will be exceptional and measured this variable by registering every company's days of deals extraordinary (DSO) , as records receivable every dollar of day by day deals. To lessen variability, they found the middle value of DSO and all different measures over a three year period. They discovered proof steady with the model. The discoveries propose that makers may build the implied expense of expanding exchange credit by financing their receivables through payables and transient obtaining.

Shin and Soenen examined the relationship between working capital administration and esteem creation for shareholders. The standard measure for working capital administration is the money change cycle. Money change period reflects the time compass in the middle of payment and gathering of money. It will be measured by assessing the stock change period and the receivable transformation period, less the payables transformation period. In their study, Shin and Soenen utilized net-exchange cycle (NTC) as a measure of working capital administration. NTC is fundamentally equivalent to the money transformation cycle (CCC) where every one of the three segments are told. NTC may be an intermediary for extra living up to expectations capital needs. They analyzed this relationship by utilizing connection and relapse examination, by industry, and working capital power. Utilizing a COMPUSTAT specimen of 58,985 firm years covering the period 1975- 1994, they discovered a solid negative relationship between the length of the company's net-exchange cycle and its productivity. Built with respect to the discoveries, they recommend that one conceivable route to make shareholder worth is to decrease association's NTC.

To test the relationship between gathering desires capital organization and corporate profit, Deloof used a sample of 1,009 immeasurable Belgian non-cash related firms for a period of 1992- 1996. By using association and backslide tests, he found gigantic negative relationship between awful working pay and the number of days accounts receivable, inventories, and records payable of Belgian firms. In perspective of the study results, he suggests that chiefs can augment corporate gainfulness by decreasing the amount of day's records receivable and inventories.Ghosh and Maji tried to review the capability of working capital organization of Indian cement associations in the midst of 1992 - 93 to 2001 - 2002. They determined three record values - execution document, utilization list, and general profit document to gage the adequacy of working capital organization, instead of using some fundamental working capital organization degrees. By using backslide examination and industry gauges as a target viability level of individual firms, Ghosh and Maji attempted the speed of achieving that target level of gainfulness by individual firms in the midst of the period of study and found that some of the test firms successfully upgraded capability in the midst of these years.Eljelly observationally broke down the relationship amidst profit and liquidity, as measured by present degree and cash fissure on a test of 929 joint stock associations in Saudi Arabia. Using relationship and backslide examination, Eljelly sound tremendous negative relationship between the affiliation's profit and its liquidity level, as measured by current extent. This relationship is more guaranteed for firms with high present extents and long cash change cycles. At the business level, regardless, he found that the cash change cycle or the cash gap is of more important as a measure of liquidity than current extent that impacts productivity. The firm size variable was in like manner found to have important effect on benefit at the business level.Lazaridis and Tryfonidis conveyed a cross sectional study by utilizing a test of 131 firms Recorded on the Athens Stock Exchange for the time of 2001 - 2004 and discovered measurably huge relationship between productivity, measured through terrible working benefit, and the money change cycle and its parts (accounts receivables, accounts payables, and stock). In light of the results examination of yearly information by utilizing relationship and relapse tests, they propose that directors can make benefits for their organizations by accurately taking care of the money change cycle and by keeping every segment of the transformation cycle (accounts receivables, accounts payables, and i nventory) at an ideal level.

Raheman and Nasir considered the effect of differing variables of working capital organization including ordinary social affair period, stock turnover in days, typical portion period, cash change cycle, and current degree on the net working advantage of Pakistani firms. They picked an example of 94 Pakistani firms recorded on Karachi Stock Exchange for a period of six years from 1999 - 2004 and found a robust negative relationship between variables of working capital organization and benefit of the firm. They found that as the Important cycle increases.They attempted the effects of working capital organization on SME profit using the board data system. The results, which can't avoid being generous to the region of endogeneity, demonstrated that heads could make regard by reducing their inventories and the number of days for which their accounts can't avoid being exceptional. Also, shortening the Important cycle moreover upgrades the organization's advantage.Falope and Ajilore used an example of 50 Nigerian refered to non-cash related firms for the period 1996 - 2005. Their study utilized load up data econometrics as a part of a pooled backslide, where time-game plan and cross-sectional observations were combined and assessed. They found a immense negative relationship between net working profit and the typical aggregation period, stock turnover in days, ordinary portion period and cash postion cycle for an example of fifty Nigerian firms recorded on the Nigerian Stock Exchange. Also, they found no discriminating mixed bags in the effects of working capital organization amidst limitless and little firms.Mathuva analyzed the impact of working capital association pieces on corporate benefit by utilizing a case of 30 affiliations recorded on the Nairobi Stock Exchange (NSE) for the periods 1993 to 2008. He utilized Pearson and Spearman's associations, the pooled standard littlest square (OLS), and the settled influences break faith models to direct information examination. The key disclosures of his study were that: i) there exists an exceedingly essential negative relationship between the time it takes for firms to gather money from their clients (records gathering period) and benefit, ii) there exists an extraordinarily titanic positive relationship between the period taken to change over inventories into courses of action (the stock change period) and productivity, and iii) there exists an uncommonly fundamental positive relationship between the time it takes the firm to pay its banks (normal allotment period) and profit.In rundown, the composition review demonstrates that working capital organization influences on the benefit of the firm however there still is vulnerability as to the suitable variables that might serve as delegates for working capital organization. The present study scrutinizes the relationship between a set of such variables and the productivity of an illustration of American gathering firms. Table 1 underneath gathers the definitions and speculative expected signs.(Eljelly, 2004) cleared up that successful liquidity organization incorporates orchestrating and controlling current assets and current liabilities in such a route, to the point that murders the risk of inability to meet due transient responsibilities and sidesteps outlandish enthusiasm for these profits. The association amidst productivity and liquidity was investigated, as measured by present extent and cash opening on an illustration of business elements in Saudi Arabia using relationship and back slide examination. The study found that the Important cycle was of more centrality as a measure of liquidity than the current extent that impacts advantage. The size variable was found to have gigantic effect on benefit at the business level. The outcomes were enduring and had discriminating consequences for liquidity organization in distinctive Saudi associations. In any case, it was clear that there was a negative relationship amidst profit and liquidity markers, for instance, current extent and exchange gap in for icy hard coin the Saudi example examined. Second, the study in like manner uncovered that there was unfathomable mixed bag among organizations in regards to the immense measure of liquidity.(Deloof, 2003) talked about that most firms had a lot of trade put resources into for spendable dough working capital.

For measuring the capability of working capital organization, execution, use, and general benefit records were processed rather than using some fundamental working capital organization extents. Setting industry benchmarks as target-adequacy levels of the individual firms, this paper moreover attempted the rate of accomplishing that target level of capability by an individual firm in the midst of the time of study. Revelations of the study exhibited that the Indian Cement Industry by and large did not perform strikingly well in the midst.(Shin and Soenen, 1998) highlighted that compelling Working Capital Management (WCM) was key for making worth for the shareholders. The route satisfying desires capital was managed had a discriminating impact on both gainfulness and liquidity. The relationship between the length of Net Trading Cycle, corporate gainfulness and peril adjusted stock return was examined using association and backslide examination, by industry and capital force. They found a strong negative relationship between lengths of the organization's net trading Cycle and its advantage. Additionally, shorter net trade cycles were associated with higher risk adjusted stock returns.

2.2Theoretical Framework:-Independent Variable Dependent Variable

Average collection period

Return on Assets

Average payment period

Inventory turn over

Model:- ROA= o+1 (ACP) +2 (APP) +3 (ITO)2.3Hypothesis Statements: H1: Average collection period have the negative effect on profitability and ROA.H2: Average payment period positively related with the ROA.H3: Inventory turnover have the negative impact on profitability and ROA.

Chapter # 03Research Methodology3.1Research Design:The ebb and flow examination is focused to find out the effect of trusts over the organization's profit. The quantitative strategy has been taken after to find better results and results that can be connected later on. Expansive Data have been taken from the yearly monetary surveys of the firm.We have utilized the proportion investigation system to check the consequences of our theories. Degree investigation of stock and its variables decided the heading of speculation cycle. Receivable administration checked through the normal gathering period in this is dead set through the information taken from the association's receivables and as far as possible they have given to their clients.3.2Data Set and SampleThe data used in this study was acquired from the websites of the companies. Data is collected from annual audited reports of the firm for the years from 2007- 2011.The purpose of this research is to contribute towards a very important aspect of financial management known as working capital management with reference to the following listed companies1. Gul Ahmed Textile www.gulahmed.com2. Kohat Textile Millswww.kohattextile.com3. Nishat Textile Mills www.nishatpak.com4. Saif Textile Millswww.saiftextile.com5. Koh-i-Noor Textile Millswww.kohinoormills.comHere we will see the relationship between living up to expectations capital administration hones and its impacts on gainfulness for a time of five years from 2007 2011. This area of the report examines the variables included in the study, the circulation examples of information and connected measurable methods in researching the relationship between living up to expectations capital administration and productivity.3.3Variables:-This study undertakes the issue of identifying key variables that influence working capital management.All the variables stated below have been used to test the hypotheses of our study. They include dependent, independent and some control variables.Return on Assets (ROA) which is measure of profitability of the firm is used as dependent variable. It is calculated dividing by net income by total assets.Average Collection Period (ACP) used as proxy for the collection policy is an independent variable. It is calculated by dividing account receivable by sales and multiplying the result by 365 (number of days in a year).Inventory turnover in days (ITID) used as proxy for the inventory policy is also an independent variable. It is calculated by dividing inventory by cost of goods sold and multiplying with 365 days.Average payment period (APP) used as proxy for the payment policy is also an independent variable is calculated by dividing accounts payable by purchases and multiplying the result 365 days.

3.4 Statistics Statistics used to check the authenticity of results. We will use the following variables to determine the results. These variables are given below.ROAReturn on Assets, Net Income, Total Assets, ACP, Days, Total amount of days in period, Accounts Receivables, Average amount of accounts receivables, Credit Sales, Total amount of net credit sales during period, Average collection period, Credit Sales, APP, No. of Working Days or Months, Creditor Turnover Ratio, Account payable, Net Credit Purchase, ITO, Sales, Inventory, Cost of goods sold, Average Inventory.

3.5 TechniquesRatio Analysis:We will use ratio analysis techniques to study the hypotheses. To measure the relationship between dependent and independent variables multiple regression will be applied.Regression Analysis

S. NoCompanyYearsROA (%)ACP(Days)APP(Days)ITO(Times)

1Gul Ahmed Textile20071.63%80834.35





1Kohinoor Textile20071.34%47836.48

2Kohinoor Textile2008-3.47%46693.80




1Kohat Textile2007-1.90%38833.89

2Kohat Textile2008-4.60%42697.63

3Kohat Textile2009-10.71%599414.29

4Kohat Textile20101.07%47414.01

5Kohat Textile20110.43%36534.83

1Nishat Textile Mills20073.06%17835.53





1Saif Textile20070.29%69834.08

2Saif Textile2008-0.93%72694.92

3Saif Textile2009-14.00%71945.44

4Saif Textile20101.64%60413.39

5Saif Textile201112.05%51535.25

Dependent Variable: ROA

Method: Panel EGLS (Cross-section random effects)

Date: 02/05/15 Time: 15:30

Sample: 1 25

Periods included: 5

Cross-sections included: 5

Total panel (balanced) observations: 25

Swamy and Arora estimator of component variances

VariableCoefficient Std. Error t-Statistic Prob.

ITO-0.014910.005979-2.4930080.0211

APP-0.000350.000679-0.5157770.6114

ACP-0.000670.00088-0.7632730.4538

C0.1329070.0607382.1882170.0401

Effects Specification

S.D. Rho

Cross-section random0.0480380.3795

Idiosyncratic random0.0614230.6205

Weighted Statistics

R-squared0.30377 Mean dependent var-0.000792

Adjusted R-squared0.204308 S.D. dependent var0.068949

S.E. of regression0.061504 Sum squared resid0.079437

F-statistic3.054143 Durbin-Watson stat1.353376

Prob(F-statistic)0.050883

Unweighted Statistics


Sum squared resid0.12434 Durbin-Watson stat0.941979

Correlated Random Effects - Hausman Test

Equation: Untitled

Test cross-section random effects

Test Summary Chi-Sq. Statistic Chi-Sq. d.f. Prob.

Cross-section random031

* Cross-section test variance is invalid. Hausman statistic set to zero.

Cross-section random effects test comparisons:

Variable Fixed Random Var(Diff.) Prob.

ITO-0.01361-0.014910.0000040.5317

APP-0.00045-0.0003500.2032

ACP-0.00034-0.0006700.5916

Cross-section random effects test equation:

Dependent Variable: ROA

Method: Panel Least Squares

Date: 02/05/15 Time: 16:21

Sample: 1 25

Periods included: 5

Cross-sections included: 5

Total panel (balanced) observations: 25

VariableCoefficient Std. Error t-Statistic Prob.

C0.1174430.059371.9781470.0644

ITO-0.013610.00633-2.1497560.0463

APP-0.000450.000683-0.6532420.5223

ACP-0.000340.001076-0.3148360.7567

Effects Specification

Cross-section fixed (dummy variables)


Adjusted R-Squared0.505778 S.D. dependent var0.087371

S.E. of regression0.061423 Akaike info criterion-2.487741

Sum squared resid0.064136 Schwarz criterion-2.097701

Log likelihood39.09677 Hannan-Quinn criter.-2.379561

F-statistic4.508741 Durbin-Watson stat1.657515

Prob(F-statistic)0.005276

Ratio Analysis of Each Firm Separately

1. Gul Ahmed Textile Mills

Return on Assets (ROA):- Return on assets (ROA) can be divided in two ways. First, it measures management's ability and efficiency in using the firm's assets to generate profits. Second, it reports the total return accruing to all providers of capital (debt and equity) independent of sources of capital. Generally, higher ROA is better.Formula:RETURN ON ASSETS(ROA)=NET INCOME

TOTAL ASSETS

(Amount in Rs. 000s)

20112010200920082007

NET INCOME1,196,457477,53380,210102,838164,400

TOTAL ASSETS20,404,67914,599,69113,583,73412,397,70210,084,240

RETURN ON ASSETS5.86%3.27%0.59%0.83%1.63%

(Source: Data taken from website of Gul Ahmed www.gulahmed.com)Average Collection Period (ACP):- The amount of time that it takes for a business to receive payments due, in term of receivables forms the customers. Formula:Average Collection Period(ACP)=DAYS X AR

CREDIT SALES

Days = Total number of days in periodAR = Average amount of accounts receivablesCredit Sales = Total amount of net credit sales during period


20112010200920082007

DAYS360360360360360

AR2,030,7232,359,2652,532,5812,490,2582,164,671

CREDIT SALES25,435,46519,688,79413,906,46511,650,1439,798,338

Average Collection Period2943667780

(Source: Data taken from website of Gul Ahmed www.gulahmed.com)Average Payment Period: (APP)Average payment period means the average period taken by the company in making payments to its creditors. It is computed by dividing the number of working days in a year by creditors turnover ratio.Formula:Average Payment Period(APP)=Net Credit Annual Purchase

Average Trade Creditors


20112010200920082007

Net Credit Annual Purchase13,008,1488,157,1844,308,7464,102,4222,606,339

Average Trade Creditors1,923,045918,1301,122,833787,544603,888

Average Payment Period5341946983

(Source: Data taken from website of Gul Ahmed www.gulahmed.com)Inventory Turnover:-A ratio showing how many times a company's inventory is sold and replaced over a period. The days in the period can then be divided by the inventory turnover formula to calculate the days it takes to sell the inventory on hand or "inventory turnover days." Formula:Inventory Turnover=Sales

Inventory


20112010200920082007

Sales25,435,66519,688,79413,906,46511,650,1439,798,338

Inventory10,334,3604,943,9043,886,1712,915,5502,254,144

Inventory Turnover2.463.983.584.004.35

(Source: Data taken from website of Gul Ahmed www.gulahmed.com)Current Ratio:-Formula:Current Ratio=Current Assets

Current Liabilities


20112010200920082007

Current Assets13,616,5768,350,6007,359,2726,464,3125,277,007

Current Liabilities13,194,5468,574,6797,749,6187,151,1125,555,217

Current Ratio1.030.970.950.900.95

(Source: Data taken from website of Gul Ahmed www.gulahmed.com)Gross Profit Margin:-Formula:Gross Profit Margin=Gross Profit

Total Revenue


20112010200920082007

Gross Profit4,626,6223,172,8602,358,6091,699,0711,425,901

Total Revenue25,435,46519,688,79413,906,46511,650,1439,798,338

Gross Profit Margin18%16%17%15%15%

(Source: Data taken from website of Gul Ahmed www.gulahmed.com)Net Profit to Sales:-Formula:Net Profit to Sales=Net Profit

Total Sales


20112010200920082007

Net Profit1,196,457477,53380,210102,838164,400

Total Sales25,435,46519,688,79413,906,46511,650,1439,798,338

Net Profit to Sales4.70%2.43%0.58%0.88%1.68%

(Source: Data taken from website of Gul Ahmed www.gulahmed.com)Return on Equity:-Formula:Return on Equity=Net Income

Share Holders Equity


20112010200920082007

Net Income1,196,457477,53380,210102,838164,400

Shareholders Equity634,785634,785634,785551,987551,987

Return on Equity1.880.750.130.190.30

(Source: Data taken from website of Gul Ahmed www.gulahmed.com)

2.Ratio Analysis of Kohat Textile Mills

RETURN ON ASSETS=NET INCOME

TOTAL ASSETS

20112010200920082007

6,43316,459(133,469)(55,221)(22,864)

1,512,1061,535,0821,245,8141,201,4381,204,447

0.43%1.07%-10.71%-4.60%-1.90%

AVERAGE COLLECTION PERIOD=No. of Days XAVERAGE AMOUNT OF RECEIVEABLES

NET SALES

20112010200920082007

No. of Days360360360360360

Average Amount of Receivables216,050221,283237,316167,681139,426

Net Sales2,133,6361,686,6961,444,6431,438,6481,317,002


Average Payment PeriodNet Credit Annual Purchase


20112010200920082007

Net Credit Annual Purchase 13,008,148 8,157,184 4,308,746 4,102,422 2,606,339

Average Trade Creditors 1,923,045 918,130 1,122,833 787,544 603,888

53 41 94 69 83

Inventory Turn OverSALES

INVENTORY

20112010200920082007

SALES 2,133,636 1,686,696 1,444,643 1,438,648 1,317,002

INVENTORY 442,184 421,020 101,094 188,602 338,671

4.83 4.01 14.29 7.63 3.89 Times

Current RatioCurrent Assets

Current Liabilities

20112010200920082007

Current Assets715,731706,212379,812404,132521,994

Current Liabilities814,697833,199530,909630,867569,736

0.880.850.720.640.92

Gross Profit MarginGross Profit

Total Revenue

20112010200920082007

Gross Profit134,065172,03642667,708101,870

Total Revenue2,133,6361,686,6961,444,6431,438,6481,317,002

6%10%0%5%8%

Net Profit to SalesNet Profit

Total Sales

20112010200920082007

Net Profit6,43316,459(133,469)(55,221)(22,864)

Total Sales2,133,6361,686,6961,444,6431,438,6481,317,002

0.30%0.98%-9.24%-3.84%-1.74%

Return on EquityNet Income

Shareholder's Equity

20112010200920082007

Net Income6,43316,459(133,469)(55,221)(22,864)

Shareholder's Equity208,000208,000208,000208,000208,000

0.030.08-0.64-0.27-0.11

3. Ratio Analysis of Nishat Textile Mills


TOTAL ASSETS

20112010200920082007

NET INCOME4,843,9122,915,4611,268,0016,138,9681,211,208

TOTAL ASSETS33,281,57435,524,81331,512,68637,916,57939,587,091

14.55%8.21%4.02%16.19%3.06%

AVERAGE COLLECTION PERIOD=No. of DaysXAVERAGE AMOUNT OF RECEIVEABLES

NET SALES

20112010200920082007

No. of Days360360360360360

Average Amount of Receivables2,481,2592,041,2561,300,3661,329,027831,653

Net Sales48,565,14431,535,64723,870,37919,267,63317,180,192




20112010200920082007



5341946983


INVENTORY

20112010200920082007

SALES48,565,14431,535,64723,870,37919,267,63317,180,192

INVENTORY9,846,6806,060,4414,092,5124,103,6483,106,436

4.935.205.834.705.53Times


Current Liabilities

20112010200920082007

Current Assets16,838,62911,732,9288,294,83813,929,51813,309,087


1.101.110.861.191.74


Total Revenue

20112010200920082007

Gross Profit7,846,4475,980,1854,351,5412,968,7762,844,938

Total Revenue48,565,14431,535,64723,870,37919,267,63317,180,192

16%19%18%15%17%


Total Sales

20112010200920082007

Net Profit4,843,9122,915,4611,268,0016,138,9681,211,208

Total Sales48,565,14431,535,64723,870,37919,267,63317,180,192

9.97%9.24%5.31%31.86%7.05%



20112010200920082007

Net Income4,843,9122,915,4611,268,0016,138,9681,211,208

Shareholder's Equity3,515,9993,515,9992,424,8271,597,8571,597,857

1.380.830.523.840.76

4. Ratio Analysis Saif Textile Mills


TOTAL ASSETS

20112010200920082007

NET INCOME607,73077,489(560,226)(39,724)12,188

TOTAL ASSETS5,041,5534,722,1484,000,3004,293,4094,182,192

12.05%1.64%-14.00%-0.93%0.29%


NET SALES

20112010200920082007

No. of Days360360360360360

Average Amount of Receivables1,042,820775,350740,173892,083732,669

Net Sales7,361,3914,642,4523,727,8204,489,2053,813,037




20112010200920082007



5341946983


INVENTORY

20112010200920082007

SALES7,361,3914,642,4523,727,8204,489,2053,813,037

INVENTORY1,400,9861,368,010685,765911,516933,599

5.253.395.444.924.08Times


Current Liabilities

20112010200920082007

Current Assets2,654,4872,378,7261,571,3541,988,3761,828,120


0.950.830.831.000.88


Total Revenue

20112010200920082007

Gross Profit1,339,648710,696111,282440,437389,441

Total Revenue7,361,3914,642,4523,727,8204,489,2053,813,037

18%15%3%10%10%


Total Sales

20112010200920082007

Net Profit607,73077,489(560,226)(39,724)12,188

Total Sales7,361,3914,642,4523,727,8204,489,2053,813,037

8.26%1.67%-15.03%-0.88%0.32%



20112010200920082007

Net Income607,73077,489(560,226)(39,724)12,188

Shareholder's Equity264,129264,129264,129264,129264,129

2.300.29-2.12-0.150.05

5. Ratio Analysis Kohinoor Textile Mills


TOTAL ASSETS

20112010200920082007

NET INCOME (1,258,880,882) (1,136,512,441) (722,551,563) (314,802,203) 114,441,119

TOTAL ASSETS 5,787,152,512 8,691,983,556 8,418,337,734 9,082,467,061 8,540,250,446

-21.75%-13.08%-8.58%-3.47%1.34%


NET SALES

20112010200920082007

No. of Days360360360360360

Average Amount of Receivables498,802,691774,726,517239,474,981775,013,196988,152,762

Net Sales5,210,209,4296,211,709,4777,578,457,1786,071,270,8547,611,236,705




20112010200920082007



5341946983


INVENTORY

20112010200920082007

SALES5,210,209,4296,211,709,4777,578,457,1786,071,270,8547,611,236,705

INVENTORY499,369,2661,119,779,6651,195,946,6841,598,730,6801,175,108,847

10.435.556.343.806.48Times


Current Liabilities

20112010200920082007

Current Assets2,040,769,5143,208,773,0022,746,006,5244,771,034,9444,447,640,632

Current Liabilities6,345,402,1127,317,407,7336,109,690,7885,689,702,4954,868,224,022

0.320.440.450.840.91


Total Revenue

20112010200920082007

Gross Profit(94,543,570)324,598,369659,137,986793,520,5491,124,499,879

Total Revenue5,210,209,4296,211,709,4777,578,457,1786,071,270,8547,611,236,705

-2%5%9%13%15%


Total Sales

20112010200920082007

Net Profit(1,258,880,882)(1,136,512,441)(722,551,563)(314,802,203)114,441,119

Total Sales5,210,209,4296,211,709,4777,578,457,1786,071,270,8547,611,236,705

-24.16%-18.30%-9.53%-5.19%1.50%



20112010200920082007

Net Income(1,258,880,882)(1,136,512,441)(722,551,563)(314,802,203)114,441,119

Shareholder's Equity509,110,110509,110,110509,110,110509,110,110363,650,080

-2.47-2.23-1.42-0.620.31

Chapter # 04

Hypotheses TestingSince the objective of this study is to examine the relationship between profitability and working capital management. The study makes a set of testable hypothesis.Hypothesis StatementsH01:Average collection period have the negative effect between profitability and WCM.H02: Average payment period positively related with the Gross ProfitH03:Inventory Turnover has the negative relationship between profitability and WCM.Model SpecificationOur study uses regression analysis of given data. Our model is given below. ROA= 0 + 1 (ACP) + 2 (APP) + 3(ITO)ROA: Return on AssetsACP:Average Collection PeriodAPP:Average Payment PeriodITO:Inventory Turnover

Hypothesis Analysis Gul Ahmed Textile Mills

H01:Average collection period have the negative effect between profitability and WCM.YearsCurrent AssetsCurrent LiabilitiesWorking CapitalProfitability(Rs. 000 Millions)Average Collection Period

20075,277,0075,555,217(278,210)164,40080

20086,464,3127,151,112(686,800)102,83877

20097,359,2727,749,618(390,346)80,21066

20108,350,6008,574,679(224,079)477,53343

201113,616,57613,194,546422,0301,196,45729

Interpretation:The data given in above table shows the relationship between WCM, Profitability and Average Collection Period. Results show that as in year 2007 Average Collection Period is 80 days and WCM is Rs. (278,210) and Profitability is Rs. 164,400 million and in year 2011 WCM is Rs. 422,030/- and Profitability is Rs. 1,196,457/- in Average Collection Period is 29 days. It shows that as Average Collection Period decreases Working Capital of the firm and Profitability increases. So our hypothesis proved this statement, Average collection period have the negative effect between profitability and WCM.

H02: Average payment period positively related with the Gross ProfitYearsGross Profit(Rs. 000 Millions)Average Payment Period(APP)

20071,425,90183

20081,699,07169

20092,358,60994

20103,172,86041

20114,626,62253

Interpretation:As according to hypothesis average payment period positively related with the GP. It is true hypothesis but due to other factors like average collection period fluctuates during the period of 2007 to 2011. So that data shows that the negative impact of APP and GP.If other factors remain suitable for the firms business so this hypothesis will be true in this connection.H03:Inventory Turnover have the negative relationship between profitability and WCM.YearsWorking CapitalInventory Turn Over

2007(278,210)4.35 Times

2008(686,800)4.00 Times

2009(390,346)3.58 Times

2010(224,079)3.98 Times

2011422,0302.46 Times

Interpretation:As inventory turnover time increases then the working capital decreases and shows the negative figure and when inventory turnover decreased then working capital increase and converted into positive.During the period from 2007 to 2011 inventory turnover is 4.35 time and 2.46 times the working capital is Rs. (278,210) and Rs. 422,030.

Hypothesis Analysis Kohat Textile Mills

H01:Average collection period have the negative effect between profitability and WCM.

YearsCurrent AssetsCurrent LiabilitiesWorking CapitalProfitability(Rs. 000 Millions)Average Collection Period

2007521,994569,736521,993(22,864)38

2008404,132630,867404,131(55,221)42

2009379,812530,909379,811(133,469)59

2010706,212833,199706,21116,45947

2011715,731814,697715,7306,43336

Interpretation:The data given in above table shows the relationship between WCM, Profitability and Average Collection Period. Results show that as in year 2007 Average Collection Period is 38 days and WCM is Rs. 521,993 and Profitability is Rs. (22,864) millions and in year 2011 WCM is Rs. 715,730/- and Profitability is Rs. 6,433/- in Average Collection Period is 36 days. It shows that as Average Collection Period decreases Working Capital of the firm and Profitability increases. So our hypothesis proved this statement, Average collection period have the negative effect between profitability and WCM.H02: Average payment period positively related with the Gross ProfitYearsGross Profit(Rs. 000 Millions)Average Payment Period(APP)

2007101,87083

200867,70869

200942694

2010172,03641

2011134,06453


2007521,99303.89 Times

2008404,13107.63 Times

2009379,81114.29 Times

2010706,21104.01 Times

2011715,73004.83 Times

Interpretation:As inventory turnover time increases then the working capital decreases and shows the negative figure and when inventory turnover decreased then working capital increase and converted into positive.Hypothesis Analysis Nishat Textile Mills



200713,309,0877,649,3735,659,7141,211,20817

200813,929,51811,721,6052,207,9136,138,96825

20098,294,8389,602,265(1,307,427)1,268,00120

201011,732,92810,569,0151,163,9132,915,46123

201116,838,62915,322,3491,516,2804,843,91218

Interpretation:The data given in above table shows the relationship between WC, Profitability and Average Collection Period. Results show that as in year 2007 Average Collection Period is 17 days and WC is Rs. 5,659,714 Million and Profitability is Rs. 1,211,208 Millions and in year 2011 WC is Rs. 1,516,280/- and Profitability is Rs. 4,843,912/- in Average Collection Period is 18 days. It shows that as Average Collection Period decreases Working Capital of the firm and Profitability increases. So our hypothesis proved this statement, Average collection period have the negative effect between profitability and WCM.H02: Average payment period positively related with the Gross ProfitYearsGross Profit(Rs. 000 Millions)Average Payment Period(APP)

20072,844,93883

20082,968,77669

20094,351,54194

20105,980,18541

20117,846,44753

Interpretation:According to hypothesis average payment period positively related with the GP. It is true hypothesis but due to other factors like average collection period fluctuates during the period of 2007 to 2011. So that the data shows that the negative impact of APP and GP.If other factors remain suitable for the firms business so this hypothesis will be true in this connection.H03:Inventory Turnover have the negative relationship between profitability and WCM.YearsWorking CapitalInventory Turn Over

20071,516,28005.53 Times

20081,163,91304.70 Times

2009(1,307,427)05.83 Times

20102,207,91305.20 Times

20115,659,71404.93 Times

Interpretation: As inventory turnover time increases then the working capital decreases and shows the negative figure and when inventory turnover decreased then working capital increase and converted into positive.

Hypothesis Analysis Saif Textile Mills



20071,828,1202,069,343(241,223)12,18869

20081,988,3761,991,026(2,650)(39,724)72

20091,571,3541,889,080(317,726)(560,226)71

20102,378,7262,867,459(488,733)77,48960

20112,654,4872,801,268(146,781)607,73051

Interpretation:The data given in above table shows the relationship between WCM, Profitability and Average Collection Period. Results show that as in year 2007 Average Collection Period is 69 days and WC is Rs. (241,223) and Profitability is Rs. 12,188 millions and in year 2011 WC is Rs. (146,781) and Profitability is Rs. 607,730/- in Average Collection Period is 51 days. It shows that as Average Collection Period decreases Working Capital of the firm and Profitability increases. So our hypothesis proved this statement, Average collection period have the negative effect between profitability and WCM.


2007389,44183

2008440,43769

2009111,28294

2010710,69641

20111,339,64853

Interpretation:According to hypothesis average payment period positively related with the GP. It is true hypothesis but due to other factors like average collection period fluctuates during the period of 2007 to 2011. So that data shows that the negative impact of APP and GP.If other factors remain suitable for the firms business so this hypothesis will be true in this connection.

H03:Inventory Turnover have the negative relationship between profitability and WCM.YearsWorking CapitalInventory Turn Over

20072412234.08 Times

200826504.92 Times

20093177265.44 Times

20104887333.39 Times

20111467815.25 Times

Interpretation:As inventory turnover time increases then the working capital decreases and shows the negative figure and when inventory turnover decreased then working capital increase and converted into positive.

Hypothesis Analysis Koh-i-Noor Textile Mills



20074,447,640,6324,868,224,022(420,583,390)114,441,11947

20084,771,034,9445,689,702,495(918,667,551)(314,802,203)46

20092,746,006,5246,109,690,788(3,363,684,264)(722,551,563)11

20103,208,773,0027,317,407,733(4,108,634,731)(1,136,512,441)45

20112,040,769,5146,345,402,112(4,304,632,598)(1,258,880,882)34

Interpretation:The data given in above table shows the relationship between WC, Profitability and Average Collection Period. Results show that as in year 2007 Average Collection Period is 47 days and WC is Rs. (420,583,390) and Profitability is Rs. 114,441,119 and in year 2011 WC is Rs. (4,304,632,598) and Profitability is Rs. (1,258,880,882) in Average Collection Period is 34 days. It shows that as Average Collection Period decreases Working Capital of the firm and Profitability increases. So our hypothesis proved this statement, Average collection period have the negative effect between profitability and WC.


20071,124,499,87983

2008793,520,54969

2009659,137,98694

2010324,598,36941

2011(94,543,570)53


2007420,583,3906.48 Times

2008918,667,5513.80 Times

20093,363,684,2646.34 Times

20104,108,634,7315.55 Times

20114,304,632,59810.43 Times

Interpretation:As inventory turnover time increases then the working capital decreases and shows the negative figure and when inventory turnover decreased then working capital increase and converted into positive.

Regression Analysis of Each Firm

Gul Ahmed Textile Mills20112010200920082007

Working Capital422,030 (224,079)(390,346)(686,800)(278,210)

Profit 1,196,457 477,533 80,210 102,838 164,400

SUMMARY OUTPUT

Regression Statistics

Multiple R0.622151596

R Square0.387072609

Adjusted R Square-2

Standard Error176738.8533

Observations1

Koh-i-Noor Textile Mills20112010200920082007

Working Capital(4,304,632,598)(4,108,634,731)(3,363,684,264)(918,667,551)(420,583,390)

Profit(1,258,880,882)(1,136,512,441)(722,551,563)(314,802,203)114,441,119

SUMMARY OUTPUT


Multiple R0.96

R Square0.93

Adjusted R Square-2.00


Observations1.00

Kohat Textile Mills20112010200920082007

Working Capital(98,966) (126,987) (151,097)(226,735) (47,742)

Profit6,433 16,459 (133,469) (55,221)(22,864)

SUMMARY OUTPUT



R Square0.113354724

Adjusted R Square-2


Observations1

Nishat Textile Mills20112010200920082007

Working Capital1,516,280 1,163,913 (1,307,427)2,207,913 5,659,714

Profit4,843,912 2,915,461 1,268,001 6,138,968 1,211,208

SUMMARY OUTPUT



R Square 0.00004012926754

Adjusted R Square-2


Observations1

Saif Textile Mills20112010200920082007

Working Capital(146,781)(488,733)(317,726)(2,650)(241,223)

Profit607,730 77,489 (560,226)(39,724)12,188

SUMMARY OUTPUT



R Square0.000348095

Adjusted R Square-2


Observations1

Chapter No. 55.1Conclusions:The vast majority of the Pakistani firms have a lot of trade resources into for cold hard currency working capital. It can along these lines be normal that the route in which working capital is overseen will have a critical effect on gainfulness of those organizations. We have discovered a noteworthy negative relationship between net working benefit and the normal gathering period, stock turnover in days and normal installment period. These results propose that supervisors can make esteem for their shareholders by decreasing the quantity of days records receivable and inventories to a sensible least. The negative relationship between records payable and benefit is reliable with the view that less gainful firms hold up more to pay their bills. The conclusions are in affirmation with who discovered a solid negative relationship between the measures of working capital administration including the normal accumulation period, stock turnover in days and normal installment period with corporate benefit. On premise of the above investigation we may further reason that these results can be further fortified if the organizations deal with their working capital in more proficient ways. Administration of working capital signifies "administration of current resources and current liabilities, and financing these current resources". On the off chance that these organizations legitimately deal with their money, accounts receivables and inventories in a legitimate manner, this will eventually expand benefit of these organizations (Deloof 2003; Eljelly 2004; Shin and Soenan 1998).

Recommendations:On the basis of this study, there are few recommendations which can be opted. Public Policies InputsThere are non-favorable government strategies in term of bank credits and premium rates. It is the need of great importance to create a rational by the administration that permits an exception/admission to the material segment. For example, the Export-Import Bank was situated up with the end goal of financing and encouraging the businesses in India, particularly material. The administration may offer sponsorships to impart the trouble of the business.

Input Cost ReductionIn Pakistan, now a day, working together is higher when contrasted with the territorial nations, which has brought about astringent intensity to Pakistani Products in Foreign Markets. China and India are the greater contenders of Pakistan. We fear if expense of working together in Pakistan is not brought at standard with other Asian nations, our items would discover no spot in Market both regarding quality and cost. In the setting of future exchange, there is a pressing need to bring all the utility charges and duty of assessments down to the base level.

Up-gradation of TechnologyRefined engineering ought to be acquainted with rival alternate nations (China, Bangladesh and India) in the worldwide market in term of expense and quality. Human Resources Development, the Textile Board ought to make a different preparing wing as a Center of Human Resource Development where instructional classes ought to be led for the limit building of work. There is additionally critical need to expand the quantity of such Vocational Institutions where advanced specialized instruction is given.

Management of Input Resources (Energy)As per estimation, it is assessed that in later past around 800 units have shut in Punjab amid power and gas burden shedding while approx. 500,000 laborers lost their employments. With a specific end goal to spare the business there must be a special treatment with the business in continuous Importantity supply.

Encouragement of Investment The investment volume is not satisfactory in the textile sector as compared to the potential available. Government should take serious step to survive the textile industry. In order to decrease the price raw material for textile we need to increase our production capability.

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15. Hijazi, S. T. & Tariq, Y. B. (2006), "Determinants of Capital Structure: A case for the Pakistani Cement Industry. The Lahore Journal of Economics.

16. Feruti, Rametulla & Ejupi, Elsana, (2006), "Capital Structure and Profitability; The Macedonian Case", European scientific Journal, Vol. 8, No. 7.

17. Berger, A. N. & Patti, E.B. di (2002), "Capital structure and firm performance"18. Nikolaos P. Eriotis & Zoe Frongouli, (1997)"Profit Margin and Capital Structure; An empirical relationship", The journal of Applied Business research, Volume 18, No. 2, PP 85-88.

19. Abor, Joshua (2008), "Determinants of the capital structure of Ghanian Firms", African economic research consortium.

Appendix

COMPARATIVE BALANCE SHEETGul Ahmed Textile Mills Limited20112010200920082007

ASSETS

NON - CURRENT ASSETS

Property, plant and equipment6,653,725 6,140,1146,105,833 5,827,6214,702,826

Intangible assets38,630 16,349 28,883 28,21530,435

Long term investment58,450 58,450 58,450 58,45058,450

Long term loans and advances4,241 1,846 2,262 3,5054,943

Long term deposits33,057 32,332 29,034 15,59910,579

6,788,103 6,249,091 6,224,462 5,933,390 4,807,233

CURRENT ASSETS

Stores, spare parts and loose tools706,350 475,422 447,063 485,957387,278

Stock-in-trade10,334,360 4,943,904 3,886,171 2,915,5502,254,144

Trade debts2,030,723 2,359,265 2,532,581 2,490,2582,164,671

Loans and advances159,830 137,263 145,431 217,115171,747

Prepayments40,486 47,939 33,931 40,63319,050

Other receivables212,546 237,936 160,749 69,26963,999

Tax refunds due from government48,926 63,905 53,679 176,496188,273

Cash and bank balances83,355 84,966 99,667 69,03427,845

13,616,576 8,350,600 7,359,272 6,464,312 5,277,007

20,404,679 14,599,691 13,583,734 12,397,702 10,084,240

EQUITY AND LIABILITIES

Share Capital and Reserves

Share Capital634,785 634,785634,785 551,987551,987

Reserves2,880,446 2,480,4462,400,446 2,102,0521,942,052

(Accumulated loss)/un-appropriated profit 1,197,642 480,53483,001 107,990165,152

4,712,873 3,595,765 3,118,232 2,762,029 2,659,191

NON CURRENT LIABILITIES

Long term financing2,198,591 2,222,6502,566,604 2,354,3171,772,007

Deferred Liabilities

Deferred Taxation Net284,563 194,314139,273 124,77391,773

Staff Retirement Benefits14,106 12,28310,007 5,4716,052

298,669 206,597 149,280 130,244 97,825

CURRENT LIABILITIES

Trade and Other Payables2,586,514 1,964,9691,735,918 5,214,3854,010,209

Accrued Mark Up216,798 156,589178,405 593,671495,900

Short Term Borrowing9,759,190 5,744,7275,332,208 1,132,738879,529

Current maturity of long term financing632,044 676,863503,087 144,31895,288

Provision for taxation - net of payment- 31,531- 66,00074,291

13,194,546 8,574,679 7,749,618 7,151,112 5,555,217

CONTINGENCIES AND COMMITMENTS

20,404,679 14,599,691 13,583,734 12,397,702 10,084,240

(Source: Balance sheet available at www.gulahmed.com)

Comparative Profit and Loss StatementGul Ahmed Textile Mills Limited20112010200920082007

Sales 25,435,465 19,688,794 13,906,465 11,650,143 9,798,338

Cost of sales 20,808,843 16,515,934 11,547,856 9,951,072 8,372,437

Gross Profit4,626,622 3,172,860 2,358,609 1,699,071 1,425,901

Distribution cost1,090,588 776,234 585,657 563,336473,867

Administrative expenses808,926 715,293 572,983 203,258200,443

Other operating expenses116,918 53,619 13,712 14,95919,432

2,016,432 1,545,146 1,172,352 781,553 693,742

2,610,190 1,627,714 1,186,257 917,518 732,159

Other operating income25,245 25,116 22,594 16,7976,277

Operating profit2,635,435 1,652,830 1,208,851 934,315 738,436

Finance cost1,097,981 944,603 1,038,990 732,477476,245

(Loss)/profit before taxation1,537,454 708,227 169,861 201,838 262,191

Provision for taxation340,997 230,694 89,651 99,00097,791

(Loss)/profit after taxation1,196,457 477,533 80,210 102,838 164,400

(Loss)/earnings per share - basic and diluted (Rs.)9.42 7.52 1.45 1.86 3.11

(Source: Balance sheet available at www.gulahmed.com)

COMPARATIVE BALANCE SHEET

Kohat Textile Mills

20112010200920082007

ASSETS


Property, plant and equipment727,438 759,674 800,154 752,160 644,961

Intangible assets449

Long term investment1,016 1,275 63,526 41,58834,000

Long term loans and advances1,137 1,137 1,185 2,4211,906

Long term deposits66,784 66,784 1,137 1,1371,137

796,375 828,870 866,002 797,306 682,453

CURRENT ASSETS

Stores, spare parts and loose tools20,555 20,934 23,009 25,35624,302

Stock-in-trade442,184 421,020 101,094 188,602338,671

Trade debts 216,050 221,283 237,316 167,681139,426

Loans and advances5,367 2,552 3,667 2900681

Prepayments1,672 998 558 8441,972

Other receivables18,779 25,259 192 1,448316

Tax refunds due from government10,647 13,591 13,165 17,24416,511

Cash and bank balances477 575 811 57115

715,731 706,212 379,812 404,132 521,994

1,512,106 1,535,082 1,245,814 1,201,438 1,204,447

EQUITYANDLIABILITIES


Share Capital 208,000 208,000 208,000 208,000208,000

Reserves 293,604 301,470 315,849 264,599153,383

(Accumulated loss)/unappropriated profit 180,957 195,256 (226,094)-106,553-54,554

682,561 704,726 297,755 366,046 306,829


Long term financing 348,452 363,763 396,491 284,186313,223

Defferred Liabilities

Defferred Taxation Net

Staff Retirement Benefits28,310 23,906 20,659 20,33914,659

28,310 23,906 20,659 20,339 14,659

CURRENT LIABILITIES

Trade and Other Payables 165,257 143,645 126,602 71,48989,903

Accrued Mark Up 57,121 46,534 24,024 26,24117,529

Short Term Borrowing 517,319 553,799 293,026 501,734426,308

Current maturity of long term financing 75,000 89,221 87,257 31,40329,421

Provision for taxation - net of payment - - - -6,575

814,697 833,199 530,909 630,867 569,736


1,874,020 1,925,594 1,245,814 1,301,438 1,204,447

(Source: Balance sheet available at www.kohattextile.com)KOHAT TEXTILE MILL

Comparative Profit and Loss Statements

20112010200920082007

Sales 2,133,636 1,686,696 1,444,643 1,438,648 1,317,002

Cost of sales 1,999,571 1,514,660 1,444,217 1,370,940 1,215,132

Gross Profit 134,065 172,036 426 67,708 101,870

Distribution cost 6,250 6,752 10,365 7,7328,724

Administrative expenses 37,983 39,051 39,890 34,35632,466

Other operating expenses 2,608 11,097 - 01,508

46,841 56,900 50,255 42,088 42,698

87,224 115,136 (49,829) 25,620 59,172

Other operating income 19,309 857 685 6731,047

Operating profit 106,533 115,993 (49,144) 26,293 60,219

Finance cost 78,762 94,341 140,849 112,39294,791

(Loss)/profit before taxation 27,771 21,652 (189,993) (86,099) (34,572)

Provision for taxation 21,338 5,193 (56,524)-30,878-11,708

(Loss)/profit after taxation 6,433 16,459 (133,469) (55,221) (22,864)

(Loss)/earnings per share - basic and diluted (Rs.) 0.31 0.79 6.42 2.65 1.10

(Source: Balance sheet available at www.kohattextile.com)

NISHAT MILLS LIMITED

Comparative Balance Sheet

20112010200920082007

ASSETS


Property, plant and equipment 13,303,514 1,184,166 11,199,635 10,647,310 10,586,159

Intangible assets 126,834 132,550 41,049

Long term investment 2,133,889 21,959,543 11,952,949 13,321,08815,672,980

Long term loans and advances 849,206 498,803 12,367 8,1229,523

Long term deposits 29,502 16,823 11,848 10,5419,342

16,442,945 23,791,885 23,217,848 23,987,061 26,278,004

CURRENT ASSETS

Stores, spare parts and loose tools 955,136 688,832 561,251 490,229422,428

Stock-in-trade 9,846,680 6,060,441 4,092,512 4,103,6483,106,436

Trade debts 2,481,259 2,041,256 1,300,366 1,329,027831,653

Loans and advances 756,351 504,046 462,025 403295411270

Prepayments 47,211 31,912 29,880 30,40026,395

Other receivables 1,619,291 2,295,856 1,737,310 7,499,1678,441,298

Tax refunds due from government

Cash and bank balances 1,132,701 110,585 111,494 73,75269,607

16,838,629 11,732,928 8,294,838 13,929,518 13,309,087

33,281,574 35,524,813 31,512,686 37,916,579 39,587,091



Share Capital 3,515,999 3,515,999 2,424,827 1,597,8571,597,857

Reserves 27,034,048 24,944,853 15,637,939 17,410,35527,354,833

(Accumulated loss)/unappropriated profit 4,843,912 2,915,461 1,268,001 6,138,9681,211,208

35,393,959 31,376,313 19,330,767 25,147,180 30,163,898


Long term financing 2,861,956 2,980,694 2,334,411 1,047,7941,773,820


Defferred Taxation Net 510,640 1,256,892 245,243

Staff Retirement Benefits

510,640 1,256,892 245,243 - -

CURRENT LIABILITIES

Trade and Other Payables 2,577,020 2,139,921 1,309,658 1,141,227926,593

Accrued Mark Up 358,454 232,247 202,777 201,847131,744

Short Term Borrowing 10,471,685 6,649,447 7,342,600 9,175,5185,018,664

Current maturity of long term financing 1,283,865 1,128,632 433,313 926,0251,341,565

Provision for taxation - net of payment 631,325 418,768 313,917 276,988230,807

15,322,349 10,569,015 9,602,265 11,721,605 7,649,373


54,088,904 46,182,914 31,512,686 37,916,579 39,587,091

(Source: Balance sheet available at www.nishatpak.com)

NISHAT MILLS LIMITED

Comparative Profit and Loss Statement

20112010200920082007

Sales 48,565,144 31,535,647 23,870,379 19,267,633 17,180,192

Cost of sales 40,718,697 25,555,462 19,518,838 16,298,857 14,335,254

Gross Profit 7,846,447 5,980,185 4,351,541 2,968,776 2,844,938

Distribution cost 2,190,496 1,714,598 1,315,630 961,711928,778


Other operating expenses 431,220 289,080 191,608 110,78191,758

3,278,472 2,548,844 1,942,250 1,471,249 1,340,738

4,567,975 3,431,341 2,409,291 1,497,527 1,504,200

Other operating income 2,444,985 981,650 599,006 5,806,873671,275

Operating profit 7,012,960 4,412,991 3,008,297 7,304,400 2,175,475

Finance cost 1,601,048 1,126,922 1,446,796 907,432819,267

(Loss)/profit before taxation 5,411,912 3,286,069 1,561,501 6,396,968 1,356,208

Provision for taxation 568,000 370,608 293,500 258,000145,000

(Loss)/profit after taxation 4,843,912 2,915,461 1,268,001 6,138,968 1,211,208

(Loss)/earnings per share - basic and diluted (Rs.) 13.78 10.50 6.20 38.42 7.58

(Source: Balance sheet available at www.nishatpak.com)

SAIF TEXTILE MILLS

Comparative Balance Sheet

20112010200920082007

ASSETS


Property, plant and equipment 2,185,991 2,145,989 2,225,806 2,194,375 2,304,294

Intangible assets 167 258 535 910713

Long term investment 5,800 2,291 2,483 2,4013,066

Long term loans and advances 7,095 6,871 7,128 7,4767,163

Long term deposits 188,013 188,013 192,994 99,87138,836

2,387,066 2,343,422 2,428,946 2,305,033 2,354,072

CURRENT ASSETS

Stores, spare parts and loose tools 61,712 56,647 51,005 51,26352,877

Stock-in-trade 1,400,986 1,368,010 685,765 911,516933,599

Trade debts 1,042,820 775,350 740,173 892,083732,669

Loans and advances 24,583 19,282 36,831 2625219746

Prepayments 4,649 5,264 5,557 3,9843,416

Other receivables 89,122 102,555 10,793 58,07723,330

Tax refunds due from government 26,808 44,514 38,024 40,30959,329

Cash and bank balances 3,807 7,104 3,206 4,8923,154

2,654,487 2,378,726 1,571,354 1,988,376 1,828,120

5,041,553 4,722,148 4,000,300 4,293,409 4,182,192



Share Capital 264,129 264,129 264,129 264,129264,129

Reserves 265,981 265,981 265,981 265,981265,981

(Accumulated loss)/unappropriated profit 495,443 -124,082 (212,897)340,518372,933

1,025,553 406,028 317,213 870,628 903,043


Long term financing 1,153,340 1,403,881 1,759,180 1,399,8081,183,035


Defferred Taxation Net

Staff Retirement Benefits 61,392 44,780 34,827 31,94726,761

61,392 44,780 34,827 31,947 26,761

CURRENT LIABILITIES

Trade and Other Payables 579,733 220,095 257,802 238,170249,112

Accrued Mark Up 116,381 166,370 115,064 34,27459,527

Short Term Borrowing 1,731,229 1,978,064 1,348,778 1,478,6121,496,385

Current maturity of long term financing 350,375 502,930 167,436 239,970245,358

Provision for taxation - net of payment 23,550 0 - 018,961

2,801,268 2,867,459 1,889,080 1,991,026 2,069,343


5,041,553 4,722,148 4,000,300 4,293,409 4,182,182

(Source: Balance sheet available at www. saiftextile.com)

SAIF TEXTILE MILLS

Comparative Profit and Loss Statement

20112010200920082007

Sales 7,361,391 4,642,452 3,727,820 4,489,205 3,813,037

Cost of sales 6,021,743 3,931,756 3,616,538 4,048,768 3,423,596

Gross Profit 1,339,648 710,696 111,282 440,437 389,441

Distribution cost 206,762 117,790 124,178 123,12680,030


Other operating expenses 61,539 8,067 7,219 6,6922,809

393,901 228,536 229,209 210,563 156,688

945,747 482,160 (117,927) 229,874 232,753

Other operating income 3,

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