Comparison Between Two Major Textile Companies

Topics: Financial ratios, Financial ratio, Inventory Pages: 9 (2575 words) Published: March 21, 2013
Executive Summary

In this report, I have discussed about the two major textile organizations that are AL-karam and Gul Ahmed textile mills. I have conducted a ratio analysis from the information gathered from their financial statements. In my study, I found out that AL-Karam is doing comparatively well from Gul Ahmed textiles as various ratios proved to be positive in terms of AL-Karam textiles.

Accounting Policies
Through accounting strategies and the methods of computation used in the preparation of this financial information are the same as those applied in the preparation of financial statements for the year ended June 30, 2011. These financial statements have been prepared in accordance with approved accounting standards as applicable in Pakistan. Approved accounting standards comprise such International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board as are notified under the Companies Ordinance, 1984, provisions of and directives issued under the Companies Ordinance, 1984. In case requirements differ, the provisions or directives of the Companies Ordinance, 1984 shall overcome operating assets. Operating assets are stated at cost less accumulated depreciation and any identified impairment loss except leasehold land which is stated at cost. No amortization is provided on leasehold land since the lease is renewable at the option of the lessee. Depreciation is charged on reducing balance method at rates specified in the note 13.1. Full year’s depreciation is charged on additions except major additions or extensions to production facilities which are depreciated on pro-rata basis for the period of use during the year and no depreciation is charged on assets in the year of their disposal. Structures on leased retail outlets are depreciated over the respective lease term. Gains and losses on disposal of operating assets are included in profit and loss account. Capital work-in-progress

Capital work-in-progress is stated at cost accumulated up to the balance sheet date and represents expenditure incurred on property, plant and equipment in the course of construction. These expenditures are transferred to relevant category of property, plant and equipment as and when the asset starts operation. Intangible assets

Intangible assets are stated at cost less accumulated amortization. Amortization is charged over the useful life of the assets on a systematic basis to income applying the straight line method at the rate specified in note 14. Investments

Investments in subsidiary company are stated at cost. The Company reconsiders the carrying amount of the investments to assess whether there is any indication of impairment loss. If such indication exists, the carrying amount is reduced to recoverable amount and the difference is recognized as an expense. Where an impairment loss subsequently reverses, the carrying amount of the investment is increased to the revised recoverable amount. The reversal of such impairment loss is recognized as an income.

Financial Ratios
| 2010| 2009|
Current ratios| 0.97| 0.95|
Quick Ratio| 0.39| 0.44|
Total debt to Total assets ratio| 75.37%| 77.04%|
Times interest earned| -| 1.00 times|
Funded debt to net working capital| 61.80%| 63.49%| Efficiency|
Average collection period | 4.3 days| 44.56 days|
Inventory turnover | 3.98| 4.43|
Total assets turnover| 1.34| 1.11|
Net worth turn over| 5.47| 2.99|
Net working capital turnover| -87.86| 50.92|
Net profit margin| 2.42%| -0.56%|
Gross profit margin| 16.11%| 7.30%|
Return on total assets| 3.27%| -0.71%|
Return on Net working capital| 13.28%| -48.01%|
Return on net worth| -213.10%| -3.26%|

Ratios Analysis

A liquidity ratio measures the company's ability to pay its bills. The denominator of a liquidity ratio is the company's current...
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