Impact of Financial Crisis on the Textile Industry of Pakistan: a Case Study of Fateh Textile Industry

Topics: Financial ratios, Financial ratio, Balance sheet Pages: 17 (5340 words) Published: November 13, 2012
Australian Journal of Basic and Applied Sciences, 5(10): 1435-1443, 2011 ISSN 1991-8178

Impact Of Financial Crisis On The Textile Industry Of Pakistan: A Case Study Of Fateh Textile Industry 1

Dr. Zahid Ali Channar, 2Dr. Nanik Ram

1

Assistant Professor, Department of Management Sciences, Faculty of Commerce, Economics and Management Sciences, Isra University, Hyderabad, Sindh, Pakistan. 2 Assistant professor Department of economics, University of Sindh, Jamshoro pakistan. Abstract: After the great depression of 1930s, financial crisis of 2007-09 were most serious. Due to these financial crises large financial crisis collapsed, key businesses failed & wealth of consumer has been lost. Pakistan can not be the exceptional case in this regard. The key industry of Pakistan – textile industry suffered huge financial losses in that period. This study is conducted to assess the impact of financial crisis on the textile sector of Pakistan. For this purpose a case study of Fateh Textile industry is carried out. Data was collected from the internal sources-fateh textile industry’s records-as well as from external sources-Pakistan Economic Survey. Data was analyzed through vertical analysis i.e. Common size balance sheet analyses, Common size Income statement analysis, and through ratios Liquidity Ratios, Asset Management Ratios, Debt Management Ratios and Profitability Ratios. Common size income statement analysis and profitability measuring ratios confirmed that Fateh textile industry earned higher profits before the financial crisis & financial crisis deteriorated the earning capacity of this industry. Common size balance sheet analyses showed that after financial crisis Fateh textile industry was lowly leveraged, which deprived the owners of high rate of return. Debt management ratio analyses proved that creditors provided lesser amount in financing after financial crisis as compared to before crisis. Liquidity ratio proved that debt retiring ability of fateh textile industry declined after financial crisis. Inventory turnover analysis showed that Fateh textile industry was more efficient in managing and selling the inventory before the financial crisis than after the crisis. Days Sales outstanding analysis indicated that after the financial crisis the average time period for the collection of receivables increased too much which meant that Fateh Textile industry faced problems in collection of receivables after crisis. Fixed Asset Turnover ratio analysis proved that fixed assets were managed poorly and were being used unproductively after financial crisis. This indicated that there were low sales in fateh textile industry after financial crisis as compared to before financial crisis period. The results yielded by the fixed asset turnover ratio analysis indicated that Fateh had greater efficiency in using assets to produce sales before financial crisis than after financial crisis. Key words: Financial Crisis, Textile industry, vertical analysis, ratios, financial leverage. INTRODUCTION

Textile industry is considered as the main industry for the economy of Pakistan because of these three reasons: It has backward linkage with the agricultural sector; it is the biggest manufacturing industry of the country, and it is the high export interest enterprises (Mohammad, 2008). Contribution of textile industry in the economy of Pakistan is depicted in following table: Table 1: Textile Industry’s Contribution 2005 2009 Years Share in Export Share in GDP Share in Employment Share in Manufacturing Source: Textile Commissioners Organization 2005-06 63% 9% 38% 46% 2006-07 61% 8.5% 38% 46% 2007-08 54% 8.5% 39% 46% 2008-09 54% 8.5% 38% 46%

Financial Crisis: Finance means raising the cash for doing business. At macro level “finance” is the practical application of economics. Economy of a country allocates money to different profitable projects through financial systems. Financial crises badly affect the flow of finance & thus...

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