An analysis of financial and business performance of Gul Ahmed Textile Mills Limited between FY2009 to FY2011.

Presented By: Qurat Ul Ain Saboor ACCA Registration Number :2197112

INTRODUCTION

Topic: An analysis of financial and business

performance of Gul Ahmed Textile Mills Limited for FY2009 to FY2011

Organization:Gul Ahmed Textile Mills Limited

Reasons for choosing the topic and organization

To

fully assess how theoretical knowledge is applied in real world scenarios Adequate knowledge is easily available and accessible. To analyze the effects of power shortages on textile company

HISTORY AND PROFILE OF GATML

GATML was established in 1953. It was listed on Karachi Stock Exchange in [Link] is vertically integrated. This enables the company to produce different varieties from cotton to finished products. In 2003, GATML opened Retail store by name of ideas in Clifton, Karachi. Now it has many stores across the country. The company currently has installed capacity of 130,296 spindles. The weaving unit is equipped with 223 air jet high-speed looms. Sophisticated machinery is used in processing. This has helped the company in giving customers high quality in printing, dyeing and value added coating and flocking. The company has capacity to print 3.2 meters of cloth in 21 colors.

Modern stitching facility is available in the shape of regular and specialized machinery. This machinery enables the company to manufacture product in many varieties and styles. The design department uses CAM/CAD machines to employ latest techniques. European designers share their expertise with GATML design department Proper system of control and check is in place to achieve high standards. As a result company has ISO SA8000 certification. The company has achieved various certifications required by customers around the world.

 The

company produces following products: Fashion Fabric and Apparels. Home textiles, Embellished beddings and Curtains. Singed Dyed and Mercerized yarn. Combed and Carded Yarn for knitting and weaving.

The company has membership of following trade bodies and organizations: The Karachi Stock Exchange (Guarantee) Limited. Lahore Stock Exchange (Guarantee) Limited. All Pakistan Textile Mills Association. Pakistan Cotton Fashion Apparel Manufacturers & Exporters Association. All Pakistan Bed sheets & Upholstery Manufacturers Association. Karachi Cotton Association. Chamber of Commerce & Industry, Karachi. Employees Federation of Pakistan. All Pakistan Textile Processing Mills Association ([Link] )

RESEARCH QUESTIONS
What is the performance of Gul Ahmed textile Mills from FY 2009 FY2011 as compared to its competitors? What does the Environmental analysis or PESTEL analysis portray about the Gul Ahmed Textile Mills from FY2009 FY2011? What is the conclusion of the Research Report and any recommendations for Gul Ahmed Textile Mills Ltd from FY2009 FY2011?

RESEARCH OBJECTIVES
To analyze the performance of Gul Ahmed Textile Mills ltd for FY2009 FY2011. To compare the performance of Gul Ahmed Textile with the performance of its competitors. To identify the effect of liquidity ratios on profitability of Gul Ahmed Textile Mills. To carry out the environmental analysis of Gul Ahmed Textile Mills. To draw conclusion based on ratio analysis and PESTEL analysis.

INFORMATION GATHERING
SOURCES

OF INFORMATION

Internet Annual Reports of GATML and its competitors Study texts and books Published journals and reports
ETHICAL

ISSUES

Already prepared available on internet Proper referencing

ACCOUNTING AND BUSINESS TECHNIQUES

PESTEL ANALYSIS PESTEL analysis is a tool used to identify significant factors in the macroeconomic environment in which an entity operates. In simple words, it is a structured approach for analyzing the external environment of an entity.( EmileWoolf,2011) RATIO ANALYSIS Ratio analysis includes comparison of two figures with each other to produce a ratio. It is an assessment of whether the ratio indicates a weakness or strength in a companys affairs. (BPP study text). Financial statements are used in decision making by the users of financial statements. These are used by management, shareholders, banks, government and by lenders. .( EmileWoolf,2011)

PROFITABILITY RATIOS
Profitability ratios help to analyze the profitability of the company under analysis .i.e. GATML. The profitability ratios include ROCE hence; the analysts use these to assess the returns a company makes on capital invested.
Gul Ahmed Textile Mills Ltd Ratio Analysis 2011 2010 Profitability ratios Gross profit ratio 18.19 16.12 Net profit to sales Profit margin ROE Average Capital employed ROCE 4.70 2.43 10.36 8.39 28.80 14.22 6,617,573 5,929,564 39.8 27.9

2009 Formulas used 16.96 Gross Profit/Sales *100 0.58 Profit After Tax/Sales*100 8.69 Operating Profit/Sales*100 2.73 Profit After Tax/Average Shareholder Equity*100 5,540,353 21.8 Operating Profit/Average Capital Employed

FINANCIAL PERFORMANCE OF GATML

Finnancial Performance-GATM
Profit after taxation

Provision for taxation

Finance cost

Operating profit

2009 2010

Other operating income

2011

Other operating expenses

Administrative expenses

Distribution cost 0 500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000

LIQUIDITY RATIOS
Liquidity ratios will show whether GATML have enough cash or has access to readily available cash to meet its obligations. For calculating these ratios GATML will have to make few assumptions; only sources of cash are cash at bank and cash in hand. As well as the current liabilities of GATML will soon convert into cash during normal course of trade. The second assumption is that the only immediate obligations GATML will have to face are its current liabilities

COMPARISON OF LIQUIDITY RATIOS OF GATML

TURNOVER RATIO
Turnover ratios are also known working capital ratios. These are useful in assessing whether a company has invested too little or too much in working capital. (ACCA F7 INT Emile Woolf International Publications, 2010)
Turnover ratios Inventory turnover Inventory turnover ratio Debtor turnover Debtor turnover ratio Creditor turnover Creditor turnover ratio Fixed assets turnover ratio Total assets turnover ratio 2011 -134.00 -0.37 31.50 0.086 82 0.23 3.82 1.25 2010 -97.57 -0.27 45.34 0.124 73.00 0.20 3.21 1.35 2009 Formulas Used -107.49 Inventory Turnover Ratio*365 -0.29 Average Inventory/Cost Of Sales 66.47 Debtor Turnover Ratio*365 0.182 Average trade Debts/Sales 76 0.21 2.28 Sales/Fixed Assets 1.02 Sales/Total Assets

TURNOVER RATIOS OF GATML

Turnover ratios Turnover ratios
Total assets turnover ratio
Total assets turnover ratio Fixed assets turnover ratio Fixed assets turnover ratio Creditor turnover ratio Debtor turnover ratio Creditor turnover ratio Inventory turnover ratio -1.00 0.00 1.00 2.00 3.00 4.00 2009 2010 2011 2009 2010 2011

Debtor turnover ratio

Inventory turnover ratio

-0.50

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

Investor Ratio
These ratios help investors and equity shareholders to assess the value and quality of an investment in the ordinary shares of GATML.
Investors ratios Cash Dividend per share Dividend yield ratio Dividend cover ratio Earnings per share Price earnings ratio Earning yield Dividend payout ratio MV per share 2011 _ _ _ 18.85 2.74 _ _ 51.73 2010 1.25 _ 0.067 _ 6.02 _ 7.52 2.46 0.17 _ 16.62 _ 18.53 38.84 2009 Formulas used Dividends paid/Number of Ordinary Shares Dividend per share/MV per share EPS/DPS 1.264 Profit After Taxation/Number of Ordinary Shares 30.74 MV per share/EPS Dividends paid/Profit After Taxation Dividend per share/EPS

COMPARISON BETWEEN THE INDUSTRY AND GATML

Price Earning Ratio
Industry Ratio GATML

4.18 2009 30.74

2.36 2010 2.46

-1 2011 2.74

LEVERAGE RATIO
Leverage

is a concept derived from physics. The companies use leverage to increase their ROA and Return on Shareholders Equity. The right amount of leverage affects a company positively and too much debt will leave negative impacts on the company.

MOVEMENT IN THE LEVERAGE RATIO OF GATML

Leverage ratios-GATML
10 8 6

4
Times 2 0 -2 -4 -6 Interest cover 2009 2010 2011 -1.16 Debt to equity ratio 0.82 Financial leverage ratio 2.69

Degree of operating leverage 1.57

-1.75
-2.4

0.62
0.47

2.4
2.67

0.88
2.04

POLITICAL FACTORS
Shift

of competition to Bangladesh due to high tariffs

The government allocated Rs7.5 billion for Duty Drawback of Local Taxes and Levies for FY2011-12. The textile sector has only received Rs3 billion and the budget allocation period is about to lapse.

There is a Textile Forum formed to discuss prospects of trade with India by the name of Aman ki Asha. The Chairman of GATML is one of the members of committee formed under the Forum. The Federal Petroleum Minister Dr Asim assured that gas load shedding would reduce days to 10 days. However, the APTMA chairman demanded 5 days load shedding including eid holidays.

ECONOMIC FACTORS
Challenging Low 7%

Economy

foreign reserves

growth in GDP in FY03-08, unlikely to attain in future

purchasing power of consumer not operating on full capacity

Low

Sector

 Uncertain

fluctuations in prices is adversely affecting the sector Another problem that is posing threat for the domestic textile industry is undocumented imports of $950 million from China and $420 million textile products from India, and $321 million through Afghan Transit [Link] inflation rate and high cost of financing has deferred the growth Tight monetary policy has made financing expensive

The exports to japan increased from $57 million in FY2010 to $128 million in FY2011. This was a great achievement for Pakistan, despite the fact that Japan levied 9.5% duty on imports of Pakistani textiles.

SOCIAL FACTORS
Rising

rates of Urbanization Pakistan is an over populated country, which provides a potential opportunity in the future for consumer related segments. Over populated country. The textile was not able to reach the projected exports of $5193 million in FY2020/11, thanks to the war on terror and the economic recession.

TECHNOLOGICAL FACTORS
Low

focus on R&D of cotton as compared to other Asian countries Use of obsolete machinery GATML claims to have modern machinery Focus on lowering costs instead of spending on research

ECOLOGICAL FACTORS
Not

much pressure on companies to go green GATML recycles waste water and has caustic soda recovery plant Free media, goodwill at stake

LEGAL FACTORS
Labor

employed through contractors, ease for employers Few laws for labors, implementation almost zero Employers try to find loopholes in the law and stick to those There is an accusation on the mill owner of exporting narcotics in the garb of textile products to the UK.

CONCLUSION
The performance of GATML is good overall.. Stakeholders must be careful in just evaluating based on quantitative analysis. The economic condition is tough in Pakistan. Accordingly GATML must focus on fund management. Rising raw material prices and falling GDP is posing threats and lead to reduction in purchasing power of the consumers of GATML. Foreign countries are imposing duties on imports of Pakistani textiles but despite this Pakistani exports to Japan is increasing.

Urbanization is increasing, so is the cheap workforce for GATML. The goodwill of Pakistan has deteriorated because of war on terror, hence, the exports of Pakistani textile is facing discrimination in form of duties. Despite low focus on modern technology in the industry, GATML is using modern technology. Not only this, the company is environment friendly as well, the company must publicize this fact to increase its goodwill. All major textile exporters of Pakistan can establish a forum to improve the image of Pakistan and they must work to eliminate any illegal activities again in future.

Thank you