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November 28th, 2012 Mahtab Faruqui Senior Lecturer, BRAC Business School, BRAC University.

Subject: Submission of term paper on "Financial analysis on Square Textiles Ltd and APEX Spinning & Knitting Mills Ltd." Dear Madam, We are very delighted to submit the final term paper, due on November 28th, 2012 as you requested. We have done this paper on "Financial analysis on Square Textiles Ltd and APEX Spinning & Knitting Mills Ltd." as the course material of Financial Management (FIN301). Our main incentive was to prepare this term paper according to your guidelines in accordance with your directions. We have tried our best to make our work as per your structures. We hope that we have done a satisfactory job considering our level of experience and capability and have been able to relate the fundamental things with realistic applications. Moreover, we are extremely thankful for the opportunities that you gave us to express our innovative ability and we intently hope that you will like the work that we have done. Sincerely, Name Syeda Anika Anwar Sanjida Afrin Sinthia Ishrat Rahman Nasim Ahmed Md. Erfanul Haque ID ID: 10204010 ID: 11104020 ID: 11104063 ID: 11104080 ID: 11104098 Signature

Acknowledgement
We feel great privilege for giving us the opportunity to work on the term paper on "Financial analysis on Square Textiles Ltd and APEX Spinning & Knitting Mills Ltd.". We are much grateful to all those people who have tried their level best to work with us throughout our research and preparation of this term paper. We are very grateful to Mahtab Faruqui, our course instructor for her continuous support, advice and proper guidance, without which our paper work would not be possible. We cannot stay without giving thanks to Khurshid Alam Chowdhury, the Director of Finance in Square Textiles Ltd for his valuable time and cooperation. We heartedly thank all our fellow-mates and friends for their valuable contribution to this term paper and special thanks to Mr. Tayebur Rahman for sharing his related knowledge with us and helping us.

Executive Summary
The objective of this term paper was to have a specific idea about companies named Square Textiles Ltd and APEX Spinning & Knitting Mills Ltd. through financial ratio analysis. We have analyzed the ratios of three consecutive years within the company and then comparing both companies with each other.

Introduction
This term paper is prepared with an intention to meet partial requirement of the course "Financial Management". We have chosen Square Textiles Ltd and APEX Spinning &

Knitting Mills Ltd for this purpose. We performed an analysis of the company and tired to evaluate its justification with the acquired knowledge from the course.

Objective of the Study:


The objective of this term paper is to: Identify the ratios of both companies Analyze and compare the ratios within and other company

Methodology:
We have performed a ratio analysis to evaluate the company's financial strengths and weaknesses.

Limitations:
Like all other term papers, this one also got its limitations. Following are the areas where we had our limitations: We were unable to conduct a direct interview with Square Textiles Ltd and with ASKML's employees to get a better insight of our findings. Unavailability of information in a "soft copy" which consumed a lot of time. No direct information was given in the annual report about the ratios which sometimes made our odds a bit difficult. Due to time constraints, we have compared only 3 years ratios of each company. It would have been great if we could compare at least 5 years ratios to get a proper insight.

Background of the Companies


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Square Textiles Ltd:

Square Textiles Ltd was established as a public limited company in 1994 as a group company in Square group with a business line of manufacturing and marketing of yarn. The company started its operation on 1997 and was listed at both Dhaka Stock Exchange and in Chittagong Stock Exchange in 2004. At the end of 2009, paid-up capital of the company was TK.705.84 million with 70,584,053 shares outstanding. The company is very profitable and doing very good in terms of share price also. Dividend payout in both cash and bonus share has also been very consistent through the last few years. Square Textiles Ltd got Oeko-Tex standard 100 and ISO-9002 certification in 2000. At the end of 2009, the production capacity of the company stands at 11,582,899 Kg Ring yarn and 12,329,688 Kg of O/E yarn. APEX Spinning & Knitting Mills Ltd:

APEX Spinning and Knitting Mills Ltd. (ASKML) was incorporated in 1990 as a public limited company and listed in Dhaka Stock Exchange and in Chittagong Stock Exchange. The company was initially formed for processing and export of knit garments but now ASKML is a leading manufacturer and exporter of all kinds of textiles knitting garments. ASKML is 100% export oriented, vertically integrated knitting, dyeing, finishing and garment manufacturing company with production capacity of about 15 million pieces of garments per year. ASKML exports to North America, EU countries and to South East Asia. ASKML has an desirable reputation as an international garment manufacturer based on a simple but unwavering philosophy of producing high quality products. All fabrics produced in ASKML's own factory are tested in its own laboratory for wet & dry-rub fastness, wash fastness, dimensional stability, required fabric density, yarn count and composition before making finished garments. ASKML has permission to put OKO Tex label on all its garments and currently in the middle of attaining ISO 9001:2000 certification from the accreditation body of UKAS.

Analysis and Interpretation of Financial Data


Ratio Analysis:
The real value of financial statements lies in the fact that they can be used to help predict a company's financial position in the future and to determine expected earnings and dividends. An analysis of the company's ratios is generally the first step in a financial analysis. The ratios are designed to show relationships between financial statement accounts within firms and between firms. Sources for these ratios are the company's financial statements within the industry that contains figures on assets, liabilities, profits and losses. Industry ratios are only meaningful when compared with other information. Since individual companies are most often compared with industry data, ratios help an individual to understand a company's performance relative to that of competitors and are often used to trace performance over time. There are 5 major categories when ratio analysis is considered. These categories are:
1. Liquidity Ratio: Which gives a picture of a company's short term financial situation

or solvency.
2. Asset Management Ratio: It uses turnover measures to show how efficient a

company is in its operations and use of assets.


3. Debt Management Ratio: It shows the extent that debt is used in a company's capital

structure.
4. Profitability Ratio: It uses margin analysis and show return on sales and capital

employed.
5. Market Value Ratio: It shows company's standing in the capital market.

Analysis:

Liquidity Ratio: Liquid assets are assets that can be converted to cash without significant loss of its original value. This basically indicates the strength of a company in terms of meeting the current obligations or liabilities, e.g. employee salary. Sometimes, low liquidity even leads to bankruptcy. Two commonly used liquidity ratios are (1) Current Ratio and (2) Acid Test Ratio.

Current Ratio: Current ratio is the ratio of current assets to current liabilities which refers to the short term solvency of the company and calculated as:

Company Year Current Ratio

Square Textiles Ltd 2011 2010 2009 1.57 1.47 1.42

2011 1.18

ASKML 2010 1.1

2009 1.13

Table: Current Ratio of Square Textiles Ltd and APEX Spinning & Knitting Mills Ltd.

Figure: Current Ratio Trend

Current Ratio of Square Textiles Ltd: The trend line of the current ratio for Square Textiles shows that the company has maintained a somewhat steady ratio for last 03 years and also there has been a huge increase in assets from 2009 which took the company in a better position in 2011. Current Ratio of APEX Spinning & Knitting Mills Ltd: The trend line of APEX Spinning & Knitting Mills Ltd. shows that they also had maintained a fair current ratio which was 1.18 in 2011 and their ratio also increased as they have increased their assets recently. Comparison: We can see from the above data that the current ratio for Square Textiles was 1.57 in 2011 which was within the benchmark standard for any company but comparing with APEX Spinning & Knitting Mills Ltd, it was higher as ASKML had a current ratio of 1.18 in 2011.

Acid (Quick) Test Ratio: Acid test ratio is a better measure than current ratio as it deducts inventories from current assets and thus provides a better idea about the liquidity of the company. It is calculated as follows:

Company Year Acid Test Ratio

Square Textiles Ltd 2011 2010 2009 1.17 0.92 0.96

2011 0.89

ASKML 2010 0.7

2009 0.78

Table: Acid Test (Quick) Ratio of Square Textiles Ltd and APEX Spinning & Knitting Mills Ltd.

Figure: Acid Test (Quick) Ratio Trend

Acid Test (Quick) Ratio of Square Textiles Ltd: As we can see from the graph above, the quick ratio of Square Textiles had increased in a large manner 2011 as their assets increased and inventories changed due to the increase in stock with comparison with their liabilities but apart from that, they have not maintained a steady ratio. Acid Test (Quick) Ratio of APEX Spinning & Knitting Mills Ltd: We can see from the trend that APEX Spinning & Knitting Mills Ltd has also not maintained a steady ratio as their ratios were fluctuating heavily. They had a good quick ratio of 0.89 in 2011 which is lower than the benchmark ratio of 1:1 as their inventories increased with the comparison to their liabilities. Comparison: Square Textiles has maintained a quick ratio of 1.17 which was higher than the benchmark ratio of 1:1 but comparing with APEX Spinning & Knitting Mills Ltd, it was much higher as APEX Spinning & Knitting Mills Ltd had a quick ratio of 0.89.

Asset Management Ratio: Whether the assets of the company are being used efficiently or in other words is able to generate sales is suggested by the asset management ratio. Four commonly used ratios are (1) Inventory Turnover, (2) Day Sales Outstanding, (3) Fixed Asset Turnover, (4) Receivable Turnover and (5) Total Asset Turnover Ratio.
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Inventory Turnover: It shows that how many times the inventory of a company is sold and replaced in a specific period. It is calculated as:

Company Year Inventory Turnover

Square Textiles Ltd 2011 2010 2009 3.38 2.19 3.55

2011 12.66

ASKML 2010 7.85

2009 9.56

Table: Inventory Turnover of Square Textiles Ltd and APEX Spinning & Knitting Mills Ltd.

Figure: Inventory Turnover Trend

Inventory Turnover of Square Textiles Ltd: The trend line does not look very impressive for Square Textiles as the inventory turnover was getting lower. This might be due to increasing price of raw materials and due to price reduction to cope up with the competitive market. However, the inventory turnover improved in 2011 which indicates something good in the near future. Inventory Turnover of APEX Spinning & Knitting Mills Ltd: We can see from the trend that ASKML has maintained a very healthy inventory turnover and we can see that there was a sharp rise from 2010 to 2011 which can primarily be attributed to the handsome increase in export sales.
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Comparison: The inventory turnover of Square Textiles was 3.38 in 2011 whereas APEX Spinning & Knitting Mills Ltd had an inventory turnover of 12.66. So in this regard, Square Textiles was in much worse position than APEX Spinning & Knitting Mills Ltd.

Days Sales Outstanding: Days sales outstanding refers to the average time a company takes to turn the receivables into cash. It is calculated as:

Company Year DSO

Square Textiles Ltd 2011 2010 2009 137.8 134.98 156.09

ASKML 2011 2010 44.76 36.38

2009 55.42

Table: Days Sales Outstanding of Square Textiles Ltd and APEX Spinning & Knitting Mills Ltd.

Figure: Day Sales Outstanding Trend

Days Sales Outstanding of Square Textiles Ltd: The trend analysis shows that during the period of 2009, Square Textiles had the worst DSO of 156.09 days. In 2010 and 2011, it improved a bit but DSO was still too high. This may be due to the fact that most of the Square Textiles dales were export sales which naturally takes longer to be collected. Days Sales Outstanding of APEX Spinning & Knitting Mills Ltd: According to the trend, APEX Spinning & Knitting Mills Ltd was doing a
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pretty good job by collecting their receivables in shortest possible time. In 2010, they had the best DSO of 36.38 days but it comparatively got higher in 2011. Overall, they have maintained a pretty good DSO. Comparison: During the last year, Square Textiles had a DSO of 137.8 days whereas, APEX Spinning & Knitting Mills Ltd had DSO of 44.76 days. So in this regard, APEX Spinning & Knitting Mills Ltd was in a far better position than Square Textiles.

Fixed Asset Turnover: The ratio refers to how much sales or revenue is generated by employing the fixed assets of the company. It is calculated as:

Company Year Fixed Asset Turnover

Square Textiles Ltd 2011 2010 2009 2.17 1.93 1.7

2011 8.39

ASKML 2010 6.57

2009 4.63

Table: Fixed Asset Turnover of Square Textiles Ltd and APEX Spinning & Knitting Mills Ltd.

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Figure: Fixed Asset Turnover Trend

Fixed Asset Turnover of Square Textiles Ltd: In the trend, the fixed asset turnover of Square Textiles was fluctuating. The ratios had improved in 2011 but still it was too low. The main reason behind this scenario was that they did not go for any leasing option of assets. Fixed Asset Turnover of APEX Spinning & Knitting Mills Ltd: The trends of ASKML was showing a healthy fixed asset turnover for them as from 2009, they have gradually improved their ratio and in 2011, their fixed asset turnover was 8.39 which was a very handsome ratio to maintain. On the other hand, though ASKML has maintained a healthy ratio, we have found out that ASKML was very low in fixed assets which was an indication of off-balance sheet financing. Comparison: Square Textiles had a fixed asset turnover of 2.17 in 2011 which means their TK.1 of fixed asset could generate TK. 2.17 of sales whereas, ASKML had fixed asset turnover of 8.39 in the year 2011. So, we can see that, ASKML was in a better position than Square Textiles.

Total Asset Turnover: Like the fixed assets, the ratio refers to how much sales or revenue was generated by employing the fixed assets of the company. It is calculated as:

Company Year Total Asset Turnover

Square Textiles Ltd 2011 2010 2009 0.73 0.67 0.7

2011 2.4

ASKML 2010 2.08

2009 1.9

Table: Total Asset Turnover of Square Textiles Ltd and APEX Spinning & Knitting Mills Ltd.

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Figure: Total Asset Turnover Trend

Total Asset Turnover of Square Textiles Ltd: As we can see from the graph, the total asset turnover of Square Textiles had increased gradually as their sales and total assets had increased simultaneously every year. It stands at 0.73 in 2011 which shows a better hope for this company. Total Asset Turnover of APEX Spinning & Knitting Mills Ltd: The trend similarly shows that the total asset turnover of ASKML had also increased gradually as they were generating more sales revenue per currency of asset investment then does the industry on average. Comparison: Square Textiles had total asset turnover of 0.73 in the year 2011 which means their TK.1 of total asset could generate TK. 0.73 of sales whereas ASKML had total asset turnover of 2.40. So, it clearly shows that ASKML was leading in this ratio.

Receivable Turnover: Measures the times the receivables have been turned over into cash during the year. It is calculated as:

Company Year RT
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Square Textiles Ltd 2011 2010 2009 2.61 2.67 2.31

ASKML 2011 2010 8.3 10.1

2009 6.73

Table: Receivable Turnover of Square Textiles Ltd and APEX Spinning & Knitting Mills Ltd.

Figure: Receivable Turnover Trend

Receivable Turnover of Square Textiles Ltd: Through the graph we can see that the Square Textiles were maintaining more or less a consistent receivable turnover ratio but still not good enough. The reason that we had found out that they were not re-assessing the credit policies in order to ensure the timely collection of imparted credit that were not earning interest for the company. Receivable Turnover of APEX Spinning & Knitting Mills Ltd: ASKML was maintaining a very healthy receivable turnover ratio as they were collecting its receivables and having more cash the on their hand as a result. Even though their ratio had declined a bit in 2011 but still they were in a good position. Comparison: ASKML was in a better position as their receivable turnover ratio was 8.3 in 2011 whereas Square Textiles had only 2.61.

Debt Management Ratio: Debt management ratio judge the debt management performance of the company. If a company goes for too much debt for financing its operations, it might end up in a very hard financial situation.

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Debt to Total Assets Ratio: The debt to total assets ratio measures the percent of total funds provided by creditors. Debt includes both current liabilities and long-term debt. It is calculated as:

Company Square Textiles Ltd ASKML Year 2011 2010 2009 2011 2010 2009 DAT Ratio 43.80% 45.94% 43.37% 60.65% 62.20% 52.46%
Table: Debt to Total Assets Ratio of Square Textiles Ltd and APEX Spinning & Knitting Mills Ltd.

Figure: Debt to Total Assets Ratio Trend

Debt to Total Assets Ratio of Square Textiles Ltd: The trend shows that Square Textiles had a high debt to assets ratio at the end of the year 2010 but after that the ratio had started to go down in 2011 which was a very good sign for the company as they got less dependent on the creditors financial support. It looked like the company prefers capital financing to debt financing. Debt to Total Assets Ratio of APEX Spinning & Knitting Mills Ltd: In the graph we can see that ASKML was highly dependent to their creditors financial support as their ratio exceeds the industry recommended average of 50%. We can see that in the ratios gradually increased and in 2011 their ratio
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was 60.65% which means there were mostly dependent on debt rather than relying on their own assets. Comparison: Square Textiles had a much lower debt to total assets ratio than ASKML which puts them in the better position. Last year, the debt to total assets ratio of Square Textiles was 43.80% which was lower than the industry recommended average of 50% whereas the debt to total assets ratio of ASKLM was 60.65%.

Debt to Equity: Measures the relative proportion of entity's equity and debt used to finance an entity's assets and calculated as:

Company Year Debt to Equity

Square Textiles Ltd 2011 2010 2009 0.78 0.85 0.77

2011 0.5

ASKML 2010 0.62

2009 0.62

Table: Debt to Equity of Square Textiles Ltd and APEX Spinning & Knitting Mills Ltd.

Figure: Debt to Equity Trend

Debt to Equity Ratio of Square Textiles Ltd: Square Textiles had maintained a good debt to equity ratio. The reason behind it could be their

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additional investment and collection receivables. Their ratio fall a bit in 2011 but still they maintained it well. Debt to Equity Ratio of APEX Spinning & Knitting Mills Ltd: The debt to equity ratio of ASKML was also more or less good but their ratios fall significantly in 2011. The reason could be they were not that aggressive in financing its growth with debt. Comparison: In 2011, Square Textiles had a debt to equity ratio of 0.78 whereas ASKML had the ratio of 0.5. So, we can clearly see that Square Textiles were in a better position.

Interest Coverage: It indicates the ability to cover interest charges and tells us the number of times the interest is earned and calculated as:

Company Year Interest Coverage

Square Textiles Ltd 2011 2010 2009 5.14 3.07 3.56

2011 4.04

ASKML 2010 2.72

2009 2.04

Table: Interest Coverage of Square Textiles Ltd and APEX Spinning & Knitting Mills Ltd.

Figure: Interest Coverage Trend

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Interest Coverage of Square Textiles Ltd: Square Textiles had maintained a pretty good interest coverage for last 03 years as their ability to repay the interests and debt increased consistently. We can see in the trend that the ratio declined a bit in 2010 but in 2011 it improved in a big margin. Interest Coverage of APEX Spinning & Knitting Mills Ltd: ASKML also maintained a fair interest coverage ratio as the ratio improved gradually and got into the highest position in 2011. It proves that this company was also improving in repaying its interests and debt. Comparison: Last year, Square Textiles had interest coverage of 5.14 which means they got TK. 5.14 to pay interest of TK. 1.00. On the other hand, ASKML had interest coverage of 4.04 which means Square Textiles were in a better position in this ratio.

Profitability Ratio: Profitability is the company's ability to generate revenues in excess of the costs incurred in producing those revenues. Profitability ratio is the measure of performance showing how much the firm is earning compared to its sales, assets or equity.

Profit Margin on Sales: Measures profitability with respect to sales generated; net income per dollar of sales. It is calculated as:

Company Year Profit Margin on Sales

Square Textiles Ltd 2011 2010 2009 11.80% 12.70% 6.71%

2011 0.80%

ASKML 2010 0.60%

2009 0.87%

Table: Profit Margin on Sales for Square Textiles Ltd and APEX Spinning & Knitting Mills Ltd.

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Figure: Profit Margin on Sales Trend

Profit Margin on Sales of Square Textiles Ltd: The trend analysis shows that the profit margin on sales of Square Textile had gradually increased until 2010 but in 2011 the profit margin had gone down due to decline in price of finished goods and due to increase in raw material price. Profit Margin on Sales of APEX Spinning & Knitting Mills Ltd: Through the graph we can see that ASKML was in poor state and looked like they were highly affected by the decline in price of finished goods and due to increase in raw material price. The profit margin got low in 2010 but in 2011 they had improved a bit. Comparison: Last year, Square Textiles had profit margin of 11.80% which means by utilizing TK. 100 of sales, it could have net income of TK. 11.80. On the other hand, ASKML had profit margin of 0.80% which means Square Textiles were in a better position in this ratio.

Return on Assets: Measures overall effectiveness in generating profits with available assets; earning power of invested capital. It is calculated as:

Company
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Square Textiles Ltd

ASKML

Year ROA

2011 8.60%

2010 8.50%

2009 4.73%

2011 1.96%

2010 1.26%

2009 1.65%

Table: Return of Assets of Square Textiles Ltd and APEX Spinning & Knitting Mills Ltd.

Figure: Return on Assets Trend

Return on Assets of Square Textiles Ltd: The return of assets of Square Textiles had gradually increased and in 2011 their return on assets was 8.60% which means by utilizing TK.100 of asset they could have net income of TK 8.60. Their ratios were gone up as their net income had increased gradually. Return on Assets of APEX Spinning & Knitting Mills Ltd: The trend of ASKML for this ratios seems fluctuating. In 2010, it went down a bit but within a year they had managed to improve the ratio. Still their return on assets were comparatively low due to decreased profitability and net income. Comparison: Last year, Square Textiles had return on assets of 8.60% but on the other hand, ASKML had interest coverage of 1.96% which means Square Textiles were leading in a large margin in this ratio.

Return on Equity: Measures earning power on shareholder's book-value investment. It is calculated as:

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Company Year ROE

Square Textiles Ltd 2011 2010 2009 15.27% 15.81% 8.36%

ASKML 2011 2010 4.08% 3.34%

2009 3.49%

Table: Return on Equity of Square Textiles Ltd and APEX Spinning & Knitting Mills Ltd.

Figure: Return on Equity Trend

Return on Equity of Square Textiles Ltd: Square Textiles was caring an impressive return on equity for last 03 years. From 2009, the ratio jumped to 15.81% in 2010 and declined slightly in 2011. They were utilizing their stockholder's equity in a good manner to generate profit and to increase net income. Return on Equity of APEX Spinning & Knitting Mills Ltd: The trend shows that ASKML also had a fair return on equity ratio but still it was not enough. The reason could be the shortage of profits and as a result net income had gone down. Still they had improved a bit in 2011 as the ratio went down in 2010. Comparison: In 2011, Square Textiles had return on equity of 15.27% which means by utilizing TK.100 of total equity available to common shareholder's, they could have net income of TK 15.27. On the other hand,

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ASKML had return on equity of 4.08% which means Square Textiles were in a better position in this ratio.

Market Value Ratio: Market value is the most critical ratio while making any kind of investment decision about the company.

Price/Earnings Ratio: Measures a company's current share price compared to its pre-share earnings. It is calculated as:

Company Year P/E Ratio

Square Textiles Ltd 2011 2010 2009 17.5 29.86 30.23

2011 51.5

ASKML 2010 126.38

2009 48.02

Table: Price/Earnings Ratio of Square Textiles Ltd and APEX Spinning & Knitting Mills Ltd.

Figure: Price/Earnings Ratio Trend

Price/Earnings Ratio of Square Textiles Ltd: The trend shows us that the price/earnings ratio of Square Textiles had gradually decreased in the last 03 years and their current profit/earnings ratio in 2011 was 17.50. The

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shareholder's were not willing to spend a much higher price compared to the earnings and as a result the ratio was declining. Price/Earnings Ratio of APEX Spinning & Knitting Mills Ltd: There was a huge ups and downs for the price/earnings ratio of ASKML. In 2010, they had a sudden increase in their ratio and suddenly in 2011 their ratio declined. Still they maintained a healthy price/earnings ratio. The reason could be that either the stock was overvalued or the company earnings was increased. Comparison: In 2011, the price/earnings ratio of Square Textiles was 17.50 whereas ASKML had a ratio of 51.50. So, it clearly shows that ASKML was dominating this ratio.

Market Value/Book Value Ratio: Measures the market value of a company relative to its book value. It is calculated as:

Company Year M/B Ratio

Square Textiles Ltd 2011 2010 2009 2.67 4.77 2.52

2011 2.09

ASKML 2010 4.23

2009 1.67

Table: Market Value/Book Value Ratio of Square Textiles Ltd and APEX Spinning & Knitting Mills Ltd.

Figure: Market Value/Book Value Ratio Trend

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Market Value/Book Value Ratio of Square Textiles Ltd: The trend of Square Textiles shows that they had maintained a good market value/book value ratio. They had created value for stockholder's continuously which made their market value to increase but their ratio was a bit higher in 2010. Market Value/Book Value Ratio of APEX Spinning & Knitting Mills Ltd: ASKML maintained a healthy market value/book value ratio but their ratio was a also bit higher in 2010. Nevertheless, they had maintained a ratio which will grab the attention of the investors. Comparison: ASKML was in a better position as their ratio was 2.09 in 2011 with comparison to Square Textiles whose market value/book value ratio was 2.67.

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Recommendations
Square Textiles Ltd:

In case of Inventory Turnover, we can see that Square Textiles Ltd. has a much lower ratio of 3.38 than APEX Spinning and Knitting mills Ltd. which is 12.66. If inventory turnover is low, it means that demand for the product is low. Low inventory turnover means that products are sitting in the warehouse unsold for too long, which is costly for a business. So, Square Textiles Ltd. should do more and more advertising to increase their sales and thus it can have an increased inventory turnover.

In Fixed Asset Turnover ratio, the higher the yearly turnover rate, the better. Here, in this analysis, ASKML has a fixed asset ratio of 8.39 whereas Square Textiles has 2.17. It means that Square has over-invested in property, plant or equipment or other fixed assets. So, we think that Square should invest a less in property, plant or equipment or other fixed assets and focus more on increasing sales.

Square textiles ltd. has a lower Total Asset turnover ratio. It seems that the company is not managing its assets very well. The Total Asset Turnover ratio of Square is 0.73 and for ASKML it is 2.4. The total asset turnover ratio is a measure of how efficiently a company's assets generate revenue. It measures the number of dollars of revenue generated by one dollar of the company's assets. Here, in case of Square textiles, it is not impressive at all. So until getting a healthy ratio, Square textiles should reduce its excess production capacity, properly manage its inventory management and most importantly as we mentioned before it should increase their sales.

Square Textiles Ltd. is taking a long time to collect its money rather than ASKML. The DSO of Square Textiles Ltd 137.8 whereas it is 44.76 for ASKML. A high DSO number shows that a company is selling its product to customers on credit and taking longer to collect money. Square textiles should stop selling on credit means decrease their debtors and increase their sales.

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APEX Spinning and Knitting Mills Ltd:

In case of Current Ratio, ASKML is lack behind from the industry benchmark. The current ratio of ASKML is 1.18 but the industry average is 2:1. ASKML should increase this ratio by increasing their current assets such as giving more short term loans, increasing stock. It should use those assets which can be easily converted into cash within a short period of time.

ASKML has a very lower margin of profit. A low profit margin indicates a low margin of safety: higher risk that a decline in sales will erase profits and result in a net loss, or a negative margin. As our analysis, APEX Spinning and Knitting Mills Ltd. has a net income of TK 0.008 for each Taka of sales which is not good at all. ASKML should reduce their raw material cost, labor cost and other factory overhead costs to make this balanced.

Return on assets (ROA) ratio is used to determine whether a company is earning enough money from capital investments or not. A low percentage return on assets indicates that the company is not making enough income from the use of its assets. Here, ASKML has ROA of 1.96% which is far more less than the ROA of Square Textiles Ltd. (8.60%). A decreasing ROA indicates less profitability. ROA is derived from Net income and assets, so to improve the return on assets of ASKML; they should increase Net Income without acquiring new assets or improve the effectiveness of existing assets.

APEX Spinning and Knitting Mills Ltd. has a lower range of Return on Equity also. It has a ROA of 4.08% whereas it is 15.27% for Square Textiles Ltd. To increase this ratio, ASKML should increase sales turnover, wide their operating margin on sales, have more and cheaper leverage.

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Conclusion
While analyzing and interpreting the financial statements, we must keep in mind that, these facts and figures are at best apperception of the basic authenticity. The real picture can only be obtained through comprehensive analyzing and observing of the important factors like market, environment, current standing of the organization etc., which are out of the scope of this report. So, in reality one needs to look beyond the figures while making decision about credit extension. From an investors perspective, by analyzing the facts and figures of Square Textiles Ltd. and APEX Spinning and Knitting Mills Ltd., we can conclude that, in an overall assessment Square Textiles Ltd. is in a better Financial Position.

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Reference

Square Textiles Ltd. Annual Report 2009. Dhaka: Square Group. Square Textiles Ltd. Annual Report 2010. Dhaka: Square Group. Square Textiles Ltd. Annual Report 2011. Dhaka: Square Group. APEX Spnning and Knitting Mills Ltd. Annual Report 2009. Dhaka: APEX Group. APEX Spinning And Knitting Mills Ltd. Annual Report 2010. Dhaka: APEX Group. APEX Spinning And Knitting Mills Ltd. Annual Report 2011. Dhaka: APEX Group. Horne, J. C., & Wachowicz, J. M. (2009). Fundamentals of Financial Management (13th ed.). PHI Learning Private Ltd. Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2008). Accounting Principles (9th ed., Vol. 1). Willey.

Scribd. (2011, April 16). Retrieved from www.scribd.com: http://www.scribd.com/doc/55061821/Corporate-Finance-Case-Study-SquareTextiles#page=8

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Appendix
Cah Flow Statements of the Company:

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Income Statement of the Company:

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36

37

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Statement of the Financial Positions of the Company:

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Workings:

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