Running head: KOHINOOR TEXTILE MILLS

Financial Statement Analysis

Zahra Daha
BBA 3 Section L
Lahore School of Economics

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Acknowledgements
My foremost gratitude without any doubt is for Almighty ALLAH Who has always provided
me with guidance, support and a will to carry on this project.
I extend my gratitude then to my family who were willing to provide a helping hand in any
possible way and to all my classmates who despite their own workload never failed to assist
me.
Lastly, my greatest thanks to Miss Sumaira Hamid, who bestowed upon us her knowledge in
the field of finance and guided us with patience throughout the course of this project.

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Executive Summary
This Report gives us an in depth analysis about the company positions and the
trends that it experienced in the last five years. Moreover, this analysis suggests that
Kohinoor Textile Mills has been suffering from serious liquidity problems, as shown by
its low current and acid test ratio. Moreover, the profitability of the company is
normal as shown by its earnings per share ratios which have also declined over the
past few years. KTML is also a good opportunity for investment since its analysis
proves it to be a financially sound corporation. Furthermore, the overall return on
Investments and the profitability ratios renders it financially healthy and stable.
Nevertheless, its ratios must not be taken for granted and a critical analysis of its
policies and earnings management techniques needs to be undertaken in order to
develop a viable conclusion.

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Table of Contents
Company Profile...........................................................................................................
Balance Sheet Analysis................................................................................................
Income Statement Analysis........................................................................................ 10
Cash Flow Statement Analysis................................................................................... 11
Common-Size Balance Sheet Analysis.......................................................................12
Analysis of Common-Size Income Statement.............................................................13
Analysis Of Cash-Flow Common Size.........................................................................14
Balance Sheet Year over Year Analysis.......................................................................16
Income Statement Year over Year Analysis................................................................17
Cash Flow Statement Year over Year Analysis............................................................18
Liquidity Ratios.......................................................................................................... 19
Current Ratio and Acid Test Ratio............................................................................... 19
Cash to Current Liabilities and Current Assets...........................................................20
Collection Period and Days to Sell Inventory..............................................................21
Capital Structure and Solvency Ratios.......................................................................23
Total Debt to Equity and Long Term Debt to Equity....................................................23
Times Interest Earned................................................................................................ 24
Debt Ratio.................................................................................................................. 25
Capital Structure and Solvency..................................................................................26
Return on Assets and Return on Equity......................................................................26
Return on Long Term Debt and Equity........................................................................27
GPM, OPM, NPM and Pre Tax Profit Margin..................................................................28
Cash, A/R, Inventory, Working Capital and PPE Turnover...........................................30
Asset Utilization......................................................................................................... 33

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DuPont Analysis......................................................................................................... 35
Conclusion & Recommendation.................................................................................36
Referances................................................................................................................. 37

List of Figures

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Figure 1: Common Size Balance Sheet

Figure 2: Common Size Income Statement
Figure 3: Balance Sheet Year over Year Analysis
Figure 4: Income Statement Year over Year Analysis
Figure 5 a: Cash Flow Common Size
Figure 5 b: Cash Flow Statement Year over Year Analysis
Figure 6: Current and Acid Test Ratio
Figure 7: Cash to Current Assets and Current Liabilities
Figure 8: Collection Period and Days to Sell Inventory
Figure 9: Total Debt to Equity and Long Term Debt to Equity
Figure 10: Times Interest Earned
Figure 11: Debt Ratio
Figure 12: ROA and ROE
Figure 13: Return on Long Term Debt and Equity
Figure 14: GPM, OPM, NPM and Pre Tax Profit Margin
Figure 15: Cash A/R, Inventory, Working Capital and PPE Turnover
Figure 16: Total Asset Turnover
Figure 17: Basic Earnings Per Share

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List of Tables
Table 2: DuPont Analysis
Table 6: Comparison of Liquidity ratios with Industry Averages
Table 7: Comparison of Capital Structure and Solvency with Industry Averages
Table 8: Comparison of Operating Performance with Industry Averages
Table 9: Comparison of Asset Utilization with Industry Averages

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Industry Analysis

The Textile Industry occupies a vital place in the Pakistan economy and contributes
substantially to its exports earnings. Textiles exports represent nearly 30 per cent of the
country's total exports. It has a high weight age of over 20 per cent in the National
production. It provides direct employment to over 15 million persons in the mill, powerloom
and handloom sectors. Pakistan is the one of the largest producer of textiles after China and
India. It is the worlds fourth largest producer of cotton-after China and the USA, India-and
the fourth largest cotton consumer after China. The textile industry in Pakistan is one of the
oldest manufacturing sectors in the country and is currently its largest 1.
The Textile industry occupies an important place in the Economy of the country because of
its contribution to the industrial output, employment generation and foreign exchange
earnings. The textile industry encompasses a range of industrial units, which use a wide
variety of natural and synthetic fibres to produce fabrics. The textile industry can be broadly
classified into two categories, the organized mill sector and the unorganized mill sector.
Considering the significance and contribution of textile sector in national economy, initiative
and efforts are being made to take urgent and adequate steps to attract investment and
encourage wide spread development and growth in this sector.
The textile industry occupies a unique place in our country. One of the earliest to
come into existence in Pakistan, it accounts for 14 per cent of the total industrial
production, contributes to nearly 30 per cent of the total exports and is the second
largest employment generator after agriculture. The Pakistan textile industry is
one of the largest in the world with a massive raw material and textilemanufacturing base. Pakistan economy is largely dependent on the textile
manufacturing and trade in addition to other major industries about 27 per cent of
the exchange earning are on account of export of textiles and clothing alone. The
textiles and clothing sector contributes about 14 per cent to the industrial
production and 3 per cent to the gross domestic product of the country. Around
eight per cent of the total excise revenue collection is contributed by the textile
industry. So much so, the textile industry accounts for as large as 21 per cent total
employment generated in the economy. Around 35 million people are directly
employed in the textile manufacturing activities. Indirect employment including

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the manpower engaged in agricultural based raw material production like cotton
and related trade and handling can be stated to be around another 60 million.

Company Profile

The Company commenced operation in 1953 as a private limited company

and became a public limited company in 1968. The initial capacity of its
Rawalpindi unit comprised 25,000 spindles and 600 looms. Later, fabric
processing facilities were added and spinning capacity was augmented.
Additional production facilities were acquired on the Raiwind-Manga Road
near Lahore in District Kasur and on the Gulyana Road near Gujar Khan, by
way of merger. The Company's production facilities now comprise 151,902
ring spindles capable of spinning a wide range
of counts using cotton and Man-made fibers. The weaving facilities at Raiwind
comprise 204 looms capable of weaving wide range of greige fabrics. The
processing facilities at the Rawalpindi unit are capable of dyeing and
printing fabrics for the home textile market. The stitching facilities produce
a diversified range of home textiles for the export market. Both the dyeing
and stitching facilities are being augmented to take advantage of greater
market access. Fully equipped laboratory facilities for quality control and
process optimization have been up at all three sites.
The Company has been investing heavily in Information Technology, training
of its human resources and preparing its management to meet the
challenges of market integration.
Kohinoor Textile Mills Limited continues to ensure that its current
competitive position is maintained as well as supporting the ongoing
improvement process in our endeavor to maintain world best practice
manufacturing.

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Balance Sheet Analysis

The balance sheet provides an overall picture of the assets, liabilities
and the stock holders equity of the company. The companys total assets
have shown an increasing trend with most of the increase being caused in
the last year that in 2011 because of huge increase in cash and balances
and long term investments in the related parties. Moreover the corporation
intangible assets decreased to zero in the past 3 years. Also the short term
investments which were Rs 2.9 billion in 2006 has gone down to Rs. 0.4
billion in 2011 Apart from this, trade debts of the company have shown a
variable trend, increasing drastically in 2007 and then returning to
normality in the late years. The corporations markup accrued increased till
2009 and the decreased drastically from 2009 to 2011 by an approximately
98%. PNSC fixed assets, namely, property, plant and equipment are seen
to be considerably increasing over the five years.
The liabilities side of the balance sheet shows that the total liabilities
have increased over the years with an approximately 100% change in total
liabilities from 2010 to 2011, which is attributed to the long term financing
and the current portion of long term financing. Although provision against
damage claims has decreased since 2006, the total liabilities have
increased. Moreover, the company had high amounts of trade and trade
payables in the recent years till 2011, which shows that the company was
taking long to pay its liabilities and that increased the risk of the company,

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since it questions company performance as its accounts payable increases.

Also, when corporations dont satisfy its creditors, the creditors are less
willing to invest in the company and so the companys fall. The equity of
the company has increased since 2006 because of the surplus on the
revaluation of fixed assets and then has not shown any irregularities.

Income Statement Analysis

The Profit and Loss statement of the corporation shows an overall
decreasing trend from 2006 to 2011, with net profit after taxation going
approximately 40% that in 2006. Total Revenues and expenditures have
also shown an overall increasing trend with highest being in 2009 because
of Distribution costs, making gross profit highest in the particular year.
Other operating income has also been a major component of the income
statement disturbing all the important profit margin ratios and making the
corporation profitable. The companys finance cost have increased
considerably in the last year because of the long term financing that it has
obtained in 2011 hence increasing its interest expenses. Moreover its
administrative costs have also increased which has made the company
borrow heavily in order to finance its debt and expenses. The corporation
has made the lowest income in 2008 because of the factors described
above and hence its earnings per share were the lowest in the same year.
The net income over the past 6 years has shown a mixed trend reaching its
maximum in 2007 and lowest in 2008. However, after that it has increased
a bit in 2011 but due to heavy finance costs, the income could not be made
at the level as it was in 2006.

Cash Flow Statement Analysis

The Cash flow analysis shows that 2007 was the worst year for the
corporation because there was an overall net decrease in the cash in the
same year, though the performance of the corporation was not that much
affected because of a larger amount of cash balances in the previous years.
Loss from operation was incurred in the same year, though none of the
additions were made in PPE and no huge capital expenditure was done.

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Major investment in subsidiaries was made in 2011 and a little bit additions
were made to the capital resulting in huge cash outflows however the same
year witnessed the net increase in cash because of the fact long term
financing was obtained to meet the expenses and the financing purposes.
Year 2008 witnesses the highest net increase in cash and year 2009 had
the highest net decrease in cash. The contrary results are because of the
huge amounts of long term loans and advances in 2009 leading to a cash
outflow. However, cash and cash equivalents at the end of year have
decreased from Rs. 4 billion to Rs 2.5 billion. Though the trend has been ir
regular in cash balances but the overall trend can be seen is of decreasing.

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Common-Size Balance Sheet Analysis

Common Size Balance Sheet

Percentage

100.00%
80.00%
60.00%
40.00%
20.00%
0.00%
2006

2007

2008

2009

2010

2011

Years
Total Non-Current Assets

Total Current Assets

Total Current Liabilities

Total Equity and Share Capital

Total Non-Current Liabilities

Figure 1: Common Size Balance Sheet

Common size Balance Sheet depicts the components of the balance
sheet in proportion to the total assets of the corporation. In the earlier
years, it can be clearly seen that the current and the noncurrent assets
form almost the same percentage of the total assets. In the earlier years,
the major portion of the current assets constitutes of the cash and balances
and the short term investments while in the latter years the proportion of
the current assets of total assets fell drastically. Noncurrent assets mainly
comprise of investments in loans and advances and long term loans to
employees and these two factors have been dominant throughout the
years. PPE are being in the minority component of the noncurrent assets.
The liabilities portion of the balance sheet shows the components of
equity and liabilities represented in proportion of the total equity and
liabilities, or even total assets for that matter since total assets equal total
liabilities and equity. The main component of the Stock holders equity is
composed of the total share capital whose percentage decreases as it
moves away from 2006 towards 2011. The current liability has its trade and
trade payable as the major component and for the non current liability it is
the long term financing that constitutes the major proportion of it.

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Analysis of Common-Size Income Statement

Common Size Income Statement

Percentage

100.00%
90.00%
80.00%
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
2006

2007

2008

2009

2010

2011

Years
Total Expenditures

GROSS PROFIT

Profit Before Taxation

Profit After Taxation

Income From Operations

Figure 2: Common Size Income Statement

Common size income statement reports all the components of an
income statement as a proportion of sales and it can be seen that most of
the percentage is formed by the total expenditures and the remaining
becomes the gross profit, since subtraction of expenditures from revenues
gives gross profit. Gross profit as a percentage of sales has the lowest value
in 2011 because of the Administrative expenses & Distribution costs that
majorly constituted the total expenditures. Moreover, income from
operation was one of the major components of the income statement. It
constituted the highest percentage as proportion of revenues in 2007 and
the least in 2011 because of more expenditure in 2011. Finance cost were
also the highest in 2011 the overall finance cost to sales percentage has
increased, which is a bad sign for the company, as it resulted in a lower net
income in 2011. However the tax was moderate in the same year, being
highest in 2008 and lowest in 2006. Profit after taxation also declined from
2006 to 2011 as a percentage of sales, being highest in 2007 and lowest in
2008. And also one of the lowest values of profit after taxation was found in

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the last year because of huge finance costs and suggesting that the
company profitability is getting lower and lower day by day.

Analysis Of Cash-Flow Common Size

Cash Flow Common Size

70.00%
60.00%
Cash generated from
operations

50.00%

Interest / mark-up received

40.00%

Repayment of long-term
financing

30.00%

Fixed capital expenditure

Finance costs paid

20.00%
10.00%
0.00%

2007

2008

2009

2010

2011

-10.00%

From the common-size cashflow statement, we can see that the operating cash flows are the
major sources of cash Inflow for Kohinoor Textile Mills. Where as cash generated from the
Financing activities contribute as a major portion of the Outflows expressed as a percentage of
total Inflows showing a Cash Payment.
Net Cash generated from operating activities constitutes the highest proption of Inflows.Cash
generated was the highest in 2010 after which it fell drastically in 2011 because of the trade
and other payables.Another component for Inflow is the accrued markup received through
investing activities which remained somewhat stable until falling drastically in 2011.This
meant that KTML also decreaed the amount of Loans given after 2010. Hence, 2011 has not
been a succesful year for the company because the major propotions of Inflows have
decreased.
The other part of the Cashflow Common size is the Cash Outflows expressed as a percentage
of Total Inflows. Repayment of long term debt has contributed majorly towards the total
Outflows uptil 2009 after which it fell to 0% because as it didnot carried out any repayment in

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2011. Fixed Capital Expenditure lastly is showing a fluctuating trend with highest propotion of
cash spent on the fixed assets in the year 2009 and 2010 after which it fell aswell. . Finance
cost increased considerably by in the last year of corporations operations that is 2011 since it
has taken long term debt in the same year, which increased its finance costs.

Balance Sheet Year over Year Analysis

Year over Year Balance Sheet

100.00%
80.00%
60.00%
40.00%
20.00%
Percentage Change
0.00%

Years
Total Assets

Total Equity and Share Capital

Total Liabilities

Figure 3: Balance Sheet Year over Year Analysis

The year over year analysis takes the previous year as the base year
and measures the percentage change in the current year with respect to
the previous year. This analysis suggests that from 2006 to 2007, total
noncurrent assets declined by 30% because of the reduction in the
intangible assets and the long term loans and advances. The highest
percentage change was from 2009 to 2010 in the noncurrent assets
attributed to the increase in PPE and the long term loans and advances.
And outlier in these noncurrent assets appeared in 2007-2008, when long
term loans and advances increased by almost 120000%. More over the
current assets witnessed negative growth in two years that is 2007 to 2008
and 2009 to 2010 mainly because of the short term investments and the
insurance claims. Also other receivables in year 2010 to 2011 increased by
1372% which was once again an outlier in all the values, making the total

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change in currents assets of 17% and the change in the total assets of
60%.
Issued, subscribed and paid up capital for all the years remained the
same and so there was 0 percent change. The equity change was highest in
2006 to 2007 and was lowest in the next year. However the total current
liabilities increase by 93% in the last year which is mainly attributed to the
increase in the total noncurrent liabilities of 2393% in the same year.

Income Statement Year over Year Analysis

Income Statement Year over Year Analysis

200.00%
150.00%
100.00%
50.00%
Percentage Change
0.00%
-50.00%
-100.00%

Years
Total Revenues

Total Expenditures

GROSS PROFIT

Income From Operations

Profit After Taxation

Figure 4: Income Statement Year over Year Analysis

The highest change in the total revenues was in the year 2011
because of the increased revenues and the oparting income. However in
the year 2010, there was a -40% growth in the revenues because of lower
revenues. There was also a negative growth in expenditures in 2010 and a
positive growth in 2011 of approximately 102%, mainly associated with the
ditribution and adminitrative expenses. This resulted in a lower gross profit
change of 3% in the same year.
However,the due to the high adminitrative and distribution costs,
expenses increased by 209% in 2008 which was the major increase in the

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expenses and resulted in the negative growth in income from operations for
the same year. Finance cost increased considerably by 1267% in the last
year of corporations operations that is 2011 since it has taken long term
debt in the same year, which increased its finance costs.
The growth in profit after taxation was the highest in 2009 and the
lowest in 2011 because of the huge interest expenses that the company
had to incur in 2011, which became the major reason for the reduction in
the net income after taxation.

Cash Flow Statement Year over Year Analysis

Cash Flow Statement Year over Year Analysis

10,000,000

5,000,000

0
2006

Cash Flows

2007

2008

2009

2010

2011

-5,000,000

-10,000,000

-15,000,000

Figure 5: Cash Flow Statement Year over Year Analysis

The following figure shows the cash flows for a particular year. The
year over year analysis of cash flow suggests that the net cash generated
by operating activities has shown a downward trend and most of the years
the growth rate is negative. Investing activities generate a positive growth
rate in all the years being highest in 2010 except in 2009 where it

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generated a negative growth in the cash from investing activities. All of the
years show a negative growth rate in the net increase (decrease) in the
cash flows for the whole year being the highest negative growth rate of
-35572% in 2006 and lowest being -25% in 2010.

Ratio Analysis
Liquidity Ratios

Current Ratio and Acid Test Ratio

Current Ratio & Acid Test Ratio

1.800
1.600
1.400
1.200
1.000
Axis Title 0.800
0.600
0.400
0.200
0.000
2006

2007

2008

2009

2010

2011

Figure 6: Current and Acid Test Ratio

Liquidity ratios indicate the extent to which the claims of short term
creditors are covered by assets that are expected to be converted to cash
fairly quickly. Both of the ratios signifies variant pattern with rising
observations in the earlier years and then a consistent decline in the latter
years, showing an overall decreasing trend. The ratio shows that KTML held
a poor combination of the current assets and liabilities making it financially
illiquid to cover its liabilities. There is, however, a fall from the year 2007 till
2011 because of a decrease in short term investments and increase in the
trade payables leading to a constant decline in current and quick ratios.

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The acid test ratio shows how a firm is able to cover its current
liabilities with the most liquid of its assets excluding the inventories which
are not so easily converted into cash.

Cash to Current Liabilities and Current Assets

Cash to CL and CA
0.700
0.600
0.500
0.400
Ratio

0.300
0.200
0.100
0.000
2006

2007

2008

2009

2010

2011

Figure 7: Cash to Current Assets and Current Liabilities

The above graph indicates the cash as a proportion of current
liabilities and current assets. The overall trend is of increasing one
indicating that cash constitutes a major portion of current assets and more
than half of current assets in 2011. But from the year 2008 onwards, the
ratio cash to current liabilities has decreased because of the increase in the
current liabilities which majorly constituted of the trade and other payables.
This is the major reason behind declining current ratio as well.

Collection Period and Days to Sell Inventory

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A/R Receivable Collection Period & Days to Sell Inventory

160.000
140.000
120.000
Collection Period

100.000
Days

Days to Sell Inventory

80.000
60.000
40.000
20.000
0.000
2006

2007

2008

2009

2010

2011

Figure 8: Collection Period and Days to Sell Inventory

The collection period refers to the average length of time that the
firm must wait after making a sale before receiving cash1. The collection
period for KTML has become worse in 2011 as compared to 2006 where it
was 40 days. This can be attributed to the poor collection policies followed
by the corporation. Moreover, the days to sell inventory has improved
pointing towards the fact that the corporation is using its inventory
efficiently and is not maintaining any sort of inventory for a large portion of
time.

Table 6:
Comparison of

Company

Industry

Measure

Avg.

Avg.

Current Ratio
Quick Ratio
Collection Period

0.848
0.846
78.685

1.05
0.72
43

Liquidity ratios

with Industry Averages

The companys liquidity ratio when compared with the industry
averages reflects the true picture of where the corporation actually stands.
1

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It can be clearly seen that the industry averages over the past five years, of
the current ratio is greater than the companys, suggesting that the
company is not able to maintain its liquidity over the past as compared to
its industry. However, the acid test ratio is quite the same for the both of
them.
The company has a greater value for the accounts receivable
collection period as compared to the industry. This means that on average,
company is able to collect its accounts receivables in greater no of the days
as compared to the other corporations in the industry. This is bad for the
company any the company needs to review its collection policies which in
turn affects the companys profitability.
So the overall liquidity ratios suggests that the company is facing
intense liquidity problems and it should focus more on improving its
liquidity position to attract more investors.

Capital Structure and Solvency Ratios

Solvency ratios measure the companys ability to meet its long-term
obligations and thereby remain solvent and avoid bankruptcy. The debt
ratio of the company shows low values in almost all the years except in
2011, which is good since the lower the companys reliance on debt to
finance its assets, the less risky the company. The debt to equity ratio
shows a decreasing value except 2011, which is good since it shows that
the long term debt is lower than equity, and more assets are financed by
equity than on long term debt. One can conclude that the overall solvency
of the company is good enough for the past couple of years, except 2011.

Total Debt to Equity and Long Term Debt to Equity

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Debt to Equity
1.400
1.200
1.000
0.800
Ratio

0.600
0.400
0.200
0.000
2006

2007

2008

2009

2010

2011

Figure 9: Total Debt to Equity and Long Term Debt to Equity

The magnitude of debt contributed in the financing of the firm is
shown by debt to equity ratio. The computation of this ratio brings to life
the fact that KTML has been able to feed its financing through equity as its
ratios are considerably lower than the favorable 1 or less except in
2011 where it obtained long term financing to finance its assets. The initial
year shows that there was less dependency of debt and then decreased
further to a record low in 2009 and 2010, almost to zero but then increased
considerably in the next year. But the overall debt to equity ratio is quite
remarkable for KTML since there is less reliance on debt, and that is good
for any Company excluding the figures for the last year.

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Times Interest Earned

TIE
80.000
60.000
Times

40.000
20.000
0.000

16.815
2006

33.441
2007

20.388
2008

36.056

TIE

60.442
4.437

2009

2010

2011

Years

Figure 10: Times Interest Earned

Times Interest Earned shows the Companys ability to meet its debt
obligations. It shows how much revenue is being earned in relation to its
finance cost. KTML was comfortably able to cover this cost in all the years
except 2011 where it has taken a huge debt to meet its financing needs
and thus decreasing the TIE from 60 times to 4 times in 2011. However, the
company is still comfortably meeting its debt obligations. It can also be
taken to mean that the Company, in the early years, was paying too much
debt with earnings that could be used for other projects, as compared to
the final year. The debt, especially the long term financing, needs to be
curtailed as this will have disastrous repercussions for KTML in the future.

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Debt Ratio

Debt ratio
0.300

0.275

0.250
0.200
Axis Title

0.150
0.100
0.079
0.050

0.039

0.000
1

0.018

0.000
4

0.000
5

Figure 11: Debt Ratio

The debt ratio indicates what proportion of debt a company has
relative to its assets. The measure gives an idea to the leverage of the
company along with the potential risks the company faces in terms of its
debt-load. Since the ratio is less than one for all the years it indicates that a
company has less debt than assets. Used in conjunction with other
measures of financial health, the debt ratio can help investors determine a
company's level of risk it increases in the last year because of long term
financing that was obtained hence increasing the total debt of the
company.

Capital Structure and Solvency

Company

Industry

Measure

Avg.

Avg.

Total Debt to equity

Debt Ratio
Long Term debt to

0.252
0.069

98.81
1.56
30.6

equity

0.195

Table 7: Comparison of Capital Structure and Solvency with Industry

Averages

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The total debt to equity ratio and total debt ratio of the company is
lesser than that of the industry. This shows that the company doesnt rely
heavily on debts as compared to the other companies in the industry which
is good for the company since it reduces the interest payments and we can
say that the company is very much equity financed. Long-term debt to
equity ratio is also lesser for the PNSC than the industry, which shows that
the Company uses less long-term debt than the industry and hence
attractive to the investor.Return on Investment

Return on Assets and Return on Equity

ROA and ROE

30.00%
25.00%
20.00%
Return 15.00%
10.00%
5.00%
0.00%
2006

ROA
ROE

2007

2008

2009

2010

2011

Figure 12: ROA and ROE

Companies that are capital intensive have low return on asset ratio
and KTML is capital intensive as seen by its low ROA ratios over the years.
The ratio has declined from 8% in 2006 to 3% in 2011. This can be
attributed to the decreased Net income because of the distribution and
selling costs and the administrative and general expenses. This shows that
the company aggravated considerably, and has decreased its efficiency at
generating profits from every unit of shareholders' equity as well. The
return on common equity suffered a pitfall in 2008 from 2007 due to high
costs as discussed earlier. Low ROA in 2011 indicates that the earnings are
low for the amount of assets, but if we take an overall trend, KTML is
efficiently generating profits from the assets employed as well as from the
equity.

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Return on Long Term Debt and Equity

Return On Long Term Debt and Equity

25
20
15
Return

10
5
0

2006

2007

2008

2009

2010

2011

Figure 13: Return on Long Term Debt and Equity

The above graph is also a measure of Return on Investment.Net
income also decreased in the years because of rising Administrative and
general expenses as well as the finance costs hence decreasing the ratio.

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Operating Performance Analysis

GPM, OPM, NPM and Pre Tax Profit Margin

GPM, OPM, NPM and Pre Tax Proft Margin

100.00%
90.00%
80.00%
70.00%
60.00%
Percentage

50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
2006

2007

2008

2009

2010

2011

Figure 14: GPM, OPM, NPM and Pre Tax Profit Margin
The gross profit margin illustrates the profit a company makes after
paying its cost of goods. Here, the gross profit ratio has shown a mixed
trend over the years. This shows that the company is comparatively
efficiently managing its labor and raw materials in the process of
production, though there has been an overall decrease in the ratio from
2006 to 2011. A comparatively lower gross profit margin indicates that the
companys liquidity is not very as it does not have enough cash flows for
investment, but since this ratio is still 37%, the company has enough cash
for investments.

Page | 28

The operating profit margin has also decreased constantly from 69%
to 38%. Although, its a decline, the company is still in a good position as it
can keep its costs in control. This is closer to the Gross Profit Margin
because of the huge inflows from operations.
The pre-tax profit margin of the Company has decreased over the
years. This shows that the Companys earnings before tax as a percentage
of sales have declined. Since pre-tax profit margin indicates the profitability
of a Company, the Company suffered serious blows to its profitability level,
considering 6 year time horizon.
In the earlier years, the NPM is almost equal to the GPM because of
the other operating income which constituted a large part of the Net
Income in the earlier years. However, the net profit margin of the company
decreased over the years and considerably in 2008 when it incurred
distribution and selling expenses and general expenses, leading to a
decline in NPM. This shows that the Companys earnings as a percentage of
sales have declined. But considering an overall trend, the corporation is still
able to maintain a good NPM after incurring huge finance costs in 2010
.Operating Performance

Company

Industry

Measure

Avg.

Avg.

Gross Profit Margin

Operating Profit

48.3

19.07

Margin
Net Profit Margin
Pre-tax Profit

28.4
37.11

2.76
5.65

Margin

55.1

9.51

Table 8: Comparison of Operating Performance with Industry Averages

The gross profit margin and the operating profit margin for the
company are higher than that of the industry by a significant margin
representing the good performance and ability to generate profits of the

Page | 29

company. The net profit margin for the company is also very high as
compare to the industry because of the huge income from operations and
the other operating income. This point suggest the financial stability of the
company and its ability to generate revenues and hence the profits and can
be considered attractive to the investor since the major motive behind
investment is the profits.
Asset Utilization Analysis

Cash, A/R, Inventory, Working Capital and PPE Turnover

Turnovers
140.000
120.000
100.000
80.000
Turnover

60.000
40.000
20.000
0.000
2006

2007

2008

2009

2010

2011

-20.000

Figure 15: Cash A/R, Inventory, Working Capital and PPE Turnover
The cash turnover ratio indicates the number of times that cash turns
over in a year. The greater the turnover, the better it is. But in this case the
cash turnover is quite less however it has improved from 2006 to 2011,
because increase in the case was lesser than the increase in sales resulting
in more cash turnover.

Page | 30

Account Receivables turnover is the ratio of the number of times that

accounts receivable amount is collected throughout the year. KTML has a
decreasing account receivables turnover for the past years pointing its poor
credit policies and hence a collection problem, part of which may be due to
bad debts.
The inventory turnover ratio measures the number of times a
company sells its inventory during the year. Greater the ratio, the better it
is. KTML is doing quite well in case of its inventory turnover indicating that
its products are selling well. So the Companys inventory is replaced or sold
quite a lot of times each period.
Working Capital turnover is negative throughout after 2008 because
in those periods current liabilities exceeded current assets resulting in a
negative value of working capital. This can be associated to the increased
values of trade and other payables in the corresponding years.
Property, Plant and Equipment turnover also suggests that the fixed
assets are doing their part of the job by generating sales as can be evident
from the ratios above. The greater the turnover, the better it is. Though the
turnover has declined from 2006 to 20011, but still it is favorable for the
company

Page | 31

Total Asset Turnover

Total Assets Turnover

0.300
0.250 0.250
0.200
Turnover

0.242

0.230

0.203

0.150

0.128

0.117

0.100
0.050
0.000
2006

2007

2008

2009

2010

2011

Figure 16: Total Asset Turnover

The total asset turnover shows how a firm is performing in terms of
economic utilization of assets. It shows how a firm is using its assets to
earn revenues. The ratio should be high for profitability. In the case of
KTML, it has been a favorable situation. The company has been facing a
high total asset turnover since the periods under review. The totals
revenues have always been able to cover the assets used to earn them in
any year. An irregular decline can be seen from 2009 to 2010 which can be
improved if the current assets can be liquidated in time. So in conclusion to
this, a high asset turnover ratio means efficient utilization of assets and the
assets are being properly doing their part of the job.Asset Utilization

Measure

Company

Industry

Avg.

Avg.

Sales to Account
Receivables
Inventory Turnover
Sales to fixed asets
Total Assets Turnover

98.9
5.34
73.11
2.66
0.4

10.4
1.8
1.92

Page | 32

Table 9: Comparison of Asset Utilization with Industry Averages

The asset utilization ratios show the number of times certain
component is collected in a year. KTML has a lesser accounts receivable
turnover which implies the company should re-assess its credit policies in
order to ensure the timely collection of imparted credit that is not earning
interest for the firm. This means that the company collects its receivables
lesser number of times than the other companies in the industry
The inventory turnover ratio measures the number of times a
company sells its inventory during the year. Greater the ratio, the better it
is. KTML is doing quite well in case of its inventory turnover indicating that
its products are selling well. So the Companys inventory is replaced or sold
quite a lot of times each period as opposed to the industry.
Property, Plant and Equipment turnover also suggests that the fixed
assets are doing their part of the job by generating sales as can be evident
from the ratios above. The greater the turnover, the better it is. The
company is performing well in its PPE turnover by generating more sales.
The total assets turnover ratio measures a firm's efficiency at using its
assets in generating sales or revenue - the higher the number the better. It
also indicates pricing strategy: companies with low profit margins tend to
have high asset turnover, while those with high profit margins have low
asset turnover but her in the case of KTML this ratio is lesser than the
industry average suggesting the companys assets are not properly utilized
and hence resulting in less asset turn than the industry.
Basic Earnings per Share

Page | 33

Basic Earnings Per Share

15
10
Axis Title

5
0
2006

2007

2008

2009

2010

2011

Axis Title

Figure 17: Basic Earnings per Share

Since earnings per share serves as an indicator of Companys
profitability, this shows the Company has been profitable over the past few
years. The amount of money left over to the shareholders has been quite
high throughout except in 2008 and 2011. The EPS has shown a decreasing
trend, and although it seemed that there was a recovery in 2009, the year
2010 ended that temporary excitement which was further worsened in
2011.

DuPont Analysis

Return on Equity = (Net Profit Margin)*(Asset Turnover)*(Equity Multiplier)

We see that the net profit margin has been decreasing over the years
whereas the total asset turnover has showed quite a constant trend. Equity
multiplier has increased over the years which mean that the total assets
relative to equity have increased. We can deduce from the calculations that
the main decline in return on equity has been caused due to a decline in
net profit margin because the companys earnings as a percentage of total
assets has declined.

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Considering the above analysis, we see that the return on assets has
decreased considerably over the years and so has the return on common
equity. This is marked by the increase in the equity multiplier which has
increased over the years; which means that total assets have decreased
less significantly than the total equity. The return on assets is almost half of
the return on equity. Since DuPont analysis is a way to examine how
effectively a firm is using equity, we can conclude that KTML is efficiently
using its equity but not to the extent it can use.

DuPont Analysis
Sales
Net Income
Net Profit Margin
Avg total assets
Total Asset Turnover
Average Stockholder's
Equity
Equity Multiplier
Return on Common
Equity

1748341
1006163
57.55%

2168325
1457219
67.20%

3100257
414891
13.38%
12825048

3491783
1056763
30.26%
15207157

12130085

10681078
0.203
5171878.

.5
0.242
6080159.

.5
0.230

0.144
7217062.
5
1.680750

5
2.065222

5
2.109327

998

143

13.94%

28.18%

2068622
711533
34.40%
17660649
0.117

3084361
612401
19.86%
24067226
.5
0.128
7341168.

6516387

6974897

2.333679

2.532030

5
3.278391

642

307

079

785

6.82%

16.22%

10.20%

8.34%

Page | 35

Conclusion And Recommendations

This Report gives us an in depth analysis about the company positions and the
trends that it experienced in the last five years. Moreover, this analysis suggests that
Kohinoor Textile Mills has been suffering from serious liquidity problems, as shown by
its low current and acid test ratio. Moreover, the profitability of the company is
normal as shown by its earnings per share ratios which have also declined over the
past few years. KTML is also a good opportunity for investment since its analysis
proves it to be a financially sound corporation. Furthermore, the overall return on
Investments and the profitability ratios renders it financially healthy and stable.
Nevertheless, its ratios must not be taken for granted and a critical analysis of its
policies and earnings management techniques needs to be undertaken in order to
develop a viable conclusion.

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The Company needs to do the following to improve its current status:

Increase its current assets so as to improve its liquidity ratios.

Maintain the current capital structure and not issue more debt
Utilize assets to the their full potential in an efficient and effective

manner to achieve economies of scale and economies of scope

Increment current assets as a percentage of total assets
Increase return on equity by increasing sales turnover, so that surplus
funds can be invested to improve business operations without the

owners of KTML having to invest more capital

Improve its current operating profit by adding value to its products
Report its collection policies and revenue recognition techniques in

good faith to increase investors confidence.

Since the sales have been increasing, one way to increase earnings is
to decrease costs and this can be achieved by introducing latest
information technology resources that can remarkably cut back on
unnecessary expenses

Page | 37

Referances

Brigham, E. F. (2008). Fundamentals of Financial Management. Dehli, India:

Student Book Company.
Listed Companies. (2012). Retrieved March 2, 2012, from Karachi Stock
Stock Exchange:
http://www.kse.com.pk/ListedCompanies/ListedCompaniesData.aspx
Ratio Analysis: Retrieved March 2, 2012, from
Annual Statements in CD

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