FINANCIAL ANALYSIS

SUBMITTED BY: SHAHR BANO

4868-FMS/MBA/FM

FAIZA NAZIR

4898-FMS/MBA/FM

SUBMITTED TO: MAM MISBAH

BATCH:

MBA-21B

SUBJECT:

CORPORATE FINANCE

DEPARTMENT: FACULTY OF MANAGEMENT SCIENCES

STUDY ON DEGREE OF RESPONSE AGAINST CHANGES IN CUTOMER NEEDS

INTRODUCTION:
Businesses must respond to change in order to remain in competition. Developing
appropriate strategies which allow them to move forward is essential. Gul Ahmed
Group is a Pakistani company that includes Gul Ahmed Textile Mills, Gul Ahmed Energy
and Habib Metropolitan Bank. More in recent times, a chain of retail outlets has been
introduced under the name "Ideas by Gul Ahmed".is a leading example of a business that
has responded to changing customer needs throughout its history. They knew the
demand and choice of customers and direct target them with their fresh and update
designs and styles.
The Gul Ahmed Group began trading in textiles in the early 20th century. In 1953, the
group decided to enter the field of manufacturing under the name Gul Ahmed Textile Mills
Limited.
GUL AHMED TEXTILE MILLS ~ growing the business:
Gul Ahmed is a composite textile unit making everything from cotton yarn to finished
products. The mill is presently a composite unit with an installed capacity of
130,000 spindles, 250 wide width air jet looms, 90 Sulzers, 297 conventional looms, and
a state-of-the-art processing and finishing unit.
Excellence in quality and service is the hallmark of all operations performed at GulAhmed.
Firmly standing by its business values, Gul Ahmed is active in manufacture and sale of
textile products.
The manufacturing wing is an essential component in Gul Ahmed's operations. The
manufacturing cycle, which includes spinning, weaving, processing, designing and
stitching, results in an end product that is tailored to the most stringent customer
requirements.
DIVERSIFIED STRATEGIES OF GUL AHMED:
The primary Gul ahmed concerns are gul ahmed textile mill, gul ahmed energy limited
and habib metropolitan bank.
On the retail front, Ideas by Gul Ahmed offers fabrics and made-ups, ranging from home
accessories to clothing. It not only provides fashion at great value, but also caters to
various customer needs by offering a diverse product mix. This leads to a complete and
enjoyable retail experience. As a result of this, the chain has expanded to 40 stores across
Pakistan since its inception in 2003.
As we know that now a days people are too much brand conscious and they are ready to
buy things mostly the clothes at expensive but somehow in reasonable prices. Media
made them well aware from every aspects of life so they are not ready to compromise
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with the quality of the product. Gul Ahmed objectives are related to these key points. So
according to the demand and liking of their quality products they introduced a variety of
products and making their brand at high level. Their goodwill increases day by day. The
group listed at Karachi stock exchange in 1970. The company is making progress and
enjoying a leading position and market share in the world of textiles
BUSINESS REVIEW:
It is a company listed on Karachi and Lahore stock exchange .It has art production
facilities in two segments yarn and processing. It is pioneers in setting a chain of its own
retail outlets. They are creating a new style of fashion and designs.
EXTERNAL ASSESSMENT AND OPPORTUNITIES OF GUL AHMED:
The industry contributes 60% ($ 9.6 billion) to countrys total export and 46% to total
output i.e. 8.5% of countrys GDP.
Gul ahmed should extend to casual wears and should capture casual wears. They have big
potential in cosmetic and jewellery they should go for this .By taking feedback from
customers they can gain more market share.

FINANCIAL ANALYSIS:

HORIZONTAL ANALYSIS 2013-2012:

PROFIT AND LOSS ACCOUNT:

Gul Ahmed Textile Mills Ltd.

Income statement
for the year ended June 30, 2013- 2012

Sales
Cost of sales
Gross profit
Distribution cost
Administrative expenses
Other operating expenses

2013
Rs.000s

2012
Rs.000s

Amount
Rs.000s

30,201,588
(25,502,336)
4,699,252
(1,509,886)
(1,086,920)
(72,356)
2,669,162

24,918,480
(21,432,746)
3,485,734
(1,322,582)
(955,070)
(653)
2,278,305

5283108
4069590
1213518
187304
131850
71703

21.20
18.99
34.81
(14.16)
(13.81)
(10980.55)

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Other income
Operating income
Finance cost
Profit/Loss before taxation
Provision for taxation
Profit/Loss after taxation

2,030,090
38,558
2,068,648
(1,227,520)
841,128
139,050
702,078

1,207,429
166,617
1,374,046
(1,375,463)
(1,417)
238,947
(240,364)

-128059
694602
-147943
842545
-99897
942442

(76.86)
50.55
(10.76)
(59470)
(41.81)
(392.09)

INTERPRETATION:
Company performance in 2013 seems to be quite good as compared to 2012. Though
cost of sales has also been increased in 2013 but company still managed to increase its
sales by spending more on marketing aspects and making its products available at
maximum of its outlets and other retail stores.
Cost of sales increased because of increase in cotton prices about 120% ,cotton being the
major raw material of production for the company, and that was due to high inflationary
trends observed in Pakistan in 2013 because of devaluation of Pakistani rupee. The cost
also increased due to increase in energy cost.

But on the other side the textile sector has been provided with other incentives like
through Export Finance Mark-up Rate Support Scheme, company achieved 2.5 percent of
support in reducing its working capital cost from State Bank of Pakistan and then just 5%
markup on long term loans for plants and machinery was also provided to the whole
textile sector. So in this way GTML got benefit of reducing its finance cost and increasing
its operating income and thus higher profits in 2013 than 2012.

BALANCE SHEET:

Gul Ahmed Textile Mills Ltd.

Comparative Balance Sheet
As on June30, 2013 and 2012
2013
Rs.000s

2012
Rs.000s

Increase/ Decrease
Amount
%
Rs.000s

Equity and Liabilities

Share Capital And Reserves

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Share capital
Reserves
Un-appropriated
profit/(accumulated loss)
Non Current Liabilities
Long Term Financing
Deferred Liabilities
Deferred taxation (net)
Staff Retirement benefits
Current Liabilities
Trade and other payables
Accrued Markup
Short term borrowings

1,523,486
3,180,000
725,016

1,269,571
3,430,000
(227,062)

5,428,502

4,472,509

955993

21.37

2,154,999
316,028
33,637
349,665
2,504,664

2,096,432
273,969
23,894
297,863
2,394,295

110369

4.81

4,211,618
191,792
8,290,416

2,716,990
171,612
7,289,065

2403810
3470172

22.15
19.58

302459

4.34

Current maturity of long 561,938

term financing
Provision for taxation- net of payments
13,255,764
21,188,930
Assets
Non-current assets
Property,
plant
and 7,132,112
equipment
Intangible assets
23,130
Long term investment
58,450
Long term loans and 2,061
advances
Long term deposits
51,312
7,267,065
Current Assets:
Stores, spare parts and loose
tools
Stock in trade
Trade debts
Loans and advances
Short term prepayments
Income tax refundablepayments less provision
Other receivables
Tax refunds due from
Government
Cash and bank balances

664,636
9,651
10,851,954
17,718,758
6,828,920
26,535
58,450
2,900
47,801
6,964,606

723,435

739,986

9,555,224
2,573,268
346,429
28,172
190,248

7,415,451
2,074,159
169,612
27,361
-

173,714
229,454

182,699
24,871

101,921

101,921

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STUDY ON DEGREE OF RESPONSE AGAINST CHANGES IN CUTOMER NEEDS

13,921,865
21,188,930

10,754,152
17,718,758

3167713
3470172

29.46
19.58

INTERPRETATION:
Analysis of balance sheet depicts that total assets of the company increased in 2013 but
this increase was mainly because of increase in current assets including stock in trade,
loans and advances, trade debts etc. Company didnt make any long term investment and
increase in property, plant and machinery is also not very significant. Long term assets
grew just by 4.34%.
As far as company's equity is concerned it increased due to issuance of further shares to
the public but decrease in reserves and increase in long term as well as current liabilities,
no major investment in the current year, all this shows that company might be offsetting
its last year losses in this year and to keep its current operations running has taken
further loans as well.

VERTICAL ANALYSIS 2013-2012:

BALANCE SHEET:

Gul Ahmed Textile Mills Ltd.

Comparative Balance Sheet
As on June30, 2013 and 2012
2013
Rs.000s
Equity and Liabilities
Share Capital And Reserves
Share capital
Reserves
Un-appropriated
profit/(accumulated loss)

1,523,486
3,180,000
725,016
5,428,502

Non Current Liabilities

Long Term Financing
Deferred Liabilities

2,154,999
316,028

FACULTY OF MANAGEMENT SCIENCES

2012
Rs.000s

1,269,571
3,430,000
(227,062)
25.62

4,472,509

25.24

2,096,432
273,969

STUDY ON DEGREE OF RESPONSE AGAINST CHANGES IN CUTOMER NEEDS

Deferred taxation (net)

Staff Retirement benefits

33,637
349,665
2,504,664

Current Liabilities
Trade and other payables
Accrued Markup
Short term borrowings
Current maturity of long
term financing
Provision for taxation- net of
payments

4,211,618
191,792
8,290,416
561,938

2,716,990
171,612
7,289,065
664,636

9,651

13,255,764
21,188,930
Assets
Non-current assets
Property,
plant
equipment
Intangible assets
Long term investment
Long term loans
advances
Long term deposits

11.82

62.56
100.00

10,851,954
17,718,758

and 7,132,112

6,828,920

23,130
58,450
and 2,061

26,535
58,450
2,900

51,312
7,267,065

34.40

Current Assets:
Stores, spare parts and loose 723,435
tools
Stock in trade
9,555,224
Trade debts
Loans and advances
Short term prepayments
Income tax refundablepayments less provision
Other receivables
Tax refunds due from
Government
Cash and bank balances
Total equity and liabilities

23,894
297,863
2,394,295

47,801
6,964,606

13.51

61.25
100.00

39.31

739,986
7,415,451

2,573,268

2,074,159

346,429
28,172
190,248

169,612
27,361
-

173,714
229,454

182,699
24,871

101,921
13,921,865
21,188,930

101,921
10,754,152
17,718,758

65.70
100.00

60.69
100.00

INTERPRETATION:
In 2013 total equity percentage was 25.62% while it was 25.24% in 2012. Though
company issued more shares but decline in reserves offset this increase in issued shares
and total equity increased with almost a negligible percentage in 2013. Non-current
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liabilities though increased in 2013 but their percentage as part of total liabilities and
equity witnessed a decrease as compared to 2012 i.e. 11.82% from 13.51%. Current
liabilities in absolute terms showed a major increase but as a percentage it didnt show a
significant rise. Decrease in long term loans and advances and intangible assets
percentage of non-current assets got lowered to 34.40%. Major increase in all current
assets except stores, spare parts and loose tools and other receivables let current assets
to be 65.70% of all total assets. Increase in trade debts show that company is selling its
products mainly on credit and a higher amount of prepayments made by the company is
also a positive sign.

PROFIT AND LOSS ACCOUNT:

Gul Ahmed Textile Mills Ltd.
Income statement
for the year ended June 30, 2013- 2012
Net sales
Cost of sales
Gross profit
Distribution expenses
Administrative expenses
Other income
Other expenses
Operating profit
Financial expenses
Profit before taxation
Income tax expense
Profit for the year

30,201,588
(25,502,336)
4,699,252
(1,509,886)
(1,066,920)
38,558
(72,356)
2,068,648
(1,227,520)
841,128
(139,050)
702,078

100
(84.44)
15.56
(5.00)
(3.60)
0.13
(0.24)
6.85
(4.06)
2.79
(0.46)
2.32

24,918,480
(21,432,746)
3,485,746
(1,322,582)
(955,070)
166,617
(653)
1,374,046
(1,375,463)
(1,417)
(238,947)
(240,364)

100
(86.01)
13.99
(5.31)
(3.83)
(0.67)
(0.00)
5.51
(5.52)
(0.01)
(0.96)
(0.96)

INTERPRETATION:
Vertical analysis of profit and loss account represents that cost of sales decreased as a
percentage of sales in 2013 although they are higher in absolute terms than 2012 but low
percentage of cost of sales shows that resources were used efficiently thats why with less
distribution expenses (5%), administrative expenses (3.60%) and financial expenses
(4.06%) company achieved a higher target of sales. Higher percentage of other expenses
(0.24%) and lower percentage of other income had a negative impact on the net profit
(2.32%) but still it was higher than the previous year's because in 2012 company faced a
loss of (-0.96%).

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GRAPHICAL REPRESENTATIONS:

FINANCIAL RATIOS:

Profitability ratios
Gross profit ratio
Net profit to sales
Return on equity
Return on capital employed

%
%
%
%

Liquidity ratios
Current ratio
Quick/ acid test ratio
Cash to current liabilities

FACULTY OF MANAGEMENT SCIENCES

2013
15.56
2.32
14.16
27.95

2012
13.99
(0.96)
(5.32)
19.52

1.05
0.27
0.01

0.99
0.24
0.01

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Capital structure ratios

Financial leverage ratio
Weighted average cost of debt
Debt to equity ratio
Interest cover ratio

2.03
0.11
0.40
1.69

2.25
0.11
0.47
1.00

121
3.01
28
13
100
3.64
4.23
1.43
49

151
2.41
30
12.14
86
4.23
3.65
1.41
95

Rupees

4.84
4.90
0.17

(1.73)
(12.18)
0.15

Bonus shares issued

Market value per share:
At the end of the year

20

Rupees

23.74

21.11

High during the year

Rupees

27.64

64.29

Low during the year

Rupees

19.16

16.05

Turnover ratio
Average age of inventory
Inventory turnover
Average collection period
Accounts receivable turnover
Average payment period
Accounts payable turnover
Fixed assets turnover
Total assets turnover
Operating cycle
Investor information
Earnings per share
Price earnings ratio
Price to book ratio

Days
Times
Days
Times
Days
Times

Days

PROFITABILITY:
Overall company's profitability status seems quite good. Despite of high cost raw
material, energy crisis and unstable law and order situation company showed a better
performance. Gross profit margin(15.56%) and net profit margin(2.32%) show a rise
than the previous year. Same is the case with return on equity and capital employed. New
shares in 2013 were issued that could decrease the return on equity but due to effective
planning and efficient operations return on equity showed a substantial increase i.e.
14.16%. Return on capital employed also has a higher percentage (27.95%).
LIQUIDITY:
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Liquidity position of the company was maintained at a higher level. Current ratio and
quick ratio for 2013 are 1.05 and 0.27 respectively. But the cash ratio remained as it is as
that of 2012 i.e. 0.01. It shows increase in other current assets like receivables, stock in
trade, short term advances etc but no increase was seen in cash reserves. So an
immediate ability to payoff company's liability remained unchanged.
DEBT MANAGEMENT:
Financial leverage which shows company's ability to pay off its long term liabilities shows
a decrease because this year company has taken not only big amount of long term debt
but also its long term other liabilities also have been increased. Debt to equity ratio (0.40)
has been decreased as compared to 2012. This is because not only new debt has been
taken but also new stocks were issued to the public. So now equity covers the maximum
proportion of capital. Due to higher profits this year company's ability to pay its finance
cost seems to be better than the previous year as interest coverage ratio in 2013 went up
to 1.69.

OPERATIONAL EFFICIENCY:
All of the activity ratios clearly represent that operations management this year was so
efficient and effective. Inventory turnover increased to 3.0times while average age of
inventory got lower (121 days) which shows greater demand of the company's products
as well as better supply chain management. Credit sales constitute the main part of total
sales as shown by a higher accounts receivable turnover ratio. Increase in the credit
worthiness of the company because of its past timely liabilities paying off trends,
creditors have shown confidence in the company by giving it some relaxation as depicted
in the lower accounts payable turnover (3.64) and larger average payment period of 100
days. In 2013 although not very significant addition was made in fixed assets and only
currents assets showed a better position than 2012 but it seems that assets (long as well
as short term) both have been utilized in the best possible way thats why fixed asset
turnover and total assets turnover have higher figures than then the previous year.
Operating cycle as a whole shows a very positive change in the company's production,
marketing and funds management department because it has greatly reduced just to 49
days from 95 days.

INFORMATION FOR INVESTORS:

This year as new shares were also issued so there were chances of lowering down of EPS
but due to higher profits earning per share showed a rise. Price per earning ratio also
undergone through a significant improvement from -12.18 to 4.90. Price to book ratio
also increased to 0.17. Existing shareholders were given a benefit in the form of bonus

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shares. Shares market price did not undergo significant fluctuations and remained within
the range of $19.16- $27.64 throughout the year.
FUTURE PROSPECTS:
As it is evident from current's year performance that in the presence of high inflation,
energy crisis and poor law and order situation if the company has performed good and
can offset its past year's losses as well through efficient operational capabilities, its future
with regard to its financial strength and performance would be really bright.
The company will expect better business environment as if it tackles the energy
crises.With rapid diversification ,quality the sales are expected to improve with
remarkable profits in coming years.

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