Financial Analysis For Statements Of

Presented by: M Haris Javed. Sheriyar Ahmed.

 Introduction of a company.

Contents

Swot analysis.
Vertical analysis.

Horizontal analysis.
Financial ratios.

Future prospects of crestex.

Introduction
Was listed at stock exchange in 1951. sells more than 80% of its products to the foreign market.

generated export sales revenue of $60.94 million in 2002.

was awarded the President of Pakistan Trophy for export. The total no of employees are more than 5000.

Swot analysis.
Strengths
strong market image. high financial resources. automated system of production. sets new standards for quality. equipped with latest technology.

Cont.
Weaknesses
ignored than local market. delivery is late due to lack of production planning. no job commitment among the employees. no proper criteria for performance appraisal thats why staff in not motivated.

Cont.
Opportunities
is ISO-9002 certified company so it has a chance to increase & expand business all over the world. Long term loans are easily available Devaluation of rupee made Pakistani export more acceptable to the foreign buyers. There is a chance to compete better now.

Gov.s pre import-export policy for cotton is also in favor of Crescent Textile Mills.

Cont.
Threats
High inflation rates hinder in competing the Indian yarn at international level. Fluctuating prices of dollar also affect the purchase of cotton in off-season.

Vertical analysis.
Vertical analysis of income statement.
Increasing trend of C.O.G.S show that company has high cost on sales. Gross Profit decreasing trend is because of increasing C.O.G.S. Operating Expenses of the company depict minimum share or portion of the income statement while having a decreasing trend.

Profit from Operations & finance cost is also decreasing.

Cont.
Share of Profit Associates before Taxation displays a decreasing . Taxation exhibits a decreasing trend. Effect of all is clearly shown with the declining net profit after taxation.

Vertical analysis of Balance sheet.

Equity & Liabilities side.

Total Liabilities depicts an increasing trend in contrast to Total Equity which is decreasing, this declining trend is an indicator of unhealthy financial status of the company. financing its assets through debt and pays a large amount interest for the financing. Company doesnt pay its Debt or Liability obligations timely and has to some extent chances of insolvency and bankruptcy.

Cont.
Assets side.
exhibits increasing trend in both Total Assets i-e Current & Non Current Assets. Non - Current Assets represent large portion of the Total Assets.

Horizontal Analysis of the Financial Statements

Horizontal Analysis of Income Statement.

Net Sales and C.O.G.S which is an indicator of unhealthy Profit Status for the Company. Costs and Administrative Expense are increasing due to which operating profit decreases. C.O.G.S & high expenses also decreased net profit.

Horizontal Analysis of Balance Sheet

Equity and Liabilities side.

Paid Up Share Capital is increasing at an consistently. Unrealized Gains on Revaluation of Investments is decreased rapidly 136% in Year 2007 to (4.06) % in Year 2008. Non Current Liabilities of the Company have been decreased from Year 2008 to 2011 but there was sharp negative decline in Year 2011. Current Liabilities of the Company depict an increasing trend.

Cont.
Assets sides.
Non Current Assets are increased, which portrays that Company has more portion of Productive Assets. This trend is an indicator of Strong & Healthy Financial Status of the Company.

The Non Current Assets of the Company also include Capital Work in Progress and this account of the assets represents no trend since last few years.
Company has been also granting Long Loans & Advances and this Non Current Asset also has a decreasing trend from 2008 to 2011. Company also has been investing in securities i-e Long Term Deposits, which also exhibit a decreasing trend and negative decline since last few years. Current Assets of the Company also portray an evident increasing trend.

Cont.
Trade debts of the Company have been increasing at an accelerated rate and portray a sharply increasing trend, which pose threat to the Company as far as being concerned about the position of Trade Debts. Company also portrays an increasing trend for Store, Spares and Loose Tools, whereas also an increasing trend for Stock In Trade since last few years. Short Term Investments, Cash & Bank Balance and Advances of the co display an decreasing trend, which translates the Company isnt left with Cash and doesnt owns Idle Cash, therefore the Company owns less portion of Short Term Investments, Securities and Cash Equivalents.

Financial Ratio Analysis of Financial Statements

Liquidity Ratio Analysis

2011 2010 2009 2008 2007 2006 2005 2004

Liquidity Ratios:

Current Ratio

Times

0.74

0.70

0.70

0.76

0.82

0.83

0.92

1.14

Quick Asset Ratio Cash Ratio

Times

0.51

0.50

0.51

0.50

0.52

0.44

0.54

0.73

Times

0.23

0.27

0.33

0.15

0.19

1.37

2.15

2.56

Interpretation:

The Liquidity Ratio Analysis of the Crestex shows that the liquidity position of Crestex has been deteriorated since FY'04. The liquidity position has been degenerated in Year 2011, due to a 46.18% decrease in Current Assets and a 62.59% increase in Current Liabilities of the Company. The Current Liabilities of the company increased due to 10.45% rise in Trade Payables, 1.12% increase in Accrued Markup and about 47.05% increase in Short Term Finances incurred by the company. Current Assets of the company declined due to decrease in Investments from 1.29 % at the end of Fiscal Year 2004 to 0.30% at the end Year 2011. Keeping in view the Cash and Bank Balances of the Company has been decreased by 0.15%. Therefore, decrease in Current Assets and a corresponding increase in Current Liabilities is evident, which has resulted into a less favorable and unhealthy Liquidity Position as compared to that in Fiscal Year 2008.

Cont.
Crestex has been trying to strengthen and recover its Liquidity Status since the Year 2005 in contrast to the Year 2004 where the Liquidity Position of the Company was at its peak and the most favorable. The increase in Current - Assets had brought about this change. There was a 1.29% increase in Short Term Investments. Moreover, the Cash and Bank Balances had also risen considerably. At the end of Year 2011 the Current Assets of the Company have declined slightly about 46.18%, whereas corresponding rise in Current Liabilities caused a decrease in the Liquidity of the Company. Loans and Advances, Stock in Trade and Short Term Investments constitute nearly 85% of the Company's Total Current Assets and they have sharply declined by 43% at the end of Year 2011. The investments decreased further from Rs. 88 billion in Year 2004 to Rs.37 billion at the end of Year 2011 with corresponding decline from 1.29% to 0.90%.

Profitability Ratio Analysis

Profitability Ratios:
2011 2010 2009

2008

2007

2006

2005

2004

Net Profit Margin

-0.80

3.17

1.67

-0.70

1.53

-1.15

6.18

0.76

Gross Profit Margin

9.25

13.41

14.65

10.95

9.24

10.54

13.13

9.60

Operating Profit Margin

4.46

8.10

8.27

5.89

10.15

6.84

7.33

3.96

Pre -Tax Margin

5.16

4.27

2.22

-0.48

2.04

-0.34

7.35

1.82

Return on Assets

-0.94

3.14

1.66

-0.55

0.86

-0.8

3.71

0.6

Return on Equity

-4.72

12.9

7.91

-2.56

2.94

-2.32

2.99

1.65

Return on Total Capital

-1.32

2.07

-0.74

1.18

-0.87

0.11

0.86

Operating Return on Assets

3.66

2.73

2.57

2.09

1.29

2.31

2.04

4.18

Interpretation:

The Profitability Ratio Analysis of Crestex shows that Company sales increased by 21.55 percent in FY 09 over the previous year figures, reaching Rs 10.75 billion. This improvement was the result of increase in the sale of value added products along with the devaluation of the local currency. 16.49 percent increase in the cost of sales, and a 127.69 percent increase in the operating costs over the previous years' value. Despite these increases in costs, the company managed to show an after tax profit of Rs 179.020 million. This value, however, was negatively impacted by an increase in the financial and other operating expenses for the year. During the FY 10, the company managed to perform well despite rising cost pressures, severe power crisis and rising cotton prices. Sales revenue improved to Rs 10.86 billion compared with Rs 10.76 billion in the previous year. Cost of sales for the FY 10 showed an increase, moving to Rs 9,407 million compared with the value of Rs 9,175 million a year earlier. Rising fuel, freight and distribution expenses also had an impact on profitability of the company. company was successful in reducing its other operating expenses and financial costs by 63.63 percent and 34.28 percent respectively from last year. Net sales revenue of the company increased by 35.86 percent in FY 11 compared with the figures from the previous year, on the back of exports which recorded a growth of 46.32 percent, despite extremely difficult business conditions including energy crisis and weak security and political environment. This was due to higher sales volumes by the company as well as better selling prices.

Valuation/Marketability Ratio Analysis

Valuation/Marketability Ratios: 2011 2010

2009 -

2008

2007

2006

2005

2004

Dividend Yield Dividend Payout

% %

6.95 21.42

1.45 56.04

4.44 -86.3

1.00 47.78

1.00 87.07

Price Earning Ratio

Times

-6.59

3.08

6.73

-46.67

38.67

-19.42

8.75

30.89

Degree of Financial Leverage

Times

2.73

2.23

2.81

2.60

1.71

1.73

2.20

2.52

Earnings per Share

Rupees

-2.41

7.00

3.64

-1.25

1.78

-1.16

6.26

1.01

Book value per Share

Rupees

2.02

2.18

1.77

1.95

2.54

2.05

2.25

2.48

Interpretation:

Valuation Ratio Analysis of the Crestex shows and projects the leverage ratio summarizing the affect a particular amount of financial leverage has on a company's earnings per share (EPS). Financial leverage involves using fixed costs to finance the firm, and will include higher expenses before interest and taxes (EBIT). The companys ratio has increased dramatically in the Year 2011 by 2 times. So there is quite a margin for company to get leveraged. The portion of a company's profit allocated to each outstanding share of common stock. EPS serve as an indicator of a company's profitability. The EPS of company is fluctuating but in current year it has decreed drastically which is not a good sign for shareholders. A valuation ratio of a company's current share price compared to its per-share earnings is Price Earnings ratio. In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E.

Cont.
Dividend Payout Ratio indicates the proportion of earnings that are used to pay dividends to shareholders. A reduction in dividends paid is looked poorly upon by investors, and the stock price usually depreciates as investors seek other dividend paying stocks. A stable dividend payout ratio indicates a solid dividend policy by the company's board of directors. The situation of Crestex shows increment in Year 2007, but from FY 2007 onwards there is consistent decrement in this ratio by more than three times so company is trying to build there retained earnings instead of giving dividend.

Now if we look at the book value per share, as we know that somewhat similar to the earnings per share, but it relates the stockholder's equity to the number of shares outstanding, giving the shares a raw value. Comparing the market value to the book value can indicate whether or not the stock in overvalued or undervalued. During bull markets the stock price is more likely to trade significantly higher than book value, and in a bear market the two values may be close to equal.

Solvency/Coverage Ratio Analysis

Solvency/Coverage Ratios:
2011 2010 2009 2008 2007 2006 2005 2004 Debt to Capital Debt to Equity Debt Ratio Financial Leverage Ratio % % % % 0.67 0.36 0.67 5.02 0.60 0.20 0.60 4.11 0.63 0.30 0.63 4.77 0.62 0.35 0.62 4.41 0.54 0.36 0.54 3.42 0.65 0.40 0.65 2.89 0.63 0.36 0.63 2.71 0.63 0.37 0.63 2.75

Long Term Debt to Equity Interest Coverage Ratio

22.55

24.56

48.99

53.37

55.99

65.93

61.56

61.56

Times

0.96

1.82

1.29

0.92

1.25

0.95

0.90

0.90

Interpretation:

The Solvency Ratio Analysis of the Crestex shows that the Company portrays a negative trend in Year 2011 as compared to Year 2010. The Debt To Equity, Debt to Capital and Total Debt Ratios all have increased which reflects and projects that the Company has been utilizing Debt Financing in Contrast to Equity Financing and the Company exhibits high dependence over Debt Financing. Moreover the Debt Ratio of the Company has increased by 0.67% at the end of Fiscal Year 2011 due to increase in the Total Debt of the Company, as a result of corresponding increase of 62.59% in the Current Liabilities of the Company which constitute and form about 80% Total Debt of the Company. However the Long Term Debt has decreased. The Long Term Debt to Equity has decreased because of a surge in the Equity base due to fewer falls in Reserves than Accumulated Profits at the end of Year 2010. The Interest Coverage Ratio continued to fall in Year 2011 against the positive trend that had prevailed before in the Year 2010. The core reason behind this rapid shift is substantial upsurge in finance charges due to high interest rates in the economy. Likewise the Operating Income has also decreased in Year 2011, thus reducing the extent to which Operating Income can decline before the Company is rendered unable to meet its interest costs. Due to these losses that were experienced by Crestex in Fiscal Year 2011, along with decrease in Profitability during at the end of Year 2011, its Earning per Share (EPS) and Price to Earning (P/E) Ratio have been negative.


During the Year 2011 the Share Price were priced around Rs. 28.00. This shows that the gloom and depressing of Profits of the company have started reflecting in the low investor confidence and falling share price. The highest share price of Crestex had hovered around Rs. 75.00 per Share except during the Year 2011 and 2010, both when Share Prices fell well below the Highest Prices. The management did not recommend any dividend at the end of Year 2011 due to the depressing Profitability situation in this period.

Turnover/Activity Ratio Analysis

Turnover/Activity Ratios:
2011 2010 2009 2008 2007 2006 2005 2004 Number of Days in Inventory Days 37 39 43 51 68 80 29 35 Inventory Turnover Ratio Times 10 9 8 7 5 5 3.55 5.61 Number of Days in Payables Days 24 16 14 16 19 25 12 15

Debtor Turnover Ratio

Times

Number of Days in Receivables

Days

74

86

79

69

72

75

90

95

Creditor Turnover Ratio

Times

15

23

27

23

19

15

29

32

Operating Cycle

Days

87

109

109

105

121

131

141

56

Total Asset Turnover Ratio

Times

1.17

0.99

0.99

0.79

0.56

0.7

0.6

0.79

Interpretation:

The Turnover Ratio Analysis of Crestex shows that performance of Crestex in terms of Asset Management was weak during Fiscal Year 2009. During the year, the inventory turnover (days) of the company more than doubled compared to Fiscal Year 2005 when the management of inventory seemed most efficient (evident from the lowest inventory turnover in days). At the same time, the average time taken by the company to recover cash from sales also increased. The increase in inventory turnover in days and Days sales outstanding (DSO) prolonged the operating cycle of the company during Fiscal Year 2009. In Fiscal Year 2011 the Asset Management of Crestex improved as the inventory turnover rate increased because the company earned sales revenue more in proportion to the increase in inventory. Thus the days to convert inventory into sales became less (from approx. 43 days in Fiscal Year 2009 to 39 days in Fiscal Year 2010, ending up on 37 Days at the end of Fiscal Year 2011). Days to convert sales into cash (DSO) increased slightly, the substantial decrease in ITO (days) led to the shortening of the operating cycle in Fiscal Year 2011. The days sales outstanding was higher because the trade debt increased substantially (by 5%) during Fiscal Year 2011 as against sales. Besides this the sales to equity and total asset turnover of the company which had a declining trend till Fiscal Year 2010 had increased at the end of Fiscal Year 2011.

Cont.
The return on Equity has decreased drastically which is a negative indicator of the Financial Health and Status of the Company, which signals an alarming and negative signal towards the Investors, as a result they investors may not be willing or less willing and dont have any incentive for being encouraged for the investing in Companys Shares or less interest in investing their money in Crestexs Shares at an instance of Low and High Risk Associated Return.

Future Prospects of Crestex:

Liquidity
In FY10, the government was unable to fully provide the benefits through subsidy on long term loans and export finances it had promised under the Textile Policy 2009. It also blocked sales tax refunds and rebates thereby increasing the finance cost and liquidity crunch. The management of the company is working hard to ensure a satisfactory liquidity position of the company. Despite the cash crunch, the company has managed to maintain a current ratio of 0.70 for the past three fiscal years.

Cont.
Debt Management
To control the rising inflation, depletion of foreign reserves and adherence to conditions of the IMF for obtaining loans, SBP increased discount rates to 15 percent for FY 09, resulting in increased finance cost to the company. This cost decreased in the following year despite higher borrowing.
Export finance loans at concessional rates also contributed favorably in this cost reduction. Interest rate expenses followed its downward trend in FY 11, moving from Rs 567 million in FY 10 to Rs 527 in FY 11 even with increased bank borrowings. This may be attributed to a decline in the average markup rates from 8.72 percent in FY 10 to 7.45 percent in FY 11. The management of CTML has shown its dedication in reducing the debt to equity ratio since FY 09. It has fallen from 48.99 percent to 22.55 percent in FY 11, indicating the company's stable growth financing.

 Operational Efficiency

Cont.

All operations of the company achieved efficiencies at 90 percent during FY 09 and its plants operated throughout the year with gas and HFO operated captive power arrangements. The operational efficiency of various processes was achieved to 88-98 percent in FY 10. Gas load shedding, however, affected the company's potential output. The management of CTML used alternate energy sources to ensure satisfactory operational performance. In FY 11, however, despite the presence of alternate expensive fuel usage, the operational performance of the company was hampered due to the frequent and yearlong gas outages. The company had to outsource its production for export commitments, which not only increased deliver time but also added to the company's fixed costs for underutilizing its own processes.

Thank you for your Attention.

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