Running head: KOHINOOR TEXTILE MILLS

Financial Statement AnalysisZahra DahaBBA 3 Section LLahore School of Economics

AcknowledgementsMy 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.

Executive SummaryThis 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.

Table of ContentsCompany Profile8Balance Sheet Analysis9Income Statement Analysis10Cash Flow Statement Analysis11Common-Size Balance Sheet Analysis12Analysis of Common-Size Income Statement13Analysis Of Cash-Flow Common Size14Balance Sheet Year over Year Analysis16Income Statement Year over Year Analysis17Cash Flow Statement Year over Year Analysis18Liquidity Ratios19Current Ratio and Acid Test Ratio19Cash to Current Liabilities and Current Assets20Collection Period and Days to Sell Inventory21Capital Structure and Solvency Ratios23Total Debt to Equity and Long Term Debt to Equity23Times Interest Earned24Debt Ratio25Capital Structure and Solvency26Return on Assets and Return on Equity26Return on Long Term Debt and Equity27GPM, OPM, NPM and Pre Tax Profit Margin28Cash, A/R, Inventory, Working Capital and PPE Turnover30Asset Utilization33DuPont Analysis35Conclusion & Recommendation36Referances37

List of FiguresFigure 1: Common Size Balance SheetFigure 2: Common Size Income StatementFigure 3: Balance Sheet Year over Year AnalysisFigure 4: Income Statement Year over Year AnalysisFigure 5 a: Cash Flow Common SizeFigure 5 b: Cash Flow Statement Year over Year AnalysisFigure 6: Current and Acid Test RatioFigure 7: Cash to Current Assets and Current LiabilitiesFigure 8: Collection Period and Days to Sell InventoryFigure 9: Total Debt to Equity and Long Term Debt to EquityFigure 10: Times Interest EarnedFigure 11: Debt RatioFigure 12: ROA and ROEFigure 13: Return on Long Term Debt and EquityFigure 14: GPM, OPM, NPM and Pre Tax Profit MarginFigure 15: Cash A/R, Inventory, Working Capital and PPE TurnoverFigure 16: Total Asset TurnoverFigure 17: Basic Earnings Per Share

List of TablesTable 2: DuPont AnalysisTable 6: Comparison of Liquidity ratios with Industry AveragesTable 7: Comparison of Capital Structure and Solvency with Industry AveragesTable 8: Comparison of Operating Performance with Industry AveragesTable 9: Comparison of Asset Utilization with Industry Averages

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 largest1.

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 textile-manufacturing 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 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 rangeof 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 AnalysisThe 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, 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 AnalysisThe 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 AnalysisThe 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. 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.

Common-Size Balance Sheet Analysis

Figure 1: Common Size Balance SheetCommon 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.Analysis of Common-Size Income Statement

Figure 2: Common Size Income StatementCommon 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 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

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 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

Figure 3: Balance Sheet Year over Year AnalysisThe 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 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

Figure 4: Income Statement Year over Year AnalysisThe 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 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

Figure 5: Cash Flow Statement Year over Year AnalysisThe 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 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 AnalysisLiquidity RatiosCurrent Ratio and Acid Test Ratio

Figure 6: Current and Acid Test RatioLiquidity 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.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

Figure 7: Cash to Current Assets and Current LiabilitiesThe 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

Figure 8: Collection Period and Days to Sell InventoryThe collection period refers to the average length of time that the firm must wait after making a sale before receiving cash[footnoteRef:1]. 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. [1: ]

MeasureCompany Avg.Industry Avg.

Current Ratio0.8481.05

Quick Ratio0.8460.72

Collection Period78.68543

Table 6:Comparison of Liquidity ratios with Industry AveragesThe companys liquidity ratio when compared with the industry averages reflects the true picture of where the corporation actually stands. 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 RatiosSolvency 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

Figure 9: Total Debt to Equity and Long Term Debt to EquityThe 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.Times Interest EarnedFigure 10: Times Interest EarnedTimes 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.Debt Ratio

Figure 11: Debt RatioThe 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

MeasureCompany Avg.Industry Avg.

Total Debt to equity0.25298.81

Debt Ratio0.0691.56

Long Term debt to equity0.19530.6

Table 7: Comparison of Capital Structure and Solvency with Industry AveragesThe 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

Figure 12: ROA and ROECompanies 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.

Return on Long Term Debt and EquityFigure 13: Return on Long Term Debt and EquityThe 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.

Operating Performance AnalysisGPM, OPM, NPM and Pre Tax Profit Margin

Figure 14: GPM, OPM, NPM and Pre Tax Profit MarginThe 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.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

MeasureCompany Avg.Industry Avg.

Gross Profit Margin48.319.07

Operating Profit Margin28.42.76

Net Profit Margin37.115.65

Pre-tax Profit Margin55.19.51

Table 8: Comparison of Operating Performance with Industry AveragesThe 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 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 AnalysisCash, A/R, Inventory, Working Capital and PPE Turnover

Figure 15: Cash A/R, Inventory, Working Capital and PPE TurnoverThecash turnover ratioindicates 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.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.Theinventory turnover ratiomeasures 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

Total Asset Turnover

Figure 16: Total Asset TurnoverThe 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 highasset turnover ratiomeans efficient utilization of assets and the assets are being properly doing their part of the job.Asset UtilizationMeasureCompany Avg.Industry Avg.

Sales to Account Receivables5.3498.9

Inventory Turnover73.1110.4

Sales to fixed asets2.661.8

Total Assets Turnover0.41.92

Table 9: Comparison of Asset Utilization with Industry AveragesThe 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 industryTheinventory turnover ratiomeasures 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 measuresa 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, whilethose 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

Figure 17: Basic Earnings per ShareSince 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.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

Sales174834121683253100257349178320686223084361

Net Income100616314572194148911056763711533612401

Net Profit Margin57.55%67.20%13.38%30.26%34.40%19.86%

Avg total assets121300851068107812825048.515207157.51766064924067226.5

Total Asset Turnover0.1440.2030.2420.2300.1170.128

Average Stockholder's Equity7217062.55171878.56080159.5651638769748977341168.5

Equity Multiplier1.6807509982.0652221432.1093276422.3336793072.5320300793.278391785

Return on Common Equity13.94%28.18%6.82%16.22%10.20%8.34%

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.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

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.aspxRatio Analysis: Retrieved March 2, 2012, fromAnnual Statements in CD

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