INTERNATIONAL JOURNAL OF BUSINESS MANAGEMENT, ECONOMICS AND INFORMATION TECHNOLOGY

Vol. 3, No. 1, January-June 2011: 175-181

A Comparison of Financial Performance in Textile Industry

ASHA SHARMA
Assistant Professor, Department of Management, Aravali Institute of Management, Jodhpur, India.
E-mail: drashasharma.sharma07@gmail.com

R. B. SHARMA
Assistant Professor, Deptartment of Accounting, College of Business Administration, Al Kharj, Al Kharj University,
P.O. Box 165, Al Kharj, 11942. Kingdom of Saudi Arabia. E-mail: rbsharmaji@gmail.com

Textile Industry is one of the largest and oldest industries in India. It is fact that India is the second highest cotton
producer in the world. The market size of the Indian Textile Industry is expected to reach US$110 billion by 2012 and
the domestic market is expected to reach US $60 billion by 2012. After, the European industry insurrection, Indian
textile sector also witnessed considerable development in industrial aspects. Textile industry plays an important role
in the terms of revenue generation in Indian economy. The significance of the textile industry is also due to its contribution
in the industrial production, employment.
The purpose of this study is to comparative study of financial performance, of Indias three leading textile companies
i.e. Arvind Mills, Raymond, and Bombay Dyeing have been selected for the study. The most common tool of financial
analysis various ratios as used. It is concluded that the overall performance of Arvind Mills financial position found
highly satisfactory in net profit growth on the profitability level, short term liquidity position, efficiency level, solvency
capacity and investment analysis.
Keywords: Textile industry, Profitability ratios, Activity ratios, Testing of financial position ratios.

1. INTRODUCTION Indian textile industry is largely self-sufficient with

The Indian textile industry enjoys major strengths in
the global market. It also plays a major role in the
economy of the country. India earns about 27% of its
total foreign exchange through textile exports. Further,
the textile industry of India also contributes nearly 14%
of the total industrial production of the country. It also
contributes around 3% to the GDP of the country. Indias
textile products, including handlooms and handicrafts,
are exported to more than a hundred countries.
However, the USA and the EU, account for about two-
third of Indias textiles exports. The other major export
destinations are Canada, U.A.E., Japan, Saudi Arabia,
Korea, Turkey, etc. India textile industry is also the
largest in the country in terms of employment
generation. It not only generates jobs in its own industry,
but also opens up scopes for the other ancillary sectors.
India textile industry currently generates employment
to more than 35 million people. It is also estimated that,
the industry will generate 12 million new jobs by the
year 2010. It is expected that the Indian Textile Industry
reach US$110 billion by 2012 and the domestic market
is expected to reach US $ 60 billion by 2012. (http://
business.mapsofindia.com/india-industry/textile.html)
regard to raw material, with Indias cotton crop, being
the third largest in the world. India has achieved self
sufficiency in synthetic raw material as well as
mainstream products like polyester staple fiber,
polyester filament yarn, and acrylic fiber and viscose
fiber though certain specialty polyester fiber and yarn
are yet to improve. Substantial growth in the domestic
market and tremendous upswing in the international
and domestic market, as a result (if free market access
is facilitated by GATT), spells a bright scenario for
Indian Textile industry. It is important from the
perspective of generating employment and foreign
exchange earnings. In terms of value addition, the
industry stands next only to chemicals accounting for
12.5% of the manufacturing value additions. (Centre
of monitoring indian economy 1998).
The global demand for apparel and woven textiles
is likely to grow by 25 percent by year 2010 to over
35mn tons, and Asia will be responsible for 85 percent
output of this growth. The woven products output will
also rise in Central and Southern American countries,
however, at a reasonable speed. On the other hand, in
major developed countries, the output of woven
 176 / International Journal of Business Management, Economics and Information Technology
products will remain stable. Weaving process is
conducted to make fabrics for a broad range of clothing
assortment, including shirts, jeans, sportswear, skirts,
dresses, protective clothing etc., and also used in
non-apparel uses like technical, automotive, medical etc.
2. REVIEW OF LITERATURE
Brian Carver, Christy He, Jonah Hister (2004), has
made an attempt study of historical aspect of textile
industry. They analyzed that Textiles have historically
formed an important component of Indias exports.
There is archaeological evidence from Mohenjo-Daro,
which establishes that the complex technology of
mordant dyeing was being used in the subcontinent from
at least the second millennium B.C. It is believed that
the use of printing blocks in India started in 3000 B.C.,
and some historians have concluded that India may have
given birth to textile printing. Marco Polos records show
that Indian textiles used to be exported to China and
South East Asia from Andhra and Tamil ports in the
largest ships then known. Buddhist era scripts reveal
that woollen carpets were known in India as early as
500 B.C. and the technical skill that went into Indian
carpets of the Mughal period is still hailed today.
Maurice Landes, Stephen MacDonald, Santosh K.
Singh, and Thomas Vollrat (2005) emphasized that
growth of textile industry in india is depend upon
execution of reforms to policies, including taxes that
discriminate against the use of manmade fibers and
regulations affecting the scale, technology use, and export
competitiveness of the textile and apparel industries.
Imports of raw cotton have increased in concert with
rising demand in recent years, but future growth will
depend on the extent to which India can boost chronically
low cotton yields and improve cotton quality.
Bhandari & Maiti (2007), in his study on Efficiency
of Indian Manufacturing Textile industry, has analyzed
the Technical Efficiency (TE) varies between 68% to
84% across these year and that individual TEs vary
with firm-specific characteristics such as size and age.
Further public sector firms are found to be relatively
less efficient.
3. COMPANY PROFILE
3.1 Arvind Mills
Arvind Mills started its journey in 1931. Arvind
Brands, a subsidiary of Arvind Mills, is an important
player in the Indian branded apparel industry. With
an array of international brands like Lee, Arrow,
Tommy Hilfiger, Wrangler and domestic brands like
Newport, Flying Machine, Ruf n Tuf and Excalibur,
the company was present in most of the segments of
the market. But the company was facing severe
competition from major brands like Louis Philippe,
Park Avenue and small brands like Trigger and
Blackberrys. Also, with several MNC brands poised to
enter the Indian market, the company was under
pressure. The case discusses the various brands of
Arvind Brands and its competitors and outlines in
detail, the efforts made by the company to organize its
brands.
3.2 Raymond
Raymond was incorporated in 1925. It is one of the
Indias leading textile units with strengths in textile
manufacture and marketing. As a pioneer of modern
day franchising, the Company has the largest network
of over 550 exclusive retail shops spread across the
country and overseas. The Raymond Shop, which is
the retail face for Raymond has now become
synonymous with premium retailing housing a wide
range of premium suiting fabrics, mens wear and
accessories, from top-of-the-line brands like Raymond,
Park Avenue, Manzoni, Parx, ColorPlus and Notting
Hill. The Company was incorporated on 10 th
September, 1925 at Mumbai. It manufactures woolen
and worsted and hosiery yarns, knitting wool. The
company has a diverse product range of nearly 20,000
design and colours of suiting fabric. They export their
products to over 55 countries including USA, Canada,
Europe, Japan and the Middle East. (A Brief Report
Textile Industry In India, January, 2010) .
On the manufacturing side, with a capacity of
31 million meters in wool & wool-blended fabrics,
Raymond Limited commands over 60% market share
in worsted suiting in India and ranks amongst the first
three fully integrated manufacturers of worsted suiting
in the world. We are perhaps the only company in the
world to have a diverse product range of nearly 20,000
design and colours of suiting fabric to suit every age,
occasion and style. We export our products to over
55 countries including USA, Canada, Europe, Japan
and the Middle East. Trust, Excellence, Quality, these
are some of the abiding values that have been
associated with Raymond Limited over the years.
Today, we have the distinction of being the worlds
largest integrated producers of worsted suiting fabrics.
3.3 Bombay Dyeing
Bombay Dyeing also play vital role in Indian textile
industry. In fact, India has made a position in the world
textile sector holding the hands of Bombay Dyeing. The
textile products of the company are exported to
different nations all across the world like the United
States, European Union Countries, Australia and New
 A Comparison of Financial Performance in Textile Industry / 177

Zealand. It is the largest exporter of sophisticated 7. SOURCES OF DATA

made-up items and also of product of cotton and poly 7.1 Data Collection
cotton. Bombay Dyeing has created a sizable market
in the production of a wide range of fabrics and ready- The present study is mainly based on secondary data
mades. This includes both formal and casual wear. The which were collected from the corporate annual audited
ready-made collection of the Bombay Dyeing has been reports, company database, published research reports
changing its production pattern with the evolving by various industries, related websites and research
fashion trends. The consumer section of Bombay organization.
Dyeing comprise of bed linen, towels, furnishings,
suiting and shirting fabrics, and cotton and polyester 7.2 Selection of Company and Period
blended dresses and saris. The present study is mainly intended to examine the
comparative financial performance of Raymond, Arvind
4. PROBLEM FOCUS Mills, and Bombay Dyeing textile companies for five
The Indian Textile Industry has an overwhelming years in the period between 2006 - 2010
presence in the economic life of the country. It is the
second largest textile industry in the world after China. 7.3 Tools Used for Analysis
Apart from providing one of the basic necessities of life The present study has analyzed the financial
i.e. cloth, the textile industry contributes about 14% to performance of three textile companies. In order to
the countrys industrial output and about 17% to export evaluate and compare the financial performance of
earnings. After agriculture this industry provides selected industries Ratio Analysis technique and
employment to maximum number of people in India average mean has been used.
employing 35 million people. Besides, another 50 million
people are engaged in allied activities. The Textile 8. RESULT & DISCUSSIONS
Industry came out of Quota Regime of Import
8.1 Profitability Ratio
Restrictions under the Multi Fiber Arrangement (MFA).
This development came on 1st January 2005 under the (a) Gross Profit Ratio:
World Trade Organization (WTO) Agreement on Table 1
Textiles & Clothing. From the last one decade the export
Gross Profit Ratio
performance of textile products are steadily growing and
the export income also highly satisfactory to Indian Company
economy, the selected three textile industries overall Years Arvind Raymond Bombay Dyeing
financial performance is not growing well and smooth 2006 9% 17% 7%
such net profit growth, capital efficiency, liquidity and 2007 7% 22% 12%
long term solvency positions. Hence the aim of the study 2008 1% 11% 6%
is to analyze and comparison of the financial 2009 5% 15% 10%
performance of three leading textile companies in India. 2010 2% 8% 5%
Average 3% 9% 4%
5. OBJECTIVES OF THE STUDY
To analyze the profitability, solvency position and Table 1 shows that the average gross profit of
liquidity position of companies. Raymond (9%) is three times more than Arvind Mills
(3%) and even double then the Bombay dying (4%).
To identify the net profit and EPS growth rate
performance of companies. (b) Net Profit Ratio:
Table 2
6. METHODOLOGY Net Profit Ratio
The researcher, being an external analyst, had to Company
depend mainly upon secondary data for the purpose of Years Arvind Raymond Bombay Dyeing
studying the financing performance of textile
2006 8% 9% 6%
Industries in India from the top three companies in
2007 7% 15% 7%
India which is highly performed in overall growth in
2008 1% 5% 2%
terms of finance, exports and total assets value. The
2009 5% 19% 14%
exploratory research techniques have been used for this
2010 2% 2% 1%
study and also the study is restricted only to Indian
based textile organizations. Average 3% 2% 0%
 178 / International Journal of Business Management, Economics and Information Technology

Table 2 shows the Net Profit ratio of selected units. Working capital is the current assets over current
It shows that the percentage of net profit is liabilities. Arvind Mills working capital ration is
declining in each year. The average of net profit the highest ratio then the Raymond and Bombay
ratio of Arvind Mills (3%) is higher than the dyeing. Bombay dyeing is on second position.
Raymond and Bombay Dyeing. It means.
(c) Acid test Ratio:
(c) Operating Profit Ratio:
Table 6
Table 3
Acid Test Ratio
Operating Profit Ratio
Company
Company
Years Arvind Raymond Bombay Dyeing
Years Arvind Raymond Bombay Dyeing
2006 0.9 0.8 2.2
2006 26% 15% 6% 2007 0.5 0.8 1
2007 16% 11% 14% 2008 0.7 0.9 0.9
2008 10% 7% 7% 2009 0.8 0.8 1.2
2009 10% 9% 5% 2010 1 0.8 2.1
2010 13% 9% 17%
Average 0.78 0.82 1.48
Average 15% 10% 10%

The operating profit ratio is the relationship Table 6 shows that Bombay Dyeing average acid
between cost of good sold and operating expenses. After test ratio is better than Raymond. It mean the
calculating average of operating ratio of selected units, Bombay dyeing fund of liquidity assets is much
it shows that the Arvind Mills Operating ration is more than the other two companies.
higher but Raymond and Bombay Dyeing average (d) Debt-Equity Ratio:
Operating ratio is almost equal.
Table 7
8.2 Testing of Financial Position Debt Equity Ratio
(a) Current Ratio: Company

Table 4 Years Arvind Raymond Bombay Dyeing

Current Ratio 2006 1.2 0.6 1.2
2007 1.4 0.6 3.1
Company 2008 1.3 0.6 3.6
Years Arvind Raymond Bombay Dyeing 2009 1.7 1.2 4.6
2006 2.1 1.7 4.6 2010 1.3 1.1 8.4
2007 2.1 1.6 1.6 Average 1.38 0.82 4.18
2008 2 1.8 1.4
2009 2 1.5 2.4 Debt-equity indicates what proportion of equity
2010 2 1.5 2.6 and debt the company is using to finance its assets.
Average 2.04 1.62 2.52 Debts equity ratio is relationship between debts
and equity. Table 7 shows that the Arvind Bombay
Current ratio is the study of Current Assets and
dyeing debt equity ratio is too high. It means the
Current Liability. Table 4 shows that Arvind Mills
company arrange fund from debt securities. In case
and Bombay Dyeing has adequate current assets
of Raymond debt equity ratio is at minimum point.
(2.04:1), it is more than the standard 2:1.
(b) Net Working Capital Ratio: (e) Proprietary fund Ratio:
Table 5 Table 8
Net Workin Capital Ratio Proprietary Fund Ratio
Company Company
Years Arvind Raymond Bombay Dyeing Years Arvind Raymond Bombay Dyeing
2006 451.5 245.7 316.9 2006 44% 61% 45%
2007 448.9 211.5 174.2 2007 40% 63% 23%
2008 478.5 276.3 125.9 2008 43% 61% 22%
2009 483 230.2 460.3 2009 36% 45% 18%
2010 453.1 196.1 487.8 2010 43% 48% 11%
Average 463 231.96 313.02 Average 41% 56% 24%
 A Comparison of Financial Performance in Textile Industry / 179

Table 8 shows that most Raymond companys EPS measures the overall profit generated for each
proprietary fund is highest than the other two share in existence over a particular period. Table 11
companies. More than 50% fund are proprietors. shows that the EPS ratio in the year 2006 of Arvind
But Bombay dyeing arrange funds form debt mill, year 2007 of Raymond and year 2006 of
securities so its proprietary fund ratio is less. Bombay Dyeing was highest. When we compare
the average EPS, Raymond is in better position.
(f) Solvency Ratio:
Table 9 8.3 Activity or Efficiency Ratio
Solvency Ratio Activity ratios help investors evaluate a firms ability
Company to effectively and efficiently manage its operations and
Years Arvind Raymond Bombay Dyeing assets.
2006 7% 57% 63% (a) Stock Turnover Ratio:
2007 7% 54% 92%
2008 7% 54% 93% Inventory turnover is an activity ratio that measures
2009 8% 72% 98% the companys effectiveness by dividing cost of goods
2010 7% 68% 105% sold by the average inventory balance. Table 12 shows
Average 7% 61% 90% that Bombay Dyeing inventory turnover higher as
compare to the Arvind Mills and Raymond. The ratio
Table 9 shows the solvency ratio of the selected shows that Arvind Mills has a more effective
units. It show that average of Arvind Mills (7%), inventory management as compare to others.
Raymond (61%) and Bombay dyeing (90%). No Table 12
doubt that Bombay dyeing solvency position is
Stock Turnover Ratio
better than the Arvind Mills.
Company
(g) Capital Gearing Ratio: Years Arvind Raymond Bombay Dyeing
Table 10 2006 3 3.45 4.44
Capital Gearing Ratio 2007 3 3.54 2.29
2008 3.6 3.41 5.63
Company
2009 4.3 3.72 5.67
Years Arvind Raymond Bombay Dyeing 2010 4.5 5.03 6.02
2006 10% 8% 7% Average 3.68 3.83 4.81
2007 10% 8% 4%
2008 10% 7% 2% (b) Debtors Turnover Ratio:
2009 10% 5% 2%
Table 13
2010 10% 5% 2%
Debtors Turnover Ratio
Average 10% 7% 3%
Company
Gearing measures the proportion of assets invested Years Arvind Raymond Bombay Dyeing
in a business that are financed by borrowing. Table 10
2006 4.3 5.37 6.41
shows that Arvind Mills average capital gearing ratio 2007 6.4 5.03 2.42
is the highest (10%), second and third position is 2008 9.5 4.79 3.64
Raymond (7%) and Bombay Dyeing (2%) respectively. 2009 7.7 4.71 4.02
2010 6 4.51 3.19
(h) Earning Per Share (EPS) Ratio:
Average 6.78 4.882 3.936
Table 11
Earning Per Share Ratio The effect of a liberal credit policy may result in
Company tying up substantial funds of a firm in the form of
trade debtors. Debtors turnover ratio indicates the
Years Arvind Raymond Bombay Dyeing
number of times the debtors are turned over a year.
2006 5.89 19.92 15.89 The higher the value of debtors turnover the more
2007 1.06 32.79 9.31 efficient is the management of debtors or more
2008 1.14 19.92 4.32
liquid the debtors are. Table 13 shows that Arvind
2009 2.26 44.05 50.4
Mills debtors turnover is highest, it means
2010 2.21 4.3 4.77
company mange debtors policy efficiently as
Average 1.608 6.576 3.222 compare to Bombay Dyeing.
 180 / International Journal of Business Management, Economics and Information Technology

(c) Fixed Assets Turnover Ratio: it can be concluded that the performance of selected
Table 14 three companies i.e. Arvind Mills, Raymonds and
Bombay Dyeing, Arvind mills, EPS is high, Current
Fixed Assets Turnover Ratio
Assets is above standard, Proprietary fund also found
Company satisfactory. The position of the Arvind mills can be
Years Arvind Raymond Bombay Dyeing ranked on top among the selected unit and based on
2006 1.2 0.04 8.18 the analysis of data.
2007 0.9 0.11 3.5
2008 1.1 0.06 1 9. CONCLUSION
2009 1.1 0.12 1.37
2010 1.2 0.04 1.74 Indian textile industry is an independent and self-
Average 1.1 0.026 3.158 reliant industry. It has large and potential domestic
and international market. But the industry is highly
For most companies, their investment in fixed fragmented industry depend on cotton. Lake of
assets represents the single largest component of technological development, the growth of industry
their total assets. This annual turnover ratio is becomes decline. Even labor laws are not favorable.
designed to reflect a companys efficiency in
The study has analyzed the short term and
managing these significant assets. Table 14 shows
profitability position of leading textile companies in
average fixed assets ratio of Bombay Dyeing,
Raymond and Arvind Mills is 3.15, 0.26 and 1.1 India, some of the important ratios were used to
respectively. measure the financial performance of three selected
companies. Based on the above analysis the overall
(d) Total Assets Turnover Ratio: performance of Arvind Mills is one of the major and
Table 15 fully vertically integrated composite mills player in
Total Assets Turnover Ratio India. It has large production in denim, shirting and
knitted garments. It is now adding value by
Company
manufacturing denim apparel. The result of financial
Years Arvind Raymond Bombay Dyeing analysis also shows that Arvind Mills is comparatively
2006 0.7 1.04 1.95 good with the other two companies. Its financial
2007 0.6 1.04 0.93 position is found to be highly satisfactory level in net
2008 0.8 0.98 0.69
profit growth on the profitability level, short term
2009 0.8 0.83 0.76
2010 0.8 0.88 0.95
liquidity position, efficiency level, solvency capacity and
investment analysis basis. The other two selected two
Average 0.74 0.954 1.056
companies performance were not satisfactory positions.
This ratio measures the efficiency and profit Hence these companies will have to strengthen its
earning capacity of the concern. Higher the ratio, shareholders funds and working capital to compete and
greater is the intensive utilization of fixed assets. enhancing its current performances in growing textile
Lower ratio means under-utilization of fixed assets. in global business environment.
Table 15 show that Arvind Mills under utilization of This is an attempt identify and study the
Fixed Assets and Bombay Dyeing intensive utilization movement of key financial parameters and their
of fixed assets. relationship with profitability of textile industry. It is
an attempt to and the study whether the key identified
8.4 Findings parameters move in a synchronous way going up and
The major findings form the present study are: coming down with basic profitability parameters. All
three comparably profit-making companies have been
Profitability decline.
taken as the sample for study for the period of 2006 to
Financial Strength not highly satisfactory. 2010. The data have been taken from the figures
Fixed Assets-Financed mainly through owners supplied by prowess database. On the basis of this data
fund. a trend parameter is calculated for the year 2011. So,
on the base of the analysis, the broad conclusion is that
Working Capital Not efficiently and effectively the parameters are consistent within a wide horizon
managed. and with the growth that companies have achieved,
On the basis of the analysis of profitability, Activity, the parameters have also responded in a synchronous
earning per share, fixed assets and inventory turnover, manner.
 A Comparison of Financial Performance in Textile Industry / 181
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