Financial statement analysis on Fazal Textile Mills Ltd.

Why Analysis is required?

F.S.A is required for the purpose to show that WHY there is a change in Asset, Liability,
sale, Income & expenses in the organization & either it is a good or bad sign for the company (calculated by the ratios). All amounts are in (000s)

Year
Current Asset Current liability Inventory Total debt. Total Asset Shareholders Equity Gross Profit Net Profit Net Sales Net Profit After Tax Cost of goods Sold Average Inventory Account Receivable Account Payable

2010
1354393 2225060 408158 2328495 3679757 1351262 839111 624583 4075778 624583 32336667 408158 592 49896

2009
867052 1063681 501080 2146509 2882469 735960 220351 25292 2819019 25292 2598668 501080 5 76934

YEAR

2010 Liquidity Ratios

2009

Current ratio
Current ratio = Current Asset/Current liability.
0.61 0.82

As the Current Ratio decreases in the current year. This is not a good sign for the company because its ability of paying its short-term debt decreases. Acid Test Ratio Acid Test Ratio = current asset inventory/ current liability 0.43 0.34 The acid-test ratio increase from previous year means it can be efficient in paying shortterm debt. Acid test ratio shows the accurate result rather then current ratio because the only true current assets are there.

Debt Ratios
Debt-to-Equity Ratio
Debt-to-Equity Ratio = Total debt / shareholders Equity 1.72 2.91 Lower the debt-to-equity ratio shows higher the finance provided by the shareholders In the current year the ratio decreases from the previous year shows the company is issued more capital or paid the debt both are good things because in case of debt a higher cost of interest expense are beard by the company but in case of equity the company just have to pay dividend

Debt-to-Total Asset Ratio

Debt-to-Total Asset Ratio = Total debt / Total Asset 0.63 0.74 Lower the debt-to-Total Asset ratio shows higher the asset or a decrease in the debt. In the current year the ratio decreases from the previous year shows the company is paying its debt which is reducing the operating expenses which will result in higher the net income.

Profitability Ratios
Gross profit margin
Gross profit margin= Gross Profit/ net Sales 20% 7.8%

Higher the ratio of G.P margin higher the profit generated on each dollar of sales. Current years G.P is 20% which is Greater then from the previous year showing the better performance it can depends on many factors like increase in sales or decreases in expenses.

Net profit margin

Net profit margin = Net Profit/ Net Sales 15% 0.89%

Net profit margin shows the profitability generated with respect to sales. In 2009 it was just 0.89% but in 2010 it rise up to 15% which is very good sign for the company. It just happens due to increase in sales or selling price.

 Return on Investment/Asset
Return on Investment/Asset=Net profit after tax/ total asset 16% 0.87%

Higher the ratio means higher the profit on per dollar sales & the ratio increases from comparing last year. Which shows the efficiently use of asset to generate sales which is related to the profits of the company.

Return on Equity
Return on Equity=Net profit after tax/ shareholders Equity 4.6% 3.43%

Higher the return on equity the better for the organization. In the current year the ratio is increasing by comparing the last years result. It can be because of profit of the company. increasing in the

Activity Ratios
Inventory Turnover
Inventory Turnover= cost of goods sold/Avg. inventory. 7.92 days 5.19 days Generally, higher the inventory ratio higher the efficiency of management of inventory. Increasing ratio means the company is in a position to make sales its inventory more times in a year.

Average Collection period

Average Collection period= Account receivable / (Avg Sales/day) 5.30 days 0.064days

Average collection period shows that how efficient we are in collecting our receivable. Lower the collection period shows the efficiency of the management of collection. In the

current year there is a increase in A.C.P which can badly effect on the company. Management should have to decrease the A.C.P

Average payment period

Average payment period= Account payable / (Avg purchase/day) 8.13days 16.37days

Average payment period should be maximum up to that limit where there will be no effect on the relations of the parties the purposes of delay is to use the cash in the operations of the business which have no cost. But if we borrow that money from outsider we have to pay the interest expense to the party. In the current period payment period declines which can be dangerous up to certain limits in shape of expenses .

Total Asset Turnover

Total Asset Turnover= Sales/ Total Asset 1.108 0.98

This ratio shows how efficiently we use our asset to generate SALES. Higher the ratio shows the efficiently uses of asset. In the current year the ratio is increase from the past year means improve in the usage of asset.