RESEARCH QUESTIONS

1- What are the profitability ratios of the company with respect to:
a Return on Assets
b Return on equity
c Net profit margin
d Gross profit margin
e Operating profit margin
2- What are the leverage ratios of the company with respect to:
a Total debt ratio
b Debt- equity ratio
c Long-term debt ratio
d Times interest earned
3-What are the liquidity ratios of the company with respect to:
a Current ratio
b Quick ratio
c Net working capital to assets
4-What are the efficiency ratios of the company with respect to:
a Total asset turnover
b Inventory turnover
c Receivable turnover
d Payable turnover

5-What are the cash flows generated from different activities

a Operating activities
b Investing activities
c Financing activities

OBJECTIVES

The following are the objectives of this project:

1 To analyze and interpret the financial report of Mahmood Textile
Mills ltd.
2 To appraise the financial position using the ratio analysis.
3 To accomplish the common size analysis.
4 Interpret post-retirement obligations and funding implications for
future performance.
5 To determine the level of profit generated.
6 To determine the expense and investments of the company.

SIGNIFICANCE OF THE STUDY

Financial statement analysis is of interest to shareholders, creditors,
and the firms own management. Both present and prospective
shareholders are interested in the firms current and future level of risk
and return. These two dimensions directly affect share price. The firms
creditors are primarily interested in the short-term liquidity of the
company and in its ability to make interest and principal payments. A
secondary concern of creditors is the firms profitability; they want
assurance that the business is healthy and will continue to be
successful. Management, like stockholders, must be concerned with all
aspects of the firms financial situation. Thus, this study attempts to
operate in a manner that will be favorable to both owners and
creditors.
In addition, management uses ratios to monitor the firms financial
performance from period to period. It will also help management to
make decisions regarding dividend policies, investments, lending,
borrowings etc.
Sofie Vander Meulen in his study in 2003 states that, investors as well
as

other

stakeholders

heavily

rely

on

companys

financial

statements. It is an important source of information that is readily

available to them at a relatively low cost. The quality of those
statements however is highly variable (aggressive reporting or not,
disclosure or not). Therefore, this research would also be obliging for
the companys investors and stakeholders.
Through this research many of the society members will be benefited
and it will be advantageous for the economy. Like investors,

researchers, creditors, management, employees, lenders, suppliers,

customers, auditors, and analysts will equally be able to take
assistance from this research.

RESEARCH METHODOLOGY AND DESIGN

METHOD OF THE STUDY

This study is about the financial statements analysis of Mahmood
Textile Mills ltd. The study is descriptive in nature. The researcher has
utilized the descriptive method in acquiring information for evaluating
the financial performance of the selected companies.

NATURE OF DATA
The research data is secondary in nature as for this particular
research. The data is collected for the year 2009 to 2008, in the form
of annual report from the office, containing:

Balance sheet
Cash Flow statement
Profit & Loss Account

SAMPLING PROCEDURE

The research, which has been done on the financial analysis of the
selected textile company, the sample procedure for this particular
research is

RESEARCH INSTRUMENT
This research is based on secondary source of data and consists of
annual reports, articles, web sites, and books.

FINANCIAL TOOLS
To know the desired results and to get the desired information the
researcher has applied many financial tools like ratio analysis, _______

TREATMENT OF THE DATA

The data and information that was gathered was interpreted and
analyzed by using different financial tools.

ANALYSIS AND
INTERPRETATION OF DATA

Financial Statements are useful because they provide information

that allows investors and creditors to make better decisions. However,
because of selective reporting of economic events as well as noncomparable accounting methods and estimates, financial statements
are only an approximation of reality. In addition, because of the
tendency to delay accounting recognition, financial statements also
tend to lag reality.
A primary objective of financial analysis is to determine comparable
risk and return of companies and their securities. Financial statements
include the

Balance Sheet

Income Statement

Cash Flow Statement

The financial statements are interrelated and should be used and

analyzed together. Methods of financial statement analysis may be
divided into two general categories, internal analysis and comparative
or external analysis.
Internal analysis uses figures from the financial statements of any
one date or period to gain an understanding of the customer.
Comparative analysis may be used to determine trends when two or
more successive sets of figures are reviewed, or may be used to
evaluate a given company's financial statement against industry
standards.
These methods may be used separately or in combination. They are
part of the tools that enable experienced credit professionals to reach
a credit decision. Financial statements should be spread and analyzed,
with appropriate ratios and flows calculated as an aid in the customer
evaluation. As an important first step in internal analysis, the financial
statement should be examined for validity and general correctness.
After the statement has been accepted as valid and reasonably
accurate, ratios should be calculated and the figures analyzed. Internal
analysis calls for an examination of items within a single financial
statement for the purpose of judging their significance in relation to
the capital of the company, its method of operation and conditions
prevailing within the industry. The major tools for internal analysis are
balance sheet ratios and a working knowledge of the line of business
including the method of operation and seasonal influences.

Ratios are mathematical aids for appraisal and comparison of financial

statements. They are used to supplement currency amount inspection,
to examine inter-item relationships and to compare a specific
company's performance against its industry standard.
The use of ratios reduces the influence of currency size on analysis
since these comparisons are expressed as a percentage, fraction,

decimal, or rates of turnover. Only the combinations that could be

made of the items appearing in both schedules limit the number of
ratios that can be developed from the balance sheet and income
statement. The type of operation represented by the account and the
nature of the risk has an important bearing on what ratios are to be
computed and studied. This analysis compares financial information
generated for five periods.

FINANCIAL STATEMENT AND RATIO ANALYSIS

Financial ratios are a popular way for users of financial statements to
develop insights into the financial performance of companies. By
controlling for the effect of firm size on the level of performance, ratios
enable financial statement users to examine how a firm has performed
relative to its peers and relative to its own historical performance.
A firms ratios can differ from its peers or its own historical
performance because it has selected a different product market
strategy, because its management team has become more effective at
implementing its strategy, or because it has selected a different
financial strategy. Sometimes firms can appear to perform differently
because they have selected different accounting methods for reporting
the same underlying economic events. For this reason, a pioneer to
effective financial ratio analysis is the development of a clear
understanding of how a firms accounting decisions compare with
those of its competitors, or with its own decisions in prior years.
In assessing the significance of various financial data, managers often
engage in ratio analysis, the process of determining and evaluating
financial ratios. A financial ratio is a relationship that indicates
something about a company's activities, such as the ratio between the
company's current assets and current liabilities or between its
accounts receivable and its annual sales. The basic source for these
ratios is the company's financial statements that contain figures on
assets, liabilities, profits, and losses. Ratios are only meaningful when
compared with other information. Since they are often compared with
industry data, ratios help managers understand their company's
performance relative to that of competitors and are often used to trace
performance over time.

Ratio analysis can reveal much about a company and its operations.
However, there are several points to keep in mind about ratios. First, a
ratio is just one number divided by another. Financial ratios are only
"flags" indicating areas of strength or weakness. One or even several
ratios might be misleading, but when combined with other knowledge
of a company's management and economic circumstances, ratio
analysis can tell much about a corporation. Second, there is no single
correct value for a ratio. The observation that the value of a particular
ratio is too high, too low, or just right depends on the perspective of
the analyst and on the company's competitive strategy. Third, a
financial ratio is meaningful only when it is compared with some
standard, such as an industry trend, ratio trend, a ratio trend for the
specific company being analyzed, or a stated management objective.

Financial ratios can also give mixed signals about a company's financial
health, and can vary significantly among companies, industries, and
over time. Other factors should also be considered such as a
company's products, management, competitors, and vision for the
future.

Focus of Ratio Analysis

Ratio analysis involves evaluating different aspects of a business
enterprise which are of great importance to different users such as
management, investors, creditors, bankers, analysts, investment
advisers etc. Generally, the following ratios analyses are made while
making financial statement analysis:
I.
II.
III.

Liquidity Ratio Analysis.

Profitability Ratio Analysis.
Leverage Ratio Analysis.

IV.
V.

Efficiency Ratio Analysis.

Cash Flow Analysis.

I.

Liquidity Ratio Analysis

Liquidity or short-term solvency analysis aims to determine the ability

of a business to meet its financial obligations during the short-term and
to maintain its short-term debt-paying ability. The aim of liquidity
analysis is for a company to have adequate funds on hand to pay bills
when they are due and to meet unexpected needs for cash.
Liquidity analysis mainly focuses on balance sheet relationships that
indicate the ability of a business to liquidate current and non-current
liabilities.

1. Working Capital Position

The working capital of a business is the excess of current assets over
current liabilities; this is computed by the subtracting current liabilities
from the current assets. The resulting working capital figure is taken as
one of the primary indications of the short-term solvency of the
business.
Working capital= Current assets Current liabilities
The financial statement of the company (Mehmood Textile Mills) FY
2009 indicates the following data for the calculation of Working
Capital:
Total Current Assets (FY 2008) = 2,263,757,417 PKR
Total Current Assets (FY 2009) = 2,441,209,096 PKR
Total Current Liabilities (FY 2008) = 1,924,504,789 PKR
Total Current Liabilities (FY 2009) = 1,972,157,401 PKR

Working capital (FY 2008) = 2,263,757,417 1,924,504,789

= 339,252,628 PKR
Working capital (FY 2009) = 2,441,209,096 1,972,157,401
= 469,051,695 PKR
The analysis reveals that there was a 38% increase in the working
capital position of the company from FY`08 to FY`09 which shows that
the company payed-off its short-term liabilities efficiently.
2. Current Ratio:
Current ratio expresses the relationship of current liabilities. It is widely
used as a broad indicator of a companys liquidity and short-term debtpaying ability. The current ratio formula is as follows:
Current ratio =

Current Assets
___________
Current Liabilities

The financial statement of the company (Mehmood Textile Mills) FY

2009 indicates the following data for the calculation of Current Ratio:
Total Current Assets (FY 2008) = 2,263,757,417 PKR
Total Current Assets (FY 2009) = 2,441,209,096 PKR
Total Current Liabilities (FY 2008) = 1,924,504,789 PKR
Total Current Liabilities (FY 2009) = 1,972,157,401 PKR
Current ratio (FY 2008) = 2,263,757,417
___________
1,924,504,789

1.2

Current ratio (FY 2009) = 2,441, 209,096

___________
1,972,157,401
=

1.2

Since the Industry average is 1, hence the results reveal that the
company maintained its current ratio on a satisfactory level i.e. payoff current obligations efficiently and has maintained adequate margin
of safety to the creditors.

3. Acid Test or Quick Ratio:

The current ratio does not take into account the make-up or
composition of current assets. The quick ratio is designed to overcome
this problem by relating the most liquid assets to current liabilities.
Cash, marketable securities or short-term investments, receivables and
prepaids are included within the meaning of most liquid assets;
inventory is excluded. The acid test ratio is as follows:
Quick Ratio

Current Assets Inventory

____________________
Current Liabilities

The financial statement of the company (Mehmood Textile Mills) FY

2009 indicates the following data for the calculation of Quick Ratio:

Total Current Assets (FY 2008) = 2,263,757,417 PKR

Total Current Assets (FY 2009) = 2,441,209,096 PKR

Total Current Liabilities (FY 2008) = 1,924,504,789 PKR
Total Current Liabilities (FY 2009) = 1,972,157,401 PKR
Total Stock-in-trade (Inventory) (FY 2008) = 1,589,307,570
PKR
Total Stock-in-trade (Inventory) (FY 2009) = 1,443,806,234
PKR
Quick ratio (FY 2008) =

0.4

Quick ratio (FY 2009) =

2,263,757,417- 1,589,307,570
_________________________
1,924,504,789

2,441,209,096 - 1,443,806,234
_________________________
1,972,157,401

0.5

The analysis reveals that the Quick ratio of the company increased
from 0.4 in FY`08 to 0.5 in FY`09 which shows that the company`s
currents assets are highly dependent on inventory (since it is less than
working capital ratio).

2009

2008

469,051,695

339,252,628

Position

PKR

PKR

Current Ratio

1.2%

1.2

Quick Ratio

0.5%

0.4

Working Capital

II.

Profitability Ratio Analysis

Profitability ratios focus on the firms earnings. Each relates the returns
of the firm to its sales, equity, assets, or share value. Owners,
creditors, and management pay close attention to boosting profits due
to great importance placed on earnings in the market place.

1. Gross Profit Margin:

A financial metric used to assess a firm's financial health by revealing
the proportion of money left over from revenues after accounting for
the cost of goods sold. Gross profit margin serves as the source for
paying additional expenses and future savings.

Calculated as:

Gross Profit Margin

=
Sales COGS
____________
Sales

Gross Profit = Sales - COGS

The Income Statement of the company (Mehmood Textile Mills) FY

2009 indicates the following data for the calculation of Gross Profit
Margin:
Gross Profit (FY 2008) = 562,288,148 PKR
Gross Profit (FY 2009) = 1,084,242,845 PKR
Sales (FY 2008) = 5,073,168,667 PKR
Sales (FY 2009) = 6,811,267,831 PKR

Gross Profit Margin (FY 2008)

562,288,148
____________

5,073,168,667
=
Gross Profit Margin (FY 2009)

0.1
=

1,084,242,845
____________

6,811,267,831
=

0.2

The analysis reveals that the Gross Profit Margin of the company
increased from 0.1 in FY`08 to 0.2 in FY`09 which shows that the
company can efficiently pay additional expenses and future savings.

2. Operating Profit Margin:

Operating margin is a measurement of what proportion of a company's
revenue is left over after paying for variable costs of production such
as wages, raw materials, etc. It indicates how effective a company is at
controlling the costs and expenses associated with their normal
business operations.
A healthy operating margin is required for a company to be able to pay
for its fixed costs, such as interest on debt.

Operating Profit Margin

Operating Income
____________
Net Sales

The Income Statement of the company (Mehmood Textile Mills) FY

2009 indicates the following data for the calculation of Operating
Profit Margin:
Operating Income (FY 2008) = 271,248,824 PKR
Operating Income (FY 2009) = 571,453,864 PKR
Sales (FY 2008) = 5,073,168,667 PKR
Sales (FY 2009) = 6,811,267,831 PKR

Operating Profit Margin (FY 2008)

271,248,824
____________

5,073,168,667
=
Operating Profit Margin (FY 2009)

5.3 %
=

571,453,864
____________

6,811,267,831
=

8.4 %

The analysis reveals that the Operating Profit Margin of the company
increased from 5.3 % in FY`08 to 8.4 % in FY`09 which shows that the
company is efficiently controlling the costs and expenses associated
with its operations and it can pay for its fixed costs, such as interest on
debt efficiently.

3. Net Profit Margin:

A ratio of profitability calculated as net income divided by revenues, or
net profits divided by sales. It measures how much out of every

dollar of sales a company actually keeps in earnings.

Profit margin is very useful when comparing companies in similar
industries. A higher profit margin indicates a more profitable company
that has better control over its costs compared to its competitors.
Net Profit Margin

=
Net Income
____________
Sales

The Income Statement of the company (Mehmood Textile Mills) FY

2009 indicates the following data for the calculation of Net Profit
Margin:
Net Income (FY 2008) = (4,979,641) PKR
Net Income (FY 2009) = 102,843,981 PKR
Sales (FY 2008) = 5,073,168,667 PKR
Sales (FY 2009) = 6,811,267,831 PKR

Net Profit Margin (FY 2008)

(4,979,641)
____________
5,073,168,667
=

Net Profit Margin (FY 2009)

- 0.1 %
102,843,981
____________

6,811,267,831
=

1.5 %

The analysis reveals that the Net Profit Margin of the company
increased from a loss of (0.1 %) in FY`08 to 1.5 % in FY`09 which
shows that the company earned profit and its pricing policies are
improved, has gained better ability to control costs and has a
satisfactory margin of safety.

4. Return On Assets:
An indicator of how profitable a company is relative to its total
assets. ROA gives an idea as to how efficient management is at using
its assets to generate earnings.
ROA tells us what earnings were generated from invested capital
(assets). ROA for public companies can vary substantially and will be
highly dependent on the industry.

Calculated as:

Return on Assets

=
Net Income
___________
Total Assets

The Income Statement & Balance Sheet of the company (Mehmood

Textile Mills) FY 2009 indicates the following data for the calculation of
Return on Assets:
Net Income (FY 2008) = (4,979,641) PKR
Net Income (FY 2009) = 102,843,981 PKR
Total Assets (FY 2008) = 4,296,653,569 PKR

Total Assets (FY 2009) = 4,418,368,036 PKR

Return on Assets (FY 2008)

(4,979,641)
____________
4,296,653,569

- 0.1 %

Return on Assets (FY 2009)

102,843,981
____________

4,418,368,036
=

2.3 %

The analysis reveals that the Return on Assets of the company

increased from a loss of (0.1 %) in FY`08 to 2.3 % in FY`09 which
shows that the company improved its ROA and the management is
efficiently using its assets to generate earnings.

5. Return On Equity:
The amount of net income returned as a percentage of shareholders
equity. Return on equity measures a corporation's profitability by
revealing how much profit a company generates with the money
shareholders have invested.
Net income is for the full fiscal year (before dividends paid to common
stock holders but after dividends to preferred stock.) Shareholder's
equity does not include preferred shares.
ROE is also referred as Return on Net Worth
Calculated as:
Return on Equity

=
Net Income
___________

Shareholders Equity
The Income Statement & Balance Sheet of the company (Mehmood
Textile Mills) FY 2009 indicates the following data for the calculation of
Return on Assets:
Net Income (FY 2008) = (4,979,641) PKR
Net Income (FY 2009) = 102,843,981 PKR
Total Shareholder`s Equity (FY 2008) = 1,623,589,865 PKR
Total Shareholder`s Equity (FY 2009) = 1,711,456,511 PKR
Return on Equity (FY 2008)

(4,979,641)
____________
1,623,589,865

- 0.3 %

Return on Equity (FY 2009)

102,843,981
____________
1,711,456,511

6.0 %

The analysis reveals that the Return on Equity of the company

increased from a decline of (0.3 %) in FY`08 to 6.0 % in FY`09 which
shows that the company improved its ROE and the management
efficiently generated profit with the money shareholders invested in
year 2009.

2009

2008

Gross Profit Margin

16 %

11%

Operating Profit Margin

8.4

5.3

Net Profit margin

1.5

(0.1)

Return on Assets

2.3

(0.1)

Return on Equity

6.0

(0.3)

III.

Leverage Ratio Analysis

When a firm borrows money, it promises to make a series of interest

payments and then to repay the amount that it has borrowed. If profits
rise, the debt holders continue to receive a fixed interest payment, so
that all the gains go to shareholders, whereas if the reverse happens
and profits fall shareholders bear all the pain.

1. Debt Ratio:
A ratio that 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. Used in conjunction with other measures of financial

health, the debt ratio can help investors determine a company's level
of risk.
Calculated as:
Debt Ratio

Total Debt
___________
Total Assets

The Balance Sheet of the company (Mehmood Textile Mills) FY 2009

indicates the following data for the calculation of Debt Ratio:

Total Assets (FY 2008) = 4,296,653,569 PKR

Total Assets (FY 2009) = 4,418,368,036 PKR

Total Liabilities/ Debt (FY 2008) = 2,673,063,704 PKR

Total Liabilities / Debt (FY 2009) =2,706,911,525 PKR
Total Debt Ratio (FY 2008)

2,673,063,704
____________
4,296,653,569

= 0.62 or 62 %
Total Debt Ratio (FY 2009)

2,706,911,525
____________
4,418,368,036

= 0.61 or 61 %

The analysis reveals that the company management maintained a

satisfactory debt/asset ratio which is less than 1. This indicates that
the company has more assets than debt and is utilizing its assets
efficiently.

2. Debt- Equity Ratio:

A measure of a company's financial leverage, calculated by dividing its
total liabilities by stockholders' equity. It indicates what proportion of
equity and debt the company is using to finance its assets.
Calculated as:
Debt-Equity Ratio

=
Total Debt
___________
Total Equity

The Balance Sheet of the company (Mehmood Textile Mills) FY 2009

indicates the following data for the calculation of Debt-Equity Ratio:
Total Liabilities/ Debt (FY 2008) = 2,673,063,704 PKR
Total Liabilities / Debt (FY 2009) =2,706,911,525 PKR
Total Shareholder`s Equity (FY 2008) = 1,623,589,865 PKR
Total Shareholder`s Equity (FY 2009) = 1,711,456,511 PKR

Total Debt-Equity Ratio (FY 2008)

2,673,063,704
____________

1,623,589,865
= 1.7
Total Debt-Equity Ratio (FY 2009)

2,706,911,525

____________
1,711,456,511
= 1.6
A high debt/equity ratio generally means that a company has been
aggressive in financing its growth with debt. The analysis reveals that
the company management reduced the debt/equity ratio in the year
2009 which means that it used less debt and made an efficient use of
its assets to generate revenue.

3. Interest Coverage Ratio:

A ratio used to determine how easily a company can pay interest on
outstanding debt. The interest coverage ratio is calculated by dividing
a company's earnings before interest and taxes (EBIT) of one period by
the company's interest expenses of the same period.
The lower the ratio, the more the company is burdened by debt
expense.
Calculated as:
Interest Coverage Ratio

=
EBIT
___________

Interest Charges
The Income Statement of the company (Mehmood Textile Mills) FY
2009 indicates the following data for the calculation of Interest
Coverage Ratio:

EBIT (FY 2008) = 271, 248,824 PKR

EBIT (FY 2009) = 571,453,864 PKR

Interest Charges (FY 2008) = 221,160,302 PKR
Interest Charges (FY 2009) = 381,249,583 PKR

EBIT = Profit Before Taxation(EBT) + Finance Cost

Finance Cost = Interest Charges

Interest Coverage Ratio (FY 2008)

271, 248,824
____________

221,160,302
= 1.2
Interest Coverage Ratio (FY 2009)

571,453,864
____________

381,249,583
= 1.5
An interest coverage ratio below 1 indicates the company is not
generating sufficient revenue to satisfy interest expenses.
The analysis shows that the company management increased the
interest coverage ratio in the year 2009 which means that it is able to
pay the interest on the debt outstanding easily and is generating
sufficient revenues to satisfy interest expenses.

2009

2008

Debt Ratio

0.61

0.62

Debt-Equity Ratio

1.6

1.7

Interest Coverage Ratio

1.5

1.2

IV.

Efficiency Ratio Analysis

Ratios that are typically used to analyze how well a company uses its
assets and liabilities internally. Efficiency Ratios can calculate
the turnover of receivables, the repayment of liabilities, the quantity
and usage of equity and the general use of inventory and machinery.
Efficiency ratios are to judge how efficiently the firm is using its assets
or we can say the speed with which various accounts are converted
into sales or cash.

1. Total asset Turnover:

Asset turnover measures a 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, while those with high profit margins have low
asset turnover.
Calculated as:
Total Asset Turnover

=
Sales
_________
Total Assets

The Income Statement & Balance Sheet of the company (Mehmood

Textile Mills) FY 2009 indicates the following data for the calculation of
Total Asset Turnover:
Total Assets (FY 2008) = 4,296,653,569 PKR
Total Assets (FY 2009) = 4,418,368,036 PKR
Sales (FY 2008) = 5,073,168,667 PKR
Sales (FY 2009) = 6,811,267,831 PKR

Total Asset Turnover (FY 2008)

5,073,168,667
____________
4,296,653,569

= 1.2
Total Asset Turnover (FY 2009)

6,811,267,831
____________
4,418,368,036

= 1.5
The analysis shows that the company`s total asset turnover no. is
satisfactory and is above industry average i.e. 1. This means that for
Mehmood Textile Mills each rupee of assets produce rupees 1.5 of sales
in year 2009.
This shows that the firm is efficiently utilizing its assets in generating
sales-revenues.

2. Days Sales Outstanding:

A measure of the average number of days that a company takes to
collect revenue after a sale has been made.
Calculated as:
DSO

Account Receivable
________________
Annual Sales/365

The Income Statement & Balance Sheet of the company (Mehmood

Textile Mills) FY 2009 indicates the following data for the calculation of
Days sales outstanding:
Sales (FY 2008) = 5,073,168,667 PKR
Sales (FY 2009) = 6,811,267,831 PKR
A/R (FY 2008) = 145,330,859 PKR
A/R (FY 2009) = 387,579,261 PKR
DSO (FY 2008)

145,330,859
____________

5,073,168,667/365
= 10 days
DSO (FY 2009)

387,579,261
____________

6,811,267,831/365
= 21 days

A low DSO number means that it takes a company fewer days to

collect its accounts receivable. A high DSO number shows that a
company is selling its products to customers on credit and taking
longer to collect money.

The analysis shows that the company is taking longer time to collect it
receivables in 2009 than it used to in 2008. The more quickly itll
collect its receivables, the more easily it can re-invest the amount and
generate more sales

3. Days Sales Inventory:

A financial measure of a company's performance that gives investors

an idea of how long it takes a company to turn its inventory (including
goods that are work in progress, if applicable) into sales. Generally, the
lower (shorter) the DSI the better, but it is important to note that the
average DSI varies from one industry to another.
Calculated as:
DSI

Inventory
___________
COGS /365
The Income Statement & Balance Sheet of the company (Mehmood
Textile Mills) FY 2009 indicates the following data for the calculation of
Days sales Inventory:

Inventory (FY 2008) = 1,589,307,570 PKR

Inventory (FY 2009) = 1,443,806,234 PKR
COGS (FY 2008) = 4,336,860,614 PKR
COGS (FY 2009) = 5,546,902,513 PKR

Inventory = Stock-in trade

COGS = Cost of goods sold -- depreciation

DSI (FY 2008)

1,589,307,570
____________

4,336,860,614 /365
= 134 days
DSI (FY 2009)

1,443,806,234
____________

5,546,902,513 /365
= 95 days

The analysis shows that the company utilized its inventory quickly and
more efficiently converting it into sales in FY`09. A reduction from 134
days to 95 days is an efficient decrease in the time period which is
good for the company`s financial health.

4. Days Payable Outstanding:

Days payable outstanding (DPO) is an efficiency ratio that
measures the average number of days a company takes to pay its
suppliers. DPO is an indicator of how long a company is taking to pay
its trade creditors.
DPO is typically looked at either quarterly or yearly (90 or 365 days).
Calculated as:
DPO

Account Payable
___________
COGS /365

The Income Statement & Balance Sheet of the company (Mehmood

Textile Mills) FY 2009 indicates the following data for the calculation of
Days sales Inventory:
COGS (FY 2008) = 4,336,860,614 PKR
COGS (FY 2009) = 5,546,902,513 PKR

 Account Payable = Stock-in trade

COGS
= Cost of goods sold -- depreciation

DPO (FY 2008)

=
____________
4,336,860,614 /365
= 3 days

DPO (FY 2009)

=
____________
5,546,902,513 /365
= 3 days

The calculations shows that the company has maintained a satisfactory

DPO and is paying to its creditors in time and efficiently.

2009

2008

Total Asset Turnover

1.5

1.2

Days Sales Outstanding

21 days

10 days

Days Sales Inventory

134 days

95 days

Days Payable
Outstanding

3 days

3 days

V.

Cash Flow Analysis

Cash flow analysis is the study of the cycle of a business' cash

inflows and outflows, with the purpose of maintaining an adequate
cash flow for your business, and to provide the basis for cash flow
management.
Cash flow analysis involves examining the components of a business
that affect cash flow, such as accounts receivable, inventory, accounts
payable, and credit terms. By performing a cash flow analysis on these
separate components, we can be able to more easily identify cash flow
problems and find ways to improve the cash flow of the company.

2009
Rupees

2008
Rupees

Cash Flows from

Operating Activities

572,818,825
(160,036,676)

Cash Flows from

Investing Activities

(78,329,642)

(202,173,281)

Cash Flows from

Financing Activities

(492,874,375)

360,972,636

Increase/ (Decrease) in
Cash

1,614,808

(1,237,321)

Cash & Cash

Equivalents At Year End

9,226,439

7,611,631

ANALYSIS:

PRODUCTION DATA ANALYSIS