Financial Analysis
Of
Prime Textile Spinning Mills Limited
Introduction
Prime textile spinning Mills Limited, one of the largest textile mills in Bangladesh,
was incorporated in 1989 as Publicly Listed Company and started production in
1992 being run on European standard with the state of art technology. From back
process to finishing, the line is running with the machineries from Germany, USA,
Italy, Switzerland and Japan with 53,044 Spindles & 2112 Rotors.
This is a 100% export oriented textile spinning mill. The location of the mill is at
Pagla, Dist. Narayangonj. The power supply of this company is met with self
generation of power by 9 nos. gas generators of 920 KW each. Apart there is a 33
KV directed dedicated power line kept on standby.
Expansion program has started for increasing existing production capacity will
increase by 10 Metric Ton per day by the end of the year 2004.
Good machines & efficient people are the key factors to the Company's quality
products.
Prime Textile spinning Mills got the “Best Customer Certificate” from Janata Bank
for the year 2001 and 2002 respectively.
Financial Analysis
Liquidity Ratio:
Current Ratio: This ratio is calculated by dividing current assets by current
liabilities.
Current Assets
Current Ratio =
Current Liabilities
Industry average = 4.1 times
Year 2007- 2008- 2009- 2010- 2011-2012
2008 2009 2010 2011
Ratio(Times) 1.06 0.99 1.07 0.94 0.89
Analysis: Current assets normally include cash, accounts receivables and
inventories. Current liabilities includes accounts payables, short term notes
payables and others accrued expenses. Current ratio shows us how much current
liabilities are covered by assets expected to be converted into cash in the near
future.
Compare with industry average: Here we calculate current ratios of five years of
‘Prime Textile’. Those are shown in the table above, we can see the ratios are very
low and also some of the ratios are below 1.0.Whereas industry average is
4.1times, all five years current ratios are below than 1.5 times. So the company’s
liquidity position is very weak. It needs almost whole assets to cover the liabilities.
To save the company from this difficult situation, it needs to convert the
inventories into cash.
Also in year 2010-2011 and 2011-2012 the ratio is equal to 0.9, which suggest
current liabilities cannot be covered if exiting current assets are liquidated at their
book values. However if the firm manufactures and sells a substantial amount of
inventory for cash long before suppliers, employees and short-term creditors need
to be paid, then it really does not face a liquidity problem.
5years comparison
Current Ratio
1.1
1.05
1
0.95
Current Ratio
0.9
0.85
0.8
1 2 3 4 5
As the graph shows the current ratio was low from the beginning and still
decreasing though it should have been increased for the better position of the
company.
Quick Ratio: The ratio is calculated by deducting inventories from the
current assets and dividing the result by current liabilities.
Current Assets − Inventories
Quick Ratio =
Current Liabilities
Industry average= 2.1 times
Year 2007- 2008- 2009- 2010- 2011-2012
2008 2009 2010 2011
Ratio(Times) 0.49 0.51 0.39 0.31 0.43
Analysis: As we know inventories are the least liquid asset of a firm’s current
assets, also they are the assets on which losses are most likely to occur. So the
measure of the firm’s ability to pay off short term obligations without relying on
the sale of the inventories is important.
Compare with industry average: If we compare five years quick ratios of ‘Prime
Textile’ with the industry average, we get a very poor result of ‘Prime Textile’.
Where the industry average is 2.1 times, the ‘Prime Textile’ quick ratio is below
than 1.0time each year. So in this situation the company should try to collect its
account receivables as soon as possible so that it can pay off its current liabilities
even without having to liquidate its inventories.
5years comparison
Quick Ratio
0.6
0.5
0.4
0.3
Quick Ratio
0.2
0.1
0
1 2 3 4 5
As the graph shows the ratio has decreased from the year 2007-08 though it should
have been increased for the better condition of the company and the ration is lower
than the industry average as well.
Evaluation of the liquidity ratios: Prime Textile’s last five years liquidity
position is very poor. To overcome this situation, company must need to examine
the asset management.
Asset Management Ratios
Inventory Turnover Ratio: The ratio calculated by dividing cost of goods
sold by inventories.
Cost of good sold
Inventory Turnover Ratio =
Inventory
Industry average=7.4 times
Year 2007- 2008- 2009- 2010- 2011-2012
2008 2009 2010 2011
Ratio(Times) 2.46 2.56 2.06 2.84 2.21
Analysis: Inventory Turnover ratios of ‘Prime Textile’ for the last five years are
very low compare with the industry average 7.4 times. That means ‘Prime Textile
is holding excessive stocks of inventory; excess stocks are, of course, unproductive
and represent an investment with a low or zero rate of return. So this company
should utilize its inventory in proper way.
5years comparison
Inventory Turnover Ratio
3
2.5
1.5 Inventory Turnover
Ratio
1
0.5
0
1 2 3 4 5
As the graph shows inventory turnover ratio is fluctuating every year but still very
low from the industry average.
Days Sales Outstanding: The ratio calculated by dividing accounts
receivable by average sales per day.
Receivables
DSO = Annual sales
( )
360
Industry average= 32.1 Days
Year 2008 2009 2010 2011 2012
Ratio(Days) 77 99 57 26 99
Analysis:
The company is taking a lot of time to convert account receivables into cash and it
is not very good sign for the company.
5 years analysis
Days Sales Outstanding
120
100
80
60
Days Sales
40 Outstanding
20
0
1 2 3 4 5
As the graph shows the DSO of the company is fluctuating a lot every year and
most of the times it is very much high and so which is not good for the company
because it shows that the company is not getting there receivable back at times.
Fixed Assets Turnover Ratio: The ratio of sales to net fixed assets.
Sales
Fixed Asset Turnover Ratio=
Net Fixed Assets
Industry Average= 4.0 Time
Year 2007- 2008- 2009- 2010- 2011-2012
2008 2009 2010 2011
Ratio(Times) 0.99 0.57 0.50 0.75 0.63
Analysis: If we see last five yearsfixed assets turnover ratio, each year the ratios
are very low compare with the industry average 4.0 times. So from this analysis we
can say ‘Prime Textile’ is not efficiently managing their fixed assets. Company
should increase its sale, using fixed assets efficiently. We also see that every year’s
fixed assets turnover ratios are much closed to each other; from this we can say it’s
an alarming situation for the company.
5years comparison
Fixed Asset Turnover
1.2
0.8
0.6 Fixed Asset
Turnover
0.4
0.2
0
1 2 3 4 5 6
The Fixed asset Turnover is low than the industry average and decreasing year by
year which is very bad situation for the company as the graph shows.
Total Asset Turnover: It’s measured the turnover of all of the firm’s assets.
The ratio calculated by dividing sales by total assets. It’s measured the
turnover of all of the firm’s assets. The ratio calculated by dividing sales by
total assets.
Sales
Total Asset Turnover Ratio=
Total Assets
Industry average= 2.1 times
Year 2007- 2008- 2009- 2010- 2011-2012
2008 2009 2010 2011
Ratio(Times) 0.10 0.56 0.48 0.75 0.62
Analysis: ‘Prime Textile’ company’s last five years asset turnover ratios are again
very low compare with the industry average 2.1times, that indicating that the
company is not generating a sufficient volume of business given its investment in
total assets. To become more efficient, sales should be increased, some assets
should be disposed of, or both of these steps should be taken.
5years comparison
Total Asset Turnover
0.8
0.7
0.6
0.5
0.4
Total Asset Turnover
0.3
0.2
0.1
0
1 2 3 4 5
As the graph shows the total asset turnover is increasing but still it is very low and
not enough for the company.
Debt Management Ratio
Debt Ratio: The ratio of total debt to total assets. It measures the percentage
of the firm’s assets financed by borrowings.
Total Debt
Debt Ratio =
Total Assets
Industry average= 45%
Year 2007- 2008- 2009- 2010- 2011-2012
2008 2009 2010 2011
Ratio(Percent) 56.23% 52.90% 45.36% 47.70% 61.08%
Analysis: Total debt includes both current liabilities and long-term debt. If we
analysis last five years debt ratio of ‘Prime Textile’ we will see it changes its debt
amount almost every year. In 2009-2010 debt ratio was 45.36% what is almost
near too industry average 45% as well as in year 2010-2011 the debt ratio was also
good. But in the other years the ratios were higher than industry average, which
means more than 50% of total financing are given by the creditor, which is not
good for the organization. ‘Prime Textile’ might find it difficult to borrow
additional funds without first raising more equity through a stock issue. ‘Prime
Textile’ should decrease its debt and increase its total assets and also the accounts
receivables should covert into cash as soon as possible.
5years comparison
Debt Ratio
70%
60%
50%
40%
30% Debt Ratio
20%
10%
0%
1 2 3 4 5
The debt ratio was not that bad at in the first 4years but at the last year it has
increased a lot as the graph shows and it could be an alarming situation for the
company.
Profitability Ratio
Net Profit Margin Ratio: The net profit margin on sales, which gives the
profit of sales.
Net Income
Net Profit Margin=
Sales
Industry average= 4.7%
Year 2007- 2008- 2009- 2010- 2011-2012
2008 2009 2010 2011
Ratio(Percent) 2.11% 3.46% 2.95% 3.56% 2.51%
Analysis: Each five years profit margin is below the industry average of 4.7%,
including that its sales are too low, its costs are too high or both. In the previous
debt ratio we see the company has a large amount of borrowings, so a large amount
of interest cost occurs. To overcome from this situation company’s accounts
receivables should collect as soon as possible.
5years comparison
Profit Margin Ratio
4.00%
3.50%
3.00%
2.50%
2.00%
Profit Margin Ratio
1.50%
1.00%
0.50%
0.00%
1 2 3 4 5
Profit margin Ratio is not progressing well as the graph shows though it is not
above the industry average but every year it is progressing at a constant rate.
Return on Asset (ROA): It provides an idea of the overall return on
investment earned by the firm. It’s the ratio of net income to total assets.
Net Income
Return on Total Assets (ROA)=
Total Assets
Industry average= 12.6%
Year 2007- 2008- 2009- 2010- 2011-2012
2008 2009 2010 2011
Ratio(Percent) 2.70% 1.93% 1.42% 2.67% 1.59%
Analysis: Compare to industry average 12.6%, the ROA of ‘Prime Textile’ for the
last five years are very poor. This low result from the company’s using excess
debt. Company’s current assets should convert into cash to raise net income.
5years comparison
Return On Asset
3.00%
2.50%
2.00%
1.50%
Return On Asset
1.00%
0.50%
0.00%
1 2 3 4 5
ROA is very low comparing to the industry average. It is not good for the
company. The graph shows that in 2007-08 ROA was more than later five years
but still it is not above the mark and not very reliable.
Return on Equity (ROE): The ratio of net income to common equity.
Net Income
Return on Equity=
Equity
Industry average= 17.2%
Year 2007- 2008- 2009- 2010- 2011-2012
2008 2009 2010 2011
Ratio(Percent) 6.20% 2.23% 1.67% 3.00% 1.73%
Analysis: The industry average of ROE is 17.2%, where the five years ROE of
‘Prime Textile’ is very low. From this analysis we can say Prime Textile
Company’s equities are not being properly invested so its net income is not
increased. So the company should investigate its investments for increasing their
net income.
5years comparison
Return On Equity
8.00%
6.00%
4.00%
Return On Equity
2.00%
0.00%
1 2 3 4 5
The ROE in 2008-08 was 6.20 but still far away from the industry average but
higher than other years. That’s why at the starting the graph is showing at high but
after a certain period it is going down at regular basis.
