Ratio Analysis of the Company Financially ratios can for convenience be divided into four basic groups or categories:

liquid ratios, activity ratios, debt ratios, and profitability ratios. Liquidity, activity, and debt ratios primarily measure risk, profitability ratios measure return. Liquidity Ratios The liquidity of a business firm is measured by its ability to satisfy its short term obligations as they come due. Liquidity refers to the solvency of the firms over all financial position the case with which it can pay its bills. Networking Capital Networking capital though not actually a ratio is commonly used to measure a firms over all liquidity. It is calculated as follows. Net working capital = current assets current liability The networking capital = capital o Net working capital = ,168,786,199 277,652,492 = 58,866,377 The figure is quite useful for internal control. A time series comparison of the firms net working capital is often helpful in evaluating its operations.

Current Ratio: The current ratio is one of the most commonly cited financial ratios, measures of the firms ability to meet its short-term obligations. It is calculated as follows. For the year in 1999 Current ratio = current assets / current liabilities =101,242,705 / 157,063,847 = 0.6446 2000 Current ratios = 168,786,119 / 227,652,492 = 0.7414 Quick Ratio (Acid Test) A measure of liquidity calculated by dividing the firms current assets minus inventory by current liabilities. The quick ratio of the company is calculated as follows. 1999

Quick Ratio =

= .5219

2000

Quick Ratios =
=0.4805 Activate Ratio Activity ratios can be used to asses the speed with which current accounts, inventory, accounts receivable and accounts payable are converted into sales or cash. Inventory Turnover Commonly measures the activity, or liquidity of a firms inventory. It is calculated as

Inventory turnover =
1999

Inventory turnover =
=27.82 times Inventory turnover can easily be converted into an average age of inventory by dividing it into 365 days. The number of days in a year. For the SUNRAYS TEXTIEL MILLS LIMITED the average age of inventory would by (365/27.82) 138.2 days.

2000

Inventory Turnover = =9.49 times Average age of inventory = 365 / 9.49 =38.46days Average Collection Period Average collection period or average age of accounts receivable, is useful in evaluating credit and collection policies. It is arrived at by dividing the average daily sales into the account receivable balance. Average Collection Period: = accounts receivables/average sales per day 1999 =2,527,379 / 1,700,189.761 =1.4865 or 1.5 days. 2000 Average collection period =4,238,031/1, 3839,349.96 =2.30days This shows that the companies average collection period has been increased as compared to the past year of 2000, which is not a good sign for the company. Fixed Asset Turnover The fixed asset turnover measures the efficiency, with which the firm has been using its fixed, or earning, assets to generate sales. It is calculated by dividing the firms sales by its net fixed assets: Fixed asset turnover = sales / net fixed assets 1999 =612,068,314 / 293,395,271 =2.09 times 2000 =662,165,987/288,368,555 =2.29times This means that the company turns over its net fixed asset 2.09 times in a year 1999 and in 2000 the net fixed asset turnover is 2.29 times which shows that the higher fixed asset turnover are preferred, since they reflect greater efficiency of fixed asset utilization. This difference may be for operating efficiencies.

Total Asset Turnover It indicates the efficiency with which the firm uses all its assets to generate sales. Generally

the higher a firms total assets turnover, the more efficiently its assets have been used. This measure is probably of greatest interest OT management, since it indicates whether the firms operations have been financially efficient. The total asset turnover is calculated as follow for the year. Total Asset Turnover = Sales / Total Assets 1999 =612,068,314/398,161,034 =1.54 times 2000 =662,165,987/457,589,874 =1.45times This is acceptable because of nominal change in the companys therefore turn its assets over 1.45 times a year. Debt The debt position of a firm indicates the amount of other peoples money being used in attempting to generate profit. In general the financial analyst is most concerned with its long-term debts, since these commit the firm to paying its interest over the long run as well as eventually repaying the principle borrowed. The more debt a firm uses in relation to its total assets, the greater its financial average a term used to describe the magnificent of risk and return introduced through the used of fixed cost financing such as debt and preferred stock. In other words the more fixed cost debt, or Financial average a firm uses, the greater will be its risk and expected return. Debt Ratio The debt ratio measures the proportion of total assets financed by the firms creditors. Debit ratio can be measured as follow. Debt ratio = total liabilities / total assets 1999 =388,797,910/396,161,034 =0.89 or 98% 2000 =433,525,717/457,589,874 =0.95 or 95% This indicates the firm this year has financed 95% of its assets with debts. The higher this ratio, the more financial leverage the firms have. Debt Equity Ratio The debt equity ratio indicates the relationship between the long-term funds provided by creditors and those provided by the firms owners. Debt equity ratio = long term debts / stock holders equity 1999 = 54,932,816/7,363,124 =7.46 2000 =44,086,926/24,064,157 =1.83 Time Interest Earned Ratio The time interest earned ratio measures the ability to make contractual interest payments. The higher the value of this ratio, the better able the firm is fulfills its interest obligations. Time interest = earning before interest and taxes / interest 1999 =50,687,436/45,555,696 =1.113 2000 =65,980,665/48,395,941 =1.36 Analyzing Profitability A firms profitability can be assessed relative to sales, assets, and equity or share value.

Gross Profit Margin The gross profit margin measures the percentage of each sales dollar remaining after the firm has paid for its goods. The higher the gross profit margin the better and the lower the relative cost of merchandising sold and vice versa. G. P Margin = G.P / Sale 1999 = 76,037,251/612,068,314 =0.124 or 12% 2000 = 98,458,586/662,165,987 =0.149 or 15% The CGS has decreased due to more efficient production process, less wastage of material. Operation Profit Margin It measures the percentage earned on each sales dollar before interest and taxes. Operating profit margin = operating profit / sales 1999 =50,377,426/612,066,314 =8.2% 2000 =65,470,942/662,165,987 =9.9% Net Profit Margin It measures the percentage of each sales dollar remaining after all expenses, including taxes, have deducted. Net profit margin = net profit after taxes / sales 1999 =5,189,659/612,068,314 =0.85% 2000 =16,701,033/662,165,987 =2.5% Returns on a Total Assets It measures the overall effectiveness of management in generating profits with its available assets, also called return on investment. Return on total assets. = net profit after / total assets =5,189,689/396,161,034 =1.3% =16,701,033/457,589,874 =3.6% Return on Equity It measure the return earned on the owners investment in the firm Return on equity = net profit after tax / stockholders equity 1999 =5,189,659/7,363,124 =70.5% 2000 = 16,701,033 / 24,064,157 =69.4% Earning Per Share ESP = earning available for common stock holders / share out standing 1999 = 5, 189, 659, /6,000,000 = 0.89 2000 = 16,701,033/6,000,000 = 2.8 Ratios Liquidity Networking capital Current ratio Quick ratio Activity Inventory turnover 1999 55,821,142 0.645 0.522 13.42 1.5 days 2000 58,866,373 0.7414 0.481 38.86 2.3 days Time series Ok Good Ok Poor Ok

Average collection period Fixed assets turnover Total assets turnover Debt DO indebtedness ratios Time interest earned Profitability Gross profit margin OP margin Net profit margin Return on total assets EPS

2.09 1.54 98% 1.113 12% 8.2% 0.85% 70.5% 0.87

2.3 1.45 95% 1.4 15% 9.9% 2.5% 69.4% 2.8

Ok Ok OK Ok Good OK Very good Ok Good

Company History
The story of textiles in the subcontinent is the story of Gul Ahmed. The group began trading in textiles in the early 1900's. With all it's know-how and experience, the group decided to enter the field of manufacturing and Gul Ahmed Textile Mills Ltd. was incorporated as a private limited company, in the year 1953. In 1972 it was subsequently listed on the Karachi Stock Exchange. Since then the company has been making rapid progress and is one of the best composite textile houses in the world. The mill is presently a composite unit with an installed capacity of 130,296 spindles, 223 wide width air jet looms, and a state of the art processing and finishing unit.

Corporate Profile - Business Activities Textiles

In the textile field, activities start from the spinning of cotton as well as man made fibers and extend to weaving, processing and finishing of all types of cotton and blended fabrics, bed linen, home furnishings, garment manufacturing, etc.

Management
Management of the group is professionally qualified and broadly experienced. The directors have held top positions in various textile bodies, export committees and have also assisted the Government of Pakistan in some of the major trade talks with EC and USA authorities.

Bankers
Main bankers of the group are:

Allied Bank Limited Bank Al Habib Limited Barclays Bank Plc, Pakistan Citi Bank, N.A. Faysal Bank Limited Habib Bank Limited Habib Metropolitan Bank Limited Hsbc Bank Middle East Limited Meezan Bank Limited National Bank Of Pakistan Nib Bank Limited The Royal Bank Of Scotland Limited Standard Chartered Bank (Pakistan) Limited United Bank Limited

List of Membership of Trade Bodies and Organization

The Karachi Stock Exchange (Guarantee) Limited. Lahore Stock Exchange (Guarantee) Limited. All Pakistan Textile Mills Association. Pakistan Cotton Fashion Apparel Manufacturers & Exporters Association. All Pakistan Bed sheets & Upholstery Manufacturers Association. Karachi Cotton Association. Chamber of Commerce & Industry, Karachi. Employees Federation of Pakistan. All Pakistan Textile Processing Mills Association ("Corporate Profile",2008. http://www.gulahmed.com/html/sec_1024/corp.html)

Products
Gul Ahmed's fine textile products represent a unique fusion of the century old traditions of the east and the latest textile technology of the west. The purest of cotton fibers, produced from the fertile lands of the Indus Valley, are spun, woven and processed into the finest quality cotton and blended products through a combination of latest technology, skills and craftsmanship of this traditional industry.

Bed-Linen
Quilt covers ,duvet covers, flat and fitted sheets, pillow covers, valance sheets, bolster case with all sorts of fancy confectioning, embroidery and embellishments, packed to buyers' specific requirement.

Curtain
Ready made curtains lined, un-lined and tap top curtains, plain or fully accessorized with tiebacks, pelmets, cushion covers, in different styles of confectioning and embroidery, packed to buyers' specific requirement.

Fabric
Running meter fabrics, packed to specific requirement.

Yarn
Gul Ahmed specializes in medium-to-fine-count cotton yarns and is also capable of producing yarns using a wide variety of synthetic fibers including polyester, rayon and other man-made fibers ("Products",2008,http://www.gulahmed.com/html/sec_1024/product.html)

CHAPTER #3 Kohinoor Textile Mills Company History

Founded in the early 1950s in Pakistan, Kohinoor is a dynamic and efficient manufacturing company. We aim to be the preferred partner of business in all of the markets we serve by anticipating the needs of our customers and building value for our stakeholders. ("Kohinoor Textile Mills"2008. http://www.kmlg.com/kmlg/index.php) The Kohinoor Maple Leaf Group was born from the trifurcation of the Saigol group of companies and is a reputable and leading manufacturer of textiles. Kohinoor Textile Mills limited (KTML) incorporated in Pakistan and are listed on three stock exchanges of the country. ("Kohinoor Textile Mills"2008. http://www.kmlg.com/kmlg/history.php)

Mission Statement
The Kohinoor Textile Mills Limited stated mission is to achieve and then remain as the most progressive and profitable Company in Pakistan in terms of industry standards and stakeholders interest. The Company shall achieve its mission through a continuous process of having sourced, developed, implemented and managed the best leading edge technology, industry best practice, human resource and innovative products and services and sold these to its customers, suppliers and stakeholders. ("Kohinoor Textile Mills"2008. http://www.kmlg.com/kmlg/mission.php)

KTML Textiles
KTML was established in 1953 at Rawalpindi and is one of the oldest companies of Pakistan with over 50 years experience in textile manufacturing. It was initially set up as a spinning and weaving project with 25,000 spindles and 600 looms. However, after decades of aggressive expansion and modernization KTML has emerged into a fully vertically integrated home textiles company with state of the art capabilities for spinning, weaving, dyeing, printing and stitching. The company has a diverse customer base with sales in both the local and export markets. The main international markets include Asia, Europe, USA and Australia. ("Kohinoor Textile Mills"2008. http://www.kmlg.com/kmlg/textiles.php)

CHAPTER #4 CONTRIBUTION OF TEXTILE INDUSTRY IN ECONOMY

The share of textile industry in the economy along with its contribution to exports, employment, foreign exchange earnings, investment and value added makes it the single largest manufacturing sector for Pakistan. It contributes around 8.5 percent to GDP, employs 38 percent of the total manufacturing labor force, and contributes between 60-70 percent to total merchandise exports. The Pakistan textile industry contributes more than 60 percent to the country's total exports that sum around 5.2 billion US dollars. The industry contributes approximately 46 percent to the total output

produced in the country. In Asia, Pakistan is the 8th largest exporter of textile products. The contribution of this industry to the total GDP is 8.5 percent. Moreover, it provides employment to 38 percent of the work force in the country, which amounts to a figure of 15 million. .("Textile SectorOverview",2004-2005,htp://www.pakboi.gov.pk/word/Textile.doc)

TEXTILE INDUSTRY IN THE CURRENT ECONOMIC SCENARIO

The All Pakistan Textile Mills Association (APTMA) needs to enhance the quality of its products, upgrade the technology used, and encourage effective Research and Development (R&D) in order to compete internationally. However, APTMA argues other factors such as high interest rates and cost of inputs, non conducive government policies, and non-guaranteed energy supplies hinder their competitiveness. Critics argue that the indolent attitude of the industrialist in the 1990s has led up to the current crisis. If the textile industrialist had worked with the government towards implementing policies that prepared for the current international scenario, Pakistan textile industry would have boomed. Instead, the industry suffers from 'severe technological obsolescence,' insufficient R&D, falling cotton crop, and an unclear path forward.("Govt not fully conversant with problems of textile industry",2009,http://jang.com.pk/thenews/jul2009-weekly/busrev-06-07-2009/p7.htm) The lack of R&D in the cotton sector of Pakistan has resulted in low quality of cotton in comparison to rest of Asia. Because of the subsequent low profitability in cotton crops, farmers are shifting to other cash crops, such as sugar cane. In Punjab alone, the cotton area sown this season was less by 1.14 percent as compared to the last year. Textile owners argue that although the Cotton Vision 2015 targets 20 million bales till 2015, it is an ambitious target as in reality cotton production is decreasing each year. It is the lack of proper R&D that has led to such a state. They further accuse cartels, especially the pesticide sector, for hindering proper R&D. The pesticide sector stands to benefit from stunting local R&D as higher yield cotton is more pesticide resistant. Moreover, critics argue that the textile industry has obsolete equipment and machinery. The inability to timely modernize the equipment and machinery has led to the decline of Pakistani textile competitiveness. APTMA has highlighted that the Pakistan textile industry faces tough competition from the Indian, Bangladeshi and Chinese textile industries and local policies have resulted in Pakistani textiles facing a critical condition. For instance, Bangladesh, India and China enjoy comparatively low interest rates than Pakistan. The prevailing rates are as following, 8.5 to 9.0 per cent in Bangladesh, 5.25 per cent in India (market rate is 10.25 per cent, however exemption of 5 percent is provided to the textile industry) and 5.58 per cent in China. Meanwhile, in Pakistan, the last three to four years has seen the interest rates to have risen more than 150 percent, to 13.25 percent. The increase has essentially crippled the small time textiles owner, while seriously hindering growth of the textile tycoons. This has led to textile owners accusing the government and banks for maintaining detrimental policies. I believe that it is imperative that the new government takes actions that have a positive impact on the industry as textile provides employment to approx 38 per cent of our working class. A coherent plan should be devised by the Pakistani government that allows some sort of exemption/concession such as in India; the Export-Import Bank was set up for the purpose of financing and facilitating the industries, especially textile. Industrialists also argue that the non-guaranteed supply of power by WAPDA (Water and Power Development Authority) is another problem that negatively affects the textile industry. Although, some textile units have built their own energy generating plants to cut cost (these units run on gas), small units production depends entirely on the electricity supply of WAPDA. The textile industry suffered heavy financial losses in Dec, Jan and Feb quarter, because of the inconsistent electricity supplies. The lack of production subsequently resulted in the industry not meeting its target for the quarter, massive financial losses were borne by textile owners and sadly, it hit the most vulnerable:

workers on daily wages. Their frustration was observed recently, when the WAPDA and MEPCO (Multan Electricity Power Company)offices in Multan, were torched by daily wage workers, [see related post]. Textile owners as well as workers passionately assert that the inconsistent supplies have and are destroying business across Pakistan. They also highlight that the high cost of the utilities has making Pakistani textile uneconomical in the international market. All things considered, it is apparent that the Pakistani Textile Industry is facing an uncertain environment. The increase in input cost of minimum wage by 50 percent, increasing interest rates, non-guaranteed energy supplies, lack of R&D and reduction in cotton production has had a negative impact on the industry's competitiveness internationally. In order to sustain the Textile Industry, the new Pakistani government has a tough task ahead and needs to urgently implement a suitable longterm strategy that provides a level-playing field against their regional competitors. ("Insight into the Problems Facing Pakistan's Textile Industry",2008, http://changinguppakistan.wordpress.com/2008/04/17/contribution-insight-into-the-problems-facingpakistans-textile-industry-by-abida-mukhtar/)

CHAPTER #5 FINANCIAL ANALYSIS ABSOLUTE FIGURE ANALYSIS Balance Sheet of GUL & KTM: Ratio Analysis CATEGORIES OF FINANCIAL RATIOS
The accounting ratios can be grouped in to five categories: 1. Liquidity Ratios shows the extent to which the firm can meet its financial obligations. 2. Asset Management Ratios shows that how effectively the firm is managing its assets. 3. Debt Management Ratios shows the extent to which a firm uses debt financing or Financial leverages. 4. Profitability Ratios relates profits to sales and assets. 5. Market Value Ratios are a measure of the return on investment.

LIQUIDITY RATIOS Current Ratio

Current Ratio shows a firm's ability to meet current liabilities with its current assets. Formula: Current Ratio = Current Assets / Current Liabilities

Analyses
1:1 ratio is usually considered satisfactory because the entity will be able to meet its current liabilities if the realization of the assets is slightly deteriorated. Looking into the year of 2001 and 2002 we have observed that current assets fluctuate from year 2001 upto 2008 as in 2002 current assets were PKR 2950889 where as in 2001 it was PKR 3373537 same situation was with the liability that liability was decreased in 2002 as compared in 2001 so both the equations were fabricated same rule was applied till 2006 where as in 2007 current assets were increased up to PKR 5277007 and in 2008 the current assets were 6464312 which shows constant increase in 2007 to 2008 approximately 23% on the other hand the current liabilities of the company shows increase of approximately 29% from year 2007 to 2008. In current liabilities Trade and other payables show an increase of 29% approx while short term borrowing of the company Increase 30% as compared to the year 2007. In the same composite textile industry we looked at gul ahmed textile and now we focus on Kohinoor textile mill for comparison. In 2001 to 2003 current ratio of the company shows slight fluctuation and was not up to the bench mark and the reason being is that in 2001 the current liabilities of the company stood at 1,510,289 and shows the increase of 52% approx where as the current asset of the company was in increased by 59% approx in 2002 than in 2001 which shows its affect on current ratio of the company. In 2004 the current assets of the company rise approximately 24% while the current liabilities of the company were decreased by 3% approx which shows its affect on the current ratio of the company.Whereas from 2005 to onwards current ratio of the company fluctuated normally from year to year. According to our analysis we come to know that Gul Ahmed management shows much intention towards its current ratio as compared to KTM.

Acid Test Ratio

Acid Test Ratio or Quick Ratio shows a firm's ability to meet current liabilities with its most liquid assets. Formula: Quick Ratio = Current Assets - Inventories

Analysis
Acid test ratio shows companies true picture towards its obligations. Gul Ahmed textile mill current ratio in the year 2001 was 1:1.03 while when we subtract its stock from current assets we come to know that the company tight its cash in stock the value of the stock of the company is approx 39% of total where as the situation remains the same in 2002 and 2003. In 2004 the acid test ratio of the company shows simultaneously decrease up to 2008 which shows its management focus more towards stock. Whereas if you look at KTM in 2001 the company have invested less in stock whereas in 2002 the company's stock was increased as compare to 2001 which shows slightly change in acid test ratio and there was a normal fluctuation from 2003 to onwards. If you look in the year of 2004 its current assets were increase as compared to 2003 and the reason being is that it has invested more in Advances deposits, prepayments & other receivables approx of 44% where as its current liabilities were decrease by approx 3.1% as compared to 2003 which reflects its effect on companies acid test ratio. In 2005 there was not much increase in the current assets as compared to 2004 but there was an increase in current liabilities of the company approx 12% which had an net effect on acid test ratio. Over all KTM performance in terms of management is not upto the standard as compared to gulahmed they have not been able to utilize there resources efficiently. Gul Ahmad Textile acid test

ratio is not satisfactory as companies immediate cash resources are not sufficient to meet its current obligations. If you look from 2001 onwards the company's cash resources are decreasing almost every year and in 2006 onwards it is decreased even more. There was a slight improvement in 2003 but after that its cash resources again goes on decreasing. Whereas if you look at KTM despite of the fact that its values are below the bench mark but still KTM position in 2002 was much better than in 2001. If you look at the eight year in glance you will find that KTM after every successful year there is a downward trend. In 2004 company was in much better position but from 2004 onwards its current liabilities was more than its obligations.

ASSET MANAGEMENT RATIO Inventory Turnover Ratio

The ratio indicates in number of times per period, at which the inventories are sold. The number of day's sales in inventory indicates the average time taken to sell the inventories. Formula: Inventory Turnover Ratio = Cost of Goods Sold

EXPLANATION
If you look at KTM performance with reference to bench mark it was not so good in beginning years as enterprise was selling its inventory in more than three days which later it was increased by four days but if you look at 2004 up to 06 the enterprise performance was good and inventories was sold in less number of days than prior years where as in 2007-08 again companies inventory turnover ratio was above the bench mark which was not satisfactory. Where as if you look at gulahmed its conversion was remarkable they were converting there inventories into cash less than a day which is an healthy sign for the company where as if you look at 2008 the companies faces problem in selling there products due to many reasons.

Average Collection Period: receivable

The average collection period ratio represents the average number of days for which a firm has to wait before its debtors are converted into cash. Formula: Days Sales Outstanding = Accounts Receivables X 365

Explanation
In 2001 gul ahmed collection period was 89 days which was not good in terms of industry standards and as we compare it with the year 2002 we found that the management did a remarkable job and reduce its collection period to 47 days despite of the fact that there sale was much more approx 15.4% increase than the prior year which shows improvement in there working capital where as if you look in 2004 the sales of the company shows upward movement as compared to 2003 on the other end collection period also increases which reflects that the management may offer more credit period to there customers to boast there sales as shows in the financial statement. Where as from

2006 onwards we found that the management did a remarkable job and reduce its collection period to 83 days despite of the fact that there sale was approx 38 % more than in prior years. In 2001 KTM collection period was 44 days which was satisfactory as we compare it with the year 2002 we found that the management did a remarkable job and reduce its collection period to 41 days despite of the fact that there sale was much more approx 75% increase than the prior year which shows improvement in there working capital where as if you look in 2003 onwards sales also increases but not as much as it was increased in 2002 as compared to 2001. If you look in 2005 the sales of the company was decreased approx 15% and the same trend was followed onwards. Over all KTM's collection period reflects that companies strategy was to boost there sales via increase credit periods in order to attract customers, as sales increases collection period also increases and as sales decreases collection period also decreases as shown in there financial statements.

Average Collection Period: Payable

Formula: Days Sales Outstanding = Accounts Payable X 365 Gul Ahmed payable days in 2001 is 58 days as shown above which means we are paying our creditors in 58days on the other hand companies receivable collection period is 89days which shows other companies management do not perform up to the mark this leads to the cash flow problem to the company and also affect the working capital of the company. If you look onwards you will find that companies number of days have been decreased more than in previous years which means that company is allowing more credit period to boost their sales as shown in the figure. Ktm management's intention toward cash flow management and working capital is more than gulahmed in years 2001 up to 2003 they were receiving debts in less days and paying to their creditors in more days which strengthen there working capital. In 2004 and 05 the sales of the company shows downward stream because companies tight there credit period to there customers which reduces there sales which shows in the figure, from 2006 to 2008 companies management shows there interest to boost the sales by allowing more credit to there credit period and increase there sales on the other hand it affects the company's cash flow and working capital.

Fixed Asset Turnover

Formula: Fixed Asset Turnover = Sales

Analysis
Fixed turnover of the gulahmed company shows positive intention of the management towards there asset usage they generate revenue two times from their assets by using efficient means. If you look onwards the company's management perform more efficiently and from the same assets they generate more sales. Where as in 2006 the companies sales were increased by 38% and their assets were increase by 27% but the assets were not increased as rapidly as sales and affects the company's asset turnover. Fixed turnover of the KTM shows negative intention of the management towards there asset usage. If you look onwards the company's management perform more inefficiently and from the same assets they generate less sales. So KTM needs to look at their asset utilization so that their efficiency increases and that affects the company's performance.

Total Asset Turnover

Formula: Total Asset Turnover = Sales

Explanation:
The total assets turnover has dropped below 0.5 last year of KTM, primarily due to greater indulgence in research activities by the company. This increased the acquisition of plants and equipment and simultaneously the research and evaluation assets of KTM in 2008, adding to the non-current assets. Side by side, the impact of an abnormal increase in cash and bank balances was reflected in larger current assets. Total asset turnover of the gulahmed company shows positive intention of the management towards there asset usage they generate revenue two times from their assets by using efficient means. If you look onwards the company's management perform more efficiently and from the same assets they generate more sales. Where as in 2006 the companies sales were increased by 38% and their assets were increase by 27% but the assets were not increased as rapidly as sales and affects the company's asset turnover.

DEBT MANAGEMENT RATIO Debt Ratio

Formula: Debt Ratio = Total Debts This ratio is an indicator of the financial stability of the enterprise. The lower is the debt ratio more comfortable the creditors will feel as regards security of their debts. Too excessive debt to total assets may expose an entity to insolvency.

Bench Mark
15% is usually considered satisfactory Gul ahmed debt ratio was high in 2001 as compared to bench mark but the enterprise did mark ably well in 2002 and its debt ratio was lower which gives good confidence to the creditors but later in 2003-04 it was again raised where as slight improvement was shown in 2005 and 06 which again was geared up in 2007 and 08 so over all except 2002 the companies debt ratio was higher which was not a good sign for the creditors as well as for the enterprise. The asset utilization of KTM is not so efficient which is effecting in all aspects of asset management ratios so KTM needs to look at their asset utilization which can effect increase its efficiency in terms of its asset management.

Times Interest Earned Ratio

Formula: Times Interest Earned Ratio = EBIT

Explanation
This ratio is also a measure of long-term solvency of the entity. The ratio indicates company's ability to pay interest charges out of profits. The higher the rations the more confident are debt holders to receive there interest In 2001 gulahmed was in great position to give interests to the debt holders as there profit margin was higher but after that from 2002 to 2006 the profit margin of the company goes on decreasing where as in 2006 is almost 0% which was a great threat to the debt holders which means company profit was near to zero later in 2007 and 2008 company was in much better position but not as good as it was seven years back.

PROFITABILITY RATIO Profit Margin

Formula: Profit Margin = Net Income Available For Common Stock Holders

Explanation
The Profit Margin of both KTM and GUL Ahmed textile mills have decreased disastrously because of increased in the prices of production activities e.g. increase in the price of electricity, increase in the prices of gas, increase in the price of yarn.etc

Basic Earning Power:

Formula : BEP = EBIT

Explanation
This is the basic ratio to measure profitability. In this ratio profitability is related to assets employed. Return on Assets and Return on Equity of the company can be brought up from its current levels to that of its competitors, thus indicating the untapped potential of GUL AHMED TEXTILE have shown a downward trend since year 2001 and are lacking behind the industry. GUL AHMED is not utilizing the assets and equity to the maximum capacity. ROA can be brought up to increase the profitability.

Profit Margin On sales Formula: Pretax Margin Ratio = Net Profit before Taxes

Explanation:
Profit margin for both the companies have shown a downward trend because of increase in the prices of byproducts used in the textile industry i.e. yarn etc. Also increase in the prices of electricity, labor, gas, etc. These things effect directly on the profitability of the companies that's why profit margin of both the companies have decreased disastrously.

CHAPTER #6 HORIZONTAL ANALYSIS OF GUL AHMED TEXTILE EXPLANATION

This analysis show us the clear picture of GUL AHMED TEXTILE and gives us all the answers of our questions that why the net income is decreasing disastrously because in the graph we can see all the thing which have an impact on net income. Like cost of goods sold have increased Administrative and selling expenses have increased financial charges have increased so the income of the company have decreased.

HORIZONTAL ANALYSIS OF KOHINOOR TEXTILE MILLS EXPLANATION

This analysis show us the clear picture of KOHINOOR TEXTILE MILLS and gives us all the answers of our questions that why the net income is decreasing disastrously because in the graph we can see all the thing which have an impact on net income. Like cost of goods sold have increased Administrative and selling expenses have increased financial charges have increased so the income of the company have decreased.

CHAPTER #7 Textile Industry In the Current Economic Scenario An analysis of the current situation and imperatives for developing a Long Term Textile Policy
1. Pakistan's economy is confronted with the problem of chronic negative trade balances. The government wants to mobilize all its resources to establish a solid export base. The Textile sector, being the major foreign exchange earner, can serve as a launch pad.

2. The textile sector exports have been stagnant for the past five years. Exports have oscillated between US $4.5 - 5.5 billion. US $5 billion has been a psychological barrier for the textile industry of Pakistan. 3. The Multi Fibre Arrangement (MFA) phase out in the year 2005 is likely to result in providing level playing field with the removal of quotas and lowering of tariff barriers. It will be a threat to textile manufacturers on one-hand and open news vistas of opportunities for efficient players on the other hand.

Sector Objective
Keeping in view the above factors, a long term Textile Vision has been created to serve as a broad target to revamp the textile industry of the country. The defined objective is: An open, market driven, innovative & dynamic textile sector which is:

Internationally Integrated Globally Competitive Fully equipped to exploit the opportunities created by the MFA phase out And which enables Pakistan to be amongst the top five textiles exporting countries in Asia. ("Sector Objective - Textile Vision",2009, http://www.smeda.org/publications/textile_vision.php )

Importance of textile industry

According to the "ECONOMIST" intelligence report of August 2003 for Pakistan the following observations have been made: Despite Government efforts to diversify exports and widen the industrial base, the industrial sector remains dominated by the Textile sector. Textile Sector still represents 46% of total manufacturing and provides 68% of Pakistan's Export receipts. The strong performance stemmed from two factors :

Increase in import quotas especially by U.S.A, EU and TURKEY Textile industry has invested over US$1.5 billions in new technologies and modernization in the last 3 years. Efficiency and the innovation in textile is the only hope to get the country out of economic problems.

CHAPTER #8 PROBLEMATIC AREAS Present status of Pakistan (Textile engineering sector)

The Pakistan Textile Engineering Sector is underdeveloped and under utilized. Mostly it caters in the form of spares, components for modernization and machines used in cottage or small scale industries. A cursory look at the structure of Pakistan Textile Industry shows that most of them are cottage industry, small/medium industrial units and few large integrated states of art units. The number of units which fall under each category varies from sub-sector to sub-sector. Similarly the Textile Engineering Units also vary from small, medium and large in size. The Textile Engineering Industry comprises approximately 80% small work shops, 15% medium engineering Units and 5% large

Engineering Units. It will not be out place to mention that the large engineering units are in Public Sector. The small and medium Engineering Units work on reverse Engineering principles, only few work according to Engineering Drawings and still fewer have Testing or Quality Control facilities. On the basis of initial survey of Textile Engineering Units (Not complete yet), approximately 500 units are engaged all over Pakistan, employing approximately 50000 work force which is mostly skilled. Even under the present conditions and without any support, Pakistan Textile Engineering Industry is providing import substitution worth around one billion US dollars. This sector also exports to small and medium Textile Units in Bangladesh, Iran, Sri Lanka, etc. The Textile Engineering Sector is throttled through taxes on raw material, import of components, electronic and electrical parts.

Competition
The present Textile Engineering Industry is up against competition from smuggled, under invoiced, and mis-declared components, parts and accessories. For example, in case of second hand machinery, there is little or no check and the competition mainly rests on lower price. Machines smuggled especially from China, India, Taiwan are not better in quality but are selling cheaper. A bold initiative is needed which can boost the production as capacity and markets are there, only change in environment is need.

Finishing look and control components

The products manufactured locally, when displayed against foreign goods - offer a poor look primarily because of the unsightly finishing of welding seams, electroplating, painting and other surface treatments. In addition, the adoption of wrong design parameters, or the attempt to reduce the cost of production, lead to the incorporation of under-sized electrical motors and electric / electronic control panels.

Quality control
There are very few units which have their own material testing facilities, or have an access to any such service from out side. Although reverse engineering is practiced, yet this copying is done without adequate material testing. This results in poor quality or in many cases in an undue over engineering. A great stress on quality control is being laid by all the major importing countries, especially in the wake of ISO 9000 series. There is, therefore, a need of assisting the local textile engineering the relevant institutions, such as PSI, NPC, CTL, etc.

Assistance of present institutions

To encourage the local textile industry an access to the modern practices in the specialized areas of manufacturing processes, productivity enhancement and quality control, an institutional mechanism should be set up which provides the industry an adequate and industry-friendly assistance from such organizations as MIRDC, PITAC, CTL and PSI, etc. In addition such institutions as Pak-Swiss Training Centre and Pak-German Training Centre, as well as the Small Scale Industrial Estates should be encouraged to provide the industry necessary technical assistance and production aids such as tools, jigs, fixtures, gauges, etc. for productivity improvement and quality control.

Employment opportunities
Keeping in view the linkage of the Engineering Sector to other sectors of economy, it can be safely assumed that every one person employed in Engineering will add at least 2 more persons in the over all economy. There is ample scope for qualified engineers in mechanical, electric and electronics disciplines to boost this sector.

Need for training institutions

Diploma Level Courses on the pattern of Pak-Swiss Training Centre in Karachi should also be opened in the Textile Institutions in Faisalabad and Karachi and more such courses should be introduced in the Polytechnics in areas like Multan, Hyderabad, Lahore and Gujranwala.

Exhibitions
Most of these small workshops are shy or afraid of getting registered or displaying their products, mainly from the fear of the revenue collection, labor controlling and other government regulating agencies. This fear keeps them away from the mainstream Industry. This also leads to the lack of interaction among the small scale, medium scale and higher level industry for a purposeful vendor development. National Exhibitions held annually can be very helpful in bringing out the skills, the range of products and opportunities of group collaboration. It will help the planners and large scale engineering industry in defining the way for developing skills in order to make this sector strong and viable. This will culminate a Vendors List which can be recommended to foreign suppliers interested in coming to this market and starting assembling / manufacturing on large scale. The interaction between the foreign textile manufacturing industry could also be enhanced by facilitating the indigenous Textile Engineering Industry to participate in the specialized Exhibitions and fairs being held in those countries.

SE-commerce Gateway MOU with Chinese Co.

The E-commerce Gateway has signed a memorandum of understanding (MOU) with a Chinese company Global Enterprise Consulting to launch a business a match making' service in Pakistan and China. According to E-commerce Gateway Pakistan. "This service includes seeking of agents, distributors, buyers, suppliers or joint venture partners in Pakistan or Middle east for Chinese companies that intend to do business in these markets". The service will include all kinds of facilitation required to help increase the Chinese exports to the Middle East and South Asian markets. ("Trends in Textile Engineering Industry of Pakistan"2009, http://www.ptj.com.pk/Web%202004/03-2004/trend.html)

CHAPTER #9 FUTURE OUT LOOK

Pakistan textile industry is facing problems of low productivity due to its obsolete textile machineries. To overcome this problem and to stand in competition, Pakistan Textile Industry will require high

investments. Pakistan is on the road to invest in processing sector, but traditional sectors are also demanding high amount of investments. There is a continuous trend of investing in spinning since many years. Although, trend towards investment in Air Jet weaving segment is increasing day by day. 'Pakistan's textile industry estimates that around Rs1, 400 billion (US$32 billion) of investment was required till 2010 in order to achieve the government's export target.'("Textile Industry: Backbone of Country",2009, http://www.streetdirectory.com/travel_guide/16592/business_and_finance/pakistan_textile_machiner y_industry.html)

Future opportunities
Our main competitors in primary textile products with the advantage of large engineering sector in this region are China and India. The only country in this region without strong engineering base is Pakistan and our dependence upon outside Engineering Industry keeps our cost of production higher with low engineering skills. Looking into the future a strong competition from China and India for this market requirements can be used to involve them to start assembly plants under their guidance and cooperation. Some progress in the direction has led to the development of a Task Force in the Ministry of Industries and Textile Engineering is growingly lucrative for investors, local and foreigners.

CHAPTER #10 RECOMMENDATION TO GENERAL PUBLIC:

It is recommended to general public that the investment in the securities of these companies is not risk free.

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