INTRODUCTION

Ellcot Spinning Mills Limited engages in the manufacture and sale of yarn primarily in Pakistan. It produces cotton, synthetic, and polyester/cotton blends comprising carded and combed yarns for weaving and knitting application. The company also involves in the generation and sale of electricity. Ellcot Spinning Mills was incorporated in 1988 and is based in Lahore, Pakistan.

Current Ratio 2009

ANALYSIS
Current Assets 89218100 4 90208593 2 Current Liabilities

= 1.00 (2008) = 1.01 (2009) = 1.20 (2010)

Current Ratio is increases from 2008-2010 due to increase in their production (Inventory).

Current Ratio 2010

Current Assets 6912505 70 8315585 29 Current Liabilities

QUICK RATIO 1000 900 800 700 600 500 400 300 200 100 0 Millions

CA CL Inventory

ANALYSIS:-

2008

2009

2010

2008 = 0.33 2009 = 0.36 2010 = 0.34

Due to Inventories is their main part of the Current Assets so Quick Ratio decreases from 2009-2010 due to 0.38% less production as compared with the previous year.

Total Debts to Total Assets

Millions 2000 1500 1000 500 0 2008 2009 2010 Total Debts Total Assets

ANALYSIS:-

2008 = 0.7319 2009 = 0.7432 2010 = 0.65

There is a dip in the ratio because Total Debts decreased in 2010 from Rs. 1.356bn to 1.136bn. This is a decrease of 16.22%.

Millions

350 300 250 200 150 100 Operating Income Interest Expense

50
0 2008 2009 2010 In 2009, the Time Interest Earned was quite alarming situation, which means that company were nearly about to come on 1, due to the repayment of interest on short term borrowings, but subsequently in 2010 Time Interest Earned increased to 2.27 times which ensures that company would not default on its loans.

ANALYSIS:-

2008 = 1.89 2009 = 1.029 2010 = 2.27

Funded Debt To Net Working Capital Millions 500 400 300 200 Funded Debt Net Working Capital

100
0 -100 2008 2009 2010 Due to adopting of Aggressive Style their long term debts are decreasing gradually. The reason for adopting this approach is due to recent floods occurred in Pakistan and has destroyed crops such as cotton, etc.

ANALYSIS:-

2008 = 317% 2009 = 4690% 2010 = -15567%

Average Collection Period

40 30
20 10 0 2008 2009 2010 37 37 20 Days

ANALYSIS:-

2008 = 37 2009 = 37 2010 = 20

Average Collection Period of Ellcot Spinning Mills Limited is quite excellent as by looking at their ratios. From 2008-2010, the company appears to maintain their receivables quite efficiently, by not letting them go more further.

Inventory Turnover Millions 3500 3000 2500 2000 1500 1000 500 0 2008 2009 2010 Net Sales Inventory

ANALYSIS:-

2008 = 3.23 2009 = 4.16 2010 = 5.35

Having enough amount of Inventory in Stock, their Net Sales Increases even the Prices of Cotton were high in 2009.

Millions

3500 3000 2500 2000 1500 1000 500 0 2008

Total Assets Turnover

Net Sales Total Assets

2009

2010

ANALYSIS:-

2008 = 1.84 2009 = 1.33 2010 = 1.01

Total Assets are slightly decreasing at 5.4% During the year 2009-2010, net sales value of their yarn increases up to 33.84% over the previous year and stood at 85.81% sales. Average sales price per kg also increased by 33.43% over the previous year. This Significant increase in sales is attributing to increase in yarn prices due to increase in the price of the Cotton due to demand in local and as well as in International market.

Net Worth Turnover Millions 3500 3000 2500

2000
1500 1000 500

Net Sales Net Worth

ANALYSIS:-

2008

2009

2010

2008 = 3.77 2009 = 5.17 2010 = 5.40

Net Worth is slightly increased with rate of 20.4%, thus it implies that management utilizing its stockholders equity quite efficiently.

Net Working Capital Turnover 2009

8921810 04 Net Sales Current Assets Current Liabilities

ANALYSIS
= 603 (2008) = 245 (2009) = 22.70 (2010)
Net Working Capital Turnover is decreasing usually because companys Net Sales value of their products and inventories are increasing and due to the high rate of cotton resulting from flood, their liabilities are also increasing because they are purchasing rawmaterial more in order to meet the demand both locally and internationally. And their Current Assets are increasing due to purchasing of Inventories, which resulting in high Net Working Capital.

2441020 123

9020859 32

Net Working Capital Turnover 2010

6912505 70 8315585 29 3186159 742 Net Sales Current Assets

Profit Margin Millions 3000 2500 2000 1500 1000 500 0 2008 2009 2010 120 100 80 60 40 20 0 Millions Net Sales Net Profit 3500 140

ANALYSIS:-

2008 = 3.55% 2009 = 0.041% 2010 = 4.03%

Low profit margin resulting in 2009 was due to imposed export ban for two months by the Government and due to the flood arising in 2009.

1820 1800

120 100 80 60 40 20 0

1780
1760 1740 1720 1700

Millions
Total Assets Net Profit

Millions

1840

Return on Total Assets

140

1680
1660

ANALYSIS:-

2008

2009

2010

2008 = 3.60% 2009 = 0.054% 2010 = 7.45%

Total Assets are decreasing in 2010 because of Deferred tax provision for current year amounts to Rs.21, 994,443/= (2008-09: Rs. 3,025,398/=). Tax provision for the current year amounts to Rs.16, 049,465/= (2008-09: Rs. 5,305,981/=).

Millions

700 600 500 400 300 200 100 0 2008

Return on Net Worth

Net Profit Net Worth

ANALYSIS:-

2009

2010

2008 = 13.43% 2009 = 0.21% 2010 = 21.8 %

Return on Net Working Capital Millions 160 140

120
100 80 60 40 20 0 -20 2008 2009 2010 Net Profits Net Working Capital

ANALYSIS:-

Price to Earnings
Millions 150 100 50 0 2008 2009 2010 60 50 40 30 20 10 0

Earnings
Price

ANALYSIS:-

4.58 475.68 7.446

The unexpected year of 2009 in which company managed to earn only 9lacs was the reason for the ratio in 2009 to be distorted, as the price declined only Rs. 1.42 but earnings declined by a massive Rs. 99.2%

Millions

140 120 100 80 60

Dividends
Earnings

40
20 0 2008 2009 2010

ANALYSIS:-

Retained profits used in 2009

60 50 40 30 20

10
0 2008 2009 2010

5.00% 4.50% 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00%

Dividends Price Dividend Yield%

ANALYSIS:-

Price increases in more proportion than the dividend

Book Value per Share

350 300 250 200

150
100 50 0 2008 2009 2010

Book Value per Share

ANALYSIS:Net worth (Equity) Decreases in 2009, but increases in 2010 with a rate Of 20.4% as compared it with the subsequent year.

ELLCOT SPINNING MILL

THE HEDGING APPROACH

Reasons:Since all of their Current Assets are funded through Current Liabilities. Fixed Assets are funded through Long Term Liabilities. The Current Ratio for all the 3 years are:2010 = 1.20 2009 = 1.01 2008 = 1.00 Therefore we can say that Current Ratio is nearly to 1. Firms cover its fluctuating financing requirement with short term credit. Its Permanent Financing requirement with Permanent Capital. Small Part of Current Assets are finance through Permanent Capital and the rest through short term liabilities, which shows that the firm is following Hedging Approach

ALI ASGHAR TEXTILE MILLS LIMITED

Reasons:Since Short Term Liabilities are being used to finance their long-term needs, we can easily identify that the company is playing aggressively. The Current Liabilities for Ali Asghar is Rs. 559,914,740, where as their Current Assets are Rs. 255, 32,191, which clearly that Current Liabilities are almost twice of CA and are used to finance the permanent assets as well.

FAZAL TEXTILE MILLS LIMITED

Reasons:Because all the Current Assets are finance by Current Liabilities and a fraction of Fixed Assets is also been financed by Short term Liabilities.