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MASOOD TEXTILE MILLS FINANCIAL RATIOS ANALYSIS

INTRODUCTION

Masood Textile is a very well known name in the textile industry. The company
has a significantly old history in the Middle East (more specifically in the Persian
Gulf) and the U.S.A. The company has nine units of garments manufacturing
currently operating in Pakistan all of which are situated at different places in
Faisalabad besides its units in U.A.E Jordan and Qatar. It emerged in the textile
scenario of Pakistan in 1998 and since then it has grown extensively even now
its revenues have increased from $7.83 million in 1998 to $102 million in the year
2006. Masood textile mills were the largest knitwear exporting company for the
year 2005. The company is also producing extensive employment opportunities
and its employees have grown from around sixteen hundred in 1998 to almost
sixteen thousand in 2006.These facts and figures are shown in the graphs 1.1
and 1.2 respectively.

FIG 1.1

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MASOOD TEXTILE MILLS FINANCIAL RATIOS ANALYSIS

FIG 1.2

DIVISIONS

Masood is a truly Vertically Integrated Textile Unit. It has in-house Yarn, Knitting,
and Fabric Dyeing, processing and Apparel Manufacturing. The Company has
four SBU's and a highly qualified experienced mills manager heads each unit. All
Mills Managers in turn report to the General Manager. The objective to operate in
this manner is that there is a close co-ordination and link between all the
divisions. Every unit operates in the most efficient manner in-order to achieve
competitive prices, timely delivery and quality products.

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MASOOD TEXTILE MILLS FINANCIAL RATIOS ANALYSIS

SPINNING

Masood Spinning is a well reputed and quality oriented spinning unit operating in
Pakistan. Systems and spinning techniques in operation provides useful learning
to textile industry specialists. They have a well maintained machinery setup
starting from blow room to packing, producing count range 10Ne - 40Ne. At
Masood, currently we have capacity of 14400 spindles. Spinning process
involves flow of raw material through mixing, blow room, carding, drawing,
combing, simplex, ring and auto cone.

KNITTING

The knitting Division of Masood has latest knitting machines from Mayer & Cie,
Terrot, MI (Mayer), Matsuya, Fukuhara & Vanguard. These machines are capable
of making Jersey, Pique, Fleece, Interlock and Rib in addition to the mini
Jacquard designs of Single Knit Jersey. The gauges range from 20 to 28 for
Single jersey Knit, 20 to 24 for Interlock and 14 to 18 for Rib machines. Most of
the machines are equipped with lycra attachment. Moreover, it has 13 flat bed
machines for welt collars and cuffs. 100% production is inspected and only 'A'
grade fabric is transferred to the subsequent operations.

FABRIC PROCESSING

The Fabric Processing Division of Masood Textiles has a capacity of dyeing


41,450 kgs per day. It is equipped with Thies, T.S.I, SCHOLL, Gaston dyeing
machines. It is capable of dyeing both 100% cotton and blended fabric. The
machine size selection gives the flexibility in dyeing a lot size ranging from 100
kgs to 1,000 kgs.

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MASOOD TEXTILE MILLS FINANCIAL RATIOS ANALYSIS

APPAREL

Apparel division was established in 1995 to enter into value addition field. The
company started producing underwear briefs for Jockey U.K. Now it consists of
17 independent stitching units. An M.B.A Manager is responsible for each unit
from receiving of cut parts to packed garments. After the cutting of fabric, it is
sent for 100% cut parts inspection.

QUALITY ASSURANCE
There are quality checks at every stage of manufacturing starting from Raw
Cotton, Yarn, Fabric, Processing, Cutting, Stitching and Packing. Before the
fabric is cut, it is checked whether it conforms to the customer’s standards of
shrinkage, finished g/cm2 etc. After each lot of fabric is cut, 100% cut parts
inspection is conducted to ensure that only good quality pieces move to the
stitching units.
During the process of sewing, each and every process is inspected by inline
inspectors. The inspectors make sure that only good parts move to the next
stage. An individual tracking number is sewn inside each garment. After trimming
and pressing of the garments, highly experienced final inspectors inspect each
garment. The Quality assurance team monitors the performance of every
individual inspector by picking up the inspected garments and checking the
quality of these garments.
To ensure that the garments are packed as per the requirements of their valued
customers, they can even track & check, which case the garment, has been
packed in. With the help of this, they plan to achieve the Zero Defect Level.

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MASOOD TEXTILE MILLS FINANCIAL RATIOS ANALYSIS

THE QUALITY AWARDS

The following are the quality awards for Masood Textiles over the years.

 FTL Accuracy of Information and Compliance Supplier award (2006)


 JCPenney Purchasing Partnership Award (2004, 2006))
 WRAP - Worldwide Responsible Apparel Production.(2007)
 Quality Control Award (2006)
 Operational Excellence Award for (2002)
 Best Quality Award 2002
 Quality Recognition 2001-2002" Certificate
 The Best Supplier of Region 2001-2002

FTL Accuracy of Information and Compliance Supplier award (2006)

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MASOOD TEXTILE MILLS FINANCIAL RATIOS ANALYSIS

RATIO ANALYSIS

LIQUIDITY MEASURES

Current Ratio: (current Assets / current liabilities)

2007 4,487,220 / 4,713,466 = 0.952


2006 4,271,438 / 4,085,950 = 1.045

 There is slight decrease in the ratio which is a not good sign for the firm
but the decrement in the ratio is very small.
 Ratio figure has decreased because current assets have increased but not
so much in relation to Current liabilities, which makes the denominator low
and so the ratio is high.
 Current assets has increased because firm’s short term prepayments &
deposits and other receivables have increased while current liabilities i.e.
trade and other payables have decreased, but short term financing has
also increased.
 It means firm is now not that much able to pay its short term payables.

Quick Ratio: (current Assets - inventory / current liabilities)

2007 4,487,220 – 1,813,977 / 4,713,466 = 0.567

2006 4,271,438 – 1,819,260 / 4,085,950 = 0.600

 This figure has deceased .it shows firm most liquidity measure.

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MASOOD TEXTILE MILLS FINANCIAL RATIOS ANALYSIS

 It’s not a good sign for the firm.


 Firm is now not that much able to pay the short term liabilities through its
most liquid assets.

 Although it has not so much decreased but still it is point of concern for the
firm.

 Figure has declined because the increase in current assets was mostly
due to inventory and when we deduct it from the assets the effect of
increase in assets is almost diminished.

Cash Ratio: (cash / current liabilities)

2007 75,568 / 4,713,466 = 0.0160


2006 59,234 / 4,085,950 = 0.0144

 Short term creditors are very much interested in cash ratio.


 The figure has slightly increased but not so much
 It has increased because cash and bank balance has increased but
current liabilities have not that much increased.
 Current liabilities have decreased because many of the firm’s short term
obligations have decreased.

LONG TERM SOLVENCY MEASURES

Total Debt Ratio :( Total Assets -Total equity / Total Assets)

2007 7,326,132 – 1539530/7,326,132 = 0.789

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MASOOD TEXTILE MILLS FINANCIAL RATIOS ANALYSIS

2006 6,433,616 – 1516469/6,433,616 = 0.764

 This figure has increased but not so much.


 It’s because equity has not increased by huge amount and Total assets
have increased which make ha figure increase a bit.

Debt-Equity Ratio :( Total Debt / Total Equity)

2007 5,401,543 /1539530= 3.50

2006 4,847,480 /1516469= 3.19

 This ratio has also increased due to the reason we discussed in


determining previous ratio.
 It shows that most of the firm’s financing is provided by debt not by
shareholders.

Equity Multiplier: (1 + Debt-Equity Ratio)

2007 1 + 3.50= 4.50

2006 1 + 3.19 = 4.19

It will be briefly discussed in Du Pont Analysis.

Interest Coverage Ratio :( EBIT / Interest)

2007 607,409 /416,657 = 1.457

2006 517,558 /335,266 = 1.543

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MASOOD TEXTILE MILLS FINANCIAL RATIOS ANALYSIS

 This ratio determines the firm’s ability to pay its interest obligations.
 As the ratio has decreased to it’s not a favorable sign for the firm.
 Previously firm was in better position to pay its interest liabilities.
 This ratio has decreased because interest liabilities have increased.
 Firm has financed more assets that’s why their financing cost has
increased.

Cash Coverage Ratio :( EBIT+ Depreciation / Interest)

2007 607,409+34,065 /416,657 = 1.539

2006 517,558+31,677/335,266 = 1.638

 This ratio has also decreased because non-cash expenses i.e.


depreciation expense has not increased by so much so amount of EBIT
does not increase by adding depreciation into it.
 This situation depicts that firm is not able to pay its interest obligation
through cash.
 One of the major reason is that interest liabilities have increased by
greater amount which makes the figure of the ratio low

ASSETS MANAGEMENT / TURNOVER MEASURES

Inventory Turnover :( Cost of sales / Inventory)

2007 4,963,190 /1,813,977 = 2.115

2006 4,000,910/1,891,260 = 2.736

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MASOOD TEXTILE MILLS FINANCIAL RATIOS ANALYSIS

 There is a decrease in the ratio which is because cost of sales has


increased more rapidly than inventory.
 This means firm is converting its assets into sales less rapidly than
previous year.
 That’s because firm’s assets level did not increased by much amount and
also their inventory level has decreased which made this ratio high.
 It also depict that firm has lower level of inventory this year.

Days sales in inventory :( 365 / ITR)

2007 365 /2.736 = 134 days (approx)

2006 365/2.115 = 176 days (approx)

 This ratio has decreased which is better sign for the firm.
 This means firm is now converting its inventory into sales after every 134
days against figure of previous year i.e. 176 days.
 It is because the firm’s ITR (Inventory Turnover Ratio) has increased
which made this ratio low.
 All the things that we discussed in inventory turnover ratio are responsible
for declining this ratio.
ITR = Inventory Turnover Ratio

Receivables Turnover :( Sales / Accounts receivables)

2007 5,950,366 /460,874 = 12.911

2006 4,899,190 /367,351 = 13.336

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MASOOD TEXTILE MILLS FINANCIAL RATIOS ANALYSIS

 Receivables turnover ratio has also decreased which is not good sign for
the firm.
 It means firm is collecting its A/R less frequently than previous year.
 It maybe because of changes in credit policy.
 One of the reason for this ratio to be low is that firm has greater amount of
A/R this year.
 We see that this ratio might be decreased due to increase in sales or it
can be that firm has extended the credit period just to increase the sales.

Days sales in Receivables :( 365 / ATR)

2007 365 /12.911 = 29 days (approx)

2006 365/13.336 = 28 days (approx)

 This figure has increased from previous year.


 This is because our ATR has deceased which made the denominator low
and ultimately made the ratio high.
 But we see that it has not increased so much there is just ONE day
increase in it that’s why sales did not increased much maybe if firm had
extended their credit period than sales could have increased by much
amount.
 Increase in credit period can motivate creditors to purchase more so sales
would boost up.
ATR=Accounts Receivable Turnover

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MASOOD TEXTILE MILLS FINANCIAL RATIOS ANALYSIS

Total Assets Turnover :( Sales / Total Assets)

2007 5,950,366 /7,326,366 = 0.812

2006 4,899,190 /6,433,616 = 0.761

 This ratio has increased because of lower level of increase in assets in


relation to sales.
 It means firm is now converting its sales more rapidly than previous year.
 The slight increase in ratio is because of little increase in assets as
compare to sales.

Capital Intensity Ratio :( Total Assets / sales)

2007 7,326,366 /5,950,366 = 1.231

2006 6,433,616 /4,899,190 = 1.313

 It means that every 1.231 Rs of investment in assets is generating 1 Rs


increase in sales.
 As it has decreased so little amount of investment is required to generate
1 Rs increase in sales
 It also means that industry is not so much capital intensive.

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MASOOD TEXTILE MILLS FINANCIAL RATIOS ANALYSIS

PROFITABILITY MEASURES

Net profit Margin :( Net income / Sales)

2007 133,509 /5,950,366 = 0.0224 (2.24 %)

2006 129,953 /4,899,190 = 0.0265 (2.65%)

 There is little decrease in net profit margin which means firm is earning
now less money sales than previous year.
 We see that firm’s sales has increased but even than net profit margin
decreased.
 The reason behind low profitability or net income is the increases in
expenses which we can see from income statement.
 Income statement shows that financing costs and administrative expenses
have increased which made the figure low.
 Increase in administrative expenses may be due to poor management.

Return on Assets :( Net income / Total assets)

2007 133,509 /7,326,366 = 0.0182 (1.82%)

2006 129,953 /6,433,616 = 0.0201 (2.01%)

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MASOOD TEXTILE MILLS FINANCIAL RATIOS ANALYSIS

 As we saw in NPM ,The net profit margin of the firm declined which cause
a decline in ROA also
 The reasons behind low profitability have already been discussed.
 As the assets increased we have a low return on firm’s assets and that’s a
harmful sign for the firm
Return on Equity :( Net income / *Total Equity)

2007 133,509 /300,000 = 0.445 (44.5%)

2006 129,953 /300,000 = 0.433 (43.3%)

 This ratio has increased but very slightly that’s because the equity is the
same but profitability has increased.
 So we have only that much increment in ROE which occurred due to
increase in profitability.
 As it has increased investor will now be motivated to invest in this firm but
other measures do not support this.

MARKET RATIOS

Earning Per share :( Net income / *Shares outstanding)

2007 133,509,000 /*300,000,00 = 4.45

2006 129,953,000 /*30,000,00 = 4.33

 The earning per share has increased by a tiny amount


 The increase has occurred due to increase in net income.

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MASOOD TEXTILE MILLS FINANCIAL RATIOS ANALYSIS

 Because Common stock equity didn’t changed and profitability increased


which cause an increase in the figure.

Price - Earning Ratio :( Price per share / Earning per share)

2007 20.00/4.45 = 4.49

2006 21.50 /4.43 = 4.85

 P/E ratio has decreased which means investors are now wiling to pay Rs
4.49 on each Rupee of earning.
 This shows investors trust have decreased, investor are now not willing to
pay much.
 If its earning continued to fall the than P/E ratio would be high but here
investors trust would not be high.
 Obviously P/E ratio would be high but investors would not be attracted
towards this firm.
Current Share price = 20 PKR
Market - To - Book Ratio :( Market value / Book Value)

Book Value:

2007 939,530,000/*30,000,000 = 31.31

2006 916,469,000/*30,000,000 = 30.54

Market to Book Ratio: (Market value / Book Value)

2007 20.00/31.31 = 0.638

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MASOOD TEXTILE MILLS FINANCIAL RATIOS ANALYSIS

2006 21.50/30.24 = 0.710

 Market to book ratio has decreased to 0.638


 This means that the firm is not been able overall in creating value for its
stockholder.
 This is not a good sign for the firm.

DU PONT ANALYSIS
For 2006

NPM TAT TA C.S Equity


0.0265 0.761 6,433,616 300,000

ROA FLM
0.0201 21.445

ROE
0.4310(43.1%)

FOR 2007

NPM TAT TA C.S Equity


0.0224 0.812 7,326,132 300,000

ROA FLM
0.0182 24.42

ROE
0.443(443%)

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MASOOD TEXTILE MILLS FINANCIAL RATIOS ANALYSIS

 Firstly the question is that why we why we use Du Pont system of


Analysis, the answer is simple: Du Pont Analysis enables us to dissect the
firm’s financial statements to assess its financial conditions.
 It merge two financial system i.e. balance sheet and income statement
into two summery measure of profitability ROA and ROE.
 Analyzing the financial statement of Masood Textile Mill give us a sort
image.
 Now through Du Pont Analysis we would combine different ratios and
would discuss its effects on ROA and ROE.
 By going through financial of the firm we discovered that its ROE didn’t
increased by much amount, it’s almost neglible.
 We see that in 2006 its ROA was higher than 2007 but low FLM which
produced low value of ROE, while in 2007 FLM was high but ROA was not
increased which did not produced any change in ROE(almost neglible).
 We that in 2006 firm was better utilizing its assets and profit margin was
also high while in 2007 it was different case their profit margin didn’t
increased due to increase in expenses which occurred due to poor
administration and management.

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MASOOD TEXTILE MILLS FINANCIAL RATIOS ANALYSIS

COMMON SIZE ANALYSIS


BALANCE SHEET
2007 2006
EQUITY & LIABILITIES
Share capital & reserves
40,000,000 ordinary share of Rs 10 each ----- -----
60,000,000 preference share of Rs 10 each ----- -----
Issued sub and paid up share 12.28% 12.28%
Reserves 8.72% 9.58%
Total Equity 21.01 % 21.86%
Surplus on revaluation of OP fixed assets 5.17% 0.96%
Deferred income on sale & lease back of 0.076% 0.119%
Operating fixed assets

Non Current liabilities


Long term financing 4.39% 4.63%
Liabilities against assets subject to financial lease 3.76% 6.023%
Deferred liabilities for gratuity 1.23% 1.182%

Current liabilities
Trade & other payables 9.20% 11.63%
Accrued mark up 1.059% 1.00%

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MASOOD TEXTILE MILLS FINANCIAL RATIOS ANALYSIS

Short term financing 50.29% 45.26%


Current portion of long term liabilities 3.00% 3.98%
Provision for taxation 0.78% 1.624%

Total Equity and Liabilities 100% 100%

2007 2006

ASSETS

Non Current Assets


Property, plant and equipment 38.33% 33.11%
Long term advances 0.091% 0.11%
Long term security 0.326% 0.37%

Current Assets
Stores & spare parts 3.90% 4.31%
Stock in trade 24.76% 29.39%
Trade debts 21.99% 21.99%
Loans & advances 1.77% 1.79%
Short term deposits & prepayments 1.49% 2.26%
Other receivables 6.29% 5.70%
Cash & bank balance 1.03% 0.92%

Total Assets 100% 100%

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MASOOD TEXTILE MILLS FINANCIAL RATIOS ANALYSIS

PROFIT AND LOSS STATEMENT

2007 2006

Sales 100% 100%


Cost of sales 83.40% 81.66%
Gross profit 16.59% 18.44%
Distribution & selling cost 3.73% 5.01%
Administrative & general expenses 2.23% 2.52%
Other operational expenses 0.52% 0.28%

Other operating income 0.11% 0.056%


Operating profit 10.52% 10.55%
Finance cost 7.00% 6.84%
Profit before taxation 3.20% 3.71%
Provision for taxation 0.96% 1.06%
Profit after taxation 2.24% 2.65%

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MASOOD TEXTILE MILLS FINANCIAL RATIOS ANALYSIS

 Common size analyses tell us how much percentage every item in


balance sheet is of total assets and in income statement we take every
element as percentage of sales. This gives us a picture of how much firm
spends on each element last year and this year.
 We can also figure out any trend with respect to relative impotence of
these items over time.
 In our common size balance sheet we see that our long term assets
increased from previous year and most definitely this increase occurred
due to increase property, plant and equipment. While other long term
assets remained almost the same.
 While our current assets decreased from previous figure.
 This decrease had occurred due to decreased in inventory by too much,
our other receivables have increased by a small figure that’s why because
of extending the credit period by one day.
 On the equity & liabilities sections we see that our equity didn’t change by
too much, it almost remain the same.
 Our non current liabilities had decreased which is because of decrease in
liabilities against assets subject to finance lease.
 Our current liabilities also decreased by a small figure of almost 2%,
although our short term financing have increased but still it could not raise
current liabilities.
 Our trade & other payables had decreased.

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MASOOD TEXTILE MILLS FINANCIAL RATIOS ANALYSIS

 Common size income statement shows as increased trend in the cost of


sales that’s why pour gross profit had decreased.
 The firm’s operating profit didn’t change by too much.
 Firm’s EBT has decreased that’s because our financing cost has
increased from previous year but our net income had decreased by almost
a neglible amount its all because of increase in cost of sales and financing
costs.

INDEX ANALYSIS
BALANCE SHEET
Authorized capital 2007 2006 Index Analysis
40000000 ordinary shares of rupees 10 each 400000 400000 100%
60000000 preference shares of rupees 10 each 600000 600000 100%
Total 1000000 1000000 100%
Issued, subscribed and paid up share capital
reserves 900000 900000 100%
Reserves 639530 616469 103.74%
Total 1539530 1516469 101.52%
TOTAL EQUITY
Surplus on revolution of operating fixed assets 379420 61967 612.29%
Deferred income or sale back of operating fixed
assets 5639 7700 73.23%
NON-CURRENT LAIBILITIES
Long term financing
financing 321759 297933 107.99%
Deferred liability for gratuity 90180 76082 118.53%
Liabilities against assets subject to financing lease 276138 387515 71.25%
Total 688077 761530 90.35%
CURRENT LIABILITEIS
Trade and other payables 674138 748578 90.05%
Accrued markup 77642 64189 120.95%
Short term finances 3684328 2912069 126.51%
Current portion of long term liabilities 220115 256596 85.78%
Provision for taxation 57243 104518 54.76%
Total 4713466 4085950 115.35%
TOTAL LIABILITIES 5401543 4847480 111.42%
TOTAL EQUITY AND LIABILITIES 7326132 6433616 113.87%
ASSETS
NON-CURRENT ASSETS

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MASOOD TEXTILE MILLS FINANCIAL RATIOS ANALYSIS

Property, plant and equipment 2808261 2130740 131.79%


Long term advances 6733 7466 90.18%
Long term security deposits 23918 23972 99.77%
CURRENT ASSETS
Stores and spare parts 286203 277923 102.97%
Stock-in-trade 1813977 1891260 95.913%
Trade debts 1611302 1414949 113.87%
Loan and advances 130095 115283 112.84%
Short term deposits and prepayments 109201 145438 75.08%
Other receivables 460874 367351 125.45%
Cash and bank balances 75568 59234 127.57%
Total 4487220 4271438 105.05%
TOTAL ASSETS 7326132 6433616 113.87%
 According to the Index Analysis of the whole Balance Sheet, we get to
know that in the comparison of year 2006 and 2007 the value of total
equity that comes from the value of capital and issued, subscribed and
paid up share capital reserves are 101.5207.
 The value of Non-Current liabilities comes from the difference in the value
of Long term financing, liabilities against assets and deferred liability for
gratuity is 90.35455.
 Same as the value of TOTAL LIABILITIES comes from Current liabilities
value which is Accrued mark-up, short term financing Provision for
taxation Trade and other payables and others and that is 111.4299.So the
TOTAL ASSETS value comes from the value of fixed and current assets
and that is 113.8727.

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MASOOD TEXTILE MILLS FINANCIAL RATIOS ANALYSIS

PROFIT AND LOSS STATEMENT


PROFIT AND LOSS ACCOUNT 2007 2006 Index Analysis
Sales 5950366 4899190 121.45%
Cost of Sales 4963190 4000910 124.05%
GROSS PROFIT 987176 898280 109.89%
Distribution and selling cost 222101 245922 90.31%
Administrative & general expenses 132967 123812 107.39%
Other operating expenses 31586 13766 229.44%
Total 386654 383500 100.82%
TOTAL PROFIT 600522 514780 116.65%
Other operating income 6887 2778 247.91%
Operating profit 607409 517558 117.36%
Finance cost 416657 335266 124.27%
Profit before taxation 190752 182292 104.64%
Provision for taxation 57243 52329 109.39%
Profit after taxation 133509 129963 102.72%
Earning per share-basic(Rupees) 4.45 4.33 102.77%
Earning per share-Diluted(Rupees) 2.44 2.2 110.90%

 According to the Index Analysis of the whole Income Statement we get to


know that in the comparison of year 2006 and 2007 the difference of sales
and cost of sales value are 109.8962 that is actually the gross profit.
 The value of total profit is 116.656 and that comes from the difference of
the value of Distribution and selling cost the Administrative and general
expenses and other operating expenses.
 The value of operating profit is 117.3606, Finance cost is 124.2765 and
the values of profit before taxation, Provision for taxation, and Profit after
taxation are 104.6409, 109.3906 and 102.7285.

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MASOOD TEXTILE MILLS FINANCIAL RATIOS ANALYSIS

 In the end the value of earning per share basic and diluted in rupees are
102.7714 and 110.9091.

CONLCUSION
After briefly analyzing the financial statement of MASOOD TEXTILE MILLS we
came to conclusion that firm’s profitability or other ratios have not been changed
so much, change in liquidity measures is almost neglible because current ratio
increased while quick ratio has decreased because of increase in assets. Long
term solvency measures have not been changed also the debt ratio almost
remain the same while in other ratios such as interest coverage ratio and cash
coverage ratio have been changed a bit. In assets management firm had not
been efficient because firm’s inventory turnover has decreased and also firm is
now less efficient in collecting the account receivables due to the decrease in
ATR. The firm’s net profit margin has decreased even net income has increased
that’s because the sales level has increased more than the net income it
generates. Its ROA has decreased and ROE has increased because firm has the
same level of common stock equity that they have previous year. Firm’s EPS and
P/E ratio has increased but by a very tiny amount.

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