Академический Документы
Профессиональный Документы
Культура Документы
Presented To
Presented By
Mohsin Rehman
Date of Submission
Mm\dd\yyyy
This course is about Financial management and we are to perform the in depth analysis of
the firms financial position and to learn that we have to do this project to gain the
knowledge of maximum professional techniques and the best possible way to smartly do
In the project I have chosen a textile based manufacturing company. The name of the
company is Artistic Denim Mills (ADM). I have analyzed the firms financial data with
the help of financial techniques learned from the course Financial Management. With the
help of these tools I have found out the companies financial performance and its market
positioning of shares and their growth and gave my analysis on the company’s
performance.
While doing this project I have to face many problems and to work very hard to find the
exact way to measure the correct performance of the company. While doing so I have
learned a lot about doing the crucial work in the minimum amount of time in the best way
Signature: - ______________
Acknowledgement
First of all my thanks to Allah All Mighty who gave me the strength and courage and
given me wisdom and understanding of this course and for this project. I give my thanks
to my parents who have prayed for me all the time and keep encouraging me always for
my studies.
I would like to thank my resource person Mr. Adeel Salam Shaikh who showed his
commitment towards his students and helped us with his heart to make sure that we are
going in the right direction and having the proper understanding of this project. This
course and this project would be difficult for me to understand without his guidance and
I would also like to thank all of my fellow participants and all the seniors who have
helped me through this project. I would specially like to thank my father Muhammad
Siddique for all of his experience that He shared with me that helped me a lot in this
project.
Content
Executive Summary
Ratio Analysis
Dividend policy
Retention Rate
Growth rate
Recommendations
Bibliography
Executive Summary
This Project is about the course Financial Management. The requirement of the project
was to apply all the learning from the course and to apply these learning and to apply
them over a company. The project was about the analysis of the financial statement and
to learn about what position does the company holds currently in the market and to
forecast about the companies position in the future. And that weather or not we need to
invest in the company. I selected the company Artistic Denim Mills for the project and
used all my skills and learning of the course to find out the companies position in the year
2008 and 2009. The project starts with the brief introduction of the company followed by
the history of the industry and the manufacturing concerns of the company. ADM book to
market value is analyzed and explained followed by the analysis of the net income of the
company and the average tax bracket of the company. Then the Ratio analysis of the
company is discussed in detail. The company capital structure is defined and we can see
that company is more of equity based and is an optimal structure. The companies divided
policy is discussed and also the company retention policy is discussed in detail showing
the performance of the company. The firm’s rate required rate of return is almost 16%
where as the actual is going in the negative. I have used the Gordon model and found out
the growth trend in the company which is constant. All the necessary calculation along
with the graphical presentations is provided in the project. My recommendations for the
company is that all the indicators of the company are showing that although company is
earning profit for the time but the trend of the profit is negative as the profit percentage is
going down. In the end I have shown the companies market situation and the growth rate
of the company to present a more exact and clearer view of the company for the future.
Company Overview
ADM Denim is a Premium Denim Producer. The company is public listed and started
production in 1993. Current capacity is three Million yards of Fabric and one million
pairs of jeans per month. ADM is a complete vertical unit converting Cotton to Finished
Garments.
On the fabric side, our product range includes weights from 8 oz up to 14 oz using multi-
count/multi-twist ring/open-end yarns using AMSLER technology. We have two rope
indigo dye ranges, which are capable of doing colored bottoming/topping plus very deep
indigo shades. Weaving is done on machines from Switzerland and Italy. We have latest
flat finishing machines designed to give denim constructed denim look and clear optics.
Our medallion finishes foam coats denim with resin or color pigment to give 3-
dimensional effect. We produce denim using 100 % cotton, 99% Cotton 1% Lycra, and
T400 Invista Fiber.
On the garment side, we produce 5-pocket jeans for well know brands in Europe and the
United States. The infrastructure includes computerized cutting tables, specialize robotic
jeans sewing equipment, and TONELLO washing machines. Highly trained staff operates
our laundry with quarterly visits from Italian experts for collection development.
We are an environment friendly company with water treatment and effluent treatment
facilities meeting toughest international standards.
ADM is not just a manufacturer of fabric and garment, but a complete development
facility to provide 'speed to the market' capability required by our customers.
Company Profile
Karachi, Pakistan.
Capital: 84000000
Artistic Denim Mills have shown a negative trend when we see the comparison of market
value with the book value. In year 2007 companies’ book value was Rs.30.33 whereas
the Market value was at a high price of 69.5 Rs but in the year 2008 both book value per
share and market value per share dropped down. And in the year 2009 market value per
share of the company went below the book value of the company showing a negative
approach.
2007 406446
2008 349584
2009 376421
When we see the 3 years net income of Artistic Denim we can see that in year 2007 the
Net Income of the company was 406446 and that was decreased in the year 2008 that but
in 2009 there was a positive trend in the companies Net Income as compared to 2008 and
(Annexure 1)
3. Finding firms Tax Bracket and Average tax that firms pays annually
The firm’s tax bracket is 35% as the rate of corporate tax all over Pakistan is 35 %.
But Artistic Denim Mills is paying average tax of 7.26% in 2007 and in 2008 this was
(Annexure 2)
Ratio Analysis
Liquidity ratios:
Current Ratio
The current ratio of the company shows the relationship between the current assets and
the current liabilities of the company. It shows that to pay off the current liabilities of the
company how much current assets the company holds. The good current ratio is
considered to be between 1.90 and 2.10. ADM current ratio for the year 2007 was 1.05
and it dell down to 0.82 in the year 2009. This showed a negative trend in the ratio and it
This ratio indicates that how many times the company sells its inventory and as a whole
the higher the turnover is the better the company is considered. ADM inventory turnover
ratio was 3.5 times in 2008 and in year 2009 it increased to 4.30. this showed that in
company has showed a positive trend in the year as compared to the last year
Days Sales Outstanding:
This ratio shows the relationship between the Sales and Account receivable of the
company. It shows that how many days it takes for the company to convert the sales into
cash. Since we are on the receiving side the lesser the ratio is better it gets. ADM days
sales outstanding ratio for the year 2008 was at 55 days this improved in the year 2009
The ratio shows the relation between the Sales and fixed assets. It tells that how much
sales are we achieving using the Average Fixed Assets of the company. Now the higher
the sales are its considered better. The ADM Fixed assets turnover ratio was 0.19 in the
year 2008 and it increased to 0.23 in the year 2009. It showed a positive trend but still
The ratio shows the relation between the Sales and Average Total assets. It tells that how
much sales are we achieving using the Average Total Assets of the company. Now the
higher the sales are its considered better. The ADM Total assets turnover ratio was 0.53
in the year 2008 and it increased to 0.67 in the year 2009. It showed a positive trend but
Debt Ratio:
The ratio shows the relationship of the Debts of the company with the Total assets of the
company. It shows how much the company is financed by Debts. This ratio is considered
reasonable between 40% and 60%. For ADM the Debt to Total Asset ratio was 45.11% in
the year 2008 and it decreases to 42.36% in year 2009. We still considered this ratio
reasonable but there is still some decreasing trend in the company and company must
This ratio shows the relationship between the operating profit of the company and the
Interest charges company has to pay. The industry average for Tie ratio is 6.0 times and
more the Tie ratio is better it is for the company. ADM has the TIE ratio of 3.26 in the
year 2008 and I 2009 it is now 3.20 which is lower than the previous year and also below
This ratio shows the relation of all cash flows to all financial charges now low the
EBITDA coverage ratio is more risky it gets. ADM ratio in the year 2008 was 3.26 which
decreased to 3.20 in year 2009 showing a negative trend thus it is not suitable for the
firm.
Profitability Ratios:
This income shows the net income per Rs of Sales, It is the relationship between Net
incomes to Sales. ADM profit margin on sales in the year 2008 was 14.34% and it
decreased to 12.04% in the year 2009. So there is a negative trend in the company when
This ratio shows the relationship of the companies operating profit with the companies’
total assets and with the help of this ratio we want to see that what s the potential of our
business. And what is the earning power of our business. In 2008 ADM has the BEP ratio
of 3.0% and in the year 2009 this ratio increased to 3.2% which is better for the company.
This ratio shows the relation between the firms net income to its Total Asset. This shows
that how many returns we can gain by engaging the total assets of the company. ADM
return on total assets in the year 2008 this was 7.95% and in the year 2009 this was 8.1%
The ratio of net income to common equity shows that how much benefit we are getting
rather than checking the performance. In the year 2008 the ROE of the company was
14.13% and in the year 2009 this ratio decreased to 14.03%. This means that there is a
This ratio shows the relationship of Price per share and Earning per share. This ratio is
considered better as it is higher. ADM price/earning ratio in the year 2008 is 2.0 Times
and this increased to 7.12 times in the year 2009. This shows a positive trend in the
company and company must take more corrective measures to improve this more.
This ratio shows the relation of firms Price per share with the firm’s Cash flow per share.
This ratio is calculated in times and higher the ratio is more better the ratio is. ADM
price/ Cash flow ratio in the year 2008 was 68 Rs and this reduced in year 2009 to32.73
Market/Book Ratio:
This ratio shows the relation between the companies market price per share with the
companies book Value per share. This ratio is calculated in time and is considered higher
the better. ADM market to book value ratio in 2008 was 1.44 times and this decreased
further down to 0.70 in year 2009 showing a negative trend in this ratio.
Dividend Policy:
Artistic Denim Mills have not paid any dividend in the year 2007 and 2008. Company
was earning profit but they retained the profit and kept it in the reserve for future reasons.
In the year 2009 company paid cash dividend @ Rs 2 per ordinary share of Rs 10 each.
And the dividend cost in the year 2009 was Rs. 167590 which was 45 % of the profit as
(Annexure 4)
Retention Policy:
Artistic denim mills retention policy in the year 2007 and in the year 2008 was 100%
retention and not paying any amount as dividend. In the year 2009 company retained
55% and the rest of the amount was issued as dividend to it common stock holders.
(Annexure 5)
Growth Rate:
Artistic Denim Mills growth rate for the year 2007 was constant as they retained 100%
and did not issue any dividends. During the year the growth rate was 19 %.This policy
was maintained in the year 2008 and but the company growth was lowered to 14% as the
profits of the companies were decreasing. In the year 2009 company declared dividend
from their reserves so the growth rate came down to 8% in the year 2009. So we can
(Annexure 6)
6. Firms Capital Structure
Artistic Denim Mills shows that the firm is more of Equity based as the firms capital
structure include 57.63 % from equity and the rest of 42.36 % from debt. This current
(Annexure 7)
The required rate of return is calculated by using the Capital Assets Pricing Model
(CAPM). And we calculated that the required rate of return of Artistic Denim Mills is
(Annexure 8)
The Actual rate of return of the company is different from its required rate of return and
the actual rate of return of the company is 39% in negative. This shows that the company
is not performing upto the task and it must improve to meet the expected rate of return.
Now since the company is not showing any positive actual return I would rather not find
(Annexure 9)
9. Comparison of Actual with expected:
The Actual rate of return of the company is different from its required rate of return and
the actual rate of return of the company is 39% in negative. Where as the required rate
calculated with the help of CAPM was 16 % .This shows that the company is not
performing up to the task and it must improve to meet the expected rate of return. Now
since the company is not showing any positive actual return I would rather not find it
After discussing all the financial facts of Artistic Denim Mills ltd following
- The Companies growth average growth rate is around 11% which is by far above
the industry average but it’s still not in a positive trend. So the company should
make long term investment so that it can maintain an average growth rate that it
currently has.
- The company target is to maximize the profit. And for that company must
- The companies’ capital structure is around 42% debts and 58% equity. This is
considered to be optimal structure. But the firm must maintain this ratio and
- The company is not paying dividend regularly but this year company paid 2 Rs
dividend they have maintain this rate if they want to increase its market share
capital
- The firms most of the ratios are showing a positive trend but still there are some
Artistic Denim Mills is performing apparently well under the economic situation of the
country. Firms have somewhat maintained its profit over the year and also given dividend
this year. We are seeing a positive in the company but still there are many areas where
company can improve it self and gain more market share. After seein the overall
performance of the company we can say that we can invest in the company in the short
run but we can not yet take the risk of investing in the company on a longer term.
Bibliography:
http://www.admdenim.com/company.htm
http://www.kse.com.pk/market-data/historical-Data.php
http://www.asiatradehub.com/pakistan/tax1.asp