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American International University of Bangladesh Faculty : Abedin,Md.

Joynal Course: Financial Management- Section C


GROUP MEMBERS: FAHAD AMEEN 10-16742-2

OUR COMPANY
Year of Establishment : Unit 1 : 1994 ; Unit 2 : 1998 ; Unit 3 : 2000
Manufacturing Business : 100% Cotton Ring Spun Yarn for Hosiery Target Market : Export Oriented Readymade Garments Industry Investment : Unit 1 : US$ 20.00 mln ; Unit 2 : US$ 13.50 mln ; Unit 3 : US$ 12 mln Capacity : Unit 1 : 36,288 spindles with daily production capacity of 20,000 kgs. Unit 2 : 23,184 spindles with daily production capacity of 12,000 kgs 768 rotors with daily production capacity of 8,000kgs Unit 3 : 3,192 open end heads with daily production capacity of 20,000kgs

OUR OBJECTIVE
1) To Do Ratio Analysis Of The Financial Year Of 2010 and 2011 Of Square Textile LTD. 2) Give Interpretations On How the Company Is Doing According To The Result Of The Ratio Analysis

3) To Interpret Which Financial Year Was Better For Square Textile LTD.

WHAT IS RATIO ANALYSIS


A tool used by individuals to conduct a quantitative analysis of information in a company's financial statements. Ratios are calculated from current year numbers and are then compared to previous years, other companies, the industry, or even the economy to judge the performance of the company. Ratio analysis is predominately used by proponents of fundamental analysis.

CLASSIFICATION OF RATIOS

Liquidity Ratios Leverage Ratios

Turnover Ratios
Profitability Ratios Market Value Ratios

LIQUIDITY RATIOS

are used to measure the short-term solvency of a company. They show the ability of the company to quickly convert its assets into cash to pay its short-term debts. The higher the ratios, the more liquid the company and the less likely the company experience financial distress in shortterm basis.

Includes:

1) Current Ratio

2) Quick Ratio
3) Cash Ratio

LEVERAGE RATIOS

are used to measure the extent of the company's financing with debt relative to equity and its ability to cover interest and other fixed charges. They address the company's long-term ability to meet its financial leverage. The higher the ratios, the more indebtedness the company owes, which signal the possibility the company, will be unable to earn enough to satisfy its debt obligations Includes: Total Debt Ratio Debt/Equity Ratio

1)

2)

3)

Equity Multiplier
Interest Coverage Ratio

4)

5)

Cash Coverage Ratio

TURNOVER RATIOS

The percentage of a mutual fund or other investment vehicle's holdings that have been "turned over" or replaced with other holdings in a given year. The type of mutual fund, its investment objective and/or the portfolio manager's investing style will play an important role in determining its turnover rati

Includes:
Receivables Turnover Ratio

1)

2)

Inventory Turnover
Capital Turnover

3)

PROFITABILITY RATIOS

measure the overall earnings performance of a company and its efficiency in utilizing assets, liabilities and equity Includes:

1)

Profit Margin
Return ON Asset Return ON Equity

2)

3)

MARKET VALUE RATIOS

are used for value comparison. These Ratios are not contained in financial statements and they can only be calculated from publicly traded companies. Includes: Price-Earnings Ratio

1)

2)

Market to book ratio

CURRENT RATIO OF SQUARE TEXTILE LTD


Current Ratio: A liquidity ratio that measures a company's ability to pay short-term obligations.

Ratio
1.6
1.5 1.4 1.3 2010 2011 1.43 Ratio 1.57

The Company is doing well, as it has more assets then its liability The company has done better in 2011 then 2010

QUICK RATIO OF SQUARE TEXTILE LTD


Quick Ratio: An indicator of a company's short-term liquidity. The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better the position of the company.

Ratio
2011 1.55 0.83 0 0.5 1 1.5 2 Ratio

2010

Overall the company is doing good The Company is doing better in 2011 then 2010

CASH RATIO OF SQUARE TEXTILE LTD


Cash Ratio: The ratio of a company's total cash and cash equivalents to its current liabilities. The cash ratio is most commonly used as a measure of company liquidity. It can therefore determine if, and how quickly, the company can repay its short-term debt. A strong cash ratio is useful to creditors when deciding how much debt, if any, they would be willing to extend to the asking party.

Ratio
0.2
0.1 0.119 0.031 Ratio 2010

0 2011
The Company has to work on having more liquid asset The companys liquid asset increased in 2011

TOTAL DEBT RATIO OF SQUARE TEXTILE LTD


Total Debt Ratio: A ratio that indicates what proportion of debt a company has relative to its assets. The measure gives an idea to the leverage of the company along with the potential risks the company faces in terms of its debt-load.

Ratio
0.8 0.6 0.4 0.61 0.53 Ratio 2010 2011

The Company has more debt then compared to its asset, the company is not doing good in terms of debt management
The debt has gone down in 2011 then 2010

DEBT-TO-EQUITY RATIO OF SQUARE TEXTILE LTD


Debt/Equity Ratio: A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets.

Ratio

2011 2010 0 0.5 1

1.01 1.24 1.5

Ratio

The company is being financed mostly by debt The company is using less debt in 2011 for financing then 2010

EQUITY MULTIPLIER RATIO OF SQUARE TEXTILE LTD


Equity Multiplier: Like all debt management ratios, the equity multiplier is a way of examining how a company uses debt to finance its assets. Also known as the financial leverage ratio or leverage ratio.

Ratio
1.91 2011 2010 0 1 2 2.5 3 Ratio

Since square textile has a higher equity multiplier, it can be said to rely more heavily on debt in order to finance its assets. Equity multiplier ratio became down in 2011 then 2010

INTEREST COVERAGE RATIO OF SQUARE TEXTILE LTD


Interest Coverage Ratio: A ratio used to determine how easily a company can pay interest on outstanding debt. The interest coverage ratio is calculated by dividing a company's earnings before interest and taxes (EBIT) of one period by the company's interest expenses of the same period:

Ratio
400 200 0 2010 2011 The company has good capability of paying its debts Its capabilities decreased in 2011

262.9
196.07

Ratio

CASH COVERAGE RATIO OF SQUARE TEXTILE LTD


Cash Coverage Ratio: The cash flow coverage ratio indicates the ability to make interest and principal payments as they become due.

Ratio
2011
2010 0 500 683.72 988.11 1000 Ratio

The company has good capabilities of making interest and principal payments as they become due.

It decreased in 2011

RECEIVABLE TURNOVER RATIO OF SQUARE TEXTILE LTD


Receivables Turnover Ratio: An accounting measure used to quantify a firm's effectiveness in extending credit as well as collecting debts. The receivables turnover ratio is an activity ratio, measuring how efficiently a firm uses its assets.

Ratio
3 2 1 0 2.18 2.81 Ratio

2010

2011

The receivable turnover ratio in 2011 is better then 2010

CAPITAL TURNOVER RATIO OF SQUARE TEXTILE LTD


Capital Turnover: A measurement comparing the depletion of working capital to the generation of sales over a given period. This provides some useful information as to how effectively a company is using its working capital to generate sales.

Ratio

1.2 1 0.8 0.6 0.4 0.2 0

0.75

1.06

Ratio

2010

2011

The capital turnover ratio in 2011 is more then 2010

NET PROFIT MARGIN OF SQUARE TEXTILE LTD


Net Profit Margin: A ratio of profitability calculated as net income divided by revenues, or net profits divided by sales. It measures how much out of every dollar of sales a company actually keeps in earnings.

Ratio

0.15 0.1 0.11 0.08 Ratio

0.05
0 2010 2011

The net profit margin of the company was better in 2010 then 2011

RETURN ON ASSET OF SQUARE TEXTILE LTD


Return ON Asset: An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings.

Ratio
2011 0.093 Ratio Linear (Ratio) 0.08

2010

0.07

0.08

0.09

0.1

The company is quite profitable relative to its total assets The return on asset ratio is higher in 2011 then 2010

RETURN ON EQUITY OF SQUARE TEXTILE LTD


Ratio
0.17

2011
0.18 2010 Ratio

0.165

0.17

0.175

0.18

The company is making average amount of profit with the money shareholders have invested. The return on equity was higher in 2010 then 2010

PRICE EARNINGS RATIO OF SQUARE TEXTILE LTD


Ratio

11.58 13.56

2010 2011

current share price of Square textile is higher in 2011 compared to its per-share earnings.

MARKET TO BOOK RATIO OF SQUARE TEXTILE LTD


Sales

6.09

6.5

2010 2011

The market to book ratio of Square textile is higher in 2011 then 2010

SUMMARY OF 2010
Current ratio

2010

0.61
0.031 0.83 1.43

Quick ratio Cash ratio Total debt ratio Debt equity ratio Equity Multiplier 1.24 ratio Receivable turnover ratio Capital turnover Net profit Margin Return of asset

2011

Current Ratio Quick Ratio Cash Ratio

6.5

0.18 0.08

2.18 0.75

0.11

2.5 Return on equity Market to book ratio

Total Debt 1.55 Ratio Debt-to0.119 1.57 equity 0.53 Equity 6.09 Multiplier 1.01 Receivable Turnover 0.17 1.91 Capital Turnover 2.81 Net Profit 0.093 Margin 1.06 Return ON 0.08 Asset Return on Equity Market to book ratio