ANALYSIS OF FINANCIAL STATEMENT

COMPANY: Crescent Textile Mill Erum Anwer (13759)

Submitted to: Mr. Ali Dhamani

AFS Project

INTRODUCTION
The analysis of financial statement has been done from the CREDITORS point of view

Time series or Trend analysis. Cross sectional analysis.

INTRODUCTION
Questions to be Answered:

Overall performance of economy. Is a growing/declining industry, why is the company declining/growing? What are Companys needs for future financing? What are Crescents likely sources for payment of interest and principal? How much cushion does Crescent have in its earnings and cash flows to pay interest and principal? What is the likelihood Crescent will be unable to meet its financial obligations? Does Crescent have the financial strength to pay its commitments in a period of poor profitability?

HIGHLIGHTS FROM MD&A

Financial year 2011 saw record breaking cotton prices which were the highest in 160 years of recorded history. Prolonged gas outages curtailed business operations during last Qtr of the financial year. In general the business sentiments were dampened due contracting margins and ongoing political and security environment. Net sales revenue of the company increased by 35.86 percent in FY 11. Resultantly, the company closed its books at a loss after tax of Rs 119 million

Horizontal Analysis:

PROFIT & LOSS ACCOUNT

Net sales revenue of the company increased by 36 % in FY 11, this was due to higher sales volumes by the company as well as better selling prices. However, this improvement was not transformed into positive earnings for the company mainly due to the jump in the cost of sales.

BALANCE SHEET
The balance sheet of company is showing continues increment in utilization of their funds in Property, plant & equipment. In FY 11, however, despite the presence of alternate expensive fuel usage, the operational performance of the company was hampered due to the frequent and yearlong gas outages.

Vertical Analysis:

PROFIT & LOSS ACCOUNT

The above analysis of balance sheet is showing a fluctuating trend in the Gross profit of the company. A positive trend can be seen in the finance cost. The Company fails to increase its profitability in the FY2011, though it should be mentioned that we see a noticeable net profit point in the 2010. It also fails to give satisfactory rate of return in the year 2011 as compared to 2010.

BALANCE SHEET
The PPE has been increased as compare to previous years, which means company has made its investment in the fixed assets of the company.

Ratio Analysis:

Profitability Ratios: 2007 & 2009 has shown positive results in all the profit margins of the company. From 2008 to 2010 gross profit has been increased effectively but in 2011 it is showing a decreasing trend. Major reason for decline in margins was attributed to jump in cost of sales in particular the performance of 4th Qtr which erased most of the gains accrued to the Company till 3rd Qtr of the FY 2011. The company has closed its books at a loss after tax; significantly lower than the profit of a year earlier. Liquidity Ratios:

The company is showing a slight increment in the quick ratio as compare to the previous year.
Company has a ratio of less than 1 which means they cannot pay their current liabilities and should be looked at with extreme caution. Furthermore, the acid-test ratio is lower than the current ratio; it means current assets are highly dependent on inventory.

Contd

This ROE ratio indicates the productivity of the owned funds employed in the firm. However, in judging the profitability of a firm, in the current year the company has negative ROE which is not good. Market Ratios: The company is showing a negative trend in Earning per share which indicates the decline of generating profit from operations. There is a negative trend in price to earnings ratio. Company has not issued any dividend because of incurring loss in the FY2011.

Cross Sectional Analysis With Competitor

The finance cost is greater for Kohinoor mills than of Crescent textile mill because the competitor has better gross and operating profit margins. Crescent has poor transformation on inventory to sales than of the other company. The overall efficiency of the Crescent to use its assets, capital or the working capital had decreased in 2011. However in the later years, it is increasing, for which we can blame the environmental conditions of the country, and that, involves the economical and political challenges of India and the world. The competitors credit policy to customers is very strong as compare to Crescent textile. The Selected Company fails to increase its profitability for the FY2011, whereas we can see a noticeable net profit point in the Competitor Company. It also fails to give satisfactory rate of return as compared to Kohinoor textile mill.

CONCLUSION

The company possessed poor ability to satisfy its loan obligations. And more than half of the creditor financing is interest bearing debt. Therefore there is some concern about Crescents ability to pay interest and principal, and also Crescents negative earning suggests that such a concern is warranted. Additionally Crescents income over the past years has been very unstable, which makes it more likely that Crescent will be unable to meet interest and principal payments on its debt. After the comparison with the competitor, which is a Kohinoor textile mill it is also proven that the company is not a strong entity to recover the credit.