Financial Ratio Analysis: HR Tex vs. Saiham Tex, Study Guides, Projects, Research of Finance

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Subject Ratio Analysis

Course Code FIN 254

Course Name Introduction to Financial Management

Semester Summer 2019

Section 8

Instructor Sheikh Mohammed Rabby

Submitted by

Submitted to

Name ID

Samin Yaser 1811748030 Sheikh Mohammed Rabby

Sifat Ullah Bhuiyan 1811340030 Lecturer, North South University

Iftekhar Ahmed 1811708630 Department of Accounting & Finance

MD. Saiful Islam 1812560630

Homira Ahmed Bondhon 1811888630

Acknowledgement

By the blessings from Allah – The Almighty, we were able to finish our report within the limited time

length.

We would also like to thank Sheikh Mohammed Rabbi, our honorable faculty member. It was truly an

honor to complete this course under his guidance. We are very grateful to him because of giving us the

responsibility of making such a wonderful report. Along with it our textbook and PowerPoint slides (made

by our faculty) helped us too in completing it.

Finally, we acknowledge to our group members, parents and everyone with the slightest involvement too,

who have contributed with their knowledge, effort and time for the completion of this project paper.

Table of Contents

• Executive Summary
• INTRODUCTION
• Time Series Analysis - Liquidity Ratio - Current Ratio - Quick Ratio
  • Activity Ratios - Inventory Turnover Ratio - Average Age of Inventory - Average Payment Period - Total Asset Turnover
  • Debt Ratio - Debt Ratio - Times Interest Earned Ratio
  • Profitability Ratios - Gross Profit Margin - Operating Profit Margin - Net Profit Margin - ROA - ROE - EPS
• Cross Sectional Analysis
• Free Cash Flow
• DuPont System Analysis
• Conclusion
• Appendix

Introduction

The purpose of making this report was to analyze the Financial Position of ‘HR Textile Mills Limited.’ By

analyzing the financial statements, we calculated different ratios & made a time series analysis of 5 years

ranging from 2014 to 2018 of all the ratios we calculated. Also, we made a Cross-Sectional Analysis by

comparing the ratios with another company’s ratio from same industry as a benchmark which is ‘Saiham

Textile Mills Limited.’

Company Introduction

HR Textile Mills Limited

HR Textile Mills limited is a public limited company which is engaged in production of knitwear

products. The company started their journey on December 3, 1984 & then never looked back. Its

main office is situated in Dhaka & operating its production in Savar. It’s a Lycra assured

company & its clients are Zara, Bershka, El Corte Inglés, New Look, Stardivaus & many more.

The facilities of the company has a North American & European state-of-the art setup. Factory is

well-engineered & they can manufacture whole range of knit fabrics & garments. It is a sister

concern of Pride Group.

Like the other Public Limited Company, they finance their key capitals from shareholder’s

equity. Being a public limited company, they are able to offer shares to people. & collect money.

Their another source of financing is long term loans with secured future maturity. Company’s

51.04% of shares are owned by Directors, 36.56% are owned by General Public & 12.40 are

owned by Financial Institutions.

Time Series Analysis

Liquidity Ratio

Liquidity ratios indicate the ability of fulfilling the debt obligations and also measure the margin

of safety of a company. There are two liquidity ratio such as current ratio and quick ratio.

Current Ratio

Current ratio used to measure the firm’s ability to meet its short-term obligations.

Figure 1: Analysis of Current Ratio

Interpretation (Current Ratio)

The graph shows that HR Textile Mills Limited’s current ratio has decreased over the year

little by little from 1.08 to 0.85. It refers that the ability of paying current debts with current

assets has decreased from 2014 to 2018. As with the decreasing ration we can assume the

company has a shortage of liquidity.

CURRENT RATIO

Current Ratio

Activity Ratios

This ratio indicates the ability of turning the accounts included in company’s balance

sheets into cash. It also measures how effectively the firm is operating considering the

balance sheet’s items. Activity ratios are very important as it helps to find out how well a

company’s management is doing to increase revenue from the resources.

Inventory Turnover Ratio

Inventory turnover ratio measures the times inventories are sold and restocked in a time

period.

Figure 3: Analysis of Inventory Turnover

Interpretation (Inventory Turnover Ratio)

The graph shows that HR Textile had many shifts in the recent years where it went down to 3.

from 5.39. Although it went up to 4.66 in 2016 but again it was fallen to 4.46 in 2017 and in

2018 it increased to 5.28 which means the inventories were sold more frequently.

INVENTORY TURNOVER

Average Age of Inventory

Average age of inventory measures the days a firm require to sell its inventories.

Figure 4: The Analysis of Average Age of Inventory

Interpretation (Average Age of Inventory)

HR Textiles had experienced both decrease and increase in average day of inventory ratio. In

2014, it was 67.77 days and increased to 98.04 days in 2015.Although it decreased to 78.36 in

2016 But then it slightly increased to 81.91 days in 2017 and decreased in 69.13 days in 2018. It

indicates that sometimes it takes more days to sell off the inventories and sometimes less.

AVERAGE DAY OF INVENTORY

Average Payment Period

Average payment period shows how many days a firm need to pay their paybacks to their

suppliers.

Figure 6: Analysis of Average Payment Period

Interpretation (Average Collection Period)

HR Textile’s average payment period had increased in the past few years till 2016 to

273.44 days from 230.47 and 189.76 days respectively. Although it continuously decreased

in the last two years to 193.27 in 2017 and 169.56 in 2018. It means that in 2018 HR

textiles takes less time to pay off their suppliers than before.

AVERAGE PAYMENT PERIOD

Total Asset Turnover

Total asset turnover ratio measures the revenue or sales earned compared to the assets.

Figure 7: Analysis of Total Asset Turnover

Interpretation (Total Asset Turnover)

The graphs indicate that HR Textile’s total asset turnover ratio had shifts over the years. It was

1.22 in 2014. Then it decreased drastically to 0.92 in 2015. After that it increased to 0.93, 1.

and 1.25 over the years 2016, 2017 and 2018. It indicates that the assets are generating revenue

through the sales. The firm is deploying the assets accordingly.

TOTAL ASSET TURNOVER

Times Interest Earned

Times interest earned ratio is used to calculate the ability to pay the company’s interest payments

from EBIT.

Figure 9: The analysis of Times Interest Earned

Interpretation (Times Interest Earned)

The ratio shows that in 2015 ratio decreased to 1.97 from 2.64. After that in 2016, time interest

earned ratio increased to 2.57 which means they can pay their interest from their EBIT more

effectively than before. But from 2017, it started decreasing and in 2018, the ratio decreased to

TIMES INTEREST EARNED Times Interest Earned

Profitability Ratios

Profitability ratios assess a firm’s ability to earn profit compared to the cost and expenses during

a certain time period.

Gross Profit Margin

Gross profit margin focuses on the profit after fulfilling the cost of goods sold to assess firm’s

financial state.

figure 10: Analysis of Gross Profit Margin Interpretation (Gross Profit Margin)

The graphs show that the, though the GPM ratio increased in 2016 to 15.53%, after being

almost constant 14.96% and 15.04% in 2014 and 2015. it again decreased continuously

for next two years. It indicates that the revenue after deducting all the cost of goods sold

has decreased over the year of 2017 and 2018 to 14.70% and 14.18%.

GROSS PROFIT MARGIN

Net Profit Margin

Net profit margin ratio indicates how of each dollar collected as profit converted into profit. It

ultimately calculates the ratio of net profit of a firm.

Figure 12: Analysis of Net Profit Margin

Interpretation (Net Profit Margin)

The trend graph shows that the ratios of net profit margin in 2014 was 3.22% but it

decreased in 2015 to 2.50%. Although, 2016 was a good year for the company as it

increased to 3.23% but in 2017 and 2018 again decreased to 2.21% and 2.13%.

NET PROFIT MARGIN

Return on Assets (ROA)

Return on assets indicates the efficiency of management in term of generating profits with assets

that are available in the firm.

Figure 13: Combined Analysis of Return on Asset

Interpretation (ROA)

The graph show that, HR Textiles had 3.92 ROA ratio in 2014 but it decreased in 2015 to 2.29%

and went up in 2016 to 3%. Then again went down to 2.41% in 2017 and went up to 2.65% in

2018. This refers that the firm’s ability to generate profit compared to its assets increased

slightly in 2016 and 2018 but went down in 2015 and 2017.

ROA