Report On Financial Statement Analysis and Ratio Analysis of SREEPUR TEXTILE MILLS LIMITED Year 2006-2010

Company Overview Profile

Sreepur Textile Mills Limited was incorporated in Bangladesh as a Public Company with Limited Liability, on 20^th December 1898 and Commenced Commercial Operation on 1^st July 1995. The Company issued public portion of Shares in 1996 and its shares are listed both Stock Exchanges in Bangladesh.

The company owns and operates a modern textile factory, which produces cotton yarns. The current major issues of the company is it was totally closed since 2006.

Registered Office:

The address of the registered office of the Company is Jatiya Scout Bhaban, 9^th Floor, 70/1, Purana Paltan Line, Kakrail, Dhaka-1000 and the manufacturing plant is located at Sreepur of Gazipur.

Ratios Analysis

The ratios analysis is the most powerful tool of financial statement analysis. Ratios simply mean one number expressed in terms of another. A ratio is a statistical yardstick by means of which relationship between two or various figures can be compared or measured. Ratios can be found out by dividing one number by another number. Ratios show how one n Profitability Ratios:

Profitability ratio: It measure the results of business operations or overall performance and effectiveness of the firm. Some of the most popular profitability ratios are as under:

• Gross profit ratio
• Net profit ratio
• Return on shareholders’ investment or net worth
• Return on equity capital
• Return on capital employed (ROCE) Ratio
• Dividend yield ratio
• Dividend payout ratio
• Earnings Per Share (EPS) Ratio

Liquidity Ratios: 

Liquidity ratios measure the short term solvency of financial position of a firm. These ratios are calculated to comment upon the short term paying capacity of a concern or the firm's ability to meet its current obligations. Following are the most important liquidity ratios.

• Current ratio
• Liquid / Acid test / Quick ratio

Activity Ratios:

Activity ratios are calculated to measure the efficiency with which the resources of a firm have been employed. These ratios are also called turnover ratios because they indicate the speed with which assets are being turned over into sales. Following are the most important activity ratios:

• Debtors / Receivables turnover ratio
• Average collection period
• Creditors / Payable turnover ratio
• Working capital turnover ratio
• Fixed assets turnover ratio
• Over and under trading

Long Term Solvency or Leverage Ratios:

Long term solvency or leverage ratios convey a firm's ability to meet the interest costs and payment schedules of its long term obligations. Following are some of the most important long term solvency or leverage ratios.

• Debt-to-equity ratio
• Proprietary or Equity ratio
• Ratio of fixed assets to shareholders funds
• Ratio of current assets to shareholders funds
• Interest coverage ratio
• Capital gearing ratio
• Over and under capitalization

Ratio Analysis

Current Ratio

Formula: Current Ration = Current Assets/Current Liabilities

	2010	2009	2008	2007	2006
Current Assets	33,512,228.00	40,582,608.00	52,576,984.00	57,254,680.00	56,698,749.00
Current Liability	234,684,338.00	231,511,002.00	24,760,760.00	247,878,947.00	245,665,247.00
CA/CL	0.14	0.18	2.12	0.23	0.23
Current Ratio	0.14 : 1	0.18 : 1	2.12 : 1	0.23 : 1	0.23 : 1

Interpretation: Current ratio measures short-term debt paying capability. In the graph we see that in every year the current ration is decreasing. And also the value is not satisfactory. 2:1 is standard value. So we can be said that the company is not so solvent to pay off the debts.

Acid Test Ratio

Formula: Current Ration = (Current Assets-Inventories)/Current Liabilities

	2010	2009	2008	2007	2006
Current Assets	33,512,228.00	40,582,608.00	52,576,984.00	57,254,680.00	56,698,749.00
Inventory	27,434,224.00	34,292,780.00	45,865,975.00	51,197,575.00	51,197,575.00
CA-Inventory	6,078,004.00	6,289,828.00	6,711,009.00	6,057,105.00	5,501,174.00
Current Liability	234,684,338.00	231,511,002.00	24,760,760.00	247,878,947.00	245,665,247.00
Acid Test Ratio	0.03 :1	0.03 :1	0.27 :1	0.02 :1	0.02 :1

Interpretation: Acid Test Ratio means the immediate conversion of liquid assets to cash. Its standard value is 1:1.  So we can say that the acid test ratio of Sreepur Textile Mills Ltd. is not satisfactory. It is very poor.

Assets Turnover Ratio

Formula: Asset Turnover Ratio = Sales/Total Assets

	2010	2009	2008	2007	2006
Sales	-	-	-	-	14,512,560.00
Total asset	177,558,702.00	208,031,564.00	226,920,144.00	249,369,523.00	271,931,728.00
Assets Turnover Ratio	-	-	-	-	0.05

Interpretation: Asset turnover ratio measures turnover of all the firm`s asset. In 2006 the turnover ratio was 0.05 times. But after 2006 it is Nil till 2010 due to the closing of factory and no sales of the company.

Debt Ratio

Formula: Debt Ratio = Debt/Total Assets

	2010	2009	2008	2007	2006
Total Debt	55,273,100.00	55,749,000.00	57,680,507.00	58,847,507.00	61,888,883.00
Total Asset	177,558,702.00	208,031,564.00	226,920,144.00	249,369,523.00	271,931,728.00
Total debt/Total asset	0.31	0.27	0.25	0.24	0.23
Debt Ratio	31%	27%	25%	24%	23%

Interpretation: It measures the percentage of total assets provided by creditors. In the graph we see that the debt ratio of 2006 is 23%. But after 2006 the ratios were increased in 2007 to 2010 gradually.

Profit Margin on Sales

Formula: PMS = Net Income/Sales

	2010	2009	2008	2007	2006
Net Income	(71,264,482.00)	(77,359,813.00)	(22,449,379.00)	(22,562,205.00)	(36,014,943.00)
Sales	-	-	-	-	14,512,560.00
Net income/Sales	-	-	-	-	(2.48)
PMS Ratio	-	-	-	-	-248%

Interpretation: PMS measures net income generated by each taka of sales. In 2006 the profit margin on sales was -248%, and in from 2007 to 2010 it is Nil. Company has no turnover because their factory is closed.

Return on Assets

Formula: ROA= Net Income/Total Assets

	2010	2009	2008	2007	2006
Net Income	(71,264,482.00)	(77,359,813.00)	(22,449,379.00)	(22,562,205.00)	(36,014,943.00)
Total Asset	177,558,702.00	208,031,564.00	226,920,144.00	249,369,523.00	271,931,728.00
Net income/TA	(0.40)	(0.37)	(0.10)	(0.09)	(0.13)
ROA Ratio	-40%	-37%	-10%	-9%	-13%

Interpretation: It measures overall profitability of assets. In the graph of ROA we see that the ratio is always in negative figure form 2006 to 2010.

Return on Equity

Formula: ROE = Net Income/Total Assets

	2010	2009	2008	2007	2006
Net Income	(71,264,482.00)	(77,359,813.00)	(22,449,379.00)	(22,562,205.00)	(36,014,943.00)
Common equity	140,000,000.00	140,000,000.00	140,000,000.00	140,000,000.00	140,000,000.00
Net income/Common equity	(0.51)	(0.55)	(0.16)	(0.16)	(0.26)
ROE Ratio	-51%	-55%	-16%	-16%	-26%

Interpretation: ROE measures profitability of owner`s investment. In 2006 ROE was -26%. In 2007 it was -16%. In 2008 it was -16%, The next year ROE was -55% that means it is gradually decreasing.

EPS

Formula: EPS = Net income available to common stock holders/ Number of common shares

	2010	2009	2008	2007	2006
Net Income	(71,264,482.00)	(77,359,813.00)	(22,449,379.00)	(22,562,205.00)	(36,014,943.00)
Common Shares	1,400,000.00	1,400,000.00	1,400,000.00	1,400,000.00	1,400,000.00
N.I/Common share	(50.90)	(55.26)	(16.04)	(16.12)	(25.72)
EPS	Tk. (50.90)	Tk. (55.26)	Tk. (16.04)	Tk. (16.12)	Tk. (25.72)

Interpretation:  EPS measures net income earned on each share of common stock. In the graph we can see that earning per share of Sreepur Textile Mills Ltd.  From 2006 to 2010 it was decreased gradually. In 2010 the amount was Tk. (50.90).

Conclusion

Finally we can say that, overall financial condition of Sreepur Textile Mills Ltd. is very poor. They closed their production since 2006 and they have no turnover by operation after 2006.

They are in huge loss and didn’t declare any dividends to the shareholder’s from last 5 years.

In this situation they should start production and generate revenue immediately. Otherwise they will lose their sustained.