Spinning: GADOON MILLS LIMITED Analysis of Financial Statements Financial Year 2005 Financial Year 2006 SCANNER
Gadoon Mills Limited is one of Pakistan's largest spinning units, delivering quality products through innovative technology and effective resource management, maintaining high ethical and professional standards.
Gadoon has, over the years, persevered to attain the present enviable position with its products competing at home and abroad. The export sales are nearly twice that of the local sales. What sets Gadoon apart from most other spinning units in the country is its mission to remain on the cutting edge of technological improvements.
Recent Results(FY'07): Gadoon Textiles export sales increased by 27.7%, while the local sales declined by 16.2%. This is keeping in line with the company's strategy of shifting to export sales.
The gross margin has declined because of an increase in lint prices, and lower selling prices of yarn in the local market and an increase in the ocean freight charges. Also, the operating costs increased because of a statutory increase in the salaries.
However, the finance cost has decreased by 26.87% because of the company's strategy of shifting from the KIBOR based financing to LIBOR based financing and shifting to less- costly SBP's LTF-EOP scheme. Therefore, the net profit showed a decline of 21% in FY'07, indicating that an increase in the top line is not reflected in the bottom line.
The performance in 2006 has been better than 2005 as is indicated by an increase in net profits of the company from 207 million in 2005 to 293 million in 2006. The percentage increase in gross profits was higher than the percentage increase in net profits, owing primarily to the greater selling and operating expenses this year.
During the year 2006, the textile industry received a big setback due to the tremendous increase in the cost of inputs: steep rise in lint cotton, energy cost and freight charges. What hit the company most is the more than 200 % increase in credit cost. Consequently, this was reflected in the high cost of goods sold and the high financial costs this year.
The liquidity position of the company, however, deteriorated in 2006 compared to the same period last year. This can be majorly attributed to a sudden decline in the cash reserves of the company which decreased from 276 million in 2005 to only 75 million in 2006. On the other hand, current liabilities increased in the form of short term borrowings and mark-up accrued on loans as well as provision for taxation. Consequently, the current ratio decreased from 1.00 in 2005 to 0.97 in 2006, showing that the company does not have enough current assets to cover up its current liabilities.
As far as asset management is concerned, the company has performed well with regard to inventory management. The inventory turnover in days has decreased from 173 to 130 days, indicating that the company has been able to improve on its ability to utilise its inventory and convert it to accounts receivable more readily and quickly. However, at the same time, the days sales outstanding of the company have increased from 14 to 40 days, showing that the company has been facing difficulties in receiving cash against from its debtors. Overall, the operating cycle has decreased from 187 to 170 days.
Improved debt management by the company is indicated by a reduction in the company's debt to equity ratio. This can be mainly attributed to a decrease in long term financing by the company from 750 million to 375 million. Overall, the debt to equity ratio decreased from 1.71 to 1.60 in 2006. The times interest earned (TIE), however, decreased from 4.31 to 2.77, showing that the company has fallen back on its ability to cover its financial costs through its operating profit. Although finance costs have decreased from 2005 to 2006, the operating profit decreased, mainly due to an increase in the selling, administrative and other operating expenses of the company. Consequently, the overall TIE ratio decreased.
The Book value per share (BVS) and the Earnings per share (EPS) of the company increased from 2005 to 2006. The BVS increased due to an increase in equity brought about by an increase in the unappropriated profits of the company. The EPS improved from Rs 8.83 to Rs 12.50 as the net profit of the company improved over the years. The average market price of the company, however, decreased marginally from Rs 77.8 in 2005 to Rs 74.6 in 2006, showing a reduced investor confidence in the company.
Overall, the company performed well in terms of profitability and debt management, but needs to work on its asset management, liquidity and on improving its market worth and investor confidence in the company.
============================================================Gadoon Textiles Limited - Financial Highlights
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2005 2006============================================================
INCOME STATEMENT
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Turnover 4,072,069,912 5,637,135,658
Gross Profit 541,804,719 799,889,184Operating Profit 363,820,273 567,862,575
Net Profit 206,923,683 293,021,539
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BALANCE SHEET------------------------------------------------------------
Total Equity 2,127,322,233 2,361,750,022
Current Liabilities 2,693,996,365 3,216,527,227
Non-current Liabilities 944,644,703 566,364,970
Current Assets 2,703,545,785 3,114,124,477Non-current Assets 3,062,417,516 3,030,517,742
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LIQUIDITY
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Current Ratio 1.00 0.97------------------------------------------------------------
ASSET MANAGEMENT------------------------------------------------------------
Inventory Turnover (days) 173 130Days Sales Outstanding 14 40
Operating Cycle 187 170
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DEBT MANAGEMENT------------------------------------------------------------
Debt to Equity Ratio 1.71 1.60
Times Interest Earned (TIE) 4.31 2.77
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PROFITABILITY------------------------------------------------------------
Gross Profit Margin 8.93% 10.07%
Profit Margin 5.08% 5.20%
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MARKET VALUE------------------------------------------------------------
Book Value 4.25 4.72
Earnings Per Share 8.83 12.50
Average Market Price 77.81 74.64
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Statement of changes in equity
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Balance as at Balance as at
June 30th 2005 June 30th 2006
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Share Capital 234,375,000.00 234,375,000.00
Unappropriated Profits 789,822,233.00 1,024,250,022.00
Capital Reserves 103,125,000.00 103,125,000.00
General Reserves 1,000,000,000.00 1,000,000,000.00
Total 2,127,322,233 2,361,750,022
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COURTESY: Economics and Finance Department, Institute of Business Administration, Karachi.
DISCLAIMER: No reliance should be placed on the [above information] by any one for making any financial, investment and business decision. The [above information] is general in nature and has not been prepared for any specific decision making process. [The newspaper] has not independently verified all of the [above information] and has relied on sources that have been deemed reliable in the past. Accordingly, the newspaper or any its staff or sources of information do not bear any liability or responsibility of any consequences for decisions or actions based on the [above information].
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