You are on page 1of 12

COMPANY NAME: RELIANCE WEAVING MILLS LTD

CONTENTS OF TERM PAPER:


PURPOSE OF TERM PAPER HISTORICAL BACK GROUND COMPANY INFORMATION NATURE OF BUSINESS DEPARTMENTS IN RELIANCE MILLS LTD VISION STATEMENT MISSION STATEMENT FINANCIAL STATEMENTS PROFIT AND LOSS STATEMENTS

CALCULATION OF RATIOS WITH GRAPHICALLY REPRESENTATION

CONCLUSION ON THE BASIS OF RATIO ANALYSIS COMMENTS AND SUGGESSIONS

PURPOSE:

The purpose of making term paper is to check and ratio analysis of companys financial statements .The purpose of financial statement analysis is to make a quick assessment about a firms financial situation .It is also used to identify the major strengths and weaknesses of a business enterprise.

HISTORICAL BACK GROUND:


Reliance weaving Mills Ltd. (RWML) is part of the Fatima Group. Fatima Group established RWML on April 17, 1990 as a public limited company and obtained certificate for commencement of business on May 14, 1990.
Following are the companies included in the FATIMAGROUP:

Sr. # LTD. 1. 2. 3. 4. 5. 6. 7. 8. 9.

Company Name FATIMA SUGAR MILLS

RELIANCE WEAVING MILLS LTD. RELIANCE COTTON PVT. LTD. RELIANCE COMMODITIES PVT. LTD. RELIANCE EXPORT LTD. RELIANCE FIBRES LTD. FATIMA FERTILIZER COMPANY LTD. FAZAL CLOTH MILLS LTD. AHMED FINE TEXTILE MILLS LTD FATIMA SUGAR MILLS LTD

COMPANY INFORMATION:
The reliance mills ltd is situated in Multan .Authorized capital of RWML at the time of incorporation was Rs.250 million and presently RWML has authorized and paid up capital of Rs.700million which has gradually increased and at present subscribed share capital of company stands at Rs.308109370, listed at Karachi and Lahore Stock Exchanges and also inducted into Central Depository Company (C.D.C). The company has issued 1st tranche of Term Finance Certificate (TFCs) of Rs. million in February 2002, which has been fully subscribed. These TFCs are listed at Karachi Stock Exchange and has also been declared as eligible security in C.D.C.

NATURE OF BUSINESS:
The principal business of the Company is manufacture and sale of cotton yarn and grey woven fabric. RWML production capacity consists of two main segments, Weaving and Spinning; both are ISO-9002 Certified for its quality. Today Reliance weaving Mills Limited is the 3rd largest weaving mill in Pakistan with modern and technologically advanced grieve weaving plant. The weaving units are situated at Multan and the Spinning unit at Rawalpindi.
. DEPARTMENTS

IN RELIANCE MILLS LTD:

Administration Department Accounts Department

Production department

VISION STATEMENT:
The company is interested to install complete textile finishing plant including bleaching, dyeing, mercerizing, calendaring, folding, printing plant in the existing weaving units at Multan to make it a complete composite unit, which can explore local and international market of high value products. The company would keep its emp0hasis on product and market diversification, values addition and cost effectiveness. We want to fully equip the company to play a meaningful role on the sustainable basis in the economic development of the country.

MISSION STATEMENT:
The mission of the company is to operate state of the art textile plants capable of producing yarn and fabrics.

CALCULATION OF RATIOS
LIQUIDITY RATIOS:
The firm ability to satisfy its short term obligation as they come due.

CURRENT RATIO :
A measure of liquidity calculated by firms current assets by its current liabilities. Its formula is given below: Current ratio Years Current ratio 2005 0.92 = Current assets Current liabilities 2006 0.94 2007 0.82 2008 0.84

Conclusion:
The above ratios show that the current ratio is increasing from 2005 to 2006 and after 2006 it is decreasing. In 2007 it is increasing as compared to 2006 which shows that the firm is in better liquidity position in 2007 as compared to previous year .the good current ratio is 1 0r greater than 1.

ACID TEST RATIO :

A measure of liquidity calculated by firms current assets minus inventories by its current liabilities. Its formula is given below:

Acid test ratio

Current assets - Inventories Current liabilities

years Acid test ratio

2005 0.37

2006 0.35

2007 0.31

2008 0.30

Conclusion:
From this ratio we can say that the firm is keeping large portion of inventory as current assets usually acid test ratio near 1.00 is recommended but this firms ratio below 1.00 which shows that the firm has large portion of inventory in current assets.

MARKETRATIOS:

PRICE EARNING RATIO:

It measures the amount that investors are willing to pay for each dollar of a firms earning. Its formula is given below: Price earning ratio = Market price per share Earning per share years Price earning ratio 2005 6.95 2006 5.17 2007 19.41 2008 (3.87)

Conclusion :
The higher the price earning ratio the greater the investor confidence so price earning ratio is good from 2005 to onward .but due to earning per share is negative in 2008 its price earning ratio gives negative result so it bad for investors to invest in it .

MARKET /BOOK RATIO :

It provides an assessment of how investors view the firms performance. Its formula is given below Market/ book ratio = Market price per share of common stock Book price per share of common stock

years Market/ book ratio

2005 0.9

2006 0.76

2007 0.71

2008 0.50

Conclusion :
The higher the market /book ratio the greater the investor confidence so market /book ratio ratio is declining from 2005 to 2008 .

PROFITABILITY RATIOS:
The efficiency of the firm can be analyzed through its profits.

GROSS PROFIT RATIO (%):

It measures the percentage of each sales dollar remaining after the firm has paid for its goods. Its formula is given below: Gross profit margin= sales- cost of good sold = Sales years 2005 2006 2007 Gross profit

2008

Gross profit ratio (%)

12.51

13.53

10.19

9.11

Conclusion:
The firms gross profit margin is increasing 2005 to 2006 which indicates that the firm is growing. But in 2007 and 2008 it shows decreasing trend so it may be loss in future

NET PROFIT RATIO (%):

It measures the percentage of each sales dollar remaining after the cost and expenses, including interest and preferred stock dividend its formula is given below: Net profit margin= = Earning available for common stock holder Sales

years Net profit ratio (%)

2005 4.66

2006 3.96

2007 0.94

2008 (2.90)

Conclusion:
The firms net profit margin is good 2005 and after 2006 it indicates that the firm is decreasing so in 2008 there is loss

EARNING PER SHARE :


The firm earning per share is generally of interest to present or prospective share holders and management. It formula is Earning per share = Earning available for common stock holder Number of shares of common stock outstanding years Earning per share 2005 3.89 2006 5.01 2007 1.04 2008 (3.26)

Conclusion:
The firms EPS from 2005 to 2007 is not very high but still positive but in 2008 EPS is very negative because net income decreasing very rapidly. Si it gives an alarm of companys bad condition

ACTIVITY RATIOS:
It measures the speed with which various accounts are converted into sales or cash inflows or out flows.

INVENTORY TURNOVER RATIO :


It measures the activity or liquidity, of a firms inventory .It is calculated by dividing sales by inventory Inventory turnover ratio = sales Inventory

years Inventory

2005 2.85

2006 3.72

2007 4.02

2008 2.98

turnover(Times)

Conclusion: The inventory turnover ratio is low in 2005 as compare to next years but in 2008 it is less as compared to 2006 and 2007 so it shows company less inventory turn over ratio in 2008

FIXED ASSET TURNOVER RATIO :

It is calculated by dividing sales by fixed assets Fixed asset turnover ratio = sales Total fixed assets

years fixed asset turnover

2005 1.80

2006 1.98

2007 1.83

2008 1.87

Conclusion:
This ratio shows how the firm is using fixed assets to generate sales. The firm fixed assets ratio is increasing 2005 t0 2006 which indicates the firm is using its fixed assets efficiently. But in 2007 it is declining as compared to 2006 and in 2008 it shows increasing trend .

TOTAL ASSET TURNOVER :

It indicates the efficiency with which the firm uses its asset to generate sales. It is calculated by dividing sales by total assets. Total asset turnover ratio = sales Total assets

years Net profit ratio (%)

2005 4.66

2006 3.96

2007 0.94

2008 (2.90)

Conclusion:
This ratio shows how the firm is using total assets to generate sales. The firm fixed assets ratio is good in 2005 after 2006 which indicates the firm is using its total assets not efficiently

CONCLUSION OF ALL RATIOS :


The firm liquidity ratios in all years less than 1. But still it is positive and there no consistency in current ratio and acid test ratio but from last year I conclude that firm liquidity ratio is decreasing so it is not good for investors and firm. The firm market ratios is positive in 2005 to 2007 but in 2008 it is going to negative so this is not competing in market so it is not better signal for firm to achieve their target The firm profitability ratio is also declining from 2005 to 2007 but in 2008 it is totally negative so this thing shows that firms operating cost and cost is very high as compare to its sales. The firm activity ratio is also declining from previous years so it shows that firm do not use it assets efficiently thats why firm bearing loss which is shown in 2008 income statements

COMMENTS AND SUGGESSIONS:

After a short careful analysis, I come to know that the financial position of the co. is not much better than the other weaving units in textile industry. There is tough competition in textile exports. Buyers are demanding quality and economy in their purchase contracts. So it will necessary for company to produce good quality for gaining profit rather than bearing loss. RWML is saving a huge cost in the field of marketing because its Chief Executive is extra vigilant. In this respect co. is saving more of less. RWML has no marketing department to promote and introduce its products in international market. There is a crucial need for having disciplined and coordinated program of marketing to boost up the exports. There is a need of searching the new customers in international market. So that they can enhance their sale volume because of going to its expansion as double capacity.