company background (1)
TRANSCRIPT
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Company Background
Square Textile Ltd.
Overview:
Square Textile Ltd. started its journey by establishing the first unit in 1997. One year later the
second unit was established. Square Textile is a subsidiary company of Square Group. The
company was incorporated as a public limited company in the year of 1994. The operation was
started in 1997. It was enlisted in Dhaka Stock Exchange and Chittagong Stock Exchange in
2002. Within a very short time of span the company achieved some significant success. Square
Textile receives Oeko-Tex standard 100 and ISO-9002 certificates in the year 2000. Authorized
capital of the company is tk. 1000 million. Its paid up capital is tk. 251.90 million. More than
1,223 employees are working in this organization. The business lines of Square Textiles Limitedare manufacturing and marketing of yarn. The factory is located in Saradagong, Kashimpur,
Gazipur, Bangladesh. Its office is located at Uttara in Dhaka.
Product and Services:
As stated earlier the business line of the company is manufacturing and marketing of yarn. It
manufactures:
100% Cotton Ring Span Yarn For Hosiery 100% Cotton OE Rotor Yarn For Hosiery Knit Fabrics For 100% export oriented readymade garments industry
It also performs the following services:
Dying and post Mercerization Fabric Dying
The final output is marketwise by Square Fashion Ltd. The Square Fashions Ltd. provides:
Readymade Knit Apparels like T-shirts, Polo shirts, Tank tops, pajamas, Sport wear,Mens and Ladies fashion wear, kids wear etc.
HR Textile Mills Ltd.
Overview:
HR Textile Mills is a vertical public limited company engaged in manufacturing of knitwear
products. It is a part of the famous Pride Group, Bangladesh. Pride Group is a vertical textile
group engaged in the manufacture and export of knitwear products to the European Union, the
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USA and Canada. The group is also engaged in production and marketing of saris, kids wear,
ladies' wear, home furnishing and other textile products through a chain of 66 retail outlets
spread all over Bangladesh. As of date, Pride Group consists of H.R. Textiles Mills Limited,
Fashion Knit Garments Limited, Dacca Textiles Limited, Pride Limited, Urban Truth and
MODA. It was established in 1958 by Halimur Rahman. H.R. Textiles Mills is a Lycra assured
factory. It is one of the pioneer composite knitwear companies in Bangladesh. The facilities have
a complete North-American and European state-of-the-art setup, thoroughly engineered, and are
capable of manufacturing a whole range of knit fabrics and Garments
Theoretical Review
Ratio Analysis
1. Liquidity Ratios: Ratio that relates the firms cash and other assets to its current liabilities.
A) Current Ratio
Company Name Square Textile HR textile
Year 2011 2012 2011 2012
Current Assets 6,371,106,117 5,450,698,872 714,793,046 807,232,633
Current Liabilities 4,034,826,920 2,584,353,232 708,522,756 771,932,204
Current Ratio 1.58 2.11 1.01 1.05
0
0.5
1
1.5
2
2.5
2011 2012
Current Ratio
Square Textile
HR textile
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Comment:Square textiles current ratio in 2011 was 1.58 and in 2012 it increased to 2.11. In
2012 companys current liabilities decreased in large amount thats why current ratio increased.
On the other hand HR Textiles Current ratio increased from 1.01 to 1.05 at the same time due to
current assets increased more than current liabilities.
B) Quick Ratio
Company Name Square Textile HR textile
Year 2011 2012 2011 2012
Current Assets 6,371,106,117 5,450,698,872 714,793,046 807,232,633
Current Liabilities 4,034,826,920 2,584,353,232 708,522,756 771,932,204
Inventories 1,902,471,712 1,651,754,805 78,500,199 125,824,453
Current Assets-Inventories 4,468,634,405 3,798,944,067 636,292,847 681,408,180
Quick Ratio 1.11 1.47 0.89 0.88
Comment: In year 2011 Square Textiles quick ratio was 1.11. In year 2012 it increased to 1.47 .
On the other hand, at the same time period HR Textiles quick ratio decreased from 0.89 to 0.88.
0
0.5
1
1.5
2011 2012
Quick Ratio
Square Textile
HR textile
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2. Asset Management Ratios: Ratios that measures how effectively a firm is managing its
assets.
A) Inventory Turnover Ratio
Company Name Square Textile HR textile
Year 2011 2012 2011 2012
Cost Of Goods Sold 7,942,084,250 7,357,660,293 1,553,115,036 1,426,244,288
Inventories 1,902,471,712 1,651,754,805 78,500,199 125,824,453
Inventory Turnover Ratio 4.17 4.45 19.78 11.34
Comment: In 2012 the ratio of Square Textiles is in higher position 4.45 that was 4.17 in 2011.
This suggests that Square textile was holding excessive stocks of inventory in 2011; on the other
hand HR Textiles ratio is decreased from 19.78 to 11.34 that mean HR textile is holding
excessive stocks of inventory in 2012. Excess stocks are, of course, unproductive and represent
an investment with a low or zero rate of return.
B) Fixed asset turnover ratio=
Company Name Square Textile HR textile
Year 2011 2012 2011 2012
Sales 9,391,822,689 8,741,773,216 1,787,093,874 1,618,091,942
Net Fixed Asset 2,483,823,461 2,631,811,191 439,916,150 395,945,629
Fixed Asset Turnover Ratio 3.78 3.32 4.06 4.09
0
5
10
15
20
2011 2012
Inventory Turnover Ratio
Square Textile
HR textile
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Comment:This ratio measures how efficient the firm is in utilizing its fixed assets to generate
sale. The higher the ratio the better it is. In 2012 the ratio of Square Textiles is 3.32. It was
higher 3.78 in 2011. At the same time HR Textiles ratio increased from 4.06 to 4.09.
C) Total asset turnover ratio =
Company Name Square Textile HR textile
Year 2011 2012 2011 2012
Sales 9,391,822,689 8,741,773,216 1,787,093,874 1,618,091,942
Total Assets 8,854,929,578 8,082,510,063 1,154,709,196 1,203,178,262
Total Assets Turnover Ratio 1.06 1.08 1.55 1.34
0
1
2
3
4
5
2011 2012
Fixed Asset Turnover Ratio
Square Textile
HR textile
0
0.5
1
1.5
2
2011 2012
Total Assets Turnover Ratio
Square Textile
HR textile
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Comment:Square textiles total asset turnover ratio is increased from 1.06 (2011) to 1.08 in
2012 and HR Textiles ratio decreased from 1.55 to 1.34.To become more efficient, sales should
be increased, some assets should be disposed of, or a combination of these steps should be taken.
3. Debt Management Ratios:Analyze the companys use of debt.
A) Debt to Asset Ratio=
x 100
Company Name Square Textile HR textile
Year 2011 2012 2011 2012
Total Debt 4,640,065,885 5,314,697,645 828,374,597 825,775,140
Total Assets 8,854,929,578 8,082,510,063 1,154,709,196 1,203,178,262
Debt-Asset Ratio 0.5240 0.6576 0.7174 0.6863
Debt Ratio (%) 52.40 65.76 71,74 68.63
Comment: From debt ratio analysis we can measure of the percentage of the firms asset
financed by creditors. Creditors prefer low debt ratios because the lower the ratio, the greater the
cushion against creditors losses in the event of liquidation. From the analysis we can see that,
0
10
20
30
40
50
60
70
80
2011 2012
Debt Ratio (%)
Square Textile
HR textile
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both Square textiles and HR Textiles mills ltd. has more than 50% of debt. So, it is not a good
sign for the companies.
B) Time interest earned ratio =
Company Name Square Textile HR textile
Year 2011 2012 2011 2012
EBIT 1,024,874,985 1,035,048,961 71,016,755 65,055,106
Interest Earned 48,803,570 49,288,046 3,381,750 3,097,862
Times Interest Earned Ratio 21.00 20.99 21.00 21.00
Comment:It measures the extent to which earnings before interest and taxes (EBIT), also called
operating income, can decline before the firm is unable to meet its annual interest costs. Square
textiles Times-interest-earned ratios of two years are 21.00 and 20.99 percent respectively in
year 2011 and 2012, and HR Textiles21.00 both years, which indicate companies, are covering
its interest charges by a high margin of safety.
C) Debt to Equity Ratio=
20.984
20.986
20.988
20.99
20.992
20.994
20.996
20.998
21
2011 2012
Times Interest Earned Ratio
Square Textile
HR textile
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Company Name Square Textile HR textile
Year 2011 2012 2011 2012
Total Debt 4,640,065,885 5,314,697,645 828,374,597 825,775,140
Total Equity 4,635,087,878 5,308,232,046 326,334,599 377,403,122
Debt-Equity Ratio 1.001 1.0012 2.54 2.19
Comment:
From the year 2011 to 2012, Square Textilesdebt / equity ratio remain almost unchanged 1.001
times of equity but HR Textilesdebt / equity ratio fell by a significant percentage, showing that
the firm is achieving its desired capital structure by reducing its level of debt. In 2011, debt was
2.54 times of equity, which fell to 2.19 times in 2012. Overall, both companies should reduce the
gap between debt and equity of the firm.
4. Profitability Ratios: Ratios showing the effect of liquidity, asset management and debt
management on operating results.
A) Gross profit ratio=
x 100
Company Name Square Textile HR textile
Year 2011 2012 2011 2012
Gross Profit 1,449,738,439 1,366,112,923 261,344,529 240,413,296
Sales 9,391,822,689 8,741,773,216 1,787,093,874 1,618,091,942
Gross Profit Ratio 0.1544 0.1562 0.1462 0.1486
Gross profit Ratio (%) 15.44 15.62 14.62 14.86
0
0.5
1
1.5
2
2.5
3
2011 2012
Debt to Equity Ratio
Square Textile
HR textile
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Comment:It measures the percentage of each sales unit remaining after the firm has paid for its
goods. The higher the ratio, the better it is. Here both companies gross profit margin ratio was
lower in 2011 relatively year 2012. For Square Textiles it increases from 15.44 to 15.62 and for
HR Textiles it increases from 14.62 to 14.86.
B) Net profit margin =
x100
Company Name Square Textile HR textile
Year 2011 2012 2011 2012
Net Income 824,830,674 828,993,757 57,489,754 52,663,657Sales 9,391,822,689 8,741,773,216 1,787,093,874 1,618,091,942
Net Profit Margin On Sales 0.0878 0.0948 0.0322 0.0325
Net Profit Margin On Sales (%) 8.78 9.48 3.22 3.25
14
14.5
15
15.5
16
2011 2012
Gross Profit Ratio (%)
Square Textile
HR textile
0
2
4
6
810
2011 2012
Net Profit Margin on Sales (%)
Square Textile
HR textile
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Comment:This ratio measures the amount of profit generated by total sales and net income /
loss. Higher ratio represents better position. The Net profit ratios of Square textile in 2012 is
higher than 2011. It indicates the company has higher selling to generate higher profit.
C) Return on Total asset (ROA) =
x100
Company Name Square Textile HR textile
Year 2011 2012 2011 2012
Net Income 824,830,674 828,993,757 57,489,754 52,663,657
Total Assets 8,854,929,578 8,082,510,063 1,154,709,196 1,203,178,262Return On Total Assets 0.0931 0.1026 0.0498 0.0438
Return On Total Assets (%) 9.31 10.26 4.98 4.38
Comment:This ratio measures the efficiency of a firm to use its assets to generate revenue and a
higher ratio indicates better position. For Square textiles mills ratio was low in 2011 and higher
in 2012 indicates the managements efficiency to utilize firms assets to generate profit. HR
textile mills decreasing ratio trend indicates the managements inefficiency to utilize firms
assets to generate profit.
0
2
4
6
8
10
12
2011 2012
Return on Total Assets (%)
Square Textile
HR textile
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D) Return on equity (ROE) =
x100
Company Name
Square Textile HR textile
Year 2011 2012 2011 2012Net income 824,830,674 828,993,757 57,489,754 52,663,657
Common Equity 4,635,087,878 5,308,232,046 326,334,599 377,403,122
Return On Common Equity 0.1779 0.1562 0.1762 0.1395
Return On Common Equity (%) 17.79 15.62 17.62 13.95
Comment:This ratio measures the return on total stockholders equity and excludes debt in the
dominator and uses either pretax income or net income. Higher the ratio is the better for the firm.
However both HR and Square textiles mills Ltd has lower ROE in 2012 than in 2011.
5.Market Value Ratios: Ratios that relate the firms stock price to its earnings and book vaue
per share.
A) Earning Per Share(EPS)=
0
5
10
15
20
2011 2012
Return on Common Equity (%)
Square Textile
HR textile
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Company Name Square Textile HR textile
Year 2011 2012 2011 2012
Net income 824,830,674 828,993,757 57,489,754 52,663,657
Common Shares Outstanding 97,405,993 116,887,192 22,000,000 25,300,000
Earnings Per Share 8.46 7.09 2.61 2.08
Comment: This ratio shows earning per share available to the shareholders. For both Square
Textiles and HR Textilesthe EPS is decreased in 2012, but Year 2011 had higher Earning per
Share. It is not in a good condition.
B) Price/Earning (P/E) Ratio =
Company Name Square Textile HR textile
Year 2011 2012 2011 2012
Market Price Per Share 111.20 102.80 33.40 34.90
EPS 8.46 7.09 2.61 2.08
Price Earnings Ratio 13.14 14.49 12.79 16.78
Square Textile
HR textile
0
2
4
6
8
10
2011 2012
Earnings Per Share
Square Textile
HR textile
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Comment: The P/E ratio measures the amount that investors are willing to pay for each unit offirms earnings. The level of this ratio indicates the degree of confidence that investors have in
the firms future performance. The higher the P/E ratio indicate the greater the investor
confidence. Both companies price earnings ratio was in poor condition in 2011. In 2012 P/E ratio
increases to a significant level.
CAPITAL STRUCTURE
Company Name Square Textile HR textile
Year 2011 2012 2011 2012
Total Assets(Tk) 8,854,929,578 8,082,510,063
1,154,709,196
1,203,178,262
Total Debt (Tk) 4,640,065,885 5,314,697,64
5
828,374,597 825,775,140
Total Equity (Tk) 4,635,087,878 5,308,232,046
326,334,599 377,403,122
Debt to Asset Ratio (%) 52.40 65.76 71.74 68.63
Debt to Equity Ratio 1.001 1.0012 2.54 2.19
Market Price per
Share(Tk)
111.20 102.80 33.40 34.90
Earnings Per Share (Tk) 8.46 7.09 2.61 2.08
Square Textile
HR textile
0
5
10
15
20
2011 2012
Price Earning Ratio
Square Textile
HR textile
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Capital Structureis the combination of debt and equity that a firm uses to finance its assets or
investments. The main components of capital structure are Debt to Asset ratio and Debt to Equity
ratio.
Debt to Asset Ratio: In 2011, Square Textiles 52.40% of its assets were financed by debt,
which increased to 65.76% in 2012. The trend is indicating that the company is increasing its
level of debt. On the other hand in 2011, HR Textiles71.74% of its assets were financed by
debt, which decreased to 68.63% in 2012. The trend is indicating that the company is decreasing
its level of debt.
Debt / Equity Ratio: From the year 2011 to 2012, Square Textilesdebt / equity ratio remain
almost unchanged 1.001 times of equity but HR Textilesdebt / equity ratio fell by a significant
0
2,000,000,000
4,000,000,000
6,000,000,000
8,000,000,000
10,000,000,000
Total Assets(Tk) Total Debt (Tk) Total Equity (Tk)
Capital Structure of Square Textile
2011
2012
0
500,000,000
1,000,000,000
1,500,000,000
Total Assets(Tk) Total Debt (Tk) Total Equity (Tk)
Capital Structure of H R Textile
2011
2012
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percentage, showing that the firm is achieving its desired capital structure by reducing its level of
debt. In 2011, debt was 2.54 times of equity, which fell to 2.19 times in 2012. Overall, both
companies should reduce the gap between debt and equity of the firm.
Effect of Capital Structure on Market Price of Share
The market price of shares of Square textile Ltd. is in a falling tends in these two years but HR
textile Ltd. is in a rising tends in these two years. From 2011 to 2012 there was sharp rise in the
market price of HR textile, whereas there was a sharp fall in the market price of Square textile,
which indicates that reduction of the debt burden is making firm more attractive to the investors.
So companies should continue with their debt reduction strategy until they reach their desired
level of debt / equity.
Recommendation:
Square textiles and HR textiles earnings per share in 2012 is higher indicating good return for
the shareholders from high net income of the company. But companies also have to keep in mind
that all the profit cannot be distributed to shareholders but save it for future. It is termed as
Retained Profits. The net income after tax and interest should be reserved for future benefits.
Price/Earnings ratio holds a huge gap compared to its standard. This indicates high risk for the
firm. The increase in the ratio was lower and maintains a fixed structure.HR also should focus on
the market price. Till 2011 the market price of share was constant but this would not last. Also
companies are not meeting its standard ratio which may also prove risky for any further future
growth prospects. This would fail to attract investors and Square textile and HR textile should
follow certain strategies to reach its standard ratio. Firms should be enough successful so that
there is higher growth possibilities. The risk-averse investors would be unlikely to invest in these
shares
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Conclusion
The profitability situation of both Square textile and HR textile are not so good. They need a lot
of recovery. They need to develop their strategies and focus more on improving net profits, high
sales and ensure high return on asset and equity. Square textile and HR textile are not in a sound
liquid position where they are weak in meeting their current obligations. There is a need for
improving the liquid assets if companies have to run debt-free. Both firms should consider in
managing debts in such a way that does not put an obligation rather becomes easier through
increasing sales, issue of stocks etc. Overall company should try maintaining a good condition so
that it attracts more investors from their high returns for shareholders.
Textile is one of the oldest and most prolific industries in Bangladesh. Bangladesh is one of the
leading exporters of ready-made garments in the world and earning nearly 76% of its foreigncurrency through exporting textiles and ready-made garments. Bangladesh is now second largest
readymade garments manufacturer after China, by the next five years Bangladesh will become
largest readymade garments manufacturer but due to accident the foreign country does not want
to import our country. So that reason Bangladesh faces economic crises.
The current position of textile industry is very poor. Most of the garment factories worker faces
safety problem. Lack of safety many workers died by many accident. Like Rana plaza collapsed,
Tazrin garments fire. So government should concern about this.
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Square textiles weighted average cost of capital:
2011
WACC=Debt ratio*cost of debt+ (1-debt ratio)*cost of equity
=.5240*15.3+ (1-.5240)*9.42
=82.47
2012
WACC=Debt ratio*cost of debt+ (1-debt ratio)*cost of equity
=.6576*15.8+ (1-.6576)*9.67
=103.78
H.R textiles weighted average cost of capital:
2011
WACC=Debt ratio*cost of debt+ (1-debt ratio)*cost of equity
=.7174*13.5+ (1-.7174)*10.5
=104.61
2012
WACC=Debt ratio*cost of debt+ (1-debt ratio)*cost of equity
=.6863*14.1+ (1-.6863)*10.61
=106.03
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Questionnaires:
1. To which company you would extend short-term credit?Ans: For short term credit we would like to extend H.R Textiles because in 2008 &
2009 H.R Textiles paid dividend 66tk per share. There is no growth but they
maintain a consistency, but in 2010 the company failed to keep the consistency &
reduced the amount compared to the previous year. The same indications also
happen in the last 2011 & 2012. In this scenario the growth rate is become low.
Current market price is 41.5tk, in 2012 market price is 34.90Tk & 2011 market
price is 33.40tk. So the current market value is better than the previous year.
Liquidity factors are strong & risk factors are very small, so we can go for short
term credit for this company.
2. To which company you would extend long-term credit?Ans: For Long-term credit we would like to extend Square Textiles Ltd. Square
textile is announcing dividend in last 5 years. But the amount of dividend
reduces every year except 2012. However the dividend was decreased in a
marginal amount. Increase no. of shares is one of the reasons behind lower
amount of compared to that of previous year. The company increased the no. of
shares for strengthening their paid up capital & expanding the business. The
paid up capital become twice during the last 3 years through bonus issuance. On
the other hand company provide dividend to their shareholders. It was only
possible for doing flourishing business in the industry. As a result in 2012 the
company offered more dividend than the previous year. They have good
liquidity, strong brand image, diversified product line, regular repayment,history & professional management team etc. So we can extend long-term
credit for this company.
3. To which companys manager you would awardperformance bonus?
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Ans: From our report analysis we see that Square textiles Ltd
maintain consistency in their industry. The increased their no. of
share than the other competitors. All these happen because their
managers are more efficient so they deserve performance bonus.
There is no doubt that pay-for-performance can be an important
contributor to organizational effectiveness. It can be a significant
motivator of performance and can attract and retain the best
performers. But in order to accomplish these important
objectives, significant amounts of pay need to be tied closely to
performers. When individuals perform well, their pay must go
up, and when they perform poorly, their pay must stay the same
or go down.
4. Which companys stock you will buy?Ans: Studying this two companys market condition we see that
Square textiles maintain consistency in the market. So we would
like buy Square textiles stock.
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An Assignment
On
SQUARE TEXTILS LTD & H.R TEXTILS LTD
Submitted To:
Dr. Sarwar Uddin Ahmed
School of Business
Independent University, Bangladesh (IUB)
Submitted By:
Course Name:
Course ID No: MBA
Date of Submission: 7thApril, 2014
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LETTER OF TRANSMITTAL
7th
April, 2014
To
Dr. Sarwar Uddin Ahmed
Instructor
School of Business
Independent University Bangladesh
Subject: - Submission of the report on Square Textiles Ltd & H.R Textiles Ltd.
Dear Sir,
With due respect and humble submission, i, would like to inform you that, there is the
dissertation report on Square Textiles Ltd.; which was assigned to me to submit under the
program. It was a great pleasure for me to do the assigned job. I made every endeavor to prepare
this report accurate & tried my level best to accumulate relevant and insightful information. This
report really helps me to gather practical and theoretical knowledge in Human Resource
Management.
In finally, i am very grateful to you for your kind and generous guidance to make the report
successful.
Sincerely Yours,
Master of Business Administration
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Acknowledgement
Many people have contributed in a variety of ways in the preparation of this Assignment.
Without the help of them, it was impossible to finish our Assignment.
At first, all praise to almighty god. We are thankful to our almighty god who gives us strength to
complete this Assignment.
Then, we would like to pay gratitude and want to give especial thanks to our respected course
faculty for helping us in all ways to complete us report. We are highly pleased for giving us such
an opportunity.
Finally, thanks to our group members for their co-operation.