FINANCIAL ACCOUNTING

II
TERM PROJECT

Dr. Nayyar Zaidi

Submitted by:
Osama Fayyaz Ahmad
15U00054
BSc II Sec A
Table of Contents

Contents
ELLCOT SPINNING MILLS (Representative Company) ................................................................................... 4
Background ................................................................................................................................................... 4
Balance Sheet................................................................................................................................................ 5
Total Equity and Liabilities ........................................................................................................................ 5
Total Assets ............................................................................................................................................... 6
Profit and Loss Statement ............................................................................................................................. 7
Horizontal Analysis........................................................................................................................................ 8
Balance Sheet............................................................................................................................................ 8
Total Equity and Liabilities .................................................................................................................... 8
Assets ........................................................................................................................................................ 9
Profit and Loss Account .......................................................................................................................... 10
Vertical Analysis .......................................................................................................................................... 11
Balance Sheet.......................................................................................................................................... 11
Total Equity and Liabilities .................................................................................................................. 11
Assets .................................................................................................................................................. 12
Profit And Loss Account .......................................................................................................................... 13
Solvency Analysis ........................................................................................................................................ 13
Debt Analysis............................................................................................................................................... 17
Profitability Analysis .................................................................................................................................. 17
Faisal Spinning Mills (Parent Company) ...................................................................................................... 20
Background ................................................................................................................................................. 20
Balance Sheet.............................................................................................................................................. 21
Total Equity and Liabilities ...................................................................................................................... 21
Total Assets ............................................................................................................................................. 22
Profit and Loss Statement ........................................................................................................................... 23
Horizontal Analysis...................................................................................................................................... 24
Balance Sheet.......................................................................................................................................... 24
Total Equity and Liabilities ...................................................................................................................... 24
Assets ...................................................................................................................................................... 25
Profit and Loss Statement ....................................................................................................................... 26
Vertical Analysis .......................................................................................................................................... 27
Balance Sheet Total Equity and Liabilities.............................................................................................. 27
Assets ...................................................................................................................................................... 28
Profit and Loss Statement ....................................................................................................................... 29
Solvency Analysis ........................................................................................................................................ 30
Debt Analysis............................................................................................................................................... 34
Profitability Analysis.................................................................................................................................... 35
The Intercompany Analysis ......................................................................................................................... 37
ELLCOT SPINNING MILLS (Representative Company)

Background
Established in 1991, Ellcot Spinning Mills Limited operates state of the art spinning machinery
comprising of 54,528 Spindles with related process machines. The company produces high
quality yarns of 100% cotton, synthetic, and polyester / cotton blends. Both carded and combed
Yarns for weaving and knitting application are produced in many blends. Ellcot Spinning Mills
Limited high quality yarns are used to produce apparel fabrics, sheeting, toweling, canvas, and
Knitted products.
VISION
To be a dynamic, profitable and growth oriented company.
Mission:
To be the leading producer of cotton and blended yarn for knitting and weaving for local and
international customers manufacturing well-known textile brands.
To strive for excellence and sustain position as a preferred supplier for yarn with a customer
focused strategy.
Continuous enhancement in the quality objectives for customer satisfaction and operational
efficiencies.
To achieve the comparative advantage by employing latest technologies for enhancing the
efficiency and productivity.
To build enduring relationship with our suppliers by giving them fair return on their products and
services.
To provide a professional, open and participative environment to our dedicated employees for
developing their potential and team performance.
To give consistent financial returns to the shareholders on their investments.
To be responsible to the society, employees and communities in which we operate by initiating
health care, education and social welfare activities.
Balance Sheet
Total Equity and Liabilities
Total Assets
Profit and Loss Statement
Horizontal Analysis
Balance Sheet
Total Equity and Liabilities

Total Equity and Liabilities from 2014 to 2015 increased and there was a percentage change of
only 0.46. In 2015-2016, there was a massive increase in the equity and liabilities which is
around 20%. But breaking down, we come to know that in 2014-2015, Total Equity decreased by
1.77%. Major contribution was because of the Liabilities in both the years as they increased by
46% in 2015-2016. Of which the Current Liabilities formed a large chunk at around 57%
percentage change.
Assets

The Total Assets from 2014-2015 only increased by 0.47% on the other hand from the year 2015
to 2016, there was a large increase in Total Assets at around 20.72% which is same as the total
equity and liabilities because it satisfies the account equation of Assets = Owners Equity +
Liabilities. Total Non-Current Assets increased by 18% in 2015-2016 whereas Total Current
Assets increased by 22.17% in 2015-2016. The percentage increase in 2014-15 was quite low.
Profit and Loss Account

Profit and Loss Account shows that the Net Sales has decreased from 2014-2016. The decrease
in the year 2014-2015 was greater (19.63%) as compared to 2015-2016 (7.86%). The Gross
Profit also decreased in all 3 years. Even though the company earned profits in all 3 years, but
actually they decreased from previous years as the Net sales decreased.
Vertical Analysis
Balance Sheet
Total Equity and Liabilities

The Vertical Analysis shows that, Liabilities and Total Equity are almost of the same percentage
in 2016. But in 2015 and 2014 Total Equity was greater than the Liabilities. In Total Equity
Accumulated Profit had the biggest percentage in all the 3 years. Whereas in Liabilities, Long-
Term Finances formed the major chunk in all 3 years.
In Total Equity, Capital Reserve had the lowest composition, on the other hand, In Liabilities.
Liabilities against assets subject to finance lease had the lowest composition in all the 3 years.
Assets

Fixed Assets had a larger composition in all the 3 years. Whereas the long-term deposits were
really small. Moving on to the Current Assets, Stock in Trade (inventory) has the highest
composition in all 3 years. And it has decreased from 2014-2016. Whereas the Fixed Assets has
remained fairly stagnant.
Profit And Loss Account

Solvency Analysis
Working Capital

The ability of a business to meet its financial debts is called solvency. Solvency analysis focuses
on the ability of a business to pay or otherwise satisfy its current and noncurrent liabilities. Using
measures to assess a businesss ability to pay its current liabilities is called current position
analysis. This analysis is used by short term investors to see how liquid the business is.
1. Working Capital: The excess of current assets over current liabilities. It evaluates a
companys ability to meet currently maturing debts.
Formula: Current Assets Current Liabilities
Working
Capital
2014 2015 2016
Current Assets 1,347,836,573 1,350,263,173 1,649,628,054
Current Liabilities 506,375,067 992,835,261 793,161,667
Working Capital 841,461,506 357,427,912 856,466,387

The working capital for ELLCOTT is positive which means that the business can meet
their currently maturing debts in all 3 years.
 2. Current Ratio:
Also measures the ability of a firm to meet its short term liabilities.

Formula:

Current Ratio
2014 2015 2016
Current Assets 1,347,836,573 1,350,263,173 1,649,628,054
Current Liabilities 506,375,067 992,835,261 793,161,667
Current Ratio 2.66173566 1.36000727 2.079813136

The current ratio of the company has remained more than 1 for all 3 years. It means that
the business can pay all its short term liabilities. The ratio was lower in 2015 but
remained above 2 in 2016 and 2014.

3. Quick/ Acid Test Ratio:

This measures the instant debt paying ability of a firm by excluding Inventory from the
current Assets. All Current Assets besides Inventory can be quickly converted to cash.
Hence the name Quick Ratio.

Formula:

Quick/ Acid Test Ratio
2014 2015 2016
Current Assets 1,347,836,573 1,350,263,173 1,649,628,054
Current Liabilities 506,375,067 992,835,261 793,161,667
Stock in trade 738,170,879 668,865,762 768,810,236
Acid Test Ratio 1.203980476 0.686314677 1.110514861

This ratio is above than 1 for 2014 and 2016. But the ratio remained lower than 1 during
the year of 2015

4. Accounts Receivables Turnover:

It is the number of times per year that a business collects its average accounts receivable.
The ratio is intended to evaluate the ability of a company to efficiently issue credit to its
customers and collect funds from them in a timely manner.

Formula:

Accounts Receivables
Turnover
2016 2015 2014
 Total Accounts Receivables 5487906 725032 787532
Average Account Receivables 3106469 756282 16582455.5
Net Sales 4,227,909,980 4,588,787,945 5,709,483,886
Account Receivable Turnover 24.1 32.7 42.8

The turnover has decreased over the years. It is highest in year 2016. Which is not a good
thing for a business. Highest turnover was in the year 2014, which is a good thing, high
amount reflects that the business is able to collect the receivables rapidly.

5. Number of days sales in receivables:

An estimate of the length of time (in days) the accounts receivable have been
outstanding. Can estimate efficiency on the collection of debts the firm has.

Formula:

Number of days sales in receivables

2016 2015 2014
Total Accounts Receivables 5487906 725032 787532
Average Account Receivables 3106469 756282 16582455.5
Net Sales 4,227,909,980 4,588,787,945 5,709,483,886
Average Daily Sales 11583315.01 12572021.77 15642421.61
No of Days sales in receivables 16.27 12.33 16.06

The number of days in sales receivables has increased then decreased over the 3 years from 2014
to 2016. It is the highest in 2014 and the lowest in 2015. The decrease in this is a good thing for a
business as it means they are collecting their receivables efficiently.
6. Inventory turnover:
It is the relationship between the volume of goods sold and inventory. It seeks to measure
the efficiency of the firm in managing of its Inventory.

Formula:

2016 2015 2014

Cost of Goods Sold 3,982,624,034 4,296,796,234 5,115,295,745
Total Inventory 738,170,879 668,865,762 665,747,041
Average Inventory 703,518,321 667,306,402 681,833,619
Inventory Turnover 5.661009696 6.439015457 7.502263899

The ratio is 7.502 in 2014 meaning that inventory is converted to sales about 7 times each
year. It later falls to 6.43 in 2015 which is not a good thing for company. It means that the
sales are not as frequent as for 2014. They again decrease in 2016.
 7. Number of days sales in inventory:
This measures the amount of days that it takes for the inventory to be converted into
sales. A lower ratio is preferred.

Formula:

2016 2015 2014

Cost of Goods Sold 3,982,624,034 4,296,796,234 5,115,295,745
Total Inventory 738,170,879 668,865,762 665,747,041
Average Inventory 703,518,321 667,306,402 681,833,619
Average Daily Cost of Goods Sold 10911298.72 11772044.48 14014508.89
Number of days sales in inventory 64.47613051 56.6856847 48.65198091

In 2014 it takes the inventory about 48 days to be converted to sales but in 2015 it is
about 56 and 64 in 2016. It is taking longer for the inventory to be converted to sales in
recent years. This can be due to poor managing of the inventory and poor sales. This ratio
further confirms the results of the previous ratio inventory turnover.

8. Ratio of fixed assets to long-term liabilities:

It basically measures the margin of safety of the noteholders or bondholders. It also
shows if the business is capable of borrowing additional funds in the long term.

Formula:

Ratio of fixed assets to long-term liabilities

2016 2015 2014
Long term assets 1,220,667,574 1,027,259,006 1,018,613,429
Long term Liabilities 658,652,262 489,922,118 452,532,243
Ratio of fixed assets to long-term liabilities 1.853280774 2.096780219 2.250919011

The ratio is above 1 meaning that the firm is able to meet its long-term liabilities
9. Liabilities to stockholders equity:
This shows the relationship between the total claims of the creditors and owners. It
measures the margin of safety for creditors.

Formula:

Liabilities to stockholders equity

2016 2015 2014
Total Liabilities 1,451,813,929 992,835,261 958,907,310
Total Stock holder's equity 1,418,481,699 1,384,686,918 1,407,542,692
Liabilities to stockholders equity 1.023498527 0.717010646 0.681263393
 The ratio is low for all the 3 years.

Debt Analysis
10. Number of times Interest charges are earned:
It is used to assess the risk to debtholders in terms of number of times interest charges
were earned.
( +)
Formula:

Number of times Interest charges are earned

2016 2015 2014
Amount available to meet interest charges 110,352,634 150,504,961 445,410,215
Interest Expense 50,863,109 60,298,606 83,975,010
Number of times Interest charges are earned 2.169600643 2.495994037 5.304080523

In all the 3 years the ratio is higher than 1 which means that the company is able to meet
its debt obligations. In all 3 years the company is able to pay interest expense.

Profitability Analysis
11. Net Sales to Assets:
Measures how effectively a firm utilizes its Assets. This does not include long term
investments of a firm and they are subtracted from the Assets before taking Average.

Formula:

Net Sales to Assets

2016 2015 2014
Net Sales 4,227,909,980 4,588,787,945 5,709,483,886
Total assets(excluding long term deposits) 2,863,204,928 2,370,431,479 2,359,359,302
Average Assets 2,616,818,204 2,364,895,391 2,252,685,248
Net Sales to Assets 1.615668209 1.940376713 2.534523583

The ratios are around and above 1 for all 3 years meaning that assets were used
effectively to yield a net income that was equal to the average assets.

12. Rate Earned on Total Assets:

It is a measure of the profitability of total assets, without considering how the assets are
financed. Therefore the interest expense has to be added back to the income. This also
does not exclude the Long term Investments.
+
Formula:

 Rate Earned on Total Assets
2016 2015 2014
Net income 71,164,545 54,298,728 297,570,685
Interest Expense 50,863,109 60,298,606 83,975,010
Total Assets 2,870,295,628 2,377,522,179 2,366,450,002
Average Assets 2,623,908,904 2,371,986,091 2,259,775,948
Rate Earned on Total Assets 0.05 0.05 0.17

This ratio is quite low. This shows that the profitability of the total assets are low.
13. Rate Earned on Stockholders Equity: It is a measure of the rate of income earned on
the amount invested by the stockholders. Basically assesses the profitability of the
Stockholders Investment.

Formula:

Rate Earned on Stockholders Equity

2016 2015 2014
Net Income 71,164,545 54,298,728 297,570,685
Total Stockholder's Equity 1,418,481,699 1,384,686,918 1,407,542,692
Average Stockholder's Equity 1,401,584,309 1,396,114,805 1313382637
Rate Earned on Stockholders Equity 0.05 0.04 0.23

This basically reveals how much profit a company generates with the money shareholders
have invested. The company is not performing well as the return to the shareholders has
remained fairly low throughout the years

14. Leverage:
Difference between rate earned on stockholders equity and rate earned on assets.
Formula:

Leverage
2016 2015 2014
Rate Earned on Total Assets 0.05 0.05 0.17
Rate Earned on Stockholders Equity 0.05 0.04 0.23
Leverage 0.00 -0.01 0.06

15. Earnings per share ratio:

The share of each share in the net income is looked at.

Formula:

 Earnings per share ratio
2016 2015 2014
Number of Shares 109,500,00 10950000 10950000
Net Income 71,164,545 54,298,728 297,570,685
Earnings per share ratio 6.50 4.96 27.18

16. Price to Earnings ratio:

Measures the return to the shareholders relative to the price they paid.

Formula:

Price to Earnings ratio

2016 2015 2014
Price 10 10 10
Earnings per share 6.499045205 4.958787945 27.17540502
Price to Earnings ratio 1.54 2.02 0.37

17. Dividend per share:

Measures the dividend paid on 1 share.

Formula:

Dividend per share

2016 2015 2014
Dividend paid 38,032,133 75,938,608 108,456,951
Number of Shares 109,500,00 10950000 10950000
Dividend per share 3.473254155 6.935032694 9.904744384

18. Dividend yield:

Shows the rate of return to common stockholders in terms of cash dividends. Therefore it
basically indicates the rate of return to common stockholders in terms of dividends.

Formula:

Dividend yield
2016 2015 2014
Dividend per share 3.473254155 6.935032694 9.904744384
Market Price 10 10 10
Dividend Yield 0.35 0.69 0.99
Faisal Spinning Mills (Parent Company)

Background
The spinning mills are equipped with state-of-the-art laboratory equipment to test every step of
the spinning process to ensure high quality and consistency. Umergroup has been spinning the
yarn since 1982, the company extraordinary innovative power is based on more than 32 years of
accumulated know how, state of the art machinery & equipment as well as highly skilled &
motivated workforce. For umergroup management, innovation alone is not enough. The yarn is
produced for the domestic industry, in-house consumption and export to the European Union and
Far East. Bhanero Textile and Faisal Spinning are also certified by USTER and are
certified mills. The usterized brand has been a watch word for gauranteed
top quality in textile production. Besides Pakistani cotton a variety of other cotton including
Supima, Egyption, American fiber max, Brazilian and organic cotton are stocked to cater
immediate demand of the customers
PRODUCT INFORMATION
We make yarn for multiple end users including Denim, apparel, shirting and home textile. Our
cotton based mills produce ring spun yarn for knitting and weaving. Our products include carded
and combed yarn ranging from NE 10 to NE 120, Single yarn, Double yarn, Lycra, Slubs, Siro
yarn, Multi count, Melange, Zero twist, Modal, Tencel, Compact yarn, Poly Cotton, CVC, Yarn
on dye cone, Organic and Linen/cotton blended yarn.

Umergroup can also offer VORTEX yarn with less hairiness and pilling best fits clothes
frequently washed such as innerwear, sportswear, working uniforms, towels and bed sheets.

BCI exists to make global cotton production better for the people who produce it, better for the
environment it grows in and better for the sectors future, by developing Better Cotton as a
sustainable mainstream commodity. Be part of something Better.
Balance Sheet
Total Equity and Liabilities
Total Assets
Profit and Loss Statement
Horizontal Analysis
Balance Sheet
Total Equity and Liabilities

Total Equity and Liabilities have increased by 28.85%. Long-term financing increased by
92.28%.
Current portion of non current liabilities decreased by 61.45%
But overall the Liabilities registered an increase of 85%
Unappropriated Profits decreased by 37%
Assets

The Total Assets increased by 28.85%. Same as off the Total Equity And Liabilities. In Non- Current Assets
the Property plant and equipment decreased by 90% which might be due to sale of the mentioned
items.

There were no long term investments in 2015-2016

The Long-Term deposits increased by 25%

Trade debts increased by 86%

Profit and Loss Statement

The Net Sales only increased by 0.01%. Gross Profit fell down by 16%. There was an overall
decrease in the costs including Operating Expenses and Finance Cost. The profit after taxation
registered a decrease of 3.06%. Earnings per share also decreased by 3%
Vertical Analysis
Balance Sheet
Total Equity and Liabilities

In both the Years 2015 and 2016. Total Equity formed larger composition.
Long-term Financing was quite large as compared to the current liabilities which together
formed 23% and 16% respectively as compared to the 19 and 12% long-term financing.
Assets
Profit and Loss Statement
Solvency Analysis
The ability of a business to meet its financial debts is called solvency. Solvency analysis focuses
on the ability of a business to pay or otherwise satisfy its current and noncurrent liabilities. Using
measures to assess a businesss ability to pay its current liabilities is called current position
analysis. This analysis is used by short term investors to see how liquid the business is.
1. Working Capital:
The excess of current assets over current liabilities. It evaluates a companys ability to
meet currently maturing debts.
Formula: Current Assets Current Liabilities

Working Capital
2016 2015
Current Assets 3,290,312,350 2,465,021,893
Current Liabilities 1,640,896,637 886,126,206
Working Capital 1,649,415,713 1,578,895,687

The working capital of the Faisal Spinning Mills is positive and quite high, this indicates that the company
is able to meet their debts efficiently in both the years 2016 and 2015.

2. Current Ratio:
Also measures the ability of a firm to meet its short term liabilities.

Formula:

Current Ratio
2016 2015
Current Assets 3,290,312,350 2,465,021,893
Current
Liabilities 1,640,896,637 886,126,206
Current Ratio 2.01 2.78

The Current Ratio of the company is higher than 1 in both the years, which shows that the company is
able to meet its short term liabilities
 3. Quick/ Acid Test Ratio:
This measures the instant debt paying ability of a firm by excluding Inventory from the
current Assets. All Current Assets besides Inventory can be quickly converted to cash.
Hence the name Quick Ratio.

Formula:

Quick/ Acid Test Ratio
2016 2015
Current Assets 3,290,312,350 2,465,021,893
Current Liabilities 1,640,896,637 886,126,206
Stock in Trade (inventory) 1,998,879,799 1,703,046,951
Ratio 0.79 0.86

This ratio is also lower than 1 for all the years. And it shows slightly bad position of the firm.
4. Accounts Receivables Turnover:
It is the number of times per year that a business collects its average accounts receivable.
The ratio is intended to evaluate the ability of a company to efficiently issue credit to its
customers and collect funds from them in a timely manner.

Formula:

Accounts Receivables Turnover

2016 2015
Net Sales 9,281,954,560 9,281,026,639
Total Account Receivables 500,166,521 269,982,875
Average Receivables 385,074,698 244,377,444
Turnover 24.10 37.98

The turnover is quite high in both the years. The values indicates that the firm is able to collect the
receivables effectively. The value decreased from 37.98 in 2015 to 24.10 in 2016, this indicates that the
collection of receivables has declined.
 5. Number of days sales in receivables:
An estimate of the length of time (in days) the accounts receivable have been outstanding.
Can estimate efficiency on the collection of debts the firm has.

Formula:

Number of days sales in receivables

2016 2015
Total Account Receivables 500,166,521 269,982,875
Average Receivables 385,074,698 244,377,444
Net Sales 9,281,954,560 9,281,026,639
Average Daily Sales 25430012.49 25427470.24
Number of days sales in
receivables 15.14 9.61

The value for number of days sales in receivables is quite good in both the years, which means that the
receivables are on average collected within 15 days in 2016 and 9.61 in 2015. The average days were
less in 2015 as compared to 2016 which means that in 2016 firm is taking a bit long to collect the
receivables.

6. Inventory turnover:
It is the relationship between the volume of goods sold and inventory. It seeks to measure
the efficiency of the firm in managing of its Inventory.

Formula:

Inventory Turnover
2016 2015
Costs of Goods
Sold 8,605,975,270 8,473,950,152
Inventory 1,998,879,799 1,703,046,951
Average Inventory 1,850,963,375 1,939,713,314
Inventory Turnover 4.65 4.37

The ratio is 4.37 in 2015 meaning that inventory is converted to sales about 4 times each
year. It later increases to 4.65 in 2016 which is a good thing for Faisal Spinning Mills. But
the amount through which it has raised is not significant. However the ratio has remained
fairly stable in both the years
7. Number of days sales in inventory:
This measures the amount of days that it takes for the inventory to be converted into
sales. A lower ratio is preferred.

Formula:

Number of days sales in inventory

2016 2015
Average Inventory 1,850,963,375 1,939,713,314
Costs of Goods Sold 8,605,975,270 8,473,950,152
Average Daily Cost of Goods Sold 23578014.44 23216301.79
Number of days sales in
inventory 78.50 83.55

In 2015 it takes the inventory about 83 days to be converted to sales but in 2016 it is about
78.50 in 2016. It is taking shorter time for the inventory to be converted to sales in recent
year.

8. Ratio of fixed assets to long-term liabilities:

It basically measures the margin of safety of the noteholders or bondholders. It also shows
if the business is capable of borrowing additional funds in the long term.

Formula:

Ratio of fixed assets to long-term liabilities

2016 2015
Non Current Assets 3,715,228,076 2,972,155,739
Long-Term Liabilites 1,354,511,673 704,432,590
Ratio of fixed assets to long-term liabilities 2.74 4.22

By the rule of thumb this ratio should be higher than 1 meaning that the firm is able to
pay of all their long-term liabilities in the future. In all 2 years the firm can successfully
pay back their debts and still have excess money left. The firm can in the future borrow
more if it wants.
 9. Liabilities to stockholders equity:
This shows the relationship between the total claims of the creditors and owners. It
measures the margin of safety for creditors.

Formula:

Liabilities to stockholders equity

2016 2015
Total Liabilites 3215238141 1,772,791,669
Total Stock Holder's Equity 3,790,302,285 3,664,385,963
Liabilities to stockholders equity 0.85 0.48

The company is using more equity as compared to their Liabilities. They are on not
relying that highly on debt and are using their own equity as well. The company is not in
a risky situation.

Debt Analysis

10. Number of times Interest charges are earned:

It is used to assess the risk to debtholders in terms of number of times interest charges
were earned.
( +)
Formula:

Number of times Interest charges are earned

2016 2015
Amount available to meet interest charges 301,813,615 449,622,990
Interest expense 143,489,676 211,756,168
Number of times Interest charges are
earned 2.10 2.12

In all the 2 years the ratio is higher than 1 which means that the company is able to meet
its debt obligations. In all 2 years the company is able to pay interest expense and still
have excess income
Profitability Analysis

11. Net Sales to Assets:

Measures how effectively a firm utilizes its Assets. This does not include long term
investments of a firm and they are subtracted from the Assets before taking Average.

Formula:

Net Sales to Assets

2016 2015
Net Sales 9281954560 9281026639
Average Assets 5,718,110,967 5147493125
Net Sales to
Assets 1.62 1.80

The ratios are above 1 for all 2 years meaning that assets were used effectively to yield a
net income that was equal to the average assets. This ratio is sufficient but could have
been higher than it currently is.

12. Rate Earned on Total Assets:

It is a measure of the profitability of total assets, without considering how the assets are
financed. Therefore the interest expense has to be added back to the income. This also
does not exclude the Long term Investments.
+
Formula:

Rate Earned on Total Assets

2016 2015
Net Income 169,214,218 174,548,897
Interest Expense 143,489,676 211,756,168
Net Income + Interest
Expense 312,703,894 386,305,065
Average Assets 6221359029 5637797118
Rate Earned on Total Assets 0.050 0.069

This ratio for the company looks bad for all 2 years. The lower the ratio the worse the
company is at utilizing its assets. This shows the earnings that the company generated
from each Rupee of total assets.
13. Rate Earned on Stockholders Equity:
It is a measure of the rate of income earned on the amount invested by the stockholders.
Basically assesses the profitability of the Stockholders Investment.

Formula:

Rate Earned on Stockholders Equity

2016 2015
Net Income 169,214,218 174,548,897

Total Stock Holder's Equity 7,454,688,248 7,217,329,060

Average Equity 3,727,344,124 3,608,664,530

Rate Earned on Stockholders
Equity 0.0454 0.0484

This basically reveals how much profit a company generates with the money shareholders
have invested. The company is not performing well as the ratios are quite low.
14. Leverage:
Difference between rate earned on stockholders equity and rate earned on assets.
Formula:

Leverage
2016 2015
Rate Earned on Total Assets 0.050 0.069
Rate Earned on Stockholders Equity 0.045398 0.048369
Leverage -0.005 -0.020

15. Rate earned on common stockholders equity:

This will be the same as the rate earned on total equity since there are no preference
shares.

16. Earnings per share ratio:

The share of each share in the net income is looked at.

Formula:

Earnings per share of common stock

2016 2015
Net Income 169,214,218 174,548,897
Number of Shares 10000000 10000000
Earnings per share of common
stock 16.9214218 17.4548897
The Intercompany Analysis

1. Current Ratio

Current Ratio
2015 2016
Ellcot Mill Faisal Mill Ellcot Faisal Mill
1.36 2.78 2.07 2.01

The Current Ratio of Faisal (leading company) in 2015 was doing better as compared to Ellcot
Mill. And in 2016 the performance of Ellcot (representative company) performed slightly better
as compared to the parent company.

2. Acid Test Ratio:

Acid Test Ratio

2015 2016
Ellcot Mill Faisal Mill Ellcot Faisal Mill
0.68 0.86 1.11 0.79

In 2015, Faisal Mill was performing well according to this ratio, but in 2016 Ellcot improved its
position and surpassed the Acid Test Ratio of Faisal Mill.

3. Account Receivables Turnover

Account Receivables Turnover

2015 2016
Ellcot Mill Faisal Mill Ellcot Faisal Mill
32.7 37.98 21.9 24.1

The ratio is better for Faisal Mill in both the years as compared to the Ellcot Mills. On the
other hand both the values have decreased from 2015 to 2016.

4. Number of Dayss Sales in Receivables

No. of Days Sales in Receivables

2015 2016
Ellcot Mill Faisal Mill Ellcot Faisal Mill
12.33 9.61 16.27 15.14

Ellcot is collecting the receivables in more number of days as compared to the Faisal Mill
in both the years.
5. Inventory Turnover

Inventory Turnover
2015 2016
Ellcot Mill Faisal Mill Ellcot Faisal Mill
6.44 4.37 5.66 4.65

The inventory turnover for Ellcot Mill in both the years is higher than the Faisal Mill.

6. Number of Days Sales in Inventory

Number of Days Sales in Inventory

2015 2016
Ellcot Mill Faisal Mill Ellcot Faisal Mill
56.68 83.55 64.47 78.5

The number of days sales in inventory is lower for ellcot in both the years as compared to
the faisal mill, indicating that the ellcot was converting its inventory into sales fast as
compared to the Faisal Mill
7. Fixed Assets to long-term liabilities:

2015 2016
Ellcot Mill Faisal Mill Ellcot Faisal Mill
2.09 4.22 1.85 2.74

Both the companies are capable of paying their long term liabilities but the ratio of Faisal
Mills is higher in both the years
8. Liabilities to stockholders equity:

Liabilities to stockholders equity

2015 2016
Ellcot Mill Faisal Mill Ellcot Faisal Mill
0.71 0.48 1.02 0.85

Both the firms are dependent more on the equity as compared to the Liabilities.
9. Number of times interest charges earned:

Number of times interest charges earned:

2015 2016
Faisal
Ellcot Mill Faisal Mill Ellcot Mill
2.49 2.12 2.16 2.1

The industry on average and Ellcot are both going in the same direction. But the Ellcot
Mills have slightly higher ratio in both the years as compared to the Faisal Mills.

10. Net Sales to Assets

Net Sales to Assets

2015 2016
Ellcot Mill Faisal Mill Ellcot Faisal Mill
1.94 1.8 1.61 1.62

Both the mills are utilizing their assets effectively. In 2015 Ellcot Mill performed slightly
better whereas in 2016 Faisal Mill surpassed by a value of 0.1.

11. Rate Earned on Total Assets

Rate Earned on Total Assets

2015 2016
Ellcot Mill Faisal Mill Ellcot Faisal Mill
0.05 0.069 0.05 0.05

The return on the assets for both the companies is almost same but in 2015 there is
minute difference of 0.001, which is not significant enough.

12. Rate Earned on Stock Holders Equity

2015 2016
Faisal Faisal
Ellcot Mill Mill Ellcot Mill
0.04 0.04 0.05 0.04

The rate earned on stock holders equity for both the companies is almost same. The rate
offered is quite low for both the companies.