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COMPANY NAME:

RELIANCE WEAVING MILLS LTD

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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:

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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. # Company Name FATIMA SUGAR MILLS

LTD.

1. RELIANCE WEAVING MILLS LTD.

2. RELIANCE COTTON PVT. LTD.

3. RELIANCE COMMODITIES PVT. LTD.

4. RELIANCE EXPORT LTD.

5. RELIANCE FIBRES LTD.

6. FATIMA FERTILIZER COMPANY LTD.

7. FAZAL CLOTH MILLS LTD.

8. AHMED FINE TEXTILE MILLS LTD9. 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 FinanceCertificate (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.

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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.

. DEPARTMENT S 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.

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CURRENT RATIO :A measure of liquidity calculated by firms current assets by its current liabilities. Its formula is

given below:

Current ratio = Current assetsCurrent liabilities

Years 2005 2006 2007 2008

Current ratio 0.92 0.94 0.82 0.84

Conclusion :

The above ratios show that the current ratio is increasing from 2005 to 2006 and after 2006 it isdecreasing. In 2007 it is increasing as compared to 2006 which shows that the firm is in betterliquidity position in 2007 as compared to previous year .the good current ratio is 1 0r greaterthan 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 2005 2006 2007 2008

Acid test ratio 0.37 0.35 0.31 0.30

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It provides an assessment of how investors view the firms performance. Its formula is givenbelow

Market/ book ratio = Market price per share of common stock

Book price per share of common stock

years 2005 2006 2007 2008

Market/ book ratio 0.9 0.76 0.71 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 = Gross profit Sales

years 2005 2006 2007 2008

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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, includinginterest and preferred stock dividend its formula is given below:

Net profit margin= = Earning available for common stock holder

Sales

years 2005 2006 2007 2008

Net profit ratio

(%)

4.66 3.96 0.94 (2.90)

Conclusion:

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

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EARNING PER SHARE :The firm earning per share is generally of interest to present or prospective share holders andmanagement. It formula is

Earning per share = Earning available for common stock holder

Number of shares of common stock outstanding

years 2005 2006 2007 2008

Earning per share 3.89 5.01 1.04 (3.26)

Conclusion:

The firms EPS from 2005 to 2007 is not very high but still positive but in2008 EPS is very negative because net income decreasing very rapidly. Si itgives an alarm of companys bad condition

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

INVENTORY TURNOVER RATIO :It measures the activity or liquidity, of a firms inventory .It is calculated by dividing sales byinventory

Inventory turnover ratio = salesInventory

years 2005 2006 2007 2008

Inventory 2.85 3.72 4.02 2.98

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turnover(Times)

Conclusion:

The inventory turnover ratio is low in 2005 as compare to next years but in 2008 it is less ascompared 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 = salesTotal fixed assets

years 2005 2006 2007 2008

fixed asset turnover 1.80 1.98 1.83 1.87

Conclusion:

This ratio shows how the firm is using fixed assets to generate sales. The firm fixed assets ratiois increasing 2005 t0 2006 which indicates the firm is using its fixed assets efficiently. But in2007 it is declining as compared to 2006 and in 2008 it shows increasing trend .

TOTAL ASSET TURNOVER :

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It indicates the efficiency with which the firm uses its asset to generate sales. It is calculated bydividing sales by total assets.

Total asset turnover ratio = salesTotal assets

years 2005 2006 2007 2008

Net profit ratio

(%)

4.66 3.96 0.94 (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 incurrent ratio and acid test ratio but from last year I conclude that firm liquidity ratio isdecreasing 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 isnot 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 itassets efficiently thats why firm bearing loss which is shown in 2008 income statements

COMMENTS AND SUGGESSIONS :

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