Liabilities: Company has started to obtained long term finance facility from the year 2018, which has resulted in increase in long term finance percentage. Resultantly equity and short term borrowing have decrease on percentage basis. • Long-term Financing: In order to avail the benefit of reduced rate of financing, the Company this year has obtained additional long term financing facility for its new machines, which has resulted in an increase in long term finance. 11
However, the total long-term borrowings have increased to 2.62 billion in 2019 as compared to 0.5 billion in 2018, due to repayments during the year and start of repayment of more loans from ensuing year. • Deferred tax liabilities: Deferred liabilities which include deferred taxation and staff retirement benefits have increased by 27.72% as compared to the last year. However, there was no material change in the same during prior five years. Deferred tax liabilities have increased over the years mainly on account of increase in CAPEX and share of profit from associates. • Current liabilities: The Company has maintained its current liability at a manageable level. Current liabilities mainly increased due to accrued payments against import of raw material and increase in short- term finance to cater increased working capital requirement. Current liabilities increased by 3.1 billion in 2019 as compared to 2.2 billion in 2018. This means that both short term and long term liabilities have increased as compared to previous years. REASONS OF LOW PROFIT AND HIGH DEBT : • Technological advancement making it more challenging for the Company to compete on the national / international level. • Declining export sales due to trade war and increased competition at global as well as regional levels. • Currency volatility, abrupt Rupee devaluation, causing imported raw material expensive. • Rising trend of conversion, power cost on account increasing fuel / gas prices and other inflationary impacts. • Increasing KIBOR resulting in increased financing cost. • Withdrawal of Zero Rating for Five Export Oriented Sectors might have a negative impact on local sales along with additional working capital requirements. 12
TREND ANALYSIS OF EFFICIENCY RATIOS: In 2019 the efficiency ratios were lower as compared to the previous years, so the performance was also not up to the mark due to decrease in net income and increasing finance cost because the company is dependent on external borrowing making it highly leveraged. For the fiscal year 2019 and 2018, both Inventory turnover ratio and debtors’ turnover have decreased due to opportunity buying and carried over stock and higher yarn sales volume in local market with higher credit period and strategic non- discounting of export bills. The inventory turnover is more or less at par the last five years whereas debtors’ turnover days had increased. Creditors’ turnover ratio has also decreased in 2019 comparison to last year respectively, as the Company had not negotiated better credit terms from suppliers and is relying on short term borrowings as well as long term borrowing. Fixed asset turnover ratio showed improvement till
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- Fall '19
- Generally Accepted Accounting Principles, GUL AHMED