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Swot Analysis - Gulahmed

Autor:   •  December 21, 2017  •  1,849 Words (8 Pages)  •  1,281 Views

Page 1 of 8

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This trend if compared to the industry averages in each year falls higher, which indicates that investors would rather prefer to invest in the competitor firms rather than Gul Ahmed, because it has a higher risk factor, and shareholder payments may be compromised if the ratio increases more significantly than the competitor firms,

[pic 4]

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Times Interest Earned Ratio (TIE)= EBIT/Interest Expense

2015

2014

2013

2012

2011

Year

1.587

2.286

1.685

0.999

2.400

TIE

1.67

2.64

4.69

3.07

4.20

Industry Avg.

The interest cover ratio assumes fluctuations over the course of 5 years, rising in 2011 and declining sharply in 2012, rising in 2013-2014 and declining again in 2015. The rise in 2013-2014 was primarily due to drastic increases in Sales in the international market. Germany became the largest importer of Gul ahmed textiles, followed by US and UK. An average of 65% of the sales figure of the two years comprised of international sales. In addition to the swooping sales, the firm limited its financing of external funds and hence the finance costs reduced from 16% in 2013 to only 6% in 2014. This combination of increased EBIT and decreased finance costs swelled up the Interest cover for the firm.

If compared to the industry averages, Gul ahmed's management is trying to reduce the difference between its interest cover ratio and that of the competitors. This shall attract investor's interest to invest in the firm rather than opting for its competitors, as it will indicate a greater ability to repay its interest and debt and yet be left with enough funds to distribute among shareholders.

There is a massive difference between GulAhmed's Interest cover ratio and the Average industry interest cover ratio in 2013, because GulAhmed's competitor company, Faisal Spinning textile mills generated humongous amount of revenues (Rs. 8,488,787,464), with a finance cost of only Rs. 154,786,233 (lowest in this period of 5 years), thus increasing the industry average to its peak number.

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Profitability ratios;

Gross Profit margin = Gross Profit/ Sales

2015

2014

2013

2012

2011

Year

18.27%

18.10%

15.56%

14.14%

18.19%

GPM

7.05%

9.58%

12.98%

11.18%

15.14%

Industry Avg.

The Gross profit margin has significantly increased from 14% in 2012 to 18% in 2015. A number of reasons account for this raise in the firm's manufacturing and distribution efficiency during the production process. A) Cost of sales has reduced from 86% in 2012 to 82% in 2015. B) Company's sales continued to grow from Rs. 24918m in 2012 to Rs. 33355m in 2015. This robust growth in its top-line is significantly due to the firm's export-oriented business. From 2011-2015, the firm's exports have largely outnumbered its domestic sales. Exports peaked in FY14, when they amounted to 65% of total sales. (Business Recorder).

The firm had the least gross profit margin in 2012, because of the highest cost of sales the company has ever beared, of 85.86%. This was due to growth in commodity producing sector, including the agriculture sector. Inflation in June 2012 was 11.3%, which was due to increase in energy and oil prices. During FY 2011-12 the country's textile exports drastically reduced by 10% to $12.529 billion again $13.975 billion of FY 2010-11. One of the major causes of underperformance was the persistent electricity and gas load shedding that plagued the industry.

If compared to Gul Ahmed's competitor textile firms, GulAhmed enjoys are fairly healthy financial position since its ratios are higher than the industry averages for all of 5 years. The slump in industry averages seen from 2013-2015 is because of the deteriorating performance of Ibrahim Fibres, declining revenues and ever- increasing cost of sales. This pulls down the figure for the industry average for Gross profit margin.

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Net Profit margin = Net Profit/ Sale

2015

2014

2013

2012

2011

Year

1.81%

3.74%

2.32%

-0.96%

4.70%

NPM

1.98%

4.04%

9.72%

5.62%

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