CHAPTER NO.

1
HISTORY OF TEXTILE

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 1.1 Vision of Textile Industry of Pakistan
1.1.1 Vision of Textile Industry:

An open market driven, innovative & dynamic Textile Sector, which is: -

I. Internationally Integrated
II. Globally Competitive
III. Fully equipped to exploit the opportunities created by the MFA Phase out and this
enables Pakistan to be amongst the Top Five Textile Exporting Countries in Asia.
While going through the draft summary report on Textile Vision 2005, the first and
immediate response is that after a long time a sincere effort has been made to revamp
textile industry in Pakistan. The enabling backdrop was termed a vital pre-requisite to the
viability of the strategy. Some of these factors are not controllable and there is still very
heavy reliance on the GOP support/incentives. Unless the industry is able to stand on its
own feet firmly, without the crutches of incentives/protection, it will be very difficult to
compete in the global markets.
The draft of Textile Vision 2005 was circulated after the stakeholders of the textile sector
attended the presentation of the strategy on April 14, 2000. This formed the basis of the
final deliberation. However, the document, in no way, represents the final policy
proposals to the GOP by the Textile Sub-committee chaired by Tariq Sayeed Saigol.
Three different scenarios have been suggested for the strategy

1.2 Three scenarios of Textile Industry

1.2.1 Low road

I. Exports will maintain the historic growth rates

II. There will be no change in the product or the market mix

1.2.2 Do-able

I. Exports growth rate will match each importing country's growth rate of
unit imports

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 II. Unit exports of garments to Middle East market will grow at 3 per cent
annually
III. Pakistan will capture 0.5 per cent share in the Japan and Hong Kong
markets
IV. Unit price of cotton yarn will grow at 3 per cent and that of fabrics will
grow at 4 per cent annually
V. Share of 100 per cent synthetic garments in the garments exports will
increase from current 3 per cent to 30 per cent, in line with the world trend
VI. 13 million bales of cotton will be consumed

1.2.3 High road

I. Value added products (garments and made-ups) will be the engine of export
growth (20% annually)
II. Export product mix will be balanced by giving extra push in the women and
woven garments
III. Fabrics exported will contain 55 per cent processed fabrics
IV. Total cotton production will be 16 million bales of which 13 million will be
consumed

Three different scenarios viz, Low Road-Do-able, High Road scenarios have been
proposed for the strategic development of the Textile Industry to give a quantum jump in
the export of textile products. An investment of approximately 5.00 Billion Dollars has
been proposed for the next four years time to achieve a minimum growth rate of 12% on
present export base.
1.3 Introduction of Textile Industry
Looking at the world as a whole a new and dramatic global order had emerged since the
end of the cold war, and is continuing to develop into the new century. Europe and North
America, and N.A.F.T.A. respectively illustrate the growing trend to create regional
economies. It is Asia however that is attracting global attention as the most dynamic
growth region in the world today and is likely to drive the world economic development
as we further move through the time.

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Despite of the tendency towards re-location, most developed countries have nevertheless
succeeded in maintaining a local textile industry, which is both viable and competitive at
international level. This is mainly due to their unprecedented efforts at modernizing and
restructuring the production process. The textile industry in developing countries has
increasingly placed emphasis on quality, the rapid response to growing demand and
innovation in the areas of fibers (micro fibers) and high value-added textiles (industrial
textiles).
The Textile Industry all over the world is trying to consolidate through re-adjustment
strategy. The markets have become very competitive. There is a fierce competition
amongst the low cost producers mostly in Asia to take up the share being lost by high
cost European Manufacturers.
Pakistan has to compete with countries, which are similar in factor conditions and
comparative advantages. The close competitors are India, China, Turkey and Indonesia,
now a days Bangladesh is emerging a close competitor in this sector. Due to cotton price
edge the Indian Textile Industry had been able to compete us in our traditional yarn and
cloth markets.
These market changes are developing pressure on our Textile Industry and the industry is
in the process of transition for a structural change to rebuild its competitiveness. Such
structural changes are always painful. The industry in general is not in a comfortable
position. Further the declining profitability has aggravated the credit access problems and
ability to finance new investment, which is so important for improving quality and
productivity. Excepting few cases no attention has been given to skill development both
in manufacturing and marketing. Lack of product diversification and passive selling has
kept industry to low market segments with earnings depressed.
1.4 History of Textile Industry of Pakistan

Increase in the cotton production and expansion of textile industry has been impressive in
Pakistan since 1947. Cotton – bales increase from 1.1 million bales in 1947 to ten million
bales by 2000. Number of mills increased from 3 to 600 and spindles from about 177,000
to 805 million similarly looms and finishing units increased but not in the same
proportion. It employs 50% of industrial labor force and earns 65% foreign exchange of
total exports. Pakistan’s textile industry experts feel that Pakistan has fairly large size

4
textile industry and 60-70% of machines need replacement for the economic and quality
production of products for a highly competitive market. But unfortunately it does not
have any facility for manufacturing of textile machinery of balancing modernization and
replacement (BMR) in the textile mills which need to think about joint ventures for the
production of complete spinning units with china, Italy and production of shuttle less
looms (Projectile) with Korea, Taiwan and Italy.

Cotton textile industry has been premier industry in Pakistan and a major source of export
earning and employment. It also helps in value addition to the manufacturing sector of
the economy. During the six years between 1993 and 1998, production of yarn (in
quantity terms) registered a steady annual growth rate of 302% in Bangladesh and 405%
in India.

On the contrary, Pakistan registered a growth rate of 101% per annum in yarn production
although it ranked third after China and India in the global yarn production during the
same six years. In exports, while Taiwan, India and the republic of Korea registered an
annual increase of 18.1%, 27.7% and 5.4% respectively during 1993-1998, Pakistan
registered a negative growth of 4.8% one important development was that till 1997,
Pakistan was the world’s largest exporter yarn followed by India.

However, in 1998, India gained the NO 1 position, leaving Pakistan at NO 2 In the case
of cotton cloth production, a number of Asian countries have been emerging in the
international market to compete with Pakistan. These countries are Bangladesh, India,
Taiwan, Indonesia, Thailand, Turkey, Sri Lanka and Iran. The above-mentioned
presentation in the context of international scenario highlights the adverse position of
Pakistan’s textile industry when is likely to continue further following the full
implementation of WTO agreement from 2005 onwards when an era of free trade will
start globally. Notwithstanding the above fact, current stagnation in the local textile
industry can be overcome through efforts, consistent with charges occurring in the
international market.

It must be appreciated that all successive governments since the birth of cotton textile
industry in Pakistan have been encouraging the textile exporters to penetrate into new

5
market and also to broaden the base of exportable commodities by including value added
textile goods so that reliance on exports of cotton, cotton yarn and coarse fabrics
gradually become minimal.

Reflecting on the state of affairs, Abid Chinoy, Pakistan cloth merchants Association
(PCMA) Chairman, Appreciated government’s efforts to encourage new exports and
finding new markets, which need aggressive export marketing. The steps taken on the
monetary front, such as the frequent devaluation of Pak rupee in terms of dollar could not
improve the cost competitiveness of exportable products due to increase in prices of the
local and imported inputs of the local textile industry, and also due to inelastic demand
for the Pakistan’s exports.

It has been rightly mentioned in the latest stage bank of Pakistan’s annual report (FY01)
that, “Over the years Pakistan’s exports receipts have been vulnerable on account of the
narrow base of exportable items, concentrated markets and low value addition ‘this
indicated that the growth in the country’s overall exports, including textile products
which contributed more then 60% of total export receipts each year, could to be related
some cosmetic and ad hoc measure like devaluation of Pak rupee and concession export
credits. The first textile commission, which was constituted by the first material law
government in 1960 had, inter-alia, recommended that an economic size textile unit
should preferably have 25,000 spindles and 500 looms. No new mill with only 12,500
spindles and without looms should be sanctioned. However, no need was paid to the
advice by the sanctioning authorities with the result that an excess capacity had tented to
build up in the spinning sector.

During the period 1973 to December 1992, some 71 spinning units with 1,136, 835
spindles, 6,600 rotors ands 7,329 looms were closed down. In 1992, a foreign consultant
form was hired by the government to look into the stagnating conditions in the local
textile industry. One of the observations of the foreign consultant was “Pakistan has
failed to make real progress in the international market and is being over taken by many
of the neighboring competitor countries. The spinning sector, traditionally the core of the
industry, is already in the crisis with many spindles lying idle and mills being forced to

6
close. Worse still, this sector will be hit by the projected decline of its major markets in
Japan and Hong Kong in the coming years.”

Another important strategic recommendation given by the foreign consultant very much
relevant to the current conditions: “It is vital that companies play very positive role in the
markets, which each one having its own marketing activity, whose job is to understand
the need of the customers and the ever changing competitive dynamics of the markets. In
order to improve exports, Pakistan’s Readymade Garments Manufacturers and Exporters
Association (PRGMEA) has urged the commerce minister Abdul Razzak Dawood to set
up an Apparel Board for the promotion of export of woven and kit garments which fetch
US$ 2.5 billion foreign exchange for the country.

The industry experts are of the opinion that in the order to have a strong industrial base,
Pakistan economy need investment upswing. Pakistan’s economic growth performance
during recent years has been dismal: as against the average growth rate of 6.1% in the
1980s, the half and 4.0% in the 2nd half of the 1990s. The major micro-economic
instability factors like high inflation rate, budgetary deficit, continuous depreciation of
rupee, economic sanctions, etc. could not help the investment process. Such an
environment cannot be conducive to investment and growth.

Exporters of textile products have found the target of US$ 10.4 billion set by the
government for the year 2002-2003, as achievable and termed it a realistic approach. The
textile sector which constituted 69% of total export during 2001-2002, believes that
enhanced quota by the European Union and Turkey would make this possible to fetch
another US$1 billion this year.

The rise in export of value-added products from Pakistan was another point of
encouragement for the textile sector. “The export of value-added products rose to 57.4%
from 53.9% last year-a clear sign that we are moving in the right direction, “said the
Chairman of all Pakistan textile mills association. The trade policy is considered an
acceptable paper, but in the industry does not fine anything that could lead to a high level
exports achievement and remove trade imbalance.

7
Pakistan’s textile sector earned US$5.77 billion during the outgoing year, compared with
US$5.577 BILLION OF 2000-2001 indicating a growth of 0.69%. “Textile vision 2005”
has identified the present status and opportunities to make in roads in conventional and
hew markets and has developed sectoral recommendations, hence the sectoral committees
set up by the federal textile Board (FTB) would play an important role be ensuring the
availability of quality raw materials on competitive prices and improvement in designing,
and would adopt quality standards and increase productivity levels. It would attract
foreign brands and promote Pakistani brands with world-class standers.

1.5 Structure of Textile Industry

According to IGATEX Pakistan which took place in Karachi, Pakistan’s largest city, and
is slated to return in 2008 that the republic’s textile and apparel industry is consisted of
ginning, spinning, man-made fiber, weaving, finishing, apparel, terry towel, tarpaulin and
canvas, and knitwear machinery sectors? The textile and apparel industry as a whole
employed approximately 40 percent of total industrial workers and accounted for 46
percent of total manufacturing.
There were 1,221 ginning units, featuring an installed capacity of 20 million bales of
cotton. The spinning sector comprised 408 spinning units, with an installed capacity of
157,143 rotors; and 50 composite units, with an installed capacity of 10.1 million
spindles. The country’s 10 man-made fiber units had an installed capacity of 660,000
tons.
While the show’s organizers did not detail the number of weaving units in their report,
the Pakistani government’s Board of Investment reported 124 large and 425 small
weaving units, with a total production capacity of 4.4 billion square meters of fabric. The
show report also did not include the installed capacity for the 106 finishing units in the
organized sector and 625 finishing units in the small-scale sector. However, the
investment board noted a total finishing capacity of 4 billion square meters.
With regard to finished textile goods, the country’s 5,000 apparel units featured an
installed capacity of 450,000 sewing machines, show organizers reported. The installed
capacity for Pakistani knitwear manufacturers numbered 12,000 machines. Tarpaulin and
canvas production capacity totaled 100 million square meters, while installed capacity of

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terry towels totaled 7,500 looms. In contrast to IGATEX Pakistan’s post-show report, the
International Textile Manufacturers Federation (ITMF), Switzerland, in its 2005
International Textile.

1.6 Structure in disparity with other countries

Machinery Shipment Statistics report, noted the country’s installed spinning capacities —
reported in 2004 — 9.7 million short-staple spindles, 35,000 long-staple spindles and
150,700 open-end rotors. In comparison to other industries in Asia and Oceania,
Pakistan’s short-staple capacity that year ranked third — behind mainland China and
India, in that order — while open-end capacity was fourth — following mainland China,
India and Uzbekistan. Long-staple capacity in the republic came in 11th, tying with
Malaysia.
Installed weaving capacities in 2004 reported to ITMF totaled 24,000 shuttle less looms,
225,000 shuttle looms and 50,000 filament weaving looms. The shuttle less capacity that
year ranked sixth among other industries in Asia and Oceania; shuttle capacity was
second, behind Mainland China. Likewise, Pakistan’s filament-weaving capacity came in
second, following Mainland China and tying with Thailand.
On the other hand, the Karachi-based All Pakistan Textile Mills Association (APTMA), a
national trade association promoting 360 textile spinning, weaving and composite mills in
the organized sector, reported the total installed capacity for its member mills numbered
8.8 million spindles, 65,580 rotors and approximately 10,000 looms. There were 292
APTMA spinning mills, 40 weaving mills and 28 composite mills, which featured
facilities that can handle a variety of processes under one roof. Among the products
produced in APTMA mills were open-end and spun yarn; greige, printed and dyed
fabrics; and bed linens.

1.7 Government Initiatives

In 2005, the Pakistani government created a special textile sub-committee in order to

formulate a new textile strategies and policy in the hopes of revamping the textile
industry. The sub-committee submitted a report entitled "Textiles Vision 2005" which
included a number of recommendations including improved product quality, equipment

9
upgrade, developing human resources, aggressive targeting of new markets and
development of high-powered leadership for the textile sector.

1.8 Exports

Cotton and yarn are Pakistan's primary textile exports. The textile industry accounts for
over 60 percent of Pakistan's total exports. The All Pakistan Textile Mills Association is
the organization that regulates the industry, which is currently facing a number of
challenges, including the need to improve quality.

1.9 Competition

Pakistan must compete with other producers similar in conditions and comparative
advantage. The Pakistani Textile industry's biggest competitors are China, India,
Indonesia and Turkey. The cost of power in Pakistan is comparatively high.

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 CHAPTER NO.2
INTRODUCTION OF GOHAR TEXTILE

11
2.1 Introduction
Goar Textile Mills was incorporated in 1993 in the most renowned textile city of Pakistan
i.e. Faisalabad. Ever since its formation it is exporting its total production to the
International Markets.
Gohar Textile Mills (Pvt) Ltd is a group that is expanding from a modest base on a very
consistent & practically enviable growth rate. We are a supply partner for businesses who
value the quality and like to enjoy it on a consistent basis.

2.2 MISSION STATEMENT

GOHAR aims to be a world class textile organization producing diverse range of

products for the global textile market. GOHAR seeks to achieve customer delight through
excellence in manufacturing & customer service based on creative combination of state
of the art technology & human resources. GOHAR is committed to be responsible
corporate citizen

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2.3 Organization Profile

Company information
Name :- Gohar Textile Mills (Pvt) Ltd
Chairman and chief executive officer
Ch. Maqbool
Ch. Liqat Ali
Directors
Liqat Ali
Gohar Mustafa
Aftab Gohar
Director Operation
Aftab Gohar
Chief finance officer
Sh. Asif
Auditors
TMC
Bankers
Habib bank Corporate
Alflah Bank
Allied Bank
Head office
208- Chak Road, Zia Town, Faisalabad
Mills
3-Km Chak Jhumra Road, Khurrianwala, Faisalabad

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2.3.1 Organizational hierarchy chart

CHAIRMAN –CUM-MANGING DIRECTOR

CORPORATE GENERAL MANAGERS

VICE PRESIDENT

MANAGERS (M1-M4)

EXECUTIVES (E1-E2)

OFFICERS (O1-O2)

STAFF (S1-S4)

SUBSTAFF

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2.4 Awards and Achievements

Currently
Certified for Currently
ISO 9001: 2000 Certified for Working for the following certifications
Oekotex C-TPAT
WRAP ISO 14000

2.5 Product Line

Gohar Textile Mills produced different high quality export oriented products to the
international market. These are as under.

• Quilts(Comforters)
• Bed linen
• Kitchen linen
• Processed fabrics
• Grieg Fabrics

We are the manufacturers of synthetic hollow fiber filled duvets, pillows and mattress
protectors. Our fibers are processed according to modern-world health & safety
standards.

15
The Variety of patterns that can be quilted is countless. Automatic size and measurement
control feature are built into the machine.
100% product inspection for quality is how we ensure our claim of consistency on high
standards.
At Gohar we supply an exotic collection of exquisitely designed bed linen to turn your
bedroom into a paradise of luxurious comfort.
In-line inspection while the product is still on the machine reduces rework cost and time.
Various types of button attachment are available through the specially designed
machines.
Here again the 100% of the product is inspected for even the most minute faults or
deviation from the specifications.
At the packing stage the affixing of stickers and their positions are specially observed.

2.6 R&D Department:

In order to achieve and maintain market leadership, we have invested significantly in
extensive research and development facilities to stay abreast of latest trends in print and
fabric confection we get consultation from European designers and even our
representatives visit various top-of-the-line stores in foreign markets regularly. That
market data is then converted into our own registered designs through our R&D
department and is offered to our customers.

2.6.1 Quality Policy

To develop and maintain a consistent quality standard for our customers through reducing
the tolerances to the minimums that are practically possible. We fight and win the quality
war and not the price war.

2.6.2 Quality Assurance/Lab:

The equipments are calibrated after a specific time period to maintain the stringent testing
conditions. Periodic maintenance of individual machines is defined and is carried out
accordingly on time and are monitored through the ISO systemization. Traceability of the

16
produced article with the machinist and the machine numbers is another feature to have
the quality assured.

Customer standards and procedures are carefully documented and administered through
the merchandizing team.
We have been approved over the years in quality audits by our customers like IKEA,
M&S and others.

2.7 Shipment Efficiency

Critical paths are made and monitored by the PPC department to ensure timely handlings
of the orders.
Critical paths of each order / Job are prepared and are sent to customer so that both the
sides abide by these to achieve timely shipments
2.7.1 Sales Figure

Gohar Textile Mills last year’s annual turnover was US $ 24 Million. This has seen a
consistent double figure growth in the last three years respectively.

2.7.2 Strength

• No outside financing so we can under take big orders for longer periods without
having to think about any financial constraints.
• High Cumulative Customer retention rate since the start of operations
• Sustained growth rate of annual sales turnover.
• Consistent Quality ; Timely shipments

2.8 Major Customer

The industry leaders who are our top four volume customers are,

• IKEA Europe.
• Metro Group Europe.
• Marimac Canada.
• PID Designs Canada

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2.9 Exhibition

We are exhibiting at Heimtextil Frankfurt for the last 10 years. Our Stand No is Hall
10.1 B 70 for the year 2008-2009 Show

CHAPTER NO.3
BUSINESS OPERATION

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 III.1 Business Operation
In any textile following are the elements of a business operation

• Spinning

• Weaving

• Grey Room

• Processing

• Singeing

• Desizing

• Scouring

• Bleaching

• Printing

• Dyeing

• Finishing

• Folding

III.2 Spinning Department:

Gohar Textile Mills (Pvt) Ltd has two spinning units situated in Faisalabad. These units
are equipped with the latest machines in all of their departments. In the spinning units the
fiber is converted into yarn, and as this the quality of yarn is very important in the textile
sector so spinning units have a lot of importance.
Generally the spinning mills mechanism is very similar. It starts from the mixing
department where the bales of cotton are mixed and at that section the most visible

19
impurities are taken out. This mixed cotton is then taken to the blow room by a machine.
After going through a process it is taken to the card room for the next process.
After the card room the route is taken by keeping in view that whether carded yarn is the
end product or the combed yarn. The combed yarn is of better quality and its process is a
bit bigger than the other one.
For the carded portion the drawing breakers & drawing finishers are used to prepare the
fiber to a certain level so that the process on the simplex machine can be carried out. On
the other hand, in the combed portion, after the drawing breaker the cotton goes through
the lab former, & after that it goes through the combing machine, where the comber nail
and comber sliver are separated.
The comber sliver, after passing through the PC drawing & Drawing finisher goes to the
simplex machine. The product that comes from the simplex machine is then taken to the
Ring section where the yarn is to be made. Finally after passing through the auto cone the
yarn comes in the packing department. In Gohar the process of Ultra Violet Checking is
also practiced to ensure the quality of the yarn.
As this process is very important so there are some common parameters on which the
quality of yarn is judged. These parameters have been listed as below:

III.2.1 Important Parameters of Fiber:

• Length

• Strength

• Micronaire value

• Color grade

• Neps / gram

• Trash percentage

III.2.2 Important Parameters of Yarn:

• Yarn count

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 • Strength LCSP

• U percentage

• Thin Places

• Thick Places

• Neps

• IPI (Imperfection)

III.3 Weaving Department:

The weaving units are really very well equipped with the latest machinery to make the
best possible product for the customer to gain the customer satisfaction.

Most of the machines in the weaving unit are of new technology & mill has a very good
check on the quality of fabric produced by its Quality Control department.

The end product of the spinning unit is the starting point of the weaving unit. When the
cones of the yarn are brought to weaving unit, it is then taken to the warping zone in
which the beams are prepared.

These beams are then taken to the sizing section where the different chemicals are
applied to the yarn so that the weaving of the fabric can be done with the minimum
breakage of yarn. After sizing the process of drawing inn is applied so that the yarn could
be converted into fabric.

After the drawing inn the beams of the yarn is then taken to the Sulzer Looms so that the
yarn is converted into the weave product. When the greige is made, then it is taken to the
inspection department, where a lot of quality check is done. At the first step the fabric is
classified into two types, i.e. A grade & D grade.

The D grade fabric is either used in the B grade sale or in gathering of the fresh pieces.
While the process of A grade fabric is a bit longer.
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The A grade fabric after mending, goes to the checking machines, from where it is taken
to the rechecking machines. After rechecking either the greige is rolled or folded &
packed according to requirements of the buyer.

During all the above process, quality is the main purpose of the people. The weaving
units check the product quality as under:

TOTAL WEAVING CAPACITY 3,400,000 METERS A MONTH

Air Jet:
Tsudakoma Air Jet 24 machines of 130”
Sulzer Air Jet L5100Model: 20 looms of 110” & 28 looms of 130”
Tsudakoma Zax Air Jet 24 machines of 134”
Total: 96Looms
Production capacity 800,000 Meters a month.

Sulzer Shuttless:
Sulzer PU Model
32 loom of 153”
10 loom of 130”
8 loom of 110”
Total: 50Looms
Capacity: 200,000 Meters a month.
Auto:
26 machines of 76"
26 machines of 105"
48 machines of 116"
100Machines
Capacity: 1,400,000 Meters a month. Power:
64 machines of 72"
24 machines of 96"

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150 machines of 108"
238Machines
Capacity: 1,000,000 Meters a month
Power:
64 machines of 72"
24 machines of 96"
150 machines of 108"
238Machines
Capacity: 1,000,000 Meters a month
III.4 Quality Control Department:
First of all the people of Gohar checks the quality of yarn before taking it into the
process. Following are the yarn characteristics that are checked before taking it into the
process:
• Count Testing

• Strength Testing

• TPI

• Hairiness Testing

• Thick & Thin bases

At the warping section the following characteristic is checked:

• Breakage Report

When the sizing process is applied, the following two tests are applied:
• Abrasion Test

• Strength Test

After completion of the greige the gsm test is applied so that to have the best customized
product. Finally in the folding section checks are applied at every step of the folding
process.

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III.4.1 A few of the main testing equipment’s that we have available at our lab are:

1. Data Color 650 Series Model 2006

2. HT Dyeing Machine
3. Lab Dyeing Padder
4. Crock Meter
5. Nu Martindale Pilling tester
6. Fume Cabinet
Three lot samples from minimum every 3000M is taken and is tested for
construction, composition, count, GSM, Tegwa, Absorbency, pH, Pilling,
Whiteness, Wet and Dry washing and rubbing results. All these results and then
logged for order history and for improvement in future handlings

Capacities:
Confectioned (Non Filled)
Sheet Sets. 200,000 sets a month
Curtains. 100,000 pairs a month
Other Products whose production levels vary are Kitchen Linen. (Complete Range)
Pillow Shells.
Sofa Cover.

Confectioned (Filled)
Quilting. 120,000 pieces a month
Pillows. 50,000 pieces a month
Chair Pads. 30,000 pieces a month

III.5 Processing Department:

Processing Unit of every textile mill has a paramount importance because it actually
provide the finish fabric product which is either sent to customer either as a piece good or
as made up after converting the fabric into the required stitched product. The processing
unit of Gohar comprises of the following department:

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Ø Bleaching Department

Ø Finishing Department

Ø Printing Department

Ø Dyeing Department

Ø Folding Department

Ø Quality Control Lab

Ø Digital Design Studio & Engraving Department

Ø Sample Room

Ø Production & Planning Department

III.6 Bleaching Department:

The bleaching department of Gohar is equipped with the latest machinery to compete
with the market. Bleaching department has the following machines:

Ø Singeing & De-sizing:

Ø Water Mangle:

The above are the machines & a very brief overview of the machines. The bleaching
department is like a back bone of the processing unit. After weaving mill, the fabric is
brought to the bleaching department where it is prepared on the above machines so as to
be prepared for the Printing or Dyeing.
Current capacity :
Current capacity of bleaching is 70,000M per day and another 60,000M per day capacity
has been added since December 2006. All our bleaching method is Hydrogen Peroxide
based

The Quality Control people ensure the Quality of work in the Bleaching to fulfill the
collective goal.
III.7 Printing Department:
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The Printing department of Gohar is well established. It has one latest rotary. It is a
Reggiani 2005 Model Machine. It has 15 color options. Working width is 3.2 Meters and
the capacity is 40,000M per day. We are able to do the three standard design repeats
(namely 640mm, 819mm, and 914mm). The mesh categories that we can do are 80, 125
and 165.

The Printing department of Gohar is working at its best & producing really good stuff.
After the printing from the rotaries, the route of the fabric depends on the dye class.

If the reactive dyes have been used, then the fabric will be taken to first of all Ager
Machine & then Goller Soaper Washing, then to Stenter finish & finally to the calendar.

On the other hand the fabric treated with pigment dye is taken to the curing machine &
from there it is taken to the calendar after the required stenter finish. Now in the
following line, we’ll see the specifications of the Curing & Ager Machines:

Ø Curing Machine:

Ø Ager & Curing Machine:

III.8 Curing Department:

Our Curing machine is equipped with Thermo-Oil Boiler and it has the daily capacity of
60,000M
III.9 Finishing Department:
Finishing department of any textile mill has a very significant importance because it acts
like a hub in the Processing. Almost every fabric which goes through processing unit, it
has to be passed through the finishing department.

The finishing department of Gohar Processing unit is famous for its quality work. It
comprises of many latest machines which includes Stenters, Cylinders, Raising Machines
& Sanforizing Machine.

Types of Finishes:

There are two major types of finishes:

26
Ø Chemical Finishes

Ø Mechanical Finishes

The finishes in which no chemical is used is called the mechanical finish, a very good
example of mechanical finish is Calender Finish. On the other hand the finishes through
stenter are known to be the chemical finish. The finishes are of the following types:

Ø Normal Soft

Ø Super Soft

Ø Chintz

Ø Anti Pilling

Ø Anti Wrinkle

Ø Water Proof

Ø Easy Care

Ø Soil Repellent

Sanforizing Machine:

The Sanforizing machine is used for relaxing the shrinkage of warp. The machine
possessed by Gohar has a workable width of 114”. It is basically used either on customer
demand or in case of Garments. The standard is 5%. Gohar has one Sanforizing machine
in its processing unit.

Raising Machine:

This basically means to raise the fibers from the surface of the fabric. The machine
possessed by the finishing department of Gohar has a workable width of 114”. Gohar has
one raising machine in its processing unit.
III.10 Calendaring Department:

27
Rameisch Guraneri 2005 Model machine customized for High Temperature and High
Pressure which is very suitable for maximum Chintz finish. Heat source for this machine
is Thermo-oil
III.11 Folding Department:

The folding department of the Gohar has a daily production of 1,00,000m. The folding
department is the last department of the Processing Unit. After the folding unit the fabric
is transferred to GSC.

The folding department has two kinds of machines; the kind is rolling machine while the
other kind is of folding machines. It depends on the requirement that which kind of
machine would be used.

In the folding department of Gohar latest 4 score method is used for the inspection
purposes. Quality checks are made at every step of processing unit.

III.12 Engraving:
The Engraving Department of Gohar Textile Mills (Pvt) Ltd is equipped with the latest
machinery along with the manual machinery for the process of exposing.

In the Engraving Department of Gohar, the screens are generally prepared which are then
used in the printing process.

Sizes of the Screens:

Following are the three repeats of screens which are used in the Engraving Department:

Ø 640mm

Ø 820mm

Similarly the widths of the screens are of the following five kinds:

Ø 2650mm

Ø 1850mm

Ø 1620mm

28
The selection of the screens depends on the design requirement of the print. The most
important thing which should be kept in mind is that only one screen should be used for
one color that means the number of screens will be equal to the number of colors which
will be used during the printing process.

III.12.1 Coating Stage:

The first step which is taken in the formation of the screens is to coat the screen with
SCR 100. This coating is done for the purpose of blocking the meshes of the screen so
that the required king of design can be made through the screen. The coating of the
screen takes almost 8-9 minutes.
III.12.2 Heating Stage:
These screens are then heated in the ovens so that to carry out the process in the best
possible manner. When the screens are heated in the proper way then they are taken to
the exposing machines. The heat is provided to the screens so that to fix the SCR 100 so
that the exposing stage should be started.
III.12.3 Exposing Stage:

Gohar Textile Mills (Pvt) Ltd has two exposing machines, one of them is manual and the
other is fully automatic. The automatic machine is the “wax jet”. The process of exposing
stage is different for both the machines.

In the process of Manual Machine, it is quite a time taking process. In this machine, the
presence of machine operator is very important; otherwise the time for each screen will
be higher than the original one.

Earlier most of the work was done through this machine but now the major load has been
shifted to “was jet”. Irrespective of these facts the importance of this machine is still
there.

All sizes and widths of the screens can be prepared through this machine. Basically the
manual machine is used for the word of design studio.

29
The “Wax Jet” machine is fully automatic. The work done through the digital design
studio is done through this automatic machine. The speed of exposing through this
machine is relatively higher than the manual machine because there is not such need of
operator at every stage of the exposing.

The process at this machine does not effect because of the presence of the operator. The
exposing is being done through the wax on this machine that is why it has such a name.

The mechanism of this machine is that the machine is linked with the digital design
studio, so the operator can access any of the prepared design in the studio. Then the wax
is applied on the screen in such a way that the wax is applied on that place from where
the operator want to open the meshes. Then the lighting process is done i.e. the screen
goes through high power light.

The result of this process is that the place where only coating is there and there is no wax,
at these places the coating got fixed in such a way that the meshes are blocked in a better
way. After this Exposing stage the screen is taken to the next stage.
Gohar has ordered for “ink jet” machine which will enhance the production capability of
the engraving department.
III.12.4 Washing Stage:

The screens are then taken from the exposing machines to the washing area. This is the
area where the screens are washed so that the black portion can be washed from the
screens. This is also called the Developing Stage. The screens are then kept on the light
stand to see that whether the results are satisfactory or not. When the staff feels that the
design is satisfactory then they send this screen to the heating machine for curing.

III.12.5 Curing Stage:

The curing is being done through an oven. The screens are kept about 20-25 minutes in
the oven. This heat fixes the design on the screen so that after the final touch the screen
can be sent to the next department.
III.12.6 Enduring Stage:

30
During this stage the ring type iron is fixed on both the sides of the screens so that the
screens could be taken to the printing department for printing.
III.12.7 Touching Stage

During the touching stage the final work is done. In this stage if there is any extra patch
on the screen, then they are blocked with SCR52 so that the correct effect can be drawn
on the fabric. This is the final stage of Engraving Department. After this step, the screens
are then taken to printing department.

III.13 Design Studio

The design studio is a very important department of Processing Unit. The importance of
design studio is because of the reason that without its right work nothing correct can be
done. The presence of good design studio is very important for any good textile export
organization.

The buyer sends the desired design in the following forms:

Ø Through Sketches

Ø Through Fabric Sample

Ø Through CD

Ø swages

Now after having the concept of design, it is then the responsibility of design department
to make the screen design, to select the sizes of the screen, to select the repeats of the
screens and most importantly to make the films and designs so that to have the same
designs during the printing process as required by the buyer.

In the digital design studio the work is being done through the latest machineries and
software and dedicated and educated persons are there for the purpose carrying out the
process. All of the work in this studio is done on the latest machines and the work can be
accessed through the Wax Jet machine.

31
In the other design studio, the work is being done through the experienced persons. In
that studio the guideline is the first thing which is made at the start. After this step, there
comes a chain in the design studio such as to separate the colors up to making the and
preparing the films which can be used in the engraving department.

III.14 Cutting department

The cutting department is the first department of GSC, which takes the fabric. The fabric,
which is to be stitched, is brought from the folding department to the cutting department.
In this department the fabric is cut according to the specifications & need. From the
cutting department the fabric is transferred to the store from where the fabric is issued on
the required floor according to the freezing plan.

The cutting department objectives

o Quality control

o Cutting

o Minimize Wastage

So cutting department was performing these responsibilities. Mr. Arif the Cutting
supervisor who shared the rules of cutting that is the foundation of the complete stitching
department. Those are

One: LENTH FOR LENGTH (L*L)

Two: WIDTH FOR LENGTH (W*L)

The Process flow of cutting department is as below

SAMPLE PROGRAMME CUTTING

　
Stitching Department (GSC)

Gohar has two stitching units.

1: One is situated in Kharurrianwala

2: The other is situated in Saeed Colony.

32
75 helpers are daily wages working as quality checker in the whole stitching department.
200 stitching machines in the whole stitching unit. Every machine operator has a unique
no to find out the any type of the fault.

The objectives of the stitching department are

• The cost minimization and

• To minimize wastage

• Best utilization of time

• Quality control by line checker

Types of stitching

• LOCK STITCH,

• CHAIN STITCH,

• TWIN NEEDLE,

• WORK STATION

• Blind stitch

• Over lock

• Flat lock

III.15 Dispatch Department

Dispatch department is performing two functions

• WARE HOUSE,

• MAID-UP DISPATCH

33
Dispatch department is responsible to dispatch all types of Export after packing. It
depends on the marketing department when it should be dispatched. It is not necessary to
dispatch daily. Dispatch department is to pack and dispatch report preparation the prime
responsibility is to make maid-ups dispatch Report.

Dispatch Department has a continual liaison with Marketing Department and to fix
stickers according to the customer demand on the cartoons. The dispatch report also send
to the head office and as well as customer. Work force is use for loading or shipping in
container.

Container Type:

• Twenty fitter lengths

• Forty STD 8.5 feet length

• Forty STD = 9.5 height.

From cutting to dispatch process is as below

Cutting stitching Packing dispatch

III.16 Commercial Department:

Along with the cutting section, there is another important depart named as commercial
department. The working of commercial department starts from receiving the stitching
programs. First of all, they see whether it is a new order or a repeat order. Then they issue
a demand order through their Purchase Department. It is the duty of the commercial
department to arrange all the equipment needed in the stitching unit for every bulk order.
The products which are the responsibility of the commercial department includes label,
fusing, polyester rope, stiffener, insert card, poly bag, stickers, size stickers, identification
sticker, barcodes, security codes etc.

A freezing plan is made every month so as to maintain & systemize the production
process. The stitching units of Gohar have latest and number of machines to fulfill the
customer need & requirements. Total number of helpers in on daily wages in the whole
stitching unit is 75. There are 200 machines in the GSC (general stitching company).
34
Quality is most important consideration while production in Gohar. This is why the
quality checks in stitching department are of very good level. This shows that the Quality
checks in Gohar Sewing Units are of international standards.

As the stitching department is the last department before the dispatch of goods so a lot of
responsibility comes on its shoulders. There are sample rooms in the stitching units so as
to fulfill the sample stitching requirement for different markets to ensure customer
satisfaction.

So the above is the brief overview of some of the Gohar operations. Now we’ll discuss
the chances of further improvement in Gohar.

III.17 Export Marketing Department:

The export department of Gohar Textile Mills (Pvt) Ltd is known to be the best
marketing department in the whole textile industry because of the commitment and
dedication of employees, the determination of work & the best management system.

Gohar Marketing has a very strong liaison with their customers around the world. That’s
why Gohar has different segments on the basis of different regions like North America,
Australia and Europe.

Every region has a different Export Manager and its whole staff. The marketing
responsibility is not only to just sales and marketing it has also to find out new horizons
and new ways. That’s why Managers visit to new Markets around the world.

35
　

CHAPTER NO.4
LETTER OF CREDIT

36
IV.1 LETTER OF CREDIT
The English name “letter of credit” derives from the French word “accreditif”, a power
to do something, which in turn is derivative of the Latin word “accreditivus”, meaning
trust.
A letter of credit is basically a document issued by a bank guaranteeing a client's ability
to pay for goods or services. A bank or finance company issues a letter of credit on behalf
of a buyer, authorizing the seller to obtain payment within a specified timeframe once the
terms and conditions outlined in the letter of credit are met. The letter of credit acts like
an insurance contract for both the buyer and seller and practically eliminates the credit
risk for both parties, while at the same time reducing payment delays. A letter of credit
provides the seller with the greatest degree of safety when extending credit. It is useful
when the buyer is not well known and when exchange restrictions exist or are possible.
The LC can also be the source of payment for a transaction, meaning that a will get paid
by redeeming the letter of credit. Letters of credit are used primarily in international trade
transactions of significant value, for deals between a supplier in one country and a
customer in another. The parties to a letter of credit are usually a beneficiary who is to
receive the money, the issuing bank of whom the applicant is a client, and the advising
bank of whom the beneficiary is a client. Almost all letters of credit are irrevocable, i.e.,
cannot be amended or canceled without prior agreement of the beneficiary, the issuing
bank and the confirming bank, if any. In executing a transaction, letters of credit
incorporate functions common Traveler's cheques.
FROM ABOVE WE CAN CONCLUDE LETTER OF CREDIT IS
A letter of credit is a document issued mostly by financial institutions which usually
provides an irrevocable payment undertaking to a beneficiary against complying
documents as stated in the credit.
Once the beneficiary or a presenting bank acting on his behalf, makes a presentation to
the issuing bank or confirming bank, if any, within the expiry date of L/C, comprising
documents complying with the terms and conditions of the L/C, the applicable UCP. And
international standard banking practices. The issuing bank or confirming bank, if any, is
obliged to honor irrespective of any instructions from the applicants to the contrary.

37
 Seller Bank Buyer Bank

Buyer

Carrier

After a contract s concluded between buyer and seller, buyer bank supplies a letter of
credit to the seller

Seller consigns goods to a carrier in exchange for a bill of lading.

Buyer Bank

Seller Buyer

Carrier

Seller provide bill of lading to a bank in exchange for payment. Seller’s bank exchanges
bill of lading for payment from a buyer’s bank. Buyer’s bank exchange bill of lading for
payment from buyer.

38
Seller Bank Buyer Bank

Buyer

Carrier

Buyer provides bill of lading to a carrier and takes delivery of goods

Buyer Bank
Seller Bank

Buyer

Carrier

IV.2 Elements of a Letter of Credit

• A payment undertaking given by a bank (issuing bank)
• On behalf of a buyer (applicant)
• To pay a seller (beneficiary) for a given amount of money
• On presentation of specified documents representing the supply of goods
• Within specified time limits
• Documents must conform to terms and conditions set out in the letter of credit
• Documents to be presented at a specified place

39
IV.3 PARTIES TO AND ASSOCIATED WITH THE LETTER OF CREDIT
IV.3.1 Applicant
The applicant is the party who requests and instructs the issuing bank to open a letter of
credit in favor of the beneficiary. The applicant usually is the importer or the buyer of
goods and/or services. The applicant can also be another party acting on behalf of the
importer, such as a confirming house. The confirming house is equivalent to a buying
office, it acts as an intermediary between buyer and seller, and it can be located in a third
country or in the seller’s country.
IV.3.2 Beneficiary
The beneficiary is entitled to payment as long as he can provide the documentary
evidence required by the letter of credit. The letter of credit is a distinct and separate
transaction from the contract on which it is based. All parties deal in documents and not
in goods. The issuing bank is not liable for performance of the underlying contract
between the customer and beneficiary. The issuing bank's obligation to the buyer, is to
examine all documents to insure that they meet all the terms and conditions of the credit.
Upon requesting demand for payment the beneficiary warrants that all conditions of the
agreement have been complied with. If the beneficiary (seller) conforms to the letter of
credit, the seller must be paid by the bank.
IV.3.3 Issuing Bank
The issuing bank's liability to pay and to be reimbursed from its customer becomes
absolute upon the completion of the terms and conditions of the letter of credit. Under
the provisions of the Uniform Customs and Practice for Documentary Credits, the bank
is given a reasonable amount of time after receipt of the documents to honor the draft.
The issuing banks' role is to provide a guarantee to the seller that if compliant
documents are presented, the bank will pay the seller the amount due and to examine the
documents, and only pay if these documents comply with the terms and conditions set
out in the letter of credit. Typically the documents requested will include a commercial
invoice, a transport document such as a bill of lading or airway bill and an insurance
document; but there are many others. Letters of credit deal in documents, not goods.

40
IV.3.4Advising Bank
An advising bank, usually a foreign correspondent bank of the issuing bank will advise
the beneficiary. Generally, the beneficiary would want to use a local bank to insure that
the letter of credit is valid. In addition, the advising bank would be responsible for
sending the documents to the issuing bank. The advising bank has no other obligation
under the letter of credit. If the issuing bank does not pay the beneficiary, the advising
bank is not obligated to pay.
IV.3.5Confirming Bank
The correspondent bank may confirm the letter of credit for the beneficiary. At the
request of the issuing bank, the correspondent obligates itself to insure payment under
the letter of credit. The confirming bank would not confirm the credit until it evaluated
the country and bank where the letter of credit originates. The confirming bank is
usually the advising bank.

IV.4 TYPES OF LETTER OF CREDIT

IV.4.1 Commercial and stand by L/C:
Commercial letters of credit are used primarily to facilitate foreign trade. The commercial
letter of credit is the primary payment mechanism for a transaction. It is a contractual
agreement between a bank, known as the issuing bank, on behalf of one of its customers,
authorizing another bank, known as the advising or confirming bank, to make payment to
the beneficiary. The issuing bank, on the request of its customer, opens the letter of
credit. The issuing bank makes a commitment to honor drawings made under the credit.
The beneficiary is normally the provider of goods and/or services. Essentially, the issuing
bank replaces the bank's customer as the payee The standby letter of credit serves a
different function. The standby letter of credit serves as a secondary payment mechanism.
The bank will issue the credit on behalf of a customer to provide assurances of his ability
to perform under the terms of a contract. A bank will issue a standby letter of credit on
behalf of a customer to provide assurances of his ability to perform under the terms of a
contract between the beneficiary. The parties involved with the transaction do not expect
that the letter of credit will ever be drawn upon. The standby letter of credit assures the
beneficiary of the performance of the customer's obligation. The beneficiary is able to

41
draw under the credit by presenting a draft, copies of invoices, with evidence that the
customer has not performed its obligation. The bank is obligated to make payment if the
documents presented comply with the terms of the letter of credit.

They are issued by banks to stand behind monetary obligations, to insure the refund of
advance payment, to support performance and bid obligations, and to insure the
completion of a sales contract. The credit has an expiration date.The standby letter of
credit is often used to guarantee performance or to strengthen the credit worthiness of a
customer. In the above example, the letter of credit is issued by the bank and held by the
supplier. The customer is provided open account terms. If payments are made in
accordance with the suppliers' terms, the letter of credit would not be drawn on. The
seller pursues the customer for payment directly. If the customer is unable to pay, the
seller presents a draft and copies of invoices to the bank for payment.

IV.4.2 Revocable or irrevocable letter of credit:

Letters of credit may be either revocable or irrevocable. A revocable letter of credit may
be revoked or modified for any reason, at any time by the issuing bank without
notification. A revocable letter of credit cannot be confirmed. Once the documents have
been presented and meet the terms and conditions in the letter of credit, and the draft is
honored, the letter of credit cannot be revoked. The revocable letter of credit is not a
commonly used instrument. If a letter of credit is revocable it would be referenced on its
face. The irrevocable letter of credit may not be revoked or amended without the
agreement of the issuing bank, the confirming bank, and the beneficiary. An irrevocable
letter of credit from the issuing bank insures the beneficiary that if the required
documents are presented and the terms and conditions are complied with, payment will
be made. If a letter of credit is irrevocable it is referenced on its face.
IV.4.3 Sight letter of credit:
All letters of credit require the beneficiary to present a draft and specified documents in
order to receive payment. A draft is a written order by which the party creating it, orders
another party to pay money to a third party. A draft is also called a bill of exchange.
There are two types of drafts: sight and time. A sight draft is payable as soon as it is
presented for payment. The bank is allowed a reasonable time to review the documents

42
before making payment. A time draft is not payable until the lapse of a particular time
period stated on the draft. The bank is required to accept the draft as soon as the
documents comply with credit terms. The issuing bank has a reasonable time to examine
those documents. The issuing bank is obligated to accept drafts and pay them at maturity.
A Letter of credit is known as a Sight letter of credit if it involves payment to the seller
against a Sight Draft. On the other hand, if the payment is made against a Usance Draft,
then it is known as Usance letter of credit.

IV.5 DIFFERENT FIELDS OF LETTER OF CREDIT

 FROM :( NAME & ADDRESS OF OPENING BANK )

This clause contains details of bank which has opened the Letter of Credit, and it
works on the behalf of the buyer of goods. The opening bank plays the first step in the
whole process of letter of credit.

 TO :( NAME & ADDRESS OF ADVISING BANK )

This clause shows the details of bank which plays the foremost role in the process of
letter of credit. The advising bank belongs to the country of seller. It plays the role of
middleman between the seller and the opening bank

 TYPE OF L/C :IRREVOCABLE

This clause shows the type of L/C in which it is being made. Various types of L/C’s
are Revocable, Irrevocable, Commercial, Negotiable etc.

 L/C Number :
The clause shows a particular number for L/C and every L/C has different number so
that difference can be judged between different L/C’s.
 DATE OF ISSUE :
This clause shows that date on which the opening bank has issued the L/C.

 DT. & PLACE OF EXPIRY : __________________________________IN

43
This shows about the date and the place in india where the lc will get expired, means
that financial institution where the L/C is send by the opening bank.
 NAME & ADDRESS OF THE:
APPLICANT
It contains detail about the buyer of the goods. It gives complete address of the buyer.
 NAME & ADDRESS OF THE:
BENEFICIARY
It shows details of the seller of goods, like seller’s name, address, country to which he
belongs.
 AMOUNT OF CREDIT IN :
 US DOLLARS /EURO/ANY
 OTHER FREELY
 EXCHANGEABLE CURRENCY
 (IN FIGURES & WORDS)
It shows the currency in which the deal is been made, the code for that currency as
well as the amount of the goods
 PERCENTAGE CREDIT : AS PER CONTRACT
AMOUNT TOLERANCE
Sometimes the amount in the letter of the credit and the exact amount of the goods
does not match. There can be a difference between the both. So a specific percentage
of amounts of goods specified in L/C is given as a tolerance and the exact amount of
goods can be in between the minimum and maximum tolerated limits.

 CREDIT AVAILABLE WITH:

This part shows the details of that party from where the amount can be reimburses by
the seller. This state’s either a specified bank in India or any bank in India.
 USANCE OF THE DRAFTS :
This clause shows whether the draft is payable at sight or at any date in future.
 DRAFTS TO BE DRAWN ON:

44
 It tells about the party which acts as a drawee. Generally the opening bank acts as a
drawee
 PARTIAL SHIPMENT : AS PER CONTRACT
This clause contains details whether the shipment of goods is allowed through one
shipment or the goods can be sending through various shipments.
 TRANSHIPMENT : AS PER CONTRACT
Transshipment means when the goods are send,
 SHIPMENT FROM :
It tells about that place from where goods are send by the seller.
 SHIPMENT TO :
It’s that place where the goods are sending by the seller. And generally its that
country where the buyer lives.
 LATEST SHIPMENT DATE :
It’s that date till which the goods should reach to the buyer. After that date, it’s the
choice of the buyer whether he accepts the goods or not.
 DESCRIPTION OF GOODS :
 Description of Materials
 Size ( in mm) and Quantity (in MT)
 Specification
 Tolerance
 Quantity
 Quantity Tolerance
 Price per MT (in USD/Euro/any other freely exchangeable currency)
 DOCUMENTS REQUIRED :
Beneficiary’s Commercial Invoice - one original plus two signed copies covering
materials shipped. Invoices will be raised on the basis of (THEORETICAL/
ACTUAL/ DRAFT SURVEY) WEIGHT.

IV.6 L/C in Gohar

45
In this system , first corporate centralized market Yarn department advices a branch to
make sale of yarn through letter of credit In case of those customers who are either new
for a organization whose credit worthiness is not satisfactory according to market
research report

After opening the L/C concerned unit makes the sale to the customers as per agreed terms
and conditions stipulated in the L/C. Then concerned unit sent the invoice and other
papers to the centralized accounting cell for lodging the documents with the bank.. This
documents consists of
 Bill of exchange
 Original invoice
 Original G/r copy
 Packing list
 Copy of L/C

On the Due date mentioned in the L/C, we receive the realization advice from the bank,
where we have lodged the document drawn under L/C. after getting the advice from the
bank, we credit the customers with the amount we have realized

IV.7 DOCUMENTS NEED FOR L/C

Letter of credit documents are required to be arranged in the following series:

By seller (duplicate documents)

 Bill of exchange
 Bill
 Goods lorry receipt
 Party acceptance letter
 Debit note
 Packing list
 Original letter of credit

46
 By seller’s bank (Duplicate documents)
 Letter
 Bill of exchange
 Bill
 Goods lorry receipt
 Party acceptance letter
 Debit note
 Packing list
 Letter of credit (duplicate)
By buyer’s bank (Original documents)
 Bill of exchange
 Bill
 Goods lorry receipt
 Party acceptance letter
 Debit note
 Packing list
 Letter of credit (DUPLICATE)

 BILL OF EXCHANGE
A non- interest bearing written order used primarily in international trade that binds one
party to pay a fixed sum of money to another party at a predetermined future date.
It’s an unconditional order issued by a party or business which directs the recipient to pay
a fixed sum of money to a third party at a future date. The future date may b either fixed
or negotiable. A bill of exchange must be in writing and signed and dated also called
draft
Negotiation of letter of credit
NEGOTIABLE means the ability to be sold or transfers to another party as a form of
payment. Something which is negotiable is transferable by endorsement and delivery.
(When documents come back from bank).
JOURNAL ENTIRES

47
 IN THE BOOKS OF GOHAR AT THE YEAR ENDED MARCH 31ST 2….
PARTICULARS L.F
DEBIT CREDIT (RS)
(RS)
Particular bank a/c……………………………Dr XXXX

Interest on inland bill discount a/c…………….Dr XXXX

To inland bill discount a/c

(BEING Negotiation of ibdno……….on dated……. XXXX

Inland bill discount charges a/c………………..Dr

To bank a/c XXXX

(BEING INALND BILL DISCOUNTING CHGS DR
BY BANK ON DATED ……….AGST IBD NO…… XXXX

How interest is calculated?

Total bill of exchange amount * rate of interest* number of days in Bill of exchange.
Rate of interest is 11.5% (according to STATE BANK OF PAKISTAN)
Number of days is calculated as per the conditions laid down IN L/C AGREEMENT
A Realization of bill of exchange JOURNAL ENTIRES

IN THE BOOKS OF GOHAR AT THE YEAR ENDED MARCH 31ST 2….

PARTICULARS L.F DEBIT(RS) CREDIT (RS)

48
 I inland and bill discounting a/c………Dr XXXX

To party account XXXX

(BEING REALISATION OF IBD NO, AGST INV

NO…….ON DATED…….)

• At the time of realisation of L/C there may be over due days

Bank will charge over due interest against late payment according to number of days

 Fully payment but late payment (overdue interest charged by bank)

JOURNAL ENTIRES
IN THE BOOKS OF GOHAR AT THE YEAR ENDED MARCH 31ST 2….

PARTICULARS L.F DEBIT(RS) CREDIT (RS)

Party a/c …………………………..Dr XXXX

To bank XXXX
( BEING AMOUNT OF OVERDUE INTEREST DEBITED
TO PARTY ACCOUNT AGST IBD NO. ON DATED
……..)

49
 CHAPTER NO.5
MARKETING STRATEGIES

50
5.1 MARKETING STRATEGY
The past year has been tough for the textile industry as competition is steadily and margin
of profits is becoming smaller day-by-day. Our competitors from Asia have come up in a
big way with lower prices resulting from lower overhead, cheaper and better raw
materials and machinery.

Countries like China, Indonesia, India and Bangladesh played an active role in the fabric
market. Improvement in quality and production capability was the main area of
concentration.

Market for Yarns and Grey fabrics was diversified to increase the customer base and
reduce dependency on the Far East. In this effort business with Malaysia, Korea, Taiwan,
UK and South America was initiated in case of Yarns.

In case of Grey Fabric market business was initiated in South Africa, North America,
Japan, Italy, France, and Sri Lanka etc. Product range was also increased to cater to the
differing needs of the buyers. Fancy and special items like Dobby Designs, Bedford
Cords, and Cavairy Twills and stretch fabrics were developed which are being sold at
premium prices.

Gohar has constantly updated our machinery, replacing old machines with new ones
upgrading the existing set-up, leading to better efficiencies and quality products.

Gohar has established its name in new markets be creating specialized fabrics, designs
and also by providing our customers with efficient service and excellent quality.

51
Leaving behind the traditional way of doing business and in our journey towards
excellent it has consistently expanded its buyer base and explored the different markets
around the world.

Keeping in view demand of the World market, Gohar Textile Mills (Pvt) Ltd pursued its
strategy of value addition and reducing the dependency on Grey Fabrics and Grey Yarn.

Having the foresight to assess that in coming year’s value addition will be the thing of the
future, Gohar Textile Mills (Pvt) Ltd worked towards the achievement of its goal of
future increasing its capability in value addition.

The export of processed fabric and made-Ups has shown market improvement as
compared to last year. In Europe, Gohar has made the most growth in the year 1999.

It has placed us successfully in the middle to upper end of the market. Our strength in
Europe is the curtain division.

This included yarn dyed dobbies, engineered confections, different finishes and
embellished products. The plan is to continue with this winning strategy and at the same
time we are trying to find new clients in the high end.

5.2 Marketing process

Inquiry costing quote to customer

Check Greige

Processing cost per delivery

Approval received

Lab dips/strike sample P.O received/Sales Contract sent

52
 Greige booking

　 Dying/printing program issue

Fabric processed

　 　

Shipment sample dispatched for approval

　 Shipment sample approved

　 Shipment dispatched

5.3 Product/Service
(We Sell): Quilts, quilt covers, bed sheets, sleeping bags, table covers, grey fabric,
printed fabric, embroided fabric.

• Main Markets: North America

• South America
• Western Europe
• Eastern Asia
• Southeast Asia
• Mid East
• Africa
• Oceania

Chec Abstr Abstr Abstr

53
ked Bedding Set act Bedding Set act Bedding Set act Bedding Set

Chec Flor Dye Dye

ked Bedding Set al Bedding Set d Bedding Set d Bedding Set

CHAPTER NO.6
WORKING CAPITAL

54
 VI.1 Introduction To Working Capital

Working Capital is life blood and nerve centre of a business. Just as circulation of blood
is essential for the survival of the human being similarly working capital is necessary for
the survival of every business organization, whether it is a small organization or a big
organization.
Every business needs funds for two purposes-for the establishment and to carry out its
day to day operations. Long terms funds are required to create production facilities
through purchase of fixed assets such as plant & machinery, land & building, furniture &
fixtures etc. Investments in these assets the present that part of the firm’s capital, which is
blocked on a permanent or fixed basis and is called fixed capital. Funds are also needed
for short-term purposes as for the purchase of raw material, payment of wages & other
day to day expenses etc. these funds are known as working capital.

A MEANING OF WORKING CAPITAL

In simple words, working capital refers to that part of the firm’s capital which is required
for financing short term or current assets such as, cash, marketable securities, debtors,
and inventories or in other words the working capital is the excess of current assets over
current liabilities.
VI.2 CLASSIFICATON OR KINDS OF WORKING CAPITAL
Working capital may be classified in two ways:
a) On the basis of concept
b) On the basis of time
VI.2.1 On The Basis Of Concept

55
On the basis of concept, working capital is classified as gross working capital and net
working capital. This classification is important from the point of view of the financial
manager.
Gross working capital: - This is a wider term in a relation to the working capital. It
includes all current assets. Thus the gross working capital is the capital invested in total
current assets of the company. Examples of current assets are:

1. Cash in hand and Bank

2. Bill Receivables

3. Sundry Debtors

4. Short Term Loan & Advances

5. Inventory of Stock

6. Prepaid expenses

Gross Working Capital = Total Current Assets

VI.2.2 ON THE BASIS OF TIME, WORKING CAPITAL MAY BE

CLASSIFIED AS
 Permanent or fixed working capital
 Temporary or variable working capital

VI.2.2.1 PERMANENT OR FIXED WORKING CAPITAL:

Permanent working capital is the minimum amount which is required and ensures
effective utilization of fixed facilities and or maintaining the circulation of current assets.
There is always a minimum level of current assets which is continuously required by the
enterprise to carry out its normal business operations. For example, work-in-progress,
finished goods and cash balance. This minimum level of current assets is called
permanent working capital as this part of the capital is permanently blocked in current
assets. As the business grows, the requirements of permanent working capital also
increase due to the increase in current assets.

56
 VI.2.2.2 TEMPORARY OR VARIABLE WORKING CAPIAL:
Temporary working capital is the amount of working capital which is required to meet
the seasonal demands and some special exigencies. Variable working capital can be
further classified as seasonal working capital and special working capital. Most of the
enterprises have to provide additional working capital to meet the seasonal and social
needs. The capital required to meet the seasonal needs of the enterprise is called seasonal
working capital. Special working capital is that part of working capital which is required
to meet exigencies such as launching of extensive marketing campaign for conducting
research, etc
VI.3 FACTORS DETERMINING THE WORKING CAPITAL
The working capital requirement of the concern depends upon a large numbers of factors
such as nature and the size of business, the character of their operations, the length of
production cycles, the rate of stock turnover and the state of economic situation. It is not
possible to rank them because all such factors are of different importance and influence
of individual factor changes for a firm overtime. However, the following are important
factors generally influencing the working capital requirements.

 Nature and character of business.

 Size of business\scale of operation.

 Production policy.

 Manufacturing process\length of production cycle.

 Seasonal variation.

 Working capital cycle.

 Rate of stock turnover.

 Credit policy

 Business cycle.

 Rate of growth of business.

57
  Earning capacity and dividend policy.
 Price level changes.
 Other factors.

VI.4 IMPOTANCE OF ADEQUATE WORKING CAPITAL

Working Capital is the blood and the nerve centre of business. Just as the blood
circulation is essential in the human bodies for maintaining life, working capital is very
important to maintain the running of business. No business can run successfully without
an adequate amount of working capital.
The advantages are as follows:
 Solvency of the business. Adequate working capital helps in maintaining
solvency of the business by providing uninterrupted flow of production.
 Goodwill. Sufficient working capital enables a business concern to make prompt
payments.
 Easy loan. A concern having adequate working capital high solvency and good
credit standing can arrange loans from banks and others on easy terms.
 Cash discounts. Adequate working capital also enables a concern to avail cash
discounts on the purchase and hence it reduces costs.
 Regular payments of salaries, wages and other day to day commitments. A
company which has adequate working capital can make regular payments of
salaries, wages and other day to day commitments with raises the morale of its
employees, increases their efficiency, reduces wastages and enhances production
and profits.
 Exploitation of favorable market conditions. Only concerns with adequate
working capital can exploit favorable market conditions such as purchasing its
requirement in bulk when the prices are lower and holding its inventory for higher
prices.

58
  Ability to face crises. Adequate working capital enables the concern face business
crises in emergencies such as depression because during such periods, generally,
there is much pressure on working capital
VI.4.1 THE NEED OF WORKING CAPITAL
The need for working capital cannot be over emphasized. Every business needs some
amount of working capital. The need for working capital arises due to the time gap
between the productions and realized of cash from sales. There is an operating cycle
involved in sales and realization of cash. There are time gaps in purchase of raw material
and production; production and sales; and realization of cash.
Thus, working capital is needed for the following purposes:
 For the purchase of raw materials, components and spares.

 To pay wages and salaries.

 To incur day-to-day expenses and overhead costs such as fuel, power and office
expenses etc.

 To meet the selling costs as packing, advertising, etc.

 To maintain the inventories of raw material, work-in-progress, stores and spares

and finish stock.

 To provide credit facilities to the customers.

VI.5 OPERATING CYCLE OF GOHAR TEXTILE MILLS (PVT) LTD

The operating cycle refers to the length of the length of time between the firms paying the
cash for the material, entering into the production process\stock and the inflow of cash
from debtors. There is a complete cycle from cash to cash where in cash gets converted
into raw material, work-in-progress, finished goods debtors and finally in cash. Short-
term funds are required to meet the requirements of the funds during this time period this
time period depends on the length of time within which the original cash gets converted
into cash again. The determination of working capital cycle helps in the forecast, control
and management of working capital. It indicates the total time lag and the relative
significance of constituent parts.

FINISHED GOODS
59
 WORK-IN-PROGRES
DEBTORS

RAW MATERIAL
CASH

THE OPERATING CYCLE CONSISTS OF FOLLOWING EVENTS, WHICH

CONTINUES THROUGHOUT THE LIFE OF BUSINESS.
 Conversion of cash to raw material.

 Conversion of raw material to work in progress.

 Conversion of work in progress into finished goods.

 Conversion of finished goods into accounts receivable.

 Conversion of accounts receivable into cash.

VI.6 FINANCING BY THE WORKING CAPITAL REQUIRMENTS BY

BANKS
The bank credit is the primary institutional source of working capital finance. The bank
provides finance through loan agreements, overdrafts, cash credit, purchasing of bills,
and term loans. Banks have been certain norms in granting working capital finance to
companies. These norms have been greatly influenced by the recommendation of various
committee appointed by RESERVE BANK OF GOHAR from time to time.
Gohar Textile Mills (Pvt) Ltd finances his working capital from the different banks like
Allied Bank , Alflah Bank, Habib Bank Corporate. Company finances the amount
according to its need according to its need of working capital requirement.

60
 VI.7 NET WORKING CAPITAL
Net working capital is the difference between the current assets and the current liabilities.
Therefore it is called net working capital. When current assets exceed current liabilities
then the working capital is positive otherwise negative. Examples of current liabilities.
 Bill Payable

 Sundry creditors

 Outstanding expenses

 Short term loans

 Dividend payable

 Bank overdraft

CHAPTER NO.7
SWOT ANALYSIS

61
7.1 SWOT ANALYSIS

7.1.1 Internal and External factors.

The Internal component of Analysis is concerned with the basic
strengths and weaknesses of the organization. Thus, it depicts the
internal environment of the company. The strengths of the company may
be its financial or human resources, processes, operational methods,
marketing strategies, segmentation techniques or any expertise that the
company may feel as its core competencies. Contrary to this, any
discrepancies in these factors, at the same time, may become the
weaknesses of the company. Hence, it is the internal environment of the
company that shapes its business strategies and provides direction to
survive in the marketplace.

The external component deals with the factors that the company faces in
its external competitive environment. These factors are categorized as
opportunities available for the company in the market place and the
threats strained by its competitors. The opportunities of the company

62
may by its ability to satisfy the ever arising needs of its customers better
than its competitors, new available markets, room for setting new
operations, falling of barriers due to globalization trend etc. If a firm fails
to avail the opportunities as soon as they arrive, these opportunities
become threats for that company. This is because your competitors will
avail that opportunity in their first attempt and attain first mover
advantage over you.

SWOT Analysis is a popular technique used to analyze some company’s

present business situation. It provides us with an overview of company’s
major strengths and its critical weaknesses. The external opportunities and
threats that the company faces in the external environment are also
highlighted in this approach.

7.2 SWOT Analysis

7.2.1 Strengths:
 No outside financing so we can under take big orders for longer periods without
having to think about any financial constraints.
 High Cumulative Customer retention rate since the start of operations
 Sustained growth rate of annual sales turnover.
 Consistent Quality ; Timely shipments
 Vertically integrated.

 High quality products.

 Excellent market image in the local and international market.

 Highly qualified management.

 Adequate financial resources.

 Adopting information technology.

63
  Loyal customers.

 Skilled Labor.

 Broad and motivational vision.

7.2.2 Weaknesses:
 High employee turnover

 Centralized management system

 High cost of production.

 Low production capacity.

 De-motivated Staff.

 Less promotional activities.

 Non-Corporative culture.

 Insufficient benefits for the employees.

 Stereotype machinery for processing.

 Communicational gap among different departments.

7.2.3 Opportunities:

 Zero sales tax to be charged on 12 textile raw materials

 Can expand its division such as entering in weaving sector also.

 Can introduce its own label in domestic as well in international market

 Can capture new market segment.

 Full potential of entertaining the local market.

 Can reduce the cost by proper utilization of resources.

64
 End of quota restrictions by the end of year 2004.

 Can hire well-educated and experienced staff.

 Globalization.

7.2.4 Threats:
 Entry of new competitors just likes China & India.
 Buyer need and demand changes.
 Political instability.
 Changing geopolitical situation.
 Change of government policies.
 Low price offered by competitors.
 Globalization

CHAPTER NO.8
FINANCIAL STATEMENTS AND ANALYSIS

65
8.1 Financial Statements

8.1.1 Balance Sheet (Assets)

GOHAR TEXTILE MILLS (PVT) LTD.

BALANCE SHEET
AS ON JUNE 30, 2008

ASSETS 2008 2007 2006

Non-Current Assets
Fixed Assets
Property, Plant and equipment 95,106,306 859,511,872 834,564,661
Capital work in progress 17,167,507 29,416,245 9,917,561
112,273,81 888,928,11 844,482,22
3 7 2

Long Term Deposits and 17,911,775 1,855,100 1,851,600

Deferred Cost

66
Due From Association 932,913,058 - -

Current Assets

Stores, spares and loose tools 5,371,789 22,059,708 21,923,660

Stock in trade 501,519,693 418,396,869 254,750,341
Trade Debts 325,722,287 179,273,728 230,280,445
Loans and advances 108,291,134 14,551,289 16,070,374
Deposits & Prepayments 1,520,559 634,052 475,251
Other Receivables 90,774,664 45,621,999 48,094,547
Cash & Bank Balances 5,862,001 12,269,150 25,341,111
1,039,062,12 596,935,72
7 692,806,795 9

2,102,160,77 1,583,590,01 1,443,269,55

3 1 1

8.1.2 Balance Sheet (Liabilities)

GOHAR TEXTILE MILLS (PVT) LTD.

BALANCE SHEET
AS ON JUNE 30, 2008
EQUITY & LIABILITIES 2008 2007 2006
Share Capital & Reserves
Authorized Capital
1,000,000 ordinary shares of Rs 100,000,00 100,000,00 100,000,00
of Rs. 100/= each 0 0 0

Issued Subscribed & Paid up Capital 40,649,500 40,649,500 40,649,500

Revenue Reserves 1,537,898,335 1,040,929,687 977,358,726
1,578,547,83 1,081,579,18 1,018,008,22
5 7 6
Surplus on Revaluation of Fixed 136,785,79 150,307,32
Assets 3 5
Non Current Liabilities
108,893,47 161,993,47
Long Term Loans 108,893,475 5 5

67
 Liabilities against Assets Subject to 5,544,15
Finance Lease 697,617 - 4
Due to Associate Undertaking 90,859,194 - -
Current Liabilities
Trade & Other Payable 111,904,367 78,746,596 50,187,799
Interest/Markup Payable - 2,938,326 1,785,003
Current Portion of Long Term 91,258,28 58,665,99 42,981,01
Liabilities 5 1 2
Short Term Finance 120,000,000 105,000,000 -
Advances from customers - 264,209 -
Provision for Taxation - 10,716,434 12,462,557
323,162,65 256,331,55 107,416,37
Contingencies & Commitment 2 6 1

2,102,160,77 1,583,590,01 1,443,269,55

3 1 1

8.1.3 Income Statement

GOHAR TEXTILE MILLS (PVT) LTD.

INCOME STATEMENT
FOR THE YEAR ENDED JUNE 30, 2008

2008 2007 2006

RUPEES RUPEES RUPEES

Sales 1,685,690,136 939,447,389 1,106,826,330

Cost of Sales (1,337,574,966) (772,932,261) (924,243,329)
Gross Profit 348,115,170 166,515,128 182,583,001

Selling & Distribution Expenses (136,679,293) (53,845,099) (62,077,899)

Administrative Expenses (30,820,720) (23,493,925) (26,086,598)

(167,500,013) (77,339,025) (88,164,497)

180,615,157 89,176,103 94,418,504

68
Other Operating Income 113,018,209 54,304 25,463
Other Operating Expenses (293,887) (3,263,473) -
293,339,479 85,966,935 94,443,967

Finance Cost (12,529,084) (23,960,952) (16,077,485)

Net Profit for the year before taxation 280,810,395 62,005,983 78,366,482

Provision for Taxation (15,246,256) (10,716,434) (12,462,557)

Net Profit for the year after taxation 265,564,139 51,289,549 65,903,925

8.2 Vertical/Cross-Sectional/Common Size Analysis Techniques

Vertical/Cross-sectional/Common size statements came from the problems in comparing

the financial statements of firms that differ in size.

• In the balance sheet, the assets as well as the liabilities and equity are each
expressed as a 100% and each item in these categories is expressed as a
percentage of the respective totals.
• In the common size income statement, turnover is expressed as 100% and every
item in the income statement is expressed as a percentage of turnover (sales).

8.2.1 Vertical Analysis (Liabilities)

GOHAR TEXTILE MILLS (PVT) LTD.

Vertical Analysis (Liabilities)

EQUITY & LIABILITIES 2008 2007 2006

Share Capital & Reserves

69
Authorised Capital
1,000,000 ordinary shares
of Rs. 100/= each 5% 6% 7%

Issued Subscribed &

Paid up Capital 2% 3% 3%
Revenue Reserves 73% 66% 68%
75% 68% 71%

Surplus on Revaluation of
Fixed Assets - 9% 10%

Non Current Liabilities

Long Term Loans 5% 7% 11%

Liabilities against Assets Subject

to Finance Lease 0.03% - 0.4%
Due to Associate Undertaking 4% - -
Current Liabilities

Trade & Other Payable 5% 5% 3%

Interest/Markup Payable - 0.2% 0.1%
Current Portion of Long Term Liabilities 4% 4% 3%
Short Term Finance 6% 7% -
Advances from customers - 0.02% -
Provision for Taxation - 1% 1%

15% 16% 7%
Contingencies & Commitment

100% 100% 100%

8.2.2 Vertical Analysis (Assets)

Vertical Analysis (Assets)
Increase or (Decrease) %age
ASSETS 2008 2007 2006
Non-Current Assets
Fixed Assets
Property, Plant and equipment 5% 54% 58%

70
Capital work in progress 1% 2% 1%
5% 56% 59%

Long Term Deposits

and Deferred Cost 1% 0.12% 0.13%

Due From Association 44% - -

Current Assets
Stores, spares and loose tools 0.3% 1% 2%
Stock in trade 24% 26% 18%
Trade Debts 15% 11% 16%
Loans and advances 5% 1% 1%
Deposits & Prepayments 0.1% 0.04% 0.03%
Other Receivables 4% 3% 3%
Cash & Bank Balances 0.3% 1% 2%
49% 44% 41%

100% 100% 100%

Interpretation
From the vertical analysis above, we can compare the percentage mark-up of asset items
and how they have been financed. The strategies may include increase/decrease the
holding of certain assets. We may as well observe the trend of the increase in the assets
and liabilities over several years.

8.2.3 Vertical Analysis (Income Statement)

GOHAR TEXTILE MILLS (PVT) LTD.
INCOME STATEMENT
FOR THE YEAR ENDED JUNE 30, 2008
Vertical Analysis
2008 2007 2006

Sales 100% 100% 100%

Cost of Sales -79% -82% -84%
Gross Profit 21% 18% 16%

71
 Selling & Distribution Expenses -8% -6% -6%
Administrative Expenses -2% -3% -2%

-10% -8% -8%

11% 9% 9%

Other Operating Income 7% 0% 0%

Other Operating Expenses 0% 0% 0%
17% 9% 9%

Finance Cost -1% -3% -1%

Net Profit for the year before

taxation 17% 7% 7%

Provision for Taxation -1% -1% -1%

Net Profit for the year after

taxation 16% 5% 6%

8.3 Horizontal Financial Statement Analysis

This technique is also known as comparative analysis. It is conducted by setting

consecutive balance sheet, income statement or statement of cash flow side-by-side and
reviewing changes in individual categories on a year-to-year or multiyear basis. The most
important item revealed by comparative financial statement analysis is trend.
A comparison of statements over several years reveals direction, speed and extent of a
trend(s). The horizontal financial statements analysis is done by restating amount of each
item or group of items as a percentage.

Such percentages are calculated by selecting a base year and assign a weight of 100 to the
amount of each item in the base year statement. Thereafter, the amounts of similar items
or groups of items in prior or subsequent financial statements are expressed as a
percentage of the base year amount. The resulting figures are called index numbers or
trend ratios. From the balance sheet statement in exhibit 1. The following indexed
balance sheet can be established.

72
8.3.1 Horizontal Analysis (Liabilities)
GOHAR TEXTILE MILLS (PVT) LTD.
Horizontal Analysis (Liabilities)
EQUITY & LIABILITIES Increase or (Decrease) %age
2007-2008 % 2006-2007 %
Share Capital & Reserves
Authorised Capital
1,000,000 ordinary shares
of Rs. 100/= each - - - -
-
Issued Subscribed & -
Paid up Capital - - - -
Revenue Reserves 495,728,528 48% 64,811,081 7%
495,728,528 46% 64,811,081 6%
-
Surplus on Revaluation of -
Fixed Assets (136,785,793) -100% (13,521,533) -9%
-
Non Current Liabilities -
-
Long Term Loans - - (53,100,000) -33%

73
 Liabilities against Assets Subject
to Finance Lease 697,617 - (5,544,154) -100%
Due to Associate Undertaking 90,859,194 - -
Current Liabilities -
-
Trade & Other Payable 34,397,890 44% 27,318,678 54%
Interest/Markup Payable (2,938,326) -100% 1,153,323 65%
Current Portion of Long Term
Liabilities 32,592,294 56% 15,684,979 36%
Short Term Finance 15,000,000 14% 105,000,000
Advances from customers (264,209) -100% 264,209
Provision for Taxation (10,716,434) -100% (1,746,123) -14%
-
68,071,215 27% 147,675,066 137%
Contingencies & Commitment -
-
518,570,762 33% 140,320,460 10%

8.3.2 Horizontal Analysis (Assets)

GOHAR TEXTILE MILLS (PVT) LTD.
Horizontal Analysis (Assets)

Increase or (Decrease) %age

ASSETS 2007-2008 % 2006-2007 %
Non-Current Assets
Fixed Assets
Property, Plant and (764,405,566
equipment ) -89% 24,947,211 3%
Capital work in progress (12,248,738) -42% 19,498,684 197%
(776,654,304
) -87% 44,445,895 5%
-
-
Long Term Deposits -
and Deferred Cost 16,056,675 866% 3,500 0.19%
-
Due From Association 932,913,058 - - -
Current Assets - -
- -
Stores, spares and loose tools (16,687,919) -76% 136,048 1%

74
 Stock in trade 83,122,824 20% 163,646,528 64%
Trade Debts 146,448,559 82% (51,006,717) -22%
Loans and advances 93,739,845 644% (1,519,085) -9%
Deposits & Prepayments 886,507 140% 158,801 33%
Other Receivables 45,152,665 99% (2,472,548) -5%
Cash & Bank Balances (6,407,149) -52% (13,071,961) -52%
346,255,332 50% 95,871,066 16%
518,570,762 33% 140,320,460 10%

Interpretation
As basis of Analysis, the analyst may seek variables which seem to improve or
deteriorate and bring a challenge to the stakeholders in their various decisions. Example
from the previous table one can ask the following questions?

• Why is there an increase in the stock of the company? Has the company changed
its inventory policy?
• Why did taxation increase so tremendously? Were there any changes in taxation?
Is it reflected by the increase in sales? Profit?
• Why is there an increase in the fixed assets and at the same time decrease in the
long-term debt? How were these assets financed?

8.3.3 Horizontal Analysis (Income Statement)

GOHAR TEXTILE MILLS (PVT) LTD.

INCOME STATEMENT
FOR THE YEAR ENDED JUNE 30, 2008
Horizontal Analysis
2008-2007 2007-2006
% %
Change Change Change

Sales 746,242,747 79% (167,378,941) -15%

Cost of Sales (564,642,705) 73% 151,311,068 -16%
Gross Profit 181,600,042 109% (16,067,873) -9%
- -
- -
Selling & Distribution Expenses (82,834,194) 154% 8,232,800 -13%
Administrative Expenses (7,326,795) 31% 2,592,673 -10%

75
 - -
(90,160,988) 117% 10,825,472 -12%
- -
91,439,054 103% (5,242,401) -6%
- -
208021
Other Operating Income 112,963,905 % 28,841 113%
Other Operating Expenses 2,969,586 -91% (3,263,473) 0%
207,372,544 241% (8,477,032) -9%
- -
Finance Cost 11,431,868 -48% (7,883,467) 49%
- -
Net Profit for the year before
taxation 218,804,412 353% (16,360,499) -21%
- -
Provision for Taxation (4,529,822) 42% 1,746,123 -14%
- -
214,274,59 (14,614,37
Net Profit for the year after taxation 0 418% 6) -22%
8.4 Ratio Analysis

Ratio analysis is one of the techniques of financial analysis where ratios are used as a
yardstick for evaluating the financial condition and performance of a firm. Analysis and
RATIO
interpretation
ANALYSIS of various accounting ratios gives skilled and experienced analyst a better
understanding of the financial condition and performance of the firm than what he could
have obtained only through a perusal of financial statements.
LIQUIDITY RATIOS

Activity Ratios

leverage Ratio

PROFITABILITY
RATIOS

76
8.4.1 LIQUIDITY RATIOS

Liquidity represents the ability of a company to efficiently and economically

accommodate deposits withdrawal as well as fund increase in assets. A company has a
liquidity potential when it has the ability to obtain sufficient funds in a timely manner at a
reasonable cost. Illiquidity is a primary factor leading to a Company’s failure whereas
high liquidity helps otherwise weak institutions to remain funded during the period of
difficulty.

• Liquidity refers to the ability of a firm to meet its short-term financial obligations
when and as they fall due.
• The main concern of liquidity ratio is to measure the ability of the firms to meet
their short-term maturing obligations. Failure to do this will result in the total
failure of the business, as it would be forced into liquidation.
I. Current ratio
II. Quick Asset to Deposit ratio

8.4.1.1 CURRENT RATIO

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 The Current Ratio expresses the relationship between the firm’s current assets and its
current liabilities.
Current assets normally include cash, marketable securities, accounts receivable and
inventories. Current liabilities consist of accounts payable, short term notes payable,
short-term loans, current maturities of long term debt, accrued income taxes and other
accrued expenses (wages).

Current Ratio :- Current Assets

Current Liabilities

Current Assets
2008 2007 2006
Stores, spares and loose tools 5,371,789.00 22,059,708 21,923,660
Stock in trade 501,519,693.00 418,396,869 254,750,341
Trade Debts 325,722,287.00 179,273,728 230,280,445
Loans and advances 108,291,134.00 14,551,289 16,070,374
Deposits & Prepayments 1,520,559.00 634,052 475,251
Other Receivables 90,774,664.00 45,621,999 48,094,547
Cash & Bank Balances 5,862,001.00 12,269,150 25,341,111

Total Current Assets 1,039,062,127.00 692,806,794.75 596,935,729.00

Current Liabilities
2008 2007 2006
Trade & Other Payable 111,904,367 78,746,596 50,187,799
Interest/Markup Payable - 2,938,326 1,785,003
Current Portion of Long Term
Liabilities 91,258,285 58,665,991 42,981,012
Short Term Finance 120,000,000 105,000,000 -
Advances from customers - 264,209 -
Provision for Taxation - 10,716,434 12,462,557

Total Current Liabilities 323,162,652.00 256,331,556.42 107,416,371.00

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 Particulars 2008 2007 2006
Rs. Rs. Rs.
Current Asset 1,039,062,127 692,806,795 596,935,729
Current Liabilities 23,162,652 256,331,556 107,416,371

Ratio 3.22 2.70 5.56

INTERPRETATION
This ratio shows that whether the current assets of the company are Sufficient to meet the
current liabilities or not. In 2006 it was 5.56 that shows low liquidity because this ratio is
above standard that is 2. In 2007 it was 2.70, that shows that firm use financing leverage
in 2007 and approximately to 3.32 in 2008, that shows that firm decrease its debt in his
total capital.

8.4.1.2 QUICK RATIO OR TEST ACID RATIO

Measures assets that are quickly converted into cash and they are compared with current
liabilities. This ratio realizes that some of current assets are not easily convertible to cash
e.g. inventories.

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 The quick ratio, also referred to as acid test ratio, examines the ability of the
business to cover its short-term obligations from its “quick” assets only (i.e. it
ignores stock). The quick ratio is calculated as follows

Quick Ratio:- Quick assets

Current Liabilities

Liquid Assets 2008 2007 2006

Stores, spares and loose 5,371,789 22,059,708 21,923,660
tools
Stock in trade 501,519,693 418,396,869 254,750,341
Trade Debts 325,722,287 179,273,728 230,280,445
Loans and advances 108,291,134 14,551,289 16,070,374
Deposits & Prepayments 1,520,559 634,052 475,251
Other Receivables 90,774,664 45,621,999 48,094,547
Cash & Bank Balances 5,862,001 12,269,150 25,341,111

Total Current Assets 1,039,062,127 692,806,794.75 596,935,729

501,519,693 418,396,869 254,750,341
Less:- Inventory

537,542,434 274,409,926 342,185,388

Total Liquid Assets
2008 2007 2006
Rs. Rs. Rs.
Current Asset- Inventory 537,542,434 274,409,926 342,185,388
Current Liabilities 323,162,652 256,331,556 107,416,371
Ratio 1.66 1.07 3.19

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INTERPRETATION
This ratio shows that how much quick assets are available to meet the demand of the
accountholders. This ratio was 3.19% in 2006 and decreased to 1.07% in 2007. It shows
that in 2007 the immediate liquidity position of the company was comparatively weak.
But it is good sign in 2008 that is once again liquid ratio is increasing.
8.4.2 Activity Ratio

If a business does not use its assets effectively, investors in the business would rather
take their money and place it somewhere else. In order for the assets to be used
effectively, the business needs a high turnover.

Unless the business continues to generate high turnover, assets will be idle as it is
impossible to buy and sell fixed assets continuously as turnover changes. Activity ratios
are therefore used to assess how active various assets are in the business.

Note: Increased turnover can be just as dangerous as reduced turnover if the business
does not have the working capital to support the turnover increase. As turnover increases
more working capital and cash is required and if not, overtrading occurs.

8.4.2.1 Receivable Turn Over Ratio

Annual Credit Sale

-------------------------
Total Receivable
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 Particulars 2008 2007 2006
Rs. Rs. Rs.
Annual Credit Sale 1,685,690,136 939,447,389 1,106,826,330
Total Receivable 325,722,287 179,273,728 230,280,445
Ratio 5.18 5.24 4.81

INTERPRETATION
This ratio measures the number of times, on average, receivables (e.g. Accounts
Receivable) are collected during the period.
In 2008 this ratio is decreased .06 from last year 2007. It shows that firm has change its
account receivable policy.
8.4.2.2 Receivable in days / Average Collection Period

The average collection period measures the quality of debtors since it indicates the speed
of their collection.

• The shorter the average collection period, the better the quality of debtors, as a
short collection period implies the prompt payment by debtors.
• The average collection period should be compared against the firm’s credit terms
and policy to judge its credit and collection efficiency.

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 • An excessively long collection period implies a very liberal and inefficient credit
and collection performance.
• The delay in collection of cash impairs the firm’s liquidity. On the other
hand, too low a collection period is not necessarily favourable, rather it may
indicate a very restrictive credit and collection policy which may curtail sales
and hence adversely affect profit.

Account Receivable /
Receivable in days :- ---------------------------- X 365
Annual Credit Sale

Particulars 2008 2007 2006

Rs. Rs. Rs.
65,434,910,72 84,052,362,425
Account Receivable X 365 118,888,634,755 0
Annual Credit Sale 1,685,690,136 939,447,389 1,106,826,330
Ratio 70.53 69.65 75.94

Interpreation
As in 2005 average collection period was 76 days but it is decreasing with the passage of
time and in 2008 it is 70 days, which shows the efficiency of collection department. Our
sales are definitely increasing which is the core purpose of every organization.
8.4.2.3 Accounts Payable Turn over Ratio

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 Annual Credit Purchase
--------------------------------
Account payable

Particulars 2008 2007 2006

Rs. Rs. Rs.
Annual Credit Purchase 1,337,574,966 772,932,261 924,243,329
Account payable 111,904,367 78,746,596 50,187,799
Ratio 11.95 9.82 18.42

Interpreation

A short-term liquidity measure used to quantify the rate at which a company pays off its
suppliers. Accounts payable turnover ratio is calculated by taking the total purchases
made from suppliers and dividing it by the average accounts payable amount during the
same period.
In 2006 firm pays payment to credit after 18 days, but in 2008 company pays payment
after 11 days. It shows that firm has enough resources to pay the payment of creditors.

8.4.2.4 Account Payable in days

Account payable
---------------------------- X 365
Annual Credit Purchase

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Particulars 2008 2007 2006
Rs. Rs. Rs.
Account payable 40,845,093,955 28,742,507,692 18,318,546,635
Annual Credit Purchase 1,337,574,966 772,932,261 924,243,329
Ratio 30.54 37.19 19.82

Interpreation

The average payment period ratio represents the number of days taken by the firm to pay
its creditors. A higher credit turnover ratio a lower credit period ratio signifies that the
creditors being paid promptly, thus enhancing toe creditworthiness of the company.
However, a very favorable ratio to this effect also shows that the business is not taking
full advantage of credit facilities allowed by he creditors.

As in 2005, the ratio was 20 days but in 2008 it is 31 days only. It is favorable actually
for the creditors but not for the company because the firm has to arrange more finance for
the same period of time which will definitely be difficult for the firm due to low level of
average collection period.

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8.4.2.5 Inventory Turnover Ratio

Cost of Goods Sold

----------------------------
Average Inventory

Particulars 2008 2007 2006

Rs. Rs. Rs.
Cost of Goods Sold 1,337,574,966 772,932,261 924,243,329
Average Inventory 501,519,693 418,396,869 254,750,341
Ratio 2.67 1.85 3.63

Interpreatation

This ratio measures the stock in relation to turnover in order to determine how often the
stock turns over in the business.
It indicates the efficiency of the firm in selling its product. It is calculated by dividing he
cost of goods sold by the average inventory.

8.4.2.6 Total Asset Turn Over

Sales
--------------

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 Total Assets

Particulars 2008 2007 2006

Rs. Rs. Rs.
Sales 1,685,690,136 939,447,389 1,106,826,330
Total asset 2,102,160,773 1,583,590,011 1,443,269,551
Ratio 0.80 0.59 0.77

Interpretation

Asset turnover is the relationship between sales and assets

• The firm should manage its assets efficiently to maximise sales.

• The total asset turnover indicates the efficiency with which the firm uses all its
assets to generate sales.
• It is calculated by dividing the firm’s sales by its total assets.
• Generally, the higher the firm’s total asset turnover, the more efficiently its assets
have been utilised.

8.4.3 Leverage ratio

• The ratios indicate the degree to which the activities of a firm are supported by
creditors’ funds as opposed to owners.

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 • The relationship of owner’s equity to borrowed funds is an important indicator of
financial strength.
• The debt requires fixed interest payments and repayment of the loan and
legal action can be taken if any amounts due are not paid at the appointed time. A
relatively high proportion of funds contributed by the owners indicates a cushion
(surplus) which shields creditors against possible losses from default in payment.

Note: The greater the proportion of equity funds, the greater the degree of
financial strength. Financial leverage will be to the advantage of the ordinary
shareholders as long as the rate of earnings on capital employed is greater than the
rate payable on borrowed funds.
The following ratios can be used to identify the financial strength and risk of the
business.
8.4.3.1 Debt to total Asset Ratio

Total Debt (short & Long)

-------------------------------------
Total Assets

Particulars 2008 2007 2006

Rs. Rs. Rs.
Total Debt (short & Long) 432,753,744 365,225,031 274,954,000
Total Asset 2,102,160,773 1,583,590,011 1,443,269,551
Ratio 21% 23% 19%

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INTERPRETATION
This is the measure of financial strength that reflects the proportion of capital which has been
funded by debt, including preference shares.
The debt to total assets ratio measures the proportion of total assets financed by the
company’s creditors. The higher is the ratio, the greater is the amount of other people’s
money being used in an attempt to generate profit.
8.4.3.2 Long term Debt to Share holder equity Ratio

Long term Debt

-----------------------
Equity

Particulars 2008 2007 2006

Rs. Rs. Rs.
Long term Debt 109,591,092 108,893,475 167,537,629
Equity 1,578,547,835 1,081,579,187 1,018,008,226
Ratio 7% 10% 16%

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 INTERPRETATION
This ratio indicates the extent to which debt is covered by shareholders’ funds. It reflects
the relative position of the equity holders and the lenders and indicates the company’s
policy on the mix of capital funds.
This ratio shows that how much company is financed more by debt than its own equity.
From 2006 to2008 it goes on falling which shows that gradually company’s operations
are more financed by its equity than by debt, this is due to decrease in short term finances

8.4.3.3 Time Interest Earned Ratio

Particulars 2008 2007 2006

Rs. Rs. Rs.
Earning before interest and tax 280,810,395 62,005,983 78,366,482
(EBIT)
Interest Charges 12,529,084 23,960,952 16,077,485
Ratio 22.41 2.59 4.87

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Interpreatation

This ratio measure the extent to which earnings can decline without causing financial
losses to the firm and creating an inability to meet the interest cost.

• The times interest earned shows how many times the business can pay its interest
bills from profit earned.
• Present and prospective loan creditors such as bondholders, are vitally interested
to know how adequate the interest payments on their loans are covered by the
earnings available for such payments.
• Owners, managers and directors are also interested in the ability of the business to
service the fixed interest charges on outstanding debt.

The company’s major forms of credit are non-interest bearing (trade creditors) which
results in the business enjoying very healthy interest coverage rates. In 2002 the company
could pay their interest bill 16.5 times from earnings before interest and tax. However
this is a massive drop from 51.5 times in 2001 and 37.7 times in 2000.

8.4.4 PROFITABILITY RATIOS

Profitability is the ability of a business to earn profit over a period of time.

Although the profit figure is the starting point for any calculation of cash flow, as
already pointed out, profitable companies can still fail for a lack of cash.

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Note: Without profit, there is no cash and therefore profitability must be seen as a critical
success factors.

• A company should earn profits to survive and grow over a long period of time.
• Profits are essential, but it would be wrong to assume that every action initiated
by management of a company should be aimed at maximising profits, irrespective
of social consequences.

The ratios examined previously have tendered to measure management efficiency and
risk.

Profitability is a result of a larger number of policies and decisions. The profitability

ratios show the combined effects of liquidity, asset management (activity) and debt
management (gearing) on operating results. The overall measure of success of a business
is the profitability which results from the effective use of its resources.

Following profitability ratios have been calculated

I. Gross Profit Margin Ratio

II. Net Operating Income Ratio
III. Net Profit Ratio
IV. Return on equity
V. Return on investment

8.4.4.1 Gross Profit Margin Ratio

Gross profit
------------------ X 100
sale

Particulars 2008 2007 2006

Rs. Rs. Rs.
Gross Profit 348,115,170 166,515,128 182,583,001
Sale 1,685,690,136 939,447,389 1,106,826,330
Ratio 21% 18% 16%

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Interpretation

• Normally the gross profit has to rise proportionately with sales.

• It can also be useful to compare the gross profit margin across similar businesses
although there will often be good reasons for any disparity.
• The ratio above shows the increasing trend in the gross profit since the ratio has
improved from 15.2% in 2000 to 20.3% on 2002. This indicates that the rate in
increase in cost of goods sold are less than rate of increase in sales, hence the
increased efficiency.

8.4.4.2 Net Operating Margin

Operating Income
------------------------ x 100
Sale

Particulars 2008 2007 2006

Rs. Rs. Rs.
Operating Income 293,339,479 85,966,935 94,443,967
Sale 1,685,690,136 939,447,389 1,106,826,330

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 Ratio 17% 9% 9%

Interpreation
It is a measurement of what proportion of a company's revenue is left over, before taxes
and other indirect costs (such as rent, bonus, interest, etc.), after paying for variable costs
of production as wages, raw materials, etc. A good operating margin is needed for a
company to be able to pay for its fixed costs, such as interest on debt. A higher operating
margin means that the company has less financial risk.
In 2006 company has ratio 9% but it has been increasing with time being to 17%, which
very good for firm.

8.4.4.3 Net Profit Margin

Net Profit after tax x 100

Net Sales

Particulars 2008 2007 2006

Rs. Rs. Rs.
Net Profit 265,564,139 51,289,549 65,903,925

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 Sale 1,685,690,136 939,447,389 1,106,826,330
Ratio 16% 5% 6%

INTERPRETATION
This is a widely used measure of performance and is comparable across companies in
similar industries. The fact that a business works on a very low margin need not cause
alarm because there are some sectors in the industry that work on a basis of high turnover
and low margins, for examples supermarkets and motorcar dealers.
What is more important in any trend is the margin and whether it compares well with
similar businesses.
Net profit ratio indicates that how much net sales are contributing towards generating Net
Profit. In 2006 it was 6% and decreased to 5% in 2007. But Firm uses its resources
efficiently in 2007 and it was increased to 16% in 2007 so the year 2007 was best year
from profitability point of view in these years.

8.4.4.4 Return On Equity

This ratio shows the profit attributable to the amount invested by the owners of the
business. It also shows potential investors into the business what they might hope to
receive as a return. The stockholders’ equity includes share capital, share premium,
distributable and non-distributable reserves. The ratio is calculated as follows:

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 Net Profit
-------------------
Equity
Particulars 2008 2007 2006
Rs. Rs. Rs.
Net Profit 265,564,139 51,289,549 65,903,925
Equity 1,578,547,835 1,081,579,187 1,018,008,226
Ratio 17% 5% 6%

INTERPRETATION
The ratio shows that how much equity is contributing towards generating Net Income. In
2006 it was increased to 6% and decreased to 5% in 2007 but in 2007 it also increased to
17% in 2007 so the year 2007 was best year from profitability point of view in these
years.
8.4.4.5 Return on Investment

Income is earned by using the assets of a business productively. The more efficient the
production, the more profitable the business. The rate of return on total assets indicates
the degree of efficiency with which management has used the assets of the enterprise
during an accounting period. This is an important ratio for all readers of financial
statements.

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Investors have placed funds with the managers of the business. The managers used the
funds to purchase assets which will be used to generate returns. If the return is not better
than the investors can achieve elsewhere, they will instruct the managers to sell the assets
and they will invest elsewhere. The managers lose their jobs and the business liquidates.

ROI = Net Profit

------------
Total Assets

Particulars 2008 2007 2006

Rs. Rs. Rs.
Net Profit 265,564,139 51,289,549 65,903,925
Total Asset 2,102,160,773 1,583,590,011 1,443,269,551
Ratio 13% 3% 5%

Interpretation
The ratio indicates that there is increase in the ROI from 8.38% in 2000 to 8.95% in 2002.

8.4.4.6 Break Up Value

Total equity / No. of Shares

Particulars 2008 2007 2006

Rs. Rs. Rs.
Total Equity 1,578,547,835 1,081,579,187 1,018,008,226

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No. of Shares 1,000,000 1,000,000 1,000,000
Ratio 1578.55 1081.579 1018.008

8.5 Z-SCOR ANALYSIS

The Z-score formula for predicting bankruptcy was published in 1968 by Edward I.
Altman, who was, at the time, an Assistant Professor of Finance at New York University.
The formula may be used to predict the probability that a firm will go into bankruptcy
within two years. Z-scores are used to predict corporate defaults and an easy-to-calculate
control measure for the financial distress status of companies in academic studies. The Z-

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score uses multiple corporate income and balance sheet values to measure the financial
health of a company.

The Altman z-score is a bankruptcy prediction calculation.

The z-score measures the probability of insolvency (inability to pay debts as they become due).

• 1.8 or less indicates a very high probability of insolvency.

• 1.8 to 2.7 indicates a high probability of insolvency.
• 2.7 to 3.0 indicates possible insolvency.

• 3.0 or higher indicates that insolvency is not likely.

Z-SCOR ANALYSIS

For the Year ended June 30, 2006

X1 = (Current assets – current liabilities) / Total Assets

= ( 596,935,729 - 107,416,371 ) / 1,443,269,551 = 0.339

X2 = Retained Earning / Total Assets

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 = 977,358,726 / 1,443,269,551 = 0.668

X3 = (Earning before Taxes + Interest) / Total Assets

= ( 78,366,482 + 16,077,485 / 1,443,269,551) = 0.0654

X4 = Market value of equity / Total Liabilities

= 1,018,008,226 / 1,443,269,551 = 0.71

X5 = Net Sales / Total Assets

= 1,106,826,330 / 1,443,269,551
= 0.77

Z = 1.2 x X1 + 1.4 x X2 + 0.6 x X4 + 1.0 x X5 + 3.3 x X3

= 1.2(0.339) + 1.4(0.668) + 0.6(0.71) + 1.0(0.77) + 3.3(0.0654)
= 2.75

The analysis for the year 2006 shows that company is probably safe to predict survival,
but it is not the better condition of the company.

Z-SCOR ANALYSIS

For the Year ended June 30, 2007

X1 = (Current assets – current liabilities) / Total Assets

= (692806795 - 256,331,556) / 1,583,590,011
= 0.286

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X2 = Retained Earning / Total Assets
= 1,040,929,687 / 1,583,590,011
= 0.657

X3 = (Earning before Taxes + Interest) / Total Assets

= (62005983 + 23,960,952 / 1,583,590,011)
= 0.054

X4 = Market value of equity / Total Liabilities

= 1,081,579,187 / 1,583,590,011
= 0.683

X5 = Net Sales / Total Assets

= 939,447,389 / 1,583,590,011
= 0.593

Z = 1.2 x X1 + 1.4 x X2 + 0.6 x X4 + 1.0 x X5 + 3.3 x X3

= 1.2(0.286) + 1.4(0.657) + 0.6(0.683) + 1.0(.593) + 3.3(0.054)
= 2.44

The analysis for the year 2007 shows that company is at risk but it is not at danger
position.

Z-SCOR ANALYSIS

For the Year ended June 30, 2008

X1 = (Current assets – current liabilities) / Total Assets

= (1,039,062,127 - 323,162,652) / 2,102,160,773
= 0.341

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X2 = Retained Earning / Total Assets
= 1,537,898,335/ 2,102,160,773
= 0.732

X3 = (Earning before Taxes + Interest) / Total Assets

= (280,810,395 + 12,529,084 / 2,102,160,773)
= 0.139

X4 = Market value of equity / Total Liabilities

= 1,578,547,835 /2,102,160,773
= 0.751

X5 = Net Sales / Total Assets

= 1,685,690,136 / 2,102,160,773
= 0.802

Z = 1.2 x X1 + 1.4 x X2 + 0.6 x X4 + 1.0 x X5 + 3.3 x X3

= 1.2(0.341) + 1.4(0.732) + 0.6(0.751) + 1.0(.802) + 3.3(0.139)
= 3.15

The analysis for the year 2007 shows that company is now move back to the satisfactory
condition after getting a good safe point to avoid Bankruptcy.

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 CHAPTER NO.9
CONCLUSION AND RECOMMENDATION

9.1 CONCLUSION

It’s' period of Globalization, any organization or institute who ignore the element of

globalization automatically kick out from the market. Only those can be survive who

compete this global market perfectly.

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So the Gohar Textile Mills (Pvt) Ltd has the opportunity to survive the global market

because it has the better goodwill and positive earning per share it can capture all the

global market.

Gohar Textile Mills (Pvt) Ltd is also faces a tenor in which there is both opportunities

and threats for it to be able and survive and growth. But many of the challenges that shall

be outside of the control of the mills.

However, this does not absolve the government of Pakistan and the local Textile industry

from its responsibility to best deal with the climate both locally and internationally and

prepare itself for even greater challenges.

Now there is need that the Govt. and industry realize that a sincere and positive approach

has to make to meet the challenges of the present day competition environment. In this

regard adequate finance for capital investment, working capital and development of

comprehensive long-term strategies and the stable government.

Gohar Textile Mills (Pvt) Ltd is one the best apparel producer in Pakistan. Inside the

organization Gohar textile is practically meeting the challenges of Global Village. They

have created completely paperless office; every activity of Gohar is online. In/Out time of

employees is also computerized.

I have observed some negative things also during my internship in Gohar like sometime

extra burden is loaded on worker due to late shipment.

Even Gohar has great capability to meet the requirements but some times Gohar get the

order in such a bulk quantity that its capacity becomes lesser than orders.

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Financial position of Gohar is better than many other organizations. Gohar’s decision-

making is centralized due to which no problem occur in lower level management. The

level management of Gohar is also performing well.

9.2 RECOMMENDATIONS
Before joining this organization I know a little about the organization work, its working
system and environment, so I learned a lot from this experience. Based on my experience

105
& observation regarding the operations and policies of organization, there are some
recommendations which include short term as well as long term issues for the
improvement.

9.2.1 Assess the Performance of employees

There is no efficient method introduced by organization for his assessment of
performance of employees. Promotions are completely relying on higher management
like managers est.’s there can be some sort of favoritism. So to avoid all this, there should
be a proper method to judge the employees.
9.2.2 Search New Markets
Organization can enhance profit by finding new market in the world. Gohar Textile Mills
(Pvt) Ltd. should continue to expand its business, by increasing its sale through
aggressive market penetration strategies.
9.2.3 Improve Information Technology System
Gohar Textile Mills (Pvt) Ltd should immediately improve its Information Technology
System. The soft wares currently in use should be made error free as it is the need of the
hour.
9.2.4 Computerized Accounting System
As far as accounting is concerned, although the entire system is computerized, but there
still involves lots of paperwork. So this should be minimized b acquiring more advanced
accounting software
9.2.5 Job Rotation
There is no rotation of employees within departments and cross departments. So the top
management should immediately start thinking in terms of rotating the employees in
various departments, as this transforms work force into human capital.

9.2.6 Distribute Work Equally

Management should distribute work equally among different employees. Some of the
employees are overburdened while some sections are overstaffed.

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9.2.7 Improve its Website
Gohar Textile Mills (Pvt) Ltd needs to improve its website. More information relating to
financial performance and sale of the organization should be available on the website.
9.2.8 Evolve Management Policy
Gohar Textile Mills (Pvt) Ltd should evolve a very serious management policy to attract
multi national corporations as its clients. This action, if actualized, would not only prove
to be highly profit generating, but it would also contribute a lot towards Gohar Textile
image building.
9.2.9 Advertise
One of the most pressing needs of the time is to advertise Gohar Textile Mills (Pvt) Ltd
in the electronic media. Gohar Textile Mills (Pvt) Ltd has not, till date, employed
advertisement in electronic media as a full fledge marketing tool. I think it is high time
that organization does this
9.2.10 Market Survey
The management should make the market survey time to time to get more and latest
information about the market factors like the price, demand, current consumer trends etc.

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