Comparative Analysis: the value of total assets has increased by above 52.81% between 2014 to 2010. There could be a number of reasons for this increase. Firstly the stock in trade increased from 102733 to 1372741 in absolute terms which resulted in about 33.62% increase the stock in trade is a major Chunk of the total assets as it constitute of raw material, work in progress, and finished goods, with finished good contributing the most to the increase in stock and trade. This situation, however, is not very favorable since the increase from 2010 to 2014 would also means high storage costs and increased in efficiency. Another reason for this increase was due to increase in trade debts of the company. Trade debts of the company continued to increase throughout the period from 2010 to 2014 by 27.36% this increase is due to credit sales to other companies. Property, Plant, and equipment that is major portion of the total assets in absolute terms, only increased by point 0.55 % from 2010 to 2014. Although, property, Plant and equipment was purchased every year from 2010 to 2014 the absolute figures declined due to depreciation. The long term investment change was Zero since there was no long term investment after 2012. This could mean that the company had no recourses to invest in profit able opportunity. Over all the total liability decrease by 8.69%, even though, the total liabilities increase between 2012 and 2013 by 20% there were number of reasons for this over all declined 8.69% . Long term financing declined 37.97% which means that the company is efficiently paying off its debts and is not borrowing in excess. this is a good sign for the company since the over all debt as percentage of total assets is also decreasing. Another reason for a declined in total liabilities 49.24% in short term borrowings since the company is moving towards an equity structure. Even though short term borrowings increased between 2010 and 211 due to increased cash and running finances from other banking companies. The shift towards equity structure from debt is evident from the increase in equity by 110.20% the company prefer to obtain its fianc by issuing shares to the public. Net sales increased continuously through out the 5 years span by 44.8% this is because Pakistan is among the top cotton producers and there is a high demand for Pakistan Textile products. This is evident from the fact that there is an increased sales to local and foreign market (exports). The cost of sales increased by 53.14% which was due to increased Raw material consumed throughout the years and stocks from the previous years. Total operating expenses continued to increase throughout the years due to a continued increase in the administrative expenses. Finally, the profit after tax increase by 29.17% which indicates that the company has done well during the past 5 Years.

Trends Analysis : The companys total assets are increasing through out the period to be more specific, the total assets increase at decreasing rate between 2012 and 2011 and then continues to increase at increasing rate. There could be multiple reasons for this increase. Firstly, the stock in trade kept increasing at inconsistent rates. For instance, the rate of increase was negative between 2012 and 2011, and 2014 and 2013. More over the declined in days sales inventory between 2012 and 2011, and 2014 and 2013 also proves this scenario.Secondly, the trade debts continued to increase at increasing rate 2012 onwards due to increased credit sales. Long term investments declined to 76.47% in 2012 and 2011 and ultimately became Zero. Total liabilities showed a decreasing trend throughout the period. However, it increased marginally between 2013 and 2012. This is a good sign for the company. This declined could be due to an overall decrease in the trend of long term financing. Even though long term financing increased a marginally between 2013 and 2012 the overall decrease had a major impact on the decrease in total liabilities. Another reason for the decrease could be due to continuous decrease in short term borrowings. The trend for short term borrowing shows an upward movement only between 2010and 2011 due to high cash and running finance. The company also favored long term financing between 2012 and 2013 due to favorable interest rates. Since the company is more equity finance the total equity is showing positive movements from 2010 to 2014. Net sales continued to increase throughout the period due to increase demand in the local and foreign market . Due to continues increase in demand for textile products, the manufacturing and raw material cost also increase which results in a continues increasing trend for cost of sale. Increase sale also result in increased administrative and distribution cost which makeup the increasing trends for operating cost.Even though operating cost is increasing at inconsistent rate, the over all impact is positive. The profit after tax remained positive but declined between 2013 and 2014, and 2011 and 2012 which explains the inconsistent trend. These declined resulted due to high administrative cost (hiring staff), distribution cost , and cost of sale to meet the increased demand. Balance Sheet Common Size: The common figure for a common size balance sheet is total assets. Based on accounting equation this also equals total liabilities and shareholders equity. The common size strategy lands insight in to a firms capital structure . Equity Structure :The equity structure of the company shows that in 2014 about 71% is financing $1 of investment in the company in the form of equity. Suraj cotton was already relying on equity financing, however, this dependence continue to increase from 51.73% to 71.16% through out the period. In 2014, about 71.6% of total assets were finance through equity. This indicates that the company used aggressive equity financing. Mostly companies use debts to finance to operations. By doing so, a company increases its leverage because it can invest in business operation without increases its equity. In Suraj Cottons case however, the dependence on equity is high, indicating low leverage. When the leverage ratio is low, principal and interest payments do not command such a large portion of the companys cash flow and the company is not as sensitive to changes in interest rates from the creditors perspective . However, decreasing leverage may also indicate the company has opportunity to use leverage as a means of responsibly growing the business. In general, increasing leverage indicates that a company may not be able to generate enough cash to satisfy its debt obligation. However, low leverage may indicate that the company is not taking advantage of the increased profits that financial leverage may bring . From a creditors perspective low leverage is more preferable because the creditors interests are better protected in the event of a business declined and the shareholders are more likely to receive some of their original investment back in the event of liquidation.Liability Structure :It is evident from the vertical analysis that the major composition of the capital structure of Suraj Cotton has been through equity financing throughout the 5 years. Total liabilities, on the other hand, were 28.84% of the total assets as compared to 71.6% of the total equity. The High level of equity of financing indicates lower solvency risk from a creditors perspective. In the previous years, dependence on total liability was a little higher as compared to the preset year. However this proportion decreased which means successful payment of liabilities and not borrowing in excess. Of 28.84% total liability in the current year, 20.41% belongs to current liabilities. Same was the case in previous years. The proportion current liabilities increase between 2010 and 2011 due to increased short term borrowing, and then continued to decline. This would also mean decreasing cost of debt for the company. When we assess how costly these liabilities are, we see that total Non / current liabilities are 8.43% while current liabiities are 20.84% which means that the ability of the company not being able to meet short term obligation is higher from the creditors perspective. This is also because cash and bank balances account for only 3% of the total balances in 2014. Total non current liabilities, also continue during the years. from the table, it can be seen that except 2010 and 2011, operating liabilities constitutes a major portion of the total liabilities. Operating liabilities accounted for 18.16% of the total assets where as non operating liabilities accounted for 10.6%. This means that costs of liabilities are significantly lower. This is evident from the income statement common size where finance costs accounted for only 0.84% of the total sales. Long terms financing as a part of the total assets increase only between 2012-2013. Other than that, long term financing declined over the years also indicating low finance cost. Short terms borrowings also continued to decrees due to decrees in secured case financing from banking companies. Asset Structure Property, Plant, and equipment continued to decrees as a percentage of total assets. This was not because of disposing of assets, but due to accumulated depreciation. Long terms investment as a percentage of total assets was almost zero during 2010 and 2011 since the absolute figure was very small. These investment were made in Pakistan international air lines corporations. However these investment were discontinued which could be due to insufficient resources of the company. The stock in trade as a proportion of total assets where inconsistent, however, it decrease significantly from 33.93% to 24.7% in 2014. The value increase in 2010 to 2011 but decreased in 2013 due to increase in demand which is evident from the increase in sales.The stock in trade declined in 2014 to 24.7% even though the sales increased. This could be due to increased efficiency and improved turn over 5.33 and fewer number of days to get rid of the inventory that is. In Absolute terms, trade debts decreased from 2011 to 2012 but then continued to increase.However, as a percentage of total assets, trade debts continued to decrease throughout the years marginally. Trade debts in 2014 increased due to in increase in the unsecured portion of the trade debts. The higher the unsecured debts, higher the uncollectibles. The cash and bank balance as a percentage of total assets had been increasing during the last three years from 0.15% to 3.44% due to increases in the current accounts.

Cash Flow Analysis Cash flow refers to the inflow and outflow of cash in the company. This analysis is primarily used to evaluate the sources and uses of funds. Such analysis provides insight into how a company is obtaining its financing and deploying its resources. It is also used in cash flow forecasting and as part of liquidity analysis. The major activities contributing towards cash flow are operating activities, investing activities and financing activities which would be analyzed in the following paragraphs and evaluated according to investors and creditors perspective.The Net cash generated from operations remained positive throughout the 5 years. If discussed in detail, cash generated from operation declined from 2010 to 2011, due to high amount of income tax paid. Net cash from operations increased however from 2011 to 2012 by more than 100% due to increased cash generated from operations. This increase in operating cash was triggered due to a decrees in stoke in trade. The value however again decreased by almost 40% due to high income tax & dividend paid. Finally net cash increased to 964367 from 563684 (62%) in 2014 due to increased cash from operations (decreased stock in trade). Net cash generated from investing activities remain negative through the period. This was due to continues investment in property, plant and equipment in order to increase their manufacturing capacity to meet excess demand. The finance portion of the cash flow shows a negative amount generated in 2010, 2012, and 2014. The net cash generated in 2013 and 2011 were positive. However the negative values resulted due to a number of reasons. Firstly the company effectively paid of its long term finance and short term borrowings as it can also be seen from the vertical analysis of the balance sheet. However cash from financing was positive during 2013 due to increase short terms borrowing. Even though long term financing was issued in 2013, half of fit was paid of along with the short term borrowings that caused the negative value of 72798.

Income Statement common sizeThe common size analysis is applied to the income statement to know about the production and/or operating efficiency of the company. To measure the production efficiency of the company, the cost of sales is to be analyzed. Considering that in all the years the sale has been 100% the production efficiency seems to be on a decreasing trend in the years being analyzed. In 2014 the sales and the cost of sales both experienced an upward trend in comparison and therefore, gross profit margin also declined. Cost of sales as a percentage of sales, however, decreased due to a dramatic increase in sales in 2013 by almost 16.5%. Sales increased because there was a higher demand in the foreign market as exports constituted to about 32% of the net sales. The gross profit margin for 2013 was also higher, that is 15%, because cost of sales as a percentage of sales was dropped to 84% of the sales.The operating efficiency of the company remained inconsistent throughout the years. It deteriorated in 2011 (increased from 3.9% to 4.4%), improved in 2012, and then deteriorated again. However the company achieved operational efficiency in 2014 as sales increased to 9924609, but operating costs declined from 4.7% to 4.5% of the Net sales. Therefore, 2014 was a good year for the company since the sales increased; the operating costs did not increase.Other income of Suraj cotton consists of income from financial assets and income from assets other than financial assets. The latter contains gain on disposal of operating assets. Other income as a percentage of sales continued to increase throughout the period of 5 years. Major causes included unrealized gain on investments and gain on disposal of investments. This positive trend also contributed to an improved EBIT in 2013.Even though EBIT remained positive throughout the years, it declined initially from 2010 to 2012, both in absolute terms, and as a percentage of sales. This was due to increase in the cost of sales for the same period. EBIT, however, increased from 6.5% to 11.5% during the year of 2013 due to decreased cost of sales, and decline to 8.6% in 2014.Finance costs include the payments for the borrowings the company has done to finance its investments (operating assets and/or financial assets). Finance costs of the company continued to decrease throughout the 5 years span. Finance costs declined because total liabilities as a percentage of total assets also declined. Long term and short term borrowings declined for the year 2014 which further explains the decreasing finance cost as a percentage of sales. Although, long term finances were issued in 2013, the effect was offset by a repayment of short term borrowings.Initially, the net income declined from 2010 to 2012 due to production ineffecieny. The company was operating at high cost of sales which therefore decreased the net profit. Even though the operating expenses increased in 2013, the net profit as a percentage of sales increased from 4.2% to almost 9% exhibiting an almost 50% increase. This was due to decline in cost of sales and an increase in sales of the company.

LIQUIDITY RATIOSLiquidity refers to the availability of resources to meet short term cash requirements. The short term liquidity risk of company is affected by the timing of cash inflows and outflows along with prospects for future performance. The current ratio is a liquidity and efficiency ratio that measures a firm's ability to pay off its short-term liabilities with its current assets. The current ratio is an important measure of liquidity because short-term liabilities are due within the next year. This means that a company has a limited amount of time in order to raise the funds to pay for these liabilities. The current ratio also sheds light on the debt burden of the company and since, Suraj Cotton is not weighted down with debt, it will not face cash flow problems which is evident from the cash flow statement. The current ratio of 3.04 in 2014 reveals that there are enough current assets to meet short term liability requirements. This ratio indicates to creditors that companys short term credit worthiness is not high enough to call it a safe ratio because ideally this ratio should be 2 or above to indicate liquidity soundness of the company. Moreover, this ratio has increased over time and 2014 was first year that it was greater than 3. There are a number of reasons for the consistent increase in the current ratio throughout the years. First, current assets in 2014 increased by almost 10%, where as current liabilities decreased by 3%, which was enough to lead to an increasing trend in the current ratio. The current assets increased dramatically due to an increase in the short term investments by the company in other companies such as National Bank of Pakistan, Standard Chartered, Pakistan tobacco company, Pakistan Oilfield Company, and so on. The Five year average of 2.21 is also higher compared to that of the industrys 1.18. Apart from the reason above, the stock in trade is also a major chunk of the current asset and accounts for almost 33% and 24.7% of the total assets in 2013 and 2014 respectively (vertical analysis). This can also be proven from the fact that the five year average for quick ratio was on 1 which means that the major portion consisted of the stock in trade. The acid test ratio measures the liquidity of a company by showing its ability to pay off its current liabilities with quick assets. If a firm has enough quick assets to cover its total current liabilities, the firm will be able to pay off its obligations without having to sell off any long-term or capital assets. In this case, the companys quick ratio is 1 compared to the industries 0.62 which means that Suraj Cotton has $1 of quick assets to pay off $1 of current liabilities. Since most businesses use their long-term assets to generate revenues, selling off these capital assets will not only hurt the company it will also show investors that current operations aren't making enough profits to pay off current liabilities. Higher quick ratios are more favorable for companies because it shows there are more quick assets than current liabilities. More assets will be easily converted into cash if need be. This is a good sign for investors, but an even better sign to creditors because creditors want to know they will be paid back on time. However, in this case, quick assets are equal to current liabilities. Looking at quick ratios of individual years, they kept increasing at a positive rate due to rapid increases in cash and bank balances and decline of current liabilities as a percentage of Total assets (vertical analysis).Even though stock in trade accounts for a major portion of the current assets, inventory turnover increased for 5.2 to 5.3 marginally in 2014 and days to sell inventory declined from 70 days to 68 days which means that the company is effective in getting rid of their stock. Suraj Cotton is effective in getting rid of their stock, however they are not efficient since the turnover declined between 2012 to 2011 and increased only marginally in 2014. Coming to the 5 years average, inventory turnover was 5.25 compared to the industrys 5.45. This means that the company is slightly behind the industry in turning their inventory. The days to sell inventory increased from 2011 to 2012 which is evident from the decrease in turnover for that particular year.The five year average for the receivables is 21.76 compared to the industrys 30.62 which means that the company is not efficient in collecting their receivables. The turnover increased slightly between 2013 and 2012 but then declined in 2014. Alow receivables turnover ratioimplies that the company should re-assess its credit policies in order to ensure the timely collection of receivables. Suraj cotton, however, takes only 16 days on average to collect their receivables. In 2014, it can be seen from the age analysis of trade debts ( exhibit) that 312000 amount of debtors ie 67% of the total 459258 paid their debts within the due date.Profitability ratio:The profit margin ratio directly measures what percentage of sales is made up of net income. In other words, it measures how much profits are produced at a certain level of sales. The ratio declined from 2010 to 2012 from 7.3% to 4.2% respectively. One reason for this decline was due to increasing cost of sales as a percentage of sales (vertical analysis). The ratio increased by almost 100% from 2012 to 2013 which indicates improvement in both production efficiency and profitability. Although, operational efficiency declined due to high distribution costs and other operating costs such as workers profit participation fund and provision for slow moving stores, decrease in cost of sales improved the profitability. The increasing cost of sales as a percentage of total sales has also decreased the gross profit margin from 16.6% to 10% from 2010 to 2012 respectively. This means that Suraj could not control its inventory costs and the decreasing trend lead to a decrease in the net profit margins as well for the same period. However, the 5 years average of 13.24% compared to the industrys 4% suggests that the company has done well overall. So overall, a higher gross profit margin would allow Suraj cotton to retain more money to deal with the operating expenses. Suraj cottons operating margin is 8.2% which means that for every dollar of income, Suraj has 8.26 cents left to pay for non-operating expenses. High cost of sales in 2014 lead to a decline in the EBT and EBIT therefore, decreasing their ratios for 2014. Although EBIT/SALES declined from 11.5% to 8.6% in the current year due to increased cost of sales, the 5 years average for EBIT/SALES of 9.14% compared to the industrys 4.08% suggested the company is in a good position to control its expenses. Moreover, 8.26% of operating margin compared to EBIT/SALES suggests that only a small portion consists of the financial costs which are declining due to repayment of long term finances and short term borrowings. EBITDA/SALES of 11.30% also remained high compared to the industry average due to high depreciation. Hence, the overall profitability of the company is satisfactory.

Solvency RatiosSolvency analysis is aided by financial leverage ratios. Financial leverage refers to the extent of borrowedfunds in a companys capital structure. Liability to equity ratio assumes that current liabilities are covered by current assets and, thus, only long-term debt must be funded from operating cash flows. Accordingly, it is important to examine long-term debt relative to the stockholders investment. Suraj cottons liability to equity ratio continued to decline which means that the dependence on liabilities is decreasing. As discussed earlier, it is evident from the balance sheet common size that dependence on long term financing and short term borrowings is decreasing and the company is moving toward an equity based structure.Even though the total liabilities decreased from 164837 to 1599727 from 2013 to 2014 respectively, the total leverage increased due to a decline in EBITDA. One reason was due to decreased EBIT resulting from a high cost of goods sold. Another reason was due to high administrative expenses (salaries, wages, and other benefits). Compared to the industrys average of 19.64, the companys total leverage of 1.74 is remarkable. This indicates that unlike suraj cotton, the entire industry is based highly on a liability structure.The times interest earned is increasing over time which is a good sign for the company. It considers how much income is available to service debt given the debt level and its repayment terms. The ratio is continuously increasing upto 2013 which means that the finance costs are declining. This has also been discussed a few times earlier as the finance costs are declining due to a movement towards an equity structure. The decline in 2014, however, was due to a decline in EBIT. The overall ratio of 7.477 compared to the industrys 18.66 is very low which would indicate to the creditors that the company does not have enough resources available to pay off their debts. Moreover, lower times interest earned can also make the business more vulnerable in case interest rates rise.

Asset utilizationThese ratios measure how much sales are being generated per rupee of assets and indicating the efficiency of company in deploying its resources. Asset turnover ratio measures how efficiently a firm uses its assets to generate sales, so a higher ratio is always more favorable. Higher turnover ratios mean the company is using its assets more efficiently. Lower ratios mean that the company isn't using its assets efficiently and most likely have management or production problems. The average turnover ratio of 1.95 compared to the industrys 7.66 is low, even though the company had positive sales throughout the 5 years span. One reason was that the company had management issues. One reason is that the company is not efficiently disposing off their fixed assets which can also be seen from the cash flows investing activities. Secondly, the firm has a huge amount of stock tied up into the business which is evident from the balance sheet common size. For instance, stock in trade for the current year accounted for about 25% of the total assets. This ratio can also be compared to the sales to fixed asset ratio which turns out to be 5 as compared to the sales to total asset ratio of 1.7. it can be seen that the non-fixed assets were more responsible to the low ratio of sales to asset.Sales to NWC are decreasing throughout the period which is due to increasing current assets and declining current liabilities. Current liabilities have declined due to the movement towards an equity structure. The working capital turnover ratio is used to analyze the relationship between the money used to fund operations and the sales generated from these operations. In a general sense, the higher the working capital turnover, the better because it means that the company is generating a lot of sales compared to the money it uses to fund the sales.In this case, since the ratio is declining it is a negative sign since it means the company is not able to generate sales from working capital. Market Value Ratios:The price earnings ratio for the company is improving over the years which are a good sign for the company. Suraj cotton is currently(2014) trading at a multiple (P/E) of 3.40, the interpretation is that an investor is willing to pay Rs 3.4 for Rs 1 of current earnings. One reason for this increase is that the stock price of the company is increasing constantly over the years.Investors want to know how much dividends they are getting for every dollar that the stock is worth. The dividend yield of the company declined dramatically from 2012 to 2013 due to a high increase in the stock price of the company. The stock proce increased by almost 200% in 2013. The market to book value remained almost constant for the first few years but then increased due to increase in stock prices.

DuPont AnalysisROE is defined as the amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. The DuPont analysis is an excellent method to determine the strengths and weaknesses of a firm. A low or declining ROE is a signal that there may be a weakness. Even though the return on equity for Suraj has been well above positive throughout the years, the return declined from 2010 to 2012. These declines could be explained by the declining trend in Net income which was caused by the increases in cost of sales. Simply put, increases in cost of sales caused the net income to decline which ultimately decreased the ROE. Moreover, since total equity is a major component of the DuPont analysis, it also leads to the decline. It has been mentioned in the balance sheet common size that the company that even though the company is based on an equity structure, it is continuously increasing its dependence on Equity financing. Therefore, increasing equity throughout the years also contributed to the decline in ROE in the initial years. The ROE declined from 26.86% to 14.15%, a decrease of almost 89.8%, from 2010 to 2012. However, the ROE increased from 14.15% to 30%, an increase of almost 100%. This was caused by an increase of 123% increase in NI as a percentage of sales. This increase in NI was due to increased production efficiency, increased sales, which lead to an increased gross profit. Even though Suraj cotton was operationally efficient in 2014 with increased sales, the net income declined due to increasing cost of sales. This can also be proven from the fact that cost of sales as a percentage of sales increased from 83% to 84%. Total equity also increased in 2014 further contributing to the increase. The decreasing direction of the equity multiplier also shows that the company is becoming more equity based since equity is rising and contributing to the declining ROE in the initial years.Operating Assets:The operating assets of the company continued to increase at a consistent rate due to increase in trade debts and short-term investments. 98% (Table) of the total assets consisted of Operating assets in 2014 which means that the company is operating at a very high scale. Operating assets are increasing with a constant trend. The company has also increased its trade debts during the current year and most of them are unsecured which may not be a very good sign.

OA20142013201220112010

property plant 19816211988600186258318928521914206

investment property1000000000

long term investment00131317

cash(current)1440563383557051429221163

store spare parts8984612585010644610337576769

stock in trade13727411716673118398315674591027331

trade debts459258406138383246432174360603

trade deposits46184844267824326376

balance with statutory 7030666044398571674530943

loans and advances 5604639070421655384247302

other receivables817912307473304198

taxation-net30241178622015221110

short-term investments11858445829822768235978058692

assets held for sale115830000

Total operating costs54797604976734392858841724053547600

Non-operating Assets:Non-operating assets of the company declined during the current year and the only constitute to 2% of the total assets. Non-Operating assets20142013201220112010

long term loans1953118974186881281023506

cash in hand( deposits)4661761675491881078

Asset lease11601450980122657748

total NOA6730882099197171422482332

Operating LiabilitiesThe operating liabilities of the company kept increasing which can also be seen as a percentage of total assets. Operating liabilities of the company during the current year were almost 18% and the total liabilities were 28%. This means that even if the company is generating cash through liabilities, the finance cost will not increase since no interest is paid on operating liabilities. This can also be seen from the income statement common size as finance costs are declining as a percentage of sales (vertical analysis).

Operating Liabilities20142013201220112010

Trade and other Payables791840770582536709513595440966

Taxation-net00009557

Deferred taxation215535212186213386215943210978

total1007375982768750095729538661501

Non-operating liabilities:Non-operating liabilities as a percentage of total assets are also declining because the company is effective in paying their long term loans off and not borrowing in excess (cash flow). The decreasing trend of Non-Operating liabilities has also lead to a decline in the financial costs. As explained earlier, this is due to the decrease in dependence on the liability structure. Non Operating liabilities20142013201220112010

Long-Term Financing251537336807216934241213405504

Liabilities against assets subject to finance lease635854031111453

Accrued interest on loans1921321132262653509634945

Short-Term Borrowings205276224216287391778292404431

Current portion of non-current liabilities115691840608783997350234174

total59235266706961842911522621090507

% of TA11%13%16%28%30%

RETURN ON INVESTED CAPITAL:The measures for return on invested capital were analyzed for Sitara peroxide to compare companys performance measures or net income with its level or sources of financing. It determines a companys ability to succeed, attract financing, repay creditors, and reward owners. It will help us in determining managerial effectiveness, profitability and planning and control.

Return on net-operating assets:Thereturn on net assetsmeasure compares net profits to net assets to see how well a company is able to utilize its asset base to create profits. The return on net operating assets determines the impact of core business activities on the profitability or return of the company. the company has been able to maintain a positive return on its operating assets because it has earned positive return on its operating activities i.e. NOPAT has been positive and its operating or non financial expenses have been lower than its operating profits. A high ratio of assets to profits is an indicator of excellent management performance. Through calculation of a firm's Return on Net Operating Assets (RNOA), we can isolate the portion of ROE attributable to the operations of the business (the portion that matters). For instance, in the current year of 2014, only 58% of the ROE (10.3% RNOA/17.74% ROE) is attributable to the operations. Moreover, Surajs average of 14.92% is higher than that of other trading companies which is satisfactory. RNOA declined initially due to declining NOPAT, which in turn was caused due to a declining EBIT as discussed earlier.Leverage:The financial leverage of the company has been lower in five years due to higher dependence on equity financing. This declining leverage means lower cost of financing which has also been proven from net income. Lower leverage would also have an impact on the ROCE as it would cause a decrease in it, provided spread remains constant. Spread:Spread for the company has been positive throughout the years which is a good sign. Also the spread can be seen increasing from 2013-2014 which is a good sign for the company. Since spread is a component of the ROCE, an increase in spread of the company would cause the ROCE to increase as well. Spread was only negative by a very small amount in 2012 because net borrowing costs for that particular year was high, that is a positive 16%.

ROCE:Although the leverage for the company fell, a high return on net operating assets and an increasing and a positive spread contributed to a positive ROCE for the overall company. However, it is noteworthy that the companys net financial expenses are decreasing over time due to its decreasing dependence of debt financing which is causing its net borrowing costs to decrease. Decreasing dependence is due to the companys movement toward and equity structure as discussed in the vertical analysis of the company.Financial Regulation and distortion: International Accounting Standards, as applicable in Pakistan, have been followed in preparation of financial statements and any departure there from has been adequately disclosed and explained The financial statements of Suraj Cotton have been prepared in accordance with approved accounting standards as applicable in Pakistan. Approved accounting standards comprise of such International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board as are notified under the Companies Ordinance, 1984, provisions of and directives issued under the Companies Ordinance, 1984. In case requirements differ, the provisions or directives of the Companies Ordinance, 1984 shall prevail.

Key sources of estimation, uncertainty and critical accounting judgments are as follows: Income taxes: The Company takes into account relevant provisions of the current income tax laws while providing for current and deferred taxes. Useful lives, patterns of economic benefits and impairments: Management has made estimates of residual values, useful lives and recoverable amounts of certain items of property, plant and equipment. Any change in these estimates in future years might affect the carrying amounts of the respective items of property, plant and equipment with a corresponding effect on the depreciation charge and impairment loss. Provision for slow moving /obsolete items: Provision is made for slow moving and obsolete items. Provisions are made against those having no activity during the current and last three years and are considered obsolete by the management. Provision for doubtful debts: An estimate is made for doubtful receivables based on review of outstanding amounts at the year end, if any. Provisions are made against those having no activity during the current period and are considered doubtful by the management. Balances considered bad and irrecoverable are written off when identified.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESThe Company has adopted the following amendments to IFRSs which became effective for the current year: IAS 19 Employee Benefits (Revised) IFRS 7 Financial Instruments : Disclosures (Amendments) Amendments enhancing disclosures about offsetting of financial assets and financial liabilities IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine

Improvements to Accounting Standards Issued by the IASB IAS 1 Presentation of Financial Statements - Clarification of the requirements for comparative information IAS 16 Property, Plant and Equipment Clarification of Servicing Equipment IAS 32 Financial Instruments: Presentation Tax Effects of Distribution to Holders of Equity Instruments IAS 34 Interim Financial Reporting Interim Financial Reporting and Segment Information for Total Assets and Liabilities

ERRORS AND OMISSIONS The restated earnings per share were calculated by using the current number of shares rather than the previous years shares. In the annual report of 2013, income from the financial assets was given to be 8990, where as in the restated value it said 79306. This was due to the omission of income from investments in other companies. No explanation was given.

Creditors perspective:Throughout the report it has been emphasized that the companys overall debt is declining since the company is moving towards an equity structure. Total liabilities of the company as a percentage of total assets have decreased from 48% in 2010 to 28% which means that the company is aggressively paying their debts off and financing themselves through equity. Not only long term financing is decreasing, but also short term borrowings which further decrease the net financial expense of the company.As a loan officer in assessing prospective borrowers, I would typically use the five Cs of credit as their main criteria: current capital structure, cash flow, collateral, conditions, and character.The availability, pricing, and other aspects of capital depend on the nature of the prospective borrowers existing debt. As mentioned earlier, Suraj cottons debt structure is satisfacorty since they are not relying on liabilities in order to finance their company. In trying to grasp a prospective borrowers total debt capacity, creditors will also assess the companys ratio of total debt to earnings before interest, taxes, depreciation, and amortization (EBITDA), as well as total debt to equity. In this case, however, the companys EBITDA and times interest earned are positive throughout which would give the creditors a green signalIn evaluating current and future cash flow, lenders will generally look at three years of past financial performance. That includes income statement and balance sheet trends, as well as financial ratio analysis, cash flow, and so on. If we take a look at the current years cash flow (cash flow statement), we can see that the company has been achieving positive cash flows throughout the year from operating activities. Moreover, the financing section shows that the company has been effectively paying off their long term loans along with the short term borrowings. Moreover, the current ratio is greater than 2 which means that the company has enough current assets to pay their liabilities off. The companys profitability ratios suggest that the company is earning positive returns throughout the 5 years which would also attract creditors.Lastly, the character of the company can also be accessed through its cash flows and balance sheet common size. Cash flows and balance sheet common size for Suraj can help the creditors identify that the company is effectively paying their debts off along with their finance costs. All these factors, as a whole, would make a good impression on the creditors.

Investors PerspectiveThe current value of the firm is increasing at a positive rate along with the stock price. This is a good sign for the company since it would attract higher investments. The market value of Suraj cotton increased by almost 291% since its stock price increased by more than 200%. Apart from the market value of the firm, the price earnings ratio is also increasing throughout the years. This indicates that earnings for the company are increasing constantly. Moreover, the dividend yield has been positive throughout the years. JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed the medium to long-term entity rating of A (Single A) and short-term rating of A-2 (A Two) assigned to Suraj Cotton Mills Limited. The outlook on the medium to long-term rating is Stable.The reaffirmation of the ratings takes into account the historically strong cash flow generation of the company. All these factors signal towards a strong sell of the shares due to a bullish market that would result in high profits for the investors.