Khawaja Farrukh and Bilal Malik

Pakistan is the 1st largest exporter and 4th largest producer of the cotton yarn around the world. Pakistan textile is the backbone of Pakistan’s industry. Over the past few years, textile sector face a huge decline in national and international market but now it is coming back to its original form and start helping the Pakistan’s economy.

As a largest industry of the country, textile is shining star in terms of profitability because of regional demand and profit margin. We took the sample of five famous textile companies operating in Pakistan including Azgard-9, Al-karam textile, Gul Ahmed, Saif Textile Mills, Faisalabad City Garment. We did the profitability analysis of these sampled companies which tell us the detailed of the profitability ratios of the industry. These kinds of ratio’s information are very important for the investors and shareholders who wanted to invest in the industry in the future. The profit of the industry is increasing very quickly with the passage of time. According to their profitability analysis from year 2010 to 2013, it is seen that the net profit, gross margin ratio on profit, return on asset and return of equity for the industry was high in year 2011 as compared to year 2010 and 2012. The energy crisis was low for textile industry in 2011. The electricity compensation for the textile industry is available for the very short period of time, for two quarter, and then in 2012 energy crisis get raised again.  But in 2013, the industry profit is again increasing as per high regional and national demand. There are several challenges that the industry is facing because of those the profitability ratios of the industry are low. Electricity crisis listed on the top in these challenges. Due to electricity crisis, industry is not fulfilling the whole national demand and there is also reduction in the export ratio of cotton yarn or textile products to the international market. Also the production cost of textile industry is increasing with the increment in the interest rates, inflation and declining value of Pakistani currency.  Moreover, from the analysis it seen that the relative of the age of assets is decreasing with the passage of time and industry do not using its asset more efficiently because of low maintenance and low quality assets.

Recommendation: In order to increase the gross margin profit, return on asset and return on equity, industry should need to solve the above challenges. Industries have to use its resources more efficiently so that they can reduce the cost and maximize the profit margin and net profit.