The impacts of CPI on Corporate Financing decisions and Investment

decisions (Textile Sector)

Textile Industry

Raw Materials

Ginning
Sizing
Warping

Producing

Weaving
Felting
Knitting

Processing

Spinning
Dying
Bleaching

Manufacturing

Knitting
Merchandising
Made-ups

Independent Variable(s)

CPI

Dependent Variable(s)

1. Financing decisions
Loan from Banks
Debt Policy

2.

Investment decisions
Fixed Assets
ROI (Return on Investment)
ROA (Return on Assets)
ROE (Return on Equity)
TVM (Time Value of Money)
NPV (Net Present Value)

Textile Industry
The textile industry or apparel industry is primarily concerned with the design and
production of yarn, cloth, clothing, and their distribution. The raw material may be
natural, or synthetic using products of the chemical industry.
The Textile industry in Pakistan is the largest manufacturing industry in Pakistan. It
has traditionally, after agriculture, been the only industry that has generated huge
employment for both skilled and unskilled labor. The textile industry continues to be
the second largest employment generating sector in Pakistan. Pakistan is the 8th
largest exporter of textile products in Asia. This sector contributes 8.5% to the GDP
and provides employment to about 15 million people or roughly 30% of the 49
million workforce of the country. Pakistan is the 4th largest producer of cotton with
the third largest spinning capacity in Asia after China and India, and contributes 5%
to the global spinning capacity. At present, there are 1,221 ginning units, 442
spinning units, 124 large spinning units and 425 small units which produce textile
products.

CPI (Consumer Price Index)

A consumer price index (CPI) measures changes in the price level of a market
basket of consumer goods and services purchased by households. The CPI is a
statistical estimate constructed using the prices of a sample of representative items
whose prices are collected periodically. The CPI is a statistical estimate constructed
using the prices of a sample of representative items whose prices are collected
periodically.
The equation for calculating the CPI for multiple items is: CPI for multiple items =
Cost of CPI market basket at current period prices/Cost of CPI market basket at base
period prices 100.
Market basket
A list of items used specifically to track the progress of inflation in an
economy or specific market.

Financing Decisions
Financing decisions boil down to how to borrow money.
Corporate finance is the area of finance dealing with the sources of funding and the
capital structure of corporations and the actions that managers take to increase the
value of the firm to the shareholders, as well as the tools and analysis used to
allocate financial resources.

Loan from Bank

In finance, a loan is a debt provided by an entity (organization or individual)
to another entity at an interest rate, and evidenced by a note which specifies,
among other things, the principal amount, interest rate, and date of
repayment. A loan entails the reallocation of the subject asset(s) for a period
of time, between the lender and the borrower.
P = ( r * A ) / ( 1 - (1+r)-N)

Where,
P = Payment Amount

r = Rate of Interest (compounded)

A = Loan Amount

N = Number of Payments

Debt policy/Financing
When a firm raises money for working capital or capital expenditures by
selling bonds, bills, or notes to individual and/or institutional investors.

Investment decisions:
Investment decisions are made by investors and investment managers. Investors
commonly perform investment analysis by making use of fundamental analysis,
technical analysis and gut feel. Investment decisions are often supported
by decision tools.
Investment decisions boil down to how and where to spend money.

Fixed Assets
Assets which are purchased for long-term use and are not likely to be
converted quickly into cash, such as land, buildings, and equipment.

ROI (Return on Investment)

A performance measure used to evaluate the efficiency of an investment or
to compare the efficiency of a number of different investments. ROI measures
the amount of return on an investment relative to the investments cost. To
calculate ROI, the benefit (or return) of an investment is divided by the cost
of the investment, and the result is expressed as a percentage or a ratio.

In the above formula, "Gain from Investment refers to the proceeds obtained
from the sale of the investment of interest. Because ROI is measured as a
percentage, it can be easily compared with returns from other investments,
allowing one to measure a variety of types of investments against one
another.

ROA (Return on Assets)

An indicator of how profitable a company is relative to its total assets. ROA

gives an idea as to how efficient management is at using its assets to
generate earnings. Calculated by dividing a company's annual earnings by its
total assets, ROA is displayed as a percentage. Sometimes this is referred to
as "return on investment".

ROE (Return on Equity)

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.
Return on Equity = Net Income/Shareholder's Equity
Net income is for the full fiscal year (before dividends paid to common
stock holders but after dividends to preferred stock.) Shareholder's equity
does not include preferred shares.

TVM (Time Value of Money)

The idea that money available at the present time is worth more than the
same amount in the future due to its potential earning capacity. This core
principle of finance holds that, provided money can earn interest, any amount
of money is worth more the sooner it is received.

FVn = Vo (l + r)n
PV = FV/(I + r)n
Where
Vo is the initial sum invested
r is the interest rate
n is the number of periods for which the investment is to receive interest.

NPV (Net Present Value)

The NPV method is used for evaluating the desirability of investments or

projects.

Where:
Ct = the net cash receipt at the end of year t
Io = the initial investment outlay
r = the discount rate/the required minimum rate of return on investment
n = the project/investment's duration in years.
If NPV is positive (+): accept the project
If NPV is negative(-): reject the project