University of Education Lower Mall Campus Lahore.

Financial Analysis of Nishat Mills Ltd

Submitted by:

Muhammad Shahroze Rashid (72)

Usman Tariq (97)

Fahad Khan (65)

Raheel Javed (83)

Muhammad Ayaz (61)

ContentsINTERNAL ANALYSIS..........................................................................................1

Liquidity Ratios......................................................................................................1

Interpretation:.........................................................................................................1

Current ratio:..........................................................................................................1

Quick ratio:.............................................................................................................1

Leverage Ratios.........................................................................................................2

Interpretation:.........................................................................................................2

Debt- to- equity ratio:.............................................................................................2

Debt- to- total -assets ratio:....................................................................................2

Coverage Ratios.........................................................................................................2

Interpretation:.........................................................................................................2

Interest coverage ratio:...........................................................................................2

Activity Ratios...........................................................................................................3

Interpretation:.........................................................................................................3

Receivable turnover:..............................................................................................3

Inventory turnover:.................................................................................................3

Total asset turnover:...............................................................................................3

Profitability Ratios.....................................................................................................4

Interpretation:.........................................................................................................4

Net profit margin:...................................................................................................4

Return on investment:............................................................................................4

Return on equity:....................................................................................................4

EXTERNAL ANALYSIS (Only for Year 2014)......................................................5

Liquidity Ratios.........................................................................................................5

Interpretation:.........................................................................................................5

Current ratio:..........................................................................................................5

Quick ratio:.............................................................................................................5

Leverage Ratios.........................................................................................................5

Interpretation:.........................................................................................................5

Debt to equity ratio:................................................................................................5

Debt to total asset ratio:..........................................................................................5

Coverage Ratios.........................................................................................................6

Interpretation:.........................................................................................................6

Interest coverage ratio:...........................................................................................6

Activity Ratios...........................................................................................................6

Interpretation:.........................................................................................................6

Receivable turnover:..............................................................................................6

Inventory turnover:.................................................................................................6

Total asset turnover:...............................................................................................6

Profitability Ratio......................................................................................................7

Interpretation:.........................................................................................................7

Net profit margin:...................................................................................................7

Return on investment:............................................................................................7

Return on equity:....................................................................................................7

Conclusion (future outlook):.....................................................................................7

NOTE:....................................................................................................................7

FINANCIAL ANALYSIS

Nishat Textiles Mills Limited

INTERNAL ANALYSIS

Liquidity Ratios

2012 2013 2014Current ratio 1.31 1.51 1.34Quick ratio 0.60 0.83 0.68

Interpretation:

Current ratio: The Company is growing in a manner and in stable position to cover its current liabilities with current assets.

Quick ratio: Shows a firm’s ability to meet current liabilities with its most liquid assets; however these ratios are not in line with the industry but decreasing.

Leverage Ratios

2012 2013 2014Debt to equity ratio 0.47 0.53 0.50Debt to total asset ratio 0.32 0.35 0.33

Interpretation:

Debt- to- equity ratio: Creditors like this ratio to be low. The lower the ratio, the higher the level of firm’s financing that is being provided by the shareholders. In 2014: the ratio tells us that creditors are providing 0.50 Rs of financing for each 1 Rs provided by the shareholder.

Debt- to- total -assets ratio:

The greater the Debt- to- total -assets ratio, the higher the risk; the lower the ratio the lower the financial risk. In 2014, 33% of the firm’s assets are supported with debt financing and the remaining 77% of financing comes from shareholders equity.

Coverage Ratios

2012 2013 2014Interest coverage ratio 3.10 4.30 4.85

Interpretation:

Interest coverage ratio: This ratio serves as a measure of the firm’s ability to meet its interest payments and thus avoid bankruptcy. The higher the ratio the greater the likelihood that the company can cover its interest payments without difficulty. Thus; In 2014: the Nishat had the ability to cover annual interest 4.85 times with the operating income (EBIT).

Activity Ratios

2012 2013 2014Receivable turnover (in days) 23.60 18.62 28.29Inventory turnover( in days) 93.85 86.90 92.88Total asset turnover 0.68 0.90 0.79

Interpretation:

Receivable turnover: The figures tell us about after how many number of days the receivables are being collected. Receivable turnover (in days) is also called average collection period; although too high an average collection period is usually bad but a very low average collection period may not necessarily be good.

Inventory turnover: The figures tell us about how many days on average, before inventory in turned into accounts receivables through sales. During the year 2014: after every 92.87 days, the inventory was turned into accounts receivables through sales.

Total asset turnover: The total asset turnover tells us about the relative efficiency with which a firm utilizes its total assets to generate sales. Nishat looks to be less efficient in this regard.

Profitability Ratios

2012 2013 2014Gross profit margin 15.11% 17.25% 15%Return on investment 6.3% 8.9% 6.2%Return on equity 9.65% 12.10% 8.65%

Interpretation:

Net profit margin: The figures tell us about the profits relative to sales after we deduct the cost of producing the goods. In 2014, the Gross profit margin of Nishat was 15 %.

Return on investment: Indicates the profitability on the assets of the firm after all expenses and taxes.

Return on equity: Indicates the profitability to the shareholders of the firm after all expenses and taxes.

EXTERNAL ANALYSIS (Only for Year 2014)

Liquidity Ratios

Nishat Mills Pakistan syntheticsCurrent ratio 1.34 1.31Quick ratio 0.68 0.71

Interpretation:

Current ratio: Nisht Mills Ltd is slightly more efficient that Pakistan synthetics to cover its current liabilities with current assets.

Quick ratio: Nishat’s ability to meet current liabilities with its most liquid assets is slightly less than Pakistan synthetics.

Leverage Ratios

Nishat Mills Pakistan syntheticsDebt to equity ratio 0.50 1.80

Debt to total asset ratio 0.33 0.64

Interpretation:

Debt to equity ratio: The lower the ratio, the higher the level of firm’s financing that is being provided by the shareholders Nishat proves to be ahead of its competitor in this regard.

Debt to total asset ratio: The greater the Debt- to- total -assets ratio, the higher the risk; the lower the ratio the lower the financial risk. Nishat’s Debt- to- total -assets ratio is preferably lower than Pakistan synthetics.

Coverage Ratios

Nishat Mills Pakistan syntheticsInterest coverage ratio 4.85 3.24

Interpretation:

Interest coverage ratio: The higher the ratio the greater the likelihood that the company can cover its interest payments without difficulty. Thus, Nishat is leading in this regard.

Activity Ratios

Nishat Mills Pakistan synthetics

Receivable turnover(in days) 28.29 68.86

Inventory turnover (in days) 92.88 103.98

Total asset turnover 0.79 1.02

Interpretation:

Receivable turnover: The figures tell us about after how many number of days the receivables are being collected. Thus, Nishat collects them after every 28.29 days on average whereas Pakistan synthetics collect them after every 68.86 days.

Inventory turnover: The figures tell us about how many days on average, before inventory in turned into accounts receivables through sales. In this aspect, Pakistan synthetics are less efficient.

Total asset turnover: The total asset turnover tells us about the relative efficiency with which a firm utilizes its total assets to generate sales. In this aspect, Pakistan synthetics are more efficient.

Profitability Ratio

Nishat Mills Pakistan syntheticsGross profit margin 15% 4.24%Return on investment 6.2% 5.3%Return on equity 8.65% 6.7%

Interpretation:

Net profit margin: Nishat has considerably higher Gross profit margins than Pakistan synthetics.

Return on investment: Nishat has higher Return on investment than Pakistan synthetics.

Return on equity: Nishat has considerably higher Return on equity than Pakistan synthetics.

Conclusion (future outlook):

The ensuing years appeared to be positive for NML, as the economy turns on to the

road of recovery. Rising local and international cotton prices will strain the

profitability, but NML has considerable sources to generate incomes from. NML

has the plan to start the functioning of the Operational Product Development

Department to help it better focus on clients. NML’s plans to harness the benefits

from increasing international demand for apparel and garments particularly in the

western economies can help maintain a healthy bottom-line

NOTE:

The data or information used in this report is based on financial reports of Nishat Textile Mills and its competitor.