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Chapter No 4

Analysis and Interpretations

4.1. Time Series


4.1.1. Vertical Analysis:

Liquidity Ratios

Ratios 2016 2015 2014 2013 2012


Current Ratios 1.32 1.26 1.34 1.51 1.31
Quick ratios 0.75 0.65 0.68 0.83 0.60

Explanation:
 The average current ratio of five years is 1.34 which is fairly satisfied for the company. This ratio measures
that the company has enough resources to pay its current debts, usually for 12-month period.
 The average quick ratio is 0.70 This excludes inventory and measures the ability to use its quick assets to
pay its current liabilities. This is normal as compared to the current ratio which shows that company is not
depending heavily on inventory.

Activity Ratios

Ratios 2016 2015 2014 2013 2012


Inventory Turnover 4.12 3.91 3.93 4.20 3.90
Average Collection Period 18.22 17.22 11.87 10.77 15.05
Average Payment Period 4.65 5.84 7.25 8.01 8.46
Total Asset Turnover 0.45 0.51 0.56 0.65 0.79

 The average of this ratio is 4.01 of last five years. It measures the activity or liquidity of a firm’s inventory.
This ratio is higher in 2013 with 4.20.
 The average collection period is the average age of accounts receivables which is useful in evaluating
credit and collection policies. This is the average amount of time needed to collect accounts receivables.
The average collection period is higher in 2012 with 15.05.
 The average payment period is the average age of accounts payable. This is the average amount of time
needed to pay accounts payable. The average payment period is higher in 2012 with 8.46.
 The average of this ratio is 0.59. This indicates the efficiency with which the firm uses its assets to generate
sales. The highest asset turnover is in 2012 with 0.79, which means that more efficiently the firm’s assets
have been used.
Debt Ratios

Ratios 2016 2015 2014 2013 2012


Debt Ratio 5.64% 7.33% 9.38% 5.35% 9.07%
Times Interest Earned Ratio 6.47 3.52 4.71 4.93 3.32
Fixed Payment Coverage Ratio 20.80% 24.81% 32.80% 27.83% 37.60%

 The average for this ratio is 7.35%. It measures the proportion of total assets financed by the firm’s
creditors. The higher this ratio, the greater the firm’s degree of indebtedness and the more financial
leverage it has. The ratio was high in 2014, that is 9.38%.
 The average for this ratio is 4.59. The high is the ratio, the beneficial is for the company. When this is
below 1, it means that company is no able to meet its interest obligations. So, the company is safe at
present conditions. That ratio is high in 2016 because of the factor of the gain on the sale of investment.
 This ratio shows that how much of the company assets have been formed with the debts. The average ratio
is28.76 %. The lower the ratio, the better is for the company. When the ratio is higher it depicts that
company is more leveraged. The figure was highest in 2012, that is 37.60% this shows that company had
low assets.

Profitability Ratios

Ratios 2016 2015 2014 2013 2012


Gross Profit Margin 13.05% 11.81% 14.44% 17.25% 15.11%
Operating Profit Margin 18.62% 16.13% 16.76% 17.81% 15.81%
Net Profit Margin 10.26% 7.64% 10.13% 11.15% 7.85%
Earnings Per Share (in rupees) 14 11.13 15.68 16.63 10.04
Return on Total Assets 4.62% 3.87% 5.68% 7.25% 6.22%
Return on Common Equity 6.22% 5.41% 8.65% 12.10% 9.65%

 The average for this ratio is 14.33%. It is a measurement of how much from each Rupee of a company's
revenue is available to cover overhead, other expenses and profits. The higher the ratio the better is for
the company. It also shows that the company has control on its production cost. It was high in 2013 with
17.25%.
 The average for this ratio is 17.02%. It measures each sales rupee remaining after all costs and expenses
other than interest, taxes and preferred stock dividends are deducted, the ‘’pure profits’’ earned on each
sales rupee. This ratio is higher in 2016 with 18.62%.
 The average for this ratio is 9.40%. Net profit margin measures how much of each Rupee earned by the
company is translated into profits. Low net profit margin indicates low margin of safety. Net Profit Margin
is high as 11.15% in 2013. Net profit margin is affected by more factors as production, administration,
selling, financing, pricing or tax factors.
 The earning per share represents the number of dollars earned during the period on behalf of each
outstanding share of common stock. Earnings per share is higher in 2013 with 16.63 rupees.
 The average of return on total assets is 5.52%. It measures the overall effectiveness of management in
generating profits with its available assets. The higher return on assets is in 2013 which is 7.25%.
 The average of return on common equity is 8.40%. It measures the return earned on the common
stockholders’ investment in the firm. This return is higher in 2013, which is 12.10%.

Market Ratios

Ratios 2016 2015 2014 2013 2012


Price/earnings Ratio 7.71 10.26 7.14 5.67 4.74

 The average of earnings ratio is 7.10. It measures the amount that investors are willing to pay for each
rupee of the firm’s earnings. When the price earnings ratio is higher, the investor’s confidence also
increases. This ratio is higher in 2015, which is 10.26, it means that the investor’s confidence is higher in
2015.

Common size Balance Sheet:

2016 2015 2014 2013 2012


Total Equity 232% 215% 194% 166% 107%
Non-Current Liabilities 145% 173% 205% 108% 111%
Current Liabilities 128% 125% 141% 118% 99%
Total Liabilities 131% 134% 152% 116% 101%
Total Equity & Liabilities 197% 187% 179% 149% 105%
Assets
Non-current Assets 227% 216% 192% 150% 103%
Current Assets 140% 131% 156% 148% 108%
Total Assets 197% 187% 179% 149% 105%
Common size Profit & Loss Account:

2016 2015 2014 2013 2012


Sales 99% 105% 112% 108% 93%
Cost of Sales 102% 111% 114% 107% 94%
Gross Profit 80% 77% 100% 115% 87%
Distribution Cost 98% 111% 117% 115% 117%
Administrative Expenses 170% 168% 157% 133% 111%
Other Expenses 73% 85% 80% 95% 80%
59% 47% 86% 115% 69%
Other Operating Income 167% 163% 149% 112% 110%
Profit from Operations 97% 87% 108% 114% 83%
Finance Cost 65% 109% 101% 101% 110%
Profit Before Taxation 106% 81% 110% 117% 75%
Provision for Taxation 141% 84% 82% 90% 97%
Profit After Taxation 102% 81% 114% 121% 73%

4.2. Cross Sectional Analysis

2016 2016
Nishat Mills Gul Ahmad
Liquidity Ratios
Current Ratio 1.32 1.05
Quick Ratio 0.75 0.24
Activity Ratios
Inventory Turnover 4.12 2.35
Total Asset Turnover 0.45 1.34
Average Payment Period 4.65 3.10
Average Collection Period 18.22 20.33
Debt Ratios
Debt Ratio 5.64% 0.34
Times Interest Earned Ratio 6.47 1.59
Fixed Payment Coverage Ratio 2.80% 1.67
Profitability Ratios
Gross Profit Margin 13.05% 18.27%
Operating Profit Margin 18.62% 19.65%
Net Profit Margin 10.26% 1.81%
Earnings Per Share (in rupees) 14 2.65
Return on Total Assets 4.62% 2.42%
Return on Common Equity 6.22% 8.75%
Market Ratios
Price/earnings Ratio 7.71 18.51
Chapter No 5
Findings and Suggestions

Organizations big or small profit or unprofitable have problems and there are always chances of improvements.
This is also the condition for Nishat textile. As problems and difficulties have been identified, now here are some
suggestions that may help the organization to improve.
 In processing department, there is a need of skilled workers. There are certain departments of processing
in which employees have been working since long but their efficiency is not improved and unsatisfactory
results come out sometimes. The skilled labor will not only improve the efficiency but also will improve
effectiveness. There should be chances given to skilled workers to enter the organization.
 There should be female artists and designers in design department as females have naturally more
esthetical qualities than males. They will really improve the quality of designs and will introduce more
innovative designs.
 Expanding product lines that will give more variety to people of country could extend local marketing and
ultimately sales would be increased. There should be more staff in local marketing department to enhance
the sales figure and to capture wide area of local market.
 There is need to increases the staff in this department only three or four persons are working with all the
affairs regarding let the employees abide by the rules 7 regulation, recruiting, selecting and other activities.
This area should carefully be handle to attract skilled employees and ultimately to enhance efficiency and
effectiveness.
 Job analysis should be done to know what are the jobs needed in the organization. I know some persons
who are doing the job of two or three persons.
 Compensation and reward system should be brought at higher level in order to let the employees be
motivated and happy. There should be more fringe benefits for the employees taking into consideration
their devotion skill and experience. This higher level would make the employees more efficiency &
effective.
 There should be little compensation for trainees as well, as they can fulfill their day to day traveling and
food expenses. By doing this, trainees will show more interest, more devotion, more potentials and will
work with their full mental and physical efforts.
 The first aid and other medical facilities should be provided to the employees with in the mill area. There
is continuous working in the mill and every time there are chances of any accident or unpleasant incident.
So, in order to handle this type of situation the first aid dispensary should be there with in the mill area.
 Company should have proper planning to purchase raw material as it is purchased sometimes without
planning in every season that is the cause of high level of inventory and blockage of funds and ultimately
affects the liquidity.

As company has problems with its financial condition and Human resources, so there is need of better planning
in order to solve the problems and to bring the company n right track that might have been lost.
Chapter No 6
Conclusions

Nishat Textile is considered to be the leading organization in the field of textile. The name Nishat has become
has become a symbol of quality and standard.
The quality of cloth is dependent of textile yarn to finished cloth. Which is totally imported from various countries.
Major machine are mercerizing machines, sober machine and J-Zimmer that con print cloth with 12 colors.
All the sub department of processing like bleaching, dyeing, printing, and finishing are working under laboratory
instructions so laboratory is playing role of executive in quality control. All the schedules of bleaching, dyeing
printing and finishing are prepared by the laboratory.
The customer satisfaction is a basic criterion of Nishat Textile. They are producing good quality products and
80% products are exported. Great care is taken for export products regarding. Marketers of Nishat Textile know
the competition in the international market. They put their level best efforts to satisfy the customer keeping in
view the costs of products and quality.
Nishat has also a big share in local market. Local market. Local marketers are performing their jobs efficiently
to enhance the sales and to satisfy the customers however in local market quality is lower than export market.
So Nishat has greater capability to preclude what they claim for.
If we turn to human resource department we see that there are certain gaps in human resources management of
Nishat Textile. This department is not established and not considered to be very much important. Low attention
is paid to this department by upper level management. There is lack of human resources planning, lack of
recruiting activities lack of job analysis, compensation and reward system is not very much attractive and
employees are not well motivated in Nishat textile. One good thing of this department is that the department let
the employees follow the rules and regulations set by the organization strictly. Attendance is strictly checked 7
leaves as well. So, there are good and bad both present in the human resources management of Nishat Textile.
Nishat textile has the ability to produce what their customers want through excellent machinery and skilled
workers in processing department and qualified marketing staff. But there are problems regarding human resource
management and financial management. Despite having problems Nishat has good and increasing sales figures
that will lead the organization to prosperity again.
Appendix I

Liquidity Ratios:

S. No. Ratios Formulas


1 Current Ratio Current Assets/Current Liabilities
2 Quick Ratio Current Assets-Inventory/Current Liabilities

Activity Ratios:

S. No. Ratios Formulas


1 Inventory Turnover Cost of Goods Sold/Inventory
2 Average Collection Period Accounts Receivable/Average Sales Per Day
3 Total Assets Turnover Sales/Total Assets
4 Average Payment Period Accounts Payable/Average Purchases Per Day

Debt Ratios:

S. No. Ratios Formulas


1 Debt Ratio Total Liabilities/Total Assets
2 Times Interest Earned Ratio Earnings Before Interest & Taxes/Interest

Profitability Ratios:

S. No. Ratios Formulas


1 Gross Profit Margin Gross Profit/Sales
2 Operating Profit Margin Operating Profits/Sales
3 Net Profit Margin Earnings Available For Common
Stockholders/Sales
4 Earnings Per Share Earnings Available For Common
Stockholders/No Of Shares
5 Return on Total Assets Earnings Available for Common
Stockholders/Total Assets
6 Return on Equity Earnings Available for Common
Stockholders/Common Stock Equity
Market Ratios:

S. No. Ratios Formulas


1 Price/earnings Ratio Market Price Per Share/Earnings Per Share
2 Market/book Ratio Market Price Per Share/Book Value Per Share
Appendix II

Balance Sheet

2016 2015 2014 2013 2012


Non-current Assets
Property, plant & equipment 24,715,095 24,357,269 22,964,388 15,530,320 14,318,639
Long term investments 55,399,080 51,960,454 44,771,715 37,378,224 21,912,790
Other non-current assets 634,214 631,833 537,482 521,490 547,283
Current Assets
Stores, spares and loose tools 1,269,509 1,335,763 1,316,479 1,285,371 1,019,041
Stock in trade 9,933,736 10,350,193 12,752,495 10,945,439 9,695,133
Short term investments 2,065,217 2,189,860 3,227,560 4,362,880 1,589,093
Other current assets 12,582,368 10,314,628 11,478,458 10,610,870 7,544,404
Total Assets 106,599,219 101,140,000 97,048,577 80,634,594 56,626,383
Shareholders’ Equity 82,155,155 76,142,823 68,589,176 58,917,035 37,762,749
Non-Current Liabilities
Long term financing 4,629,456 5,582,220 6,431,304 3,149,732 3,426,578
Deferred tax 261,567 247,462 474,878 499,415 310,305
Current Liabilities
Short term borrowings 10,475,657 11,524,143 14,468,124 11,939,028 9,665,849
Current portion of non-current 1,980,768 1,783,250 1,595,652 1,310,769 1,106,902
liabilities
Other current liabilities 7,096,616 5,860,102 5,489,443 4,818,615 4,354,000
Total Equity and 106,599,219 101,140,000 97,048,577 80,634,594 56,626,383
Liabilities

Profit & Loss Account

2016 2015 2014 2013 2012


Sales 47,999,179 51,200,223 54,444,091 52,426,030 44,924,101
Gross profit 6,264,308 6,046,784 7,863,774 9,044,485 6,789,191
EBITDA 8,937,616 8,260,046 9,125,677 9,334,690 7,101,295
Other Income 4,079,054 3,982,009 3,653,041 2,739,102 2,683,685
Profit before tax 5,725,038 4,389,925 5,975,552 6,356,853 4,081,567
Profit after tax 4,923,038 3,911,925 5,512,552 5,846,853 3,528,567
Statement of Cash Flows

2016 2015 2014 2013 2012


Cash flow from operating activities 4,704,482 5,298,151 4,887,376 491,795 2,760,562
Cash flow from investing activities 735,980 (3,042,332) (7,909,028) (2,695,026) 37,326
Cash flow from financing activities (3,377,513) (5,005,916) 4,695,106 973,537 (1,572,033)
Changes in cash & cash equivalents 2,062,949 (2,750,097) 1,673,454 (1,229,694) 1,225,855
Cash and cash equivalent-year end 2,115,168 52,219 2,802,316 1,128,862 2,358,556