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 Project Proposal for MBA (Finance)

FINANCIAL STATEMENTS ANALYSIS

Of

NISHAT MILLS LIMITED

And

BHANERO TEXTILE MILLS LIMITED

A PROPOSAL FOR REPORT

TO BE SUBMITTED TO THE DEPARTMENT OF MANAGEMENT SCIENCES,
VIRTUAL UNIVERSITY OF PAKISTAN
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR
THE DEGREE OF MASTER IN BUSINESS ADMINISTRATION (MBA)

Submitted By:
Muhammad Shakil
MC-080401819
MBA (Finance), 4th Semester
Submission Date: 25.04.2009
Duet Date: 30th April, 2010

Department of Management Sciences

Proposal for Project on (Financial Statement Analysis) 2
VIRTUAL UNIVERSITY OF PAKISTAN

Proposal for Project on (Financial Statement Analysis) 3

 Table of Contents

1 INTRODUCTION 03
1.1 HISTORY 03
1.2 TOPIC/PROJECT INTRODUCTION 04
1.2.1 Introduction 04
1.2.2 Description 04
1.3 Objectives 05
1.4 Significance 05

2 PROJECT PROCEEDINGS 06
2.1 Companies’ Profiles 06
2.2 Ratio Analysis 06
2.3 Common Size Analysis 06
2.4 Review of Descriptive Information 06
2.5 Comparisons 06

3 METHODOLOGY 09
3.1 Data Collection Sources 09
3.2 Data Collection Tools 09
3.3 Data Processing Tools 09

4 BIBLIOGRAPHY 10

Proposal for Project on (Financial Statement Analysis) 4

 1. Introduction:

1.1. History:

Pakistan is known as an agricultural country. Pakistan is prominent in the world due to its finest
quality cotton. The raw cotton is converted into yarn and this yarn is then weaved into fabrics. The
processed fabrics and garments made through are the major contributor to the Pakistani economy.
Textile sector is playing a key role in GDP, exports and employment as it is one of the most
important sector of Pakistani Industry. In the long run, textile sector is believed to be the backbone
of the Pakistani economy. This raw cotton is also used other textile axillaries like cloth, towel,
knits, bed linen, socks etc.). In the year 2004, Ministry of Textile Industry was established by the
Govt. of Pakistan for better progress. However, the rules and regulations are determined by All
Pakistan Textile Mills Association (APTMA) in the industry.

The textile sector employs over 38% of industrial labor force and earns over 60% foreign exchange
of total exports. It also contributes 8.50% of total national income and shares 9% in GDP. The
Pakistan’s textile industry has total spinning capacity of 1550 million kgs of yarn. The weaving &
finishing capacities are more than 4368 and 4000 million square meters of fabric, similarly. The
capacity of production is 670 million units of garments, 400 million units of knitwear and 53
million kgs of towels. In the last few years, the textile and garment machinery has imported in
Pakistan about 5.2 billion US dollars, due to which the quality and production efficiency has been
increased extensively. The Govt. of Pakistan is estimated the target of exports of textiles and
garments over US$10 billion. Pakistan is the 8th largest country in Asia as exporter of textile
products.

The issue of comparison of the feasibility of one organization with other organization is very
important for stakeholders. They are eager to know the operations of their organizations. They have
craved to identify that how much they have to get in touch with the organizations for benefits.
Comparison of financial statements of two different organizations in same industry always presents
the important and helpful insights and hints for stakeholders. The stakeholders sort out the
possibility of profit and loss by this comparison process. This process also provides help to the
stakeholders to find out the way of improvement in performance, if the organization is in loss.
1.2. Topic /Project Introduction:

Proposal for Project on (Financial Statement Analysis) 5

 1.2.1. Introduction:

The theme of the study is comparison of financial statements of two listed companies in the
same sector which put emphasis on evaluating their money matters. It is a fundamental
requirement by law for all listed companies to prepare their financial statements. Operational
& monetary feasibility of the business becomes easy by using these financial statements,
which provides a helpful picture of financials of the organizations. To predict the future of a
company, these financial statements and ratios are not much helpful due to different
perspectives of the firms and their economies. Every firm/organization various standards,
different backgrounds, special averages and varied capital structure. To evaluate and
determine the performance of a firm, comparison of its benchmark, standards or averages is
the compulsory. This functional tool commonly used to understand the profitability and
liquidity of the firm by the investors, lenders and financial institutions. The importance of this
tool is still colossal for all (approximately) stakeholders of the firm, even though, these tools
are always slammed for inadequacy of their results due to unsure financial figures reported in
financial statements and not thinking about the various intangible , non-financial aspects.

1.2.2. Description:

The study tackles the comparative analysis and investigates the financial facts of Nishat Mills
Limited and Bahnero Textile Mills Limited, which are the leading firms of textile industrial
sector of Pakistan. The said firms are playing the significant role in textile sector. The
comparison and analysis of their financial statements shall provide us important imminent of
their performance and efficiency. The analysis shall provide the facts for static trade off
theory and picking order theory for financing decisions in textile sector of Pakistan. The
purpose of the project is to make a three years comparative analysis of financial statements of
aforementioned companies. The aim of the project is to compare the profitability, liquidity
and performance of both companies with each other as well as with industry averages. The
study shall elaborate the financial analysis of financial ratios which incorporated horizontal &
vertical rations and trend ratios etc. The other techniques include the common size analysis,
review of descriptive material and comparisons of results with other types of data.

1.3. Objectives:

Proposal for Project on (Financial Statement Analysis) 6

 The objective of this study is to discuss and apply the knowledge of financial statements analysis
on both said major listed companies. Further, to analyze and compare the financial performance of
the both said companies. This research work shall help us to understand and write down the
notions/concepts of financial statements analysis. Analysis of various financial rations and
comparison of using the different techniques for the period of three years also incorporated. Further
aims of the project are as under:

i) To analyze the performance through compare and assess the consistent financial
information within and between both firms and with industry averages.

ii) To examine the proficiency & competency of operations by indentifying the major
changes in trends amounts and relationships.

iii) To find out and investigate the causes behind major changes.

1.4. Significance:

The study will improve, modify or broaden the financial facts of the firms. The process of
comparison & analysis the financial statements of two listed companies is very important for the
stakeholders. Most of the stakeholders are keen to know that their lending to firm is beneficial for
them or not? The project is relevant to short term lenders, long term lender, suppliers and investors.

The study describes the importance of analyzing financial statements and comparison of two listed
companies and with industry averages. This research work also identifies the importance of
financial information and their significance for different stakeholders of the firms. The project
provides help to understand the importance of comparison and analysis the financial statements of
two listed companies. It also facilitates to know that how we can improve the performance of a firm
while comparing with other firm and industry averages.

The outcomes of the project shall be disseminated among the stakeholders. The results of this study
shall be provided so that the research work contributes to the solutions or developments.

2. Project Proceedings:

Good but you will have to follow the final project format along with the document “Essentials
of Financial analysis” i.e. you are required to merge both documents in your project work

Proposal for Project on (Financial Statement Analysis) 7

 and you can use information of these both documents in preparation of project proceedings.

2.1. COMPANIES’ PROFILES:

2.2. RATIO ANALYSIS:

2.2.1. Liquidity Ratios

2.2.2. Leverage Ratios

2.2.3. Profitability Ratios

2.2.4. Activity Ratios

2.2.5. Market Ratios

2.2.6. Cash Flow Ratios

2.3. COMMON SIZE ANALYSIS:

2.3.1. Horizontal Analysis:

• Balance Sheet Statement

• Profit & Loss Account

2.3.2. Vertical Analysis:

• Balance Sheet Statement

• Profit & Loss Account

2.4. REVIEW OF DESCRIPTIVE INFORMATION:

The review of descriptive information shall be made and writ thoroughly.

2.5. COMPARISONS:

A comparison of the financial statements of both listed companies shall be made and writ downs
the conclusions of these comparisons. The following tools shall also be utilized to analyze these
statements:

2.5.1. Trend Analysis:

• Liquidity Ratios

Proposal for Project on (Financial Statement Analysis) 8

• Financial Leverage Ratios

• Profitability Ratios

• Activity Ratios

• Market Ratios

• Cash Flow Ratios

2.5.2. Trend Analysis:

• Liquidity Ratios

• Financial Leverage Ratios

• Profitability Ratios

• Activity Ratios

• Market Ratios

• Cash Flow Ratios

2.5.3. Industry Average:

• Liquidity Ratios

• Financial Leverage Ratios

• Profitability Ratios

• Activity Ratios

• Market Ratios

• Cash Flow Ratios

2.6. Interpretations:

2.7. Conclusions:

2.8. Recommendations:

2.9. Bibliography

Proposal for Project on (Financial Statement Analysis) 9

2.10. Annexes (soft and physical form)

Proposal for Project on (Financial Statement Analysis) 10

 3. Methodology:

3.1. Data Collection Sources:

Data shall be collected from various published financial reports, articles, magazines and etc. The
financial Data of both listed companies shall be attained from their websites using online resource.
Their online links are as under:

• Nishat Mills Limited:

The following link of the firm contains all required information related to the project:

Link: http://www.nishatmillsltd.com/nishat/main.php?val=1

• Bahnero Textile Mills Limited:

The following link of the firm contains all required information related to the project:

Link: http://www.umergroup.com/textile/Bhanero/Default.htm

3.2. Date Collection Tools/Instruments:

Requisite Data shall be collected using following tools/instruments, according to the need of the
project.

• Questionnaire (if required and possible)

• Structured Interview (if required and possible)

• Observations

3.3. Data Processing & Analysis:

Data processing shall be made using the following facilities:

• MS. Excel

• Calculator and other requisite source

Proposal for Project on (Financial Statement Analysis) 11

 4. Bibliography:

Use APA format for referencing. You can take help from the document available on VULMS of
the course in the “Downloads” with name “APA”.

• http://www.textile.gov.pk/

• http://www.aptma.org.pk/

• http://www.textileasia.com.pk/pakistan_textile.htm

• http://www.textileguides.com/merchandising/22-merchandising/94-history-of-pakistan-textile-
industry

• http://ezinearticles.com/?The-Pakistan-Textile-Industry---An-Overview&id=708009

Proposal for Project on (Financial Statement Analysis) 12