FINANCIAL STATEMENTS ANALYSIS

ALLAWASAYA MILLS LIMITED

AND

NISHAT MILLS LIMITED

PROPOSAL FOR REPORT

TO BE SUBMITTED TO THE DEPARTMENT OF MANAGEMENT SCIENCES,
VIRTUAL UNIVERSITY OF PAKISTAN

Submitted By:
Waleed Meer
MC090204957
MBA (Finance), 4th Semester
Submission Date: November 8th, 2010
Due Date: November 8th. 2010
Proposal for Final Project – Financial Statement Analysis

Department of Management Sciences

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Proposal for Final Project – Financial Statement Analysis

Table of Contents

1 INTRODUCTION 03
1.1 Introduction 03
1.2 Project Introduction 04
1.3 Description 04
1.4 Rationale 04
1.5 Background 05
1.6 Objectives 05
1.7 Significance

2 PROJECT PROCEEDINGS 06
2.1 Ratio Analysis 06
2.2 Common Size Analysis 06
2.3 Comparison 06
2.4 Interpretations 06
2.5 Comparisons 07
2.6 Recommendations 07
2.7 Bibliography 07

3 METHODOLOGY 08
3.1 Data Collection Sources 08
3.2 Data Collection Tools/Instruments 08
3.3 Data Processing Tools/Instruments 08

4 BIBLIOGRAPHY 09

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Proposal for Final Project – Financial Statement Analysis

1. Introduction:

1.1. Project Introduction:

1.1.1. Introduction:

Comparison of two listed companies belonging to a similar fashion of business puts emphasis on
evaluating smoothness in their financial matters. It's a statutory requirement by the Govt. of
Pakistan for the listed companies to prepare Financial Statements once a year. The reason for this
law would be to make sure that public, before investing in any listed company should have
enough information to know the risks and benefits for investing in a specific company. Proper
analysis of Financial Statements helps the investors to get a helpful picture or prediction about the
financial and operational stability of the organization.

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
approximately for all 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. Introduction of Selected Companies:

1.2.1.AllaWasaya Textile Mill Limited:

Allawasaya textiles, is one of the most oldest textile unit in Pakistan, established in 1954. Its head
office is situated in Multan. The mission of Allawasaya Textile & Finishing Mills Limited is to
contribute positively to the Socio-Economic Growth of Pakistan through business and industrial
pursuits endeavoring to achieve excellence in all spheres of such activity with effective and
efficient management.

1.2.2.Nishat Mills Limited:

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Proposal for Final Project – Financial Statement Analysis
Nishat Mills Limited is based in Lahore, engaged in the business of textile manufacturing and of
spinning, combing, weaving, bleaching, dyeing, printing, stitching/apparel, buying, selling and
otherwise dealing in yarn, linen, cloth and other goods and fabrics made from raw cotton, synthetic
fiber and cloth. It is also engaged in generating, accumulating, distributing and supplying
electricity. Effective July 1, 2008, Nishat Apparel Limited (formerly Gulf Nishat Apparel Limited),
in which the Company held a 25.72% interest, was amalgamated into the Company.

1.3. Description:

The comparative analytical study of two leading significant firms in Pakistan Textile Industry
namely Nishat Mills Limited and AllaWasaya Mills shall provide us importance 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 financial ratios and other Proposal for Project on (Financial Statement Analysis) facts and
figures available.

1.4. Rationale:

This research is needed when a person has to make a decision regarding investing into some
company in hope for good returns.

1.5. Background:

Increase in the cotton production and expansion of textile industry has been impressive in Pakistan
since 1947. Cotton – bales increase from 1.1 million bales in 1947 to ten million bales by 2000.
Number of mills increased from 3 to 600 and spindles from about 177,000 to 805 million similarly
looms and finishing units increased but not in the same proportion. Apparently the economic and
political instability has made the textile industry suffer. 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.

Cotton textile industry has been premier industry in Pakistan and a major source of export earning
and employment. Around 50% are employed as industrial labor force and earns 65% foreign

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Proposal for Final Project – Financial Statement Analysis
exchange of total exports.. It also helps in value addition to the manufacturing sector of the
economy. During the six years between 1993 and 1998, production of yarn (in quantity terms)
registered a steady annual growth rate of 302% in Bangladesh and 405% in India. On the contrary,
Pakistan registered a growth rate of 101% per annum in yarn production although it ranked third
after China and India in the global yarn production during the same six years. In exports, while
Taiwan, India and the republic of Korea registered an annual increase of 18.1%, 27.7% and 5.4%
respectively during 1993-1998, Pakistan registered a negative growth of 4.8% one important
development was that till 1997, Pakistan was the world’s largest exporter yarn followed by India.
Stake holders find it very useful to have a comparison between companies of a same industry. It
allows the stake holders to get a better understanding of operations and financial stability of their
investments. It always presents important and insightful hints fort the stake holders about the
present and the future condition of their investment and it also helps them to find a way out if they
feel the conditions are not accordingly suitable.

1.6. Objectives:

The main objective of this comparative analytical study is to apply knowledge regarding financial
statement analysis with aforementioned major listed companies. Furthermore, to analyze and
compare the financial performance of both companies using financial ratios, trend analysis and
common size analysis and comparison techniques over the period of three years picked randomly
but consecutively.

1.7. Significance:

The study will help to improve the financial facts firms. Modify and broaden the scope of decision
making for investors and emphasize the importance of comparative analytical study of financial
performance of similarly functioning companies in the textile industry. The project is relevant to
investors, suppliers and financers.

2. Project Proceedings:

2.1. Ratio Analysis:

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 Proposal for Final Project – Financial Statement Analysis
2.1.1. Liquidity Ratios

2.1.2. Profitability Ratios

2.1.3. Leverage Ratios

2.1.4. Activity Ratios

2.1.5. Cash Flow Ratios

2.2. Common Size Analysis:

2.2.1. Horizontal and Vertical Analysis:

• Balance Sheet Statement

• Profit & Loss Account

2.3. Comparisons:

Comparisons between both companies will be showed according to their financial information
with a conclusion following it. Following methods will also be used during the analysis process:

2.3.1. Trend Analysis of the following:

• Liquidity Ratios

• Profitability Ratios

• Leverage Ratios

• Activity Ratios

• Cash Flow Ratios

2.3.2. Trend Analysis of the following:

• Liquidity Ratios

• Profitability Ratios

• Leverage Ratios

• Activity Ratios

• Cash Flow Ratios

2.4. Interpretations: Interpretations regarding ratios be made in Final Project.

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 Proposal for Final Project – Financial Statement Analysis
2.5. Conclusions: Conclusions will be drawn according to the analysis.

2.6. Recommendations: Recommendations regarding investment opportunities will be made.

2.7. Bibliography

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Proposal for Final Project – Financial Statement Analysis

3. Methodology:

3.1. Data Collection Sources:

The process gathering data will be done mostly from online sources, magazines, articles and news
papers. The financial data of both listed companies shall be attained from their websites using
online resource. Their online links are as under:

• Allawasaya Mills Limited:

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

Link: http://www.allawasaya.com/financialreport.htm

• Nishat Mills Limited:

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

Link: http://www.nishatmillsltd.com/nishat/invest.html

3.2. Date Collection Tools/Instruments:

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

• Structured Interview (if required and possible)

• Observations

• Online Search

3.3. Data Processing & Analysis:

Data processing and analysis will be made using the following:

• Mainly MS-Excel

• Calculator and other requisite source

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Proposal for Final Project – Financial Statement Analysis

4. Bibliography:

• www.textile.gov.pk

• www.allawasaya.com

• finance.kalpoint.com

• http://www.aptma.org.pk

• www.nishatillsltd.com

• http://www.textileasia.com.pk

• http://www.textileguides.com

• http://ezinearticles.com

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