Educational Blog: Nishat Mills ltd

Nishat Mills ltd

Khurram Shahzad

(Reg.152153113 )

E.Mail. khurramsandhu468@gmail.com

______________________

Ms Sadia Khan

(Project Supervisor)

A project submitted to the Department of Management Sciences, National college of Business Administration & Economics, East Canal Campus, Lahore in partial fulfillment of the requirements for the MSc.

DEPARTMENT OF MANAGEMENT SCIENCES

NATIONAL COLLEGE OF BUSINESS ADMINISTRATION & ECONOMICS

EAST CANAL CAMPUS

LAHORE

SEPTEMBER, 2017

ACKNOWLEDGEMENT

“All praises for Almighty Allah, who guides us in darkness and helps us in difficulties and due respect for Holy Prophet (Peace be upon him) who enables us to recognize our creator.”

First, we would like to thank Almighty Allah who provided us confidence, guidance & strength to complete this challenging project. The journey has not finished yet and we pray to Allah Almighty to show us the right path & help us more in future as we are nothing without His blessings.

We would like to express our gratitude towards our parents who support and encourage us throughout our life

This organizational analysis appeared to be a great experience for us. It added a lot to our knowledge. Completion of this task would have not been possible without the support of the staff members of Management Sciences Department to whom we interacted.

We would like to extend our sincere thanks to all the individual members of Nishat Textile Mills Limited for their constant guidance and co-operation as well as for providing necessary information regarding the project & also for their support in completing the project.

Dedication

It is our genuine gratefulness and warmest regard that we dedicate this work to our parents who taught us never to give up and also to our friends who helped us in completing it.

EXECUTIVE SUMMARY

Nishat has grown from a cotton export house into the premier business group of Pakistan with 5 listed companies, concentrating on 4 core businesses; Textiles, Cement, Banking and Power Generation. Today, Nishat is considered to be at part with multinationals operating locally in terms of its quality products and management skills.

The system, the style of working & the commitment of the employees in NML is really exemplary. The difference between the success & failure is doing things right and doing things nearly right, & NML has always tried for success & that is why it is known to be one of the leading organizations in Pakistan. Irrespective of all these positive points of Nishat Mills Limited, I have noticed a few areas where the improvement can really increase the efficiency of NML.

I also mentioned about the Textile industry in Pakistan. Then I give the introduction of organization. Then I have discussed about my learning in the whole internship that is all about the Textile Terminologies and process of different departments. Then I have done Financial, SWOT and PEST analysis. I have made it possible to write each and every thing that I have learnt there.

Table of Contents

Topic	Page No.
Acknowledgment	02
Dedication	03
Executive Summary	04
History of Textile Industry in Pakistan	06
Introduction/Historical background of Organization	09
Mission & Vision Statement	12
Organizational Structure	16
Functions of the Organization	17
Social Responsibility of Nishat Mills Ltd	18
Ratio’s	19
Financial Analysis	19
Advantages of Ratio Analysis	20
Simplification of Accounting data	20
Current Ratio	21
Liquidity Ratio	22
Debtors Turnover Ratio	23
The Quick Ratio	24
Debt/Equity Ratio	25
The Proprietary Ratio	26
Fixed Asset Turnover Ratio	27
Gross Profit Ratio	28
Operating Profit Ratio	29
Earnings Per Share Ratio	30
Price Earning Ratio	31
Absolute Liquid Ratio	32
Stock Turn over Ratio	33
Creditors Turnover Ratio	34
Working Capital Turnover Ratio	35
Net Profit Ratio	36
Solvency ratio	37
Interest coverage ratio	38
Fixed Asset Ratio	39
Capital gearing ratio	40
Conclusion of Ratios	41
SWOT Analysis of Nishat Mills Limited	42
Proposed Recommendations	46
Conclusions	48
References	49
Balance Sheet of Nishat 2016	50
Profit and Loss A/C of Nishat 2016	52
Balance Sheet of Nishat 2015	53
Profit and Loss A/C of Nishat 2015	55

HISTORY OF PAKISTAN TEXTILE INDUSTRY

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. It employs 50% of industrial labor force and earns 65% foreign exchange of total exports. Pakistan’s textile industry experts feel that Pakistan has fairly large size textile industry and 60-70% of machines need replacement for the economic and quality production of products for a highly competitive market. But unfortunately it does not have any facility for manufacturing of textile machinery of balancing modernization and replacement (BMR) in the textile mills which need to think about joint ventures for the production of complete spinning units with china, Italy and production of shuttle less looms (Projectile) with Korea, Taiwan and Italy.

Cotton textile industry has been premier industry in Pakistan and a major source of export earning and employment. 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. However, in 1998, India gained the NO 1 position, leaving Pakistan at NO 2 In the case of cotton cloth production, a number of Asian countries have been emerging in the international market to compete with Pakistan. These countries are Bangladesh, India, Taiwan, Indonesia, Thailand, Turkey, Sri Lanka and Iran. The latest available date on overall export performance of The above-mentioned presentation in the context of international scenario highlights the adverse position of Pakistan’s textile industry. when is likely to continue further following the full implementation of WTO agreement from 2005 onwards when an era of free

trade will start globally. Notwithstanding the above fact, current stagnation in the local textile industry can be overcome through efforts, consistent with charges occurring in the international market. It must be appreciated that all successive governments since the birth of cotton textile industry in Pakistan have been encouraging the textile exporters to penetrate into new market and also to broaden the base of exportable commodities by including value added textile goods so that reliance on exports of cotton, cotton yarn and coarse fabrics gradually become minimal.

Reflecting on the state of affairs, Abid Chinoy, Pakistan cloth merchants Association (PCMA) Chairman, Appreciated government’s efforts to encourage new exports and finding new markets, which need aggressive export marketing. The steps taken on the monetary front, such as the frequent devaluation of Pak rupee in terms of dollar could not improve the cost competitiveness of exportable products due to increase in prices of the local and imported inputs of the local textile industry, and also due to inelastic demand for the Pakistan’s exports. It has been rightly mentioned in the latest state bank of Pakistan’s annual report (FY01) that, “Over the years Pakistan’s exports receipts have been vulnerable on account of the narrow base of exportable items, concentrated markets and low value addition ‘this indicated that the growth in the country’s overall exports, including textile products which contributed more then 60% of total export receipts each year, could to be related some cosmetic and ad hoc measure like devaluation of Pak rupee and concession export credits. The first textile commission, which was constituted by the first material law government in 1960 had, inter-alia, recommended that an economic size textile unit should preferably have 25,000 spindles and 500 looms. No new mill with only 12,500 spindles and without looms should be sanctioned. However, no need was paid to the advice by the sanctioning authorities with the result that an excess capacity had tented to build up in the spinning sector.

During the period 1973 to December 1992, some 71 spinning units with 1,136, 835 spindles, 6,600 rotors ands 7,329 looms were closed down. In 1992, a foreign consultant form was hired by the government to look into the stagnating conditions in the local textile industry. One of the observations of the foreign consultant was “Pakistan has failed to make real progress in the international market and is being over taken by many of the neighboring competitor

Countries. The spinning sector, traditionally the core of the industry, is already in the crisis with many spindles lying idle and mills being forced to close. Worse still, this sector will be hit by the projected decline of its major markets in Japan and Hong Kong in the coming years.” Another important strategic recommendation given by the foreign consultant very much relevant to the current.

TEXTILE USES

Textiles have an assortment of uses, the most common of which are for clothing and containers such as bags and baskets. In the household, they are used in carpeting, upholstered furnishings, window shades, towels, covering for tables, beds, and other flat surfaces, and in art. In the workplace, they are used in industrial and scientific processes such as filtering. Miscellaneous uses include flags, backpacks, tents, nets, cleaning devices, such as handkerchiefs; transportation devices such as balloons, kites, sails, and parachutes; strengthening in composite materials such as fiber glass and industrial geo textiles, and smaller cloths are used in washing by "soaping up" the cloth and washing with it rather than using just soap.

Textiles used for industrial purposes, and chosen for characteristics other than their appearance, are commonly referred to as technical textiles. Technical textiles include textile structures for automotive applications, medical textiles (e.g. implants), geo textiles (reinforcement of embankments), agro textiles (textiles for crop protection), protective clothing (e.g. against heat and radiation for fire fighter clothing, against molten metals for welders, stab

protection, and bullet proof vests. In all these applications stringent performance requirements must be met. Woven of threads coated with zinc oxide nanowires, laboratory fabric has been shown capable of "self-powering nanosystems" using vibrations created by everyday actions like wind or body movements.

INTRODUCTION OF ORGANIZATION

NISHAT GROUP

Mian Muhammad Mansha Yayha is the captain of this splendid ship having around 30 companies on board. Mansha, who owns the Muslim Commercial Bank as well, is now setting up a billion rupee ($ 17 m) paper sack project too. He is one of the richest Pakistanis around. Nishat Group was country's 15th richest family in 1970, 6th in 1990 and Number 1 in 1997. Mansha is on the board of nearly 50 companies. Chinioti by clan, Mansha is married to Yousaf Saigol's daughter.

He is deemed to have made investments in many bourses, currency and metal exchanges both within and outside Pakistan. He has had his share of luck on many occasions in life and has recently been awarded Pakistan's highest civil award by President Musharraf. He could have bought the United Bank too, but then who doesn't have adversaries. Nishat Group of comprises of textiles, cement, leasing, insurance and management companies. If Mansha was bitten by Bhutto's nationalization stint of 1970, his friends think he was compensated by Nawaz Sharif's denationalization programme to a very good effect. There is no stopping Mansha and he is still on the move!

The history of Nishat Group dates back to 1951, when Mian Muhammad Yahya founded Nishat Mills Limited. This man of vision, courage and integrity, Mian Mohammad Yahya was born in 1918 in Chiniot. In 1947 when he was running leather business in Calcutta, he witnessed by the momentous changes that swept the Indo-Pak subcontinent. This is story of success through sheer hard work and an undaunted spirit of enterprise. Beginning with a cotton export house, he soon branched out in to ginning, cotton and jute textiles, chemicals and insurance. He was elected Chairman of all Pakistan Textile Mills Association. He died in 1969 at the age of 51 having achieved so much in so short time. After almost half a century of

Undaunted success, Nishat group is among the leading business houses of the country and ranks among the top 5 groups in terms of assets and sales revenue.

The group has its roots firmly planted into four core business namely.

Textiles
Power Generation
Banking
Cement

TEXTILES

The textile business is further subdivided into 3-textile division:

Nishat Lahore
Nishat Faislabad
Nishat Chunian

The textile capacity of the group is the largest in the country. An addition of 20,000 new spindles, 100 new air jet looms and new dyeing plants has increased the existing capacity of 242,000 spindles, 740 looms and dyeing and finishing capacity of 5 million meters. The largest exporters of textile products from Pakistan, for more then decade!

POWER GENERATION

Nishat group has also been a pioneer in power generation in the private sector of the country. Nishat setup the first power generation unit in the private sector in 1995.

CEMENT

In 1992, Nishat Group acquired D.G Khan Cement Company Limited (DGKCC) from the second largest project of the group and is ideally located in the heart of the country, with easy access to transportation all over Pakistan. DGKCC unit No. 1 has a capacity of 2,200 tons

per day. A new unit heaving the capacity of 3,300 tons was setup in 1997. International Finance Corporation and common Wealth Development Corporation have financed this unit. With the addition of unit No.2, DGKCC has become the largest manufacturer of cement in Pakistan.

BANK

In 1991, Nishat Group ventured into the financial sector through the acquisition of Muslim commercial Bank. MCB has grown ever since and is now the largest bank in the private sector. MCB has a network of over 1200 branches employing over 12,000 people.

THE COMPANY

Nishat Mills Limited (“Nishat”) is a public company incorporated in Pakistan under the Companies Act, 1913(Now Companies Ordinance, 1984) and listed on all three Pakistani stock exchanges. The Company is engaged in the business of textile manufacturing and of spinning, combing, weaving, bleaching, dyeing printing, stitching, buying, selling and otherwise dealing in yarn, linen, cloth and other goods and fabrics made from raw cotton, synthetic fiber and cloth, and to generate, accumulate, distribute and supply electricity. Company is providing quality products to its customers within the Pakistan and outside the Pakistan. Presently company is exporting its all kinds if apparel products.

Major competitors Nishat competitors are

Crescent
Chenab
Arzoo
Alkarms
Sitara
Kohinoor
Amtex

VISION STATEMENT

To transform the Company into a modern and dynamic yarn, cloth and processed cloth and finished product manufacturing Company with highly professionals and fully equipped to play a meaningful role on sustainable basis in the economy of Pakistan.

To transform the Company into a modern an dynamic power generating Company with highly professionals and full equipped to play a meaningful role on sustainable basis in the economy of Pakistan.

MISSION STATEMENT

To provide quality products to customers and explore new markets to promote/expand sales of The Company through good governance and foster a sound and dynamic team, so as to achieve Optimum prices of products of the Company for sustainable an equitable growth and prosperity Of the Company.

COMPANY PROFILE

CHIEF EXECUTIVE

Mrs. Naz Mansha

BOARD OF DIRECTOR

Mrs. Naz Mansha
Mian Raza Mansha
Mian Hassan Mansha
Mr. Muhammad Nawaz Tishna (NIT)
Mr. Faisal Ehsan Ellahi
Mr. Khalid Qadeer Qureshi (Chief Financial Officer)
Mr. Muhammad Azam
Mr. Rana Muhammad Mushtaq

FINANCE DEPARTMENT

Mr.Shehzad Malik (G.M)
Mr.Usman Bajwa
Mr.Badar Rauf
Mr.Ashraf Ali Raza
Mr.Inam
Mr.Mudassar
Mr.Asad Iqbal
Mr.Masood Akhtar
Mr.Nawaz
Mr.Zulufiqar

AUDIT COMMITTEE

Mr.waseem ul Haque Osmani Chairman
Mian Hussan Mansha Member
Mr. Aftab Ahmed Khan Member

HEAD OF INTERNAL AUDIT

Mr.Khalid Kabeer

CORPORATE DEPARTMENT

Mr. Muhammad Azam
Mr.Khalid Mahmood Chohan

AUDITORS

Riaz Ahmed & Company

Chartered Accountants

LEGAL ADVISOR

Mr. M. Aurangzeb Khan, Advocate,

Chamber No. 6, District Court,

Faisalabad.

BANKERS TO THE COMPANY

ABN AMRO Bank
Allied Bank of Pakistan Limited
American Express Bank Limited
Askari Commercial Bank Limited
Credit Agricole Indosuez
Citibank N.A
Deutsche Bank
Faysal Bank Limited
Habib Bank Limited
Habib Bank A.G. Zurich
Mashreq Bank P.S.C
Meezan Bank Limited
National Bank of Pakistan
Standard Chartered Bank Grindlays
The Hong Kong & Shangai
Banking Corporation Limited
Union Bank Limited
United Bank Limited

MILLS

Niashatabad, Faisalabad (Spinning, Weaving, Processing, Stitching units & Power Plant)12 K.M. Faisalabad Road, Shiekhupura (Weaving units & Power Plant)
21 K.M Ferozepur Road, Lahore. (Stitching unit)
5 K.M. Nishat Avenue off 22 K.M Ferozepur Road, Lahore (Dyeing & Finishing Unit and Power Plant)
20 K.M. Shiekhupura Faisalabad Road, Froze Watwan (Spinning Unit)

ORGANIZATIONAL STRUCTURE

Functions of the Organization

Social Responsibility of Nishat Mills Ltd

Nishat Social Responsibility Policy (OSRP) functions as a built-in, self-regulating mechanism whereby business monitors and ensures its active compliance with the spirit of the law, ethical standards, and international norms. The goal of OSRP is to embrace responsibility for the company's actions and encourage a positive impact through its activities on the environment, consumers, employees, communities, stakeholders and all other members of the public sphere.

The goal of OSRP is to embrace responsibility for the company's actions and encourage a positive impact through its activities on the environment, consumers, employees, communities, stakeholders and all other members of the public sphere.

Furthermore, OSRP focused businesses would proactively promote the public interest by encouraging community growth and development, and voluntarily eliminating practices that harm the public sphere, regardless of legality. OSR is the deliberate inclusion of public interest into corporate decision-making that is the core business of the company or firm, and the honoring of a triple bottom line: people, planet, profit.

1. Organizational governance

2. Human rights

3. Labor practices

4. The environment

5. Fair operating practices

6. Consumer issues

7. Community involvement and development

In addition to the core subjects, ISO 26000 also defines seven key principles of socially responsible behavior:

1. Accountability

2. Transparency

3. Ethical behavior

4. Respect for stakeholder interests

5. Respect for the rule of law

6. Respect for international norms of behavior

7. Respect for human rights

Ratio’s

We use ratios to make comparisons between two things. When we express ratios in words, we use the word "to"--we say "the ratio of something to something else." Ratios can be written in several different ways: as a fraction, using the word "to", or with a colon.

Financial Analysis

Financial ratios are relationships determined from a company's financial information and used for comparison purposes. Examples include such often referred to measures as return on investment (ROI), return on assets (ROA), and debt-to-equity, to name just three. These ratios are the result of dividing one account balance or financial measurement with another. Usually these measurements or account balances are found on one of the company's financial statements—balance sheet, income statement, cash flow statement, and/or statement of changes in owner's equity. Financial ratios can provide small business owners and managers with a valuable tool with which to measure their progress against predetermined internal goals, a certain competitor, or the overall industry. In addition, tracking various ratios over time is a powerful means of identifying trends in their early stages. Ratios are also used by bankers, investors, and business analysts to assess a company's financial status.

Ratios are calculated by dividing one number by another, total sales divided by number of employees, for example. Ratios enable business owners to examine the relationships between items and measure that relationship. They are simple to calculate, easy to use, and provide business owners with insight into what is happening within their business, insights that are not always apparent upon review of the financial statements alone. Ratios are aids to judgment and cannot take the place of experience. But experience with reading ratios and tracking them over time will make any manager a better manager. Ratios can help to pinpoint areas that need attention before the looming problem within the area is easily visible.

Virtually any financial statistics can be compared using a ratio. In reality, however, small business owners and managers only need to be concerned with a small set of ratios in order to identify where improvements are needed.

It is important to keep in mind that financial ratios are time sensitive; they can only present a picture of the business at the time that the underlying figures were prepared. For example, a retailer calculating ratios before and after the Christmas season would get very different results. In addition, ratios can be misleading when taken singly, though they can be quite valuable when a small business tracks them over time or uses them as a basis for comparison against company goals or industry standards.

Advantages of Ratio Analysis

Ratios help compare current performance with previous records.

Ratios help compare a firm’s performance with similar competitors.

Ratios help monitor and identify issues that can be highlighted and resolved.

Profit and Loss account and Balance Sheet prepared at the end of the year at the end of the year do not always convey to the reader the real profitability and financial health of the business. They contain various facts and figures and it is for the reader to conclude whether these facts indicate indicate a good or bad managerial performance. Ratio analysis is the most important tool of analyzing these financial statements. It helps the reader in giving tongue to the mute heaps of figures given in financial statements. Some important objects and advantages derived by a firm by the use of accounting ratios are. Helpful in analysis of financial statements: ratio analysis is extremely useful devise for analyzing the financial statements. It helps the bankers, creditors, investors, share holders etc. in acquiring enough knowledge about the profitability and financial health of the business. In light of the knowledge so acquired by them, they can take necessary decisions about their relationships with the concern .

Simplification of Accounting data

Accounting ratios simplifies and summarizes a longer ray of accounting data and makes them understandable. It discloses the relationship between two such figures which have a cause and effect relationship with each other. Helpful in comparative study: with the help of ratio analysis comparison of profitability and financial soundness can be made between one firm and another in the same industry. Similarly comparison of current year figures can also be made with those of previous years with the help of ratio analysis. Helpful in locating the weak spots of the business: current year’s ratio are compared with those of the previous years and if some weak spots are thus located, re medial measures are taken to correct them .Helpful in forecasting: accounting ratios are very helpful in forecasting and preparing the plans for the future. It helps to predict what about what is going to be in future. Estimate about the trend of the business: if accounting ratios are prepared for a number of years they will reveal the trend of costs, sales, profits and other important facts. Fixation of ideal standards: ratios helps us in establishing ideal standards of the different items of the business. By comparing the actual ratios calculated at the end of the year with the ideal ratios, the efficiency of the business can be easily measured. Effective control: ratio analysis discloses the liquidity, solvency and profitability of business enterprise. Such information enables management to assess the changes that have taken place over a period of time in the financial activities of the business.

Current Ratio

The current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-term obligations. To gauge this ability, the current ratio considers the current total assets of a company (both liquid and illiquid) relative to that company's current total liabilities.

2016

Formula

Using the earlier balance sheet data for the fictional From the Roots Up Company, we can compute the company’s current ratio.

Current Assets / Current Liabilities

Rupees in thousand

25,850,830/ 19,553,041 = 1.3 times

Formula

2015

Current Assets / Current Liabilities

24,190,444 /19,167,495 = 1.2 times

2016	1.3 times
2015	1.2times

Interpretation

Rupees in thousand

This tells the owners of the From the Roots Up Company that current liabilities are covered by current assets 1.3 in 2016 and 1.2 in 2015 times. The current ratio answers the question, “Does the business have enough current assets to meet the payment schedule of current liabilities with a margin of safety?

Liquidity Ratio

In accounting, the term liquidity is defined as the ability of a company to meet its financial obligations as they come due. The liquidity ratio, then, is a computation that is used to measure a company's ability to pay its short-term debts. ... It is followed by the acid ratio, and the cash ratio.

2016

Formula

Liquid Assets/Current Liabilities

13663725/19553041 = 0.69

Liquid Assts ;Current Assets-Stock-Prepaid Exp.

25850830-9933736-2253369=13663725

Formula

2015

Liquid Assets/Current Liabilities

2242069 / 19,167,495 = 0.12

2016	0.69
2015	0.12

Interpretation

The ratio indicates that by realizing the debtors, short-term investments and bills receivables at their face values along with cash and bank balances, the firm could pay off all liquid liabilities.

In other words, the firm could meet its liquid liabilities without resorting to the sale of inventories. Comparing with the standard ratio of 0.69 for liquid ratio, the actual ratio i.e., 0.12:1 is exceptionally good.

However, maintaining very high ratio continuously may also indicate too much of idle cash resources.

Debtors Turnover Ratio

Is calculated by dividing the cost of goods sold for a period by the average inventory for that period. Average inventory’s used instead of ending inventory because many companies' merchandise fluctuates greatly throughout the year .In accounting, the Inventory turnover is a measure of the number of times inventory is sold or used in a time period such as a year. The equation for inventory turnover equals the cost of goods sold or net sales divided by the average inventory.

2016

Formula

Net Credit Sales/Average Trade Debtors

47,999,179 / 2,253,369 = 21.30

2015

Formula

Net Credit Sales/Average Trade Debtors

51177577 / 3,014,466 = 16.97

2016	21.30
2015	16.97

Interpretation

As you can see, turnover is 21.30 in 2016 and 16.97 in 2015. This means that company collects his receivables about 21.30 in 2016 and 16.97 in 2015 times a year or once every 110 days. In other words, when company makes a credit sale, it will take him 365 days to collect the cash from that sale.

The Quick Ratio

An indicator of a company's short-term liquidity. The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. Thus, a quick ratio of 1.5 means that a company has $1.50 of liquid assets available to cover each $1 of current liabilities.

2016

Formula

Quick Assets/Current Liabilities

9805450/19,553,041 = 0.51

Quick Assets=Current Assets-Stock-Prepaid Exp.

25,850,830-9,933,736-6,111,644 = 9805450

2015

Formula

Quick Assets/Current Liabilities

7,014,466 / 19,553,041 = 0.34

2016	0.51
2015	0.34

Interpretation

Quick ratios between 0.51 in 2016 and 0.34 in 2015 and 1 are considered satisfactory, as long as the collection of receivables is not expected to slow.

Debt/Equity Ratio

Is a debt ratio used to measure a company's financial leverage, calculated by dividing a company's total liabilities by its stockholders' equity. The D/E ratio indicates how much debt a company is using to finance its assets relative to the amount of value represented in shareholders' equity.

2016

Formula

Long Term Debts/Equity

10588977/ 82,155,155= 0.13

Long Term Debts=Mortgage Loan + Debentures

10,475,657+113,320= 10588977

Equity=Share Capital + Reserves and Surplus

3,515,999+78,639,156= 82,155,155

2015

Formula

Long Term Debts/Equity

5,582,220 / 11,524,143 = 0.48

2016	0.13
2015	0.48

Interpretation

A less than 1 ratio indicates that the portion of assets provided by stockholders is greater than the portion of assets provided by creditors and a greater than 1 ratio indicates that the portion of assets provided by creditors is greater than the portion of assets provided by stockholders.

The Proprietary Ratio

( Also known as the equity ratio) is the proportion of shareholders' equity to total assets, and as such provides a rough estimate of the amount of capitalization currently used to support a business .To calculate the proprietary ratio, divide total shareholders' equity by total assets.

2016

Formula

Share Holders Fund/Total Assets

94,562,194 / 106,599,219= 0.88

Share Holders Fund= Share capital +Capital Reserve +Profit and Loss A/c

11,000,000+78,639,156+4,923,038= 94,562,194

2015

Formula

Share Holders Fund/Total Assets

4,858,315 / 101,140,000 = 0.4

2016	0.88
2015	0.4

Interpretation

The proprietary ratio shows the contribution of stockholders’ in total capital of the company. A high proprietary ratio, therefore, indicates a strong financial position of the company and greater security for creditors. A low ratio indicates that the company is already heavily depending on debts for its operations. A large portion of debts in the total capital may reduce creditors interest, increase interest expenses and also the risk of bankruptcy.

Having a very high proprietary ratio does not always mean that the company has an ideal capital structure. A company with a very high proprietary ratio may not be taking full advantage of debt financing for its operations that is also not a good sign for the stockholders

Fixed Asset Turnover Ratio

The ratio of sales (on the profit and loss account) to the value of fixed assets (on the balance sheet). It indicates how well the business is using its fixed assets to generate sales. ... A declining ratio may indicate that the business is over-invested in plant, equipment, or other fixed assets.

2016

Formula

Cost of Sales/Net Fixed Assets

41,734,871 / 24,715,095 = 1.68

2015

Formula

Cost of Sales/Net Fixed Assets

45,153,439 / 24,357,269 = 1.85

2016	1.68
2015	1.85

Comparison of two Years

The ratio of 2016 can be compared with that of 2015 because both the years belong to same industry. Generally speaking the comparability of ratios is more useful when the company in question are in the same industry.

Year 2016 generates a sales revenue of 1.68 fixed assets where as 2015 generates a sales revenue of 1.85 fixed assets. Year 2015 is therefore more efficient than year 2016 in using the fixed assets.

Interpretation

A high fixed assets turnover ratio indicates better utilization of fixed assets and a low ratio means inefficient or under-utilization of fixed assets. The usefulness of this ratio can be increased by comparing it with the ratio of other companies, industry standards and past years.

Gross Profit Ratio

Gross profit margin is a financial metric used to assess a company's financial health and business model by revealing the proportion of money left over from revenues after accounting for the cost of goods sold (COGS). Gross profit margin, also known as gross margin, is calculated by dividing gross profit by revenues.

2016

Formula

Gross Profit / Net Sales * 100

6,264,308 / 47,999,179 = 13.05

2015

Formula

Gross Profit / Net Sales * 100

6,024,138 / 51,177,577 = 11.77

2016	13.05
2015	11.77

Interpretation

Gross profit is very important for any business. It should be sufficient to cover all expenses and provide for profit.

There is no norm or standard to interpret gross profit ratio (GP ratio). Generally, a higher ratio is considered better.

The ratio can be used to test the business condition by comparing it with past years’ ratio and with the ratio of other companies in the industry. A consistent improvement in gross profit ratio over the past years is the indication of continuous improvement . When the ratio is compared with that of others in the industry, the analyst must see whether they use the same accounting systems and practices.

Operating Profit Ratio

Operating margin is a margin ratio used to measure a company's pricing strategy and operating efficiency.

Operating margin is a measurement of what proportion of a company's revenue is left over after paying for variable costs of production such as wages, raw materials, etc. It can be calculated by dividing a company’s operating income (also known as "operating profit") during a given period by its net sales during the same period. “Operating income” here refers to the profit that a company retains after removing operating expenses (such as cost of goods sold and wages) and depreciation. “Net sales” here refers to the total value of sales minus the value of returned goods, allowances for damaged and missing goods, and discount sales.

2016

Formula

Operating Profit / Net Sales * 100

5,947,422 / 47,999,179 * 100 = 12.39%

Operating Profit= Gross Profit- Operating Exp.

6,264,308 - 316,886 = 5,947,422

2015

Formula

Operating Profit / Net Sales * 100

4,389,925 / 51,177,577 *100 = 8.57%

2016	12.39%
2015	8.57%

Interpretation

As you can see, Nishat Mills Ltd operating income in 2016 is 12.39% and in 2015 is 8.57% (Net sales – all operating expenses). According to our formula, Nishat operating margin 12.39% in 2016 and also 8.57% in 2015.

Earnings Per Share Ratio

EPS ratio. The earnings per share ratio (EPS ratio) measures the amount of a company's net income that is theoretically available for payment to the holders of its common stock.If the trend is positive, then the company is either generating an increasing amount of earnings or buying back its stock.

2016

Formula

Net Profit After Tax / No. of Shares

4,923,038 / 11,000,000 = 0.45 per share

2015

Formula

Net Profit After Tax / No. of Shares

3,911,925 / 11,000,000 = 0.35 Per Share

2016	0.45 per share
2015	0.35 per share

Interpretation

The shares are normally purchased to earn dividend or sell them at a higher price in future. EPS figure is very important for actual and potential common stockholders because the payment of dividend and increase in the value of stock in future largely depends on the earnings of the company. EPS is the most widely quoted and relied figure by investors. In most of the countries, the public companies are required to report EPS figure on the income statement. It is usually reported below the net income figure.

There is no rule of thumb to interpret earnings per share. The higher the EPS figure, the better it is. A higher EPS is the sign of higher earnings, strong financial position and, therefore, a reliable company to invest money. For a meaningful analysis, the analyst should calculate the EPS figure for a number of years and also compare it with the EPS figure of other companies in the same industry. A consistent improvement in the EPS figure year after year is the indication of continuous improvement in the earning power of the company.

In 2016 the rate of per share is better by 2015.

Price Earning Ratio

The price earnings ratio, often called the P/E ratio or price to earnings ratio, is a market prospect ratio that calculates the market value of a stock relative to its earnings by comparing the market price per share by the earnings per share. In other words, the price earnings ratio shows what the market is willing to pay for a stock based on its current earnings. Investors often use this ratio to evaluate what a stock's fair market value should be by predicting future earnings per share. Companies with higher future earnings are usually expected to issue higher dividends or have appreciating stock in the future.

2015

Formula

Market Value per Share / Earnings per Share

10 / 0.45 = 22.22times

2016

Formula

Market Value per Share / Earnings per Share

10 / 0.35 = 28.57 Times

2016	22.22 times
2015	28.57 times

Interpretation

As you can see, the Island's ratio is 22.22 times in 2016. This means that investors are willing to pay 22.22 for every thousand and 28.57 in 2015 of earnings. In other words, this stock is trading at a multiple of ten.

Since the current EPS was used in this calculation, this ratio would be considered a trailing price earnings ratio. If a future predicted EPS was used, it would be considered a leading price to earnings ratio.

Absolute Liquid Ratio

Absolute liquid ratio extends the logic further and eliminates accounts receivable (sundry debtors and bills receivables) also. Though receivables are more liquid as comparable to inventory but still there may be doubts considering their time and amount of realization. Therefore, absolute liquidity ratio relates cash, bank and marketable securities to the current liabilities. Since absolute liquidity ratio lays down very strict and exacting standard of liquidity, therefore, acceptable norm of this ratio is 50 percent. It means absolute liquid assets worth one half of the value of current liabilities are sufficient for satisfactory liquid position of a business. However, this ratio is not as popular as the previous two ratios discussed.

2016

Formula

Absolute Liquid Assets/ Current Liability

13663725/ 19,553,041 = 0.69

Liquid Asstes ;Current Assets-Stock-Prepaid Exp.

25850830-9933736-2253369=13663725

2015

Formula

Absolute Liquid Assets/ Current Liability

29517688 / 19,167,495 = 1.54

2016	0.69
2015	1.54

Interpretation

The reason of computing absolute liquid ratio is to eliminate accounts receivables from the list of liquid assets because there may be some doubt about their quick collection. This ratio is useful only when used in conjunction with current ratio and quick ratio.

Stock Turn over Ratio

Inventory turnover is a ratio showing how many times a company's inventory is sold and replaced over a period of time. The days in the period can then be divided by the inventory turnover formula to calculate the days it takes to sell the inventory on hand. It is calculated as sales divided by average inventory.

2016

Formula
Cost of goods sold / Average Stock

41,734,871 / 9,933,736 = 4.20 times

2015

Formula

Cost of goods sold / Average Stock

45,153,439 / 10,350,193 = 4.36times

2016	4.20times
2015	4.36times

Interpretation

As you can see, Nishat turnover is 4.20 and 4.36. This means that Nishat only sold roughly a third of its inventory during the year. It also implies that it would take Donny approximately 2 years to sell his entire inventory or complete one turn. In other words, Nishat does not have very good inventory control. Inventory turnover ratio vary significantly among industries. A high ratio indicates fast moving inventories and a low ratio, on the other hand, indicates slow moving or obsolete inventories in stock. A low ratio may also be the result of maintaining excessive inventories needlessly. Maintaining excessive inventories unnecessarily indicates poor inventory management because it involves tiding up funds that could have been used in other business operations.

Creditors Turnover Ratio

Accounts payable turnover ratio is calculated by taking the total purchases made from suppliers, or cost of sales, and dividing it by the average accounts payable amount during the same period. The accounts payable turnover ratio is a liquidity ratio that shows a company's ability to pay off its accounts payable by comparing net credit purchases to the average accounts payable during a period. In other words, the accounts payable turnover ratio is how many times a company can pay off its average accounts payable balance during the course of a year.

2016

Net Credit Purchase / Average Total Creditors

5,737,896 / 2,023,092 = 2.84

2015

Net Credit Purchase / Average Total Creditors

3,014,466 / 5,582,220 = 0.54

2016	2.84
2015	0.54

Interpretation

Accounts payable turnover ratio indicates the creditworthiness of the company. A high ratio means prompt payment to suppliers for the goods purchased on credit and a low ratio may be a sign of delayed payment.

Accounts payable turnover ratio also depends on the credit terms allowed by suppliers. Companies who enjoy longer credit periods allowed by creditors usually have low ratio as compared to others.

A high ratio (prompt payment) is desirable but company should always avail the credit facility allowed by the suppliers.

Working Capital Turnover Ratio

The working capital turnover ratio is also referred to as net sales to working capital. It indicates a company's effectiveness in using its working capital. The working capital turnover ratio is calculated as follows: net annual sales divided by the average amount of working capital during the same 12 month period. The working capital turnover ratio measures how well a company is utilizing its working capital to support a given level of sales. Working capital is current assets minus current liabilities. A high turnover ratio indicates that management is being extremely efficient in using a firm's short-term assets and liabilities to support sales. Conversely, a low ratio indicates that a business is investing in too many accounts receivable and inventory assets to support its sales, which could eventually lead to an excessive amount of bad debts and obsolete inventory.

2016

Formula

Cost of Sale / Net Working Capital

41,734,871 / 82,155,155 = 0.50

2015

Formula

Cost of Sale / Net Working Capital

45,153,439 / 24,190,444 = 1.86

2016	0.50
2015	1.86

Interpretation

An extremely high working capital turnover ratio can indicate that a company does not have enough capital to support it sales growth; collapse of the company may be imminent. This is a particularly strong indicator when the accounts payable component of working capital is very high, since it indicates that management cannot pay its bills as they come due for payment.

Net Profit Ratio

The net profit percentage is the ratio of after-tax profits to net sales. It reveals the remaining profit after all costs of production, administration, and financing have been deducted from sales, and income taxes recognized. This ratio is a measure of the overall profitability net profit is arrived at after taking into account both the operating and non-operating items of incomes and expenses. The ratio indicates what portion of the net sales is left for the owners after all expenses have been met.

2016

Formula

Net Profit / Net Sales * 100

4,923,038 / 47,999,179 * 100 = 10. 25%

2015

Formula

Net Profit / Net Sales * 100

9,824,038 / 67,787,179 * 100 = 14.49%

2016	10.25%
2015	14.49%

Interpretation

Net profit (NP) ratio is a useful tool to measure the overall profitability of the business. A high ratio indicates the efficient management of the affairs of business.

There is no norm to interpret this ratio. To see whether the business is constantly improving its profitability or not, the analyst should compare the ratio with the previous years’ ratio, the industry’s average and the budgeted net profit ratio.

The use of net profit ratio in conjunction with the assets turnover ratio helps in ascertaining how profitably the assets have been used during the period.

Solvency ratio

A key metric used to measure an enterprise's ability to meet its debt and other obligations. The solvency ratio indicates whether a company's cash flow is sufficient to meet its short-term and long-term liabilities. Solvency ratios compare different elements of an organization's financial statements. The intent of this comparison is to discern the ability of the target entity to remain solvent. Solvency ratios are commonly used by lenders and in-house credit departments to determine the ability of customers to pay back their debts.

2016

Formula

Total Liability / Total Assets

24,444,064 / 106,599,219 = 0.22

2015

Formula

Total Liability / Total Assets

101,140,000 / 101,140,000 = 1

2016	0.22
2015	1

Interpretation

A high solvency ratio indicates a better ability to meet the obligations of the business. However, the ratio is not fully indicative of solvency, since it is based on profits, which do not necessarily equate to cash flows. A solvency analysis also does not account for the ability of a business to obtain new long-term funding, such as through the sale of shares or bonds.

Interest coverage ratio

The interest coverage ratio is used to determine how easily a company can pay their interest expenses on outstanding debt. The ratio is calculated by dividing a company's earnings before interest and taxes (EBIT) by the company's interest expenses for the same period. Creditors and investors use this computation to understand the profitability and risk of a company. For instance, an investor is mainly concerned about seeing his investment in the company increase in value. A large part of this appreciation is based on profits and operational efficiencies. Thus, investors want to see that their company can pay its bills on time without having to sacrifice its operations and profits.

2016

Formula

5,725,038 / 3,572,103 = 1.60

2015

Formula

4,389,925 / 3,911,925 = 1.12

2016	1.60
2015	1.12

Interpretation

Loans and borrowings are cheap source of finance primarily because the interest cost is usually tax deductible in most jurisdictions unlike dividend payments. However, interest costs are obligatory payments unlike dividend payouts which are discretionary upon management's intent. Therefore, the level of debt financing must be at an acceptable level and should not exceed the point which exposes an organization to unacceptably high financial risk as might be reflected in a low interest cover.

Fixed Asset Ratio

Fixed-asset turnover is the ratio of sales (on the profit and loss account) to the value of fixed assets (on the balance sheet). It indicates how well the business is using its fixed assets to generate sales. A declining ratio may indicate that the business is over-invested in plant, equipment, or other fixed assets. The fixed asset turnover ratio is an efficiency ratio that measures a companies return on their investment in property, plant, and equipment by comparing net sales with fixed assets. In other words, it calculates how efficiently a company is a producing sales with its machines and equipment.

2016

Formula

47,999,179 / 24,715,095 = 1.94

2015

Formula

51,177,577 / 24,357,269 = 2.10

2016	1.94
2015	2.10

Interpretation

Generally, a high fixed assets turnover ratio indicates better utilization of fixed assets and a low ratio means inefficient or under-utilization of fixed assets. The usefulness of this ratio can be increased by comparing it with the ratio of other companies, industry standards and past years.

Capital gearing ratio

Capital gearing ratio is a useful tool to analyze the capital structure of a company and is computed by dividing the common stockholders' equity by fixed interest or dividend bearing funds. A company is said to be low geared if the larger portion of the capital is composed of common stockholders’ equity. On the other hand, the company is said to be highly geared if the larger portion of the capital is composed of fixed interest/dividend bearing funds.

2016

Formula

9,933,736 / 2,692,205 = 3.68

2015

Formula

5,575,273 / 11,524,143 = 0.48

2016	3.68
2015	0.48

Interpretation

Capital gearing ratio is the measure of capital structure analysis and financial strength of the company and is of great importance for actual and potential investors.

Borrowing is a cheap source of funds for many companies but a highly geared company is considered a risky investment by the potential investors because such a company has to pay more interest on loans and dividend on preferred stock and, therefore, may have to face problems in maintaining a good level of dividend for common stockholders during the period of low profits.

Banks and other financial institutions reluctant to give loans to companies that are already highly geared.

Conclusion of Ratios

Ratio analysis is a form of fundamental analysis that links together the three financial statements commonly produced by corporations. Ratios provide useful figures that are comparable across industries and sectors. Using financial ratios, investors can develop a feel for a company’s attractiveness based on its competitive position, financial strength and profitability.

SWOT ANALYSIS of Nishat Mills Limited

Swot strategies pursue opportunities that are a good fit to the company's strengths.Swot strategies overcome weaknesses to pursue opportunities. Strategies identify ways that the firm can use its strengths to reduce its vulnerabilityto external threats. strategies establish a defensive plan to prevent the firm's weaknesses from making ithighly susceptible to external threats.

Strengths

Internal characteristics of the business that give it an advantage over others.

Weak Nesses

Internal characteristics that place the business at a disadvantage relative to others. Opportunities: External elements that a business could exploit to its advantages. Threats: External elements that could cause a problem/trouble.

Strengths

Strong Security System

Ø Latest mechanized machinery

Ø Tremendous market positioning

Ø Highly Motivated Workforce

Ø Adequate financial resources

Ø Competitive advantage

Ø Own power generation plant

Ø Strong financial position

Ø High quality standards

Ø Professional management

Weaknesses

Ø High cost of production

Ø Centralized decision making

Ø Small international market share

Ø Less promotional activities

Ø Lack of benefits and rewards for the employees

Ø Non availability of 100 % polyester processing

Advanced technology

Ø New market segments

Ø Existing production capacity

Ø Lifestyle attitudes

Ø Population growth rate

Ø External relations

Ø New styles and demands

Ø Threats: Political instability

Ø Change of government policies

Ø Economic downturn

Ø Emerging competition

Ø Increased taxes

Ø Intense price competition

Strengths

Strong Security System

Nishat textile limited has a greater security system. There are different hidden security cameras which capture the all moments. Latest mechanized machinery: They are using modern looms which they have purchased from Japan and France. And by using that latest machinery the productivity of the employees are very high. Tremendous market positioning: Nishat textile is one of the pioneer textiles in the Pakistan so it got the position in the mind of its customer. And being an old textile company people are loyal with it. Nishat has a better position in the mind of its customers. Highly Motivated Workforce: They are providing better pay to their employees and also bonus to them which motivate the workforce and they are doing well at work setting. Adequate financial resources: The owner of the Nishat is one of the richest persons of the Pakistan and they have more plant and investment in other industries like cement, Bank, They have adequate financial resources to meet their requirements.

Competitive Advantage

Because it is an old textile and it has still keep its position in the textile market on all others competitors in the nationwide which is its competitive advantage. Own power generation plant: They have own power generation plant and Nishat is the pioneer in the private organization who start the power generation. Nishat is also selling its produced power to Wapda.

Weaknesses

High cost of production The production cost is high because of not properly utilization of its resources. Centralized decision making The decisions are made by the upper management which is weakness of the Nishat because they have no proper idea about the situation and their decision can be not fruitful for the company. Small international market share Although Nishat has very strong in the national wide but it has small market share in the global textile industry due to the sound competitors like china, and Bangladesh etc. Less promotional activities: The advertising and promotional cost of the Nishat textile is very low it can take advantage for more turnouts.

Lack of benefits and rewards for the employees: Some facilities are provided to their employees like Transport and medical fee etc. Nishat is not providing sufficient facilities to their employees because of which the productivity of the employees decreases. Opportunities: Advanced Technology

Nishat has advanced and highly automated technology New market segments: Nishat can enter in new market segments easily due to its high standards and reputation. Existing production capacity: Nishat has sufficient existing production level or capacity that can be seen as company’s opportunity. Lifestyle attitudes: Lifestyle attitudes are a major opportunity in this style-oriented world. Population growth rate: Increasing population is always handy as it increases the demand as well as the sales of the company.

New styles and demands

New demands and styles are considered to be an opportunity for Nishat as it has highly skilled professional and designers. Threats: Political instability: Political instability effects the Nishat because of the quota system the company can be restrict by the government to export. Changes in government policies: Government policies are changing day to day so it is a threat for the Nishat to survive in such a changeable situation. Economic downturn: Because of the economic instability the Nishat affected a lot. Dumping system which is uncertainty in the world like 9/11 may affect also the overall export. Emerging competition: Emerging competition and increasing level of competitors is a significant threat to the organization. Increased taxes: Increasing taxes is a major threat to the organization rising on daily basis in the world can create many problems for the company and any firm.

Proposed Recommendations

I would suggest or recommend to NML the following things, which they should be implemented at NML.

At NML, such bonus facilities are given only to production department. In my point of view, they should provide these such bonus facilities other departments as well, this act will increase the loyalty of their officers and employees towards NML and it also can be motivating factor as well for them.
Most important in my point of view that NML has policy of not to give any stipend to the internees. I think they should give some stipend to the trainees, this will encourage new trainees to come here and this will also boost up their energies and they will work with more interest.
At NML, salary packages are not so good, that’s why employee turnover rate is slightly higher. I suggest them that they should provide good salary packages to their officers and employees for retaining them for the longer period.
Favoritism should be eliminated and the recruitment should be done on purely merit basis.
Decentralization of authority should be there. With the active participation of all the management, level employees in the decision-making will be fruitful for NML.
Proper training at each level should be given to the employees.
Special bonuses and incentives such as on Eid days should give to the employees.
NML should hire trained and highly qualified young professionals.
NML should try to reduce their financial expenses.
The suppliers should be encouraged to supply NML manufactured items to consumers.
The bargaining power of the buyers or customers, their traditions, income and living standard should examine.
The company should keep a close watch on costs in areas such as research and development, sales and services. The company may try to have low cost structure compared with that of it’s competitors.
Promotion in lower and middle level is usually based on age not on performance. Rate of promotion is also slow. So the employees feel dissatisfaction.
Every one at NML should be agree to follow three fundamental principles; respect individuals, strive for excellence, and provide the best service.
Upper management should encourage the existing employees to go for further training and special education; in near future it will be beneficial for the company.

Conclusions

It was a wonderful and learning experience for me while working on this project .Took me the various phases of project development and give me real insight into the world of Cotton industry ,The joy of working and thrill while tackling the various problems and challenges gave us a feel of cotton industry .

It was due to this project I came to know how cotton industry in working nationally and internationally .

I enjoyed etch and every bit of work I had put into this project .The project further extendable.