Slides

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Presentation By:-

o Lubna Shehzadi (S2F13MCOM0031)

o Humaira Shamshad (S2F13MCOM0006)

o Saira Azam (S2F13MCOM0034)

o Asma Tahir (S2F13MCOM0064)

University of Central Punjab

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IntroductionMission StatementOrganizational StructureProduct LineTime Series AnalysisLiquidity RatiosProfitability RatiosTurnover Efficiency RatiosDebt Management RatiosConclusion & RecommendationsReferences

Contents

3Managerial Accounting

Ratio Analysis

Introduction

Nishat Mills Limited is the flagship company of Nishat Group.

It was established in 1951.

It is one of the most modern, largest vertically integrated

textile company in Pakistan with annual turnover of $575

million.

Due to the application of prudent management policies,

consolidation of operations, a strong balance sheet and an

effective marketing strategy, the growth trend is expected to

continue in the years to come.


Ratio Analysis

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 and equitable growth and prosperity of the Company.

Managerial Accounting Ratio Analysis

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Organizational Structure

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CEO

Executive director Home Textile Division

Marketing Manager

GM Marketing

Technical Director

Processing

Sales

Deputy Manager

Stitching

Board of Directors

1 Mian Umer Mansha

Chief

Executive

Officer

2 Mian Hassan Mansha Chairmn

3 Mr. Khalid Qadeer Qureshi Director

4 Mr. Saeed Ahmed Alvi Director

5 Syed Zahid Hussain

Director

(Nomine

e NIT)

6 Ms. Nabiha Shahnawaz Cheema Director

7 Mr. Maqsood Ahmad Director

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Product Line

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The Company also has the most modern textile dyeing and processing units, 2

stitching units for home textile, one stitching unit for garments and Power

Generation facilities.

The Company's production facilities comprise of :

• Spinning

• Weaving

• Processing

• Stitching and

• Power generation.

Product Line


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Weavin

g

Stitching

Power generation

Spinning & Processing

Presented by:

Humaira Shamshad (S2F13MCOM0006)


Ratio Analysis

Ratio analysis is used to evaluate relationships among financial statement items. The ratios are used to identify trends over time for one company or to compare two or more companies at one point in time. Financial statement ratio analysis focuses on four key aspects of a business:

• Liquidity Ratios

• Profitability Ratios

• Debt Management Ratios

• Activity Ratios11


Ratios 2012 2013

Current Ratio 1.3 1.5

Quick Ratio 0.67 0.89

Inventory turnover ratio 3.9 4.20

Average Collection Period 28.3 days 33.8 days

Average Payment Period 32.5 days 30.2 days

Total Asset turnover Ratio 79.3% 65%

Debt Ratio 33.3% 27%

Time Interest earned ratio 3.31 4.93

Gross Profit Ratio 15.11% 17.3%

Operating Profit Ratio 13% 15.2%

Net Profit Ratio 7.8% 11.2%

Return On Equity 9.34% 9.9%

Return On Asset 6.23% 7.3%

Earnings Per Share 10.04 16.63

Basic earning Power 10.3% 9.89%

Trend Analysis Nishat Mills LTD.


Ratio Analysis

Current Ratio Current Ratio = Current Assets/ Current Liabilities

It measures whether or not a company has enough cash or liquid assets to pay its current liability over the next fiscal year. Nishat mills Ltd.’s current ratio has slightly improved in 2013 as compared to 2012 .

2012= 1.3:1 , 2013=1.5 :1

Liquid Ratio Liquid Ratio = Quick Assets/ Current Liabilities

The true liquidity refers to the ability of a firm to pay its short term obligations as and when they become due.A standard of 1:1 absolute liquidity ratio is considered an acceptable norm.Nishat Mills Ltd.’s liquid ratio has slightly improved in 2013 as compared to 2012.2012= 0.67:1 , 2013=0.89 :1

Liquidity Ratios


Ratio Analysis

G.P Ratio Gross profit ratio= Gross Profit/ sales×100

Operating Profit Ratio

Gross profit margin indicates the percentage of revenue available to cover operating and other expenditures. Nishat Mills Ltd.’s gross profit margin has significantly improved from 2012 in 2013.2012= 15.11% , 2013=17.3%

. Operating profit ratio= Operating Profit/ sales×100

The a higher value of operating margin ratio is favourable which indicates that more proportion of revenue is converted to operating income.

Nishat Mills Ltd.’s operating profit margin has significantly improved from 2012 in 2013. It shows that company’s revenues are significantly converted into operating income.2012= 13 % , 2013=15.2%

Profitability Ratios


Ratio Analysis

Net profit Ratio Net profit Ratio= Net Income / sales×100

An indicator of profitability, calculated as net income divided by revenue. Company’s net profit improved from 2012. It shows that company has generated more profit as compare to previous year.2012= 7.8% , 2013=11.2%

Return on AssetsROA= Net Income / Total Assets×100

ROE indicates the profit generated by the total assets employed. A higher ratio reflects a more effective employment of company assets.

Nishat Mills Ltd.’s return on Asset has improved from 2012 in 2013. Company’s assets are more efficient in generating profits.2012= 6.23% , 2013=7.3%


Ratio Analysis

Presented by:

Saira Azam (S2F13MCOM0034)

16Business Finance

Ratio Analysis

Return on Equity Return on Equity = Net Income / Shareholder's Equity

Return on equity reveals how much profit a company earned in comparison to the total amount of shareholder equity found on the balance sheet.The normal benchmark for ROE figure is 12% and above. Companies that could generate ROE of 15% or more are considered as very good investment. Nishat Mills Ltd.’s return on equity has improved from 2012 in 2013. But it is not so good because it is below 12%.2012= 9.34% , 2013=9.9%

Earning Per Share Return on Equity = E.A.C.S / No.ofoutstanding shares

Earnings per share calculate that how much a share earns. It is calculated by dividing E.A.C.S to No. of outstanding shares. Company’s shares are generating more profit than they were in 2012. So earnings per share have improved in 2013.2012= 10.04 , 2013=16.63

17Business Finance

Ratio Analysis

Basic Earning Power BEP = EBIT/ Total Assets×100

BEP is calculated by dividing EBIT to Total Assets.This Ratio shows the raw earning power of the firm’s assets, before the influence of taxes and leverage, and it is useful when comparing firms with different degree of financial leverage and tax situations.Company’s BEP has deteriorated in 2013 than it was in 2012.2012= 10.3% , 2013=9.89%

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Ratio Analysis

Debt Ratio

Debt Ratio = Total Debts/ Total Assets×100

Debt Management Ratios

The debt ratio calculates the percent of assets provided by creditors. It is calculated by dividing total debt by total assets. Total debt is the same as total liabilities. Nishat mills Ltd.'s debt ratio is better in 2013. Now outside claims over equity are less than in 2012.2012= 33.3% , 2013=27%

Time Interest Earned Ratio

TIE= EBIT/ Interest Expense

The TIE is an indicator of the company's ability to pay interest as it comes due. It is calculated by dividing earnings before interest and taxes (EBIT) by interest expense. In 2013 company’s ability to pay interest has improved than it was in 2012.2012= 3.31 times , 2013=4.93 times


Ratio Analysis

Presented by

Asma Tahir (S2F13MCOM0064)

20Business Finance

Ratio Analysis

Inventory Turnover Ratio

Inventory Turnover Ratio =CGS/Avg.Inventory

Activity Ratios

Avg. Collection Period

Avg. Collection period= avg. Acc. Receviables/ Sales

per day

An activity ratio calculated as cost of goods sold divided by inventory. Nishat mills Ltd.'s inventory turnover ratio has significantly improved in 2013 as compared to 2012.2012= 3.9 times , 2013=4.20 times

An activity ratio equal to the number of days in the period divided by receivables turnover. Nishat mills Ltd.'s average collection period was better in 2012 than in 2013.2012= 28.3 days , 2013= 33.8 days


Ratio Analysis

Avg.Collection Period

Avg. Payment Period

Total Asset Turnover Ratio Total Asset Turnover Ratio=

sales/ Total Assets×100

Avg. payment period= avg.Acc.payables/ purchases per day

An estimate of the average number of days it takes a company to pay its suppliers; equal to the number of days in the period divided by payables turnover ratio for the period. Nishat mills Ltd.'s average payment period is better in 2013 than in 2012. Now company is in a strong position to pay off its debt in minimum time period.2012= 32.5 days , 2013=30.2 days

The asset turnover ratio measures how efficiently a company is using its assets. The turnover value varies by industry. It is calculated by dividing net sales by total assets. Nishat mills Ltd.'s assets were generating more sales in 2012 than 2013. So efficiency has deteriorated in 2013.2012= 79.3% , 2013= 65%

22Managerial AccountingRatio Analysis


Ratio Analysis

Conclusion & Recommendations

From above discussion, we may conclude that liquidity ratios are improved in 2013 as

compared

to 2012.Activity ratios has also been improved in 2013 except avg. collection period

and total

asset turnover. And if we talk about debt management ratios, these are also improved in

2013.Profitibility ratios are better in 2013 as compared to 2012 except basic earning

power.

Here are some recommendations which company may follow to improve its current

situation:

• Company needs to improve its avg. collection period and it can be done by changing

its credit terms and policies to collect money.

• Company can improve its asset-turnover ratio by increasing sales and by finding

ways to use its assets more efficiently.

• It needs to improve its BEP.

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References

Annual Report Of

Nishat Mills Ltd.


Ratio Analysis

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Ratio Analysis


Ratio Analysis

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