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1. Submitted to: Prof. Umair Raffique
University of EducationLower MallCampus Lahore.
FINANCIAL ANALYSIS OF
NISHAT MILLS LTD
FinancialRatio Analysis.
Submitted by:
Muhammad Shahroze Rashid (72)
Usman Tariq (97)
Fahad Khan (65)
Raheel Javed (83)
Muhammad Ayaz (61)

2. Contents
INTERNAL ANALYSIS ....................................................................................3
Liquidity Ratios ...............................................................................................3
Interpretation:..................................................................................................3
Current ratio: ...................................................................................................3
Quick ratio: .....................................................................................................3
Leverage Ratios..................................................................................................4
Interpretation:..................................................................................................4
Debt- to- equity ratio:.......................................................................................4
Debt- to- total -assets ratio:...............................................................................4
Coverage Ratios..................................................................................................4
Interpretation:..................................................................................................4
Interest coverage ratio:.....................................................................................4
Activity Ratios....................................................................................................5
Interpretation:..................................................................................................5
Receivable turnover: ........................................................................................5
Inventory turnover: ..........................................................................................5
Total asset turnover:.........................................................................................5
Profitability Ratios..............................................................................................6
Interpretation:..................................................................................................6
Net profit margin: ............................................................................................6
Return on investment: ......................................................................................6
Return on equity: .............................................................................................6
EXTERNAL ANALYSIS (Only for Year 2014)...................................................7
Liquidity Ratios..................................................................................................7
Interpretation:..................................................................................................7
Current ratio: ...................................................................................................7
Quick ratio: .....................................................................................................7

3. Leverage Ratios..................................................................................................7
Interpretation:..................................................................................................7
Debt to equity ratio: .........................................................................................7
Debt to total asset ratio:....................................................................................7
Coverage Ratios..................................................................................................8
Interpretation:..................................................................................................8
Interest coverage ratio:.....................................................................................8
Activity Ratios....................................................................................................8
Interpretation:..................................................................................................8
Receivable turnover:........................................................................................8
Inventory turnover: ..........................................................................................8
Total asset turnover:.........................................................................................8
Profitability Ratio ...............................................................................................9
Interpretation:..................................................................................................9
Net profit margin: ............................................................................................9
Return on investment: ......................................................................................9
Return on equity: .............................................................................................9
Conclusion (future outlook):................................................................................9
NOTE: ..........................................................................................................11

4. FINANCIAL ANALYSIS
Nishat Textiles Mills Limited
INTERNAL ANALYSIS
Liquidity Ratios
2012 2013 2014
Current ratio 1.31 1.51 1.34
Quick ratio 0.60 0.83 0.68
Interpretation:
Current ratio: The Company is growing in a manner and in stable position to
cover its current liabilities with current assets.
Quick ratio: Shows a firm’s ability to meet current liabilities with its most liquid
assets; however these ratios are not in line with the industry but decreasing.

5. Leverage Ratios
2012 2013 2014
Debt to equity ratio 0.47 0.53 0.50
Debt to total asset ratio 0.32 0.35 0.33
Interpretation:
Debt- to- equity ratio: Creditors like this ratio to be low. The lower the ratio, the
higher the level of firm’s financing that is being provided by the shareholders. In
2014: the ratio tells us that creditors are providing 0.50 Rs of financing for each 1
Rs provided by the shareholder.
Debt- to- total -assets ratio:
The greater the Debt- to- total -assets ratio, the higher the risk; the lower the ratio
the lower the financial risk. In 2014, 33% of the firm’s assets are supported with
debt financing and the remaining 77% of financing comes from shareholders
equity.
Coverage Ratios
2012 2013 2014
Interest coverage ratio 3.10 4.30 4.85
Interpretation:
Interest coverageratio: This ratio serves as a measure of the firm’s ability to
meet its interest payments and thus avoid bankruptcy. The higher the ratio the
greater the likelihood that the company can cover its interest payments without
difficulty. Thus; In 2014: the Nishat had the ability to cover annual interest 4.85
times with the operating income (EBIT).

6. Activity Ratios
2012 2013 2014
Receivable turnover (in days) 23.60 18.62 28.29
Inventory turnover( in days) 93.85 86.90 92.88
Total asset turnover 0.68 0.90 0.79
Interpretation:
Receivable turnover: The figures tell us about after how many number of days the
receivables are being collected. Receivable turnover (in days) is also called average
collection period; although too high an average collection period is usually bad but
a very low average collection period may not necessarily be good.
Inventory turnover: The figures tell us about how many days on average, before
inventory in turned into accounts receivables through sales. During the year 2014:
after every 92.87 days, the inventory was turned into accounts receivables through
sales.
Totalassetturnover: The total asset turnover tells us about the relative efficiency
with which a firm utilizes its total assets to generate sales. Nishat looks to be less
efficient in this regard.

7. Profitability Ratios
2012 2013 2014
Gross profit margin 15.11% 17.25% 15%
Return on investment 6.3% 8.9% 6.2%
Return on equity 9.65% 12.10% 8.65%
Interpretation:
Net profit margin: The figures tell us about the profits relative to sales after we
deductthe costof producing the goods. In 2014, the Gross profit margin of Nishat
was 15 %.
Return on investment: Indicates the profitability on the assets of the firm after all
expenses and taxes.
Return on equity: Indicates the profitability to the shareholders of the firm after
all expenses and taxes.

8. EXTERNAL ANALYSIS (Only for Year 2014)
Liquidity Ratios
Nishat Mills Pakistan synthetics
Current ratio 1.34 1.31
Quick ratio 0.68 0.71
Interpretation:
Current ratio: Nisht Mills Ltd is slightly more efficient that Pakistan synthetics to
cover its current liabilities with current assets.
Quick ratio: Nishat’s ability to meet current liabilities with its most liquid assets is
slightly less than Pakistan synthetics.
Leverage Ratios
Nishat Mills Pakistan synthetics
Debt to equity ratio 0.50 1.80
Debt to total asset ratio 0.33 0.64
Interpretation:
Debt to equity ratio: The lower the ratio, the higher the level of firm’s financing
that is being provided by the shareholders Nishat proves to be ahead of its
competitor in this regard.
Debt to total assetratio: The greater the Debt- to- total -assets ratio, the higher
the risk; the lower the ratio the lower the financial risk. Nishat’s Debt- to- total -
assets ratio is preferably lower than Pakistan synthetics.

9. Coverage Ratios
Nishat Mills Pakistan synthetics
Interest coverage ratio 4.85 3.24
Interpretation:
Interest coverage ratio: The higher the ratio the greater the likelihood that the
company can cover its interest payments without difficulty. Thus, Nishat is leading
in this regard.
Activity Ratios
Nishat Mills Pakistan synthetics
Receivable turnover(in days) 28.29 68.86
Inventory turnover (in days) 92.88 103.98
Total asset turnover 0.79 1.02
Interpretation:
Receivable turnover: The figures tell us about after how many number of days
the receivables are being collected. Thus, Nishat collects them after every 28.29
days on average whereas Pakistan synthetics collect them after every 68.86 days.
Inventory turnover: The figures tell us about how many days on average, before
inventory in turned into accounts receivables through sales. In this aspect, Pakistan
synthetics are less efficient.
Totalassetturnover: The total asset turnover tells us about the relative efficiency
with which a firm utilizes its total assets to generate sales. In this aspect, Pakistan
synthetics are more efficient.

10. Profitability Ratio
Nishat Mills Pakistan synthetics
Gross profit margin 15% 4.24%
Return on investment 6.2% 5.3%
Return on equity 8.65% 6.7%
Interpretation:
Net profit margin: Nishat has considerably higher Gross profit margins than
Pakistan synthetics.
Return on investment: Nishat has higher Return on investment than Pakistan
synthetics.
Return on equity: Nishat has considerably higher Return on equity than Pakistan
synthetics.
Conclusion (future outlook):
The ensuing years appeared to be positive for NML, as the economy turns on to the
road of recovery. Rising local and internationalcotton prices will strain the
profitability, butNML has considerable sources to generate incomes from. NML
has the plan to start the functioning of the OperationalProduct Development
Departmentto help it better focus on clients. NML’splansto harnessthe benefits
from increasing international demand for appareland garmentsparticularlyin the
western economies can help maintain a healthybottom-line

12. NOTE:
The data or information used in this report is based on financial reports of Nishat Textile
Mills and its competitor.