This document analyzes the past, present, and future financial conditions of Nadeem Textile Mills Limited using ratio analysis. It calculates key financial ratios for the company and compares them to industry norms to identify strengths and weaknesses. The analysis finds that the company has weaker liquidity, higher debt, lower profitability, and longer operating cycles compared to industry standards. Specifically, it has negative working capital and net profit. This suggests the company is suffering losses and not efficiently converting sales into profits. In conclusion, the company is in a worse financial position than its industry peers based on this ratios analysis.

1. NADEEM TEXTILE MILLS LIMITED
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2. Presented by :
M.WAQAR IBRAHIM
SP14-BBS-005
Presented to :
IMRAN-UR-REHMAN
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3. • Assessment of the firm’s past, present
and future financial conditions
• Done to find firm’s financial strengths
and weaknesses
• Primary Tools:
– Financial Statements
– Comparison of financial ratios to past,
industry, sector and all firms
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4. Objectives of Ratio Analysis
Evaluate current operations
• Compare performance with past
performance
• Compare performance against other
firms or industry standards
• Study the efficiency of operations
• Study the risk of operations
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5. Types of Ratios
• Financial Ratios:
– Liquidity Ratios
• Assess ability to cover current obligations
– Leverage Ratios
• Assess ability to cover long term debt obligations
• Operational Ratios:
– Activity (Turnover) Ratios
• Assess amount of activity relative to amount of
resources used
– Profitability Ratios
• Assess profits relative to amount of resources used
• Valuation Ratios:
• Assess market price relative to assets or earnings
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6. Liquidity Ratios
Current Ratio:
Years 2015 Industry
norm
Current Ratio 0.867 0.931
In 2015, the firm’s ability to cover its current liabilities with its current assets is
0.867. the industry norm, goes up to 1.09 , which means that the company has
the ability to pay its liabilities, as the definition says that higher the ratio,
greater the ability of the firm to pay its bills. This tells that nadeem testile mills
needs to improve their liquidity, because their current ratio is less than
industry norm.
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7. 7
Quick Ratio:
Years 2015 Industry
Norm
Quick Ratio 0.24 0.54
According to the definition of quick Ratio, the company should have the ability to
pay its liabilities through its most liquid assets. The table shows that in 2015, the
firm has the ratio 0.24 cents. Then we observe the industry norm is 0.54. low
liquidity ratio could signal the company is suffering financial trouble. So we can
figure out from the ratios that the company blocked their funds in inventory. This
leads us to believe that the company is a somewhat risky business.

8. Net working capital:
8
Years 2015 Industry
norm
Net working
capital
-196 1560
The ratio is supposed to be high Working Capital is a measure of both
a company's efficiency and its short-term financial health. The working
capital ratio indicates whether a company has enough short term assets to
cover its short term debt. this company has negative working capital so it
uses aggressive approach. Company not covering their short term
liabilities through its short term assets.

9. Debt Ratios
Debt equity Ratio:
Years 2015 Industry
norm
Debt Ratio % 19:81 42:58
The ratio shows the company’s ability to cover its debts through its total
assets. The ratio is 19:81 % in current year , and the industry norm is 42:58 %
The ratio has to be low. So we can interpret that in the current year company is
in good condition because company has 19 % debts, the risk of the firm is
getting higher if the ratio goes up.
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10. 10
Interest coverage Ratio:
Years 2015 Industry
norm
I.C Ratio -0.89 1.42
In the current year Company has a ratio of -0.89 which is a large decrease
from industry standards. This means that the company haven’t
comfortable coverage of interest, and that the coverage has to increased in
the next year.

11. 11
Activity Ratios
Inventory Turnover Ratio:
Years 2015 Industry
norm
Inventory Turnover (times)
Days
14.3
26
21.4
17
The company’s Inventory turnover ratios decreased from industry standards.
which means that its ability to sell inventory has relatively come down. In
current year Company has ratio of 14.3 times and the industry standard has
ratio of 21.4. These ratios are not what we expected; we assumed that the ratios
would be much higher because company taking 9 days more to sell its inventory.

12. Average Collection Period:
Years 2015 Industry
norm
Avg. Collection Period (Times)
Days
12.6
29
15.8
23
The ability of the firm of collecting the receivables in the specific time. Here
in the current year the turnover in days is almost 29, but the collection days
of the industry norm is 23 . This shows company giving flexibility of the 6
days to their customer . This shows that the collection is not faster as
compared to the industry standards.
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13. 13
Average Payment Period:
Years 2015 Industry
norm
Avg. Payment Period (Times)
Days
13
28
15
24
Company’s average period for payment is increase to 04 days from industry
standards. This increasing average payment period trend shows that how
efficiently company using creditor’s money and also assuring that payments
are being made in a prompt manner by company to its creditors.

14. Gross operating cycle:
14
Years 2015 Industry
norm
Avg. collection period (Days)
inventory (Days)
Total
29
26
-------
55
23
17
--------
40
Gross operating cycle shows that company has 55 days in which company
making their finished goods and converted into sale. While industry standards
is 40 days . Company need to decrease the inventory and collection period of
days to meat the industry standards .

15. Net operating cycle:
15
Years 2015 Industry
norm
Avg. collection period (Days)
inventory (Days)
Avg. payment period
29
26
-------
55
(28)
------
27
23
17
--------
40
(24)
-------
16
Net operating cycle is the number of days that the company takes to generate
revenues with assets. Industry standards is 16 while our company is 27 days
11 days larger than standards which is not good, this happened due to
inventory because company takes 9 days more from the standards to produce
goods and sell.

16. Profitability Ratios
Gross Profit Margin:
Years 2015 Industry
norm
Gross Profit Margin % 3.8 8.3
The ratio should be high according to the definition. Because higher the ratio,
higher will be the firm’s ability to produce goods and services at low cost with
high sales. Here in this table there is big difference between the company’s
ratio and industry standards . Because its lower than the industry standards
which means it is unfavorable.
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17. Net Profit Margin:
Years 2015 Industry
norm
Net Profit Margin % -1.7 -2.7
According to the definition, higher the ratio, higher will be the firm’s ability to
pay its taxes. In the current year, the company has negative ratio that is 1.7.
which shows Company is not working efficiently to converting sales into
actual profit.
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18. Return on Assets (ROA):
Years 2015 Industry
norm
ROA % 3 0.2
The increase in Return on Assets indicates that the company is generating
profits from all of its resources in the current year as compared to the
industry standards. The higher of this ratio is, the better for the company.
Because company blocking their funds in inventory and operating profit is
negative.
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19. 19
Return on Equity (ROE):
Years 2015 Industry
norm
ROE % 2 -1.3
The ratio should be higher. the ratio is 2 % that is 3.3 % increase from
industry stanards. This increase in Return on Equity is a good thing for
stockholders and indicates that company is using the equity provided by
stockholders during this specific year effectively and using it to generate more
equity for the owners.

20. Market Ratios
Earning per share Ratio:
Years 2015 Industry
norm
EPS Ratio -7.3 5.4
Company’s earning per share ratio is decreased by12.7 times which suggests
that investors may be looking less favorably in this company. This ratio
should be high, because the higher the earning per share ratio, the higher will
be the investors confidence in company.
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21. Conclusion
After applying all the ratios we got an idea that
the Nadeem textile mills suffering in loss.
Because through out the analysis of the company
with the industry standards, we found that the
company is in loss because company’s net profit
is negative, working capital is negative and
company not in a position to pay their debts with
in their resources.
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22. Thank you!
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Presented By :
MUHAMMAD
WAQAR IBRAHIM
SP14-BBS-005