Research report

OXFORD BROOKES UNIVERSUTY
BSc (Hons) Applied Accounting
Research and Analysis Project
Financial and Business analysis of an organization over
three year period
NISHAT CHUNIAN LIMITED
Hafiz: Mudassar Mahboob
ACCA Reg. No: 218388
Submission period: 29
Word Count: 7483

AN ANALYSIS OF BUSINESS AND FINANCIAL PERORMANCE Page 2
Contents
RART 1 Project aims and objectives and overall approach.....................................................................3
topic 8:..........................................................................................................................................3
choosing the Organization:.............................................................................................................3
Projects Objectives: ........................................................................................................................3
Research Approach:........................................................................................................................4
Information sources used................................................................................................................5
Secondary sources.......................................................................................................................5
Ethical issuesfaced.........................................................................................................................5
Techniques usedfor the research: ...................................................................................................5
PART 3 Analysis and conclusion...........................................................................................................8
Industry information:......................................................................................................................8
Nishat (Chunian) Limited Profile ......................................................................................................9
Profitability ratios:.....................................................................................................................11
Liquidity Ratios:.........................................................................................................................16
Gearing Ratios:..........................................................................................................................19
Investors’ Ratios:.......................................................................................................................22
Working capital cycle (WCC).......................................................................................................26
Competitor Analysis:.....................................................................................................................29
Business Analysis..........................................................................................................................38
PEST Analysis ............................................................................................................................38
SWOT ANALYSIS........................................................................................................................41
Conclusion:...................................................................................................................................43
Recommendations:.......................................................................................................................44

RART1 Project aims objectives andoverall approach
“An analysis and evaluation of the business and financial performance of an organization over three
year’s periods. This is the topic number 8 given in the OBU’s BSc Information pack and I have selected
this topic for my Research and Analysis Project (RAP).
Reasonsforchoosingthetopic8:
 It would provide me with the opportunity to practically implement my past knowledge of
Business and Financial analysis on a real organization.
 It is the prime area of my interest to analyze the financial performance of an Organization.
 Information that will be required for this topic is easily available and accessible.
 It is helpful in future with respects to career growth and it will improve my analytical skills.
I have chosen the Nishat (Chunian) Limited(NCL) for my research work.
ReasonsforchoosingtheOrganization:
 NCL has a major share in Pakistan’s Textile industry. The industry itself is the backbone of
Pakistan’s economy.
 Financial informationof NCLiseasilyavailable because it is a public listed company. Moreover,
information related to industry is also widely available.
 Althoughtextile industryof Pakistanisfacingsevere energycrisesandthe pricesandavailability
of cotton availability is also problematic but still the company like NCL is making good profits.
This is another primary factor due to which I choose this company.
ProjectsObjectives:
 Assessmentof the financial performance and position of NCL over three year periods (FY2011-
FY2013) by doing its trend analysis in terms of profitability, liquidity, efficiency, gearing and
investors.
 Making comparison of NCL’s performance with the competitor’s financial performance
 Evaluation of the external and macro environment factors that are having an effect on the
organization.
 Determination of the strategic position of NCL and the analysis of its strengths, weaknesses,
opportunities and threats.
 To provide recommendation on my analysis and conclude NCL.
Research Questions:
 What is the trend of NCL’s sales and profitability?
 How cotton prices affected the cost of sales of the company?
 What are actions taken by NCL in managing the current energy crises issues?
 What are the share prices and capital structures of NCL?

 How is the financial performance of NCL when compared with another company in the textile
industry?
 What is the effect of external environmental factors on NCL?
 What and how Government policies affecting the Organization?
 What are the strengths, weaknesses, opportunities and threats of the company?
ResearchApproach:
A suitable plan will be made so that all the research objectives can be met in a systematic way.
Prioritizingthe workwill helpme to complete the work on time. Initially for the purpose of evaluating
the NCL’s performance secondary sources of information will be used to obtain preliminary
understanding of the organization and its industry. Later on during the analysis primary source of
information will also be used like interview from company’s personnel in order to get more in depth
knowledge.Torefine myknowledgeaboutanalytical tools,booksrelatedtothe accountingandbusiness
studies will be consulted.
ThenRatio Analysiswill be appliedtodothe financial analysisoverthree years.Latest available audited
financial statements will be used to evaluate the company’s financial performance. For the quick and
accurate calculationsof financial ratiosMSExcel will be used. Then competitor’s financial information
will also be assessed and compared with NCL in order to gauge its performance within industry.
Information from newspapers and different websites will be used to interpret the performance.
Different other analytical tools will be applied to examine the company’s strategic position and its
response to the macro-environmental factors.
Proper referencing of the information will be done in order to avoid plagiarism. Harvard Referencing
Systemwill be adopted for this purpose. After assessing and scrutinizing the company’s performance,
the conclusion will be made and some recommendations will also be put forth.

PART 2 Information gathering and analytical tools
Informationsourcesused
Secondarysources
Informationsourcesthatinterpret,include,describe,ordraw conclusionsbasedonworkswrittenby
others.Secondarysourcesare oftenreferredtoasbeing“one stepremoved”fromthe actual
occurrence or fact (SaintMary’s University,n.d.).
Sources used
 I had readthe booksto revise myknowledgerelatedtoanalytical toolsandtechniqueswhich
helpedme inthe applicationof accountingandbusinessmodels.
 I had usedthe internettogetinformationforthe detailedanalysisof NCL.
o Searchengineshelpedme togetan access to wide range of websitesthatwere helpful
inmy researchand providedme valuable informationforanalysis
o I useddifferentwebpagestogetinformationnotonlyrelatedtocompanyand industry
but alsogot technical informationaboutanalyticaltools
o I readthe E magazinesandnewspaperstoknow whatisactuallyhappeningintextile
industryanditsenvironment.
 I readthe Annual Reportsof NCLand KTML to getfinancial andnonfinancial informationto
evaluate theirperformance.
Limitations
The financial andnon -financial informationthatIgatheredthroughsecondarysourcesformyRAPwas
sometimesnotauthentic,vague,outdatedandnotspecifictothe purpose.Itwastime consuming to
access the requiredinformation.
Ethical issuesfaced
The main issue whichIfacedwhile gatheringinformationthroughsecondarysourceswasplagiarism.
Thisproblemwasresolvedbydoingpropercitationsandpreparingalistof referencesusing Harvard
ReferencingSystem
Techniquesusedfortheresearch:
RatiosAnalysis:Itis a yardstickused to evaluate the financial condition and performance of a firm,
relating to twopieces of financial data to each other. Ratio is used to describe significant
relationships whichexist between figures shown in a balance sheet, in a profitand loss account
(Bhat, 2008).
The Ratio analysisisdone underfollowingbroadcategories
Profitabilityratios tell uswhetherabusinessismakingprofits - andif sowhetheratan acceptable
rate.The keyratiosare GPM, netprofitmarginand returnon capital employed (Riley,2012).

Liquidityratios indicatesthatwhetherthe companywillbe able tomeetitsshorttermliabilitiesby
calculatingcurrentandquickratio whichmainlyusedinliquidityratios(FlynnandKoornhof,2005).
Gearingratio indicatesthe proportionof fixedinterest paymentsbearingbyequityshareholders
funds.The keyratiosare Debt/EquityratioandIC(Bhat,2008).
Efficiencyratios are usedtomeasure the qualityof the company'sreceivablesandhow efficientlyituses
itsotherassets (CreditManagementWorld,n.d.).
Investorratio:There are several ratioscommonlyusedbyinvestorstoassessthe performance of a
businessasaninvestment (Riley,2012).
Limitations
The significance andreliabilityof the ratiosdependsuponthe accuracyattach to the data whichderive
fromthe pastinformation (Bhat,2008).
Resultof ratioanalysisbycomparingwithcompanies couldbe meaninglessbecausedifferentcompanies
useddifferentaccountingpoliciesforthe same accountingitem (Lasher,n.d.).
Ratiosare basedonlyonthe quantitative informationandignore the qualitative information (Bhat,
2008).
Ratioanalysis issuitable forthose organizations thathave lowerrange of productsorservices (Jewell,
2013).
PEST Analysis:
PEST analysisstandsfor"Political,Economic,Social,andTechnological analysis"anddescribesa
frameworkof macro-environmental factorsusedinthe environmental scanningcomponentof strategic
management(Miller,Vandome andBrewster,2011).
Limitations
PEST analysisistime consumingbecausedataisgathereddatafromexternal bodies (Thakurand
Edwards,2010).
PEST analysisisconsidered onlythe external factorswhichaffectthe organizationandleave outthe
internal factors whichcouldalsohave significantinfluence uponthe organization.
External factorsare verydynamicandchangeable veryquicklyandtherefore,sometimesorganizations
fail to predictthe changesinthe external environmentintheiranalysis (Henry,2008).

PEST analysisiswhollybasedonthe assumptionswithoutany prove whichcouldcreate extracostto
make strategywhichmaynot be suitable tothe organizations,undertakendue towrongassumptions
(Woxman,2011).
SWOT Analysis:
SWOT is a populartool foraudit andanalysisof overall strategicpositionof businessandits
environmentandthe SWOT represents“strengths”, “weaknesses” “opportunities”and“threats”.
StrengthsandWeaknessesrefertothe organization’sinternal environmentoverwhichthe organization
has control (Kachru,2005).
Limitations
SWOT analysisgeneratesmultipleideaswhichcreate confusionindecisionmakingandnothelpin
choosingwhichone isthe bestand create lotsof informationwhichnotof all itis useful(Queensland
Government,n.d.).
SWOT analysismainlyfocusesonthe internal strengthtogetbenefitbyavailingopportunities.So,
overcomingweaknessesandminimizingthreatscouldbe ignored (Pahland Richter,n.d.).
SWOT analysisfocusesonatoo narrow.It is highlysubjectivebecause itonlydealswiththe singlesided
factors sotherefore,itbecomesdifficultforthe organizationtoanalyze the twosidedfactorssuchas a
factor that couldeitherbe strengthorweaknessorbothinSWOT analysis.(QueenslandGovernment,
n.d.)

PART 3 Analysisandconclusion
Industryinformation:
Major listedcompanies:NishatMillsLimited(NML) isthe marketleaderhaving24% share inthe
sector’ssale,followedbyGul AhmedTextileMills (GATM),NishatChunian(NCL) andFazal ClothMills
(FZCM) that alsocumulativelycontributed37% to textile turnover(Feelingsqueezed,2014).
Exports: Pakistan: getsabout $10.2 billionof its$12.5 billiontextile exportrevenue from20countries.
However,itaccountsfor merely5.7%of the total textile importsof these 20countries(Baig,2013),
indicatingthe untappedopportunities.
Problems:Raw material pricesincreaseddue toshortage of raw cottonbecause of the floods.The
shortage of gas and electricitysupplytothe textilesector (Khan,2011) boundedcompaniestorestrict
theirproduction.Asa result,competitiontoPakistantextile exportshasincreased;Bangladeshhas
emergedasa strong competitor(Businessrecorder,2012).
Future Prospects: Under2014-19 textile policy, the governmentisplanningto increase textileexports
by $2 billionperannum (AMIN,2014),whichisa goodomenfor the sector.
• Pakistan is the 4th largest producer of cotton
• 3rd largest spinning capacity in Asia
• 5% contibution in total spinning capacity
• 8th largest exporter of textile products
(Statistics on textile, 2013)
Industory
introduction
• Textile sectorcontibutes 53% to the total
exports(Hussain, 2014)
• generates 40% employment of the total
labour force in Pakistan and GDP
contributions are8.5%(APTMA, n.d.)
Economic
importance

Nishat (Chunian) Limited Profile
Nishat(Chunian) Limited(NCL),apubliclimitedcompany,wasincorporatedinPakistanin1990. It is
listedonLahore and Karachi Stock Exchanges.Itstarteditsfirstproductionon10 March 1991 by having
a spinningmill withacapacityof 14,400 spindles (NCL,2013)
Principal activities:
(NCL,2013).
Production capacity:NCL currentlyownsthe 150,000 spindleswiththe productioncapacityof 50,000
tonsof greige yarnperannum(NCL,2013) andthe acquisitionof Taj Textile MillsLimitedislikelytoadd
40,000 spindles(NishatChunianacquires,2013).In weavingdivision,the companyoperateswith293 air
jetloomsthat produce 3 millionyardof greige fabricpermonthandthe dyeingandprintingplant
produce 3 millionyardspermonth.The companyisalso havingpowerplantsthat generate the
electricityof 36 MW(NCL,2013).
generate,
supply and
sell
ecectricity
spinning
weavnig
stitiching
printing

Major shareholders:
(NCL,2013)
14%
26%
20%
25%
15%
Shareholdings Pattern
Nishat Mills Limited
Executive officers and Directors
Mutual funds
General public
Others

Financial analysis:
Profitabilityratios:
GrossProfit Margin(GPM)
FY2011
GPM of NCL decreasedby16.6% as comparedto FY10 as Cost of Sales(COS) rose withmore proportion
than sales.There was52.3% and 58.6% rise inSalesandCOS respectively.
Exportsincreasedby39% while local saleswere 102% higherthanFY10. The mainreason behindthe
upsurge insalesishigherproductprices(NCL,2011)the devaluationof PKRagainstdollar(Qureshi,2012)
was anotherkeyreasonforhigh exports.There were escalatedprofitsforNCL’sspinningdivision(NCL,
2011)because of increasedpricesof cottonandyarn(Pakistan’stextile,2012). The gross margins of
Pakistan’s spinning sector also increased by 17%(Textile industry,2011).
COS mainlyincludesthe rawmaterial (cottonandyarn) costwhichincreasedby64.7% as expensive
cotton procurementdue toshortage of cottondue to floods(Rana,2011) inthe country andlesser
supplyfromIndiaandBrazil(Aftab,2011).Fuel andpowercosts,anothermajor part of COS,increased
tremendouslyby53.2% because of energyshortfall inthe country(Khan,2011). NCL istryingto deal with
thisproblemusingitscaptive powerplantswith29MW capacity(NCL,2011).
Despite salesgrowth,NCLcouldnotimprove itsGPMdue tohigherinputprices.
2011 2012 2013
Gross Profit Margin 16.77 11.16 16.95
0
2
4
6
8
10
12
14
16
18
percentage
Gross Profit Margin

FY 2012
NCL’sGPM significantlydecreasedby33.5% as saleswentdownby8.4% while COSdroppedby2.21%.
Exportsalesdecreasedby6.4% andlocal salesby 11.3%. Decrease inmarginsinspinningsegment(NCL,
2012) wasthe major reasonof lowersalesascotton andyarn priceswere notas highthisyear as inFY11
and remained stable(Cottonprice stable,2012).Moreover,worstpowerloadshedding(Imaduddin,
2012) effectedthe productionandsales.Pricesof Pakistani textile productshadalsodecreasedin
international market(Textile exports,2012),whichcausedfall inexports.
Cost of raw material decreasedby12.3%as pricesof cottonsalmostremainedstable inthe absence of
strongmill demand(pricesstable,2012).COS ismainlyaffectedbyincrease infuelandpowercostby
12% as NCL hasto generate ownelectricity(NCL,2012) by the use of expensivedieseland
oil(Imaduddin,2012) to coverpowershortfall.
Consistentpowercrisesalongwithlowersalesresultedinfall inNCL’sGPM.
FY2013
GPM boostedthisyearby51.9% due to increase insalesby14% and lesserincrease inCOSby6.5%.
Exportsalesjumpedupby20% due to increase insalesvolumesmainlyfromNCL’sspinningsegmentas
there was29% highexportsof yarnto China(NCL,2013). HighdemandfromChinaalsocaused
Industry’syarnexportstorise by30% (NishatChunianacquires,2013).Depreciationof rupee against
dollarandbettergas supplytotextile industry(Zaheer,2013) alsohelpedtoimprove exports.However,
domesticsalesof NCLdecreasedby3.3% because itfocusedmore oninternationalmarketasbetter
marginswere available there(NCL,2013).
Raw material costincreasedby6.1% onlydue to NCL’stimelyandcosteffectiveprocurementsof cotton
(NCL,2013). On the otherhand,cotton pricesincreasedinlocal marketdue tohigherdemand(Cotton
pricesrise,2013).The fuel andpowercostcontinuedtohitCOS significantlyasitincreasedby
28.6%.Because of 16-18 hoursof loadshedding(Loadsheddinghampers,2013).NCL had to use diesel
and furnace oil forelectricity generationthatis 3-4 timesmore expensive (NCL,2013).
Amidstgrowthinexports,NCL’sperformance improvedthisyear.

Net profitMargin(NPM)
FY 2011
NPMdecreasedby7.1% as compare to the last yearwhichisdue to the decreasingtrendof GPMby
16.6%.
Distributioncostinflatedby 36.8% mainlydue tosignificantincrease inexportmarketingexpensesby
86.9% due to increase inexportstoEurope andUS markets(Textile exports,2011). Petrol anddiesel
pricesalsorose by 9.9% and 9.83% respectively(Petrol jumps,2011).Commissionto sellingagentsis
anothermajorcomponentof the distributioncost,whichwasalsoincreasedby28.4% due to highsales
volume.
Administrationexpensesalsoincreasedby12.9% chieflybecause salariesandotherbenefitswentupby
14.8% due to increase in minimumwagesrate(Anjum, 2011) and rise ininflationrate to10.97% in
FY11(Tradingeconomics,n.d.).
Otheroperatingincome significantlyboostedby223.9%,howeveritwasjust3% of total sales.It rose
mainlydue toincrease dividendincomefromsubsidiaryby37.1% and interestincome onloanto
subsidiary by901.1%(NCL,2011).
Finance costincreasedaswell by34.6% due to increase ininterestonlongtermand shortterm
financingby6.17% and 25% respectively(NCL,2011).
Lowergross profitandinflatedexpensesresultedinthe declineof NPM.
0
5
10
15
20
2011
2012
2013
percentage
2011 2012 2013
Net Profit Margin 15.48 12.07 17.79
Net Profit Margin

FY2012
NPMdeclinedmore by22%from FY11 because of lowersalesinthisyear.
Distributioncostdeclinedby16.6%mainlydue to decrease inexportmarketingexpensesby47.8%
because of lowsalesvolume(NCL,2012).However,there wasarise inthe petrol anddiesel prices(Petrol
prices,2012).Commissionstosellingagentsalsoincreasedby0.5% as NCL triedto maintainitssalesin
the recessionyear.
Administrative expensesincreasedby7.9% as a resultof rise in salariesandotherbenefitsby3.6%and
it wasmainlyaffectedbythe increase ininflationby9%(Inflatioonrose,2012)
Otheroperatingincome wentupby42% due to significantincrease individendincomeandnet
exchange gainby138.1% and 39.5% respectively(NCL,2012).
NCL’sfinance costdecreasedby8.7% and thisdifference mainlyarose due tofall ininterestonlong
termloansby 13.9% and shorttermfinancingby66.4% fromthe previousyear.
NCL managedtocontrol itsexpensesbutbecause of the weaktopline,itsNPMsuffered.
FY2013
NPMboostedby47.9% than FY12 because of highersalesandGPMrecoverabilityinthisyear.
Distributioncostrose by7.1% and mainlydue toincrease inexportmarketingexpensesby3.73%
because of highsales volume(NCL,2013) and increasedpetrol anddiesel prices(Petrolprice reaches,
2013) butcommissionstosellingagentsdecreasedby19% despite increasedinsalesvolumebecause
risingsaleshelpedthe companytocontrol itscost of commissiontosellingagents.(NCL,2013)
Administrative expenses wentupby9.8% as a resultof rise insalariesandotherbenefitsby7.4%
because Governmentof Pakistanincreased minimumwage rate fromRs8,000 to Rs10,000.(Minimum
wage raised,2013)
Otheroperatingincome alsoincreased by16.8% due to furtherincrease individendincome by60%
but decreased netexchange gainandinterestincomeonloantosubsidiarycompanyby33.8% and
44.8% respectively,restrictedthe otheroperatingincomeof NCL(NCL,2013)
NCL’sfinance costfurtherdecreasedby8.1% inFY13 because of lesserreliance ondebtfinanceandthis
difference arose due todecrease ininterestonlongtermloansandshort termrunningfinances by
3.98% and 38.1% respectively(NCL,2013).
Highergrossprofitand controlledexpenseshelpedNCLtomake itsNPMbetter.

Returnon Equity(ROE)
FY2011
Returnon equity(ROE) rose by14.6% because profitaftertax (PAT) increasedby45.6% mainlydue to
higherexportstoEurope andUS markets (Textileexports,2011). The equityalsojumpedby27% as
reservesimprovedby43% because of increase inun-appropriatedprofitby101%(NCL,2011).Finally
NCL’sperformance remainedstrongdue tohighsalesvolume.
FY2012
ROE droppedby55% because profitaftertax (PAT) decreasedby52% mainlydue tolower
exports(Textileexports,2012).The equityslightlyincreasedby6.5% as reservesimprovedby9.2%
because of un-appropriatedprofitrose by15.3%(NCL,2012). Overall NCL’sprofitgeneratingability
remainedweak.
FY2013
NCL recovereditsprofitabilityinFY13because ROE boostedby146.6% because profitaftertax (PAT)
boostedby225.5% mainlydue tohigherexportssales(NishatChunianacquires,2013)and depreciation
of rupee againstdollar(Zaheer, 2013).The equityrose by32% as reservesjumpedby40.3% because of
un-appropriatedprofitboostedby63.8% and Issuedshare capital alsoincreasedby10% in thisyear
because NCLissuedafullypaidbonussharesof Rupee 10 each (NCL,2013). Hence,NCLimprovedits
profitabilitypositionandremainedstrongdue tohighsalesvolume.
0
5
10
15
20
25
30
2011 2012 2013
ROE 25.57 11.51 28.38
percentage
ROE

LiquidityRatios:
Current ratio
FY2011
The massive growthof 30.2% inCurrentratio (CR) due to Currentassets(CA) increasedby32.9%.Stock-
in-trade increasedby38.6% resultingfromhighcottonprices(Rana,2011) and higherlevel of stocksto
cater risingdemand(NCL,2011).CA was alsoup surgedbyTrade debtsgrew by41.2% due to highersales
volumes(Textile exports,2011) and cash and bankbalancesimprovedby48.8% as depositsimproved.
Currentliabilities(CL) alsorose by1.5% due to trade and otherpayableswentupby34.8% mainly
creditorswere increasedasrawmaterial pricesinflated(Rana,2011).Shorttermborrowings(STB) and
mark-upfell by1.3% and11.6% respectively(NCL,2011).However,despite of massivegrowthinCR,
short termassetswere justable tomeetsitsshortterm obligations.
FY2012
A decentgrowthwasseeninCR by 14.3% because CA increased20.5%,resultingfromgrowthintrade
debtsby41.2% due to NCL’srelaxedcreditpolicy.CA waseffectednegatively,attributabletodropin
stocksin trade by 11.1% due to reducedproductionlevel(NCL,2012) as saleswere alsoless(Textile
exports,2012) and in cash andbank balancesdeclinednotablyby64.5% because of reductionindeposit
receipts.NCL alsoprovidedshorttermloansof PKR1,132,500,000 to NishatChunianPower
Limited(NCPL),includedinCA(NCL,2012).
There wasalso an incrementof 6%in CL because of considerableexpansionof 23.8% intrade payables
due to delaypaymentsbyNCL(NCL,2012) and of 16.1% in STB forthe operational financing
1
1.05
1.1
1.15
1.2
1.25
1.3
2011
2012
2013
Times
2011 2012 2013
Current ratio 1.12 1.28 1.28
Current ratio

requirement.Mark-upinterestreducedsubstantiallyby24.5% (NCL,2012).Despite fallingrevenuesand
profitability,NCLCRimprovedto1.28 times.
FY2013
CR remainedsame aswasin FY12 because CA and CL increasedwithnearlyequalproportionthanlast
year’sfigures.
CA increasedby27%,withupsurge instock intradesby 40.6% due to improvedsalesvolumes (Nishat
Chunianacquires,2013) and highcotton prices(Cottonpricesrise,2013).Trade debtsalsowentupby
29% because of growingexportssales(NishatChunianacquires,2013).CA significantlyaffectedby
tremendouslygrowthincashand bankby PKR211,240,518 due to increasedbalance of deposits
receipts(NCL,2013) . Anotherconsiderable growthinCA isshortterm loanwhichwasprovidedinFY12
to NCPL,currentlyhavingnil value(NCL,2013).
CL jumpedby27%, as a resultof increase intrade and otherpayablesby29% as highercreditors
paymentswere tobe made due to risingcottonprices(Cottonpricesrise,2013).STB movedupby 21.4%
due to increasingworkingcapital needsandto downsizeNCL’s gearing(NCL,2013).
These factorsshowedaveryhealthyliquiditypositionof NCL.

Quick ratio
Quickratio of NCL remainedbelow1in all three years.Stockintrade represents56%of total current
assetsinFY11, 41.2 % and 45.6% inFY12 and FY13 respectively(NCL,2013).As a resultof the high
amountof stocksininventory,readilyconvertible assetsof NCLare lessbecause of whichitsquickratio
isbelow1. Althoughthe situationimprovedoverthe yearswithrisingtrade debtsandcashand bank
balance (NCL,2013) but still NCLisfacingthe scarcity of more liquidassets.
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
2011 2012 2013
Quick ratio 0.49 0.75 0.7
Times
Quick ratio
56%
44%
Current assets
(FY2011)
Stock
Other
assets
41%
59%
Current assets
(FY2012)
Stock
Other
assets
46%
54%
Current assets
(FY2013)
Stock
Other
assets

Gearing Ratios:
Debt/Equity ratio(D/E)
FY2011
There was3.9% reductioninDebt/equity(D/E) ratioasthere wasmore increase inequityby27.1% than
longtermfinancingwhichincreasedby22.1%.
The equityrose mainlydue toupwardmovementinreservesby42.9% due to substantial 100% surge in
un-appropriatedprofitwhile Share capital remainedsame (NCL,2011).
Long termdebtincreasedbecause NCLhastakenprivatelyplacedtermfinance certificatesinorderto
investinweavingdivisionbyreplacingolder loomswiththe new picanolairjetloomsandspinning
machinery(NCL,2011).
NCL gearingslightlylowerdue toimprovementsinitsreserves.
Debt/Equity ratio
0
20
40
60
80
2011
2012
2013
percentage
2011 2012 2013
Debt/Equity ratio 58.44 65.61 52.38
Debt/Equity ratio

FY2012
D/E ratio showedupwardtrendof 12.3% due to increase inlongtermfinancingby19.5% whereas
equityrose byjust6.5%.
Long termfinancesincreasedmainlydue to11% higherlongtermloanswere acquiredtoinvestinthe
machinery(NCL,2012). Long termmusharaka wasreducedthoughby24.4% as it wasmaturedand
repaid.
Equityincreasedmainlybecause of growthinreservesby9.2% due to rise inun-appropriatedprofitby
15.3% as there wasno change inNCL’s share capital (NCL,2012).
Reliance of NCL’sonexternal fundsincreased,makingitmore geared.
FY2013
NCL decreaseditsdebt/equityratioby20.2% as equitygrew by32% whereaslongtermfinancing
increasedby5.4% only.
Share capital increasedby28.2% because NCL issuedfullypaidbonussharesof 10 each (NCL,2013).
Reservesalsowentupby40.3% due to rise inun-appropriatedprofitby63.8%
Long termfinancesincreaseddue tolongtermloansandlongtermmusharka,whichrose by 17.2% and
50.3% respectivelybutprivatelyplacedtermfinance certificatesfall by30.8% due to be repaidinFY13.
NCL has made significantinvestmentinacoal basedpowerplant(NCL,2013).
NCL has improveditscapital structure byraisingitsequity.

InterestCover(IC)
FY2011
Interestcover(IC) grewby4.4%fromFY10. AlthoughPBITincreasedby40.6%, butthislesserrise was
the resultof highfinance cost,whichwentupby 34.6%.
Finance costincreasedmainlybecause of more shorttermborrowingsasworkingcapital requirements
climbedupdue tohighcotton prices(Pakistan’stextile,2012) while SBPalsoincreasedthe interestrates
to 14%(Zaidi,2011). So, finally IC has increased due to better operating profits.
FY2012
There wasa decrease inICby 21.7% as PBITdroppedby28.5%.
On the otherside,finance costalsodecreasedby8.7% mainlydue tofall inaverage utilizationof bank
borrowingsasloanswere repaid(NCL,2012) and reductionininterestratesbySBPto 12%(Zaheer,
2011). DwindlingoperatingprofitsweakenedNCL’sabilitytocoveritsfinance cost.
FY2013
IC increasedby83%.PBITcreatedsignificanteffectonthe ICby increasing68% as comparedto FY12.
Finance chargesdecreasedtoo,by8.1%, mainlybecause of(NCL,2013) SBPfurtherreducedInterest
ratesto 10%.(Farooq,2012). So, NCL’sabilitytopay financial obligationswentupwards.So, overall
NCL has controlled its IC to move upward with the help of surge in sale and PBIT.
2.12
1.66
3.04
0
0.5
1
1.5
2
2.5
3
3.5
2011 2012 2013
Interest cover
Interest cover(T)

Investors’ Ratios:
Earnings per Share(EPS)
FY2011
EPS increasedby6.8% fromFY10 due to 45.6% increasedPATbecause of highconsumersdemandand
spinningdivisionwasalsocontributing arecordedsales figure inFY11(NCL,2011).Weightedaverage
numbersof ordinaryshareswere also 37.2% more because of preference shares whichwereconverted
intoordinarysharesat 10 each(NCL,2011). ThusNCL isgeneratinggoodprofitsforitsshareholders.
FY2012
NCL’sEPS fell drasticallyby52.8%to justRs.4.28 as PAT declinedsharplyby52.1% because of Revenues
were shrinkingby9.2% due to diminished cottonprices thathave depressedthe textileproductprices
internationallyaswell locally.Fuel charges furthererodinggrossmargins(Businessrecorder,2012).
Weightedaverage numberof ordinarysharesincreasedby1.4% as a resultof convertible preference
sharesintoordinarysharesat 10 each(NCL,2012). Asreturnsfor shareholdersreduced,NCL’s
performance remainedpoorthisyear.
FY2013
NCL recovereditsprofitabilitybyincreasingEPSby192.3% aftera tremendoussurge inPATby225.5%
as a resultof stabilityincottonprices,depreciationof rupee againstdollarandbettergassupplyto
textile industry(Zaheer,2013).Weightedaverage sharesslightlyincreasedby1.7%,resultingfrom
2011 2012 2013
EPS 9.07 4.28 12.51
0
2
4
6
8
10
12
14
Earningper share
EPS

preference shareswereconvertedintoordinarysharesandthere wasalso issuedabonusshare of Rs10
each byNCL inFY13(NCL, 2013). EPS improved,hence returnsheightenedforthe investorsthisyear.
Price to Earnings ratio(P/E)
P/E ratio
0
1
2
3
4
5
2011
2012
2013
Times
2011 2012 2013
P/E ratio 2.46 4.1 4.78
Price to Earning ratio
0.00 20.00 40.00 60.00
2011
2012
2013
Pakistan Rupee
2011 2012 2013
NCL 22.29 17.39 59.75
Market Value of Share

FY2011
P/E ratioincreasedby32.3% as comparedtoFY10 as marketvalue of share (MVS) surgedby41.1%(Pak
Stock Exchange, n.d.) Where asEPSgrewby 6.8%.MVS boostedasKSE tradedsteadilyinthe secondhalf
of the year(PakistanEconomic,2011) Moreover,betternetprofitsandstable dividendpolicy(NCL,
2011) provedlucrative forNCL’sshareholders,whichraiseditsMVS,hence P/Eratio.
FY2012
AlthoughP/Eratioboostedsignificantly from2.46 timesto4.1 timesinFY12 but NCL’sMVS and EPS
whichwere declinedby22%(PakStockExchange,n.d.) and52.8% respectively.Investors‘confidence
was significantlyaffectedbythisslidingperformanceof NCL.However,stockmarketshowedagrowth
of almost49% overclosingindex of FY11 and closedat17000 pointsinFY12(KSE-100 index,2012).
FY2013
P/E ratioboostedhighlyfrom4.1 timesto4.78 timesas NCL’sMVS was243.6% greaterthanFY12 (Pak
Stock Exchange,n.d.).EPSalsorecoveredby 192.3% and NCLacquiringthe assetsof Taj Textile Mills
Limitedwhichhelpedtoimprove NCL’sMVSof Rs2.2-2.4 per share(NishatChunianacquires,2013).
Stock marketalsoachievedtremendousgrowththisyearandclosedat23165 points(Pakistanstocks
rise,2013).IncreasingP/Esuggestsrisinginvestors’confidence.

Dividendcover(DC)
FY2011
There was a decline individendcover(DC) to4.54 timesfrom5.66 timesinFY10 because EPSand DPS
are notincreasedwiththe same ratio.NCLimproveditsDPSby19.8% to itsshareholders,despitegrowth
inEPS by 6.83%.(NCL,2011)
FY2012
Dividendcover(DC) fellfurtherto2.14 timesmainlybecause EPSwentdownby52.8%, WhereasDPS
remainedsame atRs2 per share.FinallyNCLdidn’tlose itsinvestors’confidence (NCL,2012).
FY2013
NCL improveditsdividendcover(DC) from2.14to 6.26 timesmainlydue tosharp increase inEPSby
192.3% while denominatorDPSagainremainedsame (NCL,2013).
0
1
2
3
4
5
6
7
2011 2012 2013
Dividend Cover(T) 4.54 2.14 6.26
Times
Dividend Cover

Workingcapital cycle(WCC)
FY2011
WCC decreasedfrom130days to 117 days inFY11 mainlydue to dropin inventorydaysby14 days but
risingsalesvolumesanddemand increasedthe stockintrade by38.7% (NCL,2011).Even thoughsales
surgedby52.3% but trade debtorsincreasedby41.2% whichresultedinafall of 3 receivable days.Both
these factorshelpedimprovingWCC.However,Payabledayshada reverse effectas theydeclinedby3
daysdue to earlypaymentsbyNCL.Overall,NCLimproveditsefficiencybycontrollingWCC.
FY2012
WCC increasedby7 days mainlydue torise inreceivable daysby20 daysbecause NCL easedits
receivablescollectionpolicyafterthe fall insalesinFY12(Businessrecorder,2012).Inventorydaysalso
reducedby8 daysdue to lowerproductionlevel (NCL,2012) but the otherside payablesdaysaffectthe
WCC positivelybecausethese were increasedby5days due to delaypaymentsbyNCL.So, NCL loosed
itscontrol over WCC.
2011 2012 2013
Receivable days 39 59 67
payable days 19 24 30
Inventory days 97 89 117
WCC 117 124 154
0
20
40
60
80
100
120
140
160
180
Days

FY2013
WCC againmovedupwardby 30 daysand thistime itwas mainlydue to28 days increase ininventory
daysdue to highproductionlevel tocope risingsalesdemand(Businessrecorder,2013) while receivable
daysalso wentupby 7 daysowingtohighersalesandlenientpolicyof NCL.Payable dayswere further
extendedby5daysdue todelaypaymentsmade byNCL. FinallyNCLisshowing to secure its further
capital in its working capital without earning a return on it.

CompetitorAnalysis:
KohinoorTextileMillsLimited(KTML) isprimarilyengagedintextile manufacturingcoveringspinning,
weavingandprocessingfunctions(KohinoorTextile MillsDual exposure,2013). KTML was incorporated
as private limitedcompanyin1953 by havinga capacityof 25000 spindlesand600 loomsbutlater
throughmergers,KTML was enhanceditsproductionfacilitiesto156,528 ring spindlesand204 looms.
KTML became a listed companyin1968(KTML,2013).
ProfitabilityComparison:
GPM of NCL stoodbetterthanKTML exceptforFY12, where KTML tookthe leadbecause 70% of NCL’s
revenueswere dependentonexportssalesin FY2012 and exportsfaceda downwardtrendof 10%
duringFY11 to FY12 overthe previousyearbutagainrecoveredupby5% inFY13 due to improvementin
gas supply(Khan,203).Therefore,NCLachieveda figure forexportssalesof 73% for itstotal revenues
than KTML’s of 45.6% in FY13.Stable cottonpricesand depreciationof rupee againstdollarwere also
provedbeneficial inthe performance of industry aswell asNCLandKTML(Zaheer,2013) but KTML
looseditslittle control overCOS because revenuesandCOSdidn’tgrow withthe same proportionin
FY13.
NCL’sCOS represents83.05%of sale whichis slightlylowerthanKTML’s85.02% because KTML face
significantenergyshortage whichwasrecoveredbyNCLthroughinvestmentinPowersector(NCL,
2013). Hence,higherrevenuesandbettercontrol overCOSgave NCL edge overKTML.
0
2
4
6
8
10
12
14
16
18
2011 2012 2013
NCL 16.77 11.16 16.95
KTML 15.15 16.48 14.98
percentage
Gross Profit Margin

NCL attainedmuchhigh NPMoverthe lastthree yearsas comparedto KTML. The greaterGP of NCL
than KTML is one of the reasons.A part fromthisNCL Distributioncost,because NCLhaslesser
distribution costtosale percentage of 2.52% than KTML’s 3.1%.
Otheroperatingincome alsoplayedasignificantrole inNCL’shighNPM.NCLhas higheroperating
income tosalespercentage of 4.72% than KTML’s 0.37%.NCL isfar aheadof KTML intermsof NPMas a
resultof itsmuch controlledoperatingexpensesthanKTML.
2011 2012 2013
NCL 15.48 12.07 17.79
KTML 14.34 10.54 10.1
0
2
4
6
8
10
12
14
16
18
20
percentage Net profit margin
0
5
10
15
20
25
30
2011 2012 2013
NCL 25.57 11.51 28.38
KTML 11.12 2.58 9.69
percentage
Return on Equity

ROE of NCLcontinuedtobe higherthan KTML in lastthree yearsand the difference became greaterin
FY13 where NCL’sROE washighestinthree yearswhile thatof KTML was lowerthanFY11. Huge
difference inPATof bothcompaniesisthe majorreasonfor it.NCL’sPAT wasRs 2,276,161,110 inFY13
whereasKTML’swas Rs 484,532,000. On the otherhand,equityof NCL wasRs 8,020,271,449 (NCL,
2013) andKTML’s equitywasRs 4,999,269,000 (KTML, 2013), eventhenNCLgeneratedbetterreturns
overitsequitythanKTML owingtoits boostednetprofits.

Liquiditycomparison:
From FY11 to FY13, current ratioof NCL isrecordedbetterthanKTML as KTML’s ratiowas below 1
throughout.AlthoughNCLhas55% more currentliabilitiesthanKTML butits Currentassetsare also
186% higheras comparedtoKTML in FY13. Short termborrowingsare highinboth companiesi.e.67%
of currentliabilitiesforNCLand69.2% for KTML (KTML, 2013). Howeverthere isgreaterstock,debtors
and cash balance of NCL (NCL,2013)than KTML and as a resultNCL can coverits currentobligationsfrom
itscurrent assetswhereasKTMLfailedtodo so.
2011 2012 2013
NCL 1.12 1.28 1.28
KTML 0.67 0.63 0.69
0
0.2
0.4
0.6
0.8
1
1.2
1.4
Times
Current Ratio

Since bothcompanieshave higherstockintheirbalance sheets,Quickratioof bothremainedbelow1
throughout.However,NCL’sratiostill remainedmore thanKTML. NCL’sstockin trade was 45.5% of
total current assets(NCL,2013) while thatof KTML was40.7% (KTML, 2013). Both companieshave
lesseramountof quickassetstocover theircurrentliabilities.
NCL
KTML
0
0.2
0.4
0.6
0.8
2011
2012
2013
Times
2011 2012 2013
NCL 0.49 0.75 0.7
KTML 0.42 0.39 0.41
Quick ratio

GearingComparison:
KTML has beenbetterinthe three yearperiodintermsof gearingasits debt/equityratioremainedfar
lessthanthat of NCL. KTML reduceditsdebtsignificantlyfromFY11to FY13 (KohinoorTextile MillsDual
exposure,2013). WhereasNCL’slongtermborrowingscontinuedtorise (NCL,2013). Consequently,
despite havingmore share capital andreservesof NCL,itsdebt/equityratiobecame higherthanKTML.
NCL
KTML
0
50
100
2011 2012 2013
NCL 58.44 65.61 52.38
KTML 30.06 11.5 0.78
percentage
Debt/Equity Ratio

Throughoutthe periodunderdiscussion,NCLhadhealthier ICthanKTML. AlthoughKTMLis reducingits
reliance onloans,still ithaslesseroperatingprofits(KTML,2013) to cover itsdiminishingfinance costas
comparedto NCL.In FY13, KTML ICwas lessthanstandardof 3 while NCL’sICwasslightlyupthanthe
standardsdue to NCL’shighprofitability.
NCL
KTML
0
1
2
3
4
2011
2012
2013
Times
2011 2012 2013
NCL 2.12 1.66 3.04
KTML 1.66 1.35 2.25
Interest Cover

EfficiencyComparison:
WCC of KTML stood waybetterthanNCL inall three yearsasKTML’s WCC followeddecliningtrend
while thatof NCL increasedoverthe years.A majorreasonfor the difference isinventorydaysasKTML
doesnotpile upthe stock(KTML, 2013) whereasNCLhasthe policyof maintaininghighstocklevels
(NCL,2013). KTML wasalso efficientinitsdebtcollectionandpaymenttoitssuppliersascomparedto
NCL as a resultitmanageditsworkingcapital betterthanNCL throughoutthe period.
Investor’sratios comparison:
0
50
100
150
200
WCC days
Receivable
days
payable
days Inventory
days
Days
WCC days Receivable days payable days Inventory days
NCL(2013) 154 67 30 117
KTML(2013) 42 27 38 53
Working Capital Cycle
2011 2012 2013
NCL 9.07 4.28 12.51
KTML 2.2 0.47 1.97
0
2
4
6
8
10
12
14
PakistanRupee
Earning per share

NCL has superiorEPSoverKTML in all years.AlthoughKTMLtriedto recoverinFY13 (KohinoorTextile
MillsDual exposure,2013) butits EPSremainedfarbelow thanNCL’s.Despite greatershare capital of
NCL (NCL,2013), itsEPS was higherthanKTML because PATof NCL was3.7 timesmore thanthat of
KTML due to itshighersalesandbettercostcontrol.NCLhasbeenmuchsteadierthanKTML.
NCL lookingtobe veryconsciousaboutdividendpaymentsandmaintainedaconstantdividendof Rs2
fromFY11 to 13 to itsshareholders(NCL,2013) but KTML hasskippedanyrewardforits shareholders
and didnot announce dividend(KTML,2013)because of low profits.
2011 2012 2013
NCL 2 2 2
KTML 0 0 0
0
0.5
1
1.5
2
2.5
PakistanRupee
Dividend per Share
0
1
2
3
4
5
6
7
8
9
2011 2012 2013
NCL 2.46 4.1 4.78
KTML 1.8 8.87 8.53
Times
Price/EarningRatio

NCL P/E ratiowas lowerthanKTML but itsmarketvalue of shareswas far better ascomparedto KTML.
Highmarket value of NCL(NCL,2013) wasan outcome of its greatersales,consistentlyrisingprofitsand
steadydividendspaymentscomparativetoKTML. AlthoughKTML share price alsosurged(KTML, 2013)
but itwas still lesserthanNCL,whichshowshighinvestors’confidence inNCL.BusinessAnalysis
PEST Analysis
Political Factors:
Political instabilityandunpredictable conditionsof Pakistanbadlyaffectedthe Pakistantextileorders
internationally(Memon,2013).
2% salestax was imposedonthe textilesectoralongwith5% WHT on importof raw materials (Memon,
2013), effectingthe industryinanegative way.
However,Governmenthastakenseriousactions:
 The reducedrefinancingrate from9.5% to 7.5% to textile sector(Rana,2014) can provide incentives.
 Memorandumof understandingwithChinatoworkonPakistan’scottoncropthat will increase its
productionby30% (AMIN,2014) thushelpingthe textile industry.
 Tryingto meetthe energychallengesintextileindustry (Governmentcommitted,2014).
0
10
20
30
40
50
60
2011
2012
2013
PakistanRupee
2011 2012 2013
NCL 22.29 17.39 59.75
KTML 3.95 4.17 16.8
SHARE PRICE

Economical factors
 There isfluctuatingtrendinGDP growthrate of Pakistanwhichwentupwardin2012 but fell
downin2013 whichcreatesnegative impactoneconomyof Pakistan
(Tradingeconomics,n.d.).
 KSE wasone of the bestperformingstockmarketsin2013(Zafar, 2013), reflectingthe
restorationof investor’sconfidence.
 InterestratesinPakistanconsistentlydecreasedyearonyearinorderto cope risinginflation
figures.
(Farooq,2012)
 Inflationrate hasbeenachievedto 7.7% inSeptember2014 mainlydue toincreasedinfoodand
fuel prices.
14
12
10
0
2
4
6
8
10
12
14
16
2011 2012 2013
Interest rates
Interest rates

(Tradingeconomics,n.d.)
Social factors
Pakistanissix mostpopulouscountryandstoodat 187.5 millionin2014(worldpopulationreview,n.d.)
whichwill ultimatelyincreasethe demand. Unemploymentrate remainedhighinPakistan,resultingin
lesspurchasingpowerof the people.
(Tradingeconomics,n.d.)
Pakistan’sliteracyrate almoststoodat56% andGDP foreducationwasonly2.1% in2013(Khan, 2013).
Pakistanfacingdifficultiesdue toitshighchildlaborrate(ChildLabor,2014) as Walt Disney,US
entertainmentgiant,hasrecentlystoppedplacingorderstoPakistan’stextilefirmsonthe labor
issues(Zeheer,2014).

Technological factors
The Pakistantextile industry importednew machinerytoreinstatethe dilapidatedmachineryto
enhance the productionefficiency (Pakistantextile machinery,2014).More than$7.5 billionhasbeen
investedbytextilesectorinmodernizationandhighervalueadditionoverthe lasttenyears(Memon,
2013).
In the budgetof 2014-15, Governmentfurtherprovidedlongtermfinancingfacilityforthe up-gradation
of the technologyatthe rate of 9% for 3-10 years(AMIN,2014).
SWOT ANALYSIS
Strengths
NCL has highproductioncapacitybyhaving150,000 spindles,293jetloomsand power
divisions(Businessrecorder,2012).
Since NCLhas substantial investmentsinitsassociatedcompanies,higherportfoliovalue isexpectedto
be beneficialforit (Textileoutput,2013).
NCL almost73% revenues dependon exports(NCL,2013),whichprovidesitgoodmargins.
NCL improveditsprofitabilitycompare tothe previousyearsaswell ascompetitorKTMLfiguresdue to
highmarketshare and tightcontrol overits cost of production.
NCL’sEPS and P/Eratio followedupwardtrendascomparedto the previousyearsandKTML, showing
more value forits investors.
Lahore highcourt approvedthe NCL’sbidto acquire the spinningunitof Taj textile millswhichwill be
beneficial forthe NCL(Businessrecorder,2013).
For cost cuttingmeasures,NCLisconsideringtoputsignificantinvestmentincoal-firedpowersectorto
overcome energyshortage whichprovidesbenefitsinordertoboostup the margins (Businessrecorder,
2014).
Weaknesses
AlthoughNCLreducedits debtreliance slightly,butstill highlygearedascomparedtoKTML
Local sale constitute only26.54%of NCL’stotal sales(NCL,2013) showingitslesserfocusinthe local
market.
NCL WCC has beenincreasingyearonyearwhichshoweditslesserefficiencyintermsof cash
conversion.
Due to higherfinance cost (NCLsqueezed,2014),NCL’smarginsbadlyaffected.

Opportunities
Ministryof textile revisedthe textile policy2014-19 to encourage exportsof value addedtextile
productsand to achieve 1 billiongrowthsintextile sectoreveryyear (Rana,2014).
EU alsoawardedthe PakistanGSPplusscheme inwhichPakistancanexportitsproductsto EU nations
on dutyfree ratesand plannedtodouble itsexportsinfiveyearsfromthe current7 billion(Textile mills,
2014)
Chinese governmentislookingtoinvest2billionintextile andgarmentsindustryinPunjab
division,(Investmentintextile,2014) causingan increase inbusinessactivity.
There isemergingdemandof highvalue fashionitemsandsportswear textile inEurope andUS(Baig,
2013), whichneedstobe fulfilled.
GovernmentislookingtocontactBeijing’sexpertstoworkon cottonproduction(AMIN,2014), which
will increase itssupply.
Threats:
Highproductioncostsbecame Pakistantextile exportslesscompetitiveashuge demandisbeingfulfilled
by Bangladesh,IndiaandChina (Memon,2013).
As a resultof the shortage of energyand gassupplyto textilesectorapproximately3bnproduction
capacityhas beeneitherpartlyorfullycloseddownandthiswill be afurtherthreatinfuture(Punjab
textile units,2014).
GovernmentbodyFBRimposedtax regimesontextilecompanies’profitabilitywhichwasexemptedin
previousyears(Memon,2013).
Pakistanwill lose billionsof dollarsunderGSPplus,if itfailstoimplementconventionsrelatingtohuman
rights,laborrights,environmentandgoodgovernance (Zeheer,2014).

Conclusion:
PEST:
Political instability,inconsistentGovernmentpolicies,depreciationof PKRcoupledwithenergycrisisand
highunemploymentreflectawful picture of the macro-environmentof the textileindustryandcreate
problemsfortextilesectortogrow.However,decreasingtrendininflationandinterestratesare
encouragingtothe textile sectoralongwiththe risingpopulationandinvestmentsinthe technologyto
improve the machineriesefficiency.
SWOT:
NCL isone of the biggestunitsintextilesectoranditspowergeneratingabilityprovidescompetitive
edge inthe timesof powercrises.Opportunitiesavailable in the exportmarketsof USA and EU can be
exploitedbyutilizingthe excessproductioncapacityavailable toNCL.Onthe otherhand,NCL isheavily
dependentondebtcapital whichabsorbedexcessive finance cost.Italsofacessignificantcompetitionin
international marketbesidesthe shortage of energysupply.
RATIO ANALYSIS:
Overall NCL’sprofitabilitytrendwasfluctuatingasitfell inFY12 and grew again inFY13. The volatile
trendinthe profitmarginsof NCL ismainlybecause companyisfacingchallengeslike energycrises,hike
inmaterial costand decrease insale due toheavycompetition.However,due toincrease inexportsits
profitsrecoveredinFY13.COS wasalso affectedbyinconsistentcottonpricesandenergycrises.High
finance costishittinghard onNCL netprofits.However,effectiveprocurementof raw material and
improvingotherincome ishelpingNCLtomake bettermargins.NCL’sabilitytoearnreturnoverits
equitywasenhancedbyFY13.
NCL can easilypayoff itsliabilitieswithout facinganyproblembecauseitsliquiditypositionisstabledue
to higherstockand cash balancesandon otherhand,currentliabilitiesalso grew due toincreased
balance of trade andotherpayables.However,itsquickratioissignificantlylessasithas lessquickasset
to pay off currentliabilities.

IC wasgood enoughdue tobetterProfitbefore interestand tax.
NCL’sgearingfollowedfluctuatingtrendoverthe years.Althoughithasreducedgearingbyincreasingits
reserves,itisstill ahighgearedcompanydue toincreasedborrowingsfor the investmentinpower
sector
Companyperformedwell inmanagingpayablesdaysbecause itconsistentlyincreasedfromFY11to
FY13 and usedas a free source of finance.Howeverthere wasanincreasingtrend inreceivabledaysand
inventorydays,whichresultedinlongWCCof NCL,showinglackof efficiency.
EPS and share price of NCL showedapositive figure inpastthree years.The Companyisproviding
constantdividendtoitscurrentshareholdersinorder toenhance itscurrentandprospective
shareholder’sconfidence.
COMPETITOR ANALYSIS:
Overall NCL’sperformance remainedbetterthanitscompetitorKTML because itenjoysgoodmarket
share as comparedto KTML. NCLis more profitable anditsliquiditypositionisalsobetterthanKTML.
NCL enjoysmore investor’sconfidence asa resultof highprofitsanddividends,depictedbyitshigher
share pricesthan KTML. However,NCL’sreliance onborrowingsishigherthanKTML and KTML isalso
more efficientinmanagingthe workingcapital.
Recommendations:
NCL shouldconcentrate onexploitingopportunityinexportmarketsof USA and especiallyEUbecause
of GSPstatus providedbyEU to Pakistan.
NCL shouldfocusonthe widerrange of products to getcompetitive edge.
Companyshouldimprove itsWCCbyfollowingJITapproachbecause ithas longinventoryholdingperiod
Gearingof the companyshouldalsobe reducedtoreduce burdenonprofitability.

Research report

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Viewers also liked

Viewers also liked (12)

Similar to Research report

Similar to Research report (20)

Research report