INTRODUCTION TO BUSINESS

FINANCE
RATIO ANALYSIS: KOHINOOR MILLS LIMITED (KML)

PROJECT 1
ANALYSIS PERIOD: (2014-2018)

Submitted to:
Ma’am Tahira Maryam Jaffery
Summited by:
Group 4 (Mon/Wed 2nd slot)
Muhammad Abbas (17715) Khawaja Talha Bin Aamir (17331)
Zehra Mubashir (16834) Mahnoor Amjad (17345)
Zafar Khan (17714)

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Contents
LIQUIDITY RATIOS ............................................................................................................ 3
Current Ratio ...................................................................................................................... 3
Quick ratio: ........................................................................................................................ 4
ASSETS MANAGEMENT RATIOS .................................................................................... 6
Inventory Turnover and Day Sales Inventory.................................................................... 6
Receivables Turnover (times) and Days Sales Outstanding .............................................. 7
Payables Turnover (times) and Days Payable Outstanding ............................................... 9
Operating cycle and Cash Conversion Cycle (days)........................................................ 10
Total Asset Turnover (Times) .......................................................................................... 12
Fixed Asset Turnover (times) .......................................................................................... 13
Debt Management Ratios ..................................................................................................... 15
Debt to Asset Ratio .......................................................................................................... 15
Debt to Equity Ratio ........................................................................................................ 16
Long term debt ratio......................................................................................................... 16
Times Interest Earned ...................................................................................................... 18
Profitability Ratios ............................................................................................................... 19
Gross Profit Margin ......................................................................................................... 19
Net Profit margin ............................................................................................................. 20
Operating profit margin ................................................................................................... 21
Return on total assets ....................................................................................................... 22
Return on Common Equity .............................................................................................. 23
Market Value Ratios ............................................................................................................ 24
Price to Earnings ratio:..................................................................................................... 24
Market to Book Ratio....................................................................................................... 25
Dividend Yield Ratio ....................................................................................................... 26
Dividend Payout Ratio ..................................................................................................... 27
Dividend cover ................................................................................................................. 28
SOLVENCY RATIO ........................................................................................................... 29
References Used................................................................................................................... 31

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 LIQUIDITY RATIOS

Current Ratio

Current ratio studies the short-term liquidity position of the company and illustrates as to
whether the company has ability to pay its short-term debts with its short-term assets.
Over the fiscal Years of 2014-2018, Kohinoor’s current assets overall decrease from
1.03 to 0.77 which is a very noteworthy change. The major collapsed of current assets was
observed in FY2016. From 1.0 to 0.70 and this was because in 2016 current liabilities
increased by 45% and current assets fall by 12% (cash and back balance decreased by 52%,
short-term borrowings increased by 150%). These facilities are secured against hypothecation
charge on current assets, lien on export contracts / letters of credit, first and second pari-passu
charge on fixed and current assets, personal guarantees of directors and ranking charge on
current assets of the Company. These carry mark-ups range from 3.5% to 4.5% per annum
(2015: 6.0% to 7.5% per annum) on outstanding balance. However, Kohinoor tried to
increase this ratio and was able to do it to an extent until 2018 however, it could not return to
its original level.
Interestingly, while KML is current ratio was falling sharply in FY2016 the industry
ratio increased from 1.4 to 1.55. This was because the current ratio of crescent cotton mills
(CCM), blessed textile mills (BTL), Faisal spinning mills (FASM) and Nishat mills (NML)
all increased during FY2013. The highest increased was observed by Faisal Spinning mills.
FASM whose current ratio increased from 2.48 to 2.78 due to 86% increase in trade debts and
75 % increase in prepayments because Deposit against infrastructure fee payable rose by 51.7
%.

In FY2014 The KML was bit aligned to some extent with industrial average however
this difference was seen due to abnormal current ratio of faisal spinning mills which was
2.484 which was relatively high when compared with industry. There are three reasons
behind this; one was the increased in market price of its finished good which was 82% more
and increased in trade deposits by 52% which was due to increase in Deposit against
infrastructure fee payable.

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Another reason behind this high current ratio is the 62% decrease in short-term borrowings,
which amplified this ratio. Last reason is that company does not have long-term borrowings
due to which they do not have to pay any portion of long-term borrowing in current year.
In FY2015 KML’s ratio declined very slightly from 1.03 to 1.0 due to 13.49%
increase in current liabilities (96% increase in current financing of long-term loans and 21%
increase in short term borrowing) which was due to rose in fair value of long-term financing.
IN this year, industry enjoyed an increase from 1.4 to 1.55 in current ratio.
Among which most significant increase was observed in BTL. BTL’s increased from
0.78 to 1.18 because the current liabilities decreased by 75% overall due to 44.28% decreased
in short term borrowing which was in effect of 100% decrease in running finance and 32%
decrease in term loans. This was done by effective increase in sales of BTL.

FY 2017 have been good for KML slighter increase from dip of 0.7 to 0.8 was
observed as its inventory therefore stocks in trade increased by 12% and trade debts was
increased by 38% which overall helped the current ratio get up from a low rate. However in
industry this trend wasn’t followed the industry faced a major decreased from 1.55 to 1.23,
which was merely because a highly significant decrease in FASM current ratio which was
decreased from 2.78 to 2.01, which was due to 22% increase in trade payables (as the
credited amount liable to company rose by 8% allocation of workers profit participation fund
rose by 177%), and finally increase in accrued interest on long term financing by 29% dip the
current ratio to 2.00.
In FY2018 No significant change in KML’s performance was observed as far as
current ratios are concerned however, the industry rebuilt its current ratio as significant
increase was seen in BTL and FASM’s ratios. BTLS’s ratio increased from 0.77 to 0.94and
FASM’s increased from 2.01 to 2.58 the major reason behind FASM’s ratio increase was the
overcome of pitfalls in trade debts and accrued markup it faced. Interestingly the current
liabilities for BTL was increased by 115% but this was overcome by increment in current
assets in which 294% in which increase in cash and bank balance is notable contribution

Quick ratio:

From FY2014 to FY2018 there was an overall decline in quick ratio from 0.54 to 0.4.
In FY2015 KML’s quick ratio slightly declined from 0.54 to 0.5 due to large increase in
inventory of 7.89% (stores spare parts by 15% and stock in trade by 4.5%). This was due to
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fewer sales than expected. However, industry appreciated an increase from 0.87 to 0.98 due
efficient use of inventory by NML, BTL, CCM, and FASM. The highest increase was seen in
NML ratio and FASM ratios, which was 0.11 and 0.14 respectively. In case of Nishat a
decline in stock in trade by 18% was reason of its increase. The decline of stock in trade was
due to decrease net realization of raw materials and work in process. In case of FASM it was
due to efficient use of inventory and low number of stores and spare parts. These two played
vital roles in amplifying the quick ratio of industry
From FY2016 the major collapsed was seen in KML ratio from 0.5 to 0.30 which was
just like the current ratio was due to this was because in 2016 current liabilities increased by
45% and current assets fall by 12% (cash and back balance decreased by 52%, short term
borrowings increased by 150%) Its already further explained in current ratio analysis.
However, an increase of 11% in inventory was also a factor which effect was seen in
declining quick Ratio but its effect was offset by increase in by receivables to an extent. In
summing up it was majorly due to increase in liabilities as said before.
FY2017 was favorable for the KML in terms of Quick ratio. Interestingly Inventory
increased following its past trend by 8% but the increase of 56% in receivables not only
offset it but also amplified the Quick ratio from 0.3 to 0.41, which was due to increase in
credit sales and other receivables. As compared with industry, the industry enjoyed increase
of 0.8 to 0.92. The performance of NML and FASM offset the slight decrease quick ratio of
BTL. Nishat enjoyed a sudden increase from 0.72 to 0.94 after decline in 2016, which were
merely due to increase in other receivables of 13% and increase in short term prepayment and
other advances of 150%. In case of FASM the increase in cash and bank balance of 105%
was a big reason in increase of this number
In FY2018 Captivatingly the inventory of KML keeping its trend increased by
15.82% but Quick ratio show an increase from 0.4 to 0.46 which was due to increase of
111% in loans and advances and 36 % in cash and bank balances. (Since the company re
issued its treasury shares at market price, which was last 120% more than last year these
numbers were utilized in increasing retained earnings of company in terms of cash.) Industry
performed similar to past years but a slight decrease in ratios was observed in CCM, BTL and
NML however, exceptional performance of FASM lift the quick ratio of industry from 0.9 to
1.04 which was due to highly efficient use of inventory (a decrease of 17%in stores) and
increase of 400% in other receivables which was due to sudden increase in foreign exchange
rates and rupee depreciation. The foreign receipts of goods exported were major contributor
of this number.

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 ASSETS MANAGEMENT RATIOS
Inventory Turnover and Day Sales Inventory

From FY2014-2018 Kohinoor overall faced a decline in Inventory turnover from 6.91
to 6.74. This was primarily because an overall increase of 65% in inventory was observed.

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This increase was expected to be planned in order to overcome the demand of goods in future
years, which was shown in future increase of sales by 39%
The highest decrease in KML ratio was observed in FY2015 from 6.91 to 6.2, which
was merely because of planned overstocking for future years and a decline of cost of goods
sold by 1.72%. Similarly, the industry followed same direction however the nominal change
was less than KML, however in this year BTL followed opposite direction of increase in I.T,
which was due to the decline in inventory by 5 %.
The highest increase in KML ratio was seen in FY2017 from 6.17 to 7.26. The main
reason behind this was the effect of previously overstocked inventory the sales amplified by
24% pushing the COGS by 28%. However, industry faced a slight decline due to decreasing
ratios of all FASM, CCM, BTL and NML
The overall nominal decrease in inventory turnover of KML resulted in small increase
in day sales of inventory.
While KML observed overall slight decrease in Inventory turnover, the industry
turnover acted in same direction but with high variance that is the industry average fall from
27.45 to 22.9. Interestingly the industry was extremely affected by decline of inventory
turnover of FASM which was declined by 16% it has seen as an outlier in the industry
because the planned overstocking didn’t have the forecasted impact on the sales of FASM
which because this declined.
In FY2016, the KML and the industry followed a decreasing trend in Inventory
turnover however as observed earlier the nominal effect in industry was higher due to decline
in FASM, CCM and BTL by high percentages of 6%,15% and 12% respectively. However,
NML behaved strangely as it acted in opposite direction of increase from 3.87 to 4.12 as its
stores and stock in trade decrease by 5 and 4% respectively due to efficient use and increase
in sales in FY2016.
In FY2018, KML and industry act in same direction and with similar numbers, which
is for industry 23.05 to 29.95 that is a slighter decrease due to increase in overall stocks and
inventory. This change is nominal and is considered as regular change.

Receivables Turnover (times) and Days Sales

Outstanding

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 KML receivables turnover faced an overall decrease from 12.82 times to 10.85 times.
In FY2018 the ratio declined most that is from 19.24 to 10.85, Which was mainly because of
two factors one is after 2017 KML sales has an increased portion of local sales as compared
with FY2017 which increased the payment receivables duration (days) from 19 days to 33
days. Another reason was devaluation of rupee since the foreign sales was to be received in
foreign currency the trade debts increased about 115%. Industry faced same trend this year
increase in trade debts plunged the receivable turnover and increasing day sales outstanding
from 36 to 50 days overall.
IN FY2015 KML receivable turnover increased most that is from 12.8 to 15.5 which
was primarily due to 8% decrease in trade debts, which resulted average collection period
decreasing from 28 to 20 days, which was due to inclination towards foreign sales of 85% of
total sales, due to which collection was rapid. However, industry worked in opposite direction
the ratio decreased from 21 to 19.7 times, because an overall decrease in ratios of CCM, BTL
and NML due to less sales. Interestingly FASM worked along with KML by increasing its
ratio from 23.58 to 24.72 due to relative increase in sales as compared with relative increase
in trade debts.
In FY2014 KML ratio was low as compared with industry because KML sales was
very less as compared with the industry and had higher trade debts.
In FY2016 KML ratio increased from 15.5 to 17.8, primarily due to 8% increase in
sales and 8.98% decrease in trade debts which reduced the average payment duration from 23
to 20 which was due to increase in foreign sales and decrease in unsecured local trade bills. In
contrast industry’s receivables turnover declined due to overall decline in the ratio from 19.8
to 12.64 and specifically high decline in ratios of NML and FASM that from 18 to 6 and from

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24.72 to 14.70 the reason which was observed was extra ordinary increase in trade debts
which was 34% for NML and 82% for nishat which pushed the DSO for industry from 29 to
36 days. In FY 2017 Industry ratio changed from 12.6 to 12.3 which is very nominal however
Kohinoor continuing its trend increased its ratio from 17.8 to 19.8 due to increase in sales by
almost 24% which overcome the increase in trade debts by 34%.

Payables Turnover (times) and Days Payable Outstanding

Over the financial years 2014-2018, KML’s payables turnover overall decreased from
8.43 to 8.20. This automatically resulted in day’s payable outstanding to increase from 43 to
45 days. KML’s turnover had fastest rate of increase in FY2017.
In FY2015 KML ratio decreased from 8.43 to 8.1 while the industry faced a higher
decline from 29 to 22, which was due to the outlier behavior of Faisal spinning mills, which
is shown in graph below. FASM single handedly pulled down the industry payable turnover.

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 In FY2016 KML ratio increased due to higher reported sales 8.16%. However,
industry in contrast followed a declining trend as all the companies faced the declining ratio
however the magnitude of FASM was much higher due 36% increase in trade payables,
which pulled industry ratio from 22.42 to 16.56. Although other companies too played a role
in this decline ratio of industry but magnitude of FASM was observed as highest.
In FY2017 KML ratio increased most that is from 8.56 to 10.33 due to the decreasing
day’s payable outstanding from 42 to 35. Following same trend with similar magnitude
industry ratio increased from 16.65 to 21 decreasing DPO by 3 days (27 to 24 days).
In FY2018 KML ratio decreased 10.33 to 8.2 the primarily reason was 50% increase
in trade payables, pushing its average payable duration from 35 to 44 days. While industry
inclined in the opposite direction. BTL and FASM both followed an upward trend.
Specifically, BTL, which faced an upturn from 23.27 to 29.9 due to 113%, increase in
inventory (overstocking of inventory for future sale). However, the industry inclination was
marginal from 14.8 to 16.67. However, FASM change was lesser than BTL it increased from
11.4 to 14.3 again, due to overstocking of additional inventory of 19% for future sales, which
was observed in 11% increase in sales. CCM and NML showed a nominal decline. In case of
DPO of industry, no major change was observed since the change occurred due to FASM and
BTL was set off by CCM and NML.

Operating cycle and Cash Conversion Cycle (days)

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 Operating Cycle (days)
120.00

100.00

80.00

60.00
KOHINOOR
40.00 Industry
20.00

0.00
2013 2014 2015 2016 2017 2018 2019
Year

Cash Conversion cycle (days)

120.00

100.00

80.00

60.00
KOHINOOR
40.00 Industry

20.00

0.00
2013 2014 2015 2016 2017 2018 2019
Year

The operating cycle and cash conversion cycle are explained by the days’ sales
outstanding, days’ sales inventory and days’ payable outstanding, which in turn are explained
by the receivables turnover, payable turnover and inventory turnover.
The operating cycle should be as small as possible and Kohinoor has been able to
maintain it at lower levels. In fact, the cash operating cycle had been consistently decreasing
from 2014-2017. However, it saw a sharp increase in 2018 as compared to its performance
from 2014-2017. This was due to the increasing Day Sales Outstanding and Days Sales
Inventory. Kohinoor had a higher operating cycle as compared to its competitors up until the
operating cycle should be as small as possible and Kohinoor has been able to maintain it
at lower levels. In fact, the cash operating cycle had been consistently decreasing from
2014-2017. Kohinoor had a higher operating cycle as compared to its competitors up
until 2015. From 2016 onwards, Kohinoor’s operating cycle decreased to the extent
where it went lower than the industry average. This may be due to better overall
performance and establishing good credit terms with its vendors and its reliance on foreign
sales. Overall was performing better than its competitors in terms of the number of days it

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took to collect cash from sales and pay off its creditors that is from 96 to 132 this was merely
because increases in trade debts. This may be due to better overall performance and
establishing good credit terms with its vendors.

Kohinoor has also been performing better as compared to its competitors in collecting
cash and running operations accordingly. Kohinoor has consistently beaten its competitors in
maintaining a lower ration throughout 2014-2018. A consistent low ratio proves that
Kohinoor has profited from maintaining lower DSI, DSO and a high DPO.

Total Asset Turnover (Times)

The asset turnover ratio is calculated by dividing net sales by average total assets.
Net sales, found on the income statement, are used to calculate this ratio returns and refunds
must be backed out of total sales to measure the truly measure the firm's assets' ability to
generate sales.
Overall during the 4 years from 2014-2018 the total assets turnover of industry is in
between 1.5-2.2. This can have regarded as good ratio, which means that 50% to 120% above
the value of total assets sales are being generated. There was a Sharp decline between the
year 2015 and 2016. The ratio declined from 1.86 to 1.55. However, Kohinoor LTD asset
turnover was increased in these two years. The reasons were that the Kohinoor decided not to
mention their intangibles value in 2016 balance sheet probably to show lower worth of their
business to avoid taxes. The taxation was highly reduced as it can be seen in the 2016 balance
sheet. Due to these affects the total assets were reduced whereas the net sales figure was
increasing. This increased the TAT, which was against the industry trend.

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 In 2017, there was a sharp increase in TAT. Major reason was that the TAT of Nishat
LTD increased from 3.88 to 6.46. There a very high increase in net sales of Nishat, which
resulted in this to happen. However, there was a slight increase in TAT for Kohinoor LTD.
From 2017 to 2018 TAT again declined.
We conclude by saying that Kohinoor LTD has slightly affected the industry average
of TAT. Nishat LTD has affected it a lot.

Fixed Asset Turnover (times)

Fixed Assets Turnover (FAT) is an efficiency ratio that indicates how well or
efficiently the business uses fixed assets to generate sales. This ratio divides net sales by
net fixed assets, over an annual period. The net fixed assets include the amount of property,
plant, and equipment. Higher FAT is a good sign for a business or an industry as it higher
sales in compare to fixed asset. Similarly, low is a bad sign for both company and an
industry.
For our industry, we can observe that the ratio is declining from 2014-2016. From
2016-2017 it increased and then it again declined. The main company, which had influenced
FAT of industry, was Blessed textile LTD. In 2014, blessed had FAT of 2.82 and then it
sharply declined to 2.09 in 2016. In 2014 Blessed Textile decide to install 12000 spindles,
which increased the fixed assets a lot. However, in 2013 the fixed assets value was quite low.
Therefore, when the average of fixed assets of 2013 and 2014 was divided by the net sales,
the FAT was very high. After 2014 until 2016 there was a decline and then different variation
can be observed.
The trend for Kohinoor LTD was also in accordance with the industry. The main
thing to highlight in its trend is that there was a sharp incline FAT between 2016 and 2017 of

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FAT for Kohinoor LTD. The fixed assets for Kohinoor were quite high in 2015, which
increased the average fixed assets and ultimately giving a low FAT in 2016. Then probably
the fixed assets were sold during the year. Between 2017 and 2018, we can observe that the
FAT sharply declined. It was due to an increase in fixed assets in 2018, which led FAT to
decline. Revaluation process was carried out by Kohinoor LTD, which resulted in such a
sharp increase of fixed assets and a fall in FAT of the company as well as the whole industry.

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 Debt Management Ratios
Debt to Asset Ratio

Debt to Asset Ratio

0.60

0.50

0.40

0.30
KOHINOOR
0.20 Industry
0.10

0.00
2013 2014 2015 2016 2017 2018 2019
Year

Kohinoor’s gearing ratio has faced a steady decrease from 2014 to 2018. Particularly
in FY2017 from 0.34 to 0.16 due to increase in current assets by 20.06 %, which was
because, 38 % in trade debts and 56% increase in other receivable due to increase in sales and
rupee devaluation in case of foreign buyers. However, industry acted in opposite direction
increasing its ratio from 0.33 to 0.4 this was due to increase in assets of BTL and NML,
which was due to increase in non- current liabilities specifically an increase 70% in n
deferred liabilities (deferred taxation)
In FY2018 the Kohinoor keepings its trend improved its debt to assets ratio, which
was due to increase of 111% in loans and advances and 36 % in cash and bank balances.
(Since the company re issued its treasury shares at market price, which was last 120% more
than last year these numbers were utilized in increasing retained earnings of company in
terms of cash.)

In FY2016, the Kohinoor keeps improving itself by lowering its debt to asset ratio
because a decrease of 124% in non-current liabilities was observed due 108% decrease in
long-term financing and deferred liabilities by 83.27 specifically decrease in accrued markup
pulled the ratio from 0.42 to 0.33. In industry it was observed that the ratio increased from
0.35 to 0.40.
IN FY2015 Kohinoor ratio declined along with industry from 0.49 to 0.42. Primarily
because of a decrease of long term financing by 10.43% and increase in net taxation. In
industry similar trend was observed a decline from 0.39 to 0.35 was observed. Interestingly
the reason for decline of ratio of CCM, FASM, NML and BTL was same that is a decrease in
Long-term financing.

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 Debt to Equity Ratio

Debt to Equity ratio

1.80
1.60
1.40
1.20
1.00
0.80 KOHINOOR
0.60 Industry
0.40
0.20
0.00
2013 2014 2015 2016 2017 2018 2019
Year

Debt to equity ratio measures the degree to which company is financing its operations
through debt. For Kohinoor, we can see an overall increase in debt to equity ratio over the
five years from 1.04 to 1.11 which is note worthy while over the same years industry average
ratio decrease was minimal.
In FY 2015, KML’s ratio had negligible increase in debt to equity ratio. While in the same
year in industry, ratio reduced from 1.04 to 0.88. This impact was brought about by BML and
CML as short term borrowing of BML decreased by 44% while CML’s share capital
increased leading to reduction in ratio.
In FY 2016, debt to equity ratio of KML plunged from 1.11 to 1.63. The reason behind it was
that short term borrowing increased by 153% especially from borrowings from SBP. While
industry average improved this time by 0.11.
Moreover, we see a decrease in this specific ratio for KML in FY 2017 which is again really
small difference. It is interesting to see that industry average ratio has remain contant as
previous year i.e 0.96.
For FY 2018, KML’s ratio has reduced from 1.59 to 1.54. The reason generated for it is that
they paid off some short-term liabilities as well as their accrued mark up decreased. For FY
2018, industry average was not affected much but it was far less than KML.

Long term debt ratio

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Long-term debt ratio shows what ratio of assets the business could need to liquidate to pay
off its long term liabilities. KML’s ratio decreased overall from 0.42 to 0.16 with major
change taking place in FY 2016. As far as industry is concerned, the overall decrease was
minimal by however there was increase in ratio during two financial years.
In FY 2015, KML’s ratio declined from 0.42 to 0.34. This was due to increase in non- current
assets with specification in long-term investment which amplified by 190% with a new
investment in ‘Security General Insurance Company Limited.’ Industry ratio reduced from
0.12 to 0.10. Majorly because FASM had reduction in their long term financing by 32%.
In FY 2016, there was sharp decline in ratio for KML from 0.34 to 0.16. The reason behind it
was that there was reduction in long-term deposits by 52% as well as sponsors loan,
previously considered as non-current liabilities were transferred to current liabilities. On the
contrary, industry average increased from 0.10 to 0.14. This can be accredited to FASM and
CML. Long term finances augmented for both companies i.e. by 92% for FASM and by
345% for CML. In FY 2017, the ratio for KML decreased from 0.16 to 0.13, which was
majorly because of reduction in non- current liabilities. Industry averaged increased due to
CML and FASM and because of same reason of increase in long-term finances.
In FY 2018, it is interesting to see opposite changes in KML’s and industry’s ratio. KML
ratio rose from 0.13 to 0.16. The reason behind it was that company’s long-term liability
increased due to introduction of retirement and other benefits for the first time over these five
years. While industry average reduced from 0.15 to 0.11. Mainly due to BML because their
current assets increased specifically stock in trade which amplified by 113%.

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 Times Interest Earned

Times Interest Earned Ratio

3.00

2.50

2.00

1.50
KOHINOOR
1.00 Industry

0.50

0.00
2013 2014 2015 2016 2017 2018 2019
Year

This specific ratio shows that how many times. A company could cover its interest charges
with earning (before interest and tax). For KML, it can be observed that TIE increased overall
from 1.28 to 1.84 over the tenure of these specific years. While industry’s average reduced
substantially from 2.71 to 0.79.
In FY 2015, TIE ratio of KML increased from 1.28 to 1.37 which is minimal. Both EBIT and
finance cost increased however, change in profit from operations was more than change in
finance cost. In the same year, the ratio of industry declined from 2.71 to 2.47. Major credit
for this change goes to BML because their operating profit reduced by 25%, which company
accredited to recession in spinning segment of textile industry.
For FY 2016, KML’S TIE ratio had a very negligible reduction from 1.37 to 1.33 because
company has cost of goods sold increased due to high overseas competition and increase in
raw material prices of weaving industry. Overall industry faced decline from 2.47 to 1.96.
NML was responsible for this reduction as its TIE almost halved in FY 2016 because they
had increase in their finance cost by 66%, which was to finance their new projects and to
provide capital loan to their subsidiary companies.
In FY 2017, TIE ratio increased from 1.33 to 1.77 for KML. This occurred because their
finance cost reduced by 39% as major reduction was mentioned to be in adjustment due to
impact of IAS -39. For industry, TIE rose from 1.96 to 2.28. It was because BML‘s EBIT
escalated due to increase in sales by 17% because of better pricing.
In FY 2018, KML’S ratio had slight increase from 1.77 to 1.84. It occurred because
company’s EBIT improved, as there was 75% reduction in other expenses of company
majorly reduction in donations, loss on assets and loss of investment in subsidiary company
(Punjab Social Security Health Management Company and Service Industries Limited).
Interestingly, for industry we see a major decline from 2.28 to 0.79. NML was responsible for

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it as it TIE ratio reduced significantly as it went into negatives because of reduction in its
EBIT due to lessening of sales by 40%

Profitability Ratios
Gross Profit Margin

Gross profit margin is calculated by subtracting cost of goods sold (COGS)

from total revenue and dividing that number by total revenue. The top number in
the equation, known as gross profit or gross margin, is the total revenue minus the direct
costs of producing that good or service.
Over the 5 years, we can see that there are very slight to no variation in gross profit
margin ratio. In 2014 the industry had 11% and in 2018 it had increased to 12% only. It may
look like there was not any variation in profit levels of different companies but his is not true.
For some companies like Blessed and Faisal LTD the gross profit margin was declined and
then increased. Nishat LTD observed and upward trend whereas Crescent LTD experienced
an increase and then decrease in their GP margin. The opposite trend of different companies
led the industry average to be stable.
Kohinoor LTD GP margin was relatively higher than the industry ratio throughout for
4 years and it was lower than the industry percentage in 2018. From 2014 to 2015 the GP
margin increased but later it declined. However, even during the decline the profit level of the
company was comparatively higher until 2018. The reason was that Kohinoor LTD was
efficient in their production process during the early years, which meant that the cost of
production was lower than their competitors. The exports had sharply declined after 2014
because of the devaluation of the currency, which resulted in overall GP margin to decline.
This was due to the devaluation of currency stated in the director’s report of 2018 coupled
with the power shortage issue
Exports of Kohinoor Textile Limited

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 (Extract from annual report 2018)

Net Profit margin

Net profit margin is the percentage of revenue left after all expenses have been deducted
from sales. The measurement reveals the amount of profit that a business can extract from its
total sales. The net sales part of the equation is gross sales minus all sales deductions, such as
sales allowances.
The industry observed a downward trend in net profit margin from 2014 to 2016 and
then an upward trend from 2016 to 2018. The main companies that were responsible for the
decrease in NP margin from 2014 and 2016 were Blessed LTD and Faisal textile LTD. Both
the companies faced a decline in their Gross profit and that result was reflected on NP margin
as well. The same companies along with Nishat LTD had increased the NP margin for the
industry from 2016 onwards. Crescent textile LTD behavior was entirely opposite against the
industry average for these 3 years.
Kohinoor LTD’s NP margin was quite low in compare to industry averages. Although
the GP margin was quite high against the industry. This clearly shows that the Kohinoor was
not able to efficiently control their other expenses, which resulted in such outcome. The
highest NP was in 2018 which was 2.08% whereas industry’s NP margin was 6% which more
than twice! There was very high increase of distribution and marketing expense and other

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operating expense between 2016 to 2017, which led to a decline in NP margin. The
inefficiency had rised with the increase in sales, which had led to a decrease.

Operating profit margin

Operating Profit Margin is profitability or performance ratio used to calculate the percentage
of profit a company produces from its operations, prior to subtracting taxes and interest
charges.
A slight change of OP margin can be observed throughout the 4 years. From 2014-2017 OP
margins declined from 6.52% to 5.3% and raised up again to 7% until 2018. However, the
variation was high among the companies. Blessed OP margin increased from 4.49% in 2016
to 7.04% in 2017 due to increase in higher GP and other income whereas crescent OP margin
decreased from 7.31% to 3.38%. However, the variations in opposite direction were the
reason that led the industry average to remain constant. Nishat LTD was enjoying a very high
OP Margin compare to the industry. The difference between their GP and OP margin was
also very slow which is quite rare. The reason was that Nishat other incomes were very high,
as they had invested in different companies, which compensated for the expenses after GP. In
contrast, Faisal Limited OP margin was lower than the industry and the difference between
the GP and OP margin was very significant which shows that the company could not control
their after production expenses.
Nishat Linen LTD extract of Statement of Comprehensive Income showing high other
incomes

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Kohinoor LTD OP margin increased between 2014 to 2015 and then it observed a general
downward trend. In 2016, OP margin sharply declined as the operating profit decreased. This
was due to the fact that other incomes were highly reduced. In 2015, other incomes were very
high as there was a recognition of long term financing. This had led to high OP margin.
Overall, Kohnioor OP margin was close to industry OP Margin.

Return on total assets

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KML return on asset increased from FY 2014 to 2015 from 8.98% to 12.21% due to an
increase in net profit. While we see a downfall in return on assets after FY 2016 until 2018, it
decreased from 9.86% to 7.24%. There was a decrease in net profit. The company could not
produce enough income from its assets.
The above fluctuation in the company return on total asset’s shows that the company was
able to manage its assets profitably in the beginning years, but was not able to perform well
later and wasn’t able to recover from its huge decline till 2018 according to the financial
statement of the company.
The industry average was stable from FY 2014-2016 with a figure of 10%, while the
company average increased in 2017-2018 with a figure of 12%. In FY 2014-2016, we have
seen a major decline in return on total assets due to continuous decline in FSAM, KTML and
BTR. While from FY 2017-2018, the return increased because of the increase in return on
total assets of in FSAM, KTML and BTR. The return on assets rates are affected mainly by
the fluctuation from these three main competitors, which affected the industry average. The
industry average also increased because of the decrease in inventory turnover in all five
companies.

Return on Common Equity

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KMLs return on common equity saw an overall increase although it decreased in FY 2016.
The company successfully recovered from its decline and an increase in return on common
equity was observed in FY 2017 and 2018.
The industry average followed opposite trend, it decreased till FY 2016 from 1.54% to
0.46%and then there was an increase in return on assets in 2017 and 2018 from 1.12% to
1.52%. There has been a huge jump in BTL and NML’s return on common equity in the year
FY 2017 & 2018, BTL jumped from 8.6% to 11.8% and NML from 7.0% to 12.3%.
Even though from FY 2014 until 2015, the industry average decreased, it did not have a
major effect on company’s return on common equity. It decreased due to an increase in
shareholder equity and decrease in net income.

Market Value Ratios

Price to Earnings ratio:

From FY2014-2018, the price to earnings ratio was increased from 3.15 to 6.29. Specifically,
in year FY2017 where it amplified from 8.67 to 18.05. This was merely due to overall
increase off 134% in market price. However, company is not being forecasted as risky this
increase is observed as relative decrease in eps and fast increase in market price. However,
net profit is decreased due to high realization value of COGS. However similar trend was
followed in FY 2014-2018 by the industry due to overall market prices increase an abnormal
behavior was seen in 2018 though.
In FY 2018 when it jumped from 12.48 to 61.5, this was due to outlier behavior of CCM.
Which singlehandedly pulled the average which was due to increase in P/E ratio from 26.37
to 229.09 which was due high net loss which was because 123% in financial cost This
abnormal was due to exchange loss on foreign currency loans due abrupt rupee depreciation.
However, Kohinoor followed opposite trend a decrease was observed from 128.05% to 6.29

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this was because of few major reasons. One the increase in profits of 113% amplified the
earnings per share from 2.63 to 4.70, which plunged the price to earnings ratio.
In FY2016 Kohinoor and industry were in opposite directions however the magnitude was
very nominal and was observed as usual difference.
In FY2015 Kohinoor faced a high increase of 100% in ratio, interestingly the sales were
sales were increasing but the sudden increase in market price from 12.4 to 17.3 overcome the
effect and pushed the P/E to give a positive difference. This year was observed in industry as
increase from six to nine in P/E which was majorly due to increase in ratio of BTL that is
from 4.16 to 11.45. The reason behind this sudden jump was a high decline in net profit by
64% (increase in finance cost and administrative cost and COGS) which plunged the eps
from 36 to 12.7.

Market to Book Ratio

Market to book ratio (also called price to book ratio) is used to determine the value an
investor is getting from investing one rupee in the company. It is determined using the market
value of the stock thus reflecting the market’s perception of the stock in comparison with the
net assets of the company (the equity) and a clear indicator of how much value is the investor
getting from investing in the company per share.
Over the years, Kohinoor has observed an increase in its market to book ratio (except for
2018). From FY2014-2015, a 31% increase was observed. This was due to increase in the
market value of the shares of Kohinoor, which rose from 12.49 to 17.3 that is 39%. During
this period, it was also observed that the book value of the shares also increased from 36.834
to 38.911 that are 6%. The Market to book ratio increased because the increase in the book
value was set off by a higher increase in the market value of the shares. Overall, therefore
Kohinoor enjoyed a higher market to book ratio in the fiscal year 2015 as compared to 2014
From FY2015-2016, the market value of the shares further improved pulling the market to
book ratio even higher by 18%. The increase in this year was lower as compared to 2014-

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2015 because the increase in prices this year was lesser than the previous year 2014: 31%
(2013: 18%).
This trend of an increase in the market to book ratio was also followed in the FY2017. In fact,
this year the increase proved to be the highest i.e. by 118%. This was primarily due to the
increase in the prices of its shares by 135%. The increase in the book value was only 8%.
Therefore, it is clear that the increase in the market to book ratio was heavily influenced by
the market prices of the shares of Kohinoor.
However, Kohinoor observed a sharp decrease in its market to book ratio in the year 2018
i.e. by 18%. This was due to a significant decrease of 38% in its market price as compared to
a decrease of 24% in its book value. This was due to a decrease in the profitability of the
whole industry and therefore reflected in the market value of the shares of the companies.
It is imperative to note here that even though Kohinoor was observing an increase in its
market to book ratios, it is nowhere near the market to book ratios of the industry. Infect, the
ratios of the industry were hovering around 112 in FY2014 whereas Kohinoor’s was at 0.33.
Hence there is an approximate 100% increase in the market to book ratio of the industry and
that of Kohinoor.
The industry average is largely dominated by that of Nishat mills limited, which was steadily
increased from 0.5 to 0.6. Thus, pulling the industry average from 0.42 to 0.55 that is an
increase of 30%
Overall, there remains a significant difference between the Market to book ratio of the
Industry average and that of Kohinoor thus showing that Nishat Mills heavily dominates the
industry in terms of profitability and the market capitalization.

Dividend Yield Ratio

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Kohinoor did not declare any dividend for the years 2014, 2015 and 2016. The reason given
was due to owing significant principle amount and high markup rates payment to the banks.
In the year 2017, the amount of dividend declared was 10%. Whereas the amount of dividend
declared, was 20%. The amount of dividend yield was 2.32% in the year 2017 whereas the
amount of dividend yield was 4.06% in the year 2018. The change in the dividend yield was
dominated by the change in price of the shares, which decreased by 37.6% in the year 2018
as compared to 2017. The prices however resulted in an increase in the dividend yield and
therefore benefited the company. The impact of the dividend declared per share was greater
than the decrease in the market price of the shares. They together contributed in increasing
the dividend yield over the course of these years.

Dividend Payout Ratio

The dividend payout ratio is the ratio of the total amount of dividends paid out to
shareholders relative to the net income of the company. It is the percentage of earnings paid
to shareholders in dividends. The company to pay off debt or to reinvest in core operations
retains the amount that is not paid to shareholders. It is sometimes simply referred to as the
'payout ratio.'
During the 4 years, the DPR of the industry is rising from 2014-2016. Then it declines till
2017. After that it rises again. High variations can be observed throughout the years. It is
because during some years some of the companies were not paying out the dividend while the
others were. Kohinoor LTD was paying no dividends from year 2014-2016 and then onwards
it began giving out the dividends. For Crescent LTD the payout ratio was rising for the first 3
years and then they did not payout any dividend for the rest of the years. Rest of the
competitors had ratio, which was varying throughout whole 5 years. Comparing Kohinoor

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LTD performance with the industry for this ratio could be misleading because Kohinoor LTD
was not paying out dividend in every year. The DPS for 2017 of Kohinoor LTD was quiet
high compare to 2018. This is because the EPS in 2018 of the company was very high due
significant increase in net profit, which had led to a lower DPR

Dividend cover

Dividend Cover (times)

4.50
4.00
3.50
3.00
2.50
2.00 KOHINOOR
1.50 Industry
1.00
0.50
0.00
2013 2014 2015 2016 2017 2018 2019
Year

We observed an increase in dividend cover ratio from FY 2017- 2018, due to an increase in
net sales, which increased net income of the company, increasing the dividend cover ratio.
There was a decrease in distribution and marketing expenses as well as other operating
expenses. The company due to reasons mentioned earlier did not declare earlier FY2014-
2016 dividend already that owes significant loans from banks.
While the industry followed the opposite trend from FY 2014-2016, decrease in dividend
cover ratio was observed because majority of the competitor’s dividend ratio decreased in
these years. However, from the FY 2016-2017 industry average increased from 1.82 to 2.59
but then slightly decreased in FY 2018. This trend was noticed because there was an increase
in the entire competitor’s ratio in this year but then decreased except for FSML.

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 SOLVENCY RATIO

Solvency ratios study the ability of a company as to the potential it carries to meet the long-
term debts it is accountable. From FY2014 to 2018 KML is facing a positive Solvency ratio
and the change recorded is from 0.06 to 0.08, which is primarily due to overall 50% decrease
in long-term liabilities (64.15% decrease in long-term loans and other payables). However,
industry has faced a decreasing trend in FY2015 after which the industry adjusted itself.

The major relapse in industry averages as quoted earlier was seen in FY2015, which was a
decline in individual ratio of Faisal spinning mills (FSM), which was caused due to decline in
net income of 71% and 36% decline in gross profits. The reason observed in this is decline in
sales. However, Kohinoor give a push to its ratio from 0.06 to 0.07, which was caused by
1.75% increase in sales and 32% decrease in COGS. The behavior of FASM, which caused
decline in market, can be shown as:

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In FY2016, no change observed in KML’s situation, while industries reverted its set back and
showed an increase from 0.08 to 0.09. It was due to stabilized sales of FSM. IN FY2017
KML and industry, followed same trend of increase of ratio interestingly in this year the
magnitude of change (0.01) was too same. In terms of industry, this was a regular change but
in terms of KML this change was observed due to 70% increase in overall net income but it
was offset by similar proportion of increase in current liabilities.(The increase in short-term
borrowing was due to increase in sales and to maintain capital structure)

In FY2018, the industry got a boost in the ratio NML along with FASM caused this, which
was primarily because NML paid off its 44% of trade and other payables due to which
accrued markup showed a decline of 51% overall a decrease of 31% in liabilities.
Interestingly this decrease set off the decrease in net income of 10% and pushed the ratio
from 0.19 to 0.25. Similar trend was followed by FASM a payoff of liabilities caused an
increase from 0.15 to 0.23. Both pushed the average from 0.11 to 0.14. KML followed an
opposite trend to industry in its ratio fall from 0.08 to 0.07 interestingly KML net income was
increased by 102 % but this increase was only offset but dominated by an increase of 55% in
liabilities due to increase in long term borrowings. However, no reason was disclosed for this
act.

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 References Used
Annual and Financial reports of Kohinoor Mills limited retrieved from:
http://www.kohinoormills.com/financialstatement

Financial statements of Faisal Spinning Mills retrieved from:

http://www.umergroup.com/faisal-financial-reports.html#

Annual and Financial reports of Blessed Textile mills retrieved from:

https://www.umergroup.com/blessed-financial-reports.html

Annual reports of Nishat Mills ltd obtained from:

http://www.nishatmillsltd.com/wp/index.php/financial-information/

Annual reports of crescent cotton mills obtained from:

http://www.dps.psx.com/company/ccm

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