INTRODUCTION TO BUSINESS FINANCE

FINANCIAL ANALYSIS REPORT

NISHAT MILLS LIMITED

NAME: MOIZ ALI SIDDIQUI (30743)

FACULTY: ARSALAN HUSSAIN

Nishat Mills Limited

Nishat Mills Limited is the flagship company of Nishat Group. It was established in
1951. It is one of the most modern and largest vertically integrated textile companies
in Pakistan. The Company is engaged in the business of textile manufacturing and of
spinning, combing, weaving, bleaching, dyeing, printing, stitching, apparel, buying,
selling and otherwise dealing in yarn, linen, cloth and other goods and fabrics made
from raw cotton, synthetic fibre and cloth and to generate, accumulate, distribute,
supply and sell electricity.

Vision Statement
To be and remain industry lead by safeguarding stakeholders’ interest, serving
community and playing a meaningful role in the economy of Pakistan.
Mission Statement
To increase financial returns by pursuing sustainable business, producing the best
quality products and providing excellent customer services while adopting best
practices.

Board of directors:

Mian Umer Mansha Chief Executive Director

Mian Hassan Mansha Chairman
Syed Zahid Hussain Non-Executive Director
Mr. Farid Noor Ali Fazal Non-Executive Director
Mr. Mahmood Akhtar Non-Executive Director
Mrs. Sara Aqeel Independent Director
Mrs. Mehak Adil Independent Director
Mian Umer Mansha Chief Executive Director

Competitive advantage:

Sustain competitive advantage of nishat mills limited is its products according to the trends
and fashion to win its customers.

Majour Competitors:

Nishats main competitors are:

 Alkaram
 Arzo
 Chenab
 Arzo
 Kohinoor
 Sitara
 Amtex
But majour competitors are:

 Crecent textile mills

 Chenab mills limited
FINANCIAL ANALYSIS:

 COMMON SIZING:
BALANCE SHEET (COMMON SIZE)
ASSETS 2017 2018 2019 2020 2021
NON-CURRENT ASSETS          
Property, plant and equipment 30.1 29.5 27.8 27.6 27.1
intangible assets 0.0128 0.0075 0.0025 0.0008  
Investment properties 0.3     1.3 1.0
Long term investments 37.8 37.0 34.3 31.6 31.5
Long term loans 0.1 0.2 0.2 0.2 0.3
Long term deposits 0.2 0.1 0.1 0.1 0.2
  68.6 66.8 62.5 60.9 60.0
CURRENT ASSETS 0.0 0.0 0.0 0.0 0.0
Stores, spare parts and loose tools 2.1 1.9 2.6 1.9 1.9
Stock-in-trade 13.0 12.9 16.3 17.9 14.7
Trade debts 9.0 11.6 14.6 14.9 15.4
Loans and advances 2.1 0.8 1.0 0.5 0.6
Advance income tax - net 0.0     0.4 0.6
Short term deposits and
prepayments 0.2 0.2 0.2 0.1 0.1
Other receivables 2.8 3.3 2.1 2.9 3.1
0.0009 0.0007 0.0019 0.0014 0.0077
Accrued interest 3 4 1 5 6
short term investment 1.9 1.8   0.011  
Cash and bank balances 0.4 0.6 0.8 0.5 3.6
  31.4 33.2 37.5 39.1 40.0
           
TOTAL ASSETS 100.0 100.0 100.0 100.0 100.0
           
EQUITY AND LIABILITIES          
SHARE CAPITAL AND RESERVES          
1,100,000,000 (2020: 1,100,000,000)
ordinary shares of Rupees 10 each 8.1 7.9 7.3 6.9 6.3
Issued, subscribed and paid-up
share capital 2.6 2.5 2.3 2.2 2.0
Reserves 62.0 62.9 59.9 58.6 59.4
Equity attributable to equity holders
of
the Holding Company 64.5 65.4 62.3 60.8 61.4
Non-controlling interest 5.0 5.7 6.2 7.3 7.2
TOTAL EQUITY 69.5 71.2 68.5 68.2 68.6
           
LIABILITIES          
NON-CURRENT LIABILITIES          
Long term financing - secured 7.6 5.9 3.9 5.9 6.7
 lease liability 0.0     1.1 0.8
long term security deposits 0.1 0.1 0.1 0.2 0.2
retirment benefit obligation 0.0064 0.0087 0.0119 0.0123 0.0131
Deferred liabilities 0.0024 0.0017 0.0015 1.2 1.5
Deferred income tax liabilities 1.6 1.8 1.6    
  9.3 7.8 5.7 8.5 9.1
CURRENT LIABILITIES          
Trade and other payables 5.0 5.6 6.3 7.1 6.5
Accrued mark-up 0.2 0.2 0.3 0.2 0.2
Short term borrowings 12.1 12.2 16.3 15.2 12.7
Current portion of non-current
liabilities 2.8 3.0 2.8 0.8 2.9
Unclaimed dividend   0.1 0.1 0.1 0.1
Provision for taxation 1.0        
  21.2 21.0 25.8 23.4 22.3
TOTAL LIABILITIES 30.5 28.8 31.5 31.8 31.4
           
TOTAL EQUITY AND LIABILITIES 100.0 100.0 100.0 100.0 100.0

Balance sheet:
After performing the common sizing of the company, we can see that the overall non-
current has reduced from 2017 to 2021, due to the decrease in fixed assets and long-term
investments because the company was not doing long term investing much on property,
plants and equipment over the years, the inventory decreased in 2018 but then again
increased in 2019. The overall current assets increased due to the increase in cash and
balance and the trade debts over the years but the inventory increased and also decreased
after the covid-19. There is no noticeable change seen in the equity it just increased and
then again decreased in 2019. Both current and non-current liabilities first decreased and
then increased.

INCOME STATEMENT (COMMON SIZING)

           
100.0 100.0 100.0 100.0 100.0
REVENUE
0 0 0 0 0
COST OF SALES -83.75 -83.97 -82.50 -79.84 -82.18
GROSS PROFIT 16.25 16.03 17.60 20.16 17.82
DISTRIBUTION COST -6.53 -5.93 -5.98 -6.87 -6.16
ADMINISTRATIVE EXPENSES -2.34 -2.14 -1.91 -2.51 -2.08
OTHER EXPENSES -0.28 -0.26 -0.41 -0.25 -0.57
  -9.14 -8.33 -8.30 -9.62 -8.82
  7.11 7.70 9.30 10.54 9.00
OTHER INCOME 2.95 2.51 3.56 2.65 2.61
PROFIT FROM OPERATIONS 10.05 10.22 12.86 13.19 11.61
FINANCE COST -2.23 -2.10 -2.78 -3.33 -1.80
  7.83 8.12 10.09 9.86 9.81
 SHARE OF PROFIT FROM ASSOCIATES 4.10 4.03 1.36 0.97 2.72
PROFIT BEFORE TAXATION 11.93 12.14 11.44 10.83 12.53
TAXATION -1.99 -1.71 -1.39 -0.95 -1.83
PROFIT AFTER TAXATION 9.94 10.43 10.05 9.89 10.70
SHARE OF PROFIT ATTRIBUTABLE TO: 0.00 0.00 0.00 0.00 0.00
EQUITY HOLDERS OF HOLDING
COMPANY 8.08 8.60 8.13 7.16 9.45
NON-CONTROLLING INTEREST 1.85 1.83 1.92 2.73 1.25
  9.94 10.43 10.05 9.89 10.70
EARNINGS PER SHARE - BASIC AND
DILUTED rs 0.00 0.00 0.00 0.00 0.00
PROFIT AFTER TAXATION 9.94 10.43 10.05 9.89 10.70

Income statement:
After performing the common sizing of the income statement of the company we can see
the wave like pattern in the net income because all distribution cost, administrative
expense, other expenses and the taxation first decreased and then increased causing the
net income to decrease in 2018 and then again increase in 2021, this has been the effect of
covid-19 as it has negatively affected the businesses over all the world.

INDEX ANALYSIS:

BALANCE SHEET (index analysis)

ASSETS 2017 2018 2019 2020 2021
NON-CURRENT ASSETS          
100. 100. 101.
106.3 115.8
Property, plant and equipment 0 3 4
100.
59.9 21.4 7.2  
intangible assets 0
100.
    434.9 372.5
Investment properties 0
100. 100.
99.5 97.1 107.2
Long term investments 0 4
100. 129. 168.
187.9 276.7
Long term loans 0 2 1
100. 101.
77.3 106.9 131.4
Long term deposits 0 3
100.
99.9 99.9 103.0 112.7
  0
CURRENT ASSETS          
100. 139.
95.3 106.0 117.7
Stores, spare parts and loose tools 0 0
 100. 102. 137.
160.1 145.6
Stock-in-trade 0 2 6
100. 131. 176.
191.1 219.5
Trade debts 0 4 5
100.
40.6 49.6 24.9 37.7
Loans and advances 0
Advance income tax - net          
100. 111. 126.
72.5 75.4
Short term deposits and prepayments 0 9 6
100. 122.
83.0 122.9 143.4
Other receivables 0 5
100. 225.
81.5 181.5 1077.2
Accrued interest 0 7
100. 101.
  0.7  
short term investment 0 8
100. 141. 207.
129.1 1088.2
Cash and bank balances 0 5 6
100. 108. 130.
144.3 164.0
  0 4 9
           
100. 102. 109.
116.0 128.8
TOTAL ASSETS 0 5 7
           
EQUITY AND LIABILITIES          
SHARE CAPITAL AND RESERVES          
1,100,000,000 (2020: 1,100,000,000) 100. 100. 100.
100.0 100.0
ordinary shares of Rupees 10 each 0 0 0
Issued, subscribed and paid-up 100. 100. 100.
100.0 100.0
share capital 0 0 0
100. 104. 106.
109.7 123.4
Reserves 0 1 0
Equity attributable to equity holders of 100. 103. 105.
109.3 122.4
the Holding Company 0 9 8
100. 118. 137.
170.5 187.1
Non-controlling interest 0 0 5
100. 104. 108.
113.7 127.1
TOTAL EQUITY 0 9 1
           
LIABILITIES          
NON-CURRENT LIABILITIES          
100.
79.6 57.2 90.6 113.2
Long term financing - secured 0
lease liability          
100. 115. 129.
161.8 160.6
long term security deposits 0 5 5
retirment benefit obligation 100. 140. 204. 223.3 263.9
 0 4 8
100. 60924. 79377.
75.5 71.6
Deferred liabilities 0 1 8
100. 114. 111.
   
Deferred income tax liabilities 0 9 0
100.
86.1 67.4 105.7 125.7
  0
CURRENT LIABILITIES          
100. 113. 137.
162.6 165.6
Trade and other payables 0 4 4
100. 158.
98.6 133.6 91.1
Accrued mark-up 0 6
100. 103. 147.
146.0 135.7
Short term borrowings 0 6 9
Current portion of non-current 100. 108. 108.
32.8 133.3
liabilities 0 8 1
Unclaimed dividend          
100.
       
Provision for taxation 0
100. 101. 133.
128.0 135.9
  0 9 4
100. 113.
97.1 121.2 132.8
TOTAL LIABILITIES 0 3
           
100. 102. 109.
116.0 128.8
TOTAL EQUITY AND LIABILITIES 0 5 7

Balance sheet:
Keeping 2017 the base year we can tell that company investment on fixed assets has
increased over 5 years. The company has not invested much in long term assets but the
long-term loans have increased much from 2017 to 2021. The inventory of the company
increased in 2019 due the low sales in the uncertainty of the pandemic of covid 19. The
receivables decreased in 2019 but then increased again. Short term deposits of the
company decreased and the accrued interest has increased a lot it means that the company
was not paying its liabilities over the period of 5 years. Cash has increased, company was
saving money instead of paying accrued interest. All the non-current liabilities can be seen
increasing. Current liabilities also increased but they paid off accrued markup in 2021, and
paid non-current liabilities of 2020.

INCOME STATEMENT (INDEX ANALYSIS)

  2017 2018 2019 2020 2021
REVENUE 100.0 111.0 125.8 116.2 137.2
COST OF SALES 100.0 111.3 123.9 110.8 134.6
 GROSS PROFIT 100.0 109.5 136.2 144.2 150.5
DISTRIBUTION COST 100.0 100.8 115.2 122.3 129.6
ADMINISTRATIVE EXPENSES 100.0 101.7 102.8 124.7 122.4
OTHER EXPENSES 100.0 103.4 187.8 103.9 284.4
  100.0 101.1 114.2 122.3 132.4
  100.0 120.3 164.5 172.4 173.7
OTHER INCOME 100.0 94.7 152.2 104.6 121.5
PROFIT FROM OPERATIONS 100.0 112.8 160.9 152.5 158.4
FINANCE COST 100.0 104.6 156.8 174.0 110.7
  100.0 115.1 162.1 146.4 172.0
SHARE OF PROFIT FROM ASSOCIATES 100.0 109.0 41.6 27.6 91.0
PROFIT BEFORE TAXATION 100.0 113.0 120.7 105.6 144.2
TAXATION 100.0 95.2 87.6 55.2 126.2
PROFIT AFTER TAXATION 100.0 116.6 127.3 115.7 147.8
SHARE OF PROFIT ATTRIBUTABLE TO:          
EQUITY HOLDERS OF HOLDING
COMPANY 100.0 118.1 126.5 103.0 160.4
NON-CONTROLLING INTEREST 100.0 109.9 130.6 171.1 92.6
  100.0 116.6 127.3 115.7 147.8
EARNINGS PER SHARE - BASIC AND
DILUTED rs 100.0 118.1 126.5 103.0 160.4
PROFIT AFTER TAXATION 100.0 116.6 127.3 115.7 147.8

Income statement:
Keeping 2017 the base year we can see that the revenue and the cost of goods sold
increased and the gross profit also increased over the period of 5 years. Distribution cost
along with administrative and other expenses increased, also the profit from operations and
other income e increased and the taxation decreased over the years. The net income has
increased over the period of 5 years and we can see that the company is performing well
over the past few and growing its profit 5%-8% every year.

Ratio analysis:

RATIOS
NISHAT MILLS INTERLOOP LIMITED
Current ratio 1.48 1.58 1.46 1.67 1.79 1.22
Quick asset ratio 0.77 0.87 0.72 0.83 1.05 0.77
Net woring capital 1.48 1.57 1.45 1.67 1.79 1.22
Account receivables
turnover 6.49 4.25 3.85 3.00 2.35 2.78
Average collection 120.0 153.5
period 55.47 84.67 93.51 7 0 129.49
 Inventory turnover 4.19 3.41 2.80 2.27 2.20 3.3
Fixed asset turnover 1.12 0.95 1.03 0.88 0.72 2
Total asset turnover 0.77 0.63 0.64 0.53 0.43 0.9
Debt ratio 0.30 0.29 0.31 0.32 0.31 0.46
17.82 20.16 17.60 16.03 16.25
Gross profit margin % % % % % 25.86%
Operating profit 12.53 10.83 11.44 12.14 11.93
margin % % % % % 12.50%
10.70 10.05 10.43
Net profit margin % 9.89% % % 9.94% 11.45%
Return on assets 8.21% 6.26% 6.44% 5.58% 4.31% 10.46%
Return on equity 4.99 4.98 8.23 5.08 7.54 9.89
Price to Earning ratio 13.09 12.1 5.6 7.82 5.54 8
Price to Book value
ratio 0.56 0.53 0.45 0.28 0.29 0.1
Price to Cash flow
ratio 95.02 59.46 26.90 36.12 5.13 4.2
Price to sales ratio 0.69 0.63 0.48 0.35 0.33 1.16

After performing the ratio analysis of nishat mills limited and INTERLOOP limited, we can
determine the liquidity position of the firm by using three ratios that are current ratio, quick
asset ratio and net working capital. The current ratio shows us how much assets we have to
pay off our liabilities in short term. If we take a look at the current ratio of nishat mills 1.79
and INTERLOOP 1.22 we can see that nishat mills has better current ratios then INTERLOOP.
Similarly quick asset ratio or acid test ratio tells us the asset excluding inventory to pay of
liabilities. The quick ratio also shows us that nishat mills 1.05 is better than INTERLOOP 0.77.
An improvement in the quick asset ratio is required in both the firms to meet current
liabilities with quick asset.

The next are asset utilization ratios, the first one is account receivable turnover the amount
of cash turned into cash. From the analysis we can see that INTERLOOP has higher account
receivable turnover 2.78 and less collection period 130days then that of nishat mills that
have ACT 2.35 and ACP 154days. INTERLOOP benefits from a high-quality client base that
can pay its debts promptly because of its lower collection duration and generally good
receivable turnover. Similarly the asset turnover of INTERLOOP is also better than nishat
mills that means the company is generating more revenue per dollar of asset. Even the
inventory turnover of INTERLOOP is better than nishat mills that means the company is
generating good sales.

From the analysis we can see that the debt ratio of INTERLOOP is better than nishat mills
that ability to cover its loans well and avoid incurring long-term liabilities.
The next important ratios are profitability ratios that includes gross profit margin, net profit
margin, return on equity, return on asset and operating profit margin. From the analysis we
can see that INTERLOOP has all the profitability ratio more as compared to those of nishat
mills limited, gross profit margin has great difference that means INTERLOOP is far more
profitable then nishat and uses their assets more effectively as compared to the nishat mills.

Further looking at the price to earning ratio of both the companies nishat mills has better
P/E ratio 5.5 as compared to INTERLOOP 8. But in price to book value ratio INTERLOOP 0.1 is
better than nishat mills 0.2. The price to cash flow ratio of INTERLOOP 4.2 is better than of
nishat mills 5.1, that means price of trading of nishat mills is high. The price to sales ratio of
nishat mills is better than INTERLOOP.

Recommendation:
Textile is one of the largest industry of Pakistan, Pakistani textile is famous all over the world
and a lot of foreign brand uses Pakistani textile fabric and products, almost every business
has been affect during the pandemic of covid 19, and textile is also one of them, textile has
suffered due to the low demand for textile in the hectic situation, but still nishat mills
limited has performed quite well and survived despite of the increased prices of the raw
materials.
In the following financial analysis I’ve observed that nishat mills is lacking in generating
profit as compared to the industry leader. They need to increase their profitability in order
to succeed. They can do this by reducing the cost, increasing the turnovers, efficiency of the
company and productivity. Nishat also need to work on the receivable collection.