Final Report Work in Prograss

ABSTRACT

This project is mainly focused on the analysis of financial statements. The analysis period of this

project is four months. Our chosen industry is different sector of Pakistan mostly companies are

textiles. Our methodology of doing this project is that we have done ratios analysis, index

analysis, common size analysis z-score, Discretionary Accruals etc) Results (Mgt earnings of the

company who is best and who is not doing it, who is successful). This project duration is almost

3 month. And we choose different companies for this analysis which consist of almost of 9

companies to do analysis of their financial statements and we took data of five years of every

company. First of all we calculated their ratios and interpret all ratios compared it with industry

analysis. Then we calculated index analysis and common analysis then we did earning

management that which companies can manage their earnings then we calculate their Z- score

model to know that which companies are in financial distress.

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INTRODUCTION

This project is about the “Analysis of Financial Statements”. In this project we have applied the

following methods to calculate and analyze the companies with the industry.

We have taken 9 companies from almost textile industry.

We will calculate the Ratio analysis ,Index analysis, Common size Analysis, Earning

management of the company and last but not the least Z-score model.

OBJECTIVES OF THE PROJECT

The main objectives of this project are:

To share the knowledge.

To implement the knowledge practically on the selected area.

To know about the industry with respect to various companies.

SIGNIFICANCE OF THE PROJECT

The significance of this project is that it is a complete and comprehensive report in which we

have discussed different ratios their interpretation. We have calculates the Index and common

size of the companies and compares ratios with the industry figures. We have calculated the

earning management of the companies. We have calculated the Z-score and compare it with the

standard. This all process had helped us in applying the theoretical knowledge in to practical.

This will help us in the job interviews as well.

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ORGANIZATION OF THE PROJECT

Our Project consists of different analysis and we are three members in a group and we commonly

divide all work of project to complete it on time.

Company Introduction

Nishat Mills Limited

Nishat has grown from a cotton export house into the premier business group of Pakistan with 5

listed companies, concentrating on 4 core businesses; Textiles, Cement, Banking and Power

Generation. Today, Nishat is considered to be at par with multinationals operating locally in

terms of its quality products and management skills.

• Annual turnover 17 billion Rupees

• 14 Billion from textiles

• Earn foreign exchange US $ 236 million

• Taxes and levi of 2,080 million Rupees annually

• Flagship Company established in 1951

• Most Modern, Biggest Composite unit of Pakistan

• Professional and Client Oriented Marketing

• Green Company

• ISO 9001 and IKO-TEX100 Certified

• SA 8000 Certification currently in process

NML today has 173,000 spindles, 284 Sulzer shuttle-less looms and 244 TSUDAKOMA air jet

looms. NML also has the most modern textile-processing unit, 2 stitching units and Power

Generating plant with a capacity of 33.6 MW. NML total export for the year 2000 was Rs. 9.1

billion (US$ 143 million). Due to the application of prudent management policies, consolidation

of operations, a strong balance sheet and an effective marketing strategy, this trend is expected to

continue in the years to come. The Company's production facilities comprise spinning, weaving,

processing, stitching and power generation.

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Sitara textile Industries Ltd.

Sitara Group of Industries is one of the renowned industrial groups of the country. This group

started its industrial activity with textile weaving sector in 1956 under leadership of two brothers,

Haji Abdul Ghafoor (Late) and Haji Bashir Ahmed. Sitara Group by now is in textile cloth

finishing and processing, textile spinning, chlor alkali industries and power plant. Haji Abdul

Gafoor (Late) and Haji Bashir Ahmed the present Chairman of the Group, the two creative and

courageous men, latter joined by second generation, making a blend of experience and modern

business knowledge, managed the business growth and development with assistance of highly

qualified team of professionals. Faith in Almighty Allah and in their own abilities &

commitment to the cause, untiring efforts and leadership qualities of the family, established the

group, which now stands amongst Leading Industrial Groups of the Country, under the

Chairmanship of Haji Bashir Ahmed. Sitara fabric woven with tender care & dyed in the brilliant

shades of nature adds elegance and magnificence to this world. Sitara Textile is a manufacturer

of such fabulous fabrics; fabrics that speak of unparalleled quality & unmatched comfort! Sitara

Textile specializes in producing high class fabric products made of superior quality materials &

possesses state-of-the-art production facilities in made-ups and fabrics for various consumer

needs. The company makes use of the latest technology & equipment to make sure that each

product is original in style and shows exquisite craftsmanship. Sitara is a company that believes

in originality as character & quality as foundation. The entrepreneurial spirit of the company

assiduously seeks constant development, steady progress & outstanding performance.

Crecent textile Ltd:Crestex is honored to introduce Pakistan's Kohistani Women, living in the Hindu Kush

mountains and the custodians of an entire wealth of traditions, impeccable hereditary skills of

craft making.We are privileged to introduce & promote an original line of hand embroided

cushions from the skilled hands of these artisans who have inherited distinctive skills through the

centuries old craft passed down from mother to daughter. These creations, of uncompromising

quality, radiate an aura of glory, exhibit hereditary skills and show meticulous craftsmanship. In

this new selection each individual piece is a tribute to the woman who crafted it.

Ittehad Chemical Ltd:

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A huge majority of industries, such as metals, textile, paper, leather, sugar, plastics, rubber,

ceramics, glass, soap, fertilizers, beverages, edible oil, pharmaceutical, and a host of others, are

all heavily dependent on chemicals. All over the world the chemical industry is a major

contributor to the national economy, playing both a direct and indirect role.

Ittehad Chemicals Limited (ICL) is the pioneer and one of the largest manufacturers of industrial

chemicals in Pakistan. It produces Caustic Soda, Liquid Chlorine, Hydrochloric Acid, Sodium

Hypochlorite, Bleaching Earth (Shaffaf), Chlorinated Paraffin, Sulphuric Acid 80%, Zinc

Sulphate, and Barium Sulphate. ICL has strategically diversified its product portfolio in order to

cater for the demand of the market.

Analysis of Ratios

The ratios are tools to provide us with insights into underlying conditions. They are one of the

starting points of analysis, not an end point. Ratios, properly interpreted, identify areas requiring

further investigation. Analysis of a ratio can reveal important relations and bases of comparison

in uncovering conditions and trends difficult to detect by inspecting the individual components

that make up the ratio. Still, like other analysis tools, ratios often are most useful when they are

future oriented. This means we often adjust the factors affecting a ratio for their probable future

trend and magnitude. We also must assess factors potentially influencing future ratios. Therefore,

the usefulness of ratios depends on our skillful application and interpretation of them, and these

are the most challenging aspects of ratio analysis.

Factors Affecting Ratios

Beyond the internal operating activities that affect a company’s ratios, we must be aware of the

effects of economic events, industry factors, management policies, and accounting methods. Our

discussion of accounting analysis later in the book highlights the influence of these factors on the

measurements underlying ratios. Any limitations in accounting measurements impact the

effectiveness of ratios. Prior to computing ratios, or similar measures like trend indices or

percent relations, we use accounting analysis to make sure the numbers underlying ratio

computations are appropriate. For example, when inventories are valued using LIFO and prices

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are increasing; the current ratio is understated because LIFO inventories (the numerator) are

understated. Similarly, certain lease liabilities are often unrecorded and disclosed in notes only.

We usually want to recognize lease liabilities when computing ratios like debt to equity. We also

need to remember that the usefulness of ratios depends on the reliability of the numbers. When a

company’s internal accounting controls or other governance and monitoring mechanisms are less

reliable in generating credible figures, the resulting ratios are equally less reliable.

Ratio interpretation

Ratios must be interpreted with care because factors affecting the numerator can correlate with

those affecting the denominator. For instance, companies can improve the ratio of operating

expenses to sales by reducing costs that stimulate sales (such as advertising). However, reducing

these types of costs is likely to yield long-term declines in sales or market share. Thus, a

seemingly short-term improvement in profitability can damage a company’s future prospects.

We must interpret such changes appropriately. Many ratios have important variables in common

with other ratios. Accordingly, it is not necessary to compute all possible ratios to analyze a

situation. Ratios, like most techniques in financial analysis, are not relevant in isolation. Instead,

they are usefully interpreted in comparison with (1) prior ratios, (2) predetermined standards, and

(3) ratios of competitors. Finally, the variability of a ratio across time is often as important as its

trend.

Users of Financial Ratios

Internal Users:

The internal users of financial statements are individuals who have direct bearing with the organization. They may include:

Managers and Owners : For the smooth operation of the organization, the managers and owners need the financial reports essential to make business decisions. So as to provide a more comprehensive view of the financial position of an organization, financial analysis is performed with the information supplied in the financial statements. The financial statement is used to formulate contractual terms between the company and other organizations.

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A variable of the financial statement like the current debt to equity ratio is important in deciding the amount of long term capital that would be required to be raised. The financial statements of other companies can also provide investment solutions to different companies. Sometimes it becomes difficult to decide the right field in which financial resources may be channelized. In such situations the financial statements of other companies provide the appropriate guideline.

Employees : The financial reports or the financial statements are of immense use to the employees of the company for making collective bargaining agreements. Such statements are used for discussing matters of promotion, rankings and salary hike.

External Users:

The external users comprise of:

Institutional Investors : The external users of financial statements are basically the investors who use the financial statements to assess the financial strength of a company. This would help them to make logical investment decisions.

Financial Institutions : The users of financial statements are also the different financial institutions like banks and other lending institutions who decide whether to help the company with working capital or to issue debt security to it.

Government : The financial statements of different companies are also used by the government to analyze whether the tax paid by them is accurate and is in line with their financial strength.

Vendors : The vendors who extend credit to a business require financial statements to assess the creditworthiness of the business.

General Mass and Media : The common people as well as media also make part of the users of financial statements.

Brief List of Users of Financial Statements:

1. Existing equity investors and lenders, to monitor their investments and to evaluate the performance of management.

2. Prospective equity investors and lenders, to decide whether or not to invest.

3. Investment analysts, money managers, and stockbrokers, to make buy/sell/hold recommendations to their clients.

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4. Rating agencies (such as Moody's, Standard & Poor's, and Dun & Bradstreet), to assign credit ratings.

5. Major customers and suppliers, to evaluate the financial strength and staying power of the company as a dependable resource for their business.

6. Labor unions, to gauge how much of a pay increase a company is able to afford in upcoming labor negotiations.

7. Boards of directors, to review the performance of management.

8. Management, to assess its own performance.

9. Corporate raiders, to seek hidden value in companies with under priced stock.

10. Competitors, to benchmark their own financial results.

11. Potential competitors, to assess how profitable it may be to enter an industry.

12. Government agencies responsible for taxing, regulating, or investigating the company.

13. Politicians, lobbyists, issue groups, consumer advocates, environmentalists, think tanks, foundations, media reporters, and others who are supporting or opposing any particular public issue the company's actions affect.

14. Actual or potential joint venture partners, franchisors or franchisees, and other business interests who need to know about the company and its financial situation

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METHODLOGY.

DATA ANALYSIS TECHNIQUES

RATIO ANALYSIS

Ratio Analysis is a form of Financial Statement Analysis that is used to obtain a quick indication

of a firm's financial performance in several key areas. The ratios are categorized as Liquidity

Ratios, Activity Ratios, Solvency Ratios, Profitability Ratios, and Market Value Ratios.Ratio

Analysis as a tool possesses several important features. The data, which are provided by financial

statements, are readily available. The computation of ratios facilitates the comparison of firms

which differ in size. Ratios can be used to compare a firm's financial performance with industry

averages.

WHAT ARE THE RATIOS?

TABLE OF RATIOS FORMULALIQUIDITY RATIOS:

Current Ratios Current assets/Current liabilitiesQuick Ratio (C.A - Inventory)/Current LiabilityAbsolute Quick Ratio (Quick Ratio – A/R)/Current Liability

PROFITABILITY RATIO:Net Profit Margin NP/SalesGross Profit Margin GP/SalesOperating Profit Ratio Operating Profit/SalesOperating Expense Ratio Operating Expenses/SalesReturn on Equity Net Income/Sh. Holder EquityReturn on Capital NI/(Total Assets- Current liability)Return on Assets (NI +Interest)/ Tt. AssetsTime Interest Earned EBIT/Interest

ACTIVITY RATIOST. Assets Turnover Ratio Tt. Sales/Tt. AssetsDebtor Turnover Ratio Cr Sales/Avg DebtorAvg Debtor (Opening + Closing)/2Debtor Turn Over in days 360/DTOCreditor Turnover Ratio (CGS or Cr. Purchase)/Avg. DebtorCreditor Turnover in days 360/CTOInventory Turnover Ratio CGS/Avg. InventoryInventory Turnover in days 360/ITOOperating Cycle ITO in days + DTO in daysCash Cycle OC – CTO in days

DEBT RATIO

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Debt to Equity Ratio Long term debt/Sh. Holder EquityLong term debt to Total Assets LT debt/T. AssetsLong term debt to Capital Employed LT debt/(Sh. Holder Equity + LT debt)

COMMON SIZE ANALYSIS

A technique of analysis of financial statement in which each item of income statement is taken

as a percentage of sales and each item of balance sheet is taken as a percentage of total assets.

The values on the common size statement are expressed as percentages of a statement

component such as revenue. While most firms don't report their statements in common size,

It is beneficial to compute if you want to analyze two or more companies of differing size

against each other. Formatting financial statements in this way reduces the bias that can occur

when analyzing companies of differing sizes. It also allows for the analysis of a company over

various time periods, revealing, for example, what percentage of sales is cost of goods sold and

how that value has changed over time.

INDEX ANALYSIS

Index analysis is a technique of analysis of financial in which data of different years of a

company is taken and consider one year as a bench mark and data of every year is taken as a

percentage of bench mark year. Benchmark mark may be any other company which performs

best in its industry.

EARNINGS MANAGEMENT

Earnings management is a strategy used by the management of a company to deliberately

manipulate the company's earnings so that the figures match a pre-determined target. This

practice is carried out for the purpose of income smoothing. Thus, rather than having years of

exceptionally good or bad earnings, companies will try to keep the figures relatively stable

by adding and removing cash from reserve accounts

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Z- SCORE MODEL

A Z-Score is a statistical measure which tells that which companies are performing well and

which companies are in financial distress.

Ratio Analysis:Ratio simply means one number expressed in term of another. A ratio is a statistical yardstick by

means of which relationship between two or various figures can be compared or measured. The

term accounting ratio is used to describe significant relationship between figures shown on a

balance sheet, profit and loss account or in any other part of accounting organization.

Accounting ratio thus shows the relationship between the accounting data.

Advantages of Ratios Analysis

Ratio analysis is an important and age-old technique of financial analysis. The following are

some of the advantages of ratio analysis:

1. Simplifies financial statements: It simplifies the comprehension of financial statements.

Ratios tell the whole story of changes in the financial condition of the business.

2. Facilitates inter-firm comparison: It provides data for inter-firm comparison. Ratios

highlight the factors associated with successful and unsuccessful firm. They also reveal

strong firms and weak firms, overvalued and undervalued firms.

3. Management: In its basic functions of forecasting. Planning, co-ordination, control and

communications.

4. Makes inter-firm comparison possible: Ratios analysis also makes possible comparison

of the performance of different divisions of the firm. The ratios are helpful in deciding

about their efficiency or otherwise in the past and likely performance in the future.

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5. Help in investment decisions: It helps in investment decisions in the case of investors

and lending decisions in the case of bankers etc.

LIQUIDITY RATIOS:

Liquidity ratios are the ratios for testing short term solvency or financial position of a business.

These are designed to test the ability of the business to meet its short term obligation promptly. A

class of financial metrics that is used to determine a company's ability to pay off its short-terms

debts obligations Generally, the higher the value of the ratio, the larger the margin of safety that

the company possesses to cover short-term debts

CURRENT RATIO:

Current ratio may be defined as the relationship between current assets and current liabilities.

This ratio is also known as "working capital ratio". It is a measure of general liquidity and is

most widely used to make the analysis for short term financial position or liquidity of a firm. It is

calculated by dividing the total of the current assets by total of the current liabilities.

Components:

The two basic components of this ratio are current assets and current liabilities. Current assets

include cash and those assets which can be easily converted into cash within a short period of

time, generally, one year, such as marketable securities or readily realizable investments, bills

receivables, sundry debtors, (excluding bad debts or provisions), inventories, work in progress,

etc. Prepaid paid expenses should also be included in current assets because they represent

payments made in advance which will not have to be paid in near future. Current liabilities are

those obligations which are payable within a short period of tie generally one year and include

outstanding expenses, bills payable, sundry creditors, bank overdraft, accrued expenses, short

term advances, income tax payable, dividend payable, etc. However, sometimes a controversy

arises that whether overdraft should be regarded as current liability or not. Often an arrangement

with a bank may be regarded as permanent and therefore, it may be treated as long term liability.

At the same time the fact remains that the overdraft facility may be cancelled at any time.

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Accordingly, because of this reason and the need for conversion in interpreting a situation, it

seems advisable to include overdrafts in current liabilities.

Current Ratio:

2006 2007 2008 2009 2010Nishat Textile Mill 1.3838749

71.7398925 1.1883627 0.8638418 1.110188

Cerscent Fibres 1.23414128

1.0451646 0.7037364 0.6992383 1.2051206

Saif Textile Mill 0.85597851

0.8834302 0.998669 0.8318091 0.907298

Sitara Fibres LTD 0.7892594 0.8636094 0.8636094 0.3632529 0.8742776Wah Noble Chemical

1.51321458

0.9146971 2.2780192 0.8360227 3.5101404

Sargodha Spinning Mill

0.97930099

1.6934027 0.7929353 3.4601089 0.7435326

Ittahed Chemical LTD

0.89339482

1.4650224 1.2511725 1.3016029 1.0752951

Hira Textile Mill 1.09646663

0.935848 0.891906 0.8473693 0.9166454

Mahmood Textile Mill

1.31357805

1.2725804 1.2062369 1.2378368 1.3666569

Industry Average 1.32214524

1.5434225 1.2452794 1.1336921 1.1117203

2006 2007 2008 2009 2010

Cerscent Fibres Industry AverageSaif Textile MillSitara Fibres LTDWah Noble Chemical Sargodha Spinning MillIttahed Chemical LTDHira Textile MillNishat Textile MillMahmood Textile Mill

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Interpretation:The current ratio of Nishat textile mill is 1.38 while the value of industry is 1.32, that shows the liquidity of company which is good as compare to the industry. It may be due to several reasons like that the company is having greater current asset which includes inventory, account receivables. So company can pay off its short term debt. The current ratio of cresent fiber is less than the industry which shows that the company liquidity is not so good. There might be reason that their current liabilities are more which directly affect their position. Similarly other companies also have less current ratio as compare to the industry.

User:

ManagersCurrent ratio shows company's operating efficiency. A high ratio indicates "safe" liquidity and

management concern for payment of its short term obligations or to avail any investment

opportunity instantly.But a ratio considerably more than industry average shows management

inefficient performance regarding, getting paid on its receivable or have long inventory turnover.

Investorsor shareholdersRatio helps investors whether they should buy shares in the business, hold on to the shares they

already own or sell the shares they already own. Current ratio more than 1 means that company

is able to pay its short term obligations from the realization of its current assets without having to

alternative to selling its fixed assets to do so Investing in such company will be worthwhile in

long term. But a current ratio more than industry average also can be a signal that the company

has problems getting paid on its receivable or have long inventory turnover, both symptoms that

the company may not be efficiently using its current assets. It also indicates that company is

having idle cash which is losing its value and could be invested elsewhere to get high return.

LendersThey use to determine whether their loans and interest will be paid when due. If current ratio is

below 1, then the company may have problems paying its bills on time.

EmployeesEmployees can also assess the firm's ability whether they are able to pay their salaries and

accrued wages. Higher ratio is favorable for them.

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Suppliers and other trade creditorsBusinesses supplying goods and materials to the business will read their accounts to see that they

don't have regarding payment of their bills. A company's ability to turn short-term assets into

cash to cover debts is of the utmost importance when creditors are seeking payment. A high

current ratio is favorable to both of them.

Financial analystsThey need to know, for example, the accounting concepts employed for inventories and accounts

receivable. Bankruptcy analysts and mortgage originators frequently use the liquidity ratios to

determine whether a company will be able to continue as a going concern. High current ratio is

appositive indicator in this regard.

Accountant Manipulation:

A number of problems with inventory valuation can contaminate the current ratio. An obvious

accounting problem occurs because organizations value inventories using either of two methods,

last in, first out (LIFO) or first in, first out (FIFO). Under the LIFO method, inventories are

valued at their old costs. If the organization has a substantial quantity of inventory, some of it

may be carried at relatively low cost, assuming some inflation in overall prices. On the other

hand, if there has been technical progress in a market and prices have been falling, the LIFO

method will lead to an overvalued inventory. Under the FIFO method of inventory valuation,

inventories are valued at close to their current replacement cost. Clearly, if we have firms that

differ in their accounting methods, and hold substantial inventories, comparisons of current ratios

will not be very helpful in measuring their relative strength, unless accounting differences are

adjusted for in the computations.

Quick Ratio:

Liquid ratio is also termed as "Liquidity Ratio”,” Acid Test Ratio" or "Quick Ratio". It is the

ratio of liquid assets to current liabilities. The true liquidity refers to the ability of a firm to pay

its short term obligations as and when they become due

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Components:The two components of liquid ratio (acid test ratio or quick ratio) are liquid assets and liquid

liabilities. Liquid assets normally include cash, bank, sundry debtors, bills receivable and

marketable securities or temporary investments. In other words they are current assets minus

inventories (stock) and prepaid expenses. Inventories cannot be termed as liquid assets because it

cannot be converted into cash immediately without a loss of value. In the same manner, prepaid

expenses are also excluded from the list of liquid assets because they are not expected to be

converted into cash. Similarly, Liquid liabilities means current liabilities i.e., sundry creditors,

bills payable, outstanding expenses, short term advances, income tax payable, dividends payable,

and bank overdraft (only if payable on demand). Sometime bank overdraft is not included in

current liabilities, on the argument that bank overdraft is generally permanent way of financing

and is not subject to be called on demand. In such cases overdraft will be excluded from current

liabilities

2006 2007 2008 2009 2010Nishat Textile Mill

0.95222003 1.33256791 0.83737074 0.4364052 0.5321282

Cerscent Fibres

0.92340596 0.63680797 0.54150871 0.5240327 0.7909565

Saif Textile Mill

0.32036753 0.43062218 0.53885585 0.4658522 0.3674736

Sitara Fibres LTD

0.48312078 0.81323579 0.81323579 0.3106515 0.632606

Wah Noble Chemical

1.16127411 0.57488386 1.95711031 0.5927964 3.1081074


0.76535791 1.16499831 0.56192027 2.9031214 0.677438


0.79076192 1.19898289 1.12289118 1.1225692 0.9072297

Hira Textile Mill

0.32128426 0.17624447 0.17187903 0.1531567 0.1316318


0.42154987 0.43154424 0.35045371 0.505742 0.52683

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Industry Average

0.87959947 1.15349786 0.82849456 0.6912116 0.6310787

2006 2007 2008 2009 20100

0.5

1

1.5

2

2.5

3

3.5

Cerscent Fibres Saif Textile MillSitara Fibres LTDWah Noble Chemical Sargodha Spinning MillIttahed Chemical LTDHira Textile MillNishat Textile MillMahmood Textile MillIndustry Average

Interpretation:

User:

Investors or Shareholders

It gives the true picture of liquidity of the company to shareholders. Sometimes a company could

be carrying heavy inventory as part of its current assets, which might be obsolete or slow

moving. Thus eliminating inventory from current assets and then doing the liquidity test is

measured by this ratio. In the same manner, prepaid expenses are also excluded from the list of

liquid assets because they are not expected to be converted into cash. It expresses the true

'working capital' relationship of its cash, accounts receivables, and notes receivables available to

meet the company's current obligations.

A quick ratio more than industry average also can be a signal that the company has problems

getting paid on its receivable or have idle cash which is losing its value and could be invested

elsewhere to get high return.

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Lenders

Many lenders are interested in this ratio because it does not include inventory, which may or may

not be easily converted into cash. A high quick ratio is better with regard to maintaining liquidity

and not being forced into the position of having to sell inventory.

ManagersAs to provide a more comprehensive view of theliquidity situation of a firm manager

needs quick ratio. A high quick ratio may not necessarily be a good sign for a business. The

debtors should be managed more carefully, by ensuring that debts are collected within the

required time period and by reducing the level of potential bad debts.

EmployeesEmployees can also assess the firm's ability to pay its short-term debt obligations such as their

salaries and accrued wages from the most liquid assets of the company. Higher ratio is favorable

for them.

Suppliers and other trade creditorsThe quick ratio is a more stringent test of liquidity of a company than the current ratio. Suppliers

and trade creditors are interested in it because it removes inventory from the equation. Inventory

is the least liquid of all the current assets. A high quick ratio is suitable for them.

Accountant Manipulation:Manipulation can occurred in accounts receivable number a corrupt management who can record

fraudulent additional sales by simply creating fictitious customers and recording fictitious sales.

Absolute Quick ratio

Absolute liquidity is represented by cash and near cash items. It is a ratio of absolute liquid assets to current liabilities. In the computation of this ratio only the absolute liquid assets are compared with the liquid liabilities. The absolute liquid assets are cash, bank and marketable securities. It is to be observed that receivables (debtors/accounts receivables and bills receivables) are eliminated from the list of liquid assets in order to obtain absolute liquid assets since there may be some doubt in their liquidity.

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2006 2007 2008 2009 2010Nishat Textile Mill 0.894481 1.290363 0.805804 0.402767 0.463584Cerscent Fibres 0.905999 0.622907 0.530845 0.505824 0.781756Saif Textile Mill 0.318159 0.429732 0.518286 0.445442 0.363835Sitara Fibres LTD 0.229959 0.345908 0.345908 0.135072 0.630523Wah Noble Chemical

1.135196 0.5697 1.930467 0.587086 3.082562


0.759729 1.095415 0.558334 2.887606 0.246695


0.790477 1.197649 1.121388 1.104752 0.904116

Hira Textile Mill 0.320811 0.164526 0.059311 0.074158 0.085152Mahmood Textile Mill

0.410103 0.423679 0.321211 0.451697 0.480813

Industry Average 0.829766 1.057709 0.795005 0.656444 0.592021

2006 2007 2008 2009 20100

0.5

1

1.5

2

2.5

3

3.5


Interpretation:

User:

Investorsor shareholdersShareholders have a keen interest in absolute quick ratio. A high absolute quick ratio indicates

idle cash in the company which is losing its value and should be invested somewhere to get

return on it. For them, low quick ratio is suitable.

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Lenders

To lenders, Absolute liquid ratio extends the logic further and eliminates accounts receivable

also. Though receivables are more liquid as comparable to inventory but still there may be

doubts considering their time and amount of realization. Therefore, absolute liquidity ratio

relates cash, bank and marketable securities to the current liabilities. A reasonable absolute quick

ratio is in their favor.

Managers

For managers, a high absolute quick ratio is alarming as it shows a high amount of idle cash

available in the company. But if this cash is invested in marketable securities, it is better.

Employees

Employees come to know from this ratio that if company is having cash to pay their salaries and

wages constantly or not.

Suppliers and other trade creditors

Suppliers and trade creditors use this ratio as a measure of a company's liquidity and how easily

it can service debt and cover short-term liabilities.

2) Activity ratios:

Activity ratios are measures of how well assets are used. Activity ratios which are, for the

mostpart, turnover ratios -- can be used to evaluate the benefits produced by specific assets, such

asinventory or accounts receivable. Or they can be used to evaluate the benefits produced by all

acompany's assets collectively.

These measures help us gauge how effectively the company is at putting its investment to work.

A company will invest in assets e.g., inventory or plant and equipment and then use these assets

togenerate revenues. The greater the turnover, the more effectively the company is at producing

abenefit from its investment in assets

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Inventory Turnover Ratio:

Thisis the number of times a company turns over its average stock in a year. It shows how fast

the stock moves in and out of the company.A high rate of stock turn means efficiency in use of

funds invested in stock. However, it also has its drawbacks. It might lead to frequent stock outs,

inability to provide adequate choice to customers, failure to meet sudden increase in demand.

2006 2007 2008 2009 2010

Nishat Textile Mill4.64417

3 4.69269 88.098834.76292

33.15238

9

Cerscent Fibres 5.70057 6.17171 6.2672766.19934

78.12590

7

Saif Textile Mill2.24166

84.12043

3 2.9374752.88308

51.88962

3

Sitara Fibres LTD3.22018

94.74901

7 4.7490176.92942

36.72238

8Wah Noble Chemical 8.00148

6.938477 5.841937

6.578203

8.679489


7.752092

5.444108 6.034219

10.36145

8.190034


15.48497

17.33283 7.661562

18.47966

13.95055

Hira Textile Mill 4.787442.14627

8 1.47611.78160

21.29860

7Mahmood Textile Mill

3.828964

3.901451 159.146

3.705895

2.803353

Industry Average5.02740

74.74877

880.2644

15.37508

64.53041

2

21

2006 2007 2008 2009 20100

20

40

60

80

100

120

140

160

180


User:

ManagersInventory Turnover Ratio measures management's efficiency in turning its inventory into sales.

Its purpose is to measure the liquidity of the inventory. Manager will have a close eye on the

managements performance overall, through this ratio.

Investorsor shareholdersInventory turnover with high rate will be influencing investors positively. This efficiency will

lead investors to have a greater confidence on the company.

EmployeesIf there is high rate of stock turn employees would be pleased.

Suppliers

If rate of stock turn is high, suppliers have to be more vigilant regarding providence of timely

raw material.

Inventory In day

22

The number of day’s inventory is also known as average inventory period and inventory holding

period. A high number of days inventory indicates that there is a lack of demand for the product

being sold. A low days inventory ratio (inventory holding period) may indicate that the company

is not keeping enough stock on hand to meet demands.

2006 2007 2008 2009 2010


876.7150550

7 4.0863275.5838

4114.199

1


8 58.3306763 57.4412258.0706

344.3074

5


7394.852061

5 122.5542124.866

2190.514

3


775.8051547

8 75.8051551.9523

853.5523

9Wah Noble Chemical

44.99168

51.88458799 61.6234

54.72619 41.4771


46.43908

66.12653237 59.65975

34.74417

6.034219


23.24835

20.76983649 46.98781

19.48088

25.80543

Hira Textile Mill75.1967

6167.732265

2 243.8858202.065

3277.220


94.02022

92.27336509 2.262074

97.14254

128.4177


777.8547404

920.0523

979.1927

4101.455

4

2006 2007 2008 2009 20100

50

100

150

200

250

300

350

400

450


23

Interpretation:

Managers

Inventory Turnover Ratio measures management's efficiency in turning its inventory into sales.

Its purpose is to measure the liquidity of the inventory. Manager will have a close eye on the

managements performance overall, through this ratio.

Investorsor shareholders

Inventory turnover with high rate will be influencing investors positively. This efficiency will

lead investors to have a greater confidence on the company.

Employees

If there is high rate of stock turn employees would be pleased.

Suppliers

If rate of stock turn is high, suppliers have to be more vigilant regarding providence of timely

raw material.

Debtors Turnover Ratio or Receivables Turnover Ratio:

Debtor’s turnover ratio indicates the velocity of debt collection of a firm. In simple words it

indicates the number of times average debtors (receivable) are turned over during a year.

2006 2007 2008 2009 2010


318.4878

7 17.465349.07828

511.7170

2


38.28089

1 2.7843312.81356

59.19020

9


26.84029

5 3.5673422.95350

22.39132

5


515.9708

1 15.9708133.4176

71.29471

7Wah Noble Chemical

3.289542

10.08712 3.340818

10.45363

1.991326


9.569794

3.444193 8.926494

1.356692

7.833722


7.844506

7.237174 8.19898

7.174637

1.506604

24


218.8879

7 12.64383 7.78857 21.0889Mahmood Textile Mill

67.23174

54.23335 53.36146

12.78127

13.24302


618.6485

220.5974

48.63146

37.81579

4

2006 2007 2008 2009 20100

10

20

30

40

50

60

70

80


User:

ManagersIf the average credit allowed period is high, the company not only has to incur additional

financial charges to finance this credit, but also runs the risk of high bad debts, high cost of

maintaining debtors record and follow up etc. effective credit control should be employed by

management to bring down this period as low as possible.

Lenders

The people who are giving the credit to company would be interested in low average credit

allowed period and a high debtors turnover ratio.

Debtor

Debtors wish to have enough time for paying back their debts. So high average credit allowed

period is in their favor.

25

Shareholders

Shareholders are interested in profits or losses of the company. In days of high interest rates and

low productivity allowing very long credit allowed period may expose a company to substantial

losses.

Debtor Turnover in days:

This ratio shows that how days your debtor took to py off your money back.

2006 2007 2008 2009 2010


219.4722

320.6122

539.6550

730.7245

3


943.4735

8 129.295127.951

539.1721

2


352.6293

1100.915

5121.889

2150.544

2


322.5411

822.5411

210.7727

5278.053

1

Wah Noble Chemical 109.437

735.6890

9 107.75834.4377

8180.784

1

Sargodha Spinning Mill37.6183

7104.523

840.3293

8265.351

445.9551

7

Ittahed Chemical LTD45.8919

949.7431

8 43.907950.1767

6 238.948


319.0597

528.4723

846.2215

817.0705

9

Mahmood Textile Mill5.35461

46.63798

16.74644

328.1662

227.1841

3

Industry Average 25.430523.9739

829.8204

464.4091

9124.257

1

26

2006 2007 2008 2009 20100

50

100

150

200

250

300


Operating cycle Ratio

2006 2007 2008 2009 2010

Nishat Textile Mill 98.394696.1872

924.6985

7115.238

9144.923

6


4101.804

3186.736

2134.150

983.4748

7

Saif Textile Mill 238447.481

4223.469

7246.755

4341.058

4


227.2901

427.2901

462.7251

3331.605

5Wah Noble Chemical

154.4294

87.57368

169.3814

89.16397

222.2612


84.05745

170.6503

99.98913

300.0955

89.91103


69.14034

70.51301

90.89571

69.65764

264.7534


9 186.792272.358

2248.286

9294.290


99.37483

98.91135

9.008516

125.3088

155.6018


792.4168

149.1727

7142.383

5225.712

5

27

2006 2007 2008 2009 20100

50

100

150

200

250

300

350

400

450

500


Interpretation:

User:

Managers

A long period taken by a business to collect its revenue from the point of purchase of raw

material to the point of receipt of cash from debtors shows insignificant performance of

management.

Lenders

A long operating cycle is not in favor of lenders. It means that their payments can be delayed

accordingly.

Debtor

Debtors wish to have enough time for paying their payables. Long operating cycle is in their

favor.

Shareholders

Long operating cycle of the company will effect the reputation of the company with which

shareholders are concern.

28

Creditors / Accounts Payable Turnover Ratio:

This ratio is similar to the debtor’s turnover ratio. It compares creditors with the total credit

purchases. It signifies the credit period enjoyed by the firm in paying creditors. Accounts payable

include both sundry creditors and bills payable. Same as debtors turnover ratio, creditors

turnover ratio can be calculated in two forms, creditors turnover ratio and average payment

period.

2006 2007 2008 2009 2010


61.13333

2 14.2836115.3975

69.70876

5


613.0758

7 11.162069.85242

17.41655

5


111.4173

9 11.417395.73566

74.78788

3Wah Noble Chemical

6.286803

2.644944 8.039191

3.553037

1.558356


2.504348 4.43053 0.001506

7.114557

6.779109


9.299373

10.39222 8.244671

6.440548

7.571665


527.4159

6 20.9229812.4935

516.9698

5

Nishat Textile Mill 15.458915.1934

6 16.6873115.9279

99.49509


16.02422

20.81744 22.00796

26.68156

10.78972


314.1545

815.0715

213.6779

57.94341

4

29

2006 2007 2008 2009 20100

5

10

15

20

25

30


Interpretation:User:

ManagementGenerally a company is considered efficient if it has a long credit received period .but if a

company takes too long to settle its trade payables, it will not be allowed any cash discount, it

suppliers will build in a factor for delayed payments in their prices it may experience difficulty in

getting required material timely etc. all of this needs management to be proficient in paying its

trade payables.


Having the reputation of being a late payer causes a lot of difficulties for the company in the

market place. In this way low creditors turnover ratio concerns shareholders adversely.

Lenders

A low creditors turnover ratio and a long credit received period will push away the prospective

lenders.

Suppliers and other trade creditors

A long settlement period will influence suppliers to build in a factor for delayed payments in

their prices and in days of low supply, the suppliers will tend t service only the better pay

masters.

30

Creditors in Days:

2006 2007 2008 2009 2010


4317.647

425.2059

223.3803

3 37.0799


527.5316

332.2512

236.5392

448.5400

1


231.5308

631.5308

662.7651

575.1898

1Wah Noble Chemical

57.26281

136.1087

44.78062

101.3218

231.0127

Sargodha Spinning Mill 143.75

75.73207

124.4674

50.60048

53.10432


38.71229

34.64129

43.66457

55.89587

47.54569


913.1310

417.2059

628.8148

821.2140

9


5 23.694421.5732

822.6017

237.9143

2Mahmood Textile Mill 22.466

17.29319

16.35772

13.49246

33.36508


831.9187

732.8664

434.5194

455.8579

5

2006 2007 2008 2009 20100

50

100

150

200

250

300

350


31

Assets Turnover Ratio:

Fixed assets turnover ratio is also known as sales to fixed assets ratio. This ratio measures the

efficiency and profit earning capacity of the concern. Higher the ratio, greater is the intensive

utilization of fixed assets. Lower ratio means under-utilization of fixed assets

User:

32

2006 2007 2008 2009 20100

0.5

1

1.5

2

2.5

3


2006 2007 2008 2009 2010Nishat Textile Mill 0.526546 0.433985 0.508159 0.757485 0.682851Cerscent Fibres 1.524112 1.738589 0.993951 0.988596 2.014887Saif Textile Mill 0.968053 0.911734 2.257725 2.372362 0.580056Sitara Fibres LTD 0.96239 1.248242 1.147106 1.147106 0.509226Wah Noble Chemical 1.163187 0.610911 1.323413 0.556309 1.339668Sargodha Spinning Mill 0.685097 1.223491 0.637996 1.43475 1.449411Ittahed Chemical LTD 0.717033 0.769191 0.937637 0.949043 2.822037Hira Textile Mill 0.756405 0.680387 0.523718 0.783235 0.928524Mahmood Textile Mill 1.203006 1.217673 1.165093 1.54158 1.622335Industry Average 0.615262 0.6275 0.716961 0.854949 0.763253

Managers

The lower the total asset turnover ratio, as compared to historical data for the firm and industry

data, the more sluggish the firm's sales. Managers will have to focus on many points: This may

indicate a problem with one or more of the asset categories composing total assets - inventory,

receivables, or fixed assets. The higher the ratio, the more sales that a company is producing

based on its assets. Thus, a higher ratio would be preferable to a lower one.


Shareholders capital is invested in different assets and after all any asset that a company holds, is

held principally to assist the company achieve a certain level of sales. An efficient company can

attain its desired level of sales with a lower investment in assets and vice versa. For them, a high

assets turnover ratio is better.

Lenders

Lenders are somewhat concern with this ratio. The numerator shows the income so the lender is

concerning with the current performance of the company to payoff its debt.

Employees

Employees come to know from a high assets turnover ratio that they are participating well in the

company and that their management is taking right decisions. Employees of marketing & selling

department are more concerned.

Accountant Manipulation:

Depreciation expense can be understated by overstating the useful life of assets. Management

can also overstate its assets by keeping obsolete and no longer used assets on its balance sheet.

Maintaining obsolete assets on the balance sheet also overstates net income because losses on the

disposal of these assets are not recorded.

Cash Cycle:

2006 2007 2008 2009 2010

Cerscent Fibres -

3.84591-

215.843161.530

3110.770

693.1836

3

33


3419.949

768.6633

6210.216

2102.000

4

Sitara Fibres LTD-

11.4777-

4.24072-

4.24072-

0.04002256.415

7Wah Noble Chemical

97.16659

-48.5351

124.6008

-12.1578

-8.75152


-59.6925

94.91822

164.8957

249.4951

36.80671


30.42805

35.87172

47.23114

13.76177

217.2077

Hira Textile Mill 86.8427 173.661255.094

5 219.472273.076

6


572.4928

93.12529

592.6371

9107.009


76.90884

81.61815 -7.3492

111.8163

122.2367


960.4980

533.7603

5 107.864159.793

1

2006 2007 2008 2009 2010

-300

-200

-100

0

100

200

300

400

500


3) Profitability Ratios:

Profitability ratios (also referred to as profit margin ratios) compare components of income with

sales. They give us an idea of what makes up a company's income and are usually expressed as a

portion of each dollar of sales. The profit margin ratios we discuss here differ only by the

34

numerator. It's in the numerator that we reflect and thus evaluate performance for different

aspects of the business: The gross profit margin is the ratio of gross income or profit to sales.

This ratio indicates how much of every dollar of sales is left after costs of goods sold.

Gross Profit (GP) Ratio:

Gross profit ratio (GP ratio) is the ratio of gross profit to net sales expressed as a percentage. It

expresses the relationship between gross profit and sales.

Components:

The basic components of the calculation of gross profit ratio are gross profit and net sales. Net

sales mean that sale minus sales returns. Gross profit would be the difference between net sales

and cost of goods sold. Cost of goods sold in the case of a trading concern would be equal to

opening stock plus purchases, minus closing stock plus all direct expenses relating to purchases.

In the case of manufacturing concern, it would be equal to the sum of the cost of raw materials,

wages, direct expenses and all manufacturing expenses. In other words, generally the expenses

charged to profit and loss account or operating expenses are excluded from the calculation of

cost of goods sold.

2006 2007 2008 2009 2010


27.00053

814.6527

413.4096

510.3280

7


610.2134

19.81102

42.98517

622.4080

7


410.4938

510.4938

51.12523

727.0867

6Wah Noble Chemical

16.36083

31.75184

31.48037 26.8267 21.7428


24.79119 31.7876

28.38333

26.02525

15.02017


24.54876

20.40332

22.99087

16.28276

16.78865


415.1431

715.0984

915.5371

819.5318

4


316.5594

1 15.408118.2298

818.9632


10.52447

10.63357

11.72669

15.91837

18.52521

Industry Average 17.0304 16.8476 17.5240 19.2246 21.7646

35

9 1 3 8 3

2006 2007 2008 2009 20100

5

10

15

20

25

30

35


Interpretation of Gross Profit Ratios:

The aim of management is to achieve gross profit margin as high as possible. If the margin is

high, the management is considered to be good and effective.

Higher gross profit margin may be reason of efficient management, low cost of production,

increase in sales price, or over or under valuation of stock.

Uses of Gross Profit Margin:

The gross profit margin is an important ratio being utilized by most of the stakeholders of a

business.

The Lenders

The lenders use it to sense the capability of the business and their payments on time.

The Management

36

It looks at the gross margin to find out their efficiencies / inefficiencies so that they can improve

upon the inefficient areas and capitalize on the efficient ones.If the G.P margin is high the

management is considered to be good and effective. It means that a business can cover its

operating expenses and can give a satisfactory return to the shareholders.

The Owners

The owners look for it to have an idea about the returns, they are going to receive on their

capital.

Investors

The investors pay attention on gross profit because they check whether the firm is efficient as

compare to industry. And investors also check the previous year’s gross profit margin to analyze

that it is constant, increasing or decreasing. If the company is performing at average level or

margin is more than industry than it will be attractive for the investors and if the gross profit

margin is below the overall industry average than the investor will not prefer the firm to invest.

Employees

Employees are concern with G.P margin because it indicates the company’s capability to pay

salaries, bonuses and retirement funds of the workforce. If the G.P margin is high it shows the

comfort for employees.

Manipulation

The base of valuation of the stock is decided by the management only. Here is a chance of

manipulation. The management may overvalue the closing stock and under value the opening

stock to show a higher gross profit margin.

Operating Profit Ratio:

37

Operating ratio is the ratio of cost of goods sold plus operating expenses to net sales. It is

generally expressed in percentage. It measures the cost of operations per dollar of sales. This is

closely related to the ratio of operating profit to net sales.

Components:

The two basic components for the calculation of operating ratio are operating cost (cost of goods

sold plus operating expenses) and net sales. Operating expenses normally include (a)

administrative and office expenses and (b) selling and distribution expenses. Financial charges

such as interest, provision for taxation etc. are generally excluded from operating expenses.

2006 2007 2008 2009 2010


13.96670

68.27085

38.09820

38.14985

5


66.27164

1 5.2479-

3.1634312.2717

2


96.70175

8-

3.38805-

3.3880524.9906

9Wah Noble Chemical

10.06334 25.9229

24.57966

21.27121

15.29328


19.53535

24.74308

21.17001

18.64069

11.03394


17.27362

12.75347

14.25008

8.861851

8.816172


310.7535

412.5314

9 12.403615.8456

6


612.0307

710.9102

112.6026

413.9936


7.296386 9.08869

5.623797

7.671744

11.46977


512.3759

812.2154

313.5311

617.2332

9

38

Interpretation:

A high operating profit margin means that the company has good cost control and/or that sales

are increasing faster than costs, which is the optimal situation for the company. Operating profit

will be a lot lower than the gross profit since selling, administrative, and other expenses are

included along with cost of goods sold.

Investors

The operating profit margin gives the business owner a lot of important information about the

firm's profitability, particularly with regard to cost control. It shows how much cash is thrown off

after most of the expenses are met.

Lenders

Lenders use this ratio to check the capability of the business to pay their dues on time

Net Profit/ (Loss) after Tax Ratio:

Net profit ratio is the ratio of net profit (after taxes) to net sales. It is expressed as percentage

39

2006 2007 2008 2009 2010

-5

0

5

10

15

20

25

30


Significance:

NP ratio is used to measure the overall profitability and hence it is very useful to proprietors. The

ratio is very useful as if the net profit is not sufficient, the firm shall not be able to achieve a

satisfactory return on its investment. This ratio also indicates the firm's capacity to face adverse

economic conditions such as price competition, low demand, etc. Obviously, higher the ratio the

better is the profitability. But while interpreting the ratio it should be kept in mind that the

performance of profits also be seen in relation to investments or capital of the firm and not only

in relation to sales.

Components of net profit ratio:

The two basic components of the net profit ratio are the net profit and sales. The net profits are

obtained after deducting income-tax and, generally, non-operating expenses and incomes are

excluded from the net profits for calculating this ratio. Thus, incomes such as interest on

investments outside the business, profit on sales of fixed assets and losses on sales of fixed

assets, etc. are excluded.

2006 2007 2008 2009 2010


60.91245

31.66522

33.17276

84.73140

4


9 0.13964-

0.88488-

15.02829.76718

4


23.14846

13.14846

1-

9.172576.88434

3Wah Noble Chemical

3.810247

10.20418

13.56234

8.067188

9.202258


8.528474

14.62239

11.35756

10.66276

6.493542


5.419673

2.443341

4.741012

3.750396

3.163276

Hira Textile Mill 5.191760.39796

6 2.877480.07438

3 7.98


39.74476

93.86155

85.31202

7 9.24497Mahmood Textile Mill

2.868536

4.205626

0.544969 1.50991

7.107076


88.63685

8 4.927055.28002

18.19124

3

40

2006 2007 2008 2009 2010

-20

-10

0

10

20

30

40


Interpretation of Net Profit Margin / Net Margin / Net Profit Ratio:

If the margins are not as good as the competitors have, it is sure that there is some deficiency in

the business operations. With same industry and same economic conditions, two businesses

should normally have same profit margins. A major negative deviation in the profit margins is a

serious matter to be handled with extensive care. Since, profits are the life blood of any business.

Any compromise in profits may raise a question mark on the sustainability of the business.

Investors:

Net profit margin shed a light on the margin left for shareholders i.e. the owners. Investor wants

higher net profit margin because there is more safety of their dividends.

Managers

The purpose of managers is to achieve a higher net profit margin with increase in net profits. Net

profit margin measures the overall efficiency of the business because it is generated only when

most of all the activities are being done efficiently. The activities include production,

administration, selling, financing, pricing or tax management.

41

Employees

Employers use this information to check the ability of the business to provide salary, retirement

benefits and employment opportunities.

Governments and their agencies

The government and their agencies uses these information to regulate the activities of business,

determine taxation policies and as the basis for national income and similar statistics.

Return on Assets:

Where asset turnover tells an investor the total sales for each $1 of assets, return on assets [or

ROA for short] tells an investor how much profit a company generated for each $1 in assets. The

return on assets figure is also a sure-fire way to gauge the asset intensity of a business.

Companies such as telecommunication providers, car manufacturers, and railroads are very

asset-intensive, meaning they require big, expensive machinery or equipment to generate a

profit. Advertising agencies and software companies, on the other hand, are generally very asset-

light (in the case of a software companies, once a program has been developed, employees

simply copy it to a five-cent disk, throw an instruction manual in the box, and mail it out to

stores)

2006 2007 2008 2009 2010


76.08717

19.19909

58.01678

29.53324

7


36.52984

55.34887

3-

5.3442223.5691

5


58.92674

78.92674

7-

4.2943710.0453

7Wah Noble Chemical

8.467037 9.87352

21.59386

10.31563

13.16607


10.81771

20.29997

14.28997

28.19386

9.034281


9.766755

7.975912

10.74082

19.58975

9.094178

Hira Textile Mill 10.7571 6.73527 6.74385 10.6378 15.2629

42

6 4 6 5 9


56.29861

118.5839

68.61493

48.75309


10.25992

5.714058

10.95639

18.31941


87.63603

316.0648

710.8921

811.0297

2

User:

Investors

The business owner can look at the company's return on assets ratio across time and also at

industry data to see where the company's return on assets ratio lies. The higher the return on

assets ratio, the more efficiently the company is using its asset base to generate sales.

Management

The management checks the earnings that are generated from the capital invested. If this ratio is

above from the industry average than it means the management is working very well and if this

ratio is decreasing as compare to industry its mean the performance of the firm is not good.

43

2006 2007 2008 2009 2010

-10

-5

0

5

10

15

20

25

30

35


Return on Capital Employed (ROCE) Ratio:

Capital employed and operating profits are the main items. Capital employed may be defined in a

number of ways. However, two widely accepted definitions are "gross capital employed" and

"net capital employed". Gross capital employed usually means the total assets, fixed as well as

current, used in business, while net capital employed refers to total assets minus liabilities. On

the other hand, it refers to total of capital, capital reserves, revenue reserves (including profit and

loss account balance), debentures and long term loans.

2006 2007 2008 2009 2010


213.2307

219.8586

517.6966

316.8364

9


812.9252

69.97440

5 -7.7E-0531.4528

6


313.6424

213.6424

2-

7.0514815.0226

8Wah Noble Chemical

15.09057

12.85102 31.903 12.9992

16.67777


16.09276

36.52441

19.57558

49.00882

17.03528


14.04576

9.721659

14.23565

25.66979

14.15047


911.5674

113.7867

822.9473

731.1186

3


87.80718

626.8998

212.3904

411.3505


11.11552

16.08445

10.23983

19.78953

30.03272

Industry Average 11.046410.5836

723.6351

917.2525

7 15.8885

44

2006 2007 2008 2009 2010

-10

0

10

20

30

40

50

60


Users of return on capital employed ratio

Management

According to the management perspectives this ratio measures the profit after investment. If the

ratio is more than the market rate that will lead the good result.

Investor

According to the investor perspectives it determines the total return of finance provider.

Return on Equity (ROE) Ratio:

In real sense, ordinarily shareholders are the real owners of the company. They assume the

highest risk in the company. (Preference shareholders have a preference over ordinary

shareholders in the payment of dividend as well as capital. Preference shareholders get a fixed

rate of dividend irrespective of the quantum of profits of the company). The rate of dividends

varies with the availability of profits in case of ordinary shares only. Thus ordinary shareholders

are more interested in the profitability of a company and the performance of a company should

be judged on the basis of return on equity capital of the company. Return on equity capital which

is the relationship between profits of a company and its equity, can be calculated as follows.

45

Components:

Equity share capital should be the total called-up value of equity shares. As the profit used for

the calculations are the final profits available to equity shareholders as dividend, therefore the

preference dividend and taxes are deducted in order to arrive at such profits.

2006 2007 2008 2009 2010


54.91866

27.91480

612.8972

131.9626

6


91.34965

9-

4.56268-

176.60939.3372

8


724.6316

424.6316

4360.572

511.3033

5Wah Noble Chemical

8.783312

25.98712

1.795524

13.87379

16.01703


20.06066

34.09755

9.109366

19.88686

13.65285


17.96169

8.458454

24.73625

14.41307

11.20727


20.62037

1 4.628380.17659

918.9620

5


35.58849

824.4121

56.55949

79.29191


7.096674

11.16578

1.644452 6.00915

25.70101


510.4745

916.7466

712.8072

313.3575

8

2006 2007 2008 2009 2010

-300

-200

-100

0

100

200

300

400


46

User of ratio:

Management

According to the management perspectives this ratio helps to measure the company's

performance to generate cash flows internally.

Investor

The return on equity ratio tells the Investors use to determine which company to invest their

money in.

Interest Coverage Ratio:

2006 2007 2008 2009 2010


8153.228

1108.972

5164.047

8 351.68


2 1261.22687.369

4-

102.488202.041

2


9248.327

2248.327

2-

62.4075220.846

5

Wah Noble Chemical 290.1 435.111892.359

1203.050

62444.56

5Sargodha Spinning Mill

269.0241

1256.352

191.7457

1845.572

465.5898


9 160.909212.238

2162.951

1153.746

9


3113.180

7125.322

391.8270

5187.417

6


2252.287

7804.952

9207.928

2391.596


215.3608

129.0036

137.0606

274.0735


5301.180

8 628.789 358.862 372.317

47

2006 2007 2008 2009 2010-1000

0

1000

2000

3000

4000

5000

6000

7000

8000

9000


4) SolvencyRatio:

A company can finance its assets either with equity or debt. Financing through debt involves risk

because debt legally obligates the company to pay interest and to repay the principal as

promised.Equity financing does not obligate the company to pay anything dividends are paid at

thediscretion of the board of directors. There is always some risk, which we refer to as business

risk, inherent in any operating segment of a business. But how a company chooses to finance

itsoperations -- the particular mix of debt and equity may add financial risk on top of business

risk financial risk is the extent that debt financing is used relative to equity. Financial leverage

ratios are used to assess how much financial risk the company has taken on. Thereare two types

of financial leverage ratios: component percentages and coverage ratios. Componentpercentages

compare a company's debt with either its total capital (debt plus equity) or its equity capital

Coverage ratios reflect a company's ability to satisfy fixed obligations, such as interest, principal

repayment, or lease payments.

48

Debt to Equity Ratio:

Debt-to-Equity ratio indicates the relationship between the external equities or outsiders funds

and the internal equities or shareholders’ funds. It is also known as external internal equity ratio.

It is determined to ascertain soundness of the long term financial policies of the company.

2006 2007 2008 2009 2010


60.92303

92.64883

22.49803

71.42888

8


82.84259

13.18137

87.93383

65.74993

2


32.60517

62.60517

6-

18.81930.81323

5Wah Noble Chemical

0.482752

0.851578

0.172407

1.018604

0.172407


0.960617

0.291158 1.08064

0.001732

0.209366


1.343517

0.444748

0.167201

0.444952

0.525308


31.00832

71.59958

61.45050

71.08649

7


60.22673

8 0.369040.50060

20.30692


0.850078

0.959147

1.312068

1.219476

0.883534


80.62525

3 0.631860.40352

40.82909

8

49

2006 2007 2008 2009 2010

-25

-20

-15

-10

-5

0

5

10


The implications of debt equity ratio would be different for the firms and the lenders.

D/E ratio for the firm:

If the ratio is higher, the lenders will have interference in the management as they have higher

stake in the business.

The owner will have very less chances of borrowing further in case of urgent requirements if the

ratio is on a higher.

Higher burden of interest will keep the profits under pressure.

Benefits of higher D/E ratio / limitations of lower D/E ratio:

The benefit for the owners is that they can retain control over their business with limited capital

by preferring debts over the equity. The owner can enjoy higher returns on equity because the

total returns are divided into very few hands but it is only possible when the rate of return from

the business is higher than the rate of interest charged by the debts. This is called “Leverage” or

“Trading on Equity”.

Interpretation of Debt to Equity Ratio:

The ratio suggests the claims of creditors and owners over the assets of the company. Suppose

the ratio comes to be 1:2, it says that for every 1 $ financed by debts, there are 2 $ being brought

in by the equity shareholders. As we know, if the value of the assets of a company declines, it is

a risk to the money of both shareholders and lenders.

1. The debt to total equity ratio of company is more than the industry average. Its mean that

the company performance is better the industry average. (Very Good).

2. The debt to total equity ratio of company is less than the industry average. Its mean that

the company performance is not better the industry average. (Bad).

3. The debt to total equity ratio of company is negative than the industry average. Its mean

that the company performance is not better the industry average. (Bad).

50

Users of total debt to total equity ratio

Management

According to the management perspectives this ratio helps to make decisions regarding of new

debt or issue new equity for financing.

Investor

According to investor perspectives this ratio indicates that whether the company is going

appropriate for financing.

Employee

According to the employee perspective it helps to understand the firm position.

Lenders:

A higher debt equity ratio would mean higher risk to the money. The risk is high but the returns

are limited to interest. On the other hand, at a lower D/E ratio, the lenders enjoy a better margin

of safety.

Debt to Asset ratio:

The debt to total assets ratio is an indicator of financial leverage. It tells you the percentage of

total assets that were financed by creditors, liabilities, debt.

2006 2007 2008 2009 2010


10.29770

10.55392

6 0.607520.63964

4

Saif Textile Mill 0.59486 0.613790.64512

80.62913

20.82236

2


20.41566

20.41566

20.54916

70.27337

6Wah Noble Chemical

0.243595

0.204279

0.112008

0.329495

0.112008


0.289215

0.152765 0.37268

0.001333

0.085232

Ittahed Chemical 0.12535 0.10231 0.13256 0.10988 0.41842

51

LTD 3 7 5 2


80.44010

10.52082

10.47851

90.42472

9


70.17158

30.24475

60.30708

30.20852


0.413363

0.439903

0.506603

0.472364

0.396373


10.22289

60.29445

70.30810

90.28460

6

Interpretation

The debt to total assets ratio of Company is more than the industry average. Its mean that the

company performance is better the industry average. (Good).

The debt to total assets ratio of company is less than the industry average. Its mean that the

company performance is not better the industry average. (Good).

The debt to total assets ratio of company is more than the industry average. Its mean that the

company performance is better the industry average. (Very Good)

Users of total debt to total assets ratio

52

2006 2007 2008 2009 20100

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9


According to the management perspectives if the company rate is less than its market rate it lead

the positive impression towards the competitors.

The creditors perspectives it refers the ability of the firm before providing finance for acquiring

assets.

An analyst is keep interest in this ratio to give some recommendation regarding for the company

financial leverage

P.E Ratio:

2006 2007 2008 2009 2010


91.37362

60.34340

70.17857

10.12065

6


536.7187

5 -15.4-

1.086282.43589

4


75.20833

35.20833

3-

0.565531.68665

5

Wah Noble Chemical 19.23811.68174

34.99350

61.62943

44.95518


0.284321

14.65576

1.963764

4.280806

6.791995


9.724409

18.26923

6.240409

8.823529

6.393939


7 66.253.27536

296.6666

7 1.12069


610.0381

70.58823

510.2643

26.11142


7.071623

5.501839

55.41516 4.84466

1.511025


510.3760

2 9.6200814.9688

93.94993

6

53

2006 2007 2008 2009 2010

-40

-20

0

20

40

60

80

100

120


Market to Book value:

2006 2007 2008 2009 2010


90.67612

127.1957

723.0173

30.02835

5


75.94272

75.84702

56.73891

76.64106

2


91722.18

712.7933

9-

20.38130.06700

9

Wah Noble Chemical 1.690160.44838

71.37976

1 0.081080.79325


3.293739

5243.902

0.318637 0.85097

1898.305


815.4322

29.86406

612.7132

67.16809

3


80.53258

10.15227

20.19512

70.21265

3Nishat Textile Mill 0.60443 0.56111 0.14360 0.87681 0.71908

54

5 2 1 7 3Mahmood Textile Mill 0.50188

0.614265

0.911645

0.291127

0.388382


1468.448

30.72218

61.01158

12.72455

8

2006 2007 2008 2009 2010

-1000

0

1000

2000

3000

4000

5000

6000


Horizontal Analysis:

"In the base statement of previous year every item is given 100% and is subsequent years these

are changed to the related percentages as per base years.”

Importance

55

Comparative statement can be prepared for several years in a columnar form. The changes from

period to period can be reflected by establishing a base year and making it 100%. Thereafter all

such changes are reflected in percentages. This analysis is invaluable to management and other

analysts because the absolute large data are condensed into percentages. The purpose of

horizontal analysis is to highlight the changes.

Profit And Loss Account

Profit and loss account is also named income statement or income statement or income and

expenditure account or statement of operations and encompasses all sources of revenue, gain and

losses and expenses for a particular period, grouped into various headings as per charts of

accounts of a company. In other words, it summarizes the results of operations for an accounting

period. The net income is closed by transfer to balance sheet after paying the dividends and

appropriations. Sometimes an appropriation is made to general reserve and still some portion is

left as retained earnings.

Balance Sheet

The purpose of balance sheet is to reflect financial position of an entity on a particular date. The

balance sheet consists of assets, which are the property of the entity, the liabilities, which are the

debts payable to outside investors or suppliers of goods and services, and the shareholder’s

equity, which represents owners’ interest in the entity. At any given date, assets must be equal to

the contributions of the creditors and owners.

IttahedChemical:

Balance Sheet Horizontal Analysis2007 2008 2009 2010 2011

Issued, subscribed and paid-up capital 10.19% 10.31% 9.46% 9.59% 9.10%Reserves 11.45% 11.91% 13.94% 16.43% 17.69%

56

Unrealised surplus on revaluation of investment 18.43%Total shareholder equity 39.84% 40.65% 46.80% 47.17% 45.72%Non-Current Liabilities

Long-term finances 16.53% 1.43% 0.49% 4.59% 5.92%Long term murabaha 6.15% 10.03% 7.15% 5.18% 2.95%Liabilities against assets subject to finance lease 0.03% 0.01% 0.00% 0.00% 0.00%Deferred Liabiliities 6.98% 8.44% 9.39% 8.44% 7.82%Current Liabilities and Provisions

Total Liability and shareholder equity 100.00% 100.00% 113.34% 100.00% 100.00%Fixed assetsProperty, Plant and Equipment 68.13% 69.35% 64.52% 62.69% 61.31%Intangible assets 0.04% 0.12% 0.09% 0.04% 0.01%Investment property 2.32% 2.03% 2.07% 2.19% 2.22%Long term investments 1.85% 1.87% 2.31% 2.33% 2.30%Deferred cost 0.03% 0.00% 0.00% 0.00% 0.00%Long-Term Deposits 0.40% 0.33% 0.30% 0.57% 0.54%Total fixed asset 72.78% 73.69% 69.28% 67.82% 66.37%Current Assets 0.00% 0.00% 0.00% 0.00% 0.00%Stores and spares 8.21% 9.03% 8.98% 11.65% 10.38%Stock-in-trade 2.89% 4.13% 2.78% 4.30% 5.03%Trade debts 12.58% 8.52% 15.06% 12.61% 11.65%Loans and advances 0.74% 1.01% 1.61% 1.30% 1.73% Trade deposits and short term prepayments 0.23% 0.64% 0.37% 0.12% 0.23%Advances, prepayments and other receivables 0.01% 0.02% 0.04% 0.44% 0.10%Taxation 1.71% 1.76% 0.00% 0.19% 1.63%Cash and bank balances 0.82% 1.17% 0.68% 0.40% 2.88%Total current assets 27.22% 26.31% 30.72% 32.18% 33.63%Total Assets 100.00% 100.00% 100.00% 100.00% 100.00%

57

Fiber Textile:

BALANCE SHEET Horizontal Analysis

59

2007 2008 2009 2010 2011NON-CURRENT ASSETS

Property, plant and equipment 10.67% 11.92% 15.01% 12.37% 9.33%Long-term loans 0.45% 0.47% 0.62% 0.84% 0.53%

Long-term deposits 0.11% 0.13% 0.13% 0.13% 0.14%total noncurrent asset 0.00% 0.00% 0.00% 0.00% 0.41%CURRENT ASSETS 11.23% 12.51% 15.76% 13.34% 10.41%Loans and advances 0.11% 0.12% 0.19% 0.20% 0.93%Interest accrued 36.27% 30.86% 50.11% 55.14% 53.34%Other receivables 0.35% 0.26% 0.15% 0.00% 0.24%Taxation – net 6.62% 3.91% 5.29% 6.73% 9.60%Short-term investments 34.14% 39.46% 5.76% 0.00% 0.00%Cash and bank balances 1.51% 2.85% 3.37% 2.45% 15.58%

88.77% 87.10% 84.24% 86.66% 89.59%Non-current assets classified as held for sale 0.39% 0.00% 0.00% 0.00%

Total asset 100.00%100.00

% 100.00%100.00

% 100.00%SHARE CAPITAL AND RESERVES

Reserves 50.19% 59.09% 62.31% 63.83% 59.70%Total share capital 16.36% 10.47% 3.19% -5.98% -3.89%NON-CURRENT LIABILITIES 74.99% 77.35% 74.91% 67.64% 64.96%Deferred taxation 0.22% 0.50% 0.53% 0.36% 0.00%CURRENT LIABILITIES 24.79% 22.14% 24.55% 32.00% 35.04%

Horizontal Analysis

Profit and loss200

6200

7 2008 2009 2010Net sales 100.00% 100.00% 100.00% 100.00% 100.00%Cost of sales 15.74% 14.75% 13.78% 14.41% 14.73%Gross profit 38.87% 34.89% 29.56% 21.73% 20.80%Distribution cost 20.16% 19.47% 18.90% 21.69% 19.40%Administrative expenses 18.71% 15.42% 10.66% 0.04% 1.40%

3.16% 3.42% 2.80% 0.66% 0.86%Operating profit 21.87% 18.84% 13.46% 0.70% 2.27%Other operating income 1.86% 1.76% 3.80% 1.90% 0.26%

0.04% 0.04% 0.05% 0.16% 0.13%Other operating expenses 1.90% 1.80% 3.85% 2.07% 0.40%

Profit before taxation 19.97% 17.04% 9.61% -1.37% 1.87%

2007 2008 2009 2010 2011ASSETS

Non-CURRENT ASSETS 67.90% 78.59% 78.81% 82.74% 245.23%Total CURRENT ASSETS 32.10% 21.41% 21.19% 17.26% 63.90%Total Assets 100.00% 100.00% 100.00% 100.00% 100.00%CURRENT LIABILITIES 32.78% 27.00% 23.17% 20.64% 114.38%Noncurrent liabilities 67.22% 73.00% 76.83% 79.36% 230.85%Total liabilities 100.00% 100.00% 100.00% 100.00% 345.23%Shareholder’s equity 30.11% 28.25% 29.29% 3.23% 116.05%PROFIT AND LOSS ACCOUNT Horizontal AnalysisFor the year ended 30 June 2009

2007 2008 2009 2010 2011Sales –Net 100.00% 100.00% 100.00% 100.00% 100.00%Cost of sales 75.21% 71.62% 68.25% 81.30% 67.51%Gross Profit 24.79% 28.38% 31.75% 26.83% 24.99%Total expenses 0.00% 12.78% 16.21% 16.67% 17.34%Operating Profit 12.28% 16.78% 15.99% 0.48% 0.69%Other operating income 0.68% 1.18% 0.44% 10.63% 8.34%Provision for taxation 3.75% 5.42% 5.79% 2.57% 1.45%Profit / (Loss) after taxation 8.53% 11.36% 10.20% 8.07% 6.88%

Crecent Fiber:

Horizontal Analysis 2010 2009 2008 2007 2006

Balance Sheet

Total Equity 29.83 24.32 20.91 0.03 35.12

60

Non -Current Liablitites 29.96 6.05 10.24 4.26 3.92Current Liabilities 40.21 60.75 63.92 53.99 46.98Total Equity and Liabilities 100.00 100.00 100.00 100.00 100.00Non -Current Assets 51.54 61.75 62.23 42.55 41.13Current Assets 48.46 38.25 37.77 56.43 57.98Total Assets 100.00 100.00 100.00 100.00 100.00

Profit and Loss Account

Sale 100 100 100 100 100Cost of goods sold and services 89.67 86.59 85.35 93.00 90.12Gross Profit 10.33 13.41 14.65 7.00 9.88Selling and distribution expenses 0.38 4.33 3.65 0.66 0.70Administrative expenses 2.09 1.68 1.57 3.34 3.29Other operating income 0.74 1.95 2.34 0.01 0.01Other operating charges 0.45 1.26 3.50 0.07 0.17Finance cost 2.32 4.94 7.59 2.59 3.12Profit before taxation 2.31 4.27 2.22 1.42 3.29Taxation – net 1.11 1.09 0.55 0.50 0.43Profit for the period / year 4.73 3.17 1.67 0.91 2.86

Saif textile:

Horizontal Analysis

2010 2009 2008 2007 2006

61

Balance Sheet

Total Equity 7.93 21.59 20.83 20.83 22.44Non -Current Liablitites 40.29 26.27 28.41 28.41 33.93Current Liabilities 47.22 49.48 47.45 47.45 43.63Total Equity and Liabilities 100.00 100.00 100.00 100.00 100.00Non -Current Assets 60.72 56.29 59.38 59.38 59.04Current Assets 39.28 43.71 40.62 40.62 40.96Total Assets 100.00 100.00 100.00 100.00 100.00


Sale 100 100 100 100 100Cost of goods sold and services 97.01 89.79 89.61 89.99 90.49Gross Profit 2.99 10.21 10.39 5.49 126.10Selling and distribution expenses 3.33 2.10 1.41 0.99 1.16Administrative expenses 2.64 1.94 2.15 2.16 2.15Other operating income 0.04 0.17 0.89 0.90 0.56Other operating charges 0.18 0.07 0.13 0.13 0.15Finance cost 9.29 6.84 6.09 6.12 4.74Profit before taxation -18.55 -0.57 1.51 1.51 1.87Taxation – net -3.52 -0.89 -0.75 -0.75 0.41PROFIT AFTER TAXATION -15.03 0.32 2.26 2.27 1.46

Sargodha:

Horizontal Analysis

Balance Sheet 2010 2009 2008 2007 2006

Total Equity 67.57 6.89 -2.92 15.96 12.63

62

Non -Current Liablitites 1.99 16.30 15.82 24.26 25.22Current Liabilities 30.44 49.57 54.92 34.57 32.47Total Equity and Liabilities 100.00 100.00 100.00 100.00 100.00Non -Current Assets 33.40 75.26 85.80 70.15 74.37Current Assets 66.60 24.74 14.20 29.85 25.63Total Assets 100.00 100.00 100.00 100.00 100.00


Sale 100 100 100 100 100Cost of goods sold and services 66.47 84.98 98.87 89.51 89.22Gross Profit 33.53 15.02 1.13 10.49 10.78Selling and distribution expenses 14.56 3.01 2.51 2.02 2.27Administrative expenses 2.44 1.39 1.80 1.67 1.52Other operating income 0.99 0.97 0.02 0.14 0.17Other operating charges 1.66 0.55 0.23 0.25 0.42Finance cost 0.03 4.03 5.43 2.70 1.73Profit before taxation 15.84 7.00 -8.82 4.00 4.99Taxation – net 5.13 0.78 0.36 0.85 2.06Profit for the period / year 10.70 6.22 -9.17 3.15 2.93

Nishat Mill LtdHorizontal Analysis

2010 2009 2008 2007 2006

63

Balance Sheet

Total Equity 67.94 61.34 66.32 76.07 67.71Non -Current Liablitites 9.18 8.19 2.76 4.50 9.67Current Liabilities 22.88 30.47 30.91 23.93 22.62Total Equity and Liabilities 100.00 100.00 100.00 100.00 100.00Non -Current Assets 74.59 73.68 63.26 66.20 68.70Current Assets 25.41 26.32 36.74 33.80 31.30Total Assets 100.00 100.00 100.00 100.00 100.00


Sale 100 100 100 100 100Cost of goods sold and services 81.04 81.77 84.59 83.44 83.46Gross Profit 18.96 18.23 15.41 16.56 16.54Selling and distribution expenses 5.44 5.51 4.99 5.41 4.04Administrative expenses 1.73 1.82 2.07 1.86 0.48Other operating income 3.11 2.51 37.91 12.03 12.10Other operating charges 0.92 0.80 0.57 0.53 12.14Finance cost 3.57 6.06 4.71 4.77 4.60Profit before taxation 10.42 6.54 33.20 10.59 10.71Taxation – net 1.18 1.23 1.34 0.84 0.77Profit for the period / year 9.24 5.31 31.86 9.74 9.95

Mahmood textile

HORIZONTAL ANALYSIS2006 2007 2008 2009 2010

SHARE CAPITAL AND RESERVESAuthorized Capital 100 100 100 100 100Issued, subscribed and paid-up capital 100 100 100 100 150.2255REVENUE RESERVES

64

Unappropriated profit 100 110.3881 108.9571 111.0483 144.831Fair value gain on available-for-sale investments 100 417.3034 350.3779 198.2227 430.3779

100 133.1752 173.4755 177.3356 199.1504NON CURRENT LIABILITIESLong term loans and murabaha finance 100 109.2622 119.1427 108.0657 125.0587Deferred liabilities 100 192.1588 280.0435 422.8459 364.8895

100 113.9554 128.252 125.8868 138.6366CURRENT LIABILITIES AND PROVISIONSCurrent portion of long term loans and murabaha finance 100 127.9915 170.9885 134.304 220.2739Interest accrued on long term loans and murabaha finance 100 193.4967 311.6727 671.0411 452.0618Trade and other payables 100 96.43042 88.97514 128.3863 174.621Short term finance 100 134.1183 201.6622 194.1376 169.0325Provision for income tax 100 20.34783 2169.464 2590.343 6535.194

100 127.2707 182.275 186.7883 185.242CONTINGENCIES AND COMMITMENTS

100 116.2778 136.4425 138.4499 157.1366FIXED ASSETS Property, plant and equipment 100 104.195 105.4085 97.98692 106.4955

100 104.195 105.4085 97.98692 106.4955LONG TERM INVESTMENT IN SUBSIDIARY AND ASSOCIATED COMPANIES 100 193.725 202.5934 251.0204 190.3924OTHER LONG TERM INVESTMENTS 100 103.1794 102.5165 171.7813 171.7813LONG TERM LOANS AND ADVANCES 0 0 0 0DEPOSIT OF SHARE 0 0 0 0CURRENT ASSETSStore and spares 100 104.7976 170.9909 119.809 114.4779Stock in trade 100 120.2444 175.2316 153.6167 174.7635Trade debts 100 140.1245 209.4275 558.5171 606.0116Advances, deposits, prepayments and other receivables 100 0 0 0 0Short term investments 100 209.7545 123.0521 189.3792 194.5258Loans and advances 100 51.54657 133.1731 126.0727 49.16021Sales Tax refundable 100 72.3278 68.22251 50.48249 191.3318Other receivables 100 78.74912 419.3296 794.1617 670.6034Cash and bank balances 100 116.6752 100.3609 121.6525 202.5024

100 123.2985 167.3801 176.018 192.7272100 116.2778 136.4425 138.4499 157.1366

SALES 100 117.6955 132.1424 177.4152 211.9092

65

NET SALES 100 117.6955 132.1424 177.4152 211.9092CGS 100 117.6201 130.4425 166.8167 193.0726GROSS PROFIT 100 118.3322 146.515 267.0261 371.1738Exploration costs 100 27.59398 82.65535 166.1133 129.6917

100 96.20641 112.2293 73.19686 108.948Administration expenses 100 117.8478 134.6861 493.4646 256.7318Distribution cost 100 105.7931 181.0369 81.69806 273.4823Finance cost 100 149.8647 173.8101 217.6445 267.5732Other charges 100 98.82425 416.0976 1717.194 856.4193

100 126.2252 188.3732 328.6262 312.2953Share of profits of associates (net of tax) 100 163.3942 74.8722 197.1927 215.1996Other operating income 100 257.8258 54.26208 55.11342 9.609915PROFIT BEFORE TAXATION 100 146.6167 46.55256 107.0478 363.5939Provision for taxation 100 104.3296 81.51756 129.3197 100.4236PROFIT FOR THE YEAR 100 172.556 25.10463 93.38593 525.0256Basic earnings per share ( Rupees ) 100 172.5295 25.11333 93.38169 349.5014

Hira Textile:Horizontal Analysis

2006 2007 2008 2009 2010

NON-CURRENT ASSETS

Property, plant and equipment 10.67% 11.92% 15.01% 12.37% 9.33%Long-term loans 0.45% 0.47% 0.62% 0.84% 0.53%Long-term deposits 0.11% 0.13% 0.13% 0.13% 0.14%

0.00% 0.00% 0.00% 0.00% 0.41%

total non current asset 11.23% 12.51% 15.76% 13.34% 10.41%

66

CURRENT ASSETS

Spares 0.11% 0.12% 0.19% 0.20% 0.93%Stocks 36.27% 30.86% 50.11% 55.14% 53.34%Trade debts 6.50% 7.59% 16.08% 19.10% 3.25%Loans and advances 0.66% 0.61% 1.05% 1.08% 3.76%Deposits and prepayments 0.38% 0.55% 1.04% 0.93% 0.87%Interest accrued 0.35% 0.26% 0.15% 0.00% 0.24%Other receivables 2.22% 0.88% 1.18% 1.03% 2.01%Taxation - net 6.62% 3.91% 5.29% 6.73% 9.60%Short-term investments 34.14% 39.46% 5.76% 0.00% 0.00%Cash and bank balances 1.51% 2.85% 3.37% 2.45% 15.58%

88.77% 87.10% 84.24% 86.66% 89.59%Non-current assets classified as held for sale 0.39% 0.00% 0.00% 0.00%

Total asset 100.00% 100.00%100.00

% 100.00% 100.00%SHARE CAPITAL AND RESERVES

Share capital 8.44% 7.79% 9.42% 9.79% 9.15%Reserves 50.19% 59.09% 62.31% 63.83% 59.70%Unappropriated profit 16.36% 10.47% 3.19% -5.98% -3.89%Total share capital 74.99% 77.35% 74.91% 67.64% 64.96%NON-CURRENT LIABILITIES

Deferred taxation 0.22% 0.50% 0.53% 0.36% 0.00%CURRENT LIABILITIES

Trade and other payables 24.79% 22.14% 24.55% 32.00% 35.04%

Total equity and liability 100.00% 100.00%100.00

% 100.00% 100.00%

Profit and loss Horizontal Analysis200

6200

7 2008 2009 2010

Net sales 100.00% 100.00% 100.00% 100.00% 100.00%Cost of sales 61.13% 65.11% 70.44% 78.27% 79.20%Gross profit 38.87% 34.89% 29.56% 21.73% 20.80%Distribution cost 15.74% 14.75% 13.78% 14.41% 14.73%Administrative expenses 4.42% 4.72% 5.13% 7.28% 4.67%

20.16% 19.47% 18.90% 21.69% 19.40%

67

Operating profit 18.71% 15.42% 10.66% 0.04% 1.40%Other operating income 3.16% 3.42% 2.80% 0.66% 0.86%

21.87% 18.84% 13.46% 0.70% 2.27%Other operating expenses 1.86% 1.76% 3.80% 1.90% 0.26%Finance cost 0.04% 0.04% 0.05% 0.16% 0.13%

1.90% 1.80% 3.85% 2.07% 0.40%Profit before taxation 19.97% 17.04% 9.61% -1.37% 1.87%Taxation

Current - for the year 6.13% 4.70% 3.39% 2.52% 1.23%- for prior years' -2.91% 0.45% 0.22% 0.00% 0.00%Deferred 0.08% 0.26% -0.05% -0.12% -0.51%

3.30% 5.41% 3.56% 2.40% 0.73%Profit after taxation 16.67% 11.63% 6.05% -3.77% 1.15%

68

Vertical Analysis

“An analysis of percentage financial statements where all balance sheet items are divided by total

assets and all income statement items are divided by net sales or revenue”

The expression of individual financial statement item as percentages of total helps the analyst

spot trends with respect to the relative importance of these items over time.

Profit And Loss Account

Similar method as applied for balance sheet is also applicable to profit and loss account. The

various items of profit and loss account are related as percentage to sales. For example, items

like, cost of goods sold. Operating expenses, gross profit, taxation etc. are reduced to percentages

by treating the sales as 100 %. These ratios are also called vertical ratios and mix percentages.

Balance Sheet

Vertical analysis is also called common size analysis. The common size balance sheet is also

called 100% balance sheet. The total of assets is the base figures representing 100%. Every item

of the balance sheet is related vertically to reflect the vertical mix against the total. The analysis

represents internal composition of assets and liabilities. The common size balance sheet analysis

reveals the sources of capital and all other sources and the application of sources to assets of the

company.

69

Ittahed Chemical:

Balance Sheet Vertical Analysis

2007 2008 2009 2010 2011

Share Capital and Reserves

Issued, subscribed and paid-up capital 100.00% 100.00% 100.00% 100.00% 100.00%Reserves 100.00% 102.76% 131.16% 152.53% 172.99%Unrealised surplus on revaluation of investment

Total share holder equity 100.00% 100.79% 126.51% 125.79% 128.48%Non-Current Liabilities

Long-term finances 100.00% 8.56% 3.21% 29.48% 40.06%Long term murabaha 100.00% 160.97% 125.20% 89.43% 53.65%Liabilities against assets subject to finance lease 100.00% 53.78% 0.00% 0.00% 0.00%Deferred Liabiliities 100.00% 119.41% 144.96% 128.45% 125.42%Current Liabilities and ProvisionsTrade and other payables 100.00% 116.45% 234.33% 169.28% 180.15% Accrued mark-up 100.00% 118.01% 141.92% 115.13% 110.69%Short-term finances 100.00% 66.59% 29.38% 59.26% 114.19%Current portion of long-term finances 100.00% 12.85% 70.37% 72.72% 84.75%CONTINGENCIES AND COMMITMENTS 100.00% 58.23% 86.79% 0.00% 0.00%Total Liability and share holder equity 100.00% 98.80% 122.07% 106.25% 111.96%Fixed assetsProperty, Plant and Equipment 100.00% 100.56% 102.00% 97.76% 100.74%Intangible assets 100.00% 269.25% 215.21% 95.06% 16.45%Investment property 100.00% 86.38% 95.81% 100.13% 106.89%

Deferred cost 100.00% 99.34% 133.94% 133.35% 138.61%Long-Term Deposits 100.00% 0.00% 0.00% 0.00% 0.00%

70

Total fixed asset 100.00% 80.78% 79.70% 151.00% 150.96%Current Assets 100.00% 100.03% 102.53% 99.00% 102.09%Stores and spares

Stock-in-trade 100.00% 108.71% 117.86% 150.80% 141.65%Trade debts 100.00% 141.11% 103.37% 157.98% 194.39%Loans and advances 100.00% 66.90% 128.88% 106.52% 103.70% Trade deposits and short term prepayments 100.00% 135.06% 233.73% 186.97% 261.63%Advances, prepayments and other receivables 100.00% 273.80% 172.30% 56.28% 111.12%Taxation 100.00% 272.31% 457.33% 5387.62% 1255.05%Cash and bank balances 100.00% 101.46% 0.00% 11.57% 106.61%Total current assets 100.00% 140.26% 89.38% 51.95% 390.47%

100.00% 95.50% 121.55% 125.64% 138.34%Total Assets 100.00% 98.80% 107.70% 106.25% 111.96%


Vertical Analysis

2007 2008 2009 2010 2011

Net sales 100.00% 105.98% 140.84% 121.62% 124.10%Cost of sales 100.00% 111.81% 143.75% 129.21% 131.51%Gross profit 100.00% 88.09% 131.90% 98.29% 101.34%Distribution expenses 100.00% 117.46% 172.30% 151.45% 175.75%Administrative expenses 100.00% 120.17% 166.78% 176.86% 180.06%Other operating expenses 100.00% 81.66% 164.34% 102.81% 74.17%Other operating income

100.00% 237.07% 192.22% 292.79% 386.22%Operating profit 100.00% 78.25% 116.19% 76.02% 75.63%Financial charges 100.00% 102.42% 115.30% 98.26% 103.61%

71

Fair value gain / (loss) on investment properties 100.00% 7.89% 156.85% 71.85% 112.33%Profit before taxation 100.00% 55.04% 117.83% 56.26% 51.65%Taxation 100.00% 65.27% 110.26% 8.95% 2.56%Profit after taxation 100.00% 47.78% 123.20% 102.54% 86.49%

Fiber textile:

BALANCE SHEET Vertical Analysis

2007 2008 2009 2010 2011

ASSETSNon CURRENT ASSETS 100.00% 42.42% 183.85% #REF! 184.56%Total CURRENT ASSETS 100.00% 419.07% 104.58% #REF! 101.72%Total Assets 100.00% 36.32% 158.40% #REF! 51.10%CURRENT LIABILITIES 100.00% 299.58% 111.97% #REF! 178.32%Non current liabilities 100.00% 200.12% 181.05% #REF! 175.50%Totat liabilities 100.00% 38.00% 158.40% #REF! 176.42%Shareholder’s equity 100.00% 0.00% 154.09% R15/B14 196.98%

PROFIT AND LOSS ACCOUNT Vertical AnalysisFor the year ended 30 June 2009

2007 2008 2009 2010 2011

72

Sales –Net 100.00% 125.27% 141.25% 131.13% 142.13%Cost of sales 100.00% 119.29% 128.18% 141.75% 127.58%Gross Profit 100.00% 143.43% 180.91% 141.90% 143.27%

Totol expenses 100.00%2497652.03

%3569883.50

%3408996.15

%3843643.11

%Operating Profit 100.00% 171.22% 183.99% 5.10% 7.94%Other operating income 100.00% 217.97% 92.58% 2059.46% 1749.73%Provision for taxation 100.00% 181.21% 218.12% 89.85% 55.06%Profit / (Loss) after taxation 100.00% 166.83% 169.00% 124.04% 114.73%

Wah Nobel Chemical:

Vertical Analysis2006 2007 2008 2009 2010

NON-CURRENT ASSETS

Property, plant and equipment 100.00% 121.01% 126.11% 99.99% 80.62%Long-term loans 100.00% 112.90% 122.45% 159.40% 107.52%Long-term deposits 100.00% 124.36% 106.42% 102.18% 118.54%

total non current asset 100.00% 120.71% 125.77% 102.40% 85.48%CURRENT ASSETS

Spares 100.00% 123.19% 160.80% 161.29% 795.75%Stocks 100.00% 92.20% 123.84% 131.10% 135.62%Trade debts 100.00% 126.67% 221.94% 253.61% 46.10%Loans and advances 100.00% 99.97% 143.00% 141.53% 525.05%Deposits and prepayments 100.00% 155.39% 241.96% 208.07% 208.22%Interest accrued 100.00% 78.58% 38.15% 0.10% 62.99%

73

Other receivables 100.00% 43.22% 47.86% 39.90% 83.81%Taxation – net 100.00% 63.96% 71.67% 87.62% 133.77%Short-term investments 100.00% 125.22% 15.13% 0.00% 0.00%Cash and bank balances 100.00% 203.85% 199.60% 139.76% 948.51%

100.00% 106.32% 85.07% 84.19% 93.07%Non-current assets classified as held for sale

Total asset 100.00% 108.35% 89.64% 86.24% 92.21%SHARE CAPITAL AND RESERVES




Total equity and liability 100.00% 108.35% 89.64% 86.24% 92.21%

Profit and loss Vertical Analysis200

6 2007 2008 2009 2010

Net sales 100.00% 1.083316 1.22521 1.185469 1.187457Cost of sales 100.00% 1.153987 1.411861 1.518044 1.538554Gross profit 100.00% 0.972192 0.931718 0.662524 0.635388Distribution cost 100.00% 1.014969 1.072031 1.084836 1.110729Administrative expenses 100.00% 1.157017 1.421724 1.952919 1.255692

100.00% 1.046097 1.148663 1.275067 1.142496Operating profit 100.00% 0.892557 0.697954 0.002492 0.088964Other operating income 100.00% 1.173032 1.087379 0.247045 0.325274

100.00% 0.933048 0.754174 0.037797 0.12308Other operating expenses 100.00% 1.026264 2.512065 1.216844 0.169608Finance cost 100.00% 1.018935 1.308876 4.440237 3.566864

100.00% 1.026096 2.484543 1.290579 0.24732Profit before taxation 100.00% 0.924201 0.589651 -0.08132 0.111267Taxation

74

Current - for the year 100.00% 0.830374 0.677144 0.487355 0.238622- for prior years' 100.00% -0.16757 -0.09276 0 0Deferred 100.00% 3.732215 -0.77047 -1.89732 -7.83154

100.00% 1.777023 1.321855 0.861356 0.261419Profit after taxation 100.00% 0.755538 0.444843 -0.26775 0.081571

Sargodha:

Vertical Analysis

2010 2009 2008 2007 2006

Balance Sheet

Total Equity 100 2.34 -0.91 4.67 3.27Non -Current Liablitites 100 188.28 167.85 241.48 221.45Current Liabilities 100 37.41 38.08 22.48 18.63Total Equity and Liabilities 100 22.97 21.11 19.80 17.47Non -Current Assets 100 51.78 54.23 41.59 38.90Current Assets 100 8.53 4.50 8.87 6.72Total Assets 100 22.97 21.11 19.80 17.47


Sale 100 17.54 12.75 13.01 8.85Cost of goods sold and services 100 22.42 18.97 17.52 11.88Gross Profit 100 7.85 0.43 4.07 2.84Selling and distribution expenses 100 3.62 2.20 1.80 1.38Administrative expenses 100 10.04 9.39 8.92 5.53Other operating income 100 17.12 0.30 1.86 1.51

75

Other operating charges 100 5.86 1.79 1.94 2.26Finance cost 100 2200.96 2156.35 1093.99 477.62Profit before taxation 100 7.76 -7.10 3.29 2.79Taxation – net 100 2.67 0.88 2.17 3.56Profit for the period / year 100 10.20 -10.93 3.83 2.43

Saif textile:

Vertical Analysis

2010 2009 2008 2007 2006

Balance Sheet

Total Equity 100 284.68 235.55 235.55 216.37Non -Current Liablitites 100 68.18 63.24 63.24 64.40Current Liabilities 100 109.54 90.13 90.13 70.64Total Equity and Liabilities 100 104.55 89.69 89.69 76.46Non -Current Assets 100 96.92 87.71 87.71 74.34Current Assets 100 116.34 92.75 92.75 79.74Total Assets 100 104.55 89.69 89.69 76.46


Sale 100 102.29 93.17 92.77 53.53Cost of goods sold and services 100 94.67 86.06 86.06 49.93Gross Profit 100 349.96 324.36 170.61 2261.36Selling and distribution expenses 100 64.45 39.46 27.51 18.65Administrative expenses 100 75.08 75.92 75.92 43.56

76

Other operating income 100 398.19 1931.61 1931.61 700.62Other operating charges 100 42.09 65.81 65.81 45.82Finance cost 100 75.31 61.05 61.05 27.32Profit before taxation 100 3.15 -7.57 -7.57 -5.41Taxation - net 100 25.86 19.79 19.79 -6.26PROFIT AFTER TAXATION 100 -2.18 -13.99 -13.99 -5.21

Crecent Fiber:

Vertical Analysis

2010 2009 2008 2007 2006

Balance Sheet

Total Equity 100 0.66 0.56 0.06 67.56Non -Current Liablitites 100 0.16 0.27 7.50 7.50Current Liabilities 100 1.23 1.27 70.84 67.03Total Equity and Liabilities 100 0.81 0.80 52.76 57.37Non -Current Assets 100 0.98 0.97 43.56 45.77Current Assets 100 0.64 0.62 61.44 68.65Total Assets 100 0.81 0.80 52.76 57.37


Sale 100 0.40 0.40 45.52 43.39Cost of goods sold and services 100 0.39 0.38 47.21 43.61Gross Profit 100 0.52 0.56 30.86 41.52Selling and distribution expenses 100 4.50 3.76 78.11 78.64Administrative expenses 100 0.32 0.30 72.83 68.22Other operating income 100 1.05 1.24 0.86 0.54Other operating charges 100 1.13 3.09 7.37 16.39

77

Finance cost 100 0.85 1.30 50.85 58.37Profit before taxation 100 0.74 0.38 27.90 61.81Taxation – net 100 0.39 0.20 20.71 16.90Profit for the period / year 100 0.27 0.14 8.78 26.24

Nishat Mill Ltd:

Vertical Analysis

2010 2009 2008 2007 2006

Balance SheetTotal Equity 100 61.61 80.15 95.48 67.29Non -Current Liablitites 100 60.88 24.73 41.86 71.16Current Liabilities 100 90.86 110.91 89.16 66.72Total Equity and Liabilities 100 68.24 82.10 85.27 67.51Non -Current Assets 100 67.40 69.63 75.68 62.18Current Assets 100 70.70 118.72 113.43 83.17Total Assets 100 68.24 82.10 85.27 67.51


Sale 100 75.69 61.10 54.48 52.06Cost of goods sold and services 100 76.38 63.78 56.09 53.62Gross Profit 100 72.77 49.64 47.57 45.41Selling and distribution expenses 100 76.73 56.09 54.17 38.71Administrative expenses 100 79.79 73.14 58.73 14.43Other operating income 100 61.02 744.09 210.55 202.37Other operating charges 100 66.28 38.32 31.74 689.32Finance cost 100 128.38 80.52 72.70 67.00Profit before taxation 100 47.52 194.67 55.36 53.52

78

Taxation – net 100 79.19 69.62 39.12 34.00Profit for the period / year 100 43.49 210.57 57.42 56.01

Mahmood Textile:

Mahmood Textile Mills VERTICAL ANALYSIS

2006 2007 2008 2009 2010

SHARE CAPITAL AND RESERVESAuthorized Capital 9.40052287

5 8.084537 6.8897 6.7898 5.9824Issued, subscribed and paid-up capital

3.128803917 2.6908 2.2931 2.2599 2.9912

REVENUE RESERVESUnappropriated profit 45.2746061

5 42.98134 36.1544 36.3140 41.7291Fair value gain on available-for-sale investments

0.000153385 0.00055 0.0004 0.0002 0.0004

0.458259697 0.524854 0.5826 0.5870 0.5808

NON CURRENT LIABILITIESLong term loans and murabaha finance

17.25368522 16.21269 15.0661 13.4672 13.7315

Deferred liabilities 1.035426859 1.71113 2.1252 3.1623 2.4044

18.28911208 17.92382 17.1912 16.6295 16.1359

CURRENT LIABILITIES

79

AND PROVISIONSCurrent portion of long term loans and murabaha finance 2.34008485 2.575823 2.9326 2.2700 3.2803Interest accrued on long term loans and murabaha finance

0.432207527 0.719232 0.9873 2.0948 1.2434

Trade and other payables 6.188651301 5.132314 4.0357 5.7388 6.8773

Short term finance 24.08265366 27.77765 33.7692 25.9058

Provision for income tax 0.040755967 0.007132 0.6480 0.7625 1.6950

33.08435331 36.21215 44.1977 44.6354 39.0018

CONTINGENCIES AND COMMITMENTS

100 100 100 100 100FIXED ASSETS Property, plant and equipment

52.19882703 46.77465 40.3262 36.9433 35.3765

Exploration, development and decommissioning costs 0 0 0.0000 0.0000 0.0000

52.19882703 46.77465 40.3262 36.9433 35.3765

LONG TERM INVESTMENT IN SUBSIDIARY AND ASSOCIATED COMPANIES

4.224123575 7.037615 6.2721 7.6587 5.1181

OTHER LONG TERM INVESTMENTS

0.118169053 0.104858 0.0888 0.1466 0.1292

LONG TERM LOANS AND ADVANCES 0 0 0.0000 0.0000 0.0419DEPOSIT OF SHARE 0 0 0.0000 0.0000 6.0322Store and spares 3.04503150

2 2.744393 3.8161 2.6350 2.2184Stock in trade 29.4510734

7 30.45573 37.8237 32.6774 32.7548Trade debts 2.17447690

4 2.620426 3.3376 8.7720 8.3861Advances, deposits, prepayments and other receivables

0.061102114 0 0.0000 0.0000 0.0000

Short term investments 4.339743019 7.8285 3.9138 5.9361 5.3723

Loans and advances 2.28931049 1.014864 2.2345 2.0847 0.7162

80

5Sales Tax refundable 1.43993894

1 0.895679 0.7200 0.5250 1.7533Other receivables 0.42055056

5 0.284818 1.2925 2.4123 1.7948Cash and bank balances 0.23765333

4 0.238466 0.1748 0.2088 0.306343.4588803

4 46.08287 53.3130 55.2514 53.3021100 100 100 100 100

SALES 100 100 100 100 100less: Sales TaxNET SALES 100 100 100 100 100CGS 89.4236537

4 89.36643 88.27331 84.08163 81.47478757GROSS PROFIT 10.5763462

6 10.63357 11.72669 15.91837 18.52521243Administration expenses 1.20334216 1.204899 1.226507 3.34699 1.457870591Distribution cost 2.56566748

2 2.306205 3.515001 1.181466 3.311157651Finance cost 3.31432411

5 4.220217 4.359412 4.065855 4.184927008Other charges 0.57829955 0.485575 1.820984 5.597337 2.337165757

7.661633306 8.216896 10.9219 14.19165 11.29112101

Share of profits of associates (net of tax)

0.646066249 0.896921 0.366063 0.718087 0.656098001

Other operating income 1.11922924 2.451804 0.459593 0.347685 0.050756166PROFIT BEFORE TAXATION

4.628128492 5.765394 1.630448 2.792495 7.940945595

Provision for taxation 1.759592953 1.559768 1.085479 1.282585 0.833869959

PROFIT FOR THE YEAR 2.868535539 4.205626 0.544969 1.50991 7.107075635

Basic earnings per share ( Rupees ) 2.8730E-07 4.21E-07 5.46E-08 1.51E-07 4.73846E-07

Hira Textile:

Vertical Analysis2006 2007 2008 2009 2010

NON-CURRENT ASSETS

Property, plant and equipment 100.00% 121.01% 126.11% 99.99% 80.62%

81

Long-term loans 100.00% 112.90% 122.45% 159.40% 107.52%Long-term deposits 100.00% 124.36% 106.42% 102.18% 118.54%

total non current asset 100.00% 120.71% 125.77% 102.40% 85.48%CURRENT ASSETS

Spares 100.00% 123.19% 160.80% 161.29% 795.75%Stocks 100.00% 92.20% 123.84% 131.10% 135.62%Trade debts 100.00% 126.67% 221.94% 253.61% 46.10%Loans and advances 100.00% 99.97% 143.00% 141.53% 525.05%Deposits and prepayments 100.00% 155.39% 241.96% 208.07% 208.22%Interest accrued 100.00% 78.58% 38.15% 0.10% 62.99%Other receivables 100.00% 43.22% 47.86% 39.90% 83.81%Taxation - net 100.00% 63.96% 71.67% 87.62% 133.77%Short-term investments 100.00% 125.22% 15.13% 0.00% 0.00%Cash and bank balances 100.00% 203.85% 199.60% 139.76% 948.51%

100.00% 106.32% 85.07% 84.19% 93.07%Non-current assets classified as held for sale

Total asset 100.00% 108.35% 89.64% 86.24% 92.21%SHARE CAPITAL AND RESERVES




Total equity and liability 100.00% 108.35% 89.64% 86.24% 92.21%

Profit and loss Vertical Analysis200

6 2007 2008 2009 2010

Net sales 100.00% 1.083316 1.22521 1.185469 1.187457Cost of sales 100.00% 1.153987 1.411861 1.518044 1.538554Gross profit 100.00% 0.972192 0.93171 0.662524 0.635388

82

8Distribution cost 100.00% 1.014969 1.072031 1.084836 1.110729Administrative expenses 100.00% 1.157017 1.421724 1.952919 1.255692

100.00% 1.046097 1.148663 1.275067 1.142496

Operating profit 100.00% 0.8925570.69795

4 0.002492 0.088964Other operating income 100.00% 1.173032 1.087379 0.247045 0.325274

100.00% 0.933048 0.754174 0.037797 0.12308Other operating expenses 100.00% 1.026264 2.512065 1.216844 0.169608Finance cost 100.00% 1.018935 1.308876 4.440237 3.566864

100.00% 1.026096 2.484543 1.290579 0.24732

Profit before taxation 100.00% 0.9242010.58965

1 -0.08132 0.111267Taxation

Current - for the year 100.00% 0.830374 0.677144 0.487355 0.238622- for prior years' 100.00% -0.16757 -0.09276 0 0Deferred 100.00% 3.732215 -0.77047 -1.89732 -7.83154

100.00% 1.777023 1.321855 0.861356 0.261419Profit after taxation 100.00% 0.755538 0.444843 -0.26775 0.081571

Earning Management

Earning Management 2008

Intercept X1 X2 NDA DA ABS DANishat Textile Mill 0.085465 0.025039 -0.00613 0.104373 -0.01891 0.018908

83

Cerscent Fibres 0.085465 -0.00219 -0.00243 0.080839 0.004626 0.004626Saif Textile Mill 0.085465 -0.00879 0.003447 0.080124 0.005341 0.005341Sitara Fibres LTD 0.085465 0.003355 0.003159 0.091979 -0.00651 0.006513Wah Noble Chemical 0.085465 0.041987 0.001552 0.129004 -0.04354 0.043539Sargodha Spinning Mill 0.085465 -0.0009 0.005238 0.089804 -0.00434 0.004339Ittahed Chemical LTD 0.085465 -0.03485 -0.03126 0.019356 0.066109 0.066109Hira Textile Mill 0.085465 -0.04338 -0.00265 0.039438 0.046027 0.046027Mahmood Textile Mill 0.085465 0.061967 -0.06689 0.080541 0.004924 0.004924


Intercept X1 X2 NDA DA ABS DA

Nishat Textile Mill 0.043445 0.001043 0.000654 0.045143 -0.0017 0.001697

Cerscent Fibres 0.043445 -0.01056 0.001485 0.034375 0.009071 0.009071

Saif Textile Mill 0.043445 -0.00343 -0.0003 0.039718 0.003728 0.003728

Sitara Fibres LTD 0.043445 0.00196 0.001744 0.047149 -0.0037 0.003704

Wah Noble Chemical 0.043445 -0.01513 -0.00038 0.02793 0.015515 0.015515

Sargodha Spinning Mill 0.043445 0.047856 -0.0032 0.088097 -0.04465 0.044652

Ittahed Chemical LTD 0.043445 0.022469 -0.02088 0.045036 -0.00159 0.00159

Hira Textile Mill 0.043445 -0.00988 0.000536 0.034097 0.009348 0.009348

Mahmood Textile Mill 0.043445 -0.01747 -0.00885 0.017129 0.026317 0.026317

84


Intercept X1 X2 NDA DA ABS DANishat Textile Mill 0.031553 0.000107 2.37E-06 0.031662 -0.00011 0.00011

Cerscent Fibres 0.031553 -0.00049 -0.00033 0.030729 0.000824 0.000824

Saif Textile Mill 0.031553 0.00073 1.18E-05 0.032294 -0.00074 0.000741Sitara Fibres LTD 0.031553 0.000873 -3.5E-06 0.032422 -0.00087 0.00087Wah Noble Chemical 0.031553 0.001091 1.31E-05 0.032656 -0.0011 0.001104Sargodha Spinning Mill 0.031553 0.000255 -6.5E-05 0.031742 -0.00019 0.00019Ittahed Chemical LTD 0.031553 0.000165 1.81E-05 0.031736 -0.00018 0.000183Hira Textile Mill 0.031553 -0.00097 -0.00024 0.030348 0.001205 0.001205Mahmood Textile Mill 0.031553 -0.00022 -2.5E-05 0.03131 0.000242 0.000242


Intercep

tX1 X2 NDA DA ABS DA

Nishat Textile Mill

0.042219 -0.00022 0.000892 0.042895 -0.00068 0.000676


9 0.003082 0.000476 0.045777 -0.00356 0.003558Saif Textile Mill

0.042219 -0.00273 0.001206 0.040693 0.001526 0.001526

Sitara Fibres LTD

0.042219 0.002353 -0.00137 0.043203 -0.00098 0.000983

Wah Noble Chemical

0.042219 -0.00048 0.001715 0.043459 -0.00124 0.001239


0.042219 0.005868 -0.00125 0.046837 -0.00462 0.004618


0.042219 -0.00063 0.002884 0.044475 -0.00226 0.002256

Hira Textile Mill

0.042219 -0.00224 -0.00215 0.037828 0.004391 0.004391


0.042219 -0.00193 0.00098 0.041265 0.000954 0.000954

Interpretation of Earning Management:

All the above tables show earning management of companies in different sector. All the

companies whose Discretionary Accruals are above zero or below zero are managing their

earnings while companies whose Discretionary Accrualsare equal to zero are not managing their

earnings. The tables show the detail information about earning management of all 9 companies.

85

Z-Score Model

Z score=

0.47621588

Danger zone

Wah Nobel Chemical

MPS 35.38

Working capital / total assets0.52853968

5 Wc 275649729

RE/TA0.59529900

5 Re 310,466,771

EBIT/TA0.20487909

1 Ta 521530808

MKT Value of Equity/BV of T liab6.40498744

7 Bv 110476407Sales/TA

1.339667742 sales 698678000

EBIT 106850758

t Share 20,000,000

Sitara Mps 11.84

Z score0.012801

1Danger zone Ca 3262717847

Cl 3731901516Working capital / total assets -0.04165432 Wc -469,183,669

RE/TA0.19885971

1 Re2,239,905,34

9

EBIT/TA0.13793288

6 ta 11263746375MKT Value of Equity/BV of T liab

0.082407108 Bv 3079242786

Sales/TA

0.551937139 sales 6216879954

EBIT 1553641041t Share 21431714

Ittehad Mps 21.1

Z score1.9633112

1Danger zone ca 1330397

cl 1237239

Working capital / total assets0.02354844

5 Wc 93158RE/TA 0.17686889 Re 699696

86

5

EBIT/TA0.08366929

9 ta 3956015

MKT Value of Equity/BV of T liab32.4576546

4 Bv 234028Sales/TA

0.778886834 sales 3081288

EBIT 330997t Share 360000

Cresent

Z score0.04880

9Danger zone

MPs 11Working capital / total assets 0.082477231 Wc 111,277,870RE/TA 0.20622309 Re 278235168

EBIT/TA 0.1642104 Ta1,349,195,03

2MKT Value of Equity/BV of T liab 0.174274708 Bv 946781104Sales/TA 2.014887462 sales

2,718,476,154

EBIT 221,551,856t Share 15,000,000

Saif Mps 17.1

Z score7.87411

5Danger zone Ca 2,447,967

Cl 2,698,085Working capital / total assets -0.052598164 Wc -250,118RE/TA 0.031542538 Re 149,993EBIT/TA 0.096999933 Ta 4,755,261MKT Value of Equity/BV of T liab 131.1837273 Bv 3910546Sales/TA 0.576016963 sales 2,739,111

EBIT 461,260

t Share 30000000

87

Sarghoda Mps 0.86

Z score2.45126

6Danger zone Ca 329,060

Cl 442,563

Working capital / total assets -0.085321805 Wc -113503RE/TA -0.165662001 Re -220,379EBIT/TA 0.159927174 Ta 1,330,293MKT Value of Equity/BV of T liab 40.68999507 Bv 659425Sales/TA 1.714622267 sales 2280950

EBIT 212,750t Share 31,200,000

Hira

Z score0.02349

8Danger zone

Mps 3.9T1 Working capital / total assets -0.04247101 Wc -142,568,428T2 RE/TA 0.15318624 Re 514,221,837

T3 EBIT/TA 0.14713083 ta3,356,840,918

T4MKT Value of Equity/BV of T liab

0.205155635 Bv

1,425,746,849

T5Sales/TA

0.928524368 sales

3,116,908,591

EBIT493,894,789

t Share 75,000,000

Mahmood Mps 58.25

Z score0.24149

8Danger zone ca

2,672,950,020

cl1,955,831,122

T1 Working capital / total assets0.14300285

1 Wc 717,118,898

T2 RE/TA0.41729085

5 Re2,092,595,74

5

T3 EBIT/TA0.18607816

1 ta5,014,717,477

T4MKT Value of Equity/BV of T liab

3.268860224 Bv

2,672,950,020

88

T5Sales/TA

1.622334941 sales

8,135,551,381

EBIT933,129,406

t Share150,000,000

NishatMps 64.17

Z score360.990

2Safe zone ca 11,732,928

cl 10,568,415

T1 Working capital / total assets0.02521556

2 Wc 1164513

T2 RE/TA0.60326803

9 Re 27,860,314

T3 EBIT/TA0.09555586

6 ta 46,182,314

T4MKT Value of Equity/BV of T liab 6016.14533 Bv 11,732,928

T5Sales/TA

0.682851167 sales 31,535,647

EBIT 4,412,991

t Share1,100,000,00

0

Conclusion:

At the end we may conclude that over all textile industry of Pakistan is playing a

vital role in the economy of Pakistan but Nishat Mills is performing very well in all

Textile industry. Financial position of all remaining companies is not so good. So

as an analyst we don’t suggest investors to invest in textile sector. All new

89

businessmen are suggested that they should not invest heavily in textile sector as

according to analysis it is a risky sector.

Table of ContentsINTRODUCTION...........................................................................................................................2

OBJECTIVES OF THE PROJECT.............................................................................................2

SIGNIFICANCE OF THE PROJECT.........................................................................................2

ORGANIZATION OF THE PROJECT......................................................................................3

Company Introduction.................................................................................................................3

Sitara textile Industries Ltd..........................................................................................................4

Analysis of Ratios........................................................................................................................5

Factors Affecting Ratios..........................................................................................................5

Ratio interpretation..................................................................................................................6

Users of Financial Ratios.................................................................................................................6

Internal Users:..............................................................................................................................6

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External Users..............................................................................................................................7

Brief List of Users of Financial Statements:................................................................................7

METHODLOGY.............................................................................................................................9

RATIO ANALYSIS....................................................................................................................9

COMMON SIZE ANALYSIS...................................................................................................10

INDEX ANALYSIS..................................................................................................................10

EARNINGS MANAGEMENT.................................................................................................10

Z- SCORE MODEL..................................................................................................................11

Ratio Analysis:...............................................................................................................................11

Advantages of Ratios Analysis..................................................................................................11

LIQUIDITY RATIOS:..............................................................................................................12

CURRENT RATIO:..............................................................................................................12

Quick Ratio:...........................................................................................................................15

Absolute Quick ratio..............................................................................................................18

2) Activity ratios:.......................................................................................................................20

Inventory Turnover Ratio......................................................................................................21

Inventory In day.....................................................................................................................22

Debtors Turnover Ratio or Receivables Turnover Ratio:......................................................24

Debtor Turnover in days:.......................................................................................................25

Operating cycle Ratio............................................................................................................26

Creditors / Accounts Payable Turnover Ratio:......................................................................28

Creditors in Days:..................................................................................................................29

Assets Turnover Ratio:..........................................................................................................30

Cash Cycle:............................................................................................................................32

3) Profitability Ratios:...............................................................................................................33

Gross Profit (GP) Ratio:........................................................................................................33

Operating Profit Ratio:..........................................................................................................36

Net Profit/ (Loss) after Tax Ratio:.........................................................................................38

Return on Assets:...................................................................................................................40

Return on Capital Employed (ROCE) Ratio:........................................................................41

Return on Equity (ROE) Ratio:.............................................................................................43

Interest Coverage Ratio:........................................................................................................44

4) SolvencyRatio:......................................................................................................................45

Debt to Equity Ratio:.............................................................................................................46

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D/E ratio for the firm:............................................................................................................47

Debt to Asset ratio:................................................................................................................48

P.E Ratio:...................................................................................................................................50

Market to Book value:...............................................................................................................51

Horizontal Analysis:......................................................................................................................52

IttahedChemical:........................................................................................................................53

Fiber Textile:.............................................................................................................................55

Crecent Fiber:............................................................................................................................56

Saif textile:.................................................................................................................................57

Sargodha:...................................................................................................................................58

Nishat Mill Ltd..........................................................................................................................59

Mahmood textile........................................................................................................................60

Hira Textile:...............................................................................................................................62

Vertical Analysis...........................................................................................................................64

Earning Management.....................................................................................................................78

Z-Score Model...............................................................................................................................81

Conclusion:....................................................................................................................................84

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Final Report Work in Prograss

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