1) INTRODUCTION

Writing this research analysis report has not been easy for me, as it is my first real piece of work. There goes so much into writing a report and unless and until there is a clear and appropriate incentive one would fail to keep himself motivated. But in my case it is worth it. A BSc. Honours degree from !ford Brookes "niversity of #ngland would certainly be a big achievement in my career. Therefore, my initial task is to choose a topic which could bring out my best of abilities resulting in a report of appropriate calibre. n this basis the topic chosen is $ An Analysis of the financial situation of your choice of organization. There are three reasons for choosing this topic a% my personal liking of analy&ing numerical data because ' think ' understand the nature of work involved, b% having the necessary skills in interpreting the financial analysis without getting lost in it, and c% relative ease of obtaining the re(uired information. The organisation, which ' decided to analyse, is $)'SHAT *H")'A) +','T#-. /)*+%. )*+ is a 0ublic limited *ompany incorporated under the *ompanies rdinance, 1234 and is listed on the +ahore and 5arachi Stock #!changes. The *ompany is engaged in the manufacture and sale of yarn and fabric. The *ompany was incorporated in 1226 as a 0ublic +imited *ompany with an e(uity investment of 7s.166 million which has now increased to 7s.468.9 million. 't started commercial production on ,arch 16, 1221. 'ts primary line of business is spinning: however from 122; it e!panded its operation into weaving and adding more spinning units. The company e!ports its yarn and fabric which currently accounts for more than 36< of its sales. The remaining sales are local with the waste also sold likewise. The reason for choosing )*+ for analysis is that ' have audited this company=s accounts recently as a trainee working under A.> >erguson ? *ompany *hartered Accountants and learned much about the operations of the company. ' was particularly struck by their e!pansion strategy from late 122; with heavy investment into weaving and additional spinning capacity. So apart from @ust doing financial analysis, ' wanted to investigate the

impact of e!pansion policy of the company on its financial situation. As the company pursued its e!pansion around the end of 122; having its affect on sales from mid 1222, analysing past five years of accounts i.e. from 122; to 9661 is a reasonable time frame in my opinion. The main ob@ective of my report is to assess the financial situation of the company over time and crossAsectional by making comparisons with itself and others in the industry. >or assessing the financial situation of the company ' am employing 9 tools for analysis a% ratio analysis, ? b% a &Ascore model. 7esults of the ratio analysis will be discussed under three key heads namely, performance, asset utili&ation and capital structure as the company is primarily a manufacturing concern. By analy&ing and comparing the ratios like profitability, li(uidity, gearing, #0S and many more for this company against its competitors and over a period of five years will provide a better and clearer picture of the company=s overall performance. 't is also important to say at this stage that financial data for the other companies will be used to construct industry averages and then compare )*+=s financial profile with the averages and individual companies over a period of B years. Secondly, a &Ascore model will be used to complement my ratio analysis as it a single measure of corporate health. The role of &Ascores will be discussed in light with the ratio analysis. >inally, as there is no know &Ascore model for 0akistan, ' will essentially employ a foreign model. This will give us an opportunity to test a foreign model in the 0akistani environment. ne can make a @udgement about how well the model performs by comparing the financial situation of the company /)*+% as highlight by ratio analysis with the &Ascore analysis. After conducting the above analysis ' will be in a position to draw conclusions regarding the overall performance of the organi&ation and how beneficial its e!pansion policy has been later in the years. And finally, the applicability of a foreign &Ascore model in assessing the financial situation of the company under study.

CAscore is a measure of a companyDs health and utili&es several key ratios for its formulation. The model which ' intend to employ is an industrial model and was developed by #dward '. Altman in 12E6=s and is the first of its kind with its coefficients published later on. ' obtained the model from Altman /1228% and it is basically a "S model and is most appropriate for the "S environment, however as mentioned previously ' will use it on a test basis. The model incorporates five weighted financial ratios into the calculations of the &Ascore. Altman has defined B variables that comprise the &Ascore for public companies as followFA C G 1.9H1 I 1.4H9 I 8.8H8 I 6.EH4 I 1.6HB Where H1 G working capital J total assets H9 G retained earnings J total assets H8 G earnings before interest and ta! J total assets H4 G market value of e(uity J total liabilities /a form of gearing ratio% HB G sales J total assets Altman=s &Ascore reliably predicts whether or not a company is likely to enter into bankruptcy within one or two yearsF

'f the CAScore is 8.6 or above A bankruptcy is not likely. 'f the CAScore is 1.3 or less A bankruptcy is likely. A score between 1.3 and 8.6 is the grey area, i.e., a high degree of caution should be used.

't should be remembered that a CAscore is only as valid as the data from which it was derived i.e. if a company has altered or falsified their financial recordsJbooks: a CAScore derived from those Kcooked booksK is of lesser use.

) IN!OR"ATION #AT$%RIN#
'nformation gathering is the most important and time consuming head in this 7esearch Analysis 0ro@ect. The reason for this is that all of the findings of my report will be based on this information. Therefore one has to be sure of the e!act nature of information which needs to be gathered as it will help in a better and clearer analysis and presentation of the chosen topic. 'n line with my aboveAmentioned aims and ob@ectives the primary source of information needed are financial statements of the chosen company and others in the industry for comparison purposes. ' am also using a &Ascore model with the ratio analysis which also re(uires financial information from annual account of the companies, therefore, the annual accounts of the companies under study needs to be gathered. ' obtained this secondary data from the company /)*+% and also gathered the annual reports of other companies doing similar businesses from the +ahore Stock #!change /+S#%. Lathering information from +S# was (uite time consuming as ' had to visit +S# thrice because complete set of annual reports were not available in my first or second visit. 'n the end ' only got annual reports of 4 companies whereas initially ' intended to make comparison with 16 companies. The &Ascore model which ' am using re(uires an additional variable, the market value of the shares. Lathering this information also took some time as market value of shares for the last five years for all companies was re(uired. This was brought into my consideration by my mentor that you have to obtain the market value of shares and that there is no renowned source of such information. To solve this problem ' went to )ishat *hunian +imited and asked them if they could help me with this particular problem as market values for the last five years is difficult to obtain. The person who dealt with financial aspects of the company was on holidays but everyone else was very coA operative and provided with other information about the company and arranged a visit to the site where all the mills are located for me. There ' saw the processes of spinning and weaving and also went through their record registers to check how well the record is maintained and saw new machineries which were recently bought and understand for what they were bought and also went through the process of stockAtaking. All this helped me a lot but my original problem was still there until the finance manager came. "pon his 4

arrival ' arranged a date and time to meet him and then interviewed him briefly regarding the future prospects of the company. 'nformation obtained in the interview can be labelled as primary data and is discussed later on in the report. He also gave me the web site address /www.sA!change.com% from where ' got all the relevant information about the market value of shares of all the companies.

&) ANA'()I)
)ow coming towards $Analysis., the most important part of the report, or it could be said as the aim of the report. A mere e!amination of accounting figures is normally insufficient to allow for any meaningful conclusion to be reached and ratio analysis enables the available data to be placed on a more comparable basis. ' will analy&e the information gathered under three heads, which are, performance, asset utili&ation and capital structure. All the analysis of financial data is presented in Anne!ure A, tables 1 to B. 3.1 PERFORMANCE The primary ratio, the return on capital employed /7 *#G0B'TJ*.#% is perhaps the most important profitability ratio. 'n the year 122; )*+=s 7 *# was B1.8< much better than other companies and importantly it is above the industry average of 8;.9< but ">+ is the e!ception, which has 7 *# of EB.9<, an e!amination of secondary ratios reveals that the reason for this are the )*+=s better than industry average profit margin /L.0JSales% and asset turnover /SalesJ*.#%. )*+=s profit margin is 1E.;< less than ">+=s 91.1< but is better than average of 1B.3< and other te!tile companies. This may be due to better control of e!penses but ">+ profit margin shows that improvement is possible. 'n the year 1223 )*+=s 7 *# fell to 9;.1< with -ewan and Ahmed Hassan Te!tile showing 7 *# below this percentage but for )*+ this is below the average of 89.8<. This fall has been supported by decrease in profit margin 1E< and asset turnover 1.22, where as industry average profit margin being 14< showing that there has been an element of inflation and country=s poor economic condition. The average asset turnover ratio being 8.81 with )*+=s position well below at 1.22. The reason for this may be that B

in 1223 the company enhanced its production capacity from 1;936 spindles to 12966 spindles and it also diversified its business interests by venturing into a weaving pro@ect with the installation of 22 state of the art air @et looms. 'n the year 1222 the 7 *# increased to 4E.2< with again -ewan and Ahmed Hassan Te!tile being below this percentage but most importantly it has risen over the industry average of 48.E<. ne possible reason for this can be that the company has now started reaping the rewards of its investment and diversification made in the previous year. 0rofit margin also rose to 1;.8< well above the average of 1B.;< but below the <age of Blessed Te!tile limited 12.8<. The asset turnover also increased to 8.83 @ust below the average of 8.44 with ">+ and Blessed te!tile showing above the average ratio of 8.22 ? 4.8 respectively. The reason for )*+=s asset turnover figure below the average may be that 92 more looms were added to produce about BEmillion s(uare yards of high (uality fabric per year with sales rising continuously. 'n the year 9666 when the economic conditions were (uite stable and good for businesses to flourish, all the companies showed improvement in their 7 *# e!cept -ewan te!tile, which showed 7 *# of 84.1< where average, was BE.4<. )*+=s 7 *# fell to 4B.2< from 4E.2<, which is below average but taking into consideration that in this year a new state of art spinning unit /9% started production thereby increasing the total spinning capacity to about 46,3;9 spindles. The company showing improvements as its weaving unit coming good, showed by increase in the profit margin /9E.E<% which is also above the average of 9B.9< and other companies e!cept Blessed te!tile, as it showed profit margin of 92< and is performing well. The asset turnover fell from 8.83 to 9.64 which is below the average of 9.E8 and this may be due to the spinning unit /9% coming into e!istence, whereas all the other companies showed good asset turnover in this year. 'n the year 9661 the company showed good 7 *# of 49.2< although less than last year=s but well above the average of 89.3< with only ">+ showing 7 *# of 4E.8<. The reason of this less than ">+=s 7 *# may be that the company increased its weaving capacity to rise to the total capacity to 1;E air @et looms. The profit margin decreased to 99.8< from 9E.E<, which is above the average of 1E.2< and that of all other companies.

The reason being huge stuck up of sales ta! refund. >ollowing figure highlights the financial performance of )*+ from 122; to 9661.

Figure 1: NCL's Net Margin

16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 1997 1998 1999 Year
NCL

% Net Margin

2000

2001

't can be seen that the year 9666 stands out in terms of profitability of the company. The cotton prices touched the rock bottom of 7s.1966 per maund. The company successfully leveraged their financial strength to purchase cotton in bulk at an average price of 7s.1B66. +ater the prices went up and the company benefited from their low cost of cotton coupled with favourable market conditions. Mear 9661 can be compared with 1222 and it can be seen that the sales and profit in 9661 are much higher than the comparative figures in 1222 although less favourable as compared to 9666. The profits have increased in absolute terms as well as in terms of net margin as compared to 1222. However the profit growth has been retarded due to huge stuck up sales ta! refunds with the ta! authorities. The amount receivable from the ta! authorities on account of sales ta! refund has ranged from 7s.83m to 7s.1E9m during the last two years. The average receivable was 2Bm in the year ending 9661. At 14< per annum, the company had to bear the financial cost of 7s.18.8m in the year under review. Sales have increased due to commissioning of new spinning unit /9% that started working in 9666. The asset turnover is also acceptable at 9.B1 with the average being 9.B8 and only Ahmed Hassan showed less asset turnover of 1.;.

3.2 ASSET UTILIZATION The asset turnover shows how well the company is utili&ing its assets: in the year 122; it showed that )*+ is using its assets more efficiently than other companies and importantly it is above the average with ">+ being the e!ception, this efficiency can be further e!amined by looking at the >i!ed Asset Turnover />AT% /salesJfi!ed assets%. >ollowing figure 9 summarises >AT analysis from 122; to 9661.

Figure 2: Fixed Asset Turnover - NCL vs Industry

5.0 4.0 FAT ratio 3.0 2.0 1.0 1997 1998 1999 Year NCL Industry Average 2000 2001

As can be noted )*+=s >AT in this year was 4.86 above the industry average of 4.9E but only below to -ewan te!tile which had >AT of ;.8E whereas in the year 1223 >AT of )ishat fell to 1.86 much below the average level of 8.B2 and other companies, the reason being the purchase of new fi!ed assets. 'n 1222 >AT rise to 9.12 with average being 8.;9, this shows that the sales have increased but due to increase in looms /assets% it is below the average level and other companies. 'n 9666 it fell to 1.2; due to new spinning unit /9% coming into e!istence with average being 8.98 and other companies showed healthy >AT i.e. utili&ing their assets more efficiently. The situation was very similar in year 9661 with >AT of 1.22, average 9.24 and others doing well e!cept Ahmed Hassan te!tile.

)ow coming toward the *urrent 7atio, in the year 122; this ratio was @ust acceptable to 1.11 with average being 1.9E and other companies showing up to par ratio with e!ception being -ewan te!tile /9.1B%. >rom 1223 the company=s current ratio fell badly and it was 6.BE in 1223 and 6.E; in 1222 due to fall in the li(uid assets and increase in shortAterm financing. There were also fluctuations in other components of currents assets and liabilities. This situation got better in 9666 as this was the most profitable year but mainly because of the company shifting the borrowing from shortAterm to longAterm to improve the current ratio whereas all other companies had ratios at par in 1223 ? 1223 and showed good ratios in 9666. 'n 9661 current ratio fell to 6.;9 due to increase in shortA term borrowings, although current assets were also increased but liabilities increased much higher, other companies also showed poor current ratio e!cept Blessed te!tile /1.B2% and the average being 1.69. 3.3 CAPITAL STRUCTURE The permanent capital of the company may be divided into two categories, share capital, and loan capital. A highly geared company /where fi!ed interest capital is almost as great or greater than e(uity capital including reserves% must earn sufficient profits to cover interest charges before any amount is available for the e(uity shareholders and the higher the gearing the more difficult it may be to raise further long term loans. The gearing ratio in 122; for all companies was good e!cept of Blessed te!tile showing 82< gearing and Ahmed Hassan te!tile showing gearing of 9E< with average ratio at 12< showing some cause of concern for these companies. 'n the year 1223 the gearing of )ishat rose much higher than the last years and this year=s average of 12< to 4E.2< and then this ratio remained between 4BA42< during the ne!t two years till 9666 and was above the averages of the respective years. >ollowing figure shows the gearing profile of )*+.

Figure 3: NCL's
60% earing ratio % 50% 40% 30% 20% 10% 0% 1997 1998

earing Ana!ysis

1999 Year NCL

2000

2001

Industry Average

The reasons of this may possibly be poor economic conditions in 1223 and the diversification in 1222 and new investments made throughout these years due to which longAterm liabilities also increased, whereas the gearing of other companies remained under control and the average limit of 91 < in 1222 was not e!ceeded e!cept that of Ahmed Hassan te!tile which showed gearing of 8E< in 1222 and then in year 9666 -ewan te!tile gearing was above the average of 12< to 86<. 'n the year 9661 gearing ratio fell to 82<, which means that some of the debt was repaid but it still remained above the industry average of 9B< again due to further investments that were made during the year. 'n the year under review about 7s.4;B m were invested in fi!ed assets to complete the new spinning unit and to import machinery for the e!pansion in the weaving unit. +ongAterm loans of about 184m were used to finance this investment. The gearing of others companies were good e!cept -ewan and Ahmed Hassan te!tile showing gearing of 89< and 48< respectively, showing concern for Ahmed te!tile to cope with this high ratio. )ow by e!amining the ratio of 'nterest *over /0B'TJ'nterest% it will be revealed that how alarming the situation is which is shown by the gearing ratio. 'nterest cover tells us that how many times profit can cover its interest charges. The interest cover during the threeA year period of 122;A1222 remained almost above or below the average of 1.32,1.E3 ? 1.34 respectively but the interest cover of Ahmed Hassan te!tile showed that it had the 16

best interest cover during these periods and therefore it doesn=t need to worry whereas it is concerning is for the other companies. 'n the year 9666 the interest cover of )ishat rose to 8.48 from 1.BE showing good financial position and that the company can still borrow and invest to get secure and be able to cope with fluctuations and changing business environment in future, which the company did in 9666 and 9661, and similarly all other companies in 9666 showed healthy interest cover e!cept -ewan which appears to be going through some financial difficulties. 'n the year 9661 the position remained similar to 9666 with all companies showing good interest cover but -ewan te!tile seems to be getting in further problems and barely paying its interest with interest cover of 1.1; and shows that attention is needed for the successful operation in the near future. 't is said that the primary purpose of an organi&ation is to increase the wealth of the ordinary shareholders by ensuring that #0S /earning per share% of the company is good enough. #0S is calculated by dividing profit after ta! and distribution of preference dividends, if any, with the number of shares issued. #0S of all companies was good and it rise through out these years and each company touched its highest point in 9666. Then in 9661 it came down all companies e!perienced a fall in #0S. However, )ishat position remained relatively better as its #0S fell by 86< whereas #0S of all other companies fell considerably by E4< from that of 9666. 3.4 Z-SCORE ANALYSIS )ow let us assess the overall health of )*+ and others in the industry under the &Ascore model. 'n the year 122; all the companies showed &Ascore of above 8 and -ewan te!tile showing the highest score of B.84B and )ishat being on 9nd with score of 4.998 but only Blessed te!tile showed a score less than 8 of 9.E9E. 'n 1223 only -ewan and Ahmed Hassan Te!tile appeared with a &Ascore of above 8 with others showing their score with in the range of 1.3A8.6, but the score of )ishat /1.9E4% was not satisfying and was with in the range where much caution is re(uired i.e. unhealthy and high risk of failure. This score in 1222 went up to 1.3B8 showing improvements and coming with in the range where still caution is re(uired but not as much which was re(uired in the last year, where all the other companies showed satisfying &Ascore e!cept ">+ whose score fell to 1.;4;

11

and suggesting improvements. 'n the year 9666 )ishat reached the score of 8 showing continuous improvements, with all other companies also doing well but the score of -ewan te!tile fell to 9.193 from 8.889 showing caution is re(uired. 'n the final year i.e. 9661 the scores of most companies were fine with Blessed te!tile showing above 8 score, )ishat=s score fell to 9.899 /grey area with low risk of failure% but more attention was needed by -ewan te!tile as it=s score fell again and reached 9.6E showing some reason of concern. >ollowing figure summarises the &Ascore profiles of all companies.

Figure ": #-s$ore %ro&i!e

6.00 5.00 #-s$ores 4.00 3.00 2.00 1.00 0.00 1997 1998 1999 Years NCL U L !"L A#" $"% 2000 2001

As can be seen )*+ started strong but now its position is an average one relative to others in the industry. So then how do we know if &Ascores are really portraying an accurate picture of the companyN >or this we need to e!amine individual ratios that go into the calculation of &Ascores in addition to the ratios discussed above. >ollowing is a graphical representation of those B ratios for )*+.

19

Figure ': NCL (-s$ore ratio )ro&i!e

2.50 2.00 1.50 1.00 0.50 0.00 -0.50 1&997 1&998 1&999 Year '1 '2 '3 '4 '5 2&000 2&001

'1 ( )*r+,ng -a.,ta/ 0 t*ta/ assets& '2 ( reta,ned earn,ngs 0 t*ta/ assets& '3 ( earn,ng 1e2*re ,nterest 3 ta4 0 t*ta/ assets& '4 ( 5ar+et va/ue *2 e6u,ty 0 t*ta/ /,a1,/,t,es& 3 '5 ( sa/es 0 t*ta/ assets

As can be seen from the above graph, )*+=s ratios were strong in 122; but then deteriorated 1223 and 1222 showing affects of increased debt and low sales compared to fi!ed assets. Then again in 9666 )*+=s position got better with improvements in profitability, li(uidity and gearing with some of these ratios slipping in 9661 reflecting a drop in the &Ascore. ne the whole one can say that &Ascore gives a reasonable picture of the company=s financial position. However, the bounds of healthy, grey, and unhealthy areas cannot be followed strictly in a 0akistani environment and one must use &Ascores along with ratio analysis in order to make more appropriate @udgements about a company=s financial situation.

*) CONC'U)ION
After the detailed analysis, the ne!t and last step is to draw some conclusion about the overall financial situation of the company. This will be formed on the company=s

18

performance as a whole. *ompany=s performance in term of profitability seems to improving continuous throughout these years with a little hiccup in 1223. This performance is highlighted in the analysis using profit margins and return on capital employed ratio. )et profit margin suggests that there has been an element of fi!ed costs, which is preventing its net profit margin to stay around 4<A4.B< during 122;A1222 but in the year 9666 net profit margin rose showing that the productivity was improved in terms of both labour efficiency as well as raw material efficiency. By using different management techni(ues and strict control the company managed to reduce its costs, these reductions are mainly in fi!ed costs. *ompany also managed to increase its market share in different business segments by bulk (uantity advertising and promotional campaigns and by diversifying its business due to which the company was able to increase its market share and specially increase its e!port sales. The year 9661 witnessed an increase in sales of 92< and a decrease in profits of 86< from last year. 't can be seen that the year 9666 stands out in terms of profitability of the company. The cotton prices touched the rock bottom of 7s.1966 per maund. The company successfully leveraged their financial strength to purchase cotton in bulk at an average price of 7s.1B66. +ater the prices went up and the company benefited from their low cost of cotton coupled with favourable market conditions. 9661 can be compared with 1222 and it can be seen that the sales and profit in 9661 are much higher than the comparative figures in 1222 although less favourable as compared to 9666. The profits have increased in absolute terms as well as in terms of net margin as compared to 1222. However the profit growth has been retarded due to huge stuck up sales ta! refunds with the ta! authorities. The amount receivable from the ta! authorities on account of sales ta! refund has ranged from 7s.83m to 7s.1E9m during the last two years. The average receivable was 2Bm in the year ending 9661. At 14< p.a. the company had to bear the financial cost of 7s.18.8m in the year under review. Sales have increased due to commissioning of new spinning unit /9% that started working in 9666. The total turnover has increased at a higher rate than suggested by increase in sales, as 7s.B19m were accounted for by the internal sales from spinning to weaving units in 9661, against an internal sale of 7s.983m in 9666. 'f we include the internal sales, the total turnover in 9661 comes to 7s.8.B3b against a comparative figure of 7s.9.E1b in 9666. Another thing, which hamper higher returns than market is the

14

dividend policy by the government. The government policy implying distribution of 46< of current earnings or B6< of paid up capital as dividend, if reserves are higher than B6< of paid up capital, discoursing companies from retaining their earnings. This policy discourages savings and investment in an economy that already has a very low level of savings. Since the company distributes their e(uity funds in the form of dividend, therefore they have to rely on borrowings to finance their pro@ects which have a negative effect on current ratio. 'f a company earns higher returns than the market, it is more beneficial for the shareholders that the profits are retained in the company rather than distributed as dividends. This government policy is selfAdefeating as it hinders the growth of the economy while failing to safeguard the interest of the shareholders. The average payout ratio for the last B years is 46<. 'n 9666, the longAterm debt was increased significantly to finance the e!pansions in spinning and weaving units. Hence, the payout was decreased in order to maintain the debtAtoAe(uity ratio. The overall performance of the company as assessed by ratio analysis seems to be around average in the industry but on a more positive side. )*+ has improved in profitability but is highly leveraged relative to the industry. Similarly there are certain aspects which have improved /profitability% and certain deteriorated /li(uidity% over time. A similar sort of picture is highlighted by the &Ascore approach. However, there is a sense of improvement and )*+ could have a better score in the ne!t year as the e!pansion in weaving has enhanced its capacity by 8;< to 1;E air @et looms, supplementing the spinning capacity of 46,3;9 spindles and the effect of this e!pansion will be visible in sales of 9669 which would not have been possible if )*+ did not e!pand into weaving. The above results also highlight )*+ strategy to e!pand at the right time otherwise sustaining in a competitive markets would have been difficult. #arly years show stagnant or very low growth in sales due to spinning whereby growth coming in from the weaving since 1222 /Table B%. )ow although the company is e(uipped with modern manufacturing facilities it should try to penetrate in new markets and try to increase its e!isting market share. )ew product launches will improve the portfolio and will help the company to diversify and reduce any business risk. *ompany should continue to control and reduce its fi!ed costs.

1B

*ompany should also give suggestions to the government to revise some of its policies like dividend policy to encourage reinvestment and less reliance on debt.

+) !UTUR% OUT'OO,
Some of the future plans of the company, which ' asked them in the interview with the finance manager, are as followsF A -ue to the changes in the structure of te!tile industry and the abolition of e!port (uotas by 9664, it will become increasingly difficult to maintain a competitive edge in semiA furnished products. Hence the company is focusing their efforts on speciali&ing in valueA added products. -ifferent plans for vertical integration and product diversification are under consideration that will be materiali&ed in near future. 16,666 spindles are being added to the spinning unitA9. State of the art 7eiter machinery will be installed that will produce better (uality yarn through compact spinning. 'n order to minimi&e dependence on outAside sources, the company is planning to set up a captive power plant for the new and e!isting units, using the latest coAgeneration technology. This will not only ensure a reliable source of electricity, using the economical duel fuel system, but will also enable the company to use the generated steam in their si&ing units and for airAconditioning, using heat recovery systems.

1E

Bibliogra !"# Altman, #.'., 1228, K*orporate >inancial -istress and BankruptcyK, 9nd edition, Oohn Wiley ? Sons, 'nc. 'SB) 6A4;1ABB9B8A4.

1;

ANN%-UR% A
TA.'% 1/ Nishat Chunia 'i0ite1 2 !inancial )tate0ents an1 Ratio Analysis
Figures in t0ousand 1**, 1*** 144&000 162&237 306&237 270&431 702&242 972&673 1&278&910 886&593 227 392&090 1&278&910 1&148&551 144&000 194&792 338&792 280&856 1&015&989 1&296&845 1&635&637 956&365 227 679&045 1&635&637 2&094&958

1**+ Ca)ita! 2eserves Net /ort0 Long Ter1 Lia.i!ities Current Lia.i!ities 144&000 110&627 254&627 26&765 201&965 228&730 483&357 258&221 311 224&825 483&357 1&111&537

2--403&200 192&289 595&489 567&030 619&802 1&186&832 1&782&321 1&202&614 527 579&180 1&782&321 2&367&018

2--1 403&200 340&409 743&609 476&321 1&130&202 1&606&523 2&350&132 1&537&288 545 812&298 2&350&131 3&066&830

Tota! Lia.i!ities Fixed Assets Long Ter1 4e)osits5Invest1ents Current Assets Tota! Assets 3a!es

ross %ro&it 6)erating %ro&it %!us 6t0er In$o1e Finan$ia! 7 6t0er C0arges Taxation

186&017 144&251 791&2258 77&7878

183&371 156&465 793&2448 711&6118

362&475 290&531 7185&9368 713&0008

628&457 533&773 7155&7728 720&5048

684&287 523&634 7237&8118 736&9038

Net %ro&it ross Margin Net Margin 26C89%:IT5C;8<<= Fixed Asset Turnover93a!es5Fixed Assets= Asset Turnover93a!es5Ca)ita! 81)!oyed<<= Current 2atio earing 2atio9LTL5 LTL>8?@ITY= 8%3

45&239 16.7% 4.1% 51.3% 4.30 3.95 1.11 9.5% 3.14

51&610 16.0% 4.5% 27.1% 1.30 1.99 0.56 46.9% 3.58

91&595 17.3% 4.4% 46.9% 2.19 3.38 0.67 45.3% 6.36

357&497 26.6% 15.1% 45.9% 1.97 2.04 0.93 48.8% 8.87

248&920 22.3% 8.1% 42.9% 1.99 2.51 0.72 39.0% 6.17

No; 6& 6rdinary 30ares < 3tate :anC 6& %aCistan <<Ca)ita! 81)!oyedA9NetBort0>LTL=

14&400 281&392

14&400 576&668

14&400 619&648

40&320 1&162&519

40&320 1&219&930

13

Ta3le / Ratios Analysis of Co04arison Co04anies

1**+ 1**, 1*** 2--2--1

@M82 FA:2IC LIMIT84 ross Margin Net Margin 26C89%:IT5C;8<<= Fixed Asset Turnover93a!es5Fixed Assets= Asset Turnover93a!es5Ca)ita! 81)!oyed<<= Current 2atio 9Current Assets5Current Lia.i!ities= earing 2atio 9LTL E LTL>8?@ITY = 8%3 21.1% 6.3% 65.2% 3.76 3.68 1.01 12.8% 4.2 15.9% 3.1% 44.4% 3.15 3.59 0.69 7.5% 1.9 14.3% 3.7% 53.3% 3.18 3.99 0.77 1.7% 2.5 26.2% 14.9% 65.5% 3.20 2.76 0.90 7.5% 9.9 17.5% 4.7% 46.3% 3.26 3.00 0.96 1.2% 3.5

:L83384 T8DTIL8 LIMIT84 ross Margin Net Margin 26C89%:IT5C;8<<= Fixed Asset Turnover93a!es5Fixed Assets= Asset Turnover93a!es5Ca)ita! 81)!oyed<<= Current 2atio 9Current Assets5Current Lia.i!ities= earing 2atio 9LTL E LTL>8?@ITY = 8%3 14.3% 2.4% 30.4% 2.9 3.4 0.78 39% 4.7 18.1% 5.5% 59.9% 3.8 4.7 0.88 17% 5.2 19.3% 6.9% 62.1% 4.1 4.3 0.97 11% 6.6 29.0% 17.7% 66.5% 3.4 2.9 1.17 10% 18.1 16.8% 6.2% 32.7% 3.8 2.9 1.59 7% 6.2

48/AN T8DTIL8 MILL3 LIMIT84 ross Margin Net Margin 26C89%:IT5C;8<<= Fixed Asset Turnover93a!es5Fixed Assets= Asset Turnover93a!es5Ca)ita! 81)!oyed<<= Current 2atio 9Current Assets5Current Lia.i!ities= earing 2atio 9LTL E LTL>8?@ITY = 8%3 13.4% 3.1% 18.0% 7.36 2.56 2.15 7% 5.3 12.5% 2.7% 20.3% 6.19 2.67 1.49 10% 4.8 13.1% 2.8% 22.9% 5.73 2.45 1.38 13% 10.29 18.0% 5.3% 34.1% 4.22 2.31 1.04 30% 14.5 17.1% 0.8% 32.0% 3.98 2.51 0.93 32% 2.6

AFMA4 FA33AN T8DTIL8 MILL3 LIMIT84 ross Margin Net Margin 26C89%:IT5C;8<<= Fixed Asset Turnover93a!es5Fixed Assets= Asset Turnover93a!es5Ca)ita! 81)!oyed<<= Current 2atio 9Current Assets5Current Lia.i!ities= earing 2atio 9LTL E LTL>8?@ITY = 8%3 13.5% 5.1% 21.2% 3.0 2.8 1.23 26% 3.0 7.5% 1.3% 9.9% 3.5 3.6 0.90 14% 0.9 14.7% 6.4% 32.8% 3.5 3.0 1.11 36% 4.7 26.0% 15.4% 70.1% 3.4 3.1 1.21 0% 12.1 11.0% 2.9% 10.1% 1.6 1.7 0.89 43% 2.0

IN4@3T2Y AG82A 83 ross Margin Net Margin 26C89%:IT5C;8<<= Fixed Asset Turnover93a!es5Fixed Assets= Asset Turnover93a!es5Ca)ita! 81)!oyed<<= Current 2atio 9Current Assets5Current Lia.i!ities= earing 2atio 9LTL E LTL>8?@ITY = 8%3 <<Ca)ita! 81)!oyedA9NetBort0>LTL= 15.8% 4.2% 37.2% 4.26 3.3 1.26 19% 4.1 14.0% 3.4% 32.3% 3.6 3.3 0.90 19% 3.3 15.7% 4.8% 43.6% 3.7 3.4 0.98 21% 6.1 25.2% 13.7% 56.4% 3.2 2.6 1.05 19% 12.7 16.9% 4.6% 32.8% 2.9 2.5 1.02 25% 4.1

12

Ta3le &/ 56scores of Co04anies

%82F62MANC8 M8A3@284 @N482 #-3C628 M648L : Nis0at C0unian Ltd;
1**+ 1**, 1*** 2--2--1 4.223 1.264 1.853 3.004 2.322

@1er Fa.ri$s Ltd;

3.329 2.221 1.747 3.802 2.764

:!essed Texti!e Ltd;

2.626 2.574 2.337 2.832 3.793

A01ad Fassan Texti!e Ltd;

3.191 3.229 3.345 5.520 2.189

4eBan Texti!e Mi!!s Ltd;

5.130 3.107 3.092 2.128 2.064

Ta3le */ Nishat Chunian 'i0ite17s 56score Ratios

NCL's #-s$ore 2atios
Year '1 '2 '3 '4 '5 1**+ 0.047 0.229 0.298 0.935 2.300 1**, 70.2438 0.127 0.122 0.126 0.898 1*** 70.2068 0.119 0.178 0.111 1.281 2--70.0238 0.108 0.299 0.941 1.328 2--1 70.1358 0.145 0.223 0.402 1.305

'1 ( )*r+,ng -a.,ta/ 0 t*ta/ assets '2 ( reta,ned earn,ngs 0 t*ta/ assets '3 ( earn,ng 1e2*re ,nterest 3 ta4 0 t*ta/ assets '4 ( 5ar+et va/ue *2 e6u,ty 0 t*ta/ /,a1,/,t,es '5 ( sa/es 0 t*ta/ assets

96

Ta3le +/ Nishat Chunian 'i0ite1/ )ales .rea86u4 Analysis in 9 : Ru4ees

;4.*rt L*-a/ "*ta/ "*ta/ 9a/es 7<s.0008 ;4.*rt L*-a/ "*ta/

1997 1998 1999 2000 2001 9.,nn,ng :eav,ng 9.,nn,ng :eav,ng 9.,nn,ng :eav,ng 9.,nn,ng :eav,ng 9.,nn,ng :eav,ng 75% 0% 77% 0% 43% 34% 40% 44% 38% 44% 25% 0% 23% 0% 15% 8% 10% 6% 10% 8% 100% 0% 100% 0% 58% 42% 50% 50% 48% 52% 100% 100% 100% 1111537 1148551 2094958 2367018 :eav,ng 1041488 142021 1183509 2367018 3066830 9.,nn,ng 1165395 306683 1472078 :eav,ng 1349405 245346 1594752 3066830

9.,nn,ng :eav,ng 9.,nn,ng :eav,ng 9.,nn,ng :eav,ng 9.,nn,ng 833653 0 884384 0 900832 712286 946807 277884 0 264167 0 314244 167597 236702 1111537 0 1148551 0 1215076 879882 1183509 2094958

91