[ACCOUNTING II] DEC 01 2010

COMSATS
Institute of Information Technology

SUBMITTED TO: Mr. ABDUL HAMEED

SUBMITTED BY: SADDAM DURRANI
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REGISTRATION NO: FA09-BBA-079

TABLE OF CONTENTS

TOPICS PAGE NO.

Summary PAGE 3

Introduction PAGE 4,5

Product Lines Of NML PAGE 6

Financial Highlights PAGE 7

Type Of Audit Report PAGE 8,9

Vertical Analysis Of Income Statement PAGE 10

Horizontal Analysis Of Income Statement PAGE 11

Vertical Analysis Of Balance Sheet PAGE 12,13

Horizontal Analysis Of Balance Sheet PAGE 14,15

Financial Statements Ratio Analysis PAGE 16

Interpretations Of Ratio Analysis PAGE 17,18

Square Model PAGE 19

Conclusion PAGE 20

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SUMMARY
I was given a project to work on by my accounting teacher. I had to choose an organization to
complete my project so I decided to choose Nishat Mills as subject of my project in this project I
have thoroughly gone through each and every aspect of Nishat Mills, even the meticulous details.
I have started my project from introduction of Nishat Mills from where they started and who was
the founder of it. After that I have mention the product lines of Nishat Mill’s i-e what product
they offer. After that I have moved to the financial highlights of the mill which contains there
progress in terms of sales and their net and gross profit during the years. Also audit report of the
Nishat Mill is presented; both qualified and unqualified reports are included in the project. I have
also included the vertical and horizontal analysis of income statement of the organization.
Vertical and horizontal analysis of balance sheet is also discussed in detail in which assets and
liabilities of the organization are shown. I have also discussed ratio analysis of financial
statements of Nishat Mill’s, in this gross profit, net profit, earning per share, current ratio and
gearing ratios are discussed, which shows the comparison between 2009-2010. Then I have
discussed interpretation of these ratio analysis ion detail i-e current ratio, gearing ratio etc. In the
end a square model is drawn to show in detail organization’s sales & revenues, assets &
liabilities, expenses, profit and owner’s equity etc.

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INTRODUCTION
When Pakistan came into being there was only 16 textile mills out of which only 12were in
operation. It grew to 70 in 1957 as industrial development takes place. Nowadays there are 596-
textile mills out of which 442 are in operation. The export revenue of textile industry contributes
a large share to the GDP of Pakistan.

NISHAT MILLS LIMITED (NML)

Nishat Mills Limited (NML) commenced business in 1951 as a partnership concern, which was
converted into private limited company in 1959. In 1961, the company went public and was
listed on the Karachi stock exchange, the only stock exchange in the country at that time. Its
annual turnover for the year is over Rs.17 billion (US$ 283 million). NML with the production
facility of 270,000 spindles, 740 looms and dyeing & printing capacity of 7 million meters (7.65
million yards) makes Nishat the largest composite textile set up in Pakistan. NML started out as
a weaving unit with 500 semi-automatic looms; later 10000 spindles were added, laying the
foundation on nation’s biggest textiles composite project. Composite project at Nishat mills
limited Faisalabad covering 98 acre of land is providing all production process under one roof
i.e. spinning, weaving, processing, stitching and power generation.

HISTORY AND PRESENT STATUS OF NISHAT

The history of Nishat dates back to 1951, when Mian Mohammad Yahya founded Nishat Mills.
After almost half a century of undaunted success, Nishat Group is among the leading business
houses of the country and ranks among the top 5 groups in terms of assets and sales revenue. The
group has its roots firmly planted into four-core business namely
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1. Textiles
2. Power generation

3. Banking

4. Cement

The textile business is further subdivided into 2 textile divisions

 Nishat Faisalabad

 Nishat Chuniot

The Founder

A man of vision, courage and integrity, Mian Mohammad Yahya was born in 1918 in Chiniot. In
1947 when he was running a leather business in Calcutta, he witnessed the momentous that
swept the indo-pak sub-continent and resulted in the emergence of Pakistan. Like many of his
contemporaries, he also migrated to the new country to help establish its industrial base. His is a
story of success through sheer hard work and an undaunted spirit of enterprise. Beginning with a
cotton export house, he soon branched out into ginning, cotton and jute textiles, chemicals and
insurance. He was elected Chairman of All Pakistan textile Mills Association (APTMA), the
prime textile body in the country. He died in 1969, at the age of 51 having achieved so much
success in so short period.

The Chairman

Today Mian Mohammad Umer Mansha, the chairman of Nishat Group, like his father, continues
the spirit of entrepreneurship and has led the group to become a multi-dimensional corporation,
with wide ranging interests. Nishat has grown from a cotton export house into the premier
business group of the country with 5 listed companies, concentrating on 4 core business,
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. Firmly
believing in ‘Growth through Professional Management’ our corporate culture is based on
decentralization, delegation of authority, encouraging the acceptance of responsibility and
inculcating quality consciousness.
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TEXTILE CAPACITY

Production process consists of spinning, weaving, processing, and finishing. The processing
includes dyeing, engraving. The textile capacity of the group is the largest in the country. An
addition of 20000 new spindles, 100 new air jets looms and new dyeing plant has increased the
existing capacity of 24000 spindles, 740 looms and dyeing and finishing capacity of 5 million
meters. The group is the largest exporter of textile products from Pakistan for more than a
decade.

Export Oriented Organization

Nishat mills limited is an export oriented organization. Nishat mills limited exports more than
90% of its products mainly to the Far East, Europe and United States.

PRODUCT LINES OF NISHAT MILLS LIMITED

　

Products line of Nishat mills limited consists of following items,

BEDDING

 Sheet sets
 Quilt cover sets

 Bed spreads

 Comforters

 Bed skirts

 Oxford pillow cases

 Blanket covers

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 Sleeping Bags

CURTAINS & ACCESSORIES

 Embroider curtains
 Pencil pleat tape curtains

 Pinch pleat lined & unlined curtains

 Tab top 7 rod pocket curtains

 Assorted pelmets and window dressings

 Oxford cushion covers

 Frilled and piped cushion covers

 Frilled, piped and pleated tie backs

TABLE, FURNITURE & KITCHEN ACCESSORIES

 Tea cozy
 Table Mats

 Table cloth and napkins

 Aprons

 Kitchen Gloves

 Pot Holders

 Chair pads and circle tacks

 Couch cove

FINANCIAL HIGHLIGHTS

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Financial highlights are a key component of corporate annual reports. These highlights present
significant conclusions regarding the financial position of an organization. It's an overview or
summary of the major occurrences in the company since the last report.

FINANCIAL HIGHLIGHTS OF NISHAT MILLS LIMITED　

Following are the major financial highlights of NML for the accounting year 2009-2010.

 Net sales increased by 32.11% to Rs. 31,535,647 during the period 2009-2010. In 2008-
2009 net sales was Rs. 23,870,379.

 Gross profit increased by 37.43% to Rs 5,980,185 during the period 2009-2010. In 2008-
2009 gross profit was Rs. 4351,541.

 In 2009-2010, Profit before taxation rose by 110.44% and profit for the year was
3,286,069. In 2008-2009 it was 1,561,501

 After tax profit also rose by 129.93% and the amount for the year was 2,915,461. In
2008-2009 it was 1,268,001.

 Gross profit ratio to sales was 9.24 in 2009-2010 and it was 18.23 in 2008-2009 so it also
increases in 2010.

 After tax profit ratio to sales was 9.24 in 2009-2010 and was 5.30 in 2008-2009 so it also
increases in 2010.

 Earnings per share increased to Rs. 10.50 in 2009-2010. It was Rs. 6.23 in 2008-2009.

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TYPE OF AUDUT REPORT

　　

RIAZ AHMAD & COMPANY is the audit firm that conducts audit of NML.

There are mainly two types of audit report i.e.

1. Qualified Audit Report

2. Un-Qualified Audit Report

Qualified Audit Report:

A Qualified audit report is issued when the auditor encountered one of two types of situations
which do not comply with generally accepted accounting principles, however the rest of the
financial statements are fairly presented. This type of opinion is very similar to an unqualified or
“clean opinion”, but the report states that the financial statements are fairly presented with a
certain exception which is otherwise misstated. The two types of situations which would cause
an auditor to issue this opinion over the unqualified opinion are:

1. Single deviation from GAAP

2. Limitation of scope

Un-Qualified Audit Report:

This type of report is issued by an auditor when the financial statements presented are free of
material misstatements and are in accordance with IAS and Companies Ordinance 1984, which
in other words means that the company's financial condition, position, and operations are fairly
presented in the financial statements.

After conducting the audit, it issues a report known as "Auditor's Report to the Members". In this
report their responsibility is to express an independent opinion on the accuracy and consistency
of the financial statements of the company.

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RIAZ AHMAD & COMPANY presented an Un-Qualified audit report to the members after
conducting audit in accordance with the auditing standards as applicable in Pakistan.

According to the audit firm:

•NML maintained proper books of account as required by the Companies Ordinance 1984.

•The balance sheet and profit and loss account together with the notes thereon have been drawn
up in conformity with the Companies Ordinance 1984.

•The business conducted, investment made and the expenditure incurred during the year were in
accordance with the objects of the Company.

•The books of account of NML give a true and fair view of the state of Company's affairs as at
30 June 2010.

In short, audit firm gave a positive report regarding NML operations.

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NISHAT MILLS LIMITED

VERTICAL ANALYSIS OF INCOME STATEMENT

2008-09 2009-10

Income Statement (Rs in Million) % (Rs in Million) %

Sales 23,870,379 100 31,535,647 100

Cost Of Sales (19,518,838) 81.7 (25,555,462) 81.0

Gross Profit 4,351,541 18.22 5,980,185 18.96
Distribution Cost (1,315,630) 5.51 (1,714,598) 54.37
Administrative Expenses (435,012) 1.82 (545,166) 1.72
Other Operating Expenses (191,608) 0.80 (289,080) 0.91
Other Operating Income 599,006 2.50 981,650 3.11
Profit From Operations 3,008,297 12.6 4,412,991 13.9
Finance Cost (1,446,796) 6.06 (1,126,922) 3.57
Profit Before Taxation 1,561,501 6.5 3,286,069 10.4
Provision For Taxation (293,500) 1.2 (370,608) 1.17
Profit After Taxation 1,268,001 5.3 2,915,461 9.2

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NISHAT MILLS LIMITED

HORIZONTAL ANALYSIS OF INCOME STATEMENT

2008-09(base year) 2009-10

Income Statement (Rs In Million) % (Rs in Million) % ∆%

Sales 23,870,379 100 31,535,647 132 32

Cost Of Sales (19,518,838) 100 (25,555,462) 130 30
Gross Profit 4,351,541 100 5,980,185 137 37
Distribution Cost (1,315,630) 100 (1,714,598) 130 30
Administrative Expenses (435,012) 100 (545,166) 125 25
Other Operating Expenses (191,608) 100 (289,080) 150 50
Other Operating Income 599,006 100 981,650 163 63
Profit From Operations 3,008,297 100 4,412,991 146 46
Finance Cost (1,446,796) 100 (1,126,922) 77 (23)
Profit Before taxation 1,561,501 100 3,286,069 210 110
Provision For Taxation (293,500) 100 (370,608) 126 26
Profit After Taxation 1,268,001 100 2,915,461 230 130

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NISHAT MILLS LIMITED

VERTICAL ANALYSIS OF BALANCE SHEET

2008-09 2009-10

BALANCE SHEET (Rupees '000) % (Rupees '000) %

EQUITY AND LIABILITIES

Issued, subscribed and paid up share 2,424,827 7.6 3,515,999 7.6

capital
Reserves 16,905,940 54 27,860,314 60.32

NON CURRENT LIABILITIES

Long term financing 2,334,411 7.4 2,980,694 6.4
Deferred tax 245,243 0.7 1,256,892 2.7

CURRENT LIABILITIES
Trade and other payables 1,309,658 4.1 2,139,321 4.63
Provision for taxation 313,917 0.9 418,768 0.9
Accrued mark-up 202,777 0.6 232,247 0.50
Short term borrowings 7,342,600 23.3 6,649,447 14.3
Current portion of long term financing 433,313 1.37 1,128,632 2.44

TOTAL EQUITY AND 31,512,686 100 46,182,314 100

LIABILITIES

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ASSETS
NON CURRENT ASSETS
Property, plant & equipment 11,199,635 35.5 11,841,667 25.6
Investment Properties 41,049 0.1 132,550 0.2
Long term investments 11,952,949 37.9 21,959,543 47.5
Long term loans 12,367 0.03 498,803 1.0
Long term deposits and prepayments 11,848 0.03 16,823 0.03

CURRENT ASSETS
Stores, spare parts and loose tools 561,251 1.7 688,832 1.49
Stock in trade 4,092,512 12.9 6,060,441 13.1
Trade debts 1,300,366 4.12 2,041,256 4.4
Loans and advances 462,025 1.4 504,046 1.0
Short term deposits and prepayments 26,880 0.08 31,912 0.06
Other receivables 323,000 1.0 724,407 1.5
Accrued interest 16,906 0.03
Short term investments 1,414,310 4.4 1,554,543 3.3
Cash and bank balances 111,494 0.35 110,585 0.23

TOTAL ASSETS 31,512,686 100 46,182,314 100

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NISHAT MILLS LIMITED

HORIZONTAL ANALYSIS OF BALANCE SHEET

2008-09(base year) 2009-10

BALANCE SHEET (Rupees '000) % (Rupees '000) % ∆%

EQUITY AND LIABILITIES

Issued, subscribed and paid up share 2,424,827 100 3,515,999 150 50
capital
Reserves 16,905,940 100 27,860,314 165 65

NON CURRENT LIABILITIES

Long term financing 2,334,411 100 2,980,694 128 28
Deferred tax 245,243 100 1,256,892 513 413

CURRENT LIABILITIES
Trade and other payables 1,309,658 100 2,139,321 163 63
Accrued mark-up 202,777 100 232,247 115 15
Short term borrowings 7,342,600 100 6,649,447 91 (9)
Current portion of long term financing 433,313 100 1,128,632 260 160
Provision for taxation 313,917 100 418,768 133 33

TOTAL EQUITY AND 31,512,686 100 46,182,314 147 47

LIABILITIES

NON CURRENT ASSETS

Property, plant & equipment 11,199,635 100 11,841,667 106 6
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Investment properties 41,049 100 132,550 323 223

Long term investments 11,952,949 100 21,959,543 184 84
Long term loans 12,367 100 498,803 4033 3933
Long term deposits and prepayments 11,848 100 16,823 142 42

CURRENT ASSETS
Stores, spare parts and loose tools 561,251 100 688,832 123 23
Stock in trade 4,092,512 100 6,060,441 148 48
Trade debts 1,300,366 100 2,041,256 157 57
Loans and advances 462,025 100 504,046 109 9
Short term deposits and prepayments 29,880 100 31,912 107 7
Other receivables 323,000 100 724,407 224 124
Accrued interest 100 16,906
Short term investments 1,414,310 100 1,554,543 110 10
Cash and bank balances 111,494 100 110,585 99 (1)

TOTAL ASSETS 31,512,686 100 46,182,314 147 47

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FINANCIAL STATEMENTS RATIO ANALYSIS

CURRENT RATIO:

2008-2009 2009-2010 ∆ in times

0.86 1.11 Rs. 0.25 increased

GEARING RATIO:
2008-2009 2009-2010 ∆ in times
34.34 25.53 8.81 (decreased)

GROSS PROFIT %:
2008-2009 2009-2010 ∆%
18.23% 18.96% 0.73% increased

NET PROFIT % (Before tax):

2008-2009 2009-2010 ∆%
6.54% 10.42% 3.88% increased

EARNING PER SHARE (EPS):

2008-2009 2009-2010 ∆ Rupees.

Rs. 6.23 Rs. 10.50 Rs. 4.27 increased

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PROPOSED DIVIDEND %:
2008-2009 2009-2010 ∆%
20% 25% 5% increased

INTERPRETATIONS OF RATIO ANALYSIS

CURRENT RATIO:
The ratio is mainly used to give an idea of the company's ability to pay back its short-term
liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher
the current ratio, the more capable the company is of paying its obligations. A ratio under 1
suggests that the company would be unable to pay off its obligations if they came due at that
point. 

The current ratio of NML increased during the period 0f 2009-2010 to 1.11 times. Last year it
was 0.86 times. This increase in current ratio shows that NML’s ability to pay back its short term
debts and liabilities with its short term assets is increased.

GEARING RATIO:
A general term describing a financial ratio that compares some form of owner's equity (or
capital) to borrowed funds. Gearing is a measure of financial leverage, demonstrating the degree
to which a firm's activities are funded by owner's funds versus creditor's funds. 

NML’s leverage decreased by 8.81 times during the period of 2009-2010. In 2008-2009 gearing
ratio of NML was 34.34 which decreased to 25.53 in 2009-2010. This decrease in gearing ratio
shows that NML’s is not vulnerable to downturns in business, and investing in NML is not risky.

GROSS PROFIT:

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The gross profit ratio tells us the profit a business makes on its cost of sales, or cost of goods
sold.

Gross profit is the profit a company earns before it takes off any administration costs, selling
costs and so on. So company should have a much higher gross profit margin than net profit
margin.

NML’s gross profit increased by 0.73% during the period of 2009-2010, which shows that NML
is earning profit 0.73% more than last year on its cost of sale, or cost of goods sold.

NET PROFIT:
The profit margin tells you how much profit a company makes for every Rs.1 it generates
in revenue or sales.
NML experienced an increase of 3.88% during the period of 2009-2010 in its net profit before
tax which shows that NML gain more profit from its operation from last year.

EARNING PER SHARE (EPS):

The portion of a company's profit allocated to each outstanding share of common stock. Earnings
per share serves as an indicator of a company's profitability. Obviously if this ratio is high it's
better for the company as the value of the share will increase. This ratio also helps an investor to
decide in what company he should invest.

NML’s EPS was Rs. 6.23 in 2009 and it increase by Rs. 4.27 during the year 2010 to Rs 10.50.
Which shows an increase in the value of shares.

PROPOSED DIVIDEND:
Dividend declared by directors but not yet approved by shareholders. The directors of NML
proposed a 5% increase in the dividend during 2010.

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SQUARE MODEL

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CONCLUSION
After going through every aspect of Nishat Mill’s we come to the conclusion that undoubtedly
Nishat Mill’s is one of the biggest and well reputed organization of the country. During all these
years Nishat Mill’s has served its customers the best possible way and it has made sure that
customer satisfaction is guaranteed at every cost, this policy has grown their customer base a lot
and their customers are fully satisfied by their products. If we take a look at Nishat Mill’s we can
see that from the very beginning they have progressed subsequently, the hard work of
administration has definitely helped Nishat Mill’s to firm its roots and to become one of the
leading organization of the country.

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