Chapter No.

EXECUTIVE SUMMARY
National Foods Limited is a brand identified by its Quality and Taste that has been
delighting the growing culinary needs of urban/rural population. The company was
incorporated in Pakistan on mid of February 19, 1970 as a private limited company
under the Companies Act, 1913 and subsequently converted into a public limited
company under the Companies Ordinance, 1984 by special resolution passed in the
extra ordinary general meeting held on March 30, 1988. In 1991, with the aim of
bringing constant value to our consumers, National Foods diversified its product
portfolio with the launch of the Pickle range.

The swot analysis of internal and external factors of the organization regarded as
strengths, weaknesses, opportunities and threads. The competitive environment
enables the team to propose dynamic and constructive strategies for the successful
compliance of company’s objectives and strategic mission. It focuses on the
Organizational Objectives and Mission. Also details of Company’s departments and
products and services. The accomplishment and success of National Foods Limited
will be measured with the capture of market share in terms of economic value and the
increase in the brand value.

Company’s past financial performance evaluation is based on Common size, trend

analysis and ration analysis. After financial statement analysis some recommendation
is provided and also conclusion describes the company’s financial position.

1
 Chapter No. 2

PRELIMINARY BUSINESS ANALYSIS

2.1. Introduction:

“The manufacturing or technically productive enterprises in a particular field,

country, region, or economy viewed collectively, or one of these individually.”

“The Food Industry is a complex, global collective of diverse businesses that supplies
most of the food consumed by the world population. Only subsistence farmers, those
who survive on what they grow, and hunter-gatherers can be considered outside of the
scope of the modern food industry.”

Being a labor-intensive, agriculture-based country, it is no surprise that the food

industry employs over 20 per cent of the country’s working population.
Approximately 75 per cent population consists of farmers, orchard men, cattle men,
fishermen and others involved in the production of raw materials. The food industry
works in four phases; production, process, transportation and distribution. Thus we
can see how it involves everyone right from a small farmer to a retail distributor. The
linkages in this chain are very crucial and a slight disturbance in anyone phase can
disrupt the entire cycle.
The corporate food industry is in a state of growth, with the increase in average
revenue being in excess of 25 per cent last year. This growth is based on market
penetration of largely urban areas and some export markets. With deeper penetration
countrywide, the sector has enormous potential for growth and can contribute more
than the current 20 percent of manufacturing GDP. Emerging trends now point
towards investment in value-added processing, albeit on different levels in the various
sub-sectors of this industry. Major primary production consists of cereal grains (rice,
maize, wheat, and barley), sugarcane, various fruits and vegetables, marine and
freshwater seafood, meat, and dairy products. However, the value-added food
processing industry deals with a narrower range of products. Most of the participants

2
on the primary level of production are self-employed persons (such as farmers and
fishermen), small businesses, and large landholders, along with a few corporations.
The bulk of food businesses are either small and medium organizations, or private
limited companies. Publicly-listed food companies consist largely of sugar mills. The
analysis being presented here is based on the functioning of publicly listed food
corporations.
The companies chosen for consideration include Clover Pakistan, Engro Foods,
National Foods, and Unilever Foods.
National Foods Limited, the third company in our analysis, is one of Pakistan’s oldest
food conglomerates. They have a wide product offering, ranging from pre-mixed
recipe spices, salts, table spices, sauces, pickles to packaged rice.

2.2. Company History:

The company was incorporated in Pakistan on mid of February 19, 1970 as a private
limited company under the Companies Act, 1913 and subsequently converted into a
public limited company under the Companies Ordinance, 1984 by special resolution
passed in the extra ordinary general meeting held on March 30, 1988. In 1991, with
the aim of bringing constant value to our consumers, National Foods diversified its
product portfolio with the launch of the Pickle range. Guided by our founding
principles of quality and purity (which remain intact), we enjoyed great success in our
pioneering venture, which allowed us to steadily expand into other categories. In
1992, National Foods as a committed and socially responsible organization joined
hands with UNICEF to spread awareness about the use of iodized salt which helps
fight against widespread Iodine related deficiencies and diseases. In 1997, National
Foods added two more categories to its product portfolio, which included a varied
range of Jams and Ketchup. In 1998, National Foods became an ISO Certified
Company that helped us in our pursuit of excellence. In 2000 National Foods’
mainstream products were launched in Australia to offer a taste of ethnic food to our
Non-Asian consumers. In 2006, National Foods celebrated the opening of its brand
new production facility in Port Qasim. This new factory is equipped with state-of-the-
art machinery and is spread over more than 10 acres. In 2010, National Foods

3
successfully completed 40 years since its inception, whilst displaying the highest
standards of corporate behavior towards its employees, consumers and the society at
large. In 2014, an official inauguration ceremony of our first international subsidiary,
NF DMCC, took place in Dubai. On the local front, National Foods successfully
pioneered as the first food company to establish strong system based controls for
monitoring the presence of Allergens in its products through the implementation of
Allergen Management System. In line with new product developments, National
Foods also launched its first range of Halal frozen meals and traditional nimco snacks
called National Authentic and National Masala Snax respectively. Furthermore,
National Foods also became an ACA authorized Training Employer by becoming an
official member of the Institute of Chartered Accountants in England and Wales
(ICAEW). In 2015, National Foods continues to accelerate towards accomplishing its
Vision 2020 by conquering many more horizons through commitment to excellence,
continuous innovation and quality products for its consumers. The company is
principally engaged in the manufacture and sale of convenience based food products.
It is listed on Karachi, Lahore and Islamabad Stock Exchanges. The registered office
of the company is situated at 12 / CL - 6, Claremont Road, Civil Lines, Karachi. With
a range of over 110 products in 13 major categories, National Foods is one of the
prominent food companies.

With a history spanning over four decades, National Foods has trudged through
various challenges of economic booms/depressions, wars, globalization, changing
consumer lifestyles, technological advancements and has successfully catered to the
changing needs of its customers. National Foods has managed this with its consumer
centric and innovative product development which keeps into account the ever
changing market trends.

4
2.3. Vision and Mission Statement:

• A Vision Statement that

describes the desired future
Vission position of the company.

• A Mission Statement defines

the company's business, its
Mission objectives and its approach
to reach those objectives.

5
Vision Statement:

“Our vision is to be a Rs. 50 billion food company by the year 2020

in the convenience food segment by launching products and
services in the domestic and international markets that enhance
lifestyle and value for our customers through management
excellence at all levels.”

6
Mission Statement:

“To grow business consistently through positive relationship with

customers to attain full customer satisfaction and to bring continual
improvement by adopting only those business practices which add
value to our customers, employees and shareholders.”

7
2.4. Company information:

Abrar Hasan is the Chief Executive Officer of National Foods Limited, the leading
multi-category food company in Pakistan producing over 250 different products,
marketed both in Pakistan and exported to 35 countries worldwide. Under his
leadership, NFL has become a 13.5 billion rupee conglomerate, with ISO: 9001, ISO:
22000, HACCP certifications and numerous industry awards.

Mr. Hasan joined NFL as Plant Director in 1993 and held that position for 4 years. He
was elected Deputy Managing Director in 1997 and then as Chief Executive shortly
thereafter. In 1996, he led the development of a comprehensive Human Resource
Management System which was the first of its kind for any national company in the
country. He also led the development of an international marketing infrastructure
starting in 1999, which has led to international sales volume crossing Rs.1 billion
today.

As the Chief Executive, Mr. Hasan is providing direction and leadership to the
Company by setting a clear vision for future growth – Vision 20/20, which aims to
become a Rs. 50 billion company by the year 2020. The Company is set to deliver its
long-term goals by focusing on top brands, growing customer base and aggressive
international expansion.

Mr. Hasan has actively pursued new market opportunities and delivered successful
strategies to drive NFL’s vision, focusing on continuous innovation, highest standards
of quality and superior consumer value. He has steered the company to deliver steady
sales growth year on year, clearly evident from the dramatic expansion in sales, from
only Rs. 200 million in 1993 to Rs. 13.5 billion today; an enviable growth rate,
ranging from 20% to 30% each year; despite tough economic conditions. This
translates into an increase in NFL’s market capitalization from only Rs. 20.57 million
in 1993 to Rs. 40 billion today.

8
Recognizing the vital role of Information Technology in business development, Mr.
Hasan brought about an IT revolution in the Company. In February 2003, NFL
became the first local food company to put in an ERP system (Scala) which was
subsequently up-graded to SAP ERP system, in a record 6 months deployment.

Through the platform of the Pakistan Advertisers Society (PAS), Mr. Hasan was part
of the team which launched TAM Peoples meter in Pakistan in September 2007 and
the MEMRB Consumer Insight Survey, in August 2008, both first of their kind tools
in Pakistan. He has also pushed for regulating advertisement ethics via PAS. As past
Chairperson, Anti-counterfeit and Infringement Forum (ACIF), Mr. Hasan strongly
supports creating awareness about counterfeit and IP infringement among consumers
and other stakeholders.

Mr. Hasan is a staunch supporter of Corporate Social Responsibility; an Adult

Literacy Programme for employees was started at NFL as early as the year 2000. In
2007, he spearheaded the development of a Sustainability Strategy, which is guiding
all business functions across the board till today.

As a visionary and marketing leader, Mr. Hasan has addressed audiences of a diverse
section of marketing organizations, conferences, seminars, educational institutions,
and various publications. He has appeared on several business TV talk shows
discussing the business environment and economy in general. He has received
numerous accolades, including Marketing Excellence Award 2008 from the
Marketing Association of Pakistan (MAP).

His local and national activities include:

 Member, Board of Directors, National Foods Limited

 Member, Board of Directors, Associated Textile Consultants

 Member Board of Directors, Cherat Packaging Ltd

 Associate member, Pakistan National Committee, International Chamber of

Commerce

9
 (Past) Chairperson, Anti Counterfeit and Infringement Forum

 (Past) President, Pakistan Advertisers Society

 Member, Management Association of Pakistan

 Member, Marketing Association of Pakistan, and

 Founder member, Editorial Advisory Board, Triple Bottom Line magazine.

2.5. Goals and Objectives:

The goals and objectives of national foods limited Pakistan is:

 Purity, quality and innovation

 Improve the quality of life in Pakistan by eradicating illiteracy throughout
Pakistan
 Customer satisfaction
 To be positioned as food company
 Consistent quality and pure ingredients
 Authentic recipes and
 Attain and maintain leadership in all categories of products being manufactured.

10
2.6. Departments of NFL:
NFL’s basic departments which are doing their work efficiently and effectively and
our departments play very important role in our success and achievements, without
these departments it could not be possible. There are following departments showing
below:

Project Department

Marketing Department

Sales Department

Manufacturing Department

Supply Chain Department

Finance Department

Human Resource Department

Operational department

Trading Department

Admin Department

IT department

11
2.7. Products and Services:
 Recipes
 Desserts
 Rice
 Plain Spices
 Jams
 Pickles
 Salt
 Fruitily
 Snacks
 Frozen Foods
 Chinese
 Ketchup and Sauces
 Fried Onions
 Ginger and Garlic Pastes

 Recipes:

National Recipes are the No. 1 masala mix in Pakistan, an award-winning product,
and consistent market leader. Ever since National Foods Ltd. debuted the spice mix in
the 1970s, our ingredients continue to be meticulously selected using only the very
best quality whole spices, and blended to ensure the right combination for perfect
results every time. National Spices are convenient to use, reduce the time and effort
spent in the kitchen, and thanks to consistency of results produced, remain the
preferred choice for women and chefs all over Pakistan.

12
 Desserts:

Perfect for every occasion and providing a grand finish to any meal, our desserts
range satisfies both the traditionalist and the contemporary sweet tooth as a substitute
for ice cream and traditional sweetmeats. National Foods’ dessert products offer
customers all three benefits of being:

a) Easy to Cook

b) Convenient

c) Of Good Quality

 Rice:

Pure basmati, extra-long, polished to a silky sheen, unbroken and ready to cook
straight from the bag, our branded rice requires neither picking nor cleaning, thus
saving time and effort.

13
 Plain spices:

National Foods Ltd. was the first company to pack and retail powdered spices during
an era when consumers mistrusted any product that was not freshly ground right
before their eyes. From pioneering spice packagers in the 70s, we grew into a name
trusted by women and chefs across Pakistan as the right brand to spice up any dish.

 Jams:

We introduced our first fruit preserves in 1998. These delicious concoctions of fruit
transformed the simplest of foods – basic bread – into pleasing and satisfying meals.
Today, they are a staple on the breakfast table, available in a variety of flavors.

14
 Pickles:

Our legendary pickles are market leaders in the branded, packaged pickles category,
and renowned for their mouthwatering flavors. They have been a mainstay on the
dining table for generations, eaten to compliment all kinds of foods and even as a
digestive aid.

 Salt:

As the pioneering company to manufacture iodized salt in Pakistan, we are now brand
leaders in the class with brilliant white, hygienic, 99.1% pure, free flowing refined
salt. The product was launched in collaboration with UNICEF, and adds taste while
serving the human body’s requirement for iodine.

15
 Fruitily:

Available in a range of mouth-watering fruity flavors, National Fruitily is a delightful

instant drink mix loved by all our consumers. Each glass of Fruitily is bursting with
essential nutrients that not only provide energy that the body and mind need, but also
leave one refreshed, nourished and perked up.

 Snacks:

National Snacks take us from the strictly lunched-dinner crowd to any-time, any-place
versatility, adding extra zest to everything on the table, whether homemade or store-
bought. National Chat Masala is a market leader due to its brand equity and good
taste. It enjoys steady popularity throughout the year, and other products in the range
are known to skyrocket in sales during the month of Ramadan.

16
 Frozen Foods:

Rich in aroma, texture and flavor, our frozen meals are seasoned to perfection.
Prepared with authentic National spices and served with the finest quality basmati
rice, these authentic mouthwatering meals are available in four delicious flavors.

 Chinese:

Currently a quartet of savory favoring with plans to expand into meal solutions,
National Foods’ Chinese range makes authentic, homemade Chinese a breeze to cook.

17
 Ketchup and Sauces:

National Ketchup is the market leader among branded ketchups available in the
market, with Tomato being the most preferred variant. National Tomato Ketchup is
made with 100% freshest, reddest, sun-ripened tomatoes in a perfect balance of tart
and sweet. Tomato is closely followed by Chili Garlic Sauce, and both are considered
important accompaniments to snacks and fast food.

 Fried Onions:

National Golden Fried Onions, aromatic and flavorsome in taste, make the meals
special. Prepared from the finest onions and through the highest quality processes,
give them a sunshine gold color and a deliciously crispy texture.

18
 Ginger and Garlic Pastes

Ginger and garlic are commonly used in the preparation of sub continental food, we
provide a range of flavorsome pastes, which include ginger paste, garlic paste and
ginger garlic paste. These products make the cooking experience more delightful by
adding convenience and a touch of savory flavor to food.

2.8. Competitors:

19
 Adam’s Flavors, Foods & Ingredients, LLC
 Engro Foods
 Shangrila
 Shaan Foods Industry
 Habib Foods Products
 Mehran Foods

 Adam’s flavors, foods and ingredients, LLC:

Adams Flavors, Foods &
Ingredients LLC produces and
markets food flavor solutions. Its
products include a line of vanilla
products, which are used in
desserts, puddings, cakes,
custards, ice creams, and cookies; various extracts and flavors; rubs and seasonings,
salts and peppers, and spices; food color ingredients; basic spices, such as seasoning
salt, garlic salt, multi-season seasoned salt, chili powder, chopped onion, minced
onion, garlic powder granulated, ground cinnamon, and ground cumin for everyday
cooking; whole, coarse, and ground black pepper; and cake kits. The company offers
own and private label spices, blends, and extract items online, as well as through retail
locations in the United States. Adams Flavors, Foods & Ingredients LLC was
formerly known as Adams Extract Company. The company was founded in 1888 and
is based in Gonzales, Texas.

 Engro Foods:
Engro Foods is a Pakistani
multinational food and beverage
company headquartered in Karachi,
Pakistan. Its product portfolio
comprises Olper’s, Olper’s Lite,

20
OMORE, Dairy Omung, Olper’s Lassi and Tarang. The company reported an after-
tax profit of Rs. 868 million during the year 2014. Engro Foods was previously a
subsidiary of Engro Corporation. A Dutch dairy cooperative is set to buy out Pakistani
food giant with an investment of around $460 million, in what would amount to the
largest private sector takeover by a foreign firm in the country’s history.

 Shangrila:
Shangrila (Private Limited) ever since its
inception in 1988 and enabling Shangrila
to become a trendsetter in the art of
culinary delight. Our success is the
reflection of a strong confidence of our
customers in our products, and of their
continuous support. Shangrila (Private
Limited), a member of the ADS. The Association of Dressings and Sauces ï USA has
always strived to deliver the best to its customers with an insatiable quest for premium
quality.

 Shaan Foods Industry:

Shan Foods Private limited (SFPL) is a
globally recognized world class food
manufacturer specializing in the marketing of
a wide range of ethnic and mainstream
contemporary food products that dominate
well over 65 countries around the world. Shan
Foods is internationally recognized for is superior quality brands by the ‘International
taste and Quality Institute’ in Brussels, Belgium. The company’s ethnic power brands
attain a consolidated global brand equity spread over 30 years. A Shan food is a world
class food manufacturer with global outreach in more than 65 countries. Shan Foods
is head quartered in Karachi-Pakistan with auxiliary production facilities set up in

21
Kingdom of Saudi Arabia (KSA), United Arab Emirates (UAE) and United States of
American (USA) to augment the worldwide distribution of Shan Foods brands.

 Habib Foods Product:

Habib Food was founded in

2004, and has subsequently
evolved into a multidimensional,
multi-product business with
sales in over 3 continents. Our
aim is to be a pioneer and leader
in the manufacture of ethnic/ halal ready-to-eat meals. We are committed to helping
consumers make healthy dietary choices without compromising on taste or
convenience. At Habib Food, we bring exquisite flavor to different foods, catering to
a variety of palates bound by one commonality: good taste. We have successfully
launched our "TAZA" brand in the United States, Canada, United Kingdom, South
Africa and in the Middle East. Every step in the production of our foods, from
procurement, to manufacturing, to distribution, is subject to rigorous quality control
tests. Just as we do not expect our customers to compromise on taste, we refuse to
compromise on quality. We only use the very freshest of herbs, meats and vegetables,
and cook exclusively in our state-of-the-art facilities. Our high standards and our
determination to only use the very best to provide you with the very best has
established us as a leader in the Pakistani frozen food industry.

 Mehran Foods:
Mehran Spice & Food Industries started
its journey in 1975 and within a few years
of its inception, the company grew to
become one of the leading spice & food
industries globally. As time passed, the

22
product range at Mehran increased from spices by adding ready mix recipes, rice,
pickles, chutneys and sweet items. Mehran is a world leader in quality rice, equipped
with the most advanced rice plant from Germany. The plant, which is one of the few
in Pakistan, has enabled Mehran Super Kernel Basmati Rice to become one of the top
selling basmati rice in the world.

2.9. SWOT Analysis of NFL:

“A study that undertaken by an organization to identify its internal strengths and
weaknesses, as well as its external opportunities and threats.’’

SWOT analysis is a process that identifies an organization's strengths, weaknesses,

opportunities and threats. Specifically, SWOT is a basic, analytical framework that
assesses what an entity can and cannot do. Using environmental data to evaluate the
position of a company, a SWOT analysis determines what assists the firm in
accomplishing its objectives, and what obstacles must be overcome or minimized to
achieve desired results: where the organization is today, and where it may be
positioned in the future.

23
There are two types of factors in SWOT analysis:
 Internal Factors
 External Factors

Internal Factors:

Internal factors include:

 Strengths
 Weaknesses

External Factors:

External factors include:

 Opportunities
 Threats

24
 Strengths

 Broad Product Line

 Broad Market Coverage
 Manufacturing Competence
 Good Marketing Skills
 Enhanced Research and Development
 Brand Name Reputation
 Appropriate Organizational Structure
 Good Finance Management
 Innovation
 Huge investment in R&D
 Advance Technology

 Weaknesses

 Currently NFL is operating with its full capabilities and the company’s sales
manager does not think that there is any internal weakness in the organization.

25
 Opportunities

 Expanding into foreign Markets

 Expansion of Core Business
 Entering Related Business

 Threats

 New Entrants
 No Barriers on Entry
 New Cheaper substitutes in the market
 Fixed quota system on the company’s imports
 Natural Disaster
 External Change

26
 Chapter no 3

FINANCIAL HEALTH OF THE COMPANY

3.1. Vertical Analysis:

When the analysis is restricted to the financial statement of one particular period only,
it is known as analysis vertical analysis of financial statements. In this analysis, each
item of a particular financial statement is expressed as percentage of a base figure
selected from the same statement.

Common Size Balance Sheet

For the year 2014 to 2016

Particulars 2014 2015 2016

% % %
Stores, spare parts and loose tools 0.11 0.10 0.10
Stock in trade 44.68 40.58 49.43
Trade debts 15.98 20.71 15.21
Advances 1.04 0.90 1.45
Trade deposits and prepayments 0.36 0.53 0.57
Other receivables 0.26 0.24 0.09
Investments in mutual fund units -
at fair value through profit or 9.26 7.00 _
loss
Cash and bank balances 1.57 0.67 0.86
Property, plant and equipment 24.89 27.33 30.37
Intangibles 0.72 0.70 0.93
Long term investment –
0.64 0.57 0.48
subsidiary
Long term deposits 0.44 0.62 0.47
Total Assets 100 100 100

27
Issued, subscribed and paid-up
10.39 9.32 7.87
capital
Unappropriated profit 33.92 40.30 29.89
Total equity 44.31 49.63 37.77
Trade and other payables 27.54 30.11 29.81
Accrued interest / mark up 0.02 0.04 0.13
Short term borrowings 19.14 6.91 19.94
Taxation - Provision less payments 3.37 8.72 9.47
Sales tax payable 2.49 2.54 1.42
Deferred taxation 2.30 1.68 1.23
Retirement benefits obligations 0.59 0.35 0.20
Liabilities + capital & reserves 100 100 100

Explanation:

In common size balance sheet, issued subscribed paid up capital from 2014 to 2015
its value is decreased and in 2016, it value is increased. Unappropriated profit is
decreased in 2015 by the value of 40.30 and its value is decreased in the next year.
Share capital and reserves is increased in 2014 and decreased in 2016 by the value of
7.87.Total equity is increased from 2014 to 2015 and in 2016 the value of total equity
is decreased. Total long-term liabilities and shareholder’s equity is 100 % during the
three years. Likewise all other values of common size balance sheet is increased and
decrease during the years.

28
 Common Size Income Statement

For the year 2014 to 2016

Particulars 2014 2015 2016

% % %
Sales 100% 100% 100%
Cost of sales 64.95% 65.12% 67.79%
Gross profit 35.05% 34.88% 32.21%
Administrative expenses 3.57% 3.96% 3.84%
Distribution costs 19.76% 18.15% 19.11%
Other expenses 0.94% 1.04% 0.74%
Finance costs 0.90% 0.32% 0.51%
Other income 0.73% 0.97% 0.42%

Profit before taxation 10.61% 12.37% 8.43%

Taxation 3.33% 3.79% 2.57%

Profit after taxation 7.29% 8.58% 5.87%

Explanation:

In common size income statement, sales is 100 % from 2014 to 2016. Cost of sales is
increased from 2014 to 2016 and its value in 2016 is 67.79. Gross profit is decreased
in 2016. In 2014 and 2015 its value is increased. Administrative expenses and
distribution cost is also sometime increased and decreased from 2014 to 2016. Other
expenses are increased in 2015 by the value of 1.04%. In 2014 and 2016 its value is
decreased. Finance cost is increased in 2014 by the value of 0.90%. In 2015 and 2016
its value is decreased. Likewise, other values of common size income statement are
increased and decreased.

29
3.2. Horizontal Analysis:

This analysis refers to the study of past consecutive balance sheets, income statements
or statement of cash flow at a time. The analysis can be made between two periods or
over a series of periods. Balance Sheet and Income Statement is evaluated by the
formula which is given below:

𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝒀𝒆𝒂𝒓 𝒂𝒎𝒐𝒖𝒏𝒕 − 𝑩𝒂𝒔𝒆 𝒀𝒆𝒂𝒓 𝒂𝒎𝒐𝒖𝒏𝒕

𝑭𝒐𝒓𝒎𝒖𝒍𝒂:
𝑩𝒂𝒔𝒆 𝒀𝒆𝒂𝒓 𝒂𝒎𝒐𝒖𝒏𝒕

Balance Sheet
Assets 2016 2015 2014 2013
Current Assets: Rs. In Rs. In Rs. In Rs. In
‘000’ ‘000’ ‘000’ ‘000’
Stores, spare parts and loose 168% 150% 141% 100%
tools
Stock in trade 209% 145% 143% 100%
Trade debts 346% 398% 276% 100%
Advances 381% 201% 209% 100%
Trade deposits and 198% 155% 94% 100%
prepayment
Other receivables 180% 385% 383% 100%
Investments in mutual fund _ 150% 177% 100%
units - at fair value through
profit or loss
Cash & Bank 129% 84% 178% 100%
Total Current Assets 202% 178% 166% 100%
Non-current Assets: 100%
Property plant & equipment 110% 160% 131% 100%
Intangibles 1370% 884% 808% 100%
Long term deposits 533% 598% 381% 100%
Total Non-Current Assets 222% 170% 139% 100%

30
Total Assets 208% 176% 158% 100%
Equity: 100%
Issued, subscribed & paid up 125% 125% 125% 100%
capital
Unappropriated profit 200% 227% 171% 100%
Total Equity 177% 197% 157% 100%
Current liabilities: 100%
Trade & other payables 194% 165% 136% 100%
Accrued interest/ mark up 75% 21% 95% 100%
Short term borrowings 258% 76% 188% 100%
Taxation - Provision less 1126% 876% 304% 100%
payments
Sales tax payable 152% 229% 202% 100%
Total Current Liabilities 248% 170% 168% 100%
Non-current liabilities: 100%
Deferred taxation 78% 90% 111% 100%
Retirement benefits obligations 331% 474% 723% 100%
Total No-current liabilities 89% 723% 135% 100%
Total Liabilities 232% 159% 158% 100%
Total Equity and Liabilities 208% 176% 158% 100%

Explanation:
 Balance Sheet:
 Assets:
Total assets of the Company have increased from financial year 2014 to financial year
2016 by 208% which is a remarkable increased in total assets.
 Non-Current Assets:
Out of total assets, non-current assets increased by 222% from financial year 2012 to
financial year 2016 mainly on account of increase in long term investments, increase
in investment properties and increase in property, plant and equipment. The Company
31
maintains a healthy portfolio of long term investments which significantly contributes
towards its profitability each year.

 Current Assets:

Current assets of the Company have increased by 202% in financial year 2016 as
compared to financial year 2012. The main reason for increase is the increase in loans
and advances which includes working capital loans provided to subsidiary companies.
However, other current assets such as stocks and accounts receivables of the
Company also increased from 2014 to 2016.

 Equity and Liabilities:

 Equity:
The equity in 2015 with the value of 197% increase and in in financial year 2016 its
value is decreased. The main reason for this increase is increase in fair value reserves
in equity investments and Revenue reserves.

• Non-Current Liabilities:
Non-current liabilities of the NFL in the financial year 2016 have been decreased by
11% over the non-current liabilities. Non-current liabilities had increased by 5% in
year 2015.

• Current Liabilities:
Current liabilities also increased by 148% in financial year 2014 to 2016. In the
current financial year mainly on account of increase in trade & other payables and
short term borrowings.

32
 Income Statement

Particulars 2016 2015 2014 2013

Rs. In Rs. In Rs. In Rs. In
‘000’ ‘000’ ‘000’ ‘000’
Sales 184% 162% 136% 100%
Less: Cost of Goods Sold 185% 156% 131% 100%
Gross Profit 182% 176% 146% 100%
Less: Distribution Cost 212% 179% 162% 100%
Administrative Expenses 248% 225% 71% 100%
Other Operating Expenses 128% 159% 120% 100%
Add: Other Income 131% 262% 166% 100%
Operating Profit 130% 162% 123% 100%
Less: Finance Cost 95% 52% 123% 100%
Profit before Taxes 133% 171% 123% 100%
Less: Taxes 134% 173% 128% 100%
Profit After Taxes 133% 170% 121% 100%

 Income Statement:
 Sales:
Sales have increased in 2016 by 84% as compared to 2014. This increase in sales is
mainly due to high demands for National products like, ketchups, spices, pickles, etc.

 Cost of Sales:
Cost of sales increased by 85% from financial year 2012 to financial year 2016. A
horizontal review of cost of sales for the last six years reveals that increase in cost of
sales was always lower than increase in sales except financial year 2016 when sales
increased by 84% as compared to 85% increase in cost of sales. These unfavorable
movements in sales and cost of sales are attributable to prolonged energy crisis,

33
continuous increase in minimum wages, imposition of new taxes and duties and
enhanced conditionality from international customers.

 Distribution Cost:
Distribution cost increased eventually with the increase in sales volume. Distribution
cost increased by 112% in 2016 as compared to 2014.

 Administrative Expenses:
Administrative expenses increased in 2016 by 30%, but decreased by 29% in 2014.
Administrative expenses increased which is mainly due to the higher sales and greater
use of assets in NFL.

 Other Operating Expenses:

Other operating expenses increased by 59% in 2015 as compared to 2014, but
increased only by 28% in 2016 but in slow rate as compared to last five years.

 Other Income:
Other income increased by 162% from financial year 2014 to financial year 2015, but
increased by 31% in 2016. This massive increase in other income is due to increase in
dividend income over the years because of the investment by the Company in well
diversified and perfect portfolio.

 Finance Cost:
Finance cost of the Company recorded an increase of 23% in 2014, but decreased by
48% in 2015 and 5% in 2016 due to availability of loans at subsidized rates and
stringent financial management policies of the Company.

 Taxes:
Taxes of NFL are increased by 34% from financial year 2014 to financial year 2016.
Taxes are highest in 2015 that is increased by 73%.

34
 Profit after Tax:
Profit after tax increased by 34% from financial year 2014 to financial year 2016.
Profit after tax is highest in 2015 which is increased by 70%. This increase is mainly
due to decrease in finance cost in 2015 by 48%.

35
 Chapter No. 4
Evaluation and Inferences
4.1 Time series:

Time series analysis comprises methods for analyzing time series data in order to
extract meaningful statistics and other characteristics of the data. Time series
forecasting is the use of a model to predict future values based on previously observed
values.

Ratio Analysis:

A ratio analysis is a quantitative analysis of information contained in a company's

financial statements. Ratio analysis is used to evaluate various aspects of a
company's operating and financial performance such as its activity, liquidity,
profitability and solvency and market.

i. Profitability ratio:

Profitability ratio measures how effectively the firm uses its resources to generate
income. The first three of the ratios reported here are probably the best known and
most widely used of all financial ratios. A profitability ratio includes the following:

 Gross Profit Margin

 Operating Profit Margin
 Net Profit Margin
 EPS
 ROA
 ROE

36
Ratios 2014 2015 2016
Gross profit margin 35.05 35.88 32.21
Operating profit margin 11.51 12.69 8.95
Net profit margin 7.29 8.58 5.87
EPS 6.84 6.59 7.47
ROA 14.22 17.89 11.77
ROE 36.55 40.02 29.53
ROCE 53.82 56.28 43.29

profitability ratio chart for EPS

7.6
7.4 7.47

7.2
7
6.84
6.8
6.6 EPS
6.59
6.4
6.2
6

2014
2015
2016

Explanation:

Earnings per Share shows upward trend in the year 2014 than 2015 which is 6.84
and in year 2016 shows upward trend which is Rs. 7.47. This upward sloping trend
shows better financial performance of NFL. Earnings per share is a very good
indicator of the profitability and it is one of the most widely used measures of
profitability.

37
 Profitibility ratio chart

53.82 56.28
Gross profit margin 60
43.29
Operating profit margin 40.02
50 36.55
Net profit margin
29.53
40
ROA 35.05 35.88
30 32.21
ROE 17.89
14.22
11.77
ROEC 20
11.51 12.69
10 8.95

2014 2015 2016

Explanation:

In profitability ratio, the graph shows increasing and decreasing trend. Gross profit
margin is increasing from 2014 to 2015 that is better in generating gross profit but is
decreasing in 2016 by the difference of 3.67. Operating profit margin is decreased
from 2014 to 2016 that means NFL not generating adequate profit from its operations.
Net profit margin in 2014 is decreased and in 2015 the value of net profit margin is
increased and again decreased in 2016. This means in 2015 NFL is more efficient at
converting sales into actual profit.

The value of ROA is decreased in 2014 and increased in 2015 by the value of 17.89
but in next year its value is decreased to 11.77. A low return on assets indicates
inefficient use of company's assets. The average value of ROE and ROCE is 36.55
and 53.82 depicts higher return on its equity and on its capital employ which means
the efficiency with which a company generates a profit using the funds that
shareholders have invested. These ratios are express in percentage.

38
ii. Liquidity ratio:

A liquid firm is a firm that can meet its various short-term debt and credit obligations.
Those who extended credit to a firm are concerned with the firm’s liquidity. It is not
usual for a firm to show a profit on its income statement but still not have sufficient
cash to pay creditors-that is, the firm has an unhealthy liquidity ratio.

 Current ratio
 Quick ratio
 Cash flow from operation
 Working capital turnover
 Cash to current liabilities
Ratios 2014 2015 2016
Current ratio 1.39 1.46 1.11
Quick ratio 0.54 0.62 0.30
Cash flow from operation 5.63 11.18 3.31
Working capital turnover 9.51 9.30 28.83
Cash to current liabilities 0.18 0.09 0.21

liquidity ratio for cash flow

12 11.18
10
8
6 5.63
cash flow from operations
4
3.31
2
0

2014
2015
2016

39
Explanation:

Cash flow from operation is increased in 2015 but in the next year its value is
decreased which means company currently not generating cash from its operating
activities. This graph shows increasing and decreasing trend.

Liquidity ratio chart

28.83
30

25

20 Current ratio
15 9.51 9.3 Quick ratio

10 working capital
-0.18 -0.09 -0.21 cash to current liabilities
5 0.54
1.39 0.62
1.46 0.3
0 1.11
-5
2014 2015 2016

Explanation:

In liquidity ratio current ratio is increased in 2014 and 2015 but decreased in 2016
which means during past years company can pay its obligation but in 2016 NFL is
unable to pay its debt obligations. Quick ratio is decreased in 2016 but its value is
increased in the previous two years that means NFL in 2016 not able to pay its current
obligations immediately. Working capital turnover is also decreased in 2015 and
2014 but in the next year 2016 its value increased. So, the turnover ratio indicates that
management is being extremely efficient in using a company’s short-term assets and
liabilities to support sales. Cash to current liabilities another measure of company’s
liquidity and their ability to meet their short term obligations. Their value is sometime
increased and sometime is decreased. It indicates that NFL making best use of its
cash.

40
iii. Activity ratio:

Activity ratio measures with efficiency with which assets are converted to sales or
cash. Generally, greater activity is good. Activity ratio goes hand-in-hand with
liquidity ratios. If inventory is not turning over, current assets are not converted to
cash and the firm will have trouble paying its bills.

 Inventory turnover
 No of days in inventory
 Asset turnover
 Receivable turnover
 No of days in receivable
Ratios 2014 2015 2016
Inventory turnover 3.05 3.37 3.25
No of days in inventory 119.59 108.44 112.41
Asset turnover 2.11 2.20 2.17
Receivable turnover 13.43 11.89 12.26
No of days in receivable 27.19 30.69 29.78

Activity Ratio chart

13.43
14 11.89 12.26
12
10
8 Inventory turnover

6 Asset turn over

4 receivable turnover
3.052.11 3.372.2 2.17
3.25
2
0

2014
2015
2016

41
Explanation:

In activity ratio, inventory turnover is decreased. In 2015 its value is 3.37 times
increased and again its value is decreased in 2016. The NFL inventory turnover ratio
is not good mean that the NFL does not turn its inventory times in generating sales.
Asset turnover means that how much the company turns over its asset in generating
profits. In 2016, the Engro generates 2.17% profits by utilizing its assets more
effectively and efficiently than other years. Receivable turnover shows increasing
decreasing trend. In year 2014 its ratio is higher that next year’s which means NFL
inefficiently uses its assets.

Activity Ratio Chart for no of Days

119.59
120
108.44 112.41
100
80
60 no of days in inventory
40 27.19 30.69
29.78 no of days in receivable
20
0

2014
2015
2016

Explanation:

The No. of days in inventory, NFL takes 119, 108 and 112 days from 2014 to 2016
respectively for turning its inventory into sales. In 2015, the company use less days in
inventory turns and becomes a best year in its activities. The graph shows both
increasing and decreasing trends. No. of days in receivables are 27, 30 and 29. So
this means that company needed fewer days to collect its receivables.

42
Debt ratio:

The debt ratio is defined as the ratio of total – long-term and short-term-debt to total
assets, expressed as a decimal or percentage. It can be interpreted as the proportion of
a company’s assets that are financed by debt.

Ratios 2014 2015 2016

Debt ratio 0.56 0.50 0.62

Debt Ratio Chart

0.7
0.6 0.56 0.62
0.5 0.5
0.4
0.3 Debt ratio
0.2
0.1
0

2014
2015
2016

Explanation:

Debt ratio in 2014 is increased by the value of 0.56 and decreased in 2015 and then
again, its value is increased in 2016 by the value of 0.62. Debt ratio tells the portion of
the company’s asset that is financed by debt. This increasing and decreasing trend
indicates company borrows money to meet its debt.

43
Market ratio:

Relationship of gains from investments (including realized capital gains) resulting

from insurance operations to earned premiums. It relates a firm’s market value, as
measured by its current share price, to certain accounting values.

 Price earnings ratio

 Breakup value per share
 Dividend payout ratio
 Dividend yield ratio

Ratios 2014 2015 2016

Price earnings ratio 58.60 35.43 37.63
Breakup value per share 42.62 26.61 23.97
Dividend payout ratio 58.49 104.28 36.83
Dividend yield ratio 1.00 2.94 0.98

Market Ratio Chart

120
104.28
100

80

60 58.49 Dividend pay out ratio

40 Dividend yield ratio

36.83
20
0

2014
2015
2016

Explanation:

44
The value of dividend yield ratio and dividend payout ratio is sometime increased
and sometime its value is decreased. Company can pay out significant dividends for
one period at 36.83 to its shareholders and dividend yield shows 0.98% of market
price of the share a company annually pays to its stockholders in the form of dividend.

Price Earning Ratio Chart

60 58.6

50

40
35.43 37.63
30
price earning ratio
20
10
0

2014
2015
2016

Explanation:

In market ratio, price earnings ratio is decreased in 2016 by the value of 37.63 and
in the previous two years its value is increased. The decrease shows that the investors
do not have confidence in the future performance of the company and are not willing
to pay enough cash for each Rs 1 of the NFL’s earnings. The graph shows both
increasing and decreasing trends.

45
 Breakup Value per share chart

50
42.62
40

30
26.61
23.97 breakup value per share
20

10

2014
2015
2016

Explanation:

The value of breakup value per share is decreased in 2016 as compare to 2014. But
in 2015 its value is increased from next year. It can be used as a way to assess the
financial strength of a company so that you can determine whether to hold on to its
stock. So it means that NFL can hold its stock of Rs. 42.62, 26.61 and 23.97 and NFL
has financial strength for its stock.

46
4.2. Cross Sectional Analysis:

When the analysis is undertaken by outside parties namely existing and prospective
investors, suppliers, lenders, government agencies, customers etc., it is external
financial statement analysis.

Profitability Ratios:

NFL Engro food

Particulars
2016 2016
Gross profit margin 32.21 22.63

Operating profit margin 8.95 8.7

Net profit margin 5.87 5.38
EPS (in rupees) 7.47 3.11
ROA 11.77 9.65
ROE 29.53 13.9
ROCE 43.29 20.07

Profitibility
45 43.29
40
35 32.21
29.53
30
25 22.63
20 2007.00%
15 11.77 13.90
8.95
10 5.87 8.709.65
5 5.38
0
NFL 2016
Engro food 2016

Gross Profit Margin Operating Profit Margin Net Profit Margin ROA ROE ROCE

47
Explanation:

In profitability ratio, by comparing the values of two companies NFL and Engro food
we see that gross profit margin of NFL is 32.21 in 2016 and Engro’s margin is
22.63. This means NFL has a higher gross profit margin than rivalry firm (Engro),
NFL likely holds a competitive advantage in quality, perception or branding, enabling
the firm to charge more for its products. Alternatively, the firm may also hold a
competitive advantage in product costs due to efficient production techniques.

Operating profit margin of NFL is 8.95 and Engro has 8.7. So, the Increasing
operating margin of NFL is generally seen as a good sign, but investors should simply
be looking for strong, consistent operating margins.

Net profit margin is 5.87 and 5.38. So, NFL holds competitive advantage leading to
increased margin.

ROA of NFL is 11.77 and Engro’s ROA is 9.65. A high ratio means that the NFL
Company is able to efficiently generate earnings using its assets which indicate the
good profitability position of the NFL relative to Engro. It means NFL utilizes its
assets more efficiently.

ROE is 29.53 and 13.9. This ratio measures the level of income attributed to
shareholders against the investment that shareholders put into the firm. ROE indicates
that the NFL generating higher returns by utilizing its equity than Engro Foods.

ROCE is 43.29 and 20.07. ROCE again depicts higher return of NFL on its capital
employed and Engro’s return is 20.07 that is less than NFL and Engro has less return
on its capital employed.

48
 Profitability
8 7.47
7
6
5
4
3.11
3
2
1
0
NFL 2016
Engro Food
2016

EPS

Explanation:

EPS is 7.47 and 3.11. It means that every share of common stock NFL earns Rs. 7.47
of net income and Engro earns 3.11. The higher the EPS, the better it is. A higher EPS
of NFL than its competitor is the sign of higher earnings, strong financial position
and, therefore, a reliable company for investors to invest money.

Liquidity Ratio:

Particulars NFL Engro

2016 food
2016
Current ratio 1.11 1.9
Quick ratio 0.30 1.2
Cash flow from operation 3.31 0.1
Working capital turnover 28.83 12.60
Cash to current liabilities 0.21 0.1

49
 Liquidity
30 28.83

25

20

15
12.6
10

5
1.11 1.91.2
0.3 0.21
0 0.1
NFL 2016
Engro food

Current Ratio Quick Ratio Working capital turnover cash to current liabilities

Explanation:

In liquidity ratio, by comparing the values of NFL 2016 and Engro food 2016 we see
that the current ratio is 1.11 and 1.9. It means that the NFL has enough current
assets to pay off its current liabilities. Engro also pays off its obligations efficiently.

Quick ratio is 0.30 and 1.2. This indicates that the liquidity position of Engro is
better than NFL in terms that Engro easily and efficiently pays off its obligations from
its liquid assets.

Working capital turnover is 28.83 and 12.60. The turnover ratio indicates that
management is being extremely efficient in using a company’s short-term assets and
liabilities to support sales. It means that NFL efficiently using its short term assets to
maintain turnover than Engro.

Cash to current liabilities is 0.21 and 0.1. it measure of company’s liquidity and
their ability to meet their short term obligations. Their value is sometime increased
and sometime is decreased. It indicates that NFL making best use of its cash than
Engro.

50
 Liquidity
3.5 3.31

3
2.5
2
1.5
1
0.5
0.1
0
NFL 2016
Engro Food
2016

cash flow from operations

Explanation:

Cash flow from operation is 3.31 and 0.1. Cash flow from operations is greater for
NFL than Engro which shows better liquidity position of NFL.

Activity ratio:

Particulars NFL Engro

2016 food
2016
Inventory turnover 3.25 9.1
No of days in inventory 112.41 40.1
Asset turnover 2.17 1.8
Receivable turnover 12.26 11.38
No of days in receivable 29.78 32.05

51
 Activity Ratio
14
12.26
12 11.38

10 9.1
8

4 3.25
2.17
2 1.8

0
NFL 2016
Engro food

Inventory turnover Asset turnover Receivable turnover

Explanation:

In activity ratio, we compare the values of NFL and Engro food we see that inventory
turnover of NFL is 3.25 and Engro has low inventory turnover ratio that is 9.1. A
higher inventory turnover of NFL than the Engro means that inventory is sold at a
faster rate.

Asset turnover of NFL is 2.17 and Engro’s ratio is 1.8, this means NFL efficiently
uses its total assets to generate revenues and a low asset turnover ratio may mean that
the Engro is inefficient in its use of its assets or that it is operating in a capital-
intensive environment.

Receivable turnover is 12.26 and 11.38. The receivables turnover indicates how
many times per period the company collects and turns into cash its customers’
accounts receivable and a high turnover of NFL as compared to competitor means that
cash is collected more quickly for use in the company.

52
 Activity Ratio
120 112.41

100

80

60

40 29.78 40.1
32.05
20

NFL 2016
Engro Food 2016

No of days in inventory turnover No of days in receivables

Explanation:

No of days in inventory turnover is 112.41 and 40.1. NFL use 112.41 days in
turning inventory into sales while Engro use 40.1 days to turn its inventory into sales.
So, Engro is better than NFL in this way because its uses less day to convert its
inventory into sales..

No. of days in receivables is 29.78 and 32.05. So this means that NFL needed fewer
days to collect its receivables than Engro.

53
Debt ratio:

NFL Engro food

Particulars
2016 2016
Deb to asset ratio 0.62 0.30

Debt Ratio
0.7 0.62
0.6
0.5
0.4
0.3
0.3
0.2
0.1
0
NFL 2016
Engro food
2016
Debt to asset rato

Explanation:

In debt we compare the values of NFL and Engro food and we see the debt ratio of
NFL is 0.62 and Engro has 0.30.

The Debt ratio of NFL is high then Engro food and this is not good for NFL. A high
number means the NFL is using a larger amount of financial leverage, which
increases its financial risk in the form of fixed interest payments.

54
Market ratio:

Engro
NFL
Particulars food
2016
2016
Price earnings ratio 37.63 61.73
Breakup value per share 23.97 32.23
Dividend payout ratio 36.83 7.18
Dividend yield ratio 0.98 1.1

Market ratio
70
61.73
60
50
37.63
40
30
20
10
0
NFL 2016
Engro Food
2016

Price earning ratio

Explanation:

In Market turnover, we also compare the values of NFL and Engro food and we see
that the value of price earnings ratio is 37.63 and 61.73. Price earnings ratio for
Engro is better than NFL in a way that the investors have confidence in the future
performance of Engro and are willing to pay more for each rupee one of share than
NFL.

55
 Market ratio
40
32.23
30 23.97
20
10
0
NFL 2016
Engro Food
2016

Break up value per share

Explanation:

Breakup value per share is 23.97 and 32.23. The breakup value per share of NFL is
less than its rival company in 2016. It can be used as a way to assess the financial
strength of a company so that you can determine whether to hold on to its stock. So it
means that NFL can hold its stock less than Engro. This shows Engro’s financial
strength is better than NFL.

Market ratio
40 36.83
35
30
25
20
15
10 7.18
5 0.98 1.1
0
NFL 2016 Engro Food 2016

Dividend payout ratio Dividend yield ratio

Explanation:

Dividend payout ratio is 36.83 and 7.18. Dividend yield ratio is 0.98 and 1.1. This
graph shows that NFL pays more dividends to its stockholders than Engro.

56
 Chapter No. 5

Credit and Equity Analysis

5.1. Credit Analysis:

Credit analysis seeks to provide a fundamental view of a company's financial ability

to repay its obligations. While factors such as operating margins, fixed expenses,
overhead burdens, and cash flows might be the same in equity and credit analyses, the
emphasis is different for each. In simple words, Credit analysis means the valuation of
the ability of a company to credit its financial obligations. Creditors can perform the
credit analysis on the basis of following ratios:

 Current ratio
 Quick ratio
 Cash to current liabilities ratio
 Cash flow from operations ratio
 Debt ratio

 Current Ratio

The creditors, while conducting credit analysis looks toward the current ratio of the
company to see whether the company is in a position to pay off its obligations. NFL’s
currents ratio in 2016 is 1.11 times which less than Engro. The current ratio of Engro
is 1.19 times in 2016 and it means that the company can meet its short-term
57
obligations very well with its current assets. On the other hand, the competitor of
Engro which is has sufficient assets to meet its current obligations. The liquidity
position of NFL is not better.

 Quick Ratio

Creditors also see the quick ratio of the company to get understand the liquidity
position of the company. This ratio measures the ability of the company with which it
pays off its liabilities which are due for one year. The NFL’s quick ratio is only 0.30
times which indicates that the NFL Company does not have capability or do not have
enough assets for paying its obligations. On the other hand, the engro’s quick ratio in
2016 is 1.2 times which means that the company has Rs. 1.2 assets to meet its
liabilities of Rs. 1. While Therefore, Engro Foods’ liquidity position is better than
NFL and creditor can give loans to Engro with confidence.

 Cash to Current Liabilities Ratio

Cash to current liabilities ratio indicates that whether the company have enough cash
on hand to meet its current liabilities due for one year. NFL has cash deficiency as its
cash ratio is 0.21 times which means that NFL does not have cash to pay off its
obligations. Likewise the Engro’s cash to current liabilities ratio in 2016 is 0.1 times
that indicates that the company has only 0.1 cash for meeting its liabilities of Rs.
1.this show that Engro do not have enough cash which can be guaranteed for
liabilities as they come due.

 Cash Flow from Operations Ratio

This ratio indicates that how much money a company generates during a specific
period to pay off its short-term liabilities. NFL ratio is 3.31% which shows that NFL
generates more cash during 2016 as compare to Engro and it has capability to pay off
its short-term liabilities. On the other hand, the ratio for Engro is only 0.1% which is
less than 1 and indicates that Engro did not generate enough cash in 2016 to pay off
its obligations due in 2016.

58
 Debt Ratio

Debt ratio tells creditors that how much company has financed its assets through loans
or leverages. The NFL debt ratio is 0.62 times that is higher than Engro. This ratio for
Engro is 0.30 The Engro’s ratio is less than NFL and indicates that the company
financed its assets by using only 0.30 of loan as compare to NFL which finance its
assets more than Engro by using more credit or loans from creditors.

The ratio measure the efficiency of a firm’s that unit of shareholder’s equity is
generating profit for a firm. The ratio tells about how the firm will use their resources
to generate profit. The return on equity is helpful tool for comparative study of firm
competing in same industry.

5.2. Equity Analysis:

The method of analyzing sectors and companies, to give suggestion to professional

fund managers and private clients on basis shares to buy. Sell-side analysts work for
brokers who sell shares to the investors (mainly fund management firms and private
clients). While conducting equity analysis investors can take a review of the following
ratios:

 Net profit margin

 Return on Equity
 Return on Asset
 Earnings per share
 Price earnings ratio
 Dividend payout ratio

59
 Net Profit Margin

Net profit margin is the percentage of revenue left after all expenses have been
deducted from sales. The measurement reveals the amount of profit that a business
can extract from its total sales. If this ratio is greater than it is better for the company
and it seems that the company generates higher after-tax income. In equity analysis,
the Engro’s net profit margin is 5.38% while NFL’s net profit margin is 5.87% which
shows that the NFL earned more income than Engro after deducting all expenses and
also taxes. Although the net profit margin of Engro is less than NFL, but it did not
show that Engro did not generate income. Investor looks toward this ratio because it
indicates the profitability position of the company and also the ability of the company
to pay its shareholders.

 Return on Equity

ROE ratio measures that how efficiently the company utilize its equity funds in
generating profits. The higher this ratio the better it is for the company. ROE for
Engro in 2016 is 13.9% whereas for NFL it is 29.53% which is greater than Engro and
indicates that NFL utilize its equity more effectively and efficiently in generating
profits as compare to Engro. And it indicates that NFL’s profitability position is better
and in the favor of the company. If this ratio is greater it is attractive for investors and
investors agree to invest in the company for better earnings.

 Return on Asset

ROA ratio measures the ability of the company in utilizing its assets more efficiently
and effectively in generating sales and ultimately profits. ROA for Engro in 2016 is
9.65% which show that the company earns 9.65% profits by using its assets both
current and non-current. While on the other hand, ROA for NFL in 2016 is 11.77%
which is greater than Engro and indicates good profitability position and the
efficiency with which it utilizing its assets in generating profit.

60
 Earnings per share

(EPS) is the portion of a company's profit allocated to each outstanding share of

common stock. EPS serves as an indicator of a company's profitability.
Per share earnings of Engro is greater than NFL. Higher EPS show company’s strong
profitability position. EPS for Engro in 2016 is Rs. 7.47 while NFL’s earnings per
share is Rs. 3.11 which means that NFL earn less than Engro on each outstanding
share.

 Price Earnings Ratio

Price earnings ratio indicates investor’s confidence in future performance of the

company and willingness to pay more against Rs. 1 of each share of the company.
The greater the P/E ratio the better it is for the company and also for investors. For
Engro it is 37.63% and for NFL it is 61.73% indicating good market position of NFL.
It means in NFL investors have more confidence in the future performance of NFL
and are willing to pay more than share’s actual price.

 Cash dividend per share

This ratio indicates that how much dividend a company pays to its investors on each
share of stock. Higher cash dividend ratio is attractive for investors. Engro’s cash
dividend for 2016 is Rs. 10 per share on the other hand NFL’s cash dividend per share
is Rs. 2.75 indicating Engro pay more dividends to its investors on each share of the
company than NFL. For this reason, investors prefer to invest in Engro for higher
earnings.

61
 Chapter No. 6

RECOMMENDATION AND CONCLUSION

6.1. RECOMMENDATION:

 The company should utilize its asset efficiently.

 The company should try to decrease its expenses so that the net profit increases
and profitability of the company improve.
 The company should try to maintain its liquidity position in order to meet its
current obligations.
 The company should also focus on maximizing shareholders value to get more
capital.
 The company should also try to attract the new investors so that the capital for the
company increases.

 NFL should introduce new innovative products to get customers’ attention.

 NFL should expand their products in international market.

62
6.2. CONCLUSION:

I conclude that national foods are the top ten gainers of Pakistan, during these three
years although firm sales have increased but there also increase in expenses at faster
rate as compare to net sales due to this reason there is a decline in the profit.

During these three years especially in 2016 company total assets have increased but
liabilities also increased at a faster rate and owner’s equity decreased.

The firm efficiency is going worse from 2014 to 2016 which is not favorable sign for
the company.

The firm’s liquidity position is better than the previous year which is favorable sign
for the company.

The overall profitability of the firm is decreasing from 2014 to 2016 is not good sign
for the company.

The firm’s long-term debt paying ability is showing different variation in these three
years.

The debt paying ability is high in 2016 which is a favorable sign for the company.

Due to decrease in net profit, earning per share are going in worse condition which is
unfavorable for the company, because investor will not invest in companies in which
they earn less so we conclude that the company’s overall financial position is not
going well in 2016 as compare with previous year so company should try to improve
it.

63
 Chapter No. 7

APPENDIX

Appendix- I

RATIO CALCULATION:

Profitability Ratio

1. Gross Profit Margin Ratio

𝐆𝐫𝐨𝐬𝐬 𝐏𝐫𝐨𝐟𝐢𝐭
Gross Profit Margin= x100
𝐒𝐚𝐥𝐞𝐬

Engro
Company National Foods Limited
Food
Years 2014 2015 2016 2016
Gross Profit 3409126 4039632 4245718 10038965
Sales 9725258 11581436 13183185 44346031
Ratio 35.05% 34.88% 32.21% 22.63%

2. Operating Profit Margin Ratio

𝐎𝐩𝐞𝐫𝐚𝐭𝐢𝐧𝐠 𝐏𝐫𝐨𝐟𝐢𝐭
Operating Profit Margin = x100
𝐒𝐚𝐥𝐞𝐬

Company National Food Limited Engro Food

Years 2014 2015 2016 2016
Operating Profit 1119844 146952 1179291 3865824
Sales 9725258 11581436 13183185 44346031
Ratio 11.51% 12.69% 8.95% 8.7%

64
 3. Net Profit Margin Ratio
𝐄𝐚𝐫𝐧𝐢𝐧𝐠 𝐚𝐯𝐚𝐢𝐥𝐚𝐛𝐥𝐞 𝐟𝐨𝐫 𝐂𝐨𝐦𝐦𝐨𝐧 𝐒𝐭𝐨𝐜𝐤
Net Profit Margin = ×100
𝐒𝐚𝐥𝐞𝐬

Company National food limited Engro food

Years 2014 2015 2016 2016
Earnings 708492 993563 773676 2386712
Sales 9725258 11581436 13183185 44346031
Ratio 7.29% 8.58% 5.87% 5.38%

4. EPS Ratio
𝐄𝐚𝐫𝐧𝐢𝐧𝐠 𝐚𝐯𝐚𝐢𝐥𝐚𝐛𝐥𝐞 𝐟𝐨𝐫 𝐂𝐨𝐦𝐦𝐨𝐧 𝐒𝐭𝐨𝐜𝐤
EPS =
𝐍𝐨. 𝐨𝐟 𝐬𝐡𝐚𝐫𝐞𝐬 𝐨𝐟 𝐂𝐨𝐦𝐦𝐨𝐧 𝐒𝐭𝐨𝐜𝐤 𝐎𝐮𝐭𝐬𝐭𝐚𝐧𝐝𝐢𝐧𝐠

Company National foods limited Engro food

Years 2014 2015 2016 2016
Earnings
Available for 708492 993563 773676 2386712
Common Stock
No. Of Shares 51803 103607 103607 766586
Ratio 13.68 9.59 7.47 3.11

65
 5. Return on Asset

𝑵𝒆𝒕 𝑰𝒏𝒄𝒐𝒎𝒆
ROA =
𝑻𝒐𝒕𝒂𝒍 𝑨𝒔𝒔𝒆𝒕𝒔

Company National foods limited Engro food

Years 2014 2015 2016 2016
Earnings
Available for 708492 993563 773676 2386712
Common Stock
No. Of Shares 51803 103607 103607 766586
Ratio 13.68 9.59 7.47 3.11

6. Return on equity

𝒂𝒏𝒏𝒖𝒂𝒍 𝒏𝒆𝒕 𝒊𝒏𝒄𝒐𝒎𝒆

ROE=
𝒂𝒗𝒆𝒓𝒂𝒈𝒆 𝒔𝒕𝒐𝒄𝒌𝒉𝒐𝒍𝒅𝒆𝒓′ 𝒔𝒆𝒒𝒖𝒊𝒕𝒚

Company National foods limited Engro food

Years 2014 2015 2016 2016
Earnings Available
708492 993563 773676 2386712
for Common Stock
No. Of Shares 51803 103607 103607 766586
Ratio 13.68 9.59 7.47 3.11

66
 7. Return on Capital Employed

𝐍𝐞𝐭 𝐎𝐩𝐞𝐫𝐚𝐭𝐢𝐨𝐧 𝐏𝐫𝐨𝐟𝐢𝐭

ROCE=
𝐓𝐨𝐭𝐚𝐥 𝐀𝐬𝐬𝐞𝐭𝐬 – 𝐂𝐮𝐫𝐫𝐞𝐧𝐭 𝐋𝐢𝐚𝐛𝐢𝐥𝐢𝐭𝐢𝐞𝐬

Company National foods limited Engro food

Years 2014 2015 2016 2016
Net operation
1119844 1432253 1111953 3865824
profit
Total asset 4982449 5555026 657525 24713772
- - - - -
Current liabilities 2629876 2798138 3996913 5457429
Ratio 47.60% 56.28% 43.29% 20.07%

Liquidity Ratios
1. Current Ratio
𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑨𝒔𝒔𝒆𝒕𝒔
Current Ratio=
𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑳𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒊𝒆𝒔

Company National Food Limited Engro Food

Years 2014 2015 2016 2016
Current Assets 3652481 3931164 4454221 10467356
Current
2629876 2685229 3996913 5457429
Liabilities
Ratio 1.38 1.46 1.11 4.91

67
 2. Quick ratio
𝐂𝐮𝐫𝐫𝐞𝐧𝐭 𝐀𝐬𝐬𝐞𝐭𝐬−𝐈𝐧𝐯𝐞𝐧𝐭𝐨𝐫𝐲
Quick Ratio =
𝐂𝐮𝐫𝐫𝐞𝐧𝐭 𝐋𝐢𝐚𝐛𝐢𝐥𝐢𝐭𝐢𝐞𝐬

Company National Foods Limited Engro food

Years 2014 2015 2016 2016
Current Assets 3652481 3931164 4454221 10467356
- - - - -
Inventory 2226562 2254723 3250374 3763898
Current
2629876 2685229 3996913 5457429
Liabilities
Ratio 0.54 0.62 0.30 1.2

3. Cash Flow from Operations to Sales Ratio

𝑪𝒂𝒔𝒉 𝒇𝒍𝒐𝒘 𝒇𝒓𝒐𝒎 𝒐𝒑𝒆𝒓𝒂𝒕𝒊𝒏
Cash flow from operation to sale= ×100
𝒔𝒂𝒍𝒆𝒔

Company National Food Limited Engro Food

Years 2014 2015 2016 2016
Cash flow from
547696 1295037 436851 5121505
operation
Sales 9725258 11581436 13183185 44346031
Ratio 5.63% 11.18% 3.31% 11.54%

4. Working Capital Turnover

68
 𝑵𝒆𝒕 𝑺𝒂𝒍𝒆𝒔
Working Capital Turnover =
𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝑾𝒐𝒓𝒌𝒊𝒏𝒈 𝑪𝒂𝒑𝒊𝒕𝒂𝒍

Company National Foods Limited Engro Food

Years 2014 2015 2016 2016
Net Sales 9725258 11581436 13183185 44346031
Average Working
1032331 1245935 1245935 3517786
Capital
Ratio 9.4 9.30 28.83 12.60

5. Cash to Current Liabilities Ratio

𝑪𝒂𝒔𝒉 𝑨𝒏𝒅 𝑪𝒂𝒔𝒉 𝑬𝒒𝒖𝒊𝒗𝒊𝒍𝒆𝒏𝒕
Cash to Current Liabilities Ratio=
𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑳𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒊𝒆𝒔

Company National Foods Limited Engro Food

Years 2014 2015 2016 2016
Cash and cash 247053/
875371/ 854347 637824
equivalent
Current liabilities 2629876 2685229 3996913 5457429
Ratio 0.33 0.09 0.21 0.11

69
Activity ratios

1. Inventory Turnover ratio

𝐂𝐆𝐒
Inventory Turnover Ratio=
𝐈𝐧𝐯𝐞𝐧𝐭𝐨𝐫𝐲

Engro
Company National foods Limited
Food
Years 2014 2015 2016 2016
CGS 6316132 7541804 8937467 34307066
Inventory 2226562 2254723 3250374 3763898
Ratio 2.83 3.37 3.25 9.1

2. No. of days in inventory

𝟑𝟔𝟓
No. of days Stock Ratio =
𝐈𝐧𝐯𝐞𝐧𝐭𝐨𝐫𝐲 𝐓𝐮𝐫𝐧𝐨𝐯𝐞𝐫

Company National foods limited Engro Food

Years 2014 2015 2016 2016
365 365 365 365 365
Inventory
2.83 3.37 3.25 9.1
Turnover
Ratio 128.9days 108.44days 112.41days 40.10days

70
 3. Total Asset Turnover
𝐍𝐞𝐭 𝐒𝐚𝐥𝐞
Total asset turnover =
𝐓𝐨𝐭𝐚𝐥 𝐀𝐬𝐬𝐞𝐭

Company National foods limited Engro food

Years 2014 2015 2016 2016
Net sale 9725258 11581436 13183185 44346031
Total Assets 4982449 5555026 6575253 24713772

1.95 2.20 2.17 1.79

Ratio

4. Receivable Turnover Ratio

𝐍𝐞𝐭 𝐜𝐫𝐞𝐝𝐢𝐭 𝐬𝐚𝐥𝐞
Receivable turnover =
𝐀𝐜𝐜𝐨𝐮𝐧𝐭 𝐫𝐞𝐜𝐞𝐢𝐯𝐚𝐛𝐥𝐞

Company National foods limited Engro food

Years 2014 2015 2016 2016
Net credit Sales 8915259 10417318 12176445 44161716
Account 809999 1164118 1006740 3878559
receivable
Ratio 11.01 11.89 12.26 11.38

5. No of days in receivable
𝟑𝟔𝟓
No of days in receivable=
𝑹𝒆𝒄𝒆𝒊𝒗𝒂𝒃𝒍𝒆 𝒕𝒖𝒓𝒏𝒐𝒗𝒆𝒓

Company National food limited Engro food

Years 2014 2015 2016 2016
365 365 365 365 365
Receivable 11.01 12.26 11.38
11.89
turnover
Ratio 33.15 30.69 29.78 32.05

71
Debt ratio
𝑻𝒐𝒕𝒂𝒍 𝑳𝒂𝒊𝒃𝒊𝒍𝒊𝒕𝒊𝒆𝒔
Debt to asset ratio=
𝑻𝒐𝒕𝒂𝒍 𝑨𝒔𝒔𝒆𝒕𝒔

Company National food limited Engro food

Years 2014 2015 2016 2016
Total liabilities 2774531 2798138 4091481 7563253
Total assets 4982449 5555026 6575253 24713772
Ratio 0.55 0.50 0.62 0.30

Market Ratios
1. Price Earnings ratio
𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑴𝒂𝒓𝒌𝒆𝒕 𝑷𝒓𝒊𝒄𝒆
Price earnings ratio=
𝑬𝑷𝑺

Company National foods limited Engro food

Years 2014 2015 2016 2016
Current market
273 339.73 281 192
price
EPS 13.68 9.59 7.47 3.11
Ratio 19.95 35.4 37.62 61.73

2. Breakup value per share

𝑵𝒆𝒕 𝑨𝒔𝒔𝒆𝒕𝒔
Breakup value per share=
𝑺𝒉𝒂𝒓𝒆 𝑶𝒖𝒕𝒔𝒕𝒂𝒏𝒅𝒊𝒏𝒈

Company National foods limited Engro food

Years 2014 2015 2016 2016
24713772
Net Assets 4982449 2756888 2483772

Share
51803 103607 103607 766586
Outstanding
Ratio 48.08 26.61 23.97 32.23

72
 3. Dividend Payout Ratio
𝐓𝐨𝐭𝐚𝐥 𝐝𝐢𝐯𝐢𝐝𝐞𝐧𝐝
Dividend Payout Ratio = x100
𝐍𝐞𝐭 𝐈𝐧𝐜𝐨𝐦𝐞

Company National Foods Limited Engro food

Years 2014 2015 2016 2016
165771
Total Dividend 1036069 284919 1715000

Net Income 708492 993563 773676 2386712

Ratio 23.39% 104.28% 36.83% 71.85%

4. Dividend Yield Ratio

𝐓𝐨𝐭𝐚𝐥 𝐃𝐢𝐯𝐢𝐝𝐞𝐧𝐝
Dividend Yield Ratio = ×100
𝐍𝐨 𝐨𝐟 𝐬𝐡𝐚𝐫𝐞/𝐄𝐏𝐒

Company National Foods Limited Engro Food

Years 2014 2015 2016 2016
Annual
165771 1036069 284919 1715000
Dividend
51803/ 103607/ 103607/ 766586/
No of share/EPS
13.68 9.59 7.47 3.11
Ratio 2.03% 0.98% 2.94% 1.11%

73
Appendix – II

FINANCIAL STATEMENTS

National Foods Limited

Balance Sheet

As On June 30, …….

Amounts in Thousands
Particulars
2016 2015 2014 2013
ASSETS
Property, plant and equipment 1,997,039 1,518,286 1,239,996 1,048,957
Biological assets _ _ _ _
Intangibles 61,295 39,089 36,128 23,086
Long term investment 31,719 31,719 31,719 31,719
Long term deposits 30,979 34,768 22,125 11,696
Total Non-Current Assets 2,121,032 1,623,862 1,329,968 1,115,458
Stores, spare parts and loose
6,605 5,897 5,534 5,185
tools

Stock in trade 3,250,374 2,254,723 2,226,562 1,912,425

Trade debts 1,000,468 1,150,666 796,624 652,142

Advances 95,455 50.404 52,307 49,076

Trade deposits and prepayments 38,068 29,736 18,076 17,055
Other receivables 6,272 13,452 13,375 16,700

Investments in mutual fund units _ 389,245 461,585 327,908

Taxation- provisions less _ _ _

4,160
payments

Cash and bank balances 56,979 37,041 78,418 154,583

74
Total Current Asset 4,454,221 3,931,164 3,652,481 3,139,234

TOTAL ASSETS 6,575,253 5,555,026 4,982,449 4,254,692

SHARE CAPITAL &

RESERVES
Issued, subscribed and paid-up
518,034 518,034 518,034 414,427
capital
Unappropriated profit 1,965,738 2,238,854 1,689,884 1,267,598

Total Capital And Reserves 2,483,772 2,756,888 2,207,918 1,682,025

Deferred taxation 80,934 93,414 114,920 123,198

Retirement benefits obligations 13,634 19,495 29,735 3,811

Long term finances _ _ _ _

Total Non Current Liabilities 94,568 112,909 144,655 127,009

Trade and other payables 1,960,435 1,672,683 1,372,410 1,311,561

Accrued interest / mark up 8,974 2,520 11,341 23,536

Short term borrowings 1,311,326 384,094 953,789 950,968

Taxation Provision 622,721 484,578 168,004 _

Sales tax payable 93,457 141,354 124,332 139,593

Total Current Liabilities 3,996,913 2,685,229 2,629,876 2,445,658

Total Liabilities 4,091,481 2,798,138 2,774,531 2,572,667

LIABILITIES + CAPITAL &

6,575,253 5,555,026 4,982,449 4,254,692
RESERVES

75
 National Foods Limited

Income Statement

For The Year Ended June 30, …..

Amounts in Thousands
Particulars
2016 2015 2014 2013

Sales 13,183,185 11,581,436 9,725,258 8,545,966

Cost of sales (8,937,467) (7,541,804 ) (6,316,132) (5,588,508)

Gross profit 4,245,718 4,039,632 3,409,126 2,957,458

Distribution costs (2,518,730 ) (2,102,512 ) (1,921,722 ) (1,624,168)

Administrative expenses (505,866 ) (458,844 ) (347,532 ) (264,272)

Other expenses (97,681 ) (120,719 ) (91,176 ) (82,940)

Other income 55,850 111,965 71,148 66,955

Operating profit 1,179,291 1,469,522 1,119,844 1,053,033

Finance costs (67,338 ) (37,269) (87,513 ) (74,832)

Profit before taxation 1,111,953 1,432,253 1,032,331 978,201

Taxation (338,277 ) (438,690 ) (323,839 ) (304,950)

Profit after taxation 773,676 993,563 708,492 673,251

76
 National Foods Limited

Statement of Cash Flow

For the Year Ended June 30, ……….

Amounts in Thousands
Particulars
2016 2015 2014 2013
Cash flows from operating
activities
Cash generated from operations 726,447 1,547,792 812,846 777,412
Finance cost paid (60,884 ) (46,090 ) (99,708 ) (63,287)
Income tax paid (208,625 ) (132,640) (151,202 ) (344,466)
Retirement benefits paid (23,876 ) (61,382 ) (3,811 ) (4,113)
Net increase / (decrease) in long
3,789 (12,643 ) (10,429 ) (5,884)
term deposits
Net cash flow from operating
436,851 1,295,037 547,696 359,662
activities
Cash flows from investing
activities
Purchase of property, plant and
(684,084 ) (467,720 ) (346,450 ) (216,616)
equipment
Sale proceeds from disposal of
21,767 29,988 7,761 4,590
property, plant and equipment
Purchase of intangible assets (46,958 ) (22,740 ) (21,212 ) (21,848)
Purchase of open ended mutual
(150,000 ) (777,988) (150,000 ) (460,000)
fund units
Sale of open ended mutual fund
546,048 884,555 50,000 423,992
units
Purchase of treasury bills (147,810) _ _ _
Sale proceeds of treasury bills 148,731 _ _ _

77
Net cash used in investing
(312,306) (353,905) (459,901) (301,601)
activities
Cash flows from financing
activities
Short term borrowings
1,000,000 508,696 550,000 _
obtained
Repayment of short term
(700,000) (808,722) (980,000) _
borrowings
Dividend paid (1,031,839) (412,814) (166,781) (390,202)
Net cash used in financing
(731,839) (712,840) (596,781) (390,202)
activities

78