Table of Contents

Executive Summary..............................................................................................4
Introduction to NFL..........................................................................................................5
Vision and Mission Statement..............................................................................6
Core Values......................................................................................................................7
Code of Ethics and Business Practices.................................................................8
Company Profile...................................................................................................9
Directors' Report...................................................................................................10-13
Balance Sheet........................................................................................................14
Profit and Loss Account........................................................................................15
Ratio Analysis.......................................................................................................16-17
Types of Ratios.....................................................................................................18-21
Analysis of Company's Ratios..............................................................................22
Liquidity Ratios : .................................................................................................23-25
a) Current Ratio.............................................................................................23
b) Quick Ratio...............................................................................................24
Asset Management Ratios : .................................................................................26-29
a) Receivable Activities................................................................................26
b) Days Sale Outstanding..............................................................................27
c) Inventory Turnover in days.......................................................................28
d) Fixed Asset Turnover................................................................................28
e) Total Asset Turnover.................................................................................29
Profitability Ratios :..............................................................................................30-34
a) Net Profit Margin on Sales........................................................................30
b) Gross Profit Margin on Sales....................................................................31
c) Return on Investment................................................................................32
d) Return on Equity.......................................................................................33
Financial Leverage Ratios : .................................................................................35-37
a) Debt to Equity Ratio.................................................................................35
b) Gearing Ratio............................................................................................36
Market Value/ Investment Ratios : ......................................................................38-41
a) Earnings per share.....................................................................................38
b) Price Earning Ratio...................................................................................39
c) Book Value per share................................................................................40
d) Market / Book Ratio..................................................................................41
Conclusion............................................................................................................42

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 EXECUTIVE SUMMARY
In the nutshell the company has been performing very well in both business and financial terms.
Despite economic downturn and political instability in the country, the company has been able to
generate decent returns with increase profitability. The market ratios indicate increasing
confidence or the investors on company shares. The company has decreased its financial
leverage significantly without denting its liquidity position which has made company less risky
and will attract major investor in the long term. Also the company has shown impressive
operating results with payable times increasing and receivable time decreasing showing
companys good, healthy and sustainable relations based on mutual benefits with the customers
and supplies .

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 INTRODUCTION TO NATIONAL FOOD
LTD(NFL)

National Foods Limited (NFL), founded in 1970, is Pakistans leading multi-category Food
Company today with over 250 different products in 12 categories. NFL holds ISO 9001, ISO
22000, and HACCP certifications along with SAP business technology to drive the companys
strong commitment to quality and management excellence. NFL is an international brand sold in
over 35 countries, and it aims to become a Rs. 50 billion company under its Vision 20/20 plan.
NFL is dedicated to improving the well-being of society through continuous development of
innovative food products and through a wide-ranging corporate social responsibility program.
National Foods Limited must focus on customers needs and serve them with quality products at
affordable prices at their doorstep. Our products must be pure, conforming to international
standards. Our research must produce continuously new, adventurous products that are
scientifically tested and hygienically wrapped in safe and attractive packages. We must create an
environment in our offices and factories where talents are groomed and our people have every
opportunity to advance in their careers. We must prove ourselves good corporate citizens,
support good causes and charity and bear our fair share of taxes. Reserves must be built, new
factories created, sound profit made and fair dividends paid to our stock holders. Through
building a reliable brand, National Foods Limited must get itself recognized as a leader in
Pakistan and abroad. With the help of Almighty God, the Company can achieve its target in time
to come.

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 VISION AND MISSION 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.

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CORE VALUES
Passion
We act with intense positive energy and are not afraid to take risks. We challenge ourselves
continuously, were good at what we do, and we take pride in who we are.

People-centric
We put our people first. We treat them with respect and actively contribute towards their
development.

Customer Focus
We see the world through the eyes of our customers. We do everything possible that makes them
happy.

Leadership
We are part of the solution, never the problem. We act like owners and have a positive influence
on others.

Teamwork
Our roles are defined, not our responsibilities. We believe in going the extra mile to accomplish
our goals. We coach and support each other to ensure everyone wins. We have a WE versus I
mindset.
Ethics
We dont run our business at the cost of human or ethical values.
Excellence in Execution
We say. We do. We deliver. We talk with our actions. We strive for nothing but the best.
Execution is the key to winning!

Accountability
We see. We act. We take full responsibility for our actions and results. We dont blame others
for our mistakes; we analyze them and correct them.

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CODE OF ETHICS AND BUSINESS PRACTICES
NFL believes in conducting its operations with strong ethical and moral standards. NFLs
statement of code of ethics and business practices aims to provide guidance on carrying out its
business-related decisions and activities. We wish to achieve excellence in all spheres of our
operations for which business ethics form the basis. Any party entering any form of contract with
NFL is bound to comply with the given guidelines. NFLs statement of code of ethics and
business practices has the following 07 guidelines:
1. Unfair Means: Any use of bribery, kickbacks or any form of payment in cash/kind to obtain
business-related or otherwise gainful benefit for the company is strictly prohibited. Excessive
business gifts and entertainment also hold the same meaning and NFL does not approve of such
payments.
2. Respect and Integrity: NFL believes in giving respect to individuals. We aim to operate in a
manner that discourages discrimination, harassment and/or influence. Discrimination refers to
favoritism based on a particular aspect of an individuals personality. Harassment includes
gender harassment that creates an intimidating, hostile or offensive work environment causing
interference with work performance. Influence could be an abuse of authority or the wish to alter
personal beliefs.
3. Conflict of Interest: NFL prohibits actions that are in conflict with the companys business
interests. This may include, but is not limited to:
Providing assistance to the competition or holding ownership interests in a customer, supplier,
distributor or competitor.
Making personal gains at companys expense.
4. Confidentiality: NFL believes in confidentiality of information related to the companys
business activities. The company expects employees not to disclose or divulge by any means
confidential and commercially sensitive information except to the authoritative personnel
requiring it. Furthermore, they should use their best endeavors to prevent the disclosure of such
information by other people. The obligation of confidentiality shall survive the expiration or the
cessation of contacts with National Foods Limited and is equally applicable to intellectual
property.
5. Statutory Compliance: NFL believes in providing total support and cooperation to all
governmental and regulatory bodies irrespective of the extent of prevalent enforcement.
6. Financial Integrity: NFL believes in complete compliance with the accepted accounting rules
and procedures. This includes, but is not limited to:
Transparency: NFL discourages any illegal activity for the purpose of any benefit to the
company or others. All information supplied to the stakeholders and/or auditors must be
authentic and transparent.
Disclosure: All transactions must be fully disclosed and must be for the purpose stated.
7. Health, Safety and Community Responsibility: NFL is fully committed to safety, health and
responsibility towards the environment and community. All activities of NFL must portray
responsibility towards the community and the nation as a whole. NFL seeks to employ
procedures that are safe, healthy and environment friendly.

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Company Profile
BOARD OF DIRECTORS
Mr. Abdul Majeed Chairman
Mr. Abrar Hasan Managing Director/Chief Executive
Mr. Waqar Hasan Director
Mr. Khawaja Munir Mashooqullah Director
Mr. Zahid Majeed Director
Mr. Ebrahim Qassim Director
Mr. Iqbal Alimohamed Director

AUDIT COMMITTEE
Mr. Ebrahim Qassim Chairman
Mr. Waqar Hasan Member
Mr. Zahid Majeed Member

HUMAN RESOURCE AND REMUNERATION COMMITTEE (HR & R)

Mr. Khuwaja Munir Mashooqullah Chairman
Mr. Zahid Majeed Member
Mr. Abrar Hasan Member

COMPANY MANAGEMENT
Mr. Abrar Hasan Managing Director/Chief Executive
Mr. Shakaib Arif Chief Operating Officer

HEAD OF INTERNAL AUDIT

Mr. Shahid Hussain

COMPANY SECRETARY AND SECRETARY AUDIT COMMITTEE

Mr. Fayyaz Abdul Ghaffar

ACTING CHIEF FINANCIAL OFFICER

Mr. Farhan Latif

INTERNAL AUDITORS
Messrs. Ernst & Young Ford Rhodes Sidat Hyder & Co. Chartered Accountants

EXTERNAL AUDITORS
A. F. Ferguson & Co. Chartered Accountants
State Life Building, 1-C,
I.I. Chundrigar Road, Karachi

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DIRECTORS REPORT TO THE SHAREHOLDERS
On behalf of the Board of Directors of National Foods Limited, I present the accounts and
performance report for the financial year ended June 30, 2012. These financial statements have
been prepared in accordance with the approved accounting standards as applicable in Pakistan
and the requirements of the Companies Ordinance, 1984. The directors' report is prepared under
section 236 of the Companies Ordinance, 1984 and clause xvi of the Code of Corporate
Governance.

FINANCIAL AND NON-FINANCIAL PERFORMANCE OVERVIEW

For National Foods, 2012 was another excellent year with a strong top line growth in sales of
29.9% and declaring the highest ever record profit before tax of Rs. 836 million. All our key
categories like Recipe Mix, Sauces, Pickles, Desserts and Salt have shown stellar performances.
The investments made behind our brands in Advertising & Sales Promotion activities are
yielding good results and we have a decisive leadership in our key categories. Gross Margins
have improved by 401 bps due to effective sales mix management, containment of fixed costs
and strong Cost Control & Management. Our Export business also grew impressively with
double digit sales growth and improvement in profitability by 34.86%. Our key export markets
like North America, USA, and UK, sales have shown significant improvement.

A brief financial analysis is presented as follows:

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The year was full of exciting marketing and sales activities with the transition into bigger and
better Advertising & Promotional activities; like television campaigns, attractive in-store
displays and successful below-the-line activities. Hamaray Khanay, Hamari Tehwar has laid a
strong emphasis on the importance of relationship and the role food plays in strengthening the
bonds of love. National Ka Pakistan was also well lauded by the consumers. The Cost Control
& Cost Management Program is now well embedded as a part of the business process. This year
as well this program has yielded huge benefits to the company. Our managers have meticulously
endeavored to remove the business wastes and focused on increasing business efficiencies and
lean business processes. We reward and recognize individual employees and departments who
have taken outstanding initiatives. We have successfully completed the Consolidation Phase
which we embarked upon. This has helped us in modernizing our business, holding our position
as market leaders in almost every category in which we operate. All this has alleviated us to
enhance consumer value and superior products with attractive price offerings. Operating profits
for the year grew by a handsome 86.1 % to Rs. 907 million, as compared to last year. The
financial cost burden on the company has decreased significantly due to various treasury
management initiatives and efficient working capital management. As a consequence financial
costs have reduced by Rs. 55 million, which is almost 43.5% lower as compared to last year.

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Overall, we finished the year well ahead and surpassed all records set previously. Overall profit
after tax was Rs 583 million with an impressive increase of 153% over the preceding year. EPS
for the year is Rs 14.07 per share.

I am very pleased with the direction and momentum of our consolidation phase with a clear
strategic alignment backed by operational excellence. It was an outstanding effort by our team in
a difficult consumer environment.

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ACKNOWLEDGEMENTS
I would like to thank each of our employees for their focused dedication and hard work
throughout this period of volatility and transition. And, I thank you, our shareholders, for
your continued investment in and support of our company.

APPROPRIATION OF PROFITS
Your directors have recommended the following for approval by the shareholders:
Final cash dividend of Rs. 6 (2011: Rs. 2.50) per share of Rs.10 each.

On behalf of the Board of Directors

A. Majeed
Chairman
Karachi
September 06, 2012

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FINANCIAL STATEMENTS
BALANCE SHEET

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PROFIT AND LOSS ACCOUNT

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 RATIO ANALYSIS
A way of expressing relationships between a firm's accounting numbers and their trends over
time that analysts use to establish values and evaluate risks.

PURPOSE OF CALCULATING RATIOS

It helps us identify financial strengths and weaknesses of a company.
Comparison of its performance with the average performance of a similar business in the
same industry (Industry average)
To determine how well their firm is performing in order to evaluate where the firm can
improve
To see if the firm is a good investment so that companies can compare between
industries, investors can determine the best investment

RATIO ANALYSIS ANSWERS

How liquid is the firm? (Indicates a firms level of liquidity by comparing assets with
liabilities)
Is management generating adequate income on firms assets? (Is the firm effectively and
efficiently earning profit)
How is the firm financing its assets? (Is the firm self-financing or debt financing/ what is
the source of financing?)
Are the owners receiving an adequate amount of return on their investments? (The
owners want to be assured that they will be provided with adequate amount of return on
the money they invested)

COMPARISON OF RATIOS
To measure its performance, a company compares its ratio with the following

Competitors
Last years performance
Industry average
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COMPETITORS
A comparative analysis allows owners to compare their company financial ratio information to
that of a competing company. This provides information on a competing company operational
and financial performance.

LAST YEARS PERFORMANCE

When you compare current ratios to last year's or a collection of several years records, it can
help you boost your progress and plan for the future.

INDUSTRY AVERAGE
An average of all stock data values in the same industry. Industry Average is used to compare a
stock's Growth and Profitability ratios to that of other stocks in the same industry.

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 TYPES OF RATIOS
1) LIQUIDITY RATIOS
It shows the relationship of a firms cash and other current assets to its current liabilities.

It tells you about the financial position of a firm i.e. if a company is in a good position to
pay off its debts. This ratio shows the amount of cash (any other current asset that you own) and
the amount of cash that you have to pay off.

Liquid assets
The assets that can be easily converted into cash without losing its original value.

Example: Inventory and account receivables.

a) Current ratio
This ratio determines the ability to pay off short-term debts. If current assets are rising faster than
current liabilities than the current ratio will increase. If current ratio decreases than the financial
position of a company also falls. It is a ratio that determines a firms degree of liquidity by
comparing its current assets to its current liabilities.

b) Quick ratio (Acid test ratio)

It determines the ability to pay off the short term debts without relying on inventory. Cash is the
biggest asset which could be liquefied easily and we dont include inventory. It is a
conservative/strict approach as compared to current ratio. Most liquid assets are seen in quick
ratio. We compare quick ratio with 1.

Its comparison is made by past performance, major competitors and industry averages.

2) ASSET MANAGEMENT RATIOS

This ratio shows how effectively and efficiently a firm is managing its assets. Firm invests its
assets to generate revenues so you have to maintain a balance. If the company has too many

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assets than the interest expense on these assets will be high, hence decreasing the profits and
vice-versa.

a) Receivable activities
This ratio shows the annual sales on credit. It tells one year how many receivables are converted
into cash.

b) Days sales outstanding (Average collection period or receivable

turnover in days)

In how many days receivables are converted into cash. If the company has given loan in how
many days it will get the money back.

c) Fixed asset turnover

It shows relationship of net sales and fixed assets. It shows how the firm uses its fixed assets to
generate sales effectively.

d) Total asset turnover

An overall measure of the relation between a firms tangible assets and the sales they generate.
It shows the percentage of assets used to obtain certain percentage of sales.

3) PROFITABILITY RATIOS
Firms policy making decisions or plans are associated with this ratio. This ratio relates profits to
sales and investment.

a) Net profit margin on sales

A ratio that measures the net income of the firm as a percent of sales. This ratio tells the profit
generated by per unit sales. It measures the profitability of sales after taking the account of all
expenses and income taxes.

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 b) Gross profit margin
In this ratio gross profit is compared to sales. If sales will increase than the gross profits will also
increase and vice-versa. It also tells how the products are priced.

c) Return on investment (ROI or ROA)

This ratio shows how many assets are deployed to generate income? It shows the return on
investment earned in the form of dividends.

d) Return on equity (ROE)

It shows how much money is invested by shareholders, and how much return is given to
shareholders on the money invested. High return on equity shows that company carries good
investment opportunities.

4) DEBT MANAGEMENT (OR FINANCIAL LEVERAGE) RATIOS

Ratios that show the degree to which a firm is financed by debt.

a) Debt to equity ratio

In this ratio owners equity is compared with debts.

b) Debt to total assets ratio

This ratio shows the percentage of assets financed by debt or by equity. Creditors prefer low debt
ratios to prevent from the losses in the time of liquidity.

c) Gearing ratio
This ratio tells us that how much the firm is relying on LTDs (long-term debts). It also tells us
the importance of LTDs in financing of the firm. Debt ratios tell us the percentage of capital
contribution by creditors and owners.

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 5) MARKET VALUE (OR INVESTMENT) RATIOS

a) EPS (earning per share)

This ratio tells us the amount of income and percentage of shares generated.

b) P/E (price earnings ratio)

This ratio shows how much investors are willing to pay per dollar of reported profits. It is a
comparison of good and good.

c) Book value per share

A measure used by owners of common shares in a firm to determine the level of safety associated with
each individual share after all debts are paid accordingly.

d) Market/book ratio
The ratios of stock market price to its book value shows that how do the investors regard the
firms return on investment.

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CALCULATION AND ANALYSIS OF THE
COMPANY'S RATIOS

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 LIQUIDITY RATIOS
A part of financial ratios that is used to determine a company's ability to pay off its short-terms
debt obligations. Generally, the higher the value of the ratio, the larger the margin of safety that
the company possesses to cover short-term debts. Common liquidity ratios include the current
ratio, the quick ratio and the operating cash flow ratio. Different analysts consider different
assets to be relevant in calculating liquidity. Some analysts will calculate only the sum of cash
and equivalents divided by current liabilities because they feel that they are the most liquid
assets, and would be the most likely to be used to cover short-term debts in an emergency.

A company's ability to turn short-term assets into cash to cover debts is of the utmost importance
when creditors are seeking payment. Bankruptcy analysts and mortgage originators frequently
use the liquidity ratios to determine whether a company will be able to continue as a going
concern.

a) CURRENT RATIO
Current Assets/Current Liabilities

2011 2012

Rs.2067047/Rs.1678278 Rs.2202427/Rs.1649928

1.23 1.33

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 CURRENT RATIO
1.34

1.32

1.3

1.28

1.26
CURRENT RATIO
1.24

1.22

1.2

1.18
2011 2012

Analysis
There has been an increase in the current ratio from 2011 to 2012, i.e. from 1.23 to 1.33. This is a
good sign jump as it shows that the debt paying ability of NFL has increased and its position to
convert short-term assets into cash is secure. So, when creditors seek payment from NFL, they
can surely pay back their debts quickly; which makes them a reliable company which can be
supplied to on credit.

b) QUICK RATIO
(Current Assets Inventory)/Current Liabilities

2011 2012

Rs.(2067047 1732410)/Rs.1678278 Rs.(2202427 1557538)/Rs.1649928

0.20 0.39

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 QUICK RATIO
0.45

0.4

0.35

0.3

0.25

0.2 QUICK RATIO

0.15

0.1

0.05

0
2011 2012

Analysis
The favorable ratio is 1; so, NFL had a reduced ratio in previous year which has now been
increased to its doubled. This shows its ability to pay off its short-term debts with its most liquid
assets and does not have to rely on the mare sale of its inventory.

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 ASSET MANAGEMENT RATIOS

Asset management ratios are the key to analyzing how effectively and efficiently your small
business is managing its assets to produce sales. Asset management ratios are also called
turnover ratios or efficiency ratios. If you have too much invested in your company's assets,
your working capital will be too high. If you don't have enough invested in assets, you will lose
sales and that will harm your profitability.

As the owner of your business, one has the task of determining the right amount to have invested
in each of their asset accounts. They do that by comparing their firm to other companies in their
industry and see how much they have invested in asset accounts. One also keeps track of how
much they have invested in their asset accounts from year to year and see what works.

a) RECEIVABLE ACTIVITIES
Annual Sales/ Avg. Receivables

2011 2012
Avg. Receivable=(287742+253050)/2 Avg. Receivable=(288994+287742)/2
=Rs. 270396 =Rs.288368
Rs. 5520780/Rs.270396 Rs.7168603/Rs.288368

20.41 times 17.88 times

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Analysis
As compared to last year, the number of times the accounts receivable has been turned over into
cash has decreased from 20.41 to 17.88 which shows that NFL has been successful in early
collection of its accounts receivables as last year. Might be that it has given a shorter credit
period to its debtors or the receivables collection department and has been efficient enough. The
Company should keep its policy going to have more positive and effective results for its
receivables to be more reduced in terms of days.

b) DAYS SALE OUTSTANDING

(Avg. Receivables*Days in a year)/Annual Sales

2011 2012

(270396*365)/Rs.5520780 (288368*365)/Rs.7168603

17.88 days 14.68 days

Analysis
As compared to last year it is taking earlier to collect outstanding amounts for
receivables. From 17.88 days it has gone to 14.68 days. So NFL has improve its collection
department and should continue its credit policies; i.e. shorten credit period, limit credit amount,
etc. It may help the company to realize the outstanding debts and to utilize them to their best.

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 c) INVENTORY TURNOVER IN DAYS
(Avg. Inventory*Days in a Year)/CGS

2011 2012
Avg. Inventory=(1732410+1502232)/2 Avg. Inventory=(1557538+1732410)/2
=Rs.1617321 =Rs.1644974
(1617321*365)/Rs.3946799 (1644974*365)/Rs.4837315

149.57 days 124.12 days

Analysis
This is a very good improvement as NFL is converting its inventory into cash and accounts
receivables sooner than last year. It has lessened from 149.57 days to 124.12 days. This means
that NFL has become more efficient and successful in selling its inventory; which indicates that
its sales department is performing effectively.

d) FIXED ASSET TURNOVER

Sales/Avg. fixed Assets

2011 2012

Avg. Fixed Assets=(787694+824968)/2 Avg. Fixed Assets=(95734+787694)/2

=Rs.806331 =Rs.872518
Rs.5520780/Rs.806331 Rs.7168603/Rs.872518

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 6.84 times 8.21 times

Analysis
NFL has shown an increasing trend in is asset turnover which shows a consistent policy
regarding its efficiency and activity in applying its assets and getting best output of them to
cover any expected obligations. More over getting maximum turnover on assets means an
reliable estimate has been made regarding depreciation and productivity level and the
company is gradually attaining a required level of higher fixed asset turnover ratio.

e) TOTAL ASSET TURNOVER

Annual Sales/Avg. Total Assets

2011 2012

Avg. Total Assets=(2854741+2674360)/2 Avg. Total Assets=(3159769+2854741)/2

=Rs.2764550.5 =Rs.3007255
Rs.5520780/Rs.2764550.5 Rs.7168603 /Rs.3007255

2 times 2.38 times

Analysis
This ratio measures the turnover of the entire firms asset. NFLs ratio in 2011 was 02 and 2.38
in 2012, this shows that the company has been consistent in generating sufficient volume of
business given its investment in total assets and it has increased to marginal level in the current
year.
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 PROFITABILITY RATIOS
A class of financial metrics that are used to assess a business's ability to generate earnings as
compared to its expenses and other relevant costs incurred during a specific period of time. For
most of these ratios, having a higher value relative to a competitor's ratio or the same ratio from a
previous period is indicative that the company is doing well.

a) NET PROFIT MARGIN ON SALES

Net Income (or net profit after taxes)/Sales

2011 2012

Rs.230579 /Rs.5520780 *100 Rs.583276 /Rs.7168603 *100

4.18% 8.14%

NET PROFIT MARGIN ON SALES

10

5 NET PROFIT MARGIN

ON SALES
0
2011 2012

Analysis
We can see that there is remarkable increase in the net profit margin which shows that the firm is
effectively maintaining it's indirect expenses as it used to. There is a increase in profitability
after 2011 which means the company has managed it's assets in a much better way.
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 b) GROSS PROFIT MARGIN
(Net Sales-CGS) or Gross Profit/Net Sales

2011 2012

Rs.1573981/Rs.5520780 *100 Rs2331288/Rs.7168603 *100

28.51% 32.52%

GROSS PROFIT MARGIN

33

32

31

30

GROSS PROFIT MARGIN

29

28

27

26
2011 2012

Analysis
The company has worked efficiently with 28.51% of profit ratio in the year 2011 to 32.51%. It
means that direct expenses has been countered and reduced resulting in an increase of gross
profit ratio to sales. A more advanced policy in this particular area can raise the ratio up to more
effective level.

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 c) RETURN ON INVESTMENT
Net income or NPAT/total assets

2011 2012

Rs.230597 /Rs.2854741 *100 Rs.583276/Rs.3159769 *100

8.08% 18.46%

RETURN ON INVESTMENT
20
18
16
14
12
10
RETURN ON INVESTMENT
8
6
4
2
0
2011 2012

Analysis
This ratio shows a enormous increase in income from 2011 to 2012 i.e. (8.08% to 18.46%)
indicating NFL has generate much sales out of their total assets. NFL has used its assets properly
and maximum output has been generated from the assets which has resulted in such a promising
increment. The extra assets has been addressed to and have been utilized with a controled and
balanced policy.

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 d) RETURN ON EQUITY
Net income or NPAT/Avg. S.H. equity or common equity

OR

NPAT-preferred dividends/common equity

2011 2012
Avg. Equity =(922811+741945)/2 Avg. Equity = (1402480+922811)/2
=Rs.832378 =Rs.1162646

Rs.230597 /Rs.832378 *100 Rs.583276/Rs.1162646 *100

27.70% 50.17%

RETURN ON EQUITY
60

50

40

30
RETURN ON EQUITY

20

10

0
2011 2012

Analysis
There is a increase in the equity ratio of NFL from 2011 to 2012 i.e. (27.70% to 50.17%). This is
because it may have strong investment opportunities in 2012 as compared to the last year and it f
enjoys sound investing circumstances and a high degree trust of investors which increased their
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investments. The company managing its expenses and has increased its return on equity by
investing it to the right place and on right time.

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 FINANCIAL LEVERAGE RATIOS
A ratio of a company's debt to its total financing. The debt management ratio measures how
much of a Companys operations come from debt instead of other forms of financing, such as
stock or personal savings. This ratio measures the extent to which a firm uses borrowed funds to
finance its operations. Owners and creditors are interested in debt management ratios because the
ratios indicate the riskiness of the firm's position. If the firm has healthy operations and
maximum utilization of its funds, it generally invest its funds and generate a return higher then
the interest rate on its debts. With the use of debt also comes the possibility of financial distress
and bankruptcy. The amount of debt that a firm can utilize is dictated to a great extent by the
characteristics of the firm's industry. Firms which are in industries with volatile sales and cash
flows cannot utilize debt to the same extent as firms in industries with stable sales and cash
flows. Thus, the optimal mix of debt for a firm involves a tradeoff between the benefits of
leverage and possibility of financial distress.

a) DEBT TO EQUITY RATIO

Total debt/share holders equity

2011 2012

Rs.169750/Rs.922811 *100 Rs.0/Rs.0

18.39 % 0

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 DEBT TO EQUITY RATIO
20
18
16
14
12
10
DEBT TO EQUITY RATIO
8
6
4
2
0
2011 2012

ANALYSIS
This is a very rare but favorable situation where the company is having no long term debts for
the current year. It shows that the company is financing all of its projects by its own resources. It
also shows favorable finance policies that the company utilizes its own retained earnings and
undistributed profits.

b) GEARING RATIO

Long term debt/total capitalization

2011 2012

Rs.955775/Rs.1878586 *100 Rs.476235/Rs.1878715 *100

51% 25%

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 GEARING RATIO
60

50

40

30
GEARING RATIO

20

10

0
2011 2012

Analysis
The company finances its operations through equity, borrowings, and management of working capital
with a view to maintaining an appropriate mix between various sources of finance to minimize risk. This
ratio measures the relative importance of long term debt to capital structure of the firm. The NFLs
leverage in 2011 was relatively higher than 2012. This is because the company brought a huge increase in
its capital structure (long term debts + total equity) and the log term liabilities increased on a relatively
lower rate. This shows that NFL is managing its debts effectively and is performing well.

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MARKET VALUE/ INVESTMENT RATIOS
Market ratios measure investor response to owning a company's stock and also the cost of
issuing stock. These are concerned with the return on investment for shareholders, and with the
relationship between return and the value of an investment in companys shares.

a) EARNING PER SHARE (EPS)

Net Income/No. of Common Shares(Outstanding)

2011 2012

Rs.230597/41443 shares Rs.583276/41443 shares

Rs. 5.56 per share Rs. 14.07 per share

EARNING PER SHARE (EPS)

15

10
EARNING PER SHARE
5 (EPS)

0
2011 2012

Analysis
The firm has shown a significant increase in its EPS this year which means that despite of the current
economic crisis being faced by business entities in Pakistan and worldwide, it is performing extremely
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well. A higher EPS is a positive sign for the company. As this is the first ratio checked by the potential
users of financial statements specifically the investors , directors , shareholders ,and the persons aiming to
invest in the company.

b) PRICE EARNING (OR P/E) RATIO

Market Price per share/Earning per share

2011 2012

Rs.75/Rs.5.56 Rs.192.14/Rs.14.07

13.48 13.65

PRICE EARNING RATIO

13.7

13.65

13.6

13.55

PRICE EARNING RATIO

13.5

13.45

13.4

13.35
2011 2012

Analysis
As we can see, there is a very minute difference in the p/e ratio during 2011 and 2012. It is an
indicator that the firm has been consistent in price earnings ratios for the last two years. This

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indicates that the company's growth prospects are high. Also, the market value has increased the
past year which is obviously an optimistic indicator.

c) BOOK VALUE PER SHARE

Common Equity/ Number of Common Shares Outstanding

2011 2012

Rs.832378/41443 shares Rs.1162646/41443 shares

Rs. 20.08 per share Rs. 28.05 per share

BOOK VALUE PER SHARE

30

25

20

15
BOOK VALUE PER SHARE
10

0
2011 2012

Analysis
The book value is increasing in this case which means that the company is generally prospering.
However the company should issue more shares so that it increases it's capital and works in
projects that have profit generating chances. Subject to the implied conditions that the unissued
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capital must not be less than the level prescribed in the 4th and 5th schedule of the companies
ordinance in 1984.

d) MARKET/ BOOK RATIO

Market Price/Book Value per share

2011 2012

Rs.75/Rs.20.08 Rs.192.14/Rs.28.05

3.73 6.85

MARKET/ BOOK RATIO

8

4
MARKET/ BOOK RATIO
3

0
2011 2012

Analysis
Given that the market price is exceeding the book value, we can see that the firms ratio is
extremely high in both cases. This categorizes the firm which investors would prefer investing
in. It has good investing opportunities but the ratio needs to be increased.

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 CONCLUSION

The analysis of financial reported data and the ratio analysis concludes that the company is
having a strong financial position in the market and it rightly congruent to its founders
philosophy to provide best services to the coustomers and mean while keeping the level of
profitability and financial position to a promising level. the company is very much strong in its
recoveries the production process in running smooth , earning of the shareholders is sound , and
financing activities and policies are earning their best to the company.

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