F I N A N C I A L A N A LY S I S O F N AT I O N A L F O O D

Submitted to
Sir Bilal Sarwar

Submitted by
M.Ali Naqvi (G.L) [L1F11MCOM0164]

Arslan Nawaz (D.M.D) [L1F11MCOM2165]

Usman Shahzad [L1F11MCOM2175] Aqsa Muzaffar [L1F11MCOM2169] Hina Razzaq [L1F11MCOM2137]

Table of Contents
Company Overview .......................................................................................................... 3 Important Facts ................................................................................................................ 3 Products of National Foods Limited................................................................................... 4 Analysis of Financial Ratios ............................................................................................. 13 (A) Liquidity ratios ............................................................................................................... 13 (i) Current ratio ................................................................................................................ 13 (ii) Acid test or Quick ratio .............................................................................................. 14 (iii) Operation cash flow ratio .......................................................................................... 14 (B) Activity ratios ................................................................................................................. 15 (i) Asset turnover Ratio .................................................................................................... 15 (ii) Debt ratio.................................................................................................................... 16 (C) Leveraging ratios ............................................................................................................ 17 (i) Debt to equity ratio ..................................................................................................... 17 (D) Profitability Ratios ......................................................................................................... 17 (i) Gross Margin ............................................................................................................... 18 (ii) Net Profit margin ......................................................................................................... 19 (iii) Return On Assets ....................................................................................................... 19 (E) Market ratios.................................................................................................................. 20 (i) Earnings per share ....................................................................................................... 20 (ii) Price-Earnings Ratio .................................................................................................... 21 Horizontal Analysis of Income Statement and Balance Sheet ........................................... 22 Vertical Analysis of Income Statement and Balance Sheet ............................................... 23 Share Price of National Food Limited (1998-2012) .......................................................... 24 Appendix A ..................................................................................................................... 25 Appendix B ..................................................................................................................... 29

Company Overview
National Foods Limited is a Pakistani company founded in 1970 which started out as a Spice company. In 1988, National Foods became the certified vendor of McCormick, USA. In the same year, National Foods, then a Private Limited company was converted into a Public Limited, listed in all the three stock exchanges of Pakistan. It is the only food company in Pakistan to have ISO 9001 and HACCP certifications along with SAP business technology to drive the company's strong commitment to quality and management excellence. NFL is an international brand sold in over 35 countries and it aims to be a Rs. 50 billion company under its Vision 2020. Today, National Foods provides a complete food experience to its customers in 35 countries with over 400 distributers around the world. National Foods produces over 300 products in 12 major product categories including meal solutions, pickles, sauces, ketchups, jams and desserts etc. During the fiscal year ended June 30, 2012, the Company's actual production of plants was 50,975 metric tons of food.

Important Facts
$ 40 years of innovation $ Rs. 3 billion in sales $ 300 products $ 6 manufacturing units (Karachi, Bin Qasim, Lahore) $ Central Warehousing (Lahore, Gujranwala, Multan, Islamabad) $ Rs. 1 million to the economy every day in shape of taxes $ Annualized Growth Rate of 23% for the last 35 years

Products of National Foods Limited (NFL) Products of National Foods Limited

National Foods is an international brand sold in over 35 countries with over 400 distributers around the world. National Foods produces over 300 products in 12 major product categories.

Analysis of Financial Ratios

(A) Liquidity ratios
A class of financial metrics that is used to determine a company's ability to pay off its short-terms debts obligations. Generally, the higher the value of the ratio, the larger the margin of safety that the company possesses to cover short-term debts. (i) Current ratio The ratio is mainly used to give an idea of the company's ability to pay back its shortterm liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio, the more capable the company is of paying its obligations. The Current Ratio formula is: Current Ratio = Current Assets / Current Liabilities Year 2011 2010 1.23 1.01 Current ratio

Current Ratio
1.4 1.2 1 0.8 0.6 0.4 0.2 0 2011 2010

The current ratio is 1.23 in 2011 which is more than 0.22 as compared to 2010. In 2011 assets are on increasing tend where as in current ratio in 2009 was 1.14. In 2010 assets are on declining trend whereas liabilities see an increasing trend.

(ii) Acid test or Quick ratio An indicator of a company's short-term liquidity. The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better the position of the company. The quick ratio is calculated as: Quick Ratio = (Current Assets - Inventories) / Current Liabilities Year 2011 2010 Quick Ratio 0.18 0.15

Quick Ratio
0.19 0.18 0.17 0.16 0.15 0.14 0.13 2011 2010

Quick ratios are always less than current ratios; same is the case in both the years. In 2011, the Quick ratio is 0.18 and in 2010 the Quick ratio is 0.15, which is less than 2009 and 2008, indicating that the inventory is less in 2011 and 2010. Keeping excess inventory is not good for the company as the capital amount is invested in carrying and holding cost. Quick ratio in both the years is less than 1, which makes a company inefficient. (iii) Operation cash flow ratio A measure of how well current liabilities are covered by the cash flow generated from a company's operations. Formula: OCF Ratio = Cash flow provided by operations / Current Liabilities

Year 2011 2010

Operation cash flow ratio 0.21 (0.20)

Operation cash flow Ratio

0.4 0.2 0 -0.2 -0.4 2011 2010

The Operation cash flow ratio is 0.21 in 2011 where as in 2010 it was (0.20).

(B) Activity ratios

Measure a firm's ability to convert different accounts within its balance sheets into cash or sales. Activity ratios are used to measure the relative efficiency of a firm based on its use of its assets, leverage or other such balance sheet items. These ratios are important in determining whether a company's management is doing a good enough job of generating revenues, cash, etc. from its resources. (i) Asset turnover Ratio The amount of sales generated for every Rupees worth of assets. It is calculated by dividing sales in Rupees by assets in Rupees. Formula: Asset turnover Ratio = Net Sales / Total Assets Year 2011 2010 Asset turnover Ratio 1.93 1.68

Asset Turnover Ratio

2 1.9 1.8 1.7 1.6 1.5 2011 2010

Asset turnover measures a firm's efficiency at using its assets in generating sales or revenue the higher the number the better it is. Assets turnover ratio shows an increasing trend in 2011 and 2010. (ii) Debt ratio A ratio that indicates what proportion of debt a company has relative to its assets. The measure gives an idea to the leverage of the company along with the potential risks the company faces in terms of its debt-load. Formula: Debt ratio= Total Liabilities / Total Assets Year 2011 2010 Debt ratio 0.68 0.72

Debt Ratio
0.73 0.72 0.71 0.7 0.69 0.68 0.67 0.66 2011 2010

The debt ratio in 2011 was 0.68 and in 2010 it was 0.72. It was less by 0.04, which shows the efficiency of company.

(C) Leveraging ratios

Any ratio used to calculate the financial leverage of a company to get an idea of the company's methods of financing or to measure its ability to meet financial obligations. There are several different ratios, but the main factors looked at include debt, equity, assets and interest expenses. (i) Debt to equity ratio A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets. Formula: Debt to equity ratio= Total Liabilities / Average Share Holder equity Year 2011 2010 Debt to equity ratio 2.09 2.60

Debt to equity Ratio

3 2 1 0 2011 2010

The Debt to equity ratio in 2011 was 2.09 and in 2010 it was 2.60. It was less by 0.51, which shows the efficiency of company.

(D) 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.

(i) Gross Margin

The higher the percentage, the more the company retains on each rupee of sales to service its other costs and obligations. Formula: Gross Margin= Gross Profit / Sales Year 2011 2010 Gross Margin 28.51 29.55

Gross Margin
30 29.5 29 28.5 28 27.5 2011 2010

The gross profit margin in 2010 was 29.55, while in 2011 it was 28.51, which is bad for the company because it indicates that in 2010 the cost of goods sold was 70.45% and profit was 29.55%, whereas in 2011 the cost of goods sold was 71.49% while the profit was 28.51%.

(ii) Net Profit margin

Profit margin is very useful when comparing companies in similar industries. A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors. Formula: Net Profit margin = Net Profit / Sales Year 2011 2010 Profit margin 4.18 1.93

Profit Margin
5 4 3 2 1 0 2011 2010

The Net profit margin in 2010 was 1.93% whereas in 2011 it was 4.18%. (iii) Return On Assets An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. The formula for return on assets is: Return on Assets = Net Income / Total Assets Year 2011 2010 ROA 12.67 5.95

ROA
15 10 5 0 2011 2010

The higher the ROA ratio the good is the company is, ROA in 2010 was 5.95%, where as in 2011 it was 12.67%, which is good for the company because the ratio of ROA increase by 6.72%.

(E) Market 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.

(i) Earnings per share

The portion of a company's profit allocated to each outstanding share of common stock. Formula: EPS= Net Income / Numbers of Shares Year 2011 2010 EPS 5.56 2.09

EPS
6 4 2 0 2011 2010

(ii) Price-Earnings Ratio

In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. However, the P/E ratio doesn't tell us the whole story by itself. It's usually more useful to compare the P/E ratios of one company to other companies in the same industry, to the market in general or against the company's own historical P/E. It would not be useful for investors using the P/E ratio as a basis for their investment to compare the P/E of a technology company (high P/E) to a utility company (low P/E) as each industry has much different growth prospects. The P/E is sometimes referred to as the "multiple", because it shows how much investors are willing to pay per dollar of earnings. Formula: P/E Ratio= Market price per share / EPS Year 2011 2010 P/E ratio 13.48 21.03

EPS
25 20 15 10 5 0 2011 2010

Horizontal Analysis of Income Statement and Balance Sheet

Total sales of 2010 were 19.45%; it increases by 3.51 % during one year. Cost of sale increase by 4.62%. Gross profit in 2010 was 17.75% and in 2011 G.P is 18.61%. Administrative expense is increased by 0.43% in 2011. Financial Costs in previous year was 13.79% and in 2011 it was 27.27 %. In 2010 company face the deficit of 37.86% and in 2011 company goes in profit up to 164.375. Fixed assets in 2010 were 26.15% but in 2011 it goes in to negative by 4.51%. Share capital and Reserves in 2010 was 13.28% and in 2011 it is increase by 24.26%. Non-current assets in 2010 was 0% and in 2011 it goes into negative 20%. A current assets in 2010 was 56.69% and in 2011 it is 11.79 % which is decreased by 44.9% during the two years. Total Assets in 2010 was 45.72 % and in 2011 it is decreased by 6.73 and Net assets in 2010 was 6.67% and in 2011 net assets increases up to 38.68.

Vertical Analysis of Income Statement and Balance Sheet

A total sales of 2010 was 100% and it is remain constant 100% in 2011. Gross profit in 2010 was 29.55 % and in 2011, 28.91%. Financial Costs in previous year was 2.20%. And in 2011: 2.28 %. In 2010 company was in 1.93 % net profit and in 2011 company profit goes up to 4.17%. A fixed assets in 2010 was 96.70% but in 2011 it goes to decline 66.58%. Share capital and Reserves in 2010 was 87.50%. And in 2011 it is decreased to 78.40%. Non-current assets in 2010 was 0.59% and in 2011 it is low 0.34%. A current assets in 2010 was 218.04% and in 2011 it is 175.77 % which is decreased during the year. Total Assets in 2010 was 315.33 % and in 2011 it is decreased up to 242.69%.

Share Price of National Food Limited (1998-2012)

Share price of National Food Limited on last trading date of every June from 1998 to 2012.

400

350

300

250

200

Share Price

150

100

50

0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Appendix A

Appendix A

IN THIS SECTION:
Calculation of Liquidity ratios Calculation of Activity ratios Calculation of Debt ratios Calculation of Profitability ratios Calculation of Market ratios

1. Liquidity ratios
1.1 Current Ratio Current Assets Particulars Cash & bank balance Trade Debt Inventories Other current assets Total Current Liabilities Particulars Short term Secured loans Other current liabilities Total Current Ratio

2011 14,225 287,742 1,732,410 32,670 2,067,047

2010 14,101 253,050 1,502,232 80,009 1,849,392

2011 727,940 950,338 1,678,278 1.231647558 1.2 Acid Test or Quick ratio

2010 1,189,769 637,058 1,826,827 1.012352018

Particulars Cash & bank balance Trade Debt Total Acid Ratio 1.3 Operation cash flow Particulars Cash flows from operations Long term secured loans Other non-current liabilities Long term Debts Current Liabilities Total Liabilities Operation cash flow ratio

2011 14,225 287,742 301,967 0.18

2010 14,101 253,050 267,151 0.15

2011 422,593 169,750 83,902 253,652 1678278 1,931,930 0.22

2010 -391,195 20,000 85,588 105,588 1826827 1,932,415 -0.20

2. Activity ratios
2.1 Asset turnover
Particulars Net Sales Capital work in progress Operating fixed assets after deducting accumulated depreciation Intangible assets Other non-current assets Fixed Assets Current Assets Total Assets Asset turnover 2.2 Debt ratio Particulars Total Liabilities Total Assets Debt ratio 2011 2010 1931930 1932415 2854741 2674360 0.676744405 0.722571008 2011 5,520,780 22,338 2010 4,489,946 63,604

752,018 731,167 8,958 25,688 4,380 4,509 787,694 824,968 2067047 1849392 2,854,741 2,674,360 1.933898732 1.678886163

3. Debt ratios
3.1 Debt to equity ratio Particulars Total Liabilities Average Share Holder equity Debt to equity ratio 2011 2010

1931930 1932415 922,811 741,945 2.093527277 2.604525942

4. Profitability ratios
4.1 Gross margin Particulars Gross Profit Sales Gross margin ratio 2011 1,573,981 5,520,780 28.51 2010 1,326,747 4,489,946 29.55

4.2 Profit margin Particulars Net Profit Sales Gross margin ratio 4.3 Return on assets Particulars Net Income Total Assets Return on assets ratio 2011 361,751 2,854,741 12.67 2010 159,181 2,674,360 5.95 2011 230,597 5,520,780 4.18 2010 86,559 4,489,946 1.93

5. Market ratios
5.1 Earnings per share Particulars Net Income Numbers Of Shares EPS 5.2 P/E ratio Particulars Market price per share EPS P/E ratio 2011 75 5.56 13.48 2010 43.92 2.09 21.03 2011 230,597,000 41,443,000 5.56 2010 86,559,000 41,443,000 2.09

Appendix B

Appendix B

IN THIS SECTION:
Annual Report of 2011

Annual Report of 2010