Nishat Mills – Financial Ratio Analysis (2024)
1. Liquidity Ratios
1.1 Current Ratio
● Formula:
Current Ratio = Current Assets / Current Liabilities
● Given Data:
Current Assets = 88,747,761
Current Liabilities = 73,094,426
● To Be Found Out: Current Ratio
● Calculation:
88,747,761 / 73,094,426 = 1.21
● Answer: 1.21
● Interpretation: Since the ratio is >1, the company has more current assets than current
liabilities, indicating adequate liquidity to meet short-term obligations. A ratio above 1
is considered healthy.
1.2 Quick Ratio
● Formula:
Quick Ratio = (Current Assets – Inventory – Prepaid Expenses) / Current Liabilities
● Given Data:
Current Assets = 88,747,761
Inventory (Stock-in-Trade) = 37,447,381
Current Liabilities = 73,094,426
● Calculation:
(88,747,761 – 37,447,381) / 73,094,426 = 51,300,380 / 73,094,426 = 0.70
● Answer: 0.70
● Interpretation: Since the ratio is <1, it means the company may face short-term
liquidity pressure without quickly converting inventory to cash. This is considered
moderately weak.
2. Solvency Ratios
2.1 Debt to Equity Ratio
● Formula:
Debt to Equity Ratio = Total Debt / Shareholders' Equity
● Given Data:
Total Debt = 102,029,432
Shareholders' Equity = 114,810,013
● Calculation:
102,029,432 / 114,810,013 = 0.89
● Answer: 0.89
● Interpretation: Since the ratio is <1, it means the company relies more on equity than
debt for financing. This is a financially stable position and low-risk.
2.2 Total Asset to Debt Ratio
● Formula:
Total Assets / Total Debt
● Given Data:
Total Assets = 216,839,445
Total Debt = 102,029,432
● Calculation:
216,839,445 / 102,029,432 = 2.12
● Answer: 2.12
● Interpretation: A ratio >2 is strong, indicating that the company has twice as many
assets as liabilities. This shows excellent solvency and financial safety.
2.3 Proprietary Ratio
● Formula:
Proprietary Ratio = Shareholders’ Equity / Total Assets
● Given Data:
Shareholders’ Equity = 114,810,013
Total Assets = 216,839,445
● Calculation:
114,810,013 / 216,839,445 = 0.53 or 53%
● Answer: 53%
● Interpretation: A proprietary ratio of >50% means that the majority of assets are
financed by the owners. This is very healthy and shows a strong capital structure.
2.4 Interest Coverage Ratio
● Formula:
Interest Coverage Ratio = EBIT / Interest Expense
● Given Data:
EBIT = Operating Profit = 7,946,204
Interest Expense = 10,442,392
● Calculation:
7,946,204 / 10,442,392 = 0.76
● Answer: 0.76
● Interpretation: Since the ratio is <1, EBIT is not enough to cover interest expenses. This
is risky and shows poor ability to meet financing costs.
2.5 Debt to Working Capital Ratio
● Formula:
Debt to Working Capital = Total Debt / (Current Assets – Current Liabilities)
● Given Data:
Total Debt = 102,029,432
Working Capital = 88,747,761 – 73,094,426 = 15,653,335
● Calculation:
102,029,432 / 15,653,335 = 6.52
● Answer: 6.52
● Interpretation: Since the ratio is >1, it indicates that the company has significantly more
debt than working capital — a weak short-term solvency position and higher liquidity
risk.
3. Turnover Ratios
3.1 Inventory Turnover Ratio
● Formula:
Inventory Turnover = COGS / Average Inventory
● Given Data:
COGS = 142,933,202
Inventory (2024) = 37,447,381
Inventory (2023) = 34,801,627
Avg. Inventory = (37,447,381 + 34,801,627) / 2 = 36,124,504
● Calculation:
142,933,202 / 36,124,504 = 3.96
● Answer: 3.96 times
● Interpretation: The company turns its inventory nearly 4 times per year, indicating
efficient inventory management.
3.2 Trade Receivables Turnover Ratio
● Formula:
Net Credit Sales / Avg. Accounts Receivable
● Given Data:
Sales = 160,256,555
Receivables = (22,374,547 + 13,208,722) / 2 = 17,791,635
● Calculation:
160,256,555 / 17,791,635 = 9.01
● Answer: 9.01 times
● Interpretation: The company collects receivables around 9 times a year, which is
efficient and reflects good credit policy.
3.3 Trade Payables Turnover Ratio
● Formula:
Net Credit Purchases / Avg. Accounts Payable
● Note: Required data (credit purchases, accounts payable) not available in the dataset.
● Answer: Cannot be calculated.
3.4 Working Capital Turnover Ratio
● Formula:
Net Sales / Working Capital
● Given Data:
Net Sales = 160,256,555
Working Capital = Current Assets – Current Liabilities = 85,467,889 – 69,814,554 =
15,653,335
● Calculation:
160,256,555 / 15,653,335 = 10.23
● Answer: 10.23 times
● Interpretation: The company generates 10.23 of sales per 1 Rs. of working capital,
which is very efficient.
4. Profitability Ratios
4.1 Gross Profit Ratio
● Formula:
(Gross Profit / Net Sales) × 100
● Given Data:
Gross Profit = 17,323,353
Net Sales = 160,256,555
● Calculation:
(17,323,353 / 160,256,555) × 100 = 10.81%
● Answer: 10.81%
● Interpretation: Just above the 10% threshold, indicating moderate cost efficiency.
4.2 Net Profit Ratio
● Formula:
(Net Profit After Tax / Net Sales) × 100
● Given Data:
Net Profit = 6,368,853
Net Sales = 160,256,555
● Calculation:
(6,368,853 / 160,256,555) × 100 = 3.97%
● Answer: 3.97%
● Interpretation: The company earns just under 4% profit per rupee of sales — low
profitability compared to previous years.
4.3 Operating Profit Ratio
● Formula:
(Operating Profit / Net Sales) × 100
● Given Data:
Operating Profit = 7,946,204
Net Sales = 160,256,555
● Calculation:
(7,946,204 / 160,256,555) × 100 = 4.96%
● Answer: 4.96%
● Interpretation: Operating margin is under 5%, which is low, and shows limited core
business efficiency.
Nishat Mills – Financial Ratio Analysis (2023)
1. Liquidity Ratios
1.1 Current Ratio
● Formula:
Current Ratio = Current Assets / Current Liabilities
● Given Data:
Current Assets = 85,467,889
Current Liabilities = 66,817,530
● Calculation:
85,467,889 / 66,817,530 = 1.28
● Answer: 1.28
● Interpretation: >1 → The company has sufficient current assets to cover its short-term
obligations. This is healthy.
1.2 Quick Ratio
● Formula:
Quick Ratio = (Current Assets – Inventory – Prepaid Expenses) / Current Liabilities
● Given Data:
Current Assets = 85,467,889
Inventory = 34,801,627
Prepaid Expenses = Not available (assumed 0)
Current Liabilities = 66,817,530
● Calculation:
(85,467,889 – 34,801,627) / 66,817,530 = 50,666,262 / 66,817,530 = 0.76
● Answer: 0.76
● Interpretation: <1 → Indicates a moderate liquidity risk if inventory cannot be quickly
converted into cash.
2. Solvency Ratios
2.1 Debt to Equity Ratio
● Formula:
Debt to Equity Ratio = Total Debt / Shareholders' Equity
● Given Data:
Total Debt = 80,521,591
Shareholders' Equity = 89,764,119
● Calculation:
80,521,591 / 89,764,119 = 0.90
● Answer: 0.90
● Interpretation: <1 → Indicates the company is more equity-financed than debt-financed
— financially sound.
2.2 Total Asset to Debt Ratio
● Formula:
Total Assets / Total Debt
● Given Data:
Total Assets = 170,285,710
Total Debt = 80,521,591
● Calculation:
170,285,710 / 80,521,591 = 2.11
● Answer: 2.11
● Interpretation: >2 → Strong solvency; the company has double the assets to cover its
debt — very healthy.
2.3 Proprietary Ratio
● Formula:
Shareholders' Equity / Total Assets
● Given Data:
Shareholders’ Equity = 89,764,119
Total Assets = 170,285,710
● Calculation:
89,764,119 / 170,285,710 = 0.53
● Answer: 53%
● Interpretation: >50% → More than half the assets are financed by equity — excellent
capital structure.
2.4 Interest Coverage Ratio
● Formula:
EBIT / Interest Expense
● Given Data:
EBIT = Operating Profit = 12,132,473
Interest Expense (Finance Cost) = 6,927,609
● Calculation:
12,132,473 / 6,927,609 = 1.75
● Answer: 1.75
● Interpretation: >1 → Company can cover its interest expense — acceptable but not
strong; ideal is >2.5.
2.5 Debt to Working Capital Ratio
● Formula:
Total Debt / (Current Assets – Current Liabilities)
● Given Data:
Total Debt = 80,521,591
Working Capital = 85,467,889 – 66,817,530 = 18,650,359
● Calculation:
80,521,591 / 18,650,359 ≈ 4.32
● Answer: 4.32
● Interpretation: >1 → Company has significantly more debt than working capital —
riskier short-term position.
3. Turnover Ratios
3.1 Inventory Turnover Ratio
● Formula:
COGS / Average Inventory
● Given Data:
COGS = 120,677,627
Inventory (2023) = 34,801,627
Inventory (2022) = 31,826,616
Avg Inventory = 33,314,122
● Calculation:
120,677,627 / 33,314,122 = 3.62
● Answer: 3.62 times
● Interpretation: Inventory is sold ~3.6 times a year — moderately efficient.
3.2 Trade Receivables Turnover Ratio
● Formula:
Net Credit Sales / Avg Accounts Receivable
● Given Data:
Sales = 141,756,469
Receivables = (13,208,722 + 10,366,408) / 2 = 11,787,565
● Calculation:
141,756,469 / 11,787,565 = 12.02
● Answer: 12.02 times
● Interpretation: The company collects receivables about 12 times per year — very
efficient.
3.3 Trade Payables Turnover Ratio
● Formula:
Net Credit Purchases / Avg Accounts Payable
● Data not provided: Net credit purchases and average accounts payable are missing in the
sheet.
● Result: Cannot calculate this ratio accurately.
3.4 Working Capital Turnover Ratio
● Formula:
Net Sales / Working Capital
● Given Data:
Net Sales = 141,756,469
Working Capital = 85,467,889 – 66,817,530 = 18,650,359
● Calculation:
141,756,469 / 18,650,359 ≈ 7.6
● Answer: 7.6 times
● Interpretation: High efficiency — company is generating 7.6x sales on working
capital.
4. Profitability Ratios
4.1 Gross Profit Ratio
● Formula:
(Gross Profit / Net Sales) × 100
● Given Data:
Gross Profit = 21,078,842
Net Sales = 141,756,469
● Calculation:
(21,078,842 / 141,756,469) × 100 = 14.86%
● Answer: 14.86%
● Interpretation: Gross margin is strong — indicates good control over production
costs.
4.2 Net Profit Ratio
● Formula:
(Net Profit After Tax / Net Sales) × 100
● Given Data:
Net Profit = 12,166,022
Net Sales = 141,756,469
● Calculation:
(12,166,022 / 141,756,469) × 100 = 8.58%
● Answer: 8.58%
● Interpretation: The company retains ~9% of every rupee in sales — healthy
profitability.
4.3 Operating Profit Ratio
● Formula:
(Operating Profit / Net Sales) × 100
● Given Data:
Operating Profit = 12,132,473
Net Sales = 141,756,469
● Calculation:
(12,132,473 / 141,756,469) × 100 = 8.56%
● Answer: 8.56%
● Interpretation: Operating margin is solid, showing strong core business performance.
Nishat Mills – Financial Ratio Analysis (2022)
1. Liquidity Ratios
1.1 Current Ratio
● Formula:
Current Ratio = Current Assets / Current Liabilities
● Given Data:
Current Assets = 61,003,334
Current Liabilities = 43,858,463
● Calculation:
61,003,334 / 43,858,463 = 1.39
● Answer: 1.39
● Interpretation: Since the ratio is >1, the company can cover its short-term obligations
using its current assets. This is a healthy liquidity position.
1.2 Quick Ratio
● Formula:
Quick Ratio = (Current Assets – Inventory – Prepaid Expenses) / Current Liabilities
● Given Data:
Current Assets = 61,003,334
Inventory = 31,826,616
Prepaid Expenses = 0 (not provided, assumed 0)
Current Liabilities = 43,858,463
● Calculation:
(61,003,334 – 31,826,616) / 43,858,463 = 29,176,718 / 43,858,463 = 0.67
● Answer: 0.67
● Interpretation: Since the ratio is <1, it shows a weaker short-term liquidity position
— the company may rely on inventory turnover to cover urgent liabilities.
2. Solvency Ratios
2.1 Debt to Equity Ratio
● Formula:
Debt to Equity Ratio = Total Debt / Shareholders' Equity
● Given Data:
Total Debt = 58,333,634
Shareholders’ Equity = 79,200,943
● Calculation:
58,333,634 / 79,200,943 = 0.74
● Answer: 0.74
● Interpretation: Since the ratio is <1, the company is using more equity than debt — this
is a financially safe and stable capital structure.
2.2 Total Asset to Debt Ratio
● Formula:
Total Assets / Total Debt
● Given Data:
Total Assets = 137,534,577
Total Debt = 58,333,634
● Calculation:
137,534,577 / 58,333,634 = 2.36
● Answer: 2.36
● Interpretation: Since the ratio is >2, the company has more than double the assets
compared to its liabilities — this shows strong solvency.
2.3 Proprietary Ratio
● Formula:
Shareholders' Equity / Total Assets
● Given Data:
Shareholders’ Equity = 79,200,943
Total Assets = 137,534,577
● Calculation:
79,200,943 / 137,534,577 = 0.576 or 57.6%
● Answer: 57.6%
● Interpretation: More than half of the assets are financed by equity — this is very
healthy and low-risk.
2.4 Interest Coverage Ratio
● Formula:
EBIT / Interest Expense
● Given Data:
EBIT = Operating Profit = 15,786,394
Interest Expense = 2,755,124
● Calculation:
15,786,394 / 2,755,124 = 5.73
● Answer: 5.73
● Interpretation: Since the ratio is >>1, the company can comfortably cover its interest —
this is very strong and indicates excellent financial health.
2.5 Debt to Working Capital Ratio
● Formula:
Total Debt / (Current Assets – Current Liabilities)
● Given Data:
Total Debt = 58,333,634
Working Capital = 61,003,334 – 43,858,463 = 17,144,871
● Calculation:
58,333,634 / 17,144,871 = 3.40
● Answer: 3.40
● Interpretation: Since the ratio is >1, the company has more debt than working capital,
which may raise short-term financial pressure. It’s a moderately risky position.
3. Turnover Ratios
3.1 Inventory Turnover Ratio
● Formula:
Inventory Turnover = COGS / Average Inventory
● Given Data:
COGS = 136,819,482
Inventory (2022) = 31,826,616
Inventory (2021) = 17,972,691
Avg. Inventory = (31,826,616 + 17,972,691) / 2 = 24,899,654
● Calculation:
136,819,482 / 24,899,654 = 5.5
● Answer: 5.5 times
● Interpretation: Inventory turns 5.5 times/year — this is very efficient, showing strong
sales and stock movement.
3.2 Trade Receivables Turnover Ratio
● Formula:
Net Credit Sales / Avg. Accounts Receivable
● Given Data:
Sales = 165,697,007
Receivables = (10,366,408 + 6,549,252) / 2 = 8,457,830
● Calculation:
165,697,007 / 8,457,830 = 19.59
● Answer: 19.59 times
● Interpretation: Receivables are collected almost 20 times per year — this is extremely
efficient.
3.3 Trade Payables Turnover Ratio
Formula:
Trade Payables Turnover Ratio = Net Credit Purchases / Average Accounts Payable
Note:
As Net Credit Purchases are not provided, we use COGS as a proxy (commonly accepted
approximation in such cases).
Given Data:
● Cost of Goods Sold (COGS) = 136,819,482
● Trade & Other Payables (2022) = 11,997,292
● Trade & Other Payables (2021) = Not provided (assumed same as 2022)
● Average Accounts Payable = (11,997,292 + 11,997,292) / 2 = 11,997,292
Calculation:
= 136,819,482 / 11,997,292
= 11.40 times
Interpretation:
The company paid suppliers 11.4 times a year (every ~32 days), above the healthy range (6–10).
This reflects strong liquidity but may mean underutilized credit terms, reducing cash flow
flexibility.
3.4 Working Capital Turnover Ratio
● Formula:
Net Sales / Working Capital
● Given Data:
Net Sales = 165,697,007
Working Capital = 86,170,252 – 69,025,381 = 17,144,871
● Calculation:
165,697,007 / 17,144,871 = 9.66
● Answer: 9.66 times
● Interpretation: The company generates ₹9.66 in sales for every ₹1 of working capital —
this is highly efficient.
4. Profitability Ratios
4.1 Gross Profit Ratio
● Formula:
(Gross Profit / Net Sales) × 100
● Given Data:
Gross Profit = 28,877,525
Net Sales = 165,697,007
● Calculation:
(28,877,525 / 165,697,007) × 100 = 17.43%
● Answer: 17.43%
● Interpretation: This is a very healthy margin — indicates strong control over
production costs and pricing.
4.2 Net Profit Ratio
● Formula:
(Net Profit After Tax / Net Sales) × 100
● Given Data:
Net Profit = 13,932,528
Net Sales = 165,697,007
● Calculation:
(13,932,528 / 165,697,007) × 100 = 8.41%
● Answer: 8.41%
● Interpretation: A solid profitability ratio — company retains over 8% from sales. This is
strong and healthy.
4.3 Operating Profit Ratio
● Formula:
(Operating Profit / Net Sales) × 100
● Given Data:
Operating Profit = 15,786,394
Net Sales = 165,697,007
● Calculation:
(15,786,394 / 165,697,007) × 100 = 9.53%
● Answer: 9.53%
● Interpretation: The company earns 9.53% as profit from its core operations on every Rs.
100 of sales. This shows good control over costs and efficient operations.
