Financial Statements Analysis

Final Project
Submission # 3
Submitted to: Ma’am Mehwish Jawaad
Submitted By: Hina Naveed
19P00033
 Balance Sheet Ratios
NISHAT POWER LIMITED

RAITOS 2019 2018 2017 2016 2015

Current Ratio 2 2 3 5 4
Acid Test Ratio 1.86 1.97 2.55 4.43 3.17
Cash Turnover 193.47 111.93 35.98 35.75 39.05
Net Working Capital 1.68 2.07 2.00 1.83 3.08
Account Recivables
Turnover 1.11 1.59 1.96 1.93 2.43
Inventory Turnover 9.48 13.30 17.93 14.10 19.94

PPE Turnover - - - 2.26 1.74

Total Assets Turnover 0.56 0.67 0.68 0.63 1.23
Return on Assets 0.13 0.13 0.13 0.13 0.17
Return on Equity 0.21 0.21 0.22 0.24 0.28
Total Debt to Equity 0.52 0.64 0.67 0.72 0.98
Long Term Debt to Equity 0.03 0.19 0.37 0.56 0.72
Current ratio

Current Ratio
6

0
2019 2018 2017 2016 2015

Current ratio has decreased with every year as it is seen that in 2018 and 2019 it
is the ideal ratio which is 2. This is caused by by a decrease in the current liabilities
as compared to the previous three years. Not oly the current liabilities have
decrease but also a decrease in the short term borrowings has also been seen.
Current ratios for five years show that after 2017 Nishat power is covering its
liabilities well.

Acid test ratio

Acid Test Ratio

5.00
4.50
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00
2019 2018 2017 2016 2015
After an increase in 2016 there has been a constant decrease in 2017, 2018 and
2019. Acid test ratio further accesses the liquidity of the assets and how liquid are
the assets to pay the short term liabilities. Inventory is not included in the this rtio
as it may not be as liquid as cash and cash equivalent. Although the liquididty
ratio has decreased but has not reached the ideal range which is 1 but the ratio is
1.86 in 2019 which signifies that the assets of Nishat power are not liquid enough.
One of the reasons being increase in the trade payables.

Cash Turnover

Cash Turnover
250.00

200.00

150.00

100.00

50.00

0.00
2019 2018 2017 2016 2015

Cash turnover shows that how much cash has been saved in comparison with the
sales that took place with the year. The cash turnover has increased after 2017. It
was constant in 2016 and 2017 previously. More cash has been saved due to a
decrease in the expenses and an increase in the short term borrowings.

Net working capital

 Net Working Capital
3.50

3.00

2.50

2.00

1.50

1.00

0.50

0.00
2019 2018 2017 2016 2015

As net working capital shows the difference between the current assets and the
current liabilities. The ratio has decreased constantly that is due to the increase in
the current assets.

Trade receivable turnover

In actual this measure is, how much sales are actually recorded but not earned
and are owned by debtors. We find consistent decrease as 2.43 in 2015 to 1.11 in
2019 except in 2017 with little increase 1.96. This situation is alarming because it
will increase bad debts and reduce actual profitability of company. It seems that
company relaxation policy regarding creditors is flexible which can be a cause of
delay or loss of revenue.
 Account Recivables Turnover
3.00

2.50

2.00

1.50

1.00

0.50

0.00
2019 2018 2017 2016 2015

Inventory turnover

Inventory Turnover
25.00

20.00

15.00

10.00

5.00

0.00
2019 2018 2017 2016 2015

Nishat current inventory turnover is very poor 9.48 as compare to 19.94 in 2015. The reason for
this decrease comes from excess inventory being held by the company which could a result of
weak sales that company has accumulated more inventory and is unable to sell its power
production or it could be a result of flaws in supply. It shows each Rs.1 of inventory that the
company holds it has recorded revenue of Rs.9.48 in 2019 as compared to Rs.19.94 in 2015.
PPE turnover

PPE Turnover
2.50

2.00

1.50

1.00

0.50

0.00
2019 2018 2017 2016 2015

Graff shows us that the PPE ratio got increase 2015 to 2016 at its peak 2.26 points
but suddenly this ratio decreased and comes at zero because Nishat invested in
IPP”s and their contract was canceled in 2017.

Total asset turnover

Nishat total asset turnover seems poor because of a huge decrease in turnover per annum as 1.23
in 2015 to 0.56 in 2019. This ratio shows that the company holds RS. 1 against its assets has
recorded revenue of .56 which is decreased as compare to 2015. We can conclude that company
shows poor efficiency to use its assets for sales generation.
 Total Assets Turnover
1.40

1.20

1.00

0.80

0.60

0.40

0.20

0.00
2019 2018 2017 2016 2015

Total debt to equity

Nishat debt ratio is decreasing as figure shows that company outstanding short
term and long term debt is decreased 0.98 to o.52 which is a very good sign for
healthy business and company profit growth. Basically this ratio is to evaluate
financial leverage which is the ability of shareholders equity secure outstanding
debts in case of bankruptcy.

Total Debt to Equity

1.20

1.00

0.80

0.60

0.40

0.20

0.00
2019 2018 2017 2016 2015

Longterm debt to equity

Long term debt equity is continuously decreasing due to various reasons. As we
observed that in consecutive five years the ratio got consistently decreased. The
main reasons are high interest rates from banking sector, increase in value of
shares, batter turn over, well managed capitalization and engineered intelligence.
Therefore the ratio decreased 0.72 (2015) to 0.03 (2019).

Long Term Debt to Equity

0.80

0.70

0.60

0.50

0.40

0.30

0.20

0.10

0.00
2019 2018 2017 2016 2015

Return on assets
Nishat return on assets is in a consistent position. This is healthy sign for company growth
because company is generating revenue from its assets and sustained its business. ROA is
decreased compared to 2015 which was 0.17 but company sustained this ratio for consecutive
four years which is positive. Company is getting profit from its assets and generating revenue
positively.
 Return on Assets
0.20
0.18
0.16
0.14
0.12
0.10
0.08
0.06
0.04
0.02
0.00
2019 2018 2017 2016 2015

Return on Equity

it measures the company profitability regarding equity. It is calculated by divide

net income by total equity. Nishat ROE is dropped year by year as 0.28(2015) to
0.21(2019) which can cause declining net income and increase financial cost while
change in equity is insignificant as compare to change in net income.

Return on Equity
0.30

0.25

0.20

0.15

0.10

0.05

0.00
2019 2018 2017 2016 2015