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NISHAT TEXTILE MILLS
Introduction
Nishat textile Mills Limited is the flagship company of Nishat Group. It was establishedin 1951. It is one of the most modern largest !ertically integrated textile companies in
"a#istan. Nishat Mills Limited has 19$1%& spindles '55 (oyota air )et looms. (he
*ompany also has the most modern textile dyeing and processing units % stitching
units for home textile one stitching unit for garments and "ower Generation facilities
with a capacity of $9 M+. (he *ompany,s total export for the year %&11 was -s. '.&15
billion /02 31' million4. /nishat txtile mill %&14
VISION
(o transform the *ompany into a modern and dynamic yarn cloth and processed clothand finished product manufacturing *ompany that is fully euipped to play a meaningful
role on sustainable basis in the economy of "a#istan. (o transform the *ompany into a
modern and dynamic power generating *ompany that is fully euipped to play a
meaningful role on sustainable basis in the economy of "a#istan. /nishat txtile mill
%&14
Company description
Nishat is capable of producing approx 9 million meters of processed fabric per month.
(he product range includes bedding ensembles window treatments #itchen articles
and li!ing room textiles with high and low thread count fabrics. +e possess state of the
art technology to meet customer reuirements and the fabric produced is testified with
excellence. 6urther a dynamic research team ta#ing ad!antage of the !ertically
integration #eeps on creating new product ideas and fashion collections. Its annual
turno!er for the year 77777 is o!er -s.18 billion /02 %$ million4. NML with the
production facility of %8&&&& spindles 83& looms and dyeing printing capacity of 8
million meters /8.'5 million yards4 ma#es Nishat the largest composite textile set up
in "a#istan.
(he dyeing and printing plant has a capacity of 3.& million yards per month with an
eui!alent stitching capacity. (hese plants are euipped with state of the art machinery
specially designed to cater to high thread count fabric.
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:uring the dyeing printing finishing and stitching processes se!eral measures are
ta#en to ensure timely deli!ery of high uality fabric. (his includes special care in fabric
handling full width rail stitching ";< based si=e reco!ery !arious de!ices to a!oid
creases and band mar# !ariation special unwinding de!ices efficient suee=ers a
computeri=ed dye dispensing system and an on7line measurement and storage of data
at e!ery machine.
(hroughout the world especially in s o!erall economic get7up the textile sectorcontinues to be the most important segment of the national economy. Its share in theeconomy in terms of G:" exports employment foreign exchange earningsin!estment and re!enue generation altogether placed the textile industry as the singlelargest determinant of the economic growth of the country .In contrast to the great
economic crunch throughout the world Nishat mills faced the uncertainty positi!ely andthe company is still growing up .:uring the year exports were controlled from falling andsignificant in!estment was made in !alue7added expansion and in ?alancing7Moderni=ation. /nishat txtile mill %&14
Top Down approach
OVER ALL VIEW OF COUNTRY
Gross domestic profit G:" in "a#istan is slowed to .'@ in %&1 from early years which
were 3.3@. (his shows the bad position of "a#istan and this shows that "a#istan is
going down.
Aere the uestion is how can we raise our Gross domestic profit G:"B
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for e!ery department e!ery department will be able to perform in a legal way and will
wor# with interest and when there is interest in wor# then the product will be worth of
ta#ing.
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"olitical leaders
"oliticians of "a#istan are self7centered they usually perform actions according to their
needs and wants.
Illiteracy is a lot in politicians they are not properly educated according to the post theyha!e they usually get it in a illegal way.
(hey are from elite class and they can ne!er understand the problems of local person
because they ne!er face those problems. (hey are usually corrupted they ta#e money
by their own instead of in!esting them on country properly.
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%. -esource of country is limited
Eur country doesn,t ha!e much resources and don,t ha!e )ob opportunities. +hy is it
that soB (his is because of decrease in industries. If we ha!e proper system of
industries then they can reduce the unemployment rate.
. In!estment rate low
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$"ctor analsis
(he crisis originated from Furopean countries and now it is becoming a global
phenomenon. "olitical instability bad law and order situation army,s interference
terrorism economic policies etc are the factors which are disturbing domestic and
foreign in!estment. "a#istan in!estors are ta#ing away their money to :ubai 0 audi
and other countries of the world.
I will li#e to suggest the stabling of economic planning remo!e terrorism and ha!ing a
proper #nowledge. It is not )ust to impro!e our education now a days it I thin# one of the
main reason is terrorism which are ma#ing local and international nation to go down
because of terrorism no one is willing to perform and target mar#et.
(extile plays an important role in economic de!elopment of the country. (extile is one of
the ma)or economic ob)ecti!es in industries and "a#istan was the main source of
exporting clothes and textile to other countries and still textile of "a#istan is #now all ourthe world. +e can say textile sector of "a#istan is the bac# bone of "a#istan economy.
< textile no doubt is the largest industrial sector of "a#istan for in!estment employment
and export point of !iew. it approximately account %8@of total industrial output it too#
$@ of employment as $@ of employees are wor#ing in textile industries and
approximately '$@ contribution in exporting. Aowe!er despite its impressi!e
contribution at the national le!el the share in the world exports of textile and clothing is
low. (hey are co!ering approximately 9@ of country G:"
If it,s wor#ing so well then go!ernment should wor# on it and gi!e them proper sources
because it is the main source of their income. (here are 1%%& ginning units5'8spinning units and 3%5 small units which produce textile products."a#istan,s textile
industry is based on '&@ on spinning sector %%@ on wea!ing sector and 1$@ on the
finishing sector. /merrian4
Fxports
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1. Lac# of technology
Eur technology is not up to the mar# we don,t ha!e moderni=ed technology. +e are still
wor#ing with old methods which are the main reason of going down in textile sector.
:ue to old technology it is ta#ing more time and cost of production is high.
%. Aigh price of raw material
-aw material of "a#istan is getting high day by day due to which it is difficult for
industrialist to buy it and they are wor#ing with small sources.
Go!ernment is not gi!ing proper attention to textile sector.
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+E(
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(hreats
1. New competitors
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*osting and expenses of nishat textile mills
(hat corresponded with an earnings7per7share of -s1'.' up from -s1&.&3 in the
pre!ious year. (he cost of sales went to -s3.$ billion from -s$.1 billion during the
period an increase of 1.$ per cent. /mehdi4
Elements of financial report
A%thori&"' shar" capital
(he maximum !alueof securitiesthat a companycan legally issue(his number isspecified in the memorandum of association
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Total ")%it
(otal euity is the total of all Erdinary capital -eser!es "references and Minorities./httpCwww.ad!fn.com %&14
o (otal euity for %&1 is $&%&%81339
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(he difference between lower current offering priceamong dealersand thehigher pricethat a dealers charges to customers. /in!estopidia4
o
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Fi-"' ass"ts
< long7term tangible piece of property that a firm owns and uses in the production of itsincome and is not expected to be consumed or con!erted into cash any sooner than atleast one year>s time.(investopidia)
o 6or nishat fixed assets of %&1 is 8''5'&'9.
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(he satisfaction of a debt or installment payment before its official due date ./in!estopidia4
o (he recent short term prepayments of nishat mill are 3%1 and last year it was
%''3%$.
Accr%"' int"r"st
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.an+ .alanc"
?alance standing to the credit of a depositor at a ban#.. (he balance that a ban# has inthe clearing house at a gi!en time /dictionary.reference.com4
o
(he current balance of nishat mills is %59%85%9 and last year it was 38998&11.
$al"s
< sale is the act of sellinga product or ser!ice in return for money or othercompensation.
o *urrent sales of nishat is %1%1%33&3 and last year it was 1$'1'93%5'1
Cost o/ sal"s
*ost of sales measures the cost of goods produced or ser!ices pro!ided in a period byan entity. /ready %&14
o (he current cost of sales of nishat mills is 18'18'883&& and last year it was1'53&135%1$.
0ross pro/it
< company>s re!enue minus its cost of goods sold. Gross profit is a company>s residualprofit after selling a product or ser!ice and deducting the cost associated with itsproduction and sale. /in!estopidia4
o Its gross profit is 595 and ''9&3 last year %&8'8983.
Distrib%tion cost
:istribution costs are usually defined as the costs incurred to deli!er the product fromthe production unit to the end user. /ready %&14
o (he current distribution cost is 5 53 %599& and last year was 3 99$ and3&18.
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A'#inistration "-p"ns"(he expenses that an organi=ation incurs not directly tied to a specific function such asmanufacturingproduction or sales.
/in!estopidia4
o (he recent administration expense of nishat textile mill is 1393%5%8 and for%&1% it is 159959$9.
Oth"r "-p"ns"s< particular payment of money.
o nishat textile mill recent other expense is 18%9%%%& and for %&1% it is
5&1'91$.
Op"rational pro/it(he profit earned from a firm>s normal core business operations. (his !alue does notinclude any profit earned from the firm>s in!estments and the effects of interest andtaxes. /in!estopidia4
o (he recent operational profit of nishat is %5&9%13&3 and for last year it was
%%3831$39$.
Pro/it b"/or" ta-ation
< profitability measure that loo#s at a company>s profits before the company has to paycorporate income tax. (his measure deducts all expenses from re!enue includinginterest expenses and operating expenses but it lea!es out the payment oftax. /in!estopidia4
o (he recent "?( for %&1 is %5&9%13&3 and for %&1% are $9981%8.
Ta-ation
(axation means the le!ying of taxes.
o (he recent taxation for nishat textile mill is %538'&%93 and for %&1% it is193'3%9$.
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Pro/it a/t"r ta-ation
< financial performance ratio calculated by di!iding net income after taxes by net sales.(investopidia)
o 6or %&1 profit after taxation for nishat was %%8'1'111& and for %&1% is'99&8%9.
Earnin,s p"r shar"
(he portion of a company>s profit allocated to each outstanding share of common stoc#.Farnings per share ser!e as an indicator of a company>s profitability. /in!estopidia4
o (he recent earning per share of nishat textile mill is %%8'1'111& and for %&1% itwas '99&8%9.
Li)%i'it ratios< class of financial metrics that is used to determine a company>s ability to pay off itsshort7terms debts obligations Generally the higher the !alue of the ratio the larger themargin of safety that the company possesses to co!er short7term debts/in!estopedia4
C%rr"nt ratio!
(he most widely used measure of short7term debt paying ability is the current ratio./williams4
(he *urrent -atio formula isC
C%rr"nt ratio o/ nishat t"-til"
2013 2012 2011 2010
1.29 1.27 1.1 1.21
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2013 2012 2011 2010
1
1.1
1.2
1.3
1.4
current ration
current ration
IN(F-"-F(
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2013 2012 2011 2010
0
0.5
1
1.5
2
quick ratios
quick ratios
INTERPRETATION
uic# ratio of 1.$& means that a company has 1.5&rps of liuid assets a!ailable toco!er each of current liabilities and company is in good liuidity position then from last
years as they increased current assets.
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2013 2012 2011 2010
0
0.2
0.4
0.6
cash ratios
cash ratios
IN(F-"-F(s ability to generate
earnings as compared to its expenses and other rele!ant costs incurred during a
specific period of time. 6or most of these ratios ha!ing a higher !alue relati!e to a
competitor>s ratio or the same ratio from a pre!ious period is indicati!e that the company
is doing well./in!estopedia4
0ross Pro/it 4ar,in
It is used to measure the profitability of the company,s products. /williams4
*alculated asC
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0ross pro/it #ar,in o/ nishat t"-til"
2013 2012 2011 2010
0
0.05
0.1
0.15
0.2
0.25
Gross proft margin
Gross proft
margin
INTERPRETATION!In %&1 G" margin indicates better performance. (he G" ratio is 1'@. It means the
company may reduce the selling price of its products by 1'@ without incurring any loss.
In %&1% they were low by 5@ as it was too from pre!ious year and it was difficult for
them to maintain their expense. In %&11 it was &.1' which was as much as in %&1.
"rofit margin by lowering it cost o!er heads and manufacturing cost or lowering other
expenses in order to increase this ratio. In %&1& it was % which show better performance
of the company as the higher the gross profit the better to perform.
Op"ratin, pro/it #ar,in!
It is used to measure the management,s ability to control expenses is #nown as
operating profit margin /williams4*alculated asC
2013 2012 2011 2010
0.16 0.11 0.16 0.2
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Op"ratin, #ar,in 2 OP3$ALE$
Op"ratin, pro/it #ar,in o/ nishat
2013 2012 2011 20100.17 0.12 0.15 0.16
00.05
0.1
0.15
0.2
operating profte margin
operating
profte
margin
INTERPRETAIONC
+hen operation profit ratio is high it indicates better position of the company in %&1
company is in better position from pre!ious years. In %&1 the operating profit of the
company was &.18 which show that the company is ma#ing that much of sales from
operations in %&1. %&1 is in better position than in %&1% which was &.1% and in %&1%the company operations was not maintain as it was low from %&11 as in %&11 it was &.15
N"t pro/it #ar,in!
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2013 2012 2011 2010
0
0.05
0.1
0.15net profte margin
net profte
margin
INTERPRETATION!
%&1 shows that its performance and efficiency in earning profit was much higher than
%&1% in %&1 in was &.1 and this indicates a better performance of the company
because in pre!ious year s they were so low and it was difficult for them to maintain its
sale and taxation. In %&1% and in %&1& they were in better position. (hey can increase
its N" by decreasing cost of production or other expenses or should reduce the price to
increase the sales and in same case Net profit will increase.
$ol("nc ratio
(hese ratios are use to chec# whether the companies can pay off its long term liabilities
or not.
D"bt ratio
"ercentage of assents financed by creditors indicates relati!e si=e of the euity position
is debt ratio. /williams4
*alculated
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2013 2012 2011 2010
0.6 0.5 1.7 1.3
2013 2012 2011 2010
0
0.5
1
1.5
2
debt to equity
det to equit!
Interpretation
It is clear that the lower the debts euity ratio of a company the better can operate. In
%&1 and in %&1% company is in better debt position and in %&1% the ratio was &.5 and
in &1 in was &.' and its shown that company was in better position to pay its long
term liability through its current assets. In %&11 company were in !ery bad position and
the debt euity ratio was so high but they co!er it in a !ery better way and now they are
so better and they are getting better e!ery year. *ompany is managing its debt to euity
ratio and can pay off its long term liability easily in %&1.
Total '"bts ratio
It is Indicator of a company,s ability to generate the cash necessary to meet its
obligations. /williams4
*alculated as
Total '"bts ")%it2total '"bts3capital
2013 2012 2011 2010
0.52 0.67 0.59 0.61
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0
1
2
3
4
5
total depts equity
tota" depts
equit!
Int"rpr"tation
It has the same characteristic and features as debt to euity ratio it,s )ust it include the
sum of all liabilities /long term O short term4 so lower this ratio the better and effecti!ely
is the company performing. In %&1 company,s total depts. (o euity ratio is &.5% it islow from %&1% which is &.'8 that shows that company is in better position from last year.
(hat shows that they are good in paying their long and short term liability easily.
Int"r"st co("ra," ratio
Indicator of a company,s ability to meet its interest payment obligations /williams4
*alculated as
Op"rational pro/it3int"r"st /inanc"
Int"r"st co("ra," ratio o/ nishat
2013 2012 2011 2010
3.04 1.6 2.1 2
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0
1
2
3
4
5
6
7
interest coveragae ration
interest
co#eragaeration
Interpretation
Interest co!er show that how can company co!er its interest so for that its must that u
ha!e high interest co!erage ratio and in %&1 we ha!e high interest ratio the last years.
In %&1% the interest co!erage ratio was so low which idicates that company can not
co!ber its interest easily.
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In("ntor t%rn o("r 5 'as o/ in("ntor o/ nishat
2013 2012 2011 2010
3.6 6.3 5.2 3.8
101 57 68 96
0
20
40
60
80
100
120
in#entor!
da!s
in#entor!
turn o#er
Int"rpr"tation
(his shows that in %&1 company in!entory turno!er is .' with 1&1 days which show
that company ha!e 1&1 day to sell its in!entory and in %&1% it was '. with 58 days
which shows that company has less days in %&1% as compare to %&1 this shows that
they ha!e a long time of in!entory turno!er which is not that much good. $o achie!e
better in!entory turno!er ratio by ma#ing more sa#es in lesser period of times byreducing the price or by gi!ing promotions than that will for sure increase sales and
increase the in!entory turno!er ratio.
D"btors t%rn o("r
Indicates how uic#ly recei!ables are collected.
*alculated
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Das o/ '"btors26783D"btors t%rn o("r
D"btor t%rn o("r 5 'a o/ nishat
2013 2012 2011 2010
0.61 3.2 16.3 8.773 96 22 41
2013 2012 2011 2010
0
20
40
60
80
100
120
detor turno#er
da!s
detor turno#er
Int"rpr"tation
:ays of debtor the higher the ratio the more it,s beneficial for the company as its collectits sales on credit in a !ery short span of times and its credit sales are easily con!erted
into cash in a shorter time. :ebt turn o!er on %&1 was &.'1 with 8 days which is good
from %&1% which was 9' as now they can collect their recei!able easily. it was so good
in %&1% there were %% day. (his show now they are ha!ing more days and it,s not
stable.
*ompetitors of nishat textile mills
1. Gull Ahmed2. Kohinoor69 aa
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Li)%i'it position o/ co#p"titors an' nishat
nishat 0%l ah#"'+ohinoor tata
Y"ars %&1 %&1 %&1%&1
c%rr"nt 1.%9 1.&5 1. 1.1
1%ic+ 1.$ &.%8 &.$ &.%'
Cash &.%% &.&1 &.&% &.&1
Interpretation
(his table shows that nishat is on the top in their competitors as its current ratio uic#ratio and cash ratio all are high from gulahmed Kohinoor and (ata. (his shows that
nishat textile is in good liuidity position they are good to pay of its liability through its
current assets. (his shows that nishat is ha!ing high current assets and their
competitors don,t ha!e that much. Gul ahmed is not so far away from nishat and it can
compete nishat therefore nishat ha!e to maintain liuidity position. Nishat is ha!ing high
ratio of current uic# and cash. 6rom Gul ahmed Kohinoor and (ata but gul ahmed is a
bit far from nishat is nishat current ratio is 1.%9 and gul ahmed is 1.&5 uic# ratio is 1.$
of nishat and gul ahmed is &.%8 in uic# ratio gul ahmed is far away from nishat which
show that is is difficult for gul ahmed to pay is liabilities through its current assets. *ash
ratio is nishat is &.%% and gul ahmed is &.&1 and Kohinoor ha!e &.&% and (ata has &.&1
which show that nishat is ha!ing more money on hand or in ban# to pay its current
liabilities.
Pro/itabilit position o/ nishat an' its co#p"titors
ear %&1
%&1 %&1 %&1
Gross profit &.1' &.15 &.1' &.1$Eperating profit &.18 &.93 &.1% &.8%Net profit &.1 &.% &.11 &.8
nishat Gul ahmed
kohi
noor tata
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Interpretation
Gross profit is to identify the profitability of a company product the gross profit of (ata is
higher then nishat which shows that there are getting more from their product which Is
may be because of their pricing and this shows that they ha!e good control on their cost
of sale as compare to nishat Kohinoor is nishat is ha!ing same gross profite which is
&.1' this indentify that Kohinoor and nishat is ha!ing same cost of sale and (ata cost of
sale is higher than their competitors which is &.1$ which is gi!ing them higher gross
profit.
Now coming towards operating profit in operating profit gul ahmed is on top with &.93
ratio which shows that they ha!e proper control on their expense and their sales are
high then nishat. 6or this nishat textile need to increase their sales and control their
selling expenses.
(o compete gul ahmed. Net profit of (ata is &.8 which is more then nishat and gulahmed is &.% which is also high then nishat. (his show that costs of nishat is not
maintained they ha!e to control their costs. Nishat textile need to decrease its cost to
compete their competitors
$ol("nc ratio o/ nishat an' its co#p"titors
ear %&1 %&1 %&1 %&1debt to euity &.' &.3 1.9 &.1total debt toeuity &.5 %.& %.5 &.$interestco!erage .&3 1.'9 1.3 %.$3
Interpretation
(he lower the ratio the easier it is for the company to pay off its debts. nishat debt to
euity ratio is &.' which is better then it competitors but gul ahmed ratio is more lower
then nishat which show they are more easily paying its long term debts. It shows that
company has more capital and lesser !alue of long term debts.
nishat gulahmed
kohinoor
tata
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(otal debt to euity of nishat is lower than its all competitors that is &.5 which shows
that it is easy for them to pay off in long O short term dept easily from its euity as
compare to its competitors.
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Wor+in, capital
+or#ing capital is a financial metric which represents operating liuiditya!ailable to a
business organi=ation or other entity including go!ernmental entity.
+or#ing capital is the amount of current assets minus the amount of current liabilitiesas of specific date. (hese amounts are obtained from your company>s balance sheet.
F!en with a significant amount of wor#ing capital a company can experience a cash
shortage if its current assets are not turning to cash.
(here are se!eral financial ratios that pertain to wor#ing capital. (hey include the
current ratio uic# ratio accounts recei!able turno!er ratio days sales in accounts
recei!able in!entory turno!er ratio and days sales in in!entory.
:ow to #ana," wor+in, capital!
+or#ing *apital Management is as important as pooling together the financial
resources to in!est into a particular business. (he first rule of thumb is to understand
and practice successfully managing your capital resources to pre!ent an economic
downturn from completely derailing your business.
+or#ing capital is the money allotted for day to operations and any debt that your
company possesses. This will show o% how to #ana," o%r #on" in or'"r to
a(oi' /inancial 'isast"r9
6ollowing the steps below will help you monitor your day to day progress and show you
what you can and cannot afford.
Get paid Q uic#lyC
Many businesses in!oice at the end of the month and offer a & day payment period. If
the sale happens early in the month that nearly doubles your debtor days. Fnsure your
business in!oices customers when goods or ser!ices are sold on a daily basis if
possible. :ebtors often use disputes or excuses to delay payment so if you only follow
up when payment is due you won,t recei!e payment on time.
Keep meticulous recordsC
alespeople accountants and administrators need to record e!ery
communication whether by letter phone or email including dates times what was said
and what was agreed. (echnology has made this process much easier as emails are
normally sa!ed.
http://en.wikipedia.org/wiki/Accounting_liquidityhttp://en.wikipedia.org/wiki/Accounting_liquidity8/9/2019 Nishat Textile Mill
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:iscount with careC
Fnsure your salespeople #now the limits Q and impacts Q of what they can
offer and don,t o!er7negotiate in order to close a sale. < successful sales team could
ha!e a negati!e effect on wor#ing capital if customers are offered discounts or extended
credit terms.
Manage in!entoryC
*ontrolling stoc# effecti!ely has a significant positi!e impact. If possible deal
in consignment stoc# which can be held on your business premises but doesn,t need to
be paid for until you sell it on. (his lowers your costs while maximi=ing re!enues as will
properly planning and managing stoc# le!els to accommodate pea#s and troughs in
demand.
ecure good credit termsC
ee# payment terms that at least match the terms you extend to your
customers. It,s also sensible to consider how you deal with customers who are also
suppliers. et ultimately it,s your responsibility to ensure that your company has
enough capital to meet its liabilities. ou must ta#e and share responsibility for the
business decisions and internal processes that impact wor#ing capital.
Co##"nt on a wor+in, capital o/ co#pan /or th" pr"(io%s thr"" "ars C
6or calculating wor#ing capital of company we use this formulaH
+or#ing capitalP current asset7current liability
%&11C
*urrent assetP
*urrent liabilityP
o wor#ing capitalP$&'$ 11%&5& 7 8191 9%19&
P83$ $91 99%&
%&1%C
*urrent assetP1%9' 95%91
*urrent liabilityP98&35311'
(hen wor#ing capitalP1%9' 95%91 7 98&35311'
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P%'93$1 183.
%&1C
*urrent assetP98%3$953'
*urrent liabilityP8'%%8&8%'
o wor#ing capitalP98%3$953' 7 8'%%8&8%'
P%1&%5%381&.
o CONCLU$ION
6rom the abo!e calculation we conclude that the wor#ing capital of %&11 is more than of
%&1 and %&1% because the current asset of %&11 is higher than the current asset of
%&1% %&1. In this case our financial position is wea# in current year.
(o manage the wor#ing capital of the company the current asset should be higher than
current liability.
CO4PARI$ON .ETWEEN T:E 0IVEN CO4PATITOR$!
(he wor#ing capital of Gull
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*urrent liabilityP'%5899'
o wor#ing capital P 39583 7 '%5899'
P191$3%%.
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company regularly generates commercial in!oices and you could benefit from reducing
the time recei!ables are outstanding. 6actoring may pro!ide the cash you need to fund
growth or to ta#e ad!antage of early7payment discounts suppliers offer.
6actoring is a short7term solutionH most companies factor for two years or less. "lant
says the factor>s role is to help clients ma#e the transition to traditional financing.6actors are listed in the telephone directory and often ad!ertise in industry trade
publications. our ban#er may be able to refer you to a factor. hop around for
someone who understands your industry can customi=e a ser!ice pac#age for you and
has the financial resources you need. /fictoring %&14
Tp"s o/ Factorin,
(he different types of 6actoring are as followsC
6or International (rade
1. 6ull 6actoring
%. -ecourse 6actoring
. Maturity 6actoring
3.
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(his is also #nown as R+ithout -ecourse 6actoring R. It is the most comprehensi!e type
of facility offering all types of ser!ices namely finance sales ledger administration
collection debt protection and customer information.
%. -ecourse 6actoring
(he 6actoring pro!ides all types of facilities except debt protection. (his type of ser!ice
is offered in India. s liability to
6actor is not discharged until the customer pays in full.
. Maturity 6actoring
It is also #nown as R*ollection 6actoring R. 0nder this arrangement except pro!iding
finance all other basic characteristics of 6actoring are present. (he payment is effected
to the client at the end of collection period or the day of collecting accounts whiche!er is
earlier.
3.
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(he client collects payments from customer and hands it o!er to 6actor. (he ris#
in!ol!ed in in!oice discounting is much higher than in any other methods.
(he 6actor has liberty to con!ert the facility by notifying all the clients to protect his
interest. (his ser!ice is becoming uite popular in Furope and nearly one third of
6actoring business comprises this facility.
'. ?ul# 6actoring
It is a modified !ersion of In!ol!e discounting wherein notification of assignment of
debts is gi!en to the customers.
Aowe!er the client is sub)ect to full recourse and he carries out his own administration
and collection.
8.
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6actoring is a ser!ice which helps the exporter and importer to trade on open account
terms. /fictoring %&14
(ypes of International 6actoring
(he following are the important types of International 6actoring. (he client can choose
any type of international factoring depending upon exporter 7 client needs and his price
bearing capacity.
(wo 6actor ystems
(his is the most common system of international factoring and in!ol!es four parties i.e.
Fxporter Importer Fxport 6actor in exporter>s country and Import 6actor in Importer>s
country.
(he functions of the export 6actor areC
i.
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6or this system to be effecti!e there should be strong co7ordination and co7operation
between two 6actoring companies. "ricing is lower when compared to (wo 6actor
ystem.
%. :irect Fxport 6actoring
Aere only one 6actoring company is in!ol!ed i.e. export 6actor which pro!ides all
ser!ices including finance to the exporter.
. :irect Import 6actoring
0nder this system the seller chooses to wor# directly with 6actor of the importing
country. (he 6actoring agreement is executed between the exporter and the import
6actor. (he import 6actor is responsible for sales ledger administration collection of
debts and pro!iding bad debt protection up to the agreed le!el of ris# co!er.
3. ?ac# to ?ac# 6actoring
It is a !ery speciali=ed form of International 6actoring used when suppliers are selling
large !olumes to a few debtors for which it is difficult to co!er the credit ris# in
International 6actoring. In this case International 6actor can sign a domestic 6actoring
agreement with the debtor whereby it will be getting the recei!ables as security for the
credit ris# ta#en in fa!our of Fxport 6actor
Th" Cash Con("rsion Ccl"
(he cash con!ersion cycle /***4 measures the timeSin daysSthat it ta#es for a
company to con!ert resource inputs into cash flows. In other words the cash
con!ersion cycle reflects the length of time it ta#es a company to sell in!entory collect
recei!ables and pay its bills.
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:ays of debtors P 8
:ays of in!entories P 1&1
:ays of creditors P 3%
(hen
*ash con!ersion cycleP 8 O1&1 Q 3%
P 1%
&f ;
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InterpretationC
In the year %&1 the cash con!ersion cycle shows that the performance of company is
not good as the year %&1% and %&11 ha!e. (he year %&11 shows the better progress
than %&1% and %&1. (o manage the cash con!ersion cycle of %&1 the days of
creditors should be less so it would ta#e less time to con!ert resources into cash.
*ash con!ersion cycle of Gull
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*urrent year
:ays of debtorsP1%
:ays of in!entoriesP133
:ays of creditorsP%3
(hen
*ash con!ersion cycleP 1%O1337%3
P %5%
Interpretation of competitors C
Aere when we compare our company with other three competitors gul ahmed
Kohinoor and (ata we analy=e that the cash con!ersion cycle of nishat is more thanGul ahmed . it means the performance of Gul ahmed is better than other companies.