nishat textile mill

8/9/2019 Nishat Textile Mill

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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.
http://en.wikipedia.org/wiki/Sellinghttp://en.wikipedia.org/wiki/Selling


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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_liquidity


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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.

nishat textile mill

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