Lahore: National Foods began its journey in a rented warehouse as a spice company with initial sale of Rs16,487 in 1970 and has now reached a level of Rs854 million. Increase in sales is due to the growth trend in sales quantities, diversification and significant increase in sale prices. National became a public listed company on stock exchange in 1988. Due to the strong cash flow position, it has been regularly paying dividends. National paid out Rs16.25 per share for the period ending in Jun 30, 2013. It was 14.07 in 2012 and 5.56 in 2011. We analyzed the National Foods performance by considering the activity ratio.
Inventory turnover in 2012 was 2.9 times and in 2013 it was 3.2 times, which indicates that the company is moving its products quickly from its warehouse into stores and ultimately into the customers hands. Aging of inventory in 2013 was 113 days that was better to move inventory rapidly through sales.
Receivables turnover is becoming worse as it was 24 times in 2012 as compared to 2013 which is 18.16 times. This showed the inefficiency in collecting outstanding sales. So the company is not performing well and not showing good management. Average collection period was 20 days respectively in the year 2013. But it showed its best in 2012, that is 14 days.
Payable turnover indicates the creditworthiness of the company. In 2013 the company paid off its entire creditor 21 times and it took 16 days. It is more favorable for the company as payables are being paid mote quickly. A higher ratio is desirable but the company should avail the credit facility allowed by the vendor.
Total asset turnover is ceteris paribus for the period of 2012-2013 which is 2.3 times. It showed that the company is managing its total assets less efficiently. Improper utilization of total assets generates fewer sales and its performance is not up to the mark in terms of profit.
Fixed asset turnover in 2013 was 8.56 which was higher in respect of 2012. It means the company has less money tied up in fixed assets not over-invested in fixed assets but has been more effective in using the investment to generate revenue for each unit.
In 2013, firm converted its working capital only 13 times into net sale and 15 times in 2012. An increasing working capital turnover is usually a positive sign for the firm as either the company is better able to gain more net sales with the small or smaller amount of working capital.
It is concluded that National Foods is very much lenient in recovering the outstanding amount from its client which is not fruitful for the company. Company is good enough in clearing its debt which doesn’t spoil its reputation or relationship with creditors. National Foods raked in its highest ever profit before tax of Rs.978 million last year, and double the sale with the month of Ramadan and EID festivities. Prima facie, it has been checked that company’s management is doing a good enough job of’ generating revenues from its resources because this will generally lead to higher revenues.–MARYAM KHAN
The writer is a student in School of Professional Advancement, UMT, Lahore