Lanka Milk Foods (CWE) PLC

 

INTRODUCTION AND OVERVIEW OF THE COMPANY

1.1 Introduction

Each year, financial statements from different companies are analyzed and compared to offer insights into their growth and performance. This report provides a comparative analysis of Lanka Milk Foods (CWE) PLC's financial results over a five-years period.

Publicly traded companies generate four main financial statements: the profit and loss statement, the financial position statement, the cash flow statement, and the statement of equity. These statements are accessible to both internal and external stakeholders.

Companies use various analytical methods, including horizontal analysis, vertical analysis, trend analysis, ratio analysis, and Z-score analysis, to identify their financial strengths and weaknesses. Such financial statement analysis can also be employed to compare a company's performance with that of its competitors and evaluate its past, present, and future performance.

Analyzing financial statements offers many advantages, such as;

●     Comprehensive View of Financial Health: Financial statements provide a complete overview of a company’s financial condition.

●     Investment Decisions: Investors can make informed decisions about buying or selling stocks or bonds by assessing a company's growth potential and financial stability.

●     Risk Assessment: Examining financial statements allows for the evaluation of various risks, including credit, operational, and market risks.

●     Competitive Benchmarking: Companies use financial statements to measure their performance against competitors and industry benchmarks.

●     Tax Planning: Understanding financial outcomes helps businesses plan their taxes effectively and ensure compliance with tax regulations.

 

1.2 Overview of the company

Lanka Milk Foods (CWE) PLC is a major dairy and beverage company in Sri Lanka, known for its flagship brand, Lakspray. With over 50 years in the industry, the company offers a range of products including Ambewela, Daily, My Juicee, Red Bull beverages, Happy Cow cheese, and Dano milk powder. It operates two large dairy farms, Ambewela Farm and Pattipola Farm, and modern facilities in Welisara and Ambewela. The company also recently launched United Dairies Lanka, one of South Asia's largest dairy farms. Lanka Milk Foods (CWE) PLC was established in 1981 and listed on the Colombo Stock Exchange in 1983, Lanka Milk Foods specializes in packing and distributing whole milk powder and skimmed milk powder, importing and distributing energy drinks in the local market, Key brands of Lanka Milk Foods (CWE) PLC include; Lakspray, Blu and Dano.

 

CHAPTER 02

FINANCIAL STATEMENT ANALYSIS

 2.1 Horizontal Analysis

Horizontal analysis is a financial analysis technique used to evaluate changes in financial statement items over time. This method involves comparing historical financial data across multiple periods to identify trends, growth patterns, and variations in performance. The horizontal analysis involves two types of formulas;

1. Percentage change

Percentage change = (Rupee change / Base period amount) * 100%

2. Absolute change in rupees.

Rupee change = Analysis period amount – Base period amount

The chance to compare and evaluate Lanka Milk Foods (CWE) PLC's financial positions from 2019 to 2023 is provided by this analysis. 2019 is the base year for this analysis.

 

Table 2.1: Rupee change analysis of financial position (2019 – 2023)

 

 

 

 

 

Table 2.2: Percentage change analysis of financial position (2019 – 2023)

Over the five years from 2019 to 2023, Lanka Milk Foods (CWE) PLC experienced notable fluctuations in its non-current assets. Property, plant, and equipment saw a steady increase up to 2021, but it has drastically dropped in 2022 by Rs.10,475,000 (7.7%) compared to 2019 and in 2023 dropped by Rs.27,218,000 (20%) compared to 2019. This drop in PPE indicates Depreciation, Asset Disposal, and Impairment, etc. Intangible assets appeared in the statement of Financial Position in 2023 due to the Software developed for marketing staff Automation System which will be amortized for 5 years. The Total Non-Current Assets increased continuously from 2019 to 2021. But in 2022 it shows a decline comparative to 2021 in Total Non-Current Assets but it has recovered and significantly increased in 2023. As it shows growth in total non-current assets in each year compared to the base year (2019), it suggests that it happened mainly due to investment subsidiaries, and investment in equity securities.

The change in current assets reveals dynamic trends. Inventory declined in 2020,2021,2022 and 2023 by Rs.30,110,5000 (45.6%), Rs.220,111,000 (33.4%), Rs.261,586,000(39.7%) and   Rs.126,708,000 (19.2%) respectively compared to 2019. This might indicate fluctuations in demand, changes in inventory management practices, etc. Amounts Due from related companies displayed gradual growth until 2022, and slightly declines in 2023 compared to 2022 (Even Though rise in 2023 compared to base year) indicating that the company was effectively managing its receivables. Cash and cash equivalents experienced a major decline in 2020, with figures of Rs. -8263000 (-36.1%). Again, it has gradually increased until 2022, but in 2023 cash and cash equivalents declined by Rs.114,000 (0.5%) compared to 2019. Lanka Milk Foods (CWE) PLC shows steady growth in total current assets, which signifies the company’s ability to strengthen its working capital position. The company’s total assets experienced growth during the five years. This indicates substantial growth in the company’s financial health and overall asset base.

Lanka Milk Foods (CWE) PLC’s total equity experienced considerable change during the five years. Stated capital and Capital reserves didn’t change over 5 years. Total equity showed a rise in 2020,2021,2022 and 2023 by Rs.1,396,885,000 (16.8%), Rs.1,715,401,000 (20.6%), Rs.1,279,308,000 (15.4%) and Rs.4,871,188,000 (58.6%) respectively compared to 2019. Here the Significant rise in Total equity in 2023 happened due to Fair Value through Other Comprehensive Income Reserves and Revenue reserves.

Total Non-Current Liabilities of Lanka Milk Foods (CWE) PLC increased in 2023 by Rs. 17,274,000 (29.8%) compared to 2019. But it declined in 2023 compared to 2021.

Total Current Liabilities dropped in 2020 and 2021 compared to 2019 by Rs. 204,743,000 (32.1%) and Rs.66,092,000 (10.4%) respectively. However, there was a significant turnaround in 2022.

Finally, when we consider total liability and equity together, the company’s financial position reveals a continuous improvement over 2019 to 2023.

 

Table 2.3: Rupee change analysis of the statement of profit or loss (2019 – 2023)

Lanka Milk Foods (CWE) PLC
STATEMENT OF PROFIT OR LOSS
For the Year Ended 31st March	2023 (Rs.'000)	2022 (Rs.'000)	2021 (Rs.'000)	2020 (Rs.'000)	2019 (Rs.'000)
Revenue	2150006.00	1501817.00	1179313.00	1108778.00	0.00
Cost of Sales	1278893.00	1357591.00	1085745.00	978889.00	0.00
Gross Profit	871113.00	144226.00	93568.00	129889.00	0.00
Other Operating Income	-410675.00	-503206.00	41562.00	-70710.00	0.00
Administrative Expenses	113879.00	68934.00	62629.00	23565.00	0.00
Distribution Expenses	6885.00	-21717.00	14797.00	-16782.00	0.00
Other Operating Expenses	17484.00	43566.00	-11292.00	61477.00	0.00
Profit from Operations	322190.00	-449763.00	68996.00	-9081.00	0.00
Finance Income	1201148.00	1131289.00	65030.00	11818.00	0.00
Finance Expense	129541.00	333313.00	-58055.00	-64243.00	0.00
Net Finance Expense	1071607.00	797976.00	123085.00	76061.00	0.00
Profit Before Taxation	1393797.00	348213.00	192081.00	66980.00	0.00
Income Tax Expense	-25627.00	-17183.00	514.00	38527.00	0.00
Profit for the Year	1419424.00	365396.00	191567.00	28453.00	0.00

 

 

 

 

Table 2.4: Percentage change analysis of statement of profit or loss (2019 – 2023)

Lanka Milk Foods (CWE) PLC
STATEMENT OF PROFIT OR LOSS
For the Year Ended 31st March	2023 (Rs.'000)	2022 (Rs.'000)	2021 (Rs.'000)	2020 (Rs.'000)	2019 (Rs.'000)
Revenue	111.9%	78.1%	61.4%	57.7%	0.0%
Cost of Sales	67.5%	71.6%	57.3%	51.6%	0.0%
Gross Profit	3260.0%	539.7%	350.2%	486.1%	0.0%
Other Operating Income	-79.5%	-97.4%	8.0%	-13.7%	0.0%
Administrative Expenses	57.8%	35.0%	31.8%	12.0%	0.0%
Distribution Expenses	5.1%	-16.1%	11.0%	-12.5%	0.0%
Other Operating Expenses	154.8%	385.8%	-100.0%	544.4%	0.0%
Profit from Operations	160.6%	-224.2%	34.4%	-4.5%	0.0%
Finance Income	13396.7%	12617.5%	725.3%	131.8%	0.0%
Finance Expense	137.6%	354.0%	-61.7%	-68.2%	0.0%
Net Finance Expense	-1257.8%	-936.6%	-144.5%	-89.3%	0.0%
Profit Before Taxation	1207.7%	301.7%	166.4%	58.0%	0.0%
Income Tax Expense	-184.1%	-123.4%	3.7%	276.7%	0.0%
Profit for the Year	1398.7%	360.1%	188.8%	28.0%	0.0%

 

The horizontal analysis shows that revenue has continuously surged from 2019 to 2023 by 57.7%, 61.4%, 78.1%, and 111.9% for 2020,2021,2022 and 2023 compared to 2019. This reflects positive aspects of a company’s performance such as a strong financial position, improved market potential, and increased profit potential.

Cost of goods sold increased by Rs.1,357,591,000 (71.6%) in 2022 compared to 2019, but in 2023 Cost of sales increased only by Rs.1,278,893,000 (67.5%) compared to 2019, which implies a decline in cost of sales in 2023 compared to 2022.  This resulted in an increase in gross profit by Rs. 129,889,000 (486.1%), Rs.93,568,000 (350.2%), Rs.144,226,000 (539.7%), and Rs.871,113,000 (3260%) in 2020,2021,2022, and 2023 respectively compared to 2019. Improved gross profit can signal that the company is gaining a competitive advantage or superior operational efficiency.

Profit from operations dropped in 2020 and 2022 compared to 2019 by 4.5% and 224.2% respectively. Profit before taxation and profit for the year gradually increased over 5 years Growing profits make the company more attractive to investors, potentially leading to higher stock prices and easier access to capital for future growth and ensuring operational efficiency and financial health of Lanka Milk Foods (CWE) PLC.

2.2 Vertical Analysis

Vertical analysis, also known as common-size analysis, is a financial analysis technique that helps a business organization in determining the relative proportions of different items in its financial statements, including the statement of profit or loss and the statement of financial position. The primary goal of vertical analysis is to express each item as a percentage of a common base, typically total revenue for the statement of profit or loss and total assets for the statement of financial position. This makes it easier to compare the financial performance and structure of a business over time or with competitors.

Common size percent = (Analysis amount/Base amount) *100

 

Table 2.5: Vertical analysis of financial position (2019 – 2023)

Lanka Milk Foods (CWE) PLC
STATEMENT OF FINANCIAL POSITION
For the Year Ended 31st March	2023 (Rs.'000)	2022 (Rs.'000)	2021 (Rs.'000)	2020 (Rs.'000)	2019 (Rs.'000)
Assets
Non-Current Assets
Property, Plant and Equipment	0.8%	1.1%	1.3%	1.3%	1.5%
Intangible Assets	0.0%	0.0%	0.0%	0.0%	0.0%
Investment in Subsidiaries	20.9%	9.5%	10.0%	10.4%	11.9%
Investment in Equity Securities	63.9%	61.0%	70.9%	72.8%	67.9%
Deferred Tax Assets	0.1%	0.1%	0.1%	0.2%	0.8%
Right of Use Assets	0.0%	0.0%	0.0%	0.0%
Total Non-Current Assets	85.7%	71.6%	82.3%	84.8%	82.2%
Current Assets
Inventories	3.7%	3.5%	4.1%	3.5%	7.3%
Investment in Equity Securities	1.1%	1.4%	1.8%	2.0%	2.3%
Trade Receivables	0.7%	1.7%	2.1%	3.3%	1.9%
Other Receivables	0.1%	0.2%	0.5%	0.5%	1.1%
Amounts Due from Related Companies	8.4%	12.5%	6.8%	5.3%	4.6%
Current Tax Assets	0.1%	0.1%	0.2%	0.3%	0.3%
Cash and Cash Equivalents	0.2%	8.9%	2.1%	0.1%	0.3%
Total Current Assets	14.3%	28.4%	17.7%	15.2%	17.8%
Total Assets	100.0%	100.0%	100.0%	100.0%	100.0%
Equity and Liabilities
Equity
Stated Capital	6.9%	8.9%	9.4%	9.8%	11.1%
Capital Reserves	0.7%	0.9%	1.0%	1.0%	1.2%
Fair Value through Other Comprehensive Income Reserve	59.9%	55.9%	65.5%	67.2%	61.5%
Revenue Reserves	23.8%	19.7%	18.0%	17.1%	18.5%
Total Equity	91.4%	85.4%	93.8%	95.1%	92.3%
Liabilities
Non-Current Liabilities
Lease Liability	0.0%	0.0%	0.0%	0.0%	-
Retirement Benefit Obligations	0.5%	0.6%	0.8%	0.6%	0.6%
Total Non-Current Liabilities	0.5%	0.6%	0.8%	0.6%	0.6%
Current Liabilities
Trade and Other Payables	0.8%	10.5%	0.9%	0.7%	3.8%
Amounts Due to Related Parties	0.6%	1.5%	1.3%	0.0%	0.4%
Loans and Borrowings	5.4%	-	2.8%	-	-
Lease Liability	0.0%	0.0%	0.0%	0.0%	-
Bank Overdraft	1.3%	2.0%	0.3%	3.5%	2.8%
Total Current Liabilities	8.1%	14.0%	5.3%	4.2%	7.1%
Total Liabilities	8.6%	14.6%	6.2%	4.9%	7.7%
Total Liabilities and Equity	100.0%	100.0%	100.0%	100.0%	100.0%

 

From 2019 to 2023, Lanka Milk Foods (CWE) PLC's financial position has seen notable changes, as observed in the vertical analysis of its statement of financial position. One significant trend is the decline in property, plant, and equipment as a percentage of total assets over the considered 5 years, which fell from 1.5% in 2019 to 0.5% in 2023. Total non-current assets as a percentage of total assets indicated 82.2%, 84.8%,82.3%,71.6%, and 85.7% respectively for 2019,2020,2021,2022 and 2023. A significant portion of the current assets comprises Amounts Due from Related Companies. Amounts Due from Related Companies as a percentage of total assets continuously surged from 4.6% in 2019 to 12.5%. But this had fallen to 8.4% in 2023. Total current assets as a percentage of total assets indicated 17.8%, 15.2%, 17.7%, 28.4%, and 14.3% respectively for 2019,2020,2021,2022, and 2023.

Regarding equity, stated capital as a percentage of total equity and liability has declined from 11.1% in 2019 to 6.9% in 2023. Capital reserves also continuously declined from 1.2% to 0.7% as a percentage of total equity and liability during the considered 5 years. Fair Value through Other Comprehensive Income Reserves consistently dominated, fluctuating between 55.9% and 67.2% of total equity and liability. The total equity category, despite some fluctuations, remained the central element in Lanka Milk Foods (CWE) PLC's capital structure, representing 92.3% in 2019 and 91.4% in 2023.

Non-current liabilities fluctuate within the range of 0.5% to 0.8% during the 5 years as a percentage of total equity and liability. have increased. Current liabilities have remained a relatively smaller portion of the capital structure compared to equity which is 8.1% in 2023. The proportion of total assets attributed to total liabilities displayed fluctuations, reaching 8.6% in 2023. Higher equity relative to liabilities means the company relies less on debt to finance its operations. This reduces financial risk because there are fewer fixed interest obligations and less probability of financial distress during economic downturns.

 

Table 2.6: Vertical analysis of the statement of profit or loss (2019 – 2023)

Lanka Milk Foods (CWE) PLC
STATEMENT OF PROFIT OR LOSS
For the Year Ended 31st March	2023 (Rs.'000)	2022 (Rs.'000)	2021 (Rs.'000)	2020 (Rs.'000)	2019 (Rs.'000)
Revenue	100.0%	100.0%	100.0%	100.0%	100.0%
Cost of Sales	-78.0%	-95.0%	-96.1%	-94.8%	-98.6%
Gross Profit	22.0%	5.0%	3.9%	5.2%	1.4%
Other Operating Income	2.6%	0.4%	18.0%	14.7%	26.9%
Administrative Expenses	-7.6%	-7.8%	-8.4%	-7.3%	-10.2%
Distribution Expenses	-3.5%	-3.3%	-4.8%	-3.9%	-7.0%
Other Operating Expenses	-0.7%	-1.6%	0.0%	-2.4%	-0.6%
Profit from Operations	12.8%	-7.3%	8.7%	6.3%	10.4%
Finance Income	29.7%	33.3%	2.4%	0.7%	0.5%
Finance Expense	-5.5%	-12.5%	-1.2%	-1.0%	-4.9%
Net Finance Expense	24.2%	20.8%	1.2%	-0.3%	-4.4%
Profit Before Taxation	37.1%	13.5%	9.9%	6.0%	6.0%
Income Tax Expense	0.3%	0.1%	-0.5%	-1.7%	-0.7%
Profit for the Year	37.3%	13.6%	9.4%	4.3%	5.3%

 

Revenue, which serves as the base value, remained stable at 100% throughout the five years. The cost of sales declined gradually as a proportion of revenue, from 98.6% in 2019 to 78.0% in 2023. This trend reflects the company's ability to manage its production and operational costs efficiently, contributing to improved profitability.

Gross profit, the result of subtracting the cost of sales from revenue, increased from 1.4% in 2019 to 22.0% in 2023. This growth highlights the company's effective cost management and suggests successful pricing or sales strategies that have boosts the gross profit margin.

Profit from operation as a percentage of revenue indicates 10.4%, 6.3%, 8.7%, -7.3% and 12.8% respectively for 2019,2020,2021,2022 and 2023.

The proportion of profit before taxation and profit for the year, relative to revenue, also showed significant growth. These figures increased from 6.0% and 5.3% in 2019 to 37.1% and 37.3% in 2023, respectively. This substantial growth indicates a strong ability to convert revenue into net profit, underscoring efficient operations and potentially a favorable tax environment.

 

2.3 Trend Analysis

In business organizations, trend analysis entails looking at historical data to recognize trends and make future informed decisions. Organizations may foresee changes, modify their plans, and maintain their competitiveness by analyzing trends.

Trend percentage = (Analysis period amount/Base period amount) *100

In here, Base period is 2019

 

Table 2.7: Trend analysis of financial position (2019 – 2023)

Lanka Milk Foods (CWE) PLC
STATEMENT OF FINANCIAL POSITION
For the Year Ended 31st March	2023 (Rs.'000)	2022 (Rs.'000)	2021 (Rs.'000)	2020 (Rs.'000)	2019 (Rs.'000)
Assets
Non-Current Assets
Property, Plant and Equipment	80.0%	92.3%	105.2%	100.5%	100.0%
Intangible Assets		-	-	-	-
Investment in Subsidiaries	280.2%	99.0%	99.0%	99.0%	100.0%
Investment in Equity Securities	150.7%	112.0%	123.8%	121.6%	100.0%
Deferred Tax Assets	26.7%	14.3%	16.0%	31.3%	100.0%
Right of Use Assets					-
Total Non-Current Assets	167.0%	108.8%	118.8%	117.0%	100.0%
Current Assets
Inventories	80.8%	60.3%	66.6%	54.4%	100.0%
Investment in Equity Securities	77.3%	73.3%	93.9%	99.6%	100.0%
Trade Receivables	59.1%	112.3%	131.8%	197.0%	100.0%
Other Receivables	22.3%	26.3%	55.3%	52.1%	100.0%
Amounts Due from Related Companies	293.5%	338.2%	175.3%	131.2%	100.0%
Current Tax Assets	28.8%	29.2%	64.7%	96.8%	100.0%
Cash and Cash Equivalents	99.5%	4384.5%	1001.1%	63.9%	100.0%
Total Current Assets	128.7%	198.2%	117.8%	96.3%	100.0%
Total Assets	160.1%	124.7%	118.6%	113.3%	100.0%
Equity and Liabilities
Equity
Stated Capital	100.0%	100.0%	100.0%	100.0%	100.0%
Capital Reserves	100.0%	100.0%	100.0%	100.0%	100.0%
Fair Value through Other Comprehensive Income Reserve	155.9%	113.2%	126.3%	123.8%	100.0%
Revenue Reserves	206.3%	132.7%	115.5%	104.7%	100.0%
Total Equity	158.6%	115.4%	120.6%	116.8%	100.0%
Liabilities
Non-Current Liabilities
Lease Liability					-
Retirement Benefit Obligations	129.2%	119.8%	148.5%	109.3%	100.0%
Total Non-Current Liabilities	129.8%	120.3%	149.0%	109.8%	100.0%
Current Liabilities
Trade and Other Payables	35.1%	340.9%	27.5%	21.2%	100.0%
Amounts Due to Related Parties	244.6%	456.5%	376.2%	9.8%	100.0%
Loans and Borrowings		-		-	-
Lease Liability					-
Bank Overdraft	72%	88%	14%	140%	100%
Total Current Liabilities	183%	247%	90%	68%	100%
Total Liabilities	179%	236%	95%	71%	100%
Total Liabilities and Equity	160%	125%	119%	113%	100%

 

Total non-current assets of Lanka Milk Foods (CWE) PLC increased steadily over the five years, reaching 167.0% of the 2019 value by 2023. This implies it happened mainly due to investment subsidiaries, and investment in equity securities.

Total current assets showed considerable growth until 2022 climbing to 198.2% of the 2019 figure by 2022. This suggests effective management of current assets, potentially an increase in inventory, amount due from related parties, and cash reserves. Total current assets in 2023 is 128.7% of the 2019 figure which implies a decline of current assets in 2023 compared to 2022.

The company's total assets also experienced notable growth, reaching 160.1% of the 2019 level in 2023. The increase in total assets signifies overall growth and enhanced financial health.

The equity of Lanka Milk Foods (CWE) PLC showed a consistent growth, amounting to 158.6% of the 2019 figure by 2023. This reflects a sound financial performance and a positive impact on shareholder equity. Here the Significant rise in Total equity in 2023 happened due to Fair Value through Other Comprehensive Income Reserve and Revenue reserves.

Total Non-Current Liabilities of Lanka Milk Foods (CWE) PLC shows 109.8%,149.0%,120.3% and 129.8% of the 2019 figure for 2020,2021,2022 and 2023 respectively. It implies a decline in Non-Current Liabilities in 2022 compared to 2021.

Total current liabilities surged significantly, reaching 247% of the 2019 value in 2022. This might indicate an increase in trade and other payables, amount due to related parties. This may permit further analysis to ensure liquidity and financial stability. In 2023, total current liabilities show 183% of the 2019 figure, which implies a decline in total current liabilities of Lanka Milk Foods (CWE) PLC in 2023 compared to 2022.

The Total equity and liability of Lanka Milk Foods (CWE) PLC suggest a substantial growth over the considered 5 years from 2019 to 2023.

Table 2.8: Trend analysis of statement of profit or loss (2019 – 2023)

Lanka Milk Foods (CWE) PLC
STATEMENT OF PROFIT OR LOSS
For the Year Ended 31st March	2023 (Rs.'000)	2022 (Rs.'000)	2021 (Rs.'000)	2020 (Rs.'000)	2019 (Rs.'000)
Revenue	211.9%	178.1%	161.4%	157.7%	100.0%
Cost of Sales	167.5%	171.6%	157.3%	151.6%	100.0%
Gross Profit	3360.0%	639.7%	450.2%	586.1%	100.0%
Other Operating Income	20.5%	2.6%	108.0%	86.3%	100.0%
Administrative Expenses	157.8%	135.0%	131.8%	112.0%	100.0%
Distribution Expenses	105.1%	83.9%	111.0%	87.5%	100.0%
Other Operating Expenses	254.8%	485.8%	0.0%	644.4%	100.0%
Profit from Operations	260.6%	-124.2%	134.4%	95.5%	100.0%
Finance Income	13496.7%	12717.5%	825.3%	231.8%	100.0%
Finance Expense	237.6%	454.0%	38.3%	31.8%	100.0%
Net Finance Expense	-1157.8%	-836.6%	-44.5%	10.7%	100.0%
Profit Before Taxation	1307.7%	401.7%	266.4%	158.0%	100.0%
Income Tax Expense	-84.1%	-23.4%	103.7%	376.7%	100.0%
Profit for the Year	1498.7%	460.1%	288.8%	128.0%	100.0%

 

 

Lanka Milk Foods (CWE) PLC revenue showed an upward trend, growing steadily over the five years. In 2023, it reached 211.97% of the 2019 figure. This indicates steady revenue growth, implying that the company has effectively expanded both its customer base and product offerings.

The cost of sales increased steadily until 2022 but decreased in 2023 compared to the 2022. In 2023, it was at 167.5% of the 2019 level, reflecting effective cost control and procurement strategies.

Gross profit exhibited substantial growth, reaching 3360.0% of the 2019 figure in 2023, despite the dip in 2021 compared to 2020.This trend highlights Lanka Milk Foods (CWE) PLC's ability to sustain robust profitability amid growing sales, reflecting efficient operations and effective value creation.

Both profit before taxation and profit for the year experienced substantial increases, with the 2023 figures reaching 1307.7% and 1498.7% of their respective 2019 values. This remarkable profitability growth shows the company’s ability to convert revenue growth and cost efficiency into significant profits, indicating a resilient business model and robust financial performance.

The trend analysis of Lanka Milk Foods (CWE) PLC's income statement indicates a positive financial image. The company has consistently boosted its revenue, maintained effective cost control, and achieved impressive profitability. This financial resilience positions the company favorably for future growth and strategic opportunities, making it an appealing prospect for investors.

 

 

 

 

 

CHAPTER 03

RATIO ANALYSIS

Ratio analysis is a key instrument for assessing a company's financial performance and well-being. It entails the calculation of various financial ratios using data from the organization's financial statements, including the Statement of Profit or Loss, Statement of Financial Position, and Statement of Cash Flow. These ratios assist stakeholders in making defensible decisions by offering insightful information on several facets of the business's financial performance.

Financial ratios can be categorized as follows;

1.         Liquidity and Efficiency ratios

2.         Solvency ratios

3.         Profitability ratios

4.         Market value ratios

3.1        Liquidity and Efficiency

A liquidity ratio is a type of financial ratio used to determine a company’s ability to pay its short-term debt obligations. This ratio aids in figuring out if a business can pay its current liabilities using its liquid, or current, assets. A larger ratio indicates sound financial standing for the company. The efficiency ratio is usually used to analyze how well a company uses its assets and liabilities or in other words it measures a company’s ability to use its assets to generate income. Under liquidity and efficiency ratio, working capital, current ratio, acid test ratio, accounts receivable turnover, day’s sales uncollected, merchandise turnover, day’s sales in inventory, and total assets turnover are calculated.

3.1.1 Working Capital

Working capital is the difference between current assets and current liabilities. Working capital is most important because it is used to keep a business operating smoothly. When a company has negative working capital, which means it does not have enough cash to cover its day-to-day functions.

 

	2023 (Rs.'000)	2022 (Rs.'000)	2021 (Rs.'000)	2020 (Rs.'000)	2019 (Rs.'000)
Total Current Assets	2,070,138	3,188,130	1,895,777	1,549,565	1,608,901
Total Current Liabilities	1,169,836	1,574,218	571,778	433,127	637,870
Working Capital	900,302	1,613,912	1,323,999	1,116,438	971,031

In Lanka Milk Foods (CWE) PLC, working capital has continuously increased over the period of 2019 to 2022 from Rs.971,031,000 to Rs.1,613,912,000, which indicates continued improvement in liquidity and operational efficiency. The company might be effectively managing its short-term assets and liabilities. But in 2023 it has declined by Rs.713,610 ,000 when compared to 2022.While it is still positive, it suggests a decline in liquidity. The decrease was due to the percentage decrease in current assets is greater than that of percentage decrease in current liabilities in 2023 compared to 2022. It might indicate that the company is facing tighter liquidity conditions, which warrants a closer look at the reasons behind this reduction.

3.1.2 Current ratio

Current ratio measures the short-term debt paying ability of the company. To calculate the current ratio of a company, divide a company’s current assets by its current liabilities. A ratio above 1 indicates the company can meet its short-term obligations while below 1 suggests potential liquidity issues.

	2023 (Rs.'000)	2022 (Rs.'000)	2021 (Rs.'000)	2020 (Rs.'000)	2019 (Rs.'000)
Total Current Assets	2,070,138	3,188,130	1,895,777	1,549,565	1,608,901
Total Current Liabilities	1,169,836	1,574,218	571,778	433,127	637,870
Current Ratio	1.77	2.03	3.32	3.58	2.52

It is evident that the highest current ratio can be seen in 2020 during the analysis period. From 2020 onwards, this ratio has declined gradually. Even though the ratio declines, as all current ratios are greater than 1, we can conclude that the company can cover their short-term obligations. However, though a high ratio—say, more than 3.00—could indicate that the company can cover its current liabilities three times, it also may indicate that it is not using its current assets efficiently, securing financing very well, or properly managing its working capital. In 2020 and 2021, it shows the current ratio more than 3 which indicates that the company is not using its current assets efficiently.

3.1.3 Acid Test Ratio

Quick ratio only considers more liquid assets. It leaves out current assets such as inventory and prepaid expenses because the two are less liquid. So, the quick ratio is more of a true test of a company’s ability to cover its short-term obligations. Since it indicates a company's strong ability to meet short-term obligations, a higher number is desired.

	2023 (Rs.'000)	2022 (Rs.'000)	2021 (Rs.'000)	2020 (Rs.'000)	2019 (Rs.'000)
Total Current Assets	2,070,138	3,188,130	1,895,777	1,549,565	1,608,901
Inventories	532,944	398,066	439,541	358,547	659,652
Quick Assets	1,537,194	2,790,064	1,456,236	1,191,018	949,249
Total Current Liabilities	1,169,836	1,574,218	571,778	433,127	637,870
Acid Test Ratio	1.31	1.77	2.55	2.75	1.49

The highest ratio is reported in 2020 which is 2.75 and the lowest in 2023 which is 1.31. Even though the acid test ratio of Lanka Milk Foods (CWE) PLC continuously declined over the last 4 years, the ratio has been more than 1 for every considered year, so it signals a stable position in the company. Typically, a good acid-test ratio value is considered to be around 1 or higher, as this suggests that the company's liquid assets are sufficient to cover its current liabilities.

3.1.4 Accounts Receivable Turnover

Accounts Receivable Turnover measures how efficiently and quickly a company converts its account receivables into cash within a given accounting period.

	2023 (Rs.'000)	2022 (Rs.'000)	2021 (Rs.'000)	2020 (Rs.'000)	2019 (Rs.'000)
Sales(Revenue)	4,072,143	3,423,954	3,101,450	3,030,915	1,922,137
Trade Receivables	102,438	194,871	228,608	341,801	173,475
Average Trade Receivables	148,655	211,740	285,205	257,638	172,925
Accounts Receivable Turnover	27.39	16.17	10.87	11.76	11.12

*In 2018, Trade Receivables= Rs.172,375,000

In Lanka Milk Foods (CWE)PLC, accounts receivable turnover increased from 11.12 times to 27.39 times from 2019 to 2023. This indicates that Lanka Milk Foods (CWE) PLC is collecting its receivables more quickly. This implies more efficient collection practices and improved cash flow management.

3.1.5 Merchandise Turnover

Merchandise turnover is a financial ratio showing how many times a company has sold and replaced inventory during a given period.

 

	2023 (Rs.'000)	2022 (Rs.'000)	2021 (Rs.'000)	2020 (Rs.'000)	2019 (Rs.'000)
Cost of Sales	3,174,309	3,253,007	2,981,161	2,874,305	1,895,416
Inventories	532,944	398,066	439,541	358,547	659,652
Average Inventories	465,505	418,804	399,044	509,100	578,870
Merchandise Turnover	6.82	7.77	7.47	5.65	3.27

*In 2018, Inventories=Rs. 498,088,000

From 2019 to 2022, there is a general upward trend that peaks in 2022. After that, there was a slight decrease in 2023. This reflects that the company's merchandise turnover improved over time, with a slight decline in the most recent year. Higher turnover ratios generally indicate efficient inventory management and strong sales.

3.1.6 Days Sales Uncollected

This ratio determines the days the company may obtain the cash for its sales. Lower the ratio is favorable.

	2023 (Rs.'000)	2022 (Rs.'000)	2021 (Rs.'000)	2020 (Rs.'000)	2019 (Rs.'000)
Trade Receivables	102,438	194,871	228,608	341,801	173,475
Sales (Revenue)	4,072,143	3,423,954	3,101,450	3,030,915	1,922,137
Days Sales Uncollected	9.18	20.77	26.90	41.16	32.94

Days Sales Uncollected Ratio of Lanka Milk Foods (CWE) PLC shows a significant improvement over the five-year period, decreasing from 32.94 days in 2019 to 9.18 days in 2023. This reflects that the company is becoming much more efficient in collecting its receivables.

 

 

3.1.7 Days Sales in Inventory

Days sales inventory (DSI) is a financial ratio that measures the average number of days it takes a company to sell its inventory. Lower DSI is preferable as it indicates that inventory is sold and replaced more quickly.

	2023 (Rs.'000)	2022 (Rs.'000)	2021 (Rs.'000)	2020 (Rs.'000)	2019 (Rs.'000)
Inventories	532,944	398,066	439,541	358,547	659,652
Cost of Sales	3,174,309	3,253,007	2,981,161	2,874,305	1,895,416
Days Sales in Inventory	61.28	44.66	53.82	45.53	127.03

The DSI shows a significant improvement from 2019 to 2020 but then fluctuates over the following years. After reaching a low in 2020, the DSI increased slightly in the subsequent years. The decrease from 2019 to 2020 suggests significant improvements in inventory efficiency. The increase in the DSI ratio from 44.66 days in 2022 to 61.28 days in 2023 reflects that Lanka Milk Foods (CWE) PLC is having difficulty selling its inventory, which can tie up cash and impact its cash flow.

3.1.8 Total Assets Turnover

Asset turnover ratio measures the value of a company's sales or revenues generated relative to the value of its assets.

	2023 (Rs.'000)	2022 (Rs.'000)	2021 (Rs.'000)	2020 (Rs.'000)	2019 (Rs.'000)
Sales (Revenue)	4,072,143	3,423,954	3,101,450	3,030,915	1,922,137
Total Assets	14,435,674	11,242,692	10,693,007	10,213,076	9,015,246
Average Total Assets	12,839,183	10,967,850	10,453,042	9,614,161	10,546,542
Total Assets Turnover	0.317	0.312	0.297	0.315	0.182

*In 2018, Total Assets= Rs. 12,077,838,000

The Total Assets Turnover ratio shows a general upward trend over the five years, from 0.182 in 2019 to 0.317 in 2023, though a slight decline has happened in 2021 compared to 2020. This implies that the company has been improving its efficiency in using its assets to generate sales.

 

 

3.2 Solvency Ratios

Solvency ratios are referred to as financial leverage ratios. A company's ability to pay off its long-term debt is measured by its solvency ratio. It serves as an indicator of a company's financial health by indicating if its cash flow is adequate to cover its long-term liabilities. Typical ratios of solvency are as follows: Debt Ratio, Equity Ratio, and Time Interest Earned.

3.2.1 Debt Ratio

The debt ratio is a measure of how much debt a company has relative to its assets. A higher debt ratio indicates that the company is more leveraged and at greater risk of defaulting on its debt obligations.

	2023 (Rs.'000)	2022 (Rs.'000)	2021 (Rs.'000)	2020 (Rs.'000)	2019 (Rs.'000)
Total Liabilities	1,245,117	1,644,015	658,237	496,822	695,877
Total Assets	14,435,674	11,242,692	10,693,007	10,213,076	9,015,246
Debt Ratio	8.63%	14.62%	6.16%	4.86%	7.72%

The debt ratio of Lanka Milk Foods (CWE) PLC decreased from 14.62% in 2022 to 8.63% in 2023, which is a positive development. The highest debt ratio is recorded in 2022 which is 14.62% while the lowest debt ratio is recorded in 2020 which is 4.86%   So this company shows a debt ratio between 4%-15% over 5 years.  As the debt ratio is lower than the equity ratios over the considered 5 years, it is a good situation for the financial health of the company because it reduces the risk of financial distress or bankruptcy.

3.2.2 Equity Ratios

This ratio measures how much equity a company has relative to its assets. A higher equity ratio indicates that the company is less leveraged and more financially stable.

	2023 (Rs.'000)	2022 (Rs.'000)	2021 (Rs.'000)	2020 (Rs.'000)	2019 (Rs.'000)
Total Equity	13,190,557	9,598,677	10,034,770	9,716,254	8,319,369
Total Assets	14,435,674	11,242,692	10,693,007	10,213,076	9,015,246
Equity Ratio	91.37%	85.38%	93.84%	95.14%	92.28%

In Lanka Milk Foods (CWE) PLC shows equity ratios between 85.38% to 95.14% over the considered 5 years. Companies with an equity ratio of more than 50% are preferred by investors and creditors. As this company has the equity ratios of more than 50% in all 5 years, it implies that the Lanka Milk Foods PLC is in a financially stable position.

3.2.3 Time Interest Earned

One indicator of a company's ability to produce adequate cash flow to meet its interest payments is the times interest earned ratio. A higher ratio of times interest earned signifies a stronger ability of the business to pay its interest.

	2023 (Rs.'000)	2022 (Rs.'000)	2021 (Rs.'000)	2020 (Rs.'000)	2019 (Rs.'000)
Profit Before Interest Expense and Taxation	522,792	(249,161)	343,595	212,306	209,569
Interest Expense	223,704	427,476	36,108	29,920	94,163
Times Interest Earned	2.34	-0.58	9.52	7.10	2.23

In Lanka Milk Foods (CWE)PLC, the times interest earned ratio of the company decreased from 9.52 in 2021 to -0.58 in 2022, which is a very negative development. A negative times interest earned ratio indicates that the company is not generating enough cash flow to cover its interest payments. But in 2023, Time Interest Earned Ratio became positive (2.34) which indicates that it can comfortably cover its interest payments and ensure favorable financial health.

3.3 Profitability Ratios

Financial measurements known as profitability ratios are used to measure and evaluate a company's performance during a specific period in terms of income (profit), whether it be in relation to revenue, assets, operational costs, or shareholder equity.

3.3.1 Net Profit Margin

The ability of a company to generate net income from revenues is shown by this ratio. A higher profit margin indicates that the business makes greater profits from sales.

	2023   (Rs.'000)	2022 (Rs.'000)	2021 (Rs.'000)	2020 (Rs.'000)	2019     (Rs.'000)
Net Income	1,520,907	466,879	293,050	129,936	101,483
Net Sales	4,072,143	3,423,954	3,101,450	3,030,915	1,922,137
Profit Margin	37.35%	13.64%	9.45%	4.29%	5.28%

Though a small drop has happened in the net profit margin in 2020 compared to 2019, the net profit margin increased continuously over the last 4 years from 4.29% to 37.35%. This indicates that the Lanka Milk Foods (CWE) PLC retained 37.35% of its revenue as profit in 2023. The significant increase in profit margin suggests growing profitability, possibly due to cost management and revenue growth. And it implies that investors may view the company favorably, potentially leading to a higher stock price or more investment opportunities.

3.3.2 Gross Profit Margin

This ratio measures how much of every rupee in sales is left over after deducting the cost of sales to meet operating costs and profit. For a company to survive, this value needs to be high.

 

	2023   (Rs.'000)	2022 (Rs.'000)	2021 (Rs.'000)	2020 (Rs.'000)	2019     (Rs.'000)
Gross Profit	897,834	170,947	120,289	156,610	26,721
Net Sales	4,072,143	3,423,954	3,101,450	3,030,915	1,922,137
Gross Margin	22.05%	4.99%	3.88%	5.17%	1.39%

 

Lanka Milk Foods (CWE) PLC’s Gross Profit Margin indicates a gradual increment over the considered 5 years from 1.39% to 22.05%. This increase in gross profit may indicate that the company is becoming more efficient in its operations, possibly by reducing production costs or achieving better economies of scale.

3.3.3 Return on Total Assets

Return on Total Assets assesses the percentage of net profit relative to total assets, revealing how effectively a company uses its assets to generate profit.

 

	2023   (Rs.'000)	2022 (Rs.'000)	2021 (Rs.'000)	2020 (Rs.'000)	2019     (Rs.'000)
Net Income	1,520,907	466,879	293,050	129,936	101,483
Total Assets	14,435,674	11,242,692	10,693,007	10,213,076	9,015,246
Average Total Assets	12,839,183	10,967,850	10,453,042	9,614,161	10,546,542
Return on Total Assets	11.85%	4.26%	2.80%	1.35%	0.96%

*In 2018, Total Assets= Rs.12,077,838,000

ROA was 0.96% in 2019 and gradually surged to 11.85% in 2023. This ratio measures how efficiently the company utilizes its assets to generate earnings. The consistent growth suggests improved asset utilization and profitability.

3.3.4 Return on Common Shareholders' Equity (ROE)

Return on Equity measures the percentage of net profit relative to shareholders' equity, indicating how efficiently a company generates profit from shareholders' investments.

	2023   (Rs.'000)	2022 (Rs.'000)	2021 (Rs.'000)	2020 (Rs.'000)	2019     (Rs.'000)
Net Income	1,520,907	466,879	293,050	129,936	101,483
Preference Dividends	-	-	-	-	-
Total Equity	13,190,557	9,598,677	10,034,770	9,716,254	8,319,369
Average Equity	11,394,617	9,816,724	9,875,512	9,017,812	10,010,405
Return on C/S Equity	13.35%	4.76%	2.97%	1.44%	1.01%

*In 2018, Total Equity= Rs.11,701,440,000

In 2019, the ROE of Lanka Milk Foods (CWE) PLC was 1.01%, and it increased over the years to 13.35% in 2023. ROE reflects the return generated for common shareholders. The continuous growth in ROE indicates that the company is effectively utilizing common equity to generate returns for shareholders.

3.3.5 Basic Earning per share

The basic earnings per share (EPS) refers to the total amount of net income that a company generates for each common share outstanding.

	2023   (Rs.'000)	2022 (Rs.'000)	2021 (Rs.'000)	2020 (Rs.'000)	2019     (Rs.'000)
Net Income	1,520,907	466,879	293,050	129,936	101,483
Preference Dividends	-	-	-	-	-
Weighted Average Number of Ordinary Shares	39998	39998	39998	39998	39998
Basic EPS	38.02	11.67	7.33	3.25	2.54

 

Basic Earning per share of Lanka Milk Foods (CWE) PLC has gradually increased from Rs.2.54 in 2019 to Rs. 38.02 in 2023, indicating that the company is operating more efficiently, potentially through better management practices, cost control, or operational improvements.

3.3.6 Book Value per Common Share

The book value per common share is measured by taking the ratio of equity available to common stockholders against the number of shares outstanding.

	2023   (Rs.'000)	2022 (Rs.'000)	2021 (Rs.'000)	2020 (Rs.'000)	2019      (Rs.'000)
Shareholder's Equity	13,190,557	9,598,677	10,034,770	9,716,254	8,319,369
Preferred Equity	-	-	-	-	-
Weighted Average Number of Ordinary Shares	39998	39998	39998	39998	39998
Book Value per C/S	329.78	239.98	250.88	242.92	207.99

 

Over the five years, Book Value per common share of Lanka Milk Foods (CWE) PLC shows an overall upward trend from Rs07.99 in 2019 to Rs29.78 in 2023. This implies a general increase in the company's net book value per share, which is a favorable sign of growth. The overall increase in BVPS indicates that the company is strengthening its equity base. Over time, the value of the equity that shareholders own in the company is increasing.

3.4 Market Ratios

Market value ratios are a type of financial measure used to evaluate, analyze, and compare stock prices to competitors' prices as well as to other relevant facts and figures. To determine a company's place in the market, these ratios monitor its financial success.

3.4.1 Price Earning Ratio

The Price Earning (PE) ratio measures the valuation of a company's stock relative to its earnings.

	2023   (Rs.'000)	2022 (Rs.'000)	2021 (Rs.'000)	2020 (Rs.'000)	2019     (Rs.'000)
Market Price per share	141	133	150	74	110
Earning per share	38.02	11.67	7.33	3.25	2.54
Price Earning	3.70	11.37	20.51	22.78	43.35

 

The price-to-earnings (P/E) ratio of Lanka Milk Foods (CWE)PLC gradually declined from 43.35 to 3.7 from 2019 to 2023. This means that investors are willing to pay less per share for the company's earnings in 2023 than in the previous years. Overall, the decreasing P/E ratio is a negative indicator for the company. Continuous declines in the P/E ratio could reflect worsening investor sentiment or a loss of confidence in the company’s future prospects.

3.4.2 Dividend Yield

Dividend yield calculates the return on investment from dividends paid by a company relative to its stock price. It indicates the income generated from owning the stock.

	2023   (Rs.'000)	2022 (Rs.'000)	2021 (Rs.'000)	2020 (Rs.'000)	2019     (Rs.'000)
Annual Dividend Per share	5	7.5	5	2.5	1.25
Market Price per share	141	133	150	74	110
Dividend Yield	3.55%	5.65%	3.33%	3.38%	1.14%

Lanka Milk Foods (CWE) PLC’s dividend yield fell from 5.65% in 2022 to 3.55% in 2023, marking a notable decline. This reduction implies that the company is returning a smaller fraction of its earnings to shareholders as dividends. However, it is important to remember that dividend yield is just one aspect to consider when evaluating a stock. Other things to evaluate include the company's financial condition, competitive landscape, and management team. Overall, the drop in dividend yield may be a negative indicator for shareholders, implying they will receive less in dividend payouts.

 

 

 

 

 

 

3.5 Altman Z Score (Bankruptcy Model)

Altman’s Z- score model is a numerical measurement that is used to forecast the probability of bankruptcy of the company.

This is a combination of five weighted business ratios that is used to estimate the profitability of financial distress.

 

Z = 1.2 X₁ + 1.4 X₂ + 3.3 X₃ + 0.6 X₄ + 0.999 X₅

X₁ = Working capital / total assets

X₂ = Retained earnings / total assets

X₃ = Earnings before interest and tax / total assets

X₄ = Market value of equity / total assets

X₅ = Total revenue / total asset

Based on the Z score,

Z > 2.99             - Safe zone

1.8 < Z < 2.99   - Grey zone

Z < 1.8               - Distress zone

 

 

 

 

 

 

	2023 (Rs.'000)	2022 (Rs.'000)	2021 (Rs.'000)	2020 (Rs.'000)	2019 (Rs.'000)
Working Capital	900,302	1,613,912	1,323,999	1,116,438	971,031
Total Assets	14,435,674	11,242,692	10,693,007	10,213,076	9,015,246
X1	0.06	0.14	0.12	0.11	0.11
1.2 X1	0.07	0.17	0.15	0.13	0.13
Retained Earnings	3,328,400	2,101,943	1,814,237	1,634,632	1,556,558
Total Assets	14,435,674	11,242,692	10,693,007	10,213,076	9,015,246
X2	0.23	0.19	0.17	0.16	0.17
1.4X2	0.32	0.26	0.24	0.22	0.24
Earning before Interest and Tax	522,792	(249,161)	343,595	212,306	209,569
Total Assets	14,435,674	11,242,692	10,693,007	10,213,076	9,015,246
X3	0.04	-0.02	0.03	0.02	0.02
3.3 X3	0.12	-0.07	0.11	0.07	0.08
Market Price per share	141	133	150	74	110
Share Outstanding	39998	39998	39998	39998	39998
Market Value of Equity	5,629,718.50	5,309,734.50	6,009,699.50	2,959,852.00	4,399,780.00
Total Liabilities	1,245,117	1,644,015	658,237	496,822	695,877
X3	4.52	3.23	9.13	5.96	6.32
0.6X3	2.71	1.94	5.48	3.57	3.79
Sales	4,072,143	3,423,954	3,101,450	3,030,915	1,922,137
Total Assets	14,435,674	11,242,692	10,693,007	10,213,076	9,015,246
X4	0.28	0.30	0.29	0.30	0.21
0.999X4	0.28	0.30	0.29	0.30	0.21
Z	3.51	2.60	6.26	4.29	4.45

 

According to the z-score of Lanka Milk Foods (CWE) PLC, Lanka Milk Foods (CWE) PLC is in the “Safe Zone’’ in 2019, 2020, 2021, and 2023 as the Z score is more than 2.99. A safe zone implies there is no chance of bankruptcy. But in 2022 shows a Z score of between 1.8 and 2.99 which means the company is in the grey zone and with a moderate chance of filing for bankruptcy.

Overall, the increase in Altman Z-Score of Lanka Milk Foods (CWE) PLC from 2022 to 2023 is a favorable sign for the company. It suggests that the company's chances of going bankrupt have lessened.

CHAPTER 04

CONCLUSION

The goal of financial statement analysis is to comprehend and evaluate the data in the financial statements in order to assess the firm's profitability and soundness financially and to project the company's future prospects. The analysis's results are used by both internal and external stakeholders. The above report consists of a thorough analysis of Lanka Milk Foods (CWE) PLC. Data from five financial years were taken, and horizontal, vertical, trend, and ratio analyses were performed.

Through this analysis, we can conclude that Lanka Milk Foods (CWE) PLC has shown good performance and revenue growth. Also, the percentage of total assets has been increasing.

From the Liquidity and efficiency ratio, we can determine the company's efficiency and can conclude that its performance is efficient or not. Accordingly, we can conclude that Lanka Milk Foods (CWE) PLC has maintained the liquidity level at a stable amount.

When referring to the solvency ratios: Debt Ratio, Equity Ratio and Time Interest Earned it implies that the Lanka Milk Foods PLC is in a financially stable position.

Profitability ratios show that the company's financial performance has consistently improved. Increasing gross margin, ROA, ROE, EPS, and profit margin are signs of increased profitability and effective resource usage. The company's operations appear to have been more profitable over time, as indicated by this generally good trend for shareholders.

Market ratios determine a company's place in the market. The P/E ratio and Dividend Yield of Lanka Milk Foods (CWE) PLC declined in 2023 compared to 2022, reflecting worsening investor sentiment or a loss of confidence in the company’s future prospects.

Altman Z-Score of Lanka Milk Foods (CWE) PLC has surged from 2022 to 2023 is a favorable sign for the company. It suggests that the company's chances of going bankrupt have lessened.

 

REFERENCES

Bloomenthal, A. (2024, July 26). Financial Ratio Analysis: Definition, types, examples, and how to use. Investopedia. https://www.investopedia.com/terms/r/ratioanalysis.asp

https://www.blogger.com/profile/18361654206049948515. (2024, January 9). Colombo Stock Market Financial Research. https://finacialsrilanka.blogspot.com/2024/#google_vignette

Lanka Milk Foods PLC. (2023, September 3). Reports | Lanka Milk Foods. Lanka Milk Foods. https://www.lmfgroup.lk/reports/

Team, C. (2023, October 27). Altman’s Z-Score Model. Corporate Finance Institute. https://corporatefinanceinstitute.com/resources/commercial-lending/altmans-z-score-model/

 

 

 

 

 

 

 

 

 

 

 

 

 

APPENDIX

Statement of Profit or Loss

Lanka Milk Foods (CWE) PLC
STATEMENT OF PROFIT OR LOSS
For the Year Ended 31st March	2023 (Rs.'000)	2022 (Rs.'000)	2021 (Rs.'000)	2020 (Rs.'000)	2019 (Rs.'000)
Revenue	4,072,143	3,423,954	3,101,450	3,030,915	1,922,137
Cost of Sales	(3,174,309)	(3,253,007)	(2,981,161)	(2,874,305)	(1,895,416)
Gross Profit	897,834	170,947	120,289	156,610	26,721
Other Operating Income	106,066	13,535	558,303	446,031	516,741
Administrative Expenses	(310,855)	(265,910)	(259,605)	(220,541)	(196,976)
Distribution Expenses	(141,477)	(112,875)	(149,389)	(117,810)	(134,592)
Other Operating Expenses	(28,776)	(54,858)		(72,769)	(11,292)
Profit from Operations	522,792	(249,161)	269,598	191,521	200,602
Finance Income	1,210,114	1,140,255	73,996	20,784	8,966
Finance Expense	(223,704)	(427,476)	(36,108)	(29,920)	(94,163)
Net Finance (Expense)/Income	986,410	712,779	37,888	(9,136)	(85,197)
Profit Before Taxation	1,509,202	463,618	307,486	182,385	115,405
Income Tax Expense	11,705	3,261	(14,436)	(52,449)	(13,922)
Profit for the Year	1,520,907	466,879	293,050	129,936	101,483

Statement of Financial Position

Lanka Milk Foods (CWE) PLC
STATEMENT OF FINANCIAL POSITION
For the Year Ended 31st March	2023 (Rs.'000)	2022 (Rs.'000)	2021 (Rs.'000)	2020 (Rs.'000)	2019 (Rs.'000)
Assets
Non-Current Assets
Property, Plant and Equipment	109,008	125,751	143,283	136,964	136,226
Intangible Assets	2,990
Investment in Subsidiaries	3,015,000	1,065,000	1,065,000	1,065,000	1,076,022
Investment in Equity Securities	9,218,177	6,852,754	7,576,553	7,437,642	6,118,831
Deferred Tax Assets	20,082	10,750	12,059	23,542	75,266
Right of Use Assets	279	307	335	363
Total Non-Current Assets	12,365,536	8,054,562	8,797,230	8,663,511	7,406,345
Current Assets
Inventories	532,944	398,066	439,541	358,547	659,652
Investment in Equity Securities	162,302	153,778	197,002	209,061	209,839
Trade Receivables	102,438	194,871	228,608	341,801	173,475
Other Receivables	21,524	25,369	53,253	50,198	96,324
Amounts Due from Related Companies	1,219,147	1,404,537	728,200	544,979	415,355
Current Tax Assets	9,036	9,167	20,322	30,381	31,395
Cash and Cash Equivalents	22,747	1,002,342	228,851	14,598	22,861
Total Current Assets	2,070,138	3,188,130	1,895,777	1,549,565	1,608,901
Total Assets	14,435,674	11,242,692	10,693,007	10,213,076	9,015,246
Equity and Liabilities
Equity
Stated Capital	999,950	999,950	999,950	999,950	999,950
Capital Reserves	105,116	105,116	105,116	105,116	105,116
Fair Value through Other Comprehensive Income Reserve	8,647,091	6,281,668	7,005,467	6,866,556	5,547,745
Revenue Reserves	3,438,400	2,211,943	1,924,237	1,744,632	1,666,558
Total Equity	13,190,557	9,598,677	10,034,770	9,716,254	8,319,369
Liabilities
Non-Current Liabilities
Lease Liability	312	290	306	320
Retirement Benefit Obligations	74,969	69,507	86,153	63,375	58,007
Total Non-Current Liabilities	75,281	69,797	86,459	63,695	58,007
Current Liabilities
Trade and Other Payables	121,898	1,182,122	95,516	73,504	346,795
Amounts Due to Related Parties	90,743	169,346	139,566	3,641	37,094
Loans and Borrowings	775,000		300,000
Lease Liability	20	60	59	59
Bank Overdraft	182,175	222,690	36,637	355,923	253,981
Total Current Liabilities	1,169,836	1,574,218	571,778	433,127	637,870
Total Liabilities	1,245,117	1,644,015	658,237	496,822	695,877
Total Liabilities and Equity	14,435,674	11,242,692	10,693,007	10,213,076	9,015,246