Financial statements of ACL Cables PLC in Sri Lanka

ACL Cables evolved as the No. 1 cable in Sri Lanka since inception in 1962. During its 56 year operation the company has groomed to become a specialized manufacturer and supplier of an extensive range of cables and conductors with superior quality and standard unmatched by any other on the island. Excelling itself through advanced technology, quality control and continues research and development. ACL Cables produce a range over 250 cables across 20 categories. ACL continued to expand its sector through innovation and dominate the market with the introduction of new products and many industry firsts. ACL cables comply with most local and international test certificates including ISO 9002, ISO 9001-2000 & ISO 14001 environmental management system certificate.

   Ratio Analysis.

4.1 Liquidity & Efficiency Ratio

	2014	2015	2016	2017	2018
Current Assets	4,653,010	5,766,345	5,193,345	6,133,061	7,098,448
Current Liabilities	3,511,517	3,840,617	2,652,701	3,382,142	4,176,247
Current Ratio	1.325071187	1.501411101	1.957757395	1.813365908	1.699719389
	1.33:1	1.5:1	1.96:1	1.81:1	1.7:1

According to above ratio over 2014-2018 represents the companies’ ability to pay back its liabilities with its assets. Current ratio reflects the company’s financial health. It considers about current assets to current liabilities. If current assets are greater than current liabilities, it’s a favorable condition. In 2014 assets are greater than liabilities. 2015, 2016 & 2017 has that favorable condition and increasing the asset amount per 1 rupee of liability. But in 2018 current assets are less than current liabilities when compared with 2017 which means, the company’s ability to pay its obligations are unfavorable. According to the current ratio, it reveals that the financial health of the  ACL Cable PLC is in a favorable over time.

	2014	2015	2016	2017	2018
Current Assets	4,653,010	5,766,345	5,193,345	6,133,061	7,098,448
Inventory	1,722,317	2,032,571	1,791,058	1,995,157	2,311,360
Quick Assets	2,930,693	3,733,774	3,402,287	4,137,904	4,787,088
Current Liabilities	3,511,517	3,840,617	2,652,701	3,382,142	4,176,247
Acid Test Ratio	0.834594564	0.972180772	1.282574629	1.223456614	1.146265535
	.83:1	.97:1	1.28:1	1.22:1	1.15:1

Acid-test ratio is a strong indicator of whether a firm has sufficient short term assets to cover its immediate liabilities. According to above calculations 2016, 2017 & 2018 has short term liabilities more than 1 per 1 rupee of liability. In 2014 and 2015 short term assets are less than current liabilities. According to the Acid-test ratio, it reveals that ACL Cable PLC is moving towards favorable condition when paying immediate obligations. 

	2014	2015	2016	2017	2018
Revenue	6,328,771	7,895,398	6,790,555	8,054,047	8,929,805
Trade Receivables	2,649,321	3,380,427	2,476,739	3,083,933	3,924,446
Average Trade Receivables	2,493,515	3,014,874	2,928,583	2,780,336	3,504,190
Accounts Receivable Turnover	2.538092	2.618815	2.3187169	2.8967890	2.5483225

This ratio measures the company’s ability to covert its receivables into cash every year. And also measure how efficiently a firm uses its assets. Comparing above years, 2017 has the highest accounts receivable turnover & lowest turnover in 2016.

	2014	2015	2016	2017	2018
Cost of Sales	5,636,344	6,740,484	5,729,860	6,567,847	7,865,346
Inventory	1,722,317	2,032,571	1,791,058	1,995,157	2,311,360
Average Inventory	1,666,404	1,877,444	1,911,815	1,893,108	2,153,259
Merchandise Turnover	3.382339	3.590245	2.9970794	3.4693470	3.6527644

Merchandise turnover shows how many times a company’s inventory is sold and replaced over time. High turnover means nothing unless the company is making a profit on each sale. According to the above calculations, merchandise turnover fluctuates, in 2014 high turnover, in 2015 increases again 2016 rapid decrease again 2017 and 2018 again increase. 2018 has the highest merchandise turnover when compared to other years.

	2014	2015	2016	2017	2018
Net Revenue	6,328,771	7,895,398	6,790,555	8,054,047	8,929,805
Accounts Receivable	2,649,321	3,380,427	2,476,739	3,083,933	3,924,446
Day's Sales Uncollected	152.794	156.2753	133.1275	139.76024	160.40919

Above ratio measure the approximate time period required to collect the receivable. Unusually high figures imply the inadequate collection process within the company. According to above calculations over time, 2018 has an unusually high figure to collect receivables which means an unfavorable condition.

	2014	2015	2016	2017	2018
Ending Inventory	1,722,317	2,032,571	1,791,058	1,995,157	2,311,360
Cost of Sales	5,636,344	6,740,484	5,729,860	6,567,847	7,865,346
Day's Sales in Inventory	111.5343	110.0645	114.0928	110.87839	107.26119

Days’ sales in inventory reflect how long will it take a firm to convert its inventory into sales.  According to the above calculations, ACL Cables PLC shows fluctuations where year 2018 shows the best DSI and 2016 shows the worst DSI.

	2014	2015	2016	2017	2018
Revenue	6,328,771	7,895,398	6,790,555	8,054,047	8,929,805
Total Assets	6,701,663	8,922,951	7,865,440	8,725,972	10,112,262
Average Total Assets	6,557,246	7,812,307	8,394,196	8,295,706	9,419,117
Total Asset Turnover	0.965156	1.010635	0.808958	0.9708693	0.9480511

Total asset turnover measures the firm’s sales or revenues generated relative to the value of its assets. According to above calculations year 2015 has the highest total asset turnover rate. It implies that, for every 1 rupee generates 1.01 rupees of sales. 2016 shows the lowest asset turnover when compared to the other periods.

 Solvency Ratio

	2014	2015	2016	2017	2018
Total Liabilities	3,756,724	5,306,912	3,767,173	3,841,565	4,732,941
Total Assets	6,701,663	8,922,951	7,865,440	8,725,972	10,112,262
Debt Ratio	56%	59%	48%	44%	47%

Above ratio measures the portion of a company’s assets are contributed by creditors. According to above calculations year 2015 has the highest debt ratio. But overall there is a high debt ratio in ACL Cables PLC over the periods.

	2014	2015	2016	2017	2018
Total Shareolder's Equity	2,944,939	3,616,039	4,098,267	4,884,407	5,379,321
Total Assets	6,701,663	8,922,951	7,865,440	8,725,972	10,112,262
Equity Ratio	44%	41%	52%	56%	53%

The equity ratio measures what portion of a company’s assets are contributed by the owners. According to above calculations year 2017 has the highest equity ratio. From 2014 to 2015 we can see overall decrement with certain fluctuations which means investors seems reluctant to invest within the company. From 2016 to 2017 imply a favorable condition of the investment within the company.

	2014	2015	2016	2017	2018
Profit Before Tax	118,135	612,220	710,555	1,212,422	582,380
Finance Cost	222,912	208,349	187,277	205,646	246,906
Profit Before Tax + Finance Cost	341,047	820,569	897,832	1,418,068	829,286
Times Interest Earned	1.529962	3.93843	4.794139	6.895675	3.358711

Times interest earned ratio measures the ability of an organization to pay its debt obligations. According to above calculations year 2017 has the highest times interest earned ratio. From 2014 to 2018 ACL Cable PLC has a favorable times interest earned which is greater than 1. That implies the ability to service debt is not a problem for a borrower.

 Profitability Ratio

	2014	2015	2016	2017	2018
Revenue	6,328,771	7,895,398	6,790,555	8,054,047	8,929,805
Cost of Sales	5,636,344	6,740,484	5,729,860	6,567,847	7,865,346
Gross Profit	692,427	1,154,914	1,060,695	1,486,200	1,064,459
Gross Margin	11%	15%	16%	18%	12%

This ratio measures how profitable a company sells its inventory or merchandise. In the year 2017 has the highest gross margin and the year 2014 has the lowest gross margin. According to above calculations ACL Cables PLC has an unfavorable gross margin of 2017 to 2018.

	2014	2015	2016	2017	2018
Revenue	6,328,771	7,895,398	6,790,555	8,054,047	8,929,805
Net  Profit	98,244	491,775	544,334	1,001,898	478,444
Net Profit Margin	2%	6%	8%	12%	5%

The above ratio measures the company’s ability to earn a net income from sales. According to above calculations year 2017 has the highest profit margin. From 2017 to 2018 net profit margin has a decrement which is an unfavorable condition.

	2014	2015	2016	2017	2018
Profit for the Year	98,244	491,775	544,334	1,001,898	478,444
Total Asset	6,701,663	8,922,951	7,865,440	8,725,972	10,112,262
Average Total Assets	6,557,246	7,812,307	8,394,196	8,295,706	9,419,117
Return on Total Assets	1%	6%	6%	12%	5%

The above ratio measures the overall profitability of the company. In 2017 ACL Cables PLC has the highest return on total assets ratio. In 2014 has the lowest return on total assets ratio. From 2017 to 2018 return on total assets ratio has been decreased. Above figures imply that the overall profitability of the company has been decreasing over time.

	2014	2015	2016	2017	2018
Profit for the Year	98,244	491,775	544,334	1,001,898	478,444
Total Equity	2,944,939	3,616,039	4,098,267	4,884,407	5,379,321
Average Total Equity	2,926,062	3,280,489	3,857,153	4,491,337	5,131,864
Return on Common Shareholder's Equity	3%	15%	14%	22%	9%

The above measure indicates how well the company employed the owners’ investment to earn income. From 2014 to 2017 return on common shareholders’ equity has been increased which means the way that the company has been employed the owners’ investment seems favorable. From 2017 to 2018 return on common shareholders’ equity has been decreased, which means the way that the company has been employed the owners’ investment seems unfavorable.

	2014	2015	2016	2017	2018
Total Equity	2,944,939	3,616,039	4,098,267	4,884,407	5,379,321
Number of Shares	59,893	59,893	59,893	119,787	119,787
Book Value Per Common Share	49.169	60.37	68.43	40.78	44.907
	49.169:1	60.37:1	68.43:1	40.78:1	44.907:1

The above ratio measures liquidation at reported amounts. The year 2016 has the higher book value per common share. Which is a favorable for liquidation at reported amount.

	2014	2015	2016	2017	2018
Profit for the Year	98,244	491,775	544,334	1,001,898	478,444
Number of Shares	59,893	59,893	59,893	119,787	119,787
Basic Earning Per Share	1.640	8.21	9.09	8.36	3.994

The above measure indicates how much income was earned for each share of common stock outstanding. The year 2016 has the highest basic earnings per share and the year 2014 has the lowest basic earnings per share.

Market Ratio

	2014	2015	2016	2017	2018
Market Price Per Share	61.00	76.00	100.90	54.50	41.00
Earning Per Share	1.64	8.21	9.09	8.36	3.99
Price Earning Ratio	37.19	9.26	11.10	6.52	10.27

According to the above calculations, the year 2014 has the highest price earnings ratio. The PE ratio has been increased from 2017 to 2018 which means the company has the opportunity to grow compared with previous years.

	2014	2015	2016	2017	2018
Dividend Per Share	1.0	1.0	1.0	1.5	1.5
Market Price Per Share	61.00	76.00	100.90	54.50	41.00
Dividend Yield	2%	1%	1%	3%	4%

According to above calculations year 2018 has the highest dividend yield and seems to be having a favorable condition.

    Altman Z-Score Analysis.

Z-Score = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E

A = Working Capital/Total Assets

B = Retained Earnings/Total Assets

C = Earnings Before Interest & Tax/Total Assets

D = Market Value of Equity/Total Liabilities

E = Sales/Total Assets

	2014	2015	2016	2017	2018
Working Capital	1,141,493	1,925,728	2,540,644	2,750,919	2,922,201
Total Assets	6,701,663	8,922,951	7,865,440	8,725,972	10,112,262
T1	0.1703	0.2158	0.3230	0.3153	0.2890
Retained Earning	1,316,826	1,838,647	2,268,886	3,107,775	3,394,171
Total Assets	6,701,663	8,922,951	7,865,440	8,725,972	10,112,262
T2	0.20	0.21	0.29	0.36	0.34
Earning Before Tax	118,135	612,220	710,555	1,212,422	582,380
Total Assets	6,701,663	8,922,951	7,865,440	8,725,972	10,112,262
T3	0.0176	0.0686	0.0903	0.1389	0.0576
Market Value of Equity	3,653,514	4,551,919	6,043,272	6,528,411	4,911,281
Total Liabilities	3,756,724	5,306,912	3,767,173	3,841,565	4,732,941
T4	0.9725	0.8577	1.6042	1.6994	1.0377
Sales	6,328,771	7,895,398	6,790,555	8,054,047	8,929,805
Total Assets	6,701,663	8,922,951	7,865,440	8,725,972	10,112,262
T5	0.9444	0.8848	0.8633	0.9230	0.8831
Z Score	2.065530869	2.173363343	2.915438841	3.278082149	2.512407055

  

Zone of Discrimination

·         Z > 2.9 – “Safe” Zone

·         1.23 < Z 2.9 – “Grey” Zone

·         Z < 1.23 – “Distress” Zone

The Altman Z-score is the output of a credit-strength test that gauges a publicly traded manufacturing company's likelihood of bankruptcy. The Altman Z-score is based on five financial ratios that can one can calculate from data found on a company's annual report. It uses profitability, leverage, liquidity, solvency and activity to predict whether a company has a high probability of being insolvent.

According to the Z Scores derived from ACL Cables PLC Financials, in the years of 2014 and 2015 the company is in the Grey zone and the years of 2016 and 2017 showing the Z value more than 2.9 seems good years for the company as it is located in safe zone. Due to the marginal growth in the Performance of the Construction sector and global upward trend in Metal and Plastic prices were not favorable for Electric Cable industry in the year of 2018 have led ACL Cables PLC into grey zone.

v  Conclusion.

After analyzing 5 years of annual reports from ACL Cables PLC, revenue has been raised in past 5 years. ACL Cables PLC shows a favorable financial condition when analyzing current ratios from 2014 to 2018. After analyzing accounts receivable turnover, the conclusion would be, ACL Cables PLC has a poor collection process, a bad credit policy or none at all.  After analyzing equity ratio, derivable conclusion would be, investors are attracted to invest within the company. From 2014 to 2018 imply a favorable condition of the investment within the company. Times interest earned ratio of the         ACL Cables PLC has been derived some favorable conditions. From 2014 to 2018 ACL Cables PLC has a favorable times interest earned which is greater than 1. That implies the ability to service debt is not a problem for a borrower. Ultimate conclusion would be, ACL Cable PLC does maintain a stable position within the electrical cable industry, but they need to consider about their existing credit policy in order to improve their poor collection process.