Interpretation of Financial Statemnt of LAUGFS Holdings

Introduction

LAUGFS Holdings is one of the largest diversified business conglomerates and a trusted name in Sri Lanka. Founded in 1995, LAUGFS today has expanded across 20 industries, establishing a strong presence as a leader and pioneer in the power and energy, retail, industrial, services, leisure, logistics and the real estate sectors in Sri Lanka and beyond.

Statement of the Problem

The role of financial reporting by companies is to provide information about their performance, financial position and changes in the financial position that is useful to a wide range of users in making economic decisions. The role of financial statement analysis is to take financial reports prepared by companies, combined with other information, to evaluate the past, current and prospective performance and financial position of a company for the purpose of making investment, credit and other economic decisions. As Laughs being a prominent company in Sri Lanka conducting financial statement analysis for Laughs PLC is found important at this juncture.

Objective of the Study

The following were the objectives to analyse the financial statement of Laughs PLC

·         To analyse the Working Capital Position of Laughs PLC.

·         To study the Cash position of Laughs PLC

·         To find out the Profitability Position of Laughs PLC

·         To measure the Returns of Laughs PLC.

·         To study the Efficiency of Laughs PLC in managing its assets

·         To scrutinize the Liquidity position of Laughs PLC.

·         To scrutinize the common size analysis

Period of the Study A period of five years is taken for the analysis purpose from 2013-2017

 

Overview of the statements of financial position at LAUGHS PLC for the last five years

 Ratio Analysis

This is the liquidity and efficiency ratios related to Laughs PLC

liquidity and efficiency

Ratio	2013	2014	2015	2016	2017
Working Capital	1505189177	999582445	1027096960	2711060850	-636830728
Current Ratio	2.48	2.41	2.54	1.57	1.37
Acid Test Ratio	0.96	1.23	1.56	1.21	0.89
Acounts Recievable  Turnover	2.12	2.44	2.35	2.68	3.45
Days sale Uncollected	100.23	110.58	121.38	163.54	186.32
Merchandise Turnover	2.66	2.84	3.97	2.88	2.31
Days Sales in Inventory	2.43	3.35	3.35	3.44	3.23
Total Asset  Turnover	0.75	0.89	1.22	1.26	1.45

 

Solvency ratios of LAUGHS PLC

Ratio	2013	2014	2015	2016	2017
Debt Ratio	0.4	0.41	0.38	0.64	0.73
Equity Ratio	0.48	0.47	0.4	0.33	0.29
Times Interest Earned	3.43	3.56	3.8	3.3	2.9

Profitability Ratios Related to Laughs PLC

Ratio	2013	2014	2015	2016	2017
Profit Margin	12%	13%	15%	11%	-2%
Gross Margin	11%	16%	22%	18%	11%
Return on total Assets	17%	19%	23%	20%	5%
Return on Common shareholders	12%	14%	16%	15%	7%

 

Stock Market Ratio Related to Laughs PLC

Ratio	2013	2014	2015	2016	2017
Book value per common  share	42.55	45.69	56.22	49.35	42.33
Earning Pershare	2.71	3.38	4	3.32	-1.65
Price Earning Share	2.52	2.86	6.35	5.36	Data Not Sufficient
Dividend Yield	1.56%	1.69%	3.25	2.86	-0.65

Liquidity and Efficiency Ratios

Asset Test Ratio

(Current asset - inventory) / Current Liabilities

Interpretation:

This ratio shows the relationship between the quick asset and the current liabilities and shows the company ability to pay back its current liability within its short period of time. There is a slight change in this ratio since last three years. This ratio is slightly unfavorable for the organization, it should be improved.

Working Capital

Current Asset - Current Liabilities

Interpretation:

Working capital is the difference between the current asset and current liabilities. This is the amount used for day to day operations of the company., which mean the current asset may increase, that is, in some cases good for the organization if the organization treat it like a reserve account but in other conditions its unfavorable because of less utilization of the current asset.

LEVERAGE RATIOS

 

Times Interest Earned

EBIT / Interest Exp

Interpretation:

It shows how many times the company can pay its interest with its income of one year, higher the ratio will be more favorable for the organization.

 

Debt - Equity Ratio

Total Debt / Total Equity

Interpretation:This ratio shows the relationship between Long term debt and total equity of the organization.

DEBT RATIO

Formula:

Total liabilities / total assets *100

Interpretation:

This ratio shows that how much portion of the assets are covered by the liabilities of the organization.

EQITY RATIO Formula:

Equity / total assets *100

This ratio is showing increasing trend except in 2017 in which it was at its lowest value because increase in equity is lower increase than assets.

Fixed Asset to Equity Ratio

Fixed asset / equity

Interpretation:

This ratio shows the relationship between fix asset of the company with the equity held by the company. This ratios show that how much times your fixed asset are of your equity. Although in laughs PLC’s case the equity was increased but fixed asset was also on increase, that is the reason of sustainability of the ratio.

Profitability Ratios

Net Profit Margin (in %)

Profit after tax / net sale x 100

Interpretation:

This ratio interprets the net profit as a percentage of net sales. In 2016, the ratio was pretty good but in 2017, there was enormous decline, That is Alarming for the organization and it should take action for its improvement. Higher the ratio results higher market position of the organization.

Return of Asset (in %)

Net income/ total asset x 100

Interpretation:

This ratio shows the relationship between net profit and total assets. It is the main objective of an organization to maximize its return on assets. 

Sales to Fix Asset

Net sale / fixed asset

Interpretation:

This ratio also shows the utilization of the asset but the fix asset. If we look at the graph, there is gradual increase in this ratio. This shows the fix assets are properly being utilized for the purpose of earning interest.

Gross Profit Margin (%)

Gross profit / Net Sales * 100

Interpretation:

Gross profit margin ratio the shows the gross profit as a % of the net sale. there was nominal change. This ratio is favourable for the company, there may be two reasons for this increase, one is to increase interest earning or lowering the interest expenses.

Activity Ratios

Total Asset Turn Over

Sales / Total Assets

This ratio shows the utilization of the total asset. If we look at the graph, there is gradual slight increase in this ratio. This shows the total assets are properly being utilized for the purpose of earning interest. In 2017 there a decrease in terms of laughs. This decrease shows some degree in- efficiency of the organization.

 

Fixed Asset Turn Over

Sales/ fixed asset

Interpretation:

This ratio shows the earning on each share of the company. With respect to Laughs PLC the steady values has lost its control in 2017. There may be some reason for this variation, this variation may be caused due to three factors, Increase or Decrease in Interest Earned, Expenses or number of shares issued.

Interpretation:

Operating cash flow shows the actual cash incoming and outgoing through the operation of the company/organization. Operation CF will be favourable if it shows the positive balance. Higher the Operating CF, stronger the organization will be considered.

Laugfslk. (2018). Laugfslk. Retrieved 15 April, 2018, from https://www.laugfs.lk/

Investopediacom. (2008). Investopedia. Retrieved 15 April, 2018, from https://www.investopedia.com/exam-guide/cfa-level-1/financial-statements/balance-sheet/components-and-format-of-the-balance-sheet/

Investopediacom. (2008). Investopedia. Retrieved 15 April, 2018, from https://www.investopedia.com/exam-guide/cfa-level-1/financial-statements/balance-sheet/components-and-format-of-the-balance-sheet/