Ceylon Cold Stores(CCS)

1.     Company Overview

Ceylon Cold Stores(CCS) is the market leader in Sri Lanka’s carbonated soft drinks and ice cream markets with a heritage of over 150 years in delighting customers and creating moments of pleasure. Their unique strengths which include a diverse product portfolio, extensive market reach and ability to respond to emerging customer needs and extensive market reach have allowed their bands to develop into much-loved household names. Their retail arm, Jaykay Marketing Services (Pvt) Ltd(JMSL) operates the keels supermarkets chain, which through its network of 64 branches had redefined modern trade industry standards in customer convenience and service quality.

                        CCS Group comprises of CCS and its fully owned subsidiaries JMSL and CICL with CCS contributing approximately 68% to group’s profit and assets respectively. The company also has an investment of 23.54% in Waterfront properties (Pvt) Ltd which is accounted as Associate.

             The company is listed on the main board of Colombo Stock Exchange with a market capitalization of Rs 77.08 billion as at the end-March 2017. Headquartered in Colombo Sri Lanka, the Group is part of John Keells Holdings PLC, Sri Lanka’s premier diversified conglomerate and the most valuable listed entity in the country in terms of market capitalization. 

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4.     Financial Analysis

Process of identifying financial strength and weakness of a business by establishing relationship between the elements of balance sheet and income statement. The information pertaining to the financial statements is of great importance through which interpretation and analysis is made. It is through the process of financial analysis that the key performance indicators, such as, liquidity solvency, profitability as well as the efficiency of operations of a business entity may be ascertained, while short term and long-term prospects of a business may be evaluated. Thus, identifying the weakness, the intent is to arrive at recommendations as well as forecasts for the future of a business entity.

  

In above graph, it seems that current liabilities have increased during 2016 and 2017 period and Non-current liabilities are not increasing in reasonable amount. If the business is running well, it is not a big issue as long-term liability has not increased much. Reason is if there is issue with working capital, can obtain more money against Non-current assets as not increased much long-term liabilities.

Balance Sheet - Trend Analysis (Equity based)
	2013	2014	2015	2016	2017
Stated capital	918,200	918,200	918,200	918,200	918,200
Revenue reserves	5,422,004	8,738,803	8,886,028	9,363,562	9,477,355
Other components of equity	3,247,527	775,365	814,418	903,647	1,063,107
Total equity	9,587,731	10,432,368	10,618,646	11,185,409	11,458,662
	2013(%)	2014(%)	2015(%)	2016(%)	2017(%)
Stated capital	100	100	100	100	100
Revenue reserves	100	161	164	173	175
Other components of equity	100	24	25	28	33
Total equity	100	109	111	117	120

Here can see only a slight difference in equity for last five years.

Balance Sheet - Trend Analysis (Total Assets, Equity & Liabilities based)
	2013	2014	2015	2016	2017
Total Assets	11,920,787	12,729,315	13,142,698	14,359,433	14,878,408
Total Liabilities	11,922,800	12,731,329	13,144,713	14,361,449	14,880,425
Total equity	9,587,731	10,432,368	10,618,646	11,185,409	11,458,662
	2013(%)	2014(%)	2015(%)	2016(%)	2017(%)
Total Assets	100	107	110	120	125
Total Liabilities	100	107	110	120	125
Total equity	100	109	111	117	120

When comparing figures of Total Assets, Total Liabilities and Total equity, can see that all three figures are increasing year by year. Mostly total equity is having bit tend of increasing. As total assets are increasing parallelly to total liabilities, assume that increasing total liability will not be a big issue.  

5.      Ratio Analysis

A ratio analysis is a quantitative analysis of information contained in a company’s financial statements. Ratio analysis is used to evaluate various aspects of a company’s operating and financial performance such as its efficiency, liquidity, profitability and solvency.

Ratio analysis involves evaluating the performance and financial health of a company by using data from the current and historical financial statements. The data retrieved from the statements is used to - compare a company's performance over time to assess whether the company is improving or deteriorating; compare a company's financial standing with the industry average.

Main Ratio Analysis

1)      Liquidity Ratio Analysis

2)      Solvency Ratio Analysis

3)      Profitability Ratio Analysis

4)      Market Ration Analysis

5.1.Liquidity Ratio Analysis

Liquidity ratios measure a company's ability to pay off its short-term debts as they come due using the company's current or quick assets.

    Current Ratio

Current ratio measures a company's ability to pay short-term and long-term obligations. To gauge this ability, the current ratio considers the current total assets of a company relative to that company’s current total liabilities

	2013	2014	2015	2016	2017
Current Assets	1,993,416	2,151,166	2,821,927	3,815,001	3,542,917
Current Liabilities	1,231,221	1,232,826	1,509,265	2,155,368	2,251,257
Current Ratio	1.6	1.7	1.9	1.8	1.6

In here it seems current liabilities have increased more than current assets since 2015. It is not a good condition as it may lead to future problem of paying short term liabilities.

   Acid-test Ratio

         The Acid-test(Quick) ratio is an indicator of a company’s short-term liquidity and measures a company’s ability to meet its short-term obligations with its most liquid assets. Because we're only concerned with the most liquid assets, the ratio   excludes      inventories from current assets. Quick assets are current assets that can be converted to cash within 90 days or in the short-term. The Acid-test ratio is a liquidity ratio that measures a company's ability, using its quick assets, to pay off its current debt as they come due. The ratio derives its name presumably from the fact that assets such as cash and marketable securities are quick sources of cash. Therefore, only assets that can be liquidated quickly are factored into the equation. Inventory, even though it is a current asset, is not considered a quick asset since it cannot be converted to cash within a very short time frame.

	2013	2014	2015	2016	2017
Current Assets	1993416	2151166	2821927	3815001	3542917
Inventories	623642	528676	647564	836303	1192696
Prepayments and non-cash receivables	53336	62887	113039	113429	155501
Current Liabilities	1231221	1232826	1509265	2155368	2251257
Acid-test Ratio	1.1	1.3	1.4	1.3	1.0

In here can observe that Acid test ratio has reduced from 2016. Actually, this is also not a good condition. It means in here even though current assets have increased, inventories are not selling in fast and there is a huge inventory. Further more company need to be focus on marketing like areas to increase inventory sales.

   Account Receivable Turnover

The receivables turnover ratio is an accounting measure used to quantify a firm's effectiveness in extending credit and in collecting debts on that credit. The receivables turnover ratio is an activity ratio measuring how efficiently a firm uses its assets.

	2013	2014	2015	2016	2017
Revenue (Income statement)	8530340	8860019	9768129	12190925	13971391
This year Account receivable	947128	1082438	1253607	1414734	1720333
Last year Account receivable	839072	947128	1082438	1253607	1414734
Accounts Receivable Turnover	9.6	8.7	8.4	9.1	8.9

                              

According to above figures, it seems the revenue has increased year by year. But seems amount of receivable has received on 2017 comparing with 2016. So, in here company should focus on to collect those money quickly to perform business well in future.

 Inventory Turnover

Inventory turnover is a ratio showing how many times a company's inventory is sold and replaced over a period. The days in the period can then be divided by the inventory turnover formula to calculate the days it takes to sell the inventory on hand. 

	2013	2014	2015	2016	2017
Cost of Sales	5716812	6198615	6495652	7595030	8645685
This year inventory	623642	528676	647564	836303	1192696
Last year inventory	557255	623642	528676	647564	836303
Inventory Turnover	9.7	10.8	11.0	10.2	8.5

In here, it can be observed that from 2015 onwards inventory turnover ratio has become decreased. It means no of time inventory is sold and replace in given period has decreased. In other wards inventory is keeping long time in stock comparing with other years, so need to focus on sales.

    Days’ Sales Uncollected

Days' sales uncollected is a measurement used to estimate the number of days before receivables will be collected.

	2013	2014	2015	2016	2017
Account receivable=Trade receivable	947128	1082438	1253607	1414734	1720333
Net Sales	8530340	8860019	9768129	12190925	13971391
Day sales Uncollected	41	45	47	42	45

In here it seems the time taken for collect money from sales have decreased in 2017 compared to 2016.  It is a good situation as it returns money of sales with less days.

5.1.6.   Days Sales Inventory

The days sales of inventory value (DSI) is a financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory (including goods that are a work in progress, if applicable) into sales. Generally, a lower (or shorter) DSI is preferred, but it is important to note that the average DSI varies from one industry to another.

	2013	2014	2015	2016	2017
Ending Inventory	623642	528676	647564	836303	1192696
Cost of Sales	5716812	6198615	6495652	7595030	8645685
Days Sales Inventory	40	31	36	40	50

Here it seems that the time it takes to sell inventory has increased from 2014 onwards. It means company need to be focus for encourage customers for purchase Ceylon Cold Stores products.

 Total Asset Turnover

Asset turnover ratio measures the value of a company’s sales or revenues generated relative to the value of its assets. The Asset Turnover ratio can often be used as an indicator of the efficiency with which a company is deploying its assets in generating revenue.  Higher the asset turnover ratio, the better the company is performing, since higher ratios imply that the company is generating more revenue per dollar of assets.

	2013	2014	2015	2016	2017
Revenue	8530340	8860019	9768129	12190925	13971391
This year Total Assets	11920787	12729315	13142698	14359433	14878408
Last year Total Assets	9562353	11920787	12729315	13142698	14359433
Total Asset Turnover	0.79	0.72	0.76	0.89	0.96

Here can see that asset are generating more money from 2015 on wards to 2017 as its revenue increase percentage is more than the asset increase percentage.

5.2. Solvency Ratio Analysis

Solvency ratio is a key metric used to measure an enterprise’s ability to meet its debt and other obligations. The solvency ratio indicates whether a company’s cash flow is sufficient to meet its short-term and long-term liabilities. The lower a company's solvency ratio, the greater the probability that it will default on its debt obligations.

 

   Debt Ratio

The debt ratio is a financial ratio that measures the extent of a company’s leverage. The debt ratio is defined as the ratio of total debt to total assets, expressed as a decimal or percentage. It can be interpreted as the proportion of a company’s assets that are financed by debt.

	2013	2014	2015	2016	2017
Total Assets	11920787	12729315	13142698	14359433	14878408
Total Liabilities	2333056	2296947	2524052	3174024	3419746
Debt Ratio	20	18	19	22	23

In here it can be observed that the liabilities have increased from 2015 onwards. Hence it seems the Debt and Debt ratio has increased from 2015 to 2017 period of time. So according to this ratio, company need to focus on reducing liabilities and increasing assets in order to perform well in future.

   Equity Ratio

Equity ratio measures the number of assets that are financed by owners’ investments by comparing the total equity in the company to the total assets. The equity ratio highlights two important financial concepts of a solvent and sustainable business. The first component shows how much of the total company assets are owned outright by the investors. In other words, after all of the liabilities are paid off, the investors will end up with the remaining assets. The second component inversely shows how leveraged the company is with debt. The equity ratio measures how much of a firm’s assets were financed by investors.

	2013	2014	2015	2016	2017
Total Assets	11920787	12729315	13142698	14359433	14878408
Total Equity	9,587,731	10,432,368	10,618,646	11,185,409	11,458,662
Equity Ratio	80	82	81	78	77

In above graph can see that the owners’ equity has not increased with the total asset increase. It might those assets are owned by others investors of this company.

  Time Interest Earned Ratio

Time interest earned ratio is a metric used to measure a company's ability to meet its debt obligations. TIE indicates how many times a company can cover its interest charges on a pretax earnings basis.

	2013	2014	2015	2016	2017
Net finance costs	(45,871)	(56,035)	(23,620)	(10,860)	(4,893)
Profit/Loss before income tax	2,449,238	1,493,512	1,628,403	3,053,186	4,143,457
Time Interest Earned	54.39	27.65	69.94	282.14	847.81

In above graph, can see that the TIE value has increased year by year and rapidly on 2016 to 2017 period of time. So, company can take more money for business as debts due to ability of cover those from business.

5.3. Profitability Ratio Analysis

Profitability ratios are a class of financial metrics that are used to assess a business's ability to generate earnings compared to its expenses and other relevant costs incurred during a specific period. For most of these ratios, having a higher value relative to a competitor's ratio or relative to the same ratio from a previous period indicates that the company is doing well.

   Profit Margin

Profit margin is a profitability ratio calculated as net income divided by revenue, or net profits divided by sales. Net income or net profit may be determined by subtracting all of a company’s expenses, including operating costs, material costs (including raw materials) and tax costs, from its total revenue.

	2013	2014	2015	2016	2017
Net profit for year	2,064,692	1,254,131	1,176,398	2,281,013	3,177,141
Net revenue	8,530,340	8,860,019	9,768,129	12,190,925	13,971,391
Profit Margin	24.20	14.15	12.04	18.71	22.74

 

In here, it can be observed that the profit margin line has increased from year 2016 onwards. It means company has started increasing profit percentage relative to sales since year 2016 onwards.

    Gross Profit Margin

Gross profit margin is a financial metric used to assess a company's financial health and business model by revealing the proportion of money left over from revenues after accounting for the cost of goods sold.
	2013	2014	2015	2016	2017
Gross profit	2,813,528	2,661,404	3,272,477	4,595,895	5,325,706
Net revenue	8,530,340	8,860,019	9,768,129	12,190,925	13,971,391
Gross Profit Margin	32.98	30.04	33.50	37.70	38.12

Here it can be see that the gross profit has increased from year 2015 even though profit margin was low in 2015. It means even 2015 company has performed well and now continue up to year 2017.

     Return of Total Assets

The return on total assets (ROTA) is a ratio that measures a company's earnings before interest and taxes (EBIT) against its total net assets. The ratio is an indicator of how effectively a company is using its assets to generate earnings before contractual obligations must be paid.
	2013	2014	2015	2016	2017
Net profit for year	2,064,692	1,254,131	1,176,398	2,281,013	3,177,141
Total Assets	11,920,787	12,729,315	13,142,698	14,359,433	14,878,408
Last year total assets	9,562,353	11,920,787	12,729,315	13,142,698	14,359,433
Average total assets	10,741,570	12,325,051	12,936,007	13,751,066	14,618,921
Return on total Assets	19.22	10.18	9.09	16.59	21.73

Per above details and graph, can observe that the company has started increasing their earning from year 2016 onwards which was decreased to lower level in 2015. It’s a good situation for the company.

.       Return on common shareholders’ equity

Return on equity (ROE) is the amount of net income returned as a percentage of shareholder’s equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested.
	2013	2014	2015	2016	2017
Net profit for year	2,064,692	1,254,131	1,176,398	2,281,013	3,177,141
This year Shareholder equity	9,587,731	10,432,368	10,618,646	11,185,409	11,458,662
Last year shareholder equity	7,488,753	9,587,731	10,432,368	10,618,646	11,185,409
Average shareholder equity	8,538,242	10,010,050	10,525,507	10,902,028	11,322,036
Return on common shareholders’ equity	24.18	12.53	11.18	20.92	28.06

As per above details, it can be observed that the by 2017 more than double value for ROE has reported which was down in 2015. It is a good for owner and the company as owner willingness of invest for company become high as it returns more to owner’s equity.

     Book Value per Common Share

Book value per common share is a measure used by owners of common shares in a firm to determine the level of safety associated with each individual share after all debts are paid accordingly.

	2013		2014	2015	2016	2017
Total Equity	9,587,731000		10,432,368000	10,618,646000	11,185,409000	11,458,662000
No of Shares issued	95,040,000		95,040,000	95,040,000	95,040,000	95,040,000
Book Value per Common Share	100.88		109.77	111.73	117.69	120.57

Here can see that form base year 2013 onwards book value for common share has increased. Furthermore, share prices also have increased relative to this from year 2013 onwards.

     Earnings per Share

Earnings per share (EPS) is the portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serves as an indicator of a company's profitability.
	2013	2014	2015	2016	2017
Profit for the year	2,064,692000	1,254,131000	1,176,398000	2,281,013000	3,177,141000
No of Shares issued	95,040,000	95,040,000	95,040,000	95,040,000	95,040,000
Earnings per share	21.72	13.20	12.38	24.00	33.43

In here it can see that the EPS value has highly increased from year 2016 and 2017 as profit has increased rapidly on those two year. So, the share prices also have increases relative to this.

5.4.                      Market Ratio Analysis

When a stock analyst wants to understand how other investors value a company, they look at market ratios. These measures all have one factor in common; they're evaluating the current market price of a share of common stock versus an indicator of the company's ability to generate profits or assets held by the company.

      Price-Earnings Ratio

 The price-earnings ratio is the ratio for valuing a company that measures its current share price relative to its per-share earnings. The price-earnings ratio indicates the dollar amount an investor can expect to invest in a company to receive one dollar of that company’s earnings. 

	2013	2014	2015	2016	2017
Market price per share	135.90	140.70	298.00	430.00	811.00
Earnings per share	21.72	13.20	12.38	24.00	33.43
Price-earnings Ratio	6.26	10.66	24.08	17.92	24.26

Per above statics and graph, can observe that prices earnings ratio has decreased on year 2016 and reverted to normal on 2017.  Overall can see a increasing trend of prices earnings ratio since 2013. So, it might also have helped to increase the share price of the company.

      Dividend Yield Ratio

This financial ratio that indicates how much a company pays out in dividends each year relative to its share price. Dividend yield is represented as a percentage
	2013(%)	2014(%)	2015(%)	2016(%)	2017(%)
Annual Dividends Per share	4.00	4.00	11.00	18.00	32.00
Market Price per Share	135.90	140.70	298.00	430.00	811.00
Dividend Yield	2.94	2.84	3.69	4.19	3.95

Here it seems that in year 2017, even though the share prices increased, dividend yield has not increased relative to share price. It means it need to be increase annual dividend per share perspective to share price increase. So, it will be influenced to increase share price as well.

6.      Edward Altman’s Z score

The Altman Z-score is the output of a credit-strength test that gauges a publicly traded manufacturing company's likelihood of bankruptcy.

	T1=Working Capital /Total Assets                                                                                      T2=Retained earnings(Revenue reserves)/Total Assets                                               T3=Earnings before interest &  tax(EBIT)/Total Assets                                                      T4=Market value of Equity(Market price per share *No of Market shares)/Total Liabilities                                                                                                                                         T5=Sales/Total Assets                                                                        Z> 2.99 à  Safe 1.8<Z< 2.99 à Grey Z<1.8 à  Distress

	2013	2014	2015	2016	2017
Total Current Assets	1,993,416	2,151,166	2,821,927	3,815,001	3,542,917
Total Current Liabilities	1,231,221	1,232,826	1,509,265	2,155,368	2,251,257
Working Capital	762,195	918,340	1,312,662	1,659,633	1,291,660
Total Assets	11,920,787	12,729,315	13,142,698	14,359,433	14,878,408
T1	0.063938	0.072144	0.099878	0.115578	0.086814
Revenue reserves	5,422,004	8,738,803	8,886,028	9,363,562	9,477,355
T2	0.45	0.69	0.68	0.65	0.64
Net Profit before tax	2,449,238	1,493,512	1,628,403	3,053,186	4,143,457
Finance cost	(45,871)	(56,035)	(23,620)	(10,860)	(4,893)
T3	0.20	0.11	0.12	0.21	0.28
Market price per share	135.90	140.70	298.00	430.00	811.00
No of Shares issued	95,040	95,040	95,040	95,040	95,040
Market value of Equity	12915936	13372128	28321920	40867200	77077440
Total Liabilities	11,922,800	12,731,329	13,144,713	14,361,449	14,880,425
T4	1.08	1.05	2.15	2.85	5.18
Sales of goods	8,530,340	8,860,019	9,768,129	12,190,925	13,971,391
T5	0.715585	0.696033	0.743236	0.848984	0.939038
Z Score	2.74	2.75	3.50	4.31	5.96

Per above data and graph, it seems that company has reached to Safe zone from Grey zone since year 2015 onwards. It means per current situation, company not going to bankruptcy within next two years.

7.     Summary

According to above ratio analysis,It seems that comapany is gaining more profit since year 2016 and now in the safe zone of Edward Altman’s Z score while ensuring that the company will not be bankrupt with in next two years. Furthermore, company share prices has increased up to 950 rupees by 16^th April 16, 2018 and year by year profit is increasing. Finally, what can conclude is this company is a good company to invest for potential investors as more than 90% of above calculated ratios are in good position by 2017.