Access Engineering PLC (AEL)

01.   Company Profile

Access Engineering PLC (AEL) boasts a prominent position in the construction industry landscape in Sri Lanka, being the premier civil engineering firm listed in the Colombo Stock Exchange. The Company, which was established in 2001, has a record of a large number of completed construction and infrastructure projects behind it. Among these are, Bridges and Flyovers, Roads and Highways, Harbors, Water Treatment Plants and Water Supply Projects, Land Drainage and Irrigation Schemes and Telecommunication Infrastructure Projects.

Access Engineering has been bestowed with recognition as a ‘specialist contractor’ by the National Construction Association of Sri Lanka and as a ‘major contractor’ by Construction Industry Development Authority (CIDA), with the highest CIDA grading across most number of disciplines of civil engineering. It is compliant to ISO 9001:2008, ISO 14001:2004 and OHSAS 18001:2007 accreditations for its quality, environmental and health and safety management systems and is a signatory to the UN Global Compact. AEL is also a TRACE Member in good standing.

Chairman	:- Sumal Perera
Managing Director	:- Christopher Joshua
Board of Directors	:-
	Rohana Fernando
	Shevantha Mendis
	Dharshana Munasinghe
	Ranjan Gomez
	Malik Ranasinghe   Mr. Dilhan Perera   Niroshan Gunaratne   Mr. Dinesh Weerakkody
Nature of Business	:- Civil Engineering and Construction industry

Ratio Analysis

No	Ratio	2013	2014	2015	2016	2017
	Liquidity and Efficiency Ratios
1	Working Capital	4,511,557,648	7,239,535,410	6,628,680,667	10,597,192,582	6,944,644,754
2	Current Ratio	2.47	2.94	3.30	3.78	2.23
3	Quick Assets Ratio/Acid test	2.15	2.62	2.97	3.56	2.05
4	Account Receivables Turnover	3.65	2.88	2.62	2.70	2.94
5	Merchandise Turnover	8.60	9.26	8.14	10.22	12.55
6	Days' Sales Uncollected	118.61	150.57	139.05	135.16	142.49
7	Days, Sales Inventory	39.56	43.57	39.35	33.90	31.25
8	Total Asset Turnover	0.80	0.78	0.61	0.53	0.55
	Solvency Ratios
1	Debt Ratio	21.31	22.14	17.72	36.91	39.42
2	Equity Ratio	78.69	77.86	82.28	63.09	60.58
3	Time interest Earned	8.41	49.94	34.94	10.01	6.19
	Profitability Ratios
1	Profit margin	18.61	19.14	15.59	17.98	18.15
2	Gross Margin	22.36	24.46	23.39	22.08	23.02
3	Return on TA	14.93	88.31	9.59	9.59	10.00
4	Return on common Shares Holders’ Equity	18.80	19.12	11.97	13.48	16.19
5	Book value per Common Share	12.14	14.26	15.02	15.94	17.22
6	EPS	2.13	2.52	1.75	2.09	2.68
	Market Ratio
1	Price-earnings Ratio	9.41	8.44	17.69	11.19	9.03
2	Dividend yield	2.49	2.35	3.23	3.21	6.19

Liquidity and Efficiency Ratios

Liquidity ratios analyze the ability of a company to pay off both its current liabilities as they become due as well as their long-term liabilities as they become current. In other words, these ratios show the cash levels of a company and the ability to turn other assets into cash to pay off liabilities and other current obligations.

Liquidity is not only a measure of how much cash a business has. It is also a measure of how easy it will be for the company to raise enough cash or convert assets into cash. Assets like accounts receivable, trading securities, and inventory are relatively easy for many companies to convert into cash in the short term. Thus, all of these assets go into the liquidity calculation of a company.

Efficiency ratios also called activity ratios measure how well companies utilize their assets to generate income. Efficiency ratios often look at the time it takes companies to collect cash from customer or the time it takes companies to convert inventory into cash—in other words, make sales. These ratios are used by management to help improve the company as well as outside investors and creditors looking at the operations of profitability of the company.

Efficiency ratios go hand in hand with profitability ratios. Most often when companies are efficient with their resources, they become profitable.

Working Capital

	2013	2014	2015	2016	2017
Working Capital	4,511,557,648	7,239,535,410	6,628,680,667	10,597,192,582	6,944,644,754

The working capital ratio, also called the current ratio, is a liquidity ratio that measures a firm’s ability to pay off  its current liabilities with current assets. The working capital ratio is important to creditors because it shows the liquidity of the company.

Current liabilities are best paid with current assets like cash, cash equivalents, and marketable securities because these assets can be converted into cash much quicker than fixed assets. The faster the assets can be converted into cash, the more likely the company will have the cash in time to pay its debts.

The reason this ratio is called the working capital ratio comes from the working capital calculation. When current assets exceed current liabilities, the firm has enough capital to run its day-to-day operations. In other words, it has enough capital to work. The working capital ratio transforms the working capital calculation into a comparison between current assets and current liabilities.

When analyze about the working capital of Access Engineering we can observe that the figure has reduced in 2015, but increased in 2016 and decrement in 2017. But all these years working capital is positive which indicates a positive performance of the company.

Current Ratio

	2013	2014	2015	2016	2017
Current Ratio	2.47	2.94	3.30	3.78	2.23

The current ratio is a liquidity and efficiency ratio that measures a firm’s ability to pay off its short-term liabilities with its current assets. The current ratio is an important measure of liquidity because short-term liabilities are due within the next year.

This means that a company has a limited amount of time in order to raise the funds to pay for these liabilities. Current assets like cash, cash equivalents, and marketable securities can easily be converted into cash in the short term. This means that companies with larger amounts of current assets will more easily be able to pay off current liabilities when they become due without having to sell off long-term, revenue generating assets.

When analyze about the Current of Access Engineering we can observe that the ratio was increasing till 2016 but there is a notable reduction in the year 2017.

In the financial year end of 31st of March 2017, Company’s short term debt paying ability is lesser with compared to previous year.

Acid test ratio

	2013	2014	2015	2016	2017
Quick Assets Ratio/Acid test	2.15	2.62	2.97	3.56	2.05

The acid-test or quick ratio or liquidity ratio measures the ability of a company to use its near cash or quick assets to extinguish or retire its current liabilities immediately. Quick assets include those current assets that presumably can be quickly converted to cash at close to their book values. It is the ratio between quick or liquid assets and current liabilities.

Access Engineering has positive increment till 2016, but a notable decrement in the year 2017. Since the figure is more than 2, company has a good control over the quick assets and current liabilities.

Account Receivables Turnover

	2013	2014	2015	2016	2017
Account Receivables Turnover	3.65	2.88	2.62	2.70	2.94

Accounts receivable turnover measures how many times a business can turn its accounts receivable into cash during a period. In other words, the accounts receivable turnover ratio measures how many times a business can collect its average accounts receivable during the year.

This ratio shows how efficient a company is at collecting its credit sales from customers. Some companies collect their receivables from customers in 90 days while other take up to 6 months to collect from customers.

Since the receivables turnover ratio measures a business’ ability to efficiently collect its receivables, it only makes sense that a higher ratio would be more favorable. Higher ratios mean that companies are collecting their receivables more frequently throughout the year. For instance, a ratio of 2 means that the company collected its average receivables twice during the year. In other words, this company is collecting is money from customers every six months. Access Engineering has a ratio more than 2 for last 5 years which is more favorable for the company.

Higher efficiency is favorable from a cash flow standpoint as well. When Access Engineering can collect cash from customers sooner, it will be able to use that cash to pay bills and other obligations sooner.

Accounts receivable turnover also is an indication of the quality of credit sales and receivables. A company with a higher ratio shows that credit sales are more likely to be collected than a company with a lower ratio. Since accounts receivable are often posted as collateral for loans, quality of receivables is important.

In Access Engineering figure was decreasing till 2015 and then increasing since 2015.

Merchandise Turnover

	2013	2014	2015	2016	2017
Merchandise Turnover	8.60	9.26	8.14	10.22	12.55

The inventory turnover ratio is an efficiency ratio that shows how effectively inventory is managed by comparing cost of goods sold with average inventory for a period. This measures how many times average inventory is “turned” or sold during a period. In other words, it measures how many times a company sold its total average inventory dollar amount during the year.

This ratio is important because total turnover depends on two main components of performance. The first component is stock purchasing. If larger amounts of inventory are purchased during the year in the case of Access Engineering, the company will have to sell greater amounts of inventory to improve its turnover. If the company can’t sell these greater amounts of inventory, it will incur storage costs and other holding costs.

The second component is sales. Sales have to match inventory purchases otherwise the inventory will not turn effectively. That’s why the purchasing and sales departments must be in tune with each other.

Inventory turnover is a measure of how efficiently a company can control its merchandise, so it is important to have a high turn. This shows the company does not overspend by buying too much inventory and wastes resources by storing non-salable inventory. It also shows that the company can effectively sell the inventory it buys.

Creditors are particularly interested in this because inventory is often put up as collateral for loans. Banks want to know that this inventory will be easy to sell.

Even though the Access Engineering is into Building and construction domain, relatively a slow moving industry, company shows a positive increment in all the years other than the year 2015.

Days' Sales Uncollected

	2013	2014	2015	2016	2017
Days' Sales Uncollected	118.61	150.57	139.05	135.16	142.49

The days’ sales outstanding calculation, also called the average collection period or days’ sales in receivables, measures the number of days it takes a company to collect cash from its credit sales. This calculation shows the liquidity and efficiency of a company’s collections department.

In other words, it shows how well a company can collect cash from its customers. The sooner cash can be collected, the sooner this cash can be used for other operations. Both liquidity and cash flows increase with a lower days’ sales outstanding measurement.

The days’ sales outstanding formula shows investors and creditors how well companies’ can collect cash from their customers. Obviously, sales don’t matter if cash is never collected. This ratio measures the number of days it takes a company to convert its sales into cash.

A lower ratio is more favorable because it means companies collect cash earlier from customers and can use this cash for other operations. It also shows that the accounts receivables are good and won’t be written off as bad debts.

A higher ratio indicates a company with poor collection procedures and customers who are unable or unwilling to pay for their purchases. Companies with high days’ sales ratios are unable to convert sales into cash as quickly as firms with lower ratios.

When analyzing the Days’ Sales Uncollected ratio for Access Engineering, it is observed that there is a variation in the figures for past 5 years. But company could keep it within the range of 4-5 months. Since the company is into construction industry, there can be a high value for the said ratio.

Days’ Sales Inventory

	2013	2014	2015	2016	2017
Days’ Sales Inventory	39.56	43.57	39.35	33.90	31.25

The days sales in inventory calculation, also called days inventory outstanding or simply days in inventory, measures the number of days it will take a company to sell all of its inventory. In other words, the days’ sales inventory ratio shows how many days a company’s current stock of inventory will last.

This is important to creditors and investors for three main reasons. It measures value, liquidity, and cash flows. Both investors and creditors want to know how valuable a company’s inventory is. Older, more obsolete inventory is always worth less than current, fresh inventory. The days’ sales in inventory shows how fast the company is moving its inventory. In other words, it shows how fresh the inventory is.

This calculation also shows the liquidity of inventory. Shorter days’ inventory outstanding means the company can convert its inventory into cash sooner. In other words, the inventory is extremely liquid.

Along the same line, more liquid inventory means the company’s cash flows will be better.

Days’ Sales inventory ratio is with the range of 1-1.5 months for Access Engineering which is a positive sign for the company.

Total Asset Turnover

	2013	2014	2015	2016	2017
Total Asset Turnover	0.80	0.78	0.61	0.53	0.55

The asset turnover ratio is an efficiency ratio that measures a company’s ability to generate sales from its assets by comparing net sales with average total assets. In other words, this ratio shows how efficiently a company can use its assets to generate sales.

The total asset turnover ratio calculates net sales as a percentage of assets to show how many sales are generated from each dollar of company assets. For instance, a ratio of .5 means that each dollar of assets generates 50 cents of sales.

This ratio measures how efficiently a firm uses its assets to generate sales, so a higher ratio is always more favorable. Higher turnover ratios mean the company is using its assets more efficiently. Lower ratios mean that the company isn’t using its assets efficiently and most likely have management or production problems.

For instance, a ratio of 1 means that the net sales of a company equal the average total assets for the year. In other words, the company is generating 1 dollar of sales for every dollar invested in assets.

Like with most ratios, the asset turnover ratio is based on industry standards. Some industries use assets more efficiently than others. In the case of Access Engineering, they use more Assets and the ratio is kept above 0.5 for all 5 years. But when we analyze the trend, the ratio decrements over the period of time, which is not a good sign.

. Solvency Ratios

Solvency ratios, also called leverage ratios, measure a company’s ability to sustain operations indefinitely by comparing debt levels with equity, assets, and earnings. In other words, solvency ratios identify going concern issues and a firm’s ability to pay its bills in the long term. Solvency ratios focus more on the long-term sustainability of a company instead of the current liability payments.

Solvency ratios show a company’s ability to make payments and pay off its long-term obligations to creditors, bondholders, and banks. Better solvency ratios indicate a more credit worthy and financially sound company in the long-term.

Debt Ratio 

	2013	2014	2015	2016	2017
Debt Ratio	21.31	22.14	17.72	36.91	39.42

Debt ratio is a solvency ratio that measures a firm’s total liabilities as a percentage of its total assets. In a sense, the debt ratio shows a company’s ability to pay off its liabilities with its assets. In other words, this shows how many assets the company must sell in order to pay off all of its liabilities.

This ratio measures the financial leverage of a company. Companies with higher levels of liabilities compared with assets are considered highly leveraged and more risky for lenders.

This helps investors and creditors analysis the overall debt burden on the company as well as the firm’s ability to pay off the debt in future, uncertain economic times.

A lower debt ratio usually implies a more stable business with the potential of longevity because a company with lower ratio also has lower overall debt. Each industry has its own benchmarks for debt, but .5 is reasonable ratio, where Access Engineering has kept the figure below .4 for all the years. This means that the creditors own 40% of the company’s assets and the shareholders own the remainder (60%) of the assets.

Access Engineering’s Debt ratio is being increasing till 2014 and reduced in 2015 and again increasing since 2015.

Equity Ratio

	2013	2014	2015	2016	2017
Equity Ratio	78.69	77.86	82.28	63.09	60.58

The equity ratio is an investment leverage or solvency ratio that measures the amount 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.

In general, higher equity ratios are typically favorable for companies. This is usually the case for several reasons. Higher investment levels by shareholders shows potential shareholders that the company is worth investing in since so many investors are willing to finance the company loans.

In the scenario of Access Engineering, ratio is kept above the 60% which shows a positive sign for investors to finance. This shows potential creditors that the company is more sustainable and less risky to lend future. But the figure is kept reducing for the period and company should be cautious with the financing methods, whether to go forward with the debt financing or equity financing.

. Times interest Earned

	2013	2014	2015	2016	2017
Time interest Earned	8.41	49.94	34.94	10.01	6.19

The times interest ratio is stated in numbers as opposed to a percentage. The ratio indicates how many times a company could pay the interest with its before tax income, so obviously the larger ratios are considered more favorable than smaller ratios.

In other words, a ratio of 6.19 means that a company makes enough income to pay for its total interest expense 6.19 times over. Said another way, this company’s income is 6.19 times higher than its interest expense for the year. Over the years Access Engineering’s Time interest ratio is decreasing and this can be due to company trying to finance through debt finance in past few years. Company has not issued new shared in last 5 years.

Creditors would favor a company with a much higher time’s interest ratio because it shows the company can afford to pay its interest payments when they come due. Higher ratios are less risky while lower ratios indicate credit risk.

 Profitability Ratios

Profitability ratios compare income statement accounts and categories to show a company’s ability to generate profits from its operations. Profitability ratios focus on a company’s return on investment in inventory and other assets. These ratios basically show how well companies can achieve profits from their operations.

Investors and creditors can use profitability ratios to judge a company’s return on investment based on its relative level of resources and assets. In other words, profitability ratios can be used to judge whether companies are making enough operational profit from their assets.

Profit margin

	2013	2014	2015	2016	2017
Profit margin	18.61	19.14	15.59	17.98	18.15

The profit margin ratio, also called the return on sales ratio or gross profit ratio, is a profitability ratio that measures the amount of net income earned with each dollar of sales generated by comparing the net income and net sales of a company. In other words, the profit margin ratio shows what percentage of sales are left over after all expenses are paid by the business.

Creditors and investors use this ratio to measure how effectively a company can convert sales into net income. Investors want to make sure profits are high enough to distribute dividends while creditors want to make sure the company has enough profits to pay back its loans. In other words, outside users want to know that the company is running efficiently. An extremely low profit margin formula would indicate the expenses are too high and the management needs to budget and cut expenses.

Access Engineering was able to keep the Profit Margin ratio between 17%-18% which is a positive figure for the company.

This ratio also indirectly measures how well a company manages its expenses relative to its net sales. And per the analysis Access Engineering has a good control over the expenses, since they were able to keep the Gross Margin ratio within the 22%- 24% range.

Access Engineering can achieve higher profit ratio by either generating more revenues or by keeping expenses constant or keep revenues constant and lower expenses.

Gross margin

	2013	2014	2015	2016	2017
Profit margin	18.61	19.14	15.59	17.98	18.15

Gross margin ratio is a profitability ratio that compares the gross margin of a business to the net sales. This ratio measures how profitable a company sells its inventory or merchandise. In other words, the gross profit ratio is essentially the percentage markup on merchandise from its cost. This is the pure profit from the sale of inventory that can go to paying operating expenses.

Over the years Gross Margin ratio is kept within the 22%- 24% which is a good sign since the company is into construction industry.

A company with high gross margin ratio mean that the company will have more money to pay operating expenses like salaries, utilities, and rent. Since this ratio measures the profits from selling inventory, it also measures the percentage of sales that can be used to help fund other parts of the business.

 Return on Total Assets

	2013	2014	2015	2016	2017
Return on Total Assets	14.93	88.31	9.59	9.59	10.00

The return on assets ratio, often called the return on total assets, is a profitability ratio that measures the net income produced by total assets during a period by comparing net income to the average total assets. In other words, the return on assets ratio or ROA measures how efficiently a company can manage its assets to produce profits during a period.

Since company assets’ sole purpose is to generate revenues and produce profits, this ratio helps both management and investors see how well the company can convert its investments in assets into profits.

Over the period ROA was reducing, but kept at the level of 10. Since Access Engineering use large, expensive equipment above figures are fairly reasonable.

Higher ratio is more favorable to investors because it shows that the company is more effectively managing its assets to produce greater amounts of net income. A positive ROA ratio usually indicates an upward profit trend as well which is true when we consider the profit margin and gross margin ratios of Access Engineering.

Return on common Shares Holders’ Equity

	2013	2014	2015	2016	2017
Return on common Shares Holders’ Equity	18.80	19.12	11.97	13.48	16.19

Return on Common Share Holders' Equity or Return on capital employed (ROCE) is a profitability ratio that measures how efficiently a company can generate profits from its capital employed by comparing net operating profit to capital employed.

ROCE is a long-term profitability ratio because it shows how effectively assets are performing while taking into consideration long-term financing.

The return on capital employed ratio shows how much profit each dollar of employed capital generates. Obviously, a higher ratio would be more favorable because it means that more dollars of profits are generated by each dollar of capital employed. In the case of Access engineering the ration was dropped in the year 2015 but increasing since then.

Investors are interested in the ratio to see how efficiently a company uses its capital employed as well as its long-term financing strategies. Therefore Access Engineering’s returns should always be higher than the rate at which they are borrowing to fund the assets. If companies borrow at 20 percent and can only achieve a return of 16.19 percent, they are losing money.

Book value per Common Share         

	2013	2014	2015	2016	2017
Book value per Common Share	12.14	14.26	15.02	15.94	17.22

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. Figure is continually increasing in the past 5 years which is a positive sign for the investors

EPS

	2013	2014	2015	2016	2017
EPS	2.13	2.52	1.75	2.09	2.68

Earning per share (EPS), also called net income per share, is a profitability ratio that measures the amount of net income earned per share of stock outstanding. In other words, this is the amount of money each share of stock would receive if all of the profits were distributed to the outstanding shares at the end of the year.

Earnings per share is also a calculation that shows how profitable a company is on a shareholder basis.

Over the past few years Access Engineering shows an increment in the ratio except for the year 2015. Higher earnings per share is always better than a lower ratio because this means the company is more profitable and the company has more profits to distribute to its shareholders.

Although many investors don’t pay much attention to the EPS, a higher earnings per share ratio often makes the stock price of a company rise. Since so many things can manipulate this ratio, investors tend to look at it but don’t let it influence their decisions drastically.

Market Ratios

Market Prospect ratios are used to compare publicly traded companies’ stock prices with other financial measures like earnings and dividend rates. Investors use market prospect ratios to analyze stock price trends and help figure out a stock’s current and future market value.

In other words, market prospect ratios show investors what they should expect to receive from their investment. They might receive future dividends, earnings, or just an appreciated stock value. These ratios are helpful for investors to predict the future stock prices based on current earnings and dividend measurements. For instance, a downward trend in earnings per share and dividend yield point to profitability problems and could even raise going concern issues. All of these issues point to a lower stock evaluation.

Price-earnings Ratio  

	2013	2014	2015	2016	2017
Price-earnings Ratio	9.41	8.44	17.69	11.19	9.03

The price earnings ratio, often called the P/E ratio or price to earnings ratio, is a market prospect ratio that calculates the market value of a stock relative to its earnings by comparing the market price per share by the earnings per share. In other words, the price earnings ratio shows what the market is willing to pay for a stock based on its current earnings.

Investors often use this ratio to evaluate what a stock’s fair market value should be by predicting future earnings per share. Ratio was increasing till 2015 but gradually diminishing in the years 2016 and 2017. Companies with higher future earnings are usually expected to issue higher dividends or have appreciating stock in the future.

In general a higher ratio means that investors anticipate higher performance and growth in the future. It also means that companies with losses have poor PE ratios

Dividend yield

	2013	2014	2015	2016	2017
Dividend yield	2.49	2.35	3.23	3.21	6.19

The dividend yield is a financial ratio that measures the amount of cash dividends distributed to common shareholders relative to the market value per share. The dividend yield is used by investors to show how their investment in stock is generating either cash flows in the form of dividends or increases in asset value by stock appreciation.

Access Engineering shows a positive growth in the Dividend Yield ratio, where it was increased by 2.98 for the period 2017.

Investors use the dividend yield formula to compute the cash flow they are getting from their investment in stocks. In other words, investors want to know how much dividends they are getting for every dollar that the stock is worth.

A company with a high dividend yield pays its investors a large dividend compared to the fair market value of the stock. This means the investors are getting highly compensated for their investments compared with lower dividend yielding stocks. This means Access Engineering may be paying fairly good dividends for their investors.

Z-Score

	2013	2014	2015	2016	2017
Dividend yield	2.92	3.19	7.62	5.25	5.59
Analysis	Grey Zone	Safe Zone	Safe Zone	Safe Zone	Safe Zone

Note:

Alzman estimated Z-core
T1	Working capital/Total Assets
T2	Retained Earnings/TA
T3	EBIT (earnings before Interest and Tax)/ Total Assets
T4	Market Value of equity/Total Liabilities
T5	Sales/Total Assets
z-core for Public Companies
Z-score Bankruptcy Model
Z= 1.2 *T1 + 1.4* T2 + 3.3 * T3 + 0.6 * T4 + 0.999 * T5
Z>2.99	Safe zone
1.8>z>2.99Grey Zone	Grey Zone
Z<1.8	Distress Zone