Tokyo Cement Company (Lanka) PLC

Tokyo Cement Company (Lanka) PLC

Basic concepts of Financial Accounting and Management Accounting are covered under the course module of ‘Accounting and Financial Management’ in MBA in IT, Department of CSE, University of Moratuwa. The main purpose of this document is to utilize that knowledge in order to assess a company’s financial background, performance and position. It has been done by analyzing 5 years annual reports of Tokyo Cement Company (Sri Lanka) PLC. Some important details have been derived by analyzing last 5 years financial data and the results of this analysis may be useful for different stakeholders in order to make some decisions.

Company Profile

Tokyo Cement Company (Lanka) PLC is the largest manufacturer and supplier of cement in Sri Lanka over 30 years. Tokyo Cement is one of Sri Lanka’s most valuable brands with an installed capacity of nearly two million tons of cement, over 600 employees and 14 billion rupees in assets. The company’s stakeholders range from individual builders to commercial contractors and builders in the public and private sectors who rely on the quality inherent in all our products.

Apart from their main business which is manufacturing and supplying cement, they are establishing biomass power plants and contributing to have a source of eco-friendly electricity. And also they were the pioneers to be the first local corporate to achieve achieve the ISO 14001 Environment Management Systems certification, and the first cement  manufacturer to achieve the ISO 9000 Quality Management Systems certification.

Tokyo Cement Company’s vision is “To be the leading partner in nation-building; setting standards that exceed expectations”.

Their mission is “Reinforcing market leadership by empowering our people, driving innovation, pursuing sustainable development, assuring consistent quality, and committing to impeccable service; thereby building shareholder value and cementing consumer trust.”

 1.     Horizontal Analysis

Horizontal Analysis is a financial statement analysis technique which shows the difference in particular items in financial statements compared to a selected base year. It is useful in order to identify trend situations.

The changes are calculated in both number values (dollars) and percentage. When the changes are calculated in numbers it is called as ‘Dollar Change’ and when it is done in percentage, it is called as ‘Percent Change’ in Financial Accounting.

Since this entire Statement Analysis is done by analyzing 5 years data including years 2013 to 2017, 2012 has been taken as the base year.

1.1. Horizontal Analysis of the Financial Position

Following table depict the difference of each item in Financial Position of years 2013 to 2017, compared to the particular figures in 2012.

 As it is presented in the above numbers and graph, Total Current Assets and Total Equity are having negative figures in year 2013. It indicates that those figures have been reduced in year 2013 compared to 2012. Reduction in Assets and Equity are not good conditions for a company. Further, Total Non-Current Liabilities also has been reduced in 2013. However, not like assets or equity it is a good condition as company has been able to reduce their liabilities. There is a downward trend in dollar change of total current liabilities in 2016 while all the other figures are having an upward trend. However, as an overall in 5 years all the figures are having an upward trend.

2014 onwards both current and non-current liabilities have been increased but, it is not possible to interpret it as a bad condition because not only liabilities, all the other figures such as current assets, non-currents assets and equity also have been increased. Increasing assets and equity are favorable conditions for a company.

However, it will be possible to get a proper picture on the business growth of Tokyo Cement Company by analyzing the percent change.

b)    Percent Change

	Percentage Change
	2013	2014	2015	2016	2017
ASSETS
Property, plant and equipment	3.50%	9.39%	25.03%	32.35%	44.31%
Capital work-in-progress	102.59%	1.64%	-0.60%	215.44%	1174.78%
Intangible assets	N/A	N/A	N/A	N/A	N/A
Investments in subsidiaries	8.67%	18.53%	68.40%	172.49%	333.26%
Advance on share application	N/A	N/A	N/A	N/A	N/A
Operating lease prepayment	-1.93%	-3.85%	-7.70%	-8.34%	168.49%
Total non-current assets	5.87%	11.43%	55.91%	67.93%	126.66%
Current Assets
Inventories	-1.96%	-12.35%	34.97%	1.02%	20.14%
Trade and other receivables	-14.31%	18.21%	58.06%	74.49%	148.35%
Operating lease prepayment	N/A	N/A	N/A	N/A	N/A
Tax receivables	-32.86%	372.90%	-91.79%	-82.86%	-100.00%
Amount due from subsidiaries	89.87%	-58.56%	1020.91%	1743.95%	398.21%
Financial investments	-49.05%	6283.97%	3679.27%	-100.00%	-100.00%
Cash and cash equivalents	202.11%	-100.00%	80.72%	530.08%	2554.87%
Total Current Assets	-0.33%	41.38%	88.31%	124.71%	148.08%
Total Assets	4.65%	17.33%	62.30%	79.13%	130.88%
EQUITY AND LIABILITIES
Equity
Stated capital	0.00%	22.12%	22.27%	22.27%	22.27%
Retained earnings	-1.16%	0.39%	45.39%	76.83%	176.33%
Total Equity	-0.64%	10.14%	35.02%	52.35%	107.21%
Non-current liabilities
Interest bearing borrowings	-40.46%	26.82%	158.94%	308.35%	437.03%
Deferred tax liability	41.28%	70.23%	119.45%	159.89%	167.20%
Retirement benefits obligation	24.80%	73.02%	183.50%	193.55%	267.65%
Total Non-Current Liabilities	-3.92%	46.52%	142.67%	242.07%	317.54%
Current Liabilities
Trade and other payables	16.19%	63.31%	125.54%	89.31%	114.28%
Amount due to subsidiaries	97.67%	53.33%	168.56%	62.32%	-63.45%
Current tax payable	N/A	N/A	N/A	N/A	N/A
Interest bearing borrowings	N/A	N/A	N/A	N/A	N/A
Short-term borrowings	-20.23%	-28.98%	15.26%	17.99%	56.57%
Bank overdrafts	53.18%	44.82%	32.53%	70.52%	15.34%
Total Current Liabilities	20.43%	16.98%	77.17%	48.84%	81.36%
Total Equity and Liabilities	4.65%	17.33%	62.30%	79.13%	-14.63%

	2013	2014	2015	2016	2017
Total Non-Current Assets	5.87%	11.43%	55.91%	67.93%	126.66%
Total Current Assets	-0.33%	41.38%	88.31%	124.71%	148.08%
Total Equity	-0.64%	10.14%	35.02%	52.35%	107.21%
Total Non-Current Liabilities	-3.92%	46.52%	142.67%	242.07%	317.54%
Total Current Liabilities	20.43%	16.98%	77.17%	48.84%	81.36%

As per the above graph, almost all the figures are having an upward trend compared to the base year, 2012. In 2017 Total Equity, total current assets, total non-current assets are having over 100% growth compared to 2012. At the same time increase of total current assets is less than 100%. It shows the business growth of the company.

However, total non-current liabilities has been increased continuously and it has been ended up with over 300% by 2017 compared to 2012. It is not a favorable condition since the company is having more and more long-term obligations. It is acceptable that a company needs to have liabilities in order to achieve business growth. But it is better if Tokyo Cement Company (Lanka) PLC can take necessary actions in order to control this rapidly changing growth rate of non-current liabilities. One of the options would be to settle down some long term liabilities out of their profit since they are having a growth in their business.

1.2.Horizontal Analysis of the Income Statement

As it is expressed in above graph, revenue (turnover) has been increased in each year than the base year, 2012. Specially in 2014 and 2017 there is a big difference than other years.   Dollar change of Cost of sales is also having the value propotionate to the turnover.

Total income is having a positive value in all the years except 2014. In 2013 almost all the figures are having a negative value except Turnover, Gross Profit and Finance Income compared to 2012. However, those positive figures in turnover, gross profit and finance income imply a growth in this company’s business in 2013 compared to 2012. During 2014 to 2017 period, dollar change has been increased for almost all the figures which means they have achieved a growth in their business.

b)    Percent Change

	2013	2014	2015	2016	2017
Turnover	10.14%	238.77%	70.16%	56.27%	186.18%
Cost of Sales	12.91%	230.86%	76.36%	62.94%	196.23%
Gross Profit	0.96%	265.00%	49.59%	34.15%	152.84%
Other Income	-19.52%	-62.48%	5.46%	214.96%	460.90%
Total	-2.56%	208.76%	42.01%	65.20%	205.74%
Distribution Expenses	17.06%	264.75%	67.59%	49.38%	119.95%
Administrative Expenses	17.45%	176.86%	86.65%	85.09%	133.74%
Profit from Operations	-24.39%	179.74%	6.62%	69.35%	295.41%
Finance Income	154.46%	307.58%	147.25%	356.92%	640.70%
Finance Expenses	57.03%	249.05%	49.47%	75.28%	232.56%
Profit before Taxation	-37.11%	168.82%	0.09%	69.36%	306.88%
Income Tax Expenses	32.20%	137.17%	39.98%	41.58%	150.90%
Profit for the Year	-53.93%	176.50%	-9.59%	76.09%	344.72%

As it is described under Dollar Change, in 2013 Profit for the Year is  a negative value which means the company has had a decline in their profit compared to the base year, 2012. Compared to all the other years, all the figures are having more than 100% value in percent change in 2017.

Finance Income is more than 100% in all the years compared to 2012.

1.3. Trend Analysis

 

As a summary of above analysed dollar change and percent change, this table includes some highlights for a selected set of figures.  2013 has been taken as the base year and  all the values are calculated based on the  base year. This company is having more than 100% values for all 4 years compared to the base year. Specially the Profit before and after tax have been increased upto more than 300% by 2017 compared to the base year, 2013. There is a upward trend in the above key figures and company can anticipate a further more growth in the coming years also.

However, Mr. S. R. Gnanam, Managing Director of Tokyo Cement (Lanka) PLC has mentioned that during the current period the construction industry in Sri Lanka is on a great growth momentom. Because of the multitude of private and multinational investments taking place as well as government’s plan on ‘Megapolis’ development which is a major public infrastructure development, it is expected to have a boom in the construction industry and it will impact positively to Tokyo Cement company as well. As Mr. Gnanam has stated, they have already planned and taken necessary actions to expand their business in near future. (Gnanam. S. R, 2018)

The horizontal analysis technique can be used to take such strategic decisions for a company based on the historical data and the trend which is derived from few years of data.

2.     Vertical Analysis

Vertical analysis is a financial statement analysis technique which compares particular items in financial statements as a proportion of the total figure like Assets, Equity and Liabilities, in the same year. All the items related to assets are compared as the proportion of total assets and all the items related to equity and liabilities are compared as the proportion of total of equity and liabilities.

This technique can be used to compare the figures in Financial Position and Income Statement within the company.

Vertical analysis is done with a calculated amount called ‘Common-size Percentage’ as in the below formula.

 2.1. Vertical Analysis – Financial Position

	2013	2014	2015	2016	2017
Assets
Property, plant and equipment	59.42%	56.01%	46.28%	44.39%	37.55%
Capital work-in-progress	1.82%	0.82%	0.58%	1.66%	5.20%
Intangible assets	0.00%	0.00%	0.23%	0.15%	0.09%
Investments in subsidiaries	19.76%	19.22%	19.74%	28.94%	35.70%
Advance on share application	0.00%	0.00%	10.16%	0.00%	0.00%
Operating lease prepayment	0.22%	0.20%	0.14%	0.12%	0.28%
Total Non-Current Assets	81.22%	76.24%	77.12%	75.26%	78.81%
Current assets
Inventories	7.51%	5.99%	6.67%	4.52%	4.17%
Trade and other receivables	7.01%	8.63%	8.34%	8.34%	9.21%
Operating lease prepayment	0.00%	0.89%	0.00%	0.00%	0.02%
Tax receivables	1.06%	6.64%	0.08%	0.16%	0.00%
Amount due from subsidiaries	1.76%	0.34%	6.69%	9.97%	2.09%
Financial investments	0.01%	1.27%	0.54%	0.00%	0.00%
Cash and cash equivalents	1.43%	0.00%	0.55%	1.74%	5.69%
Total Current Assets	18.78%	23.76%	22.88%	24.74%	21.19%
Total Assets	100.00%	100.00%	100.00%	100.00%	100.00%
EQUITY AND LIABILITIES
Equity
Stated capital	24.87%	27.09%	19.61%	17.76%	13.78%
Retained earnings	30.21%	27.36%	28.65%	31.57%	38.28%
Total Equity	55.07%	54.45%	48.26%	49.33%	52.06%
Non-current liabilities
Interest bearing borrowings	4.56%	8.66%	12.78%	18.26%	18.63%
Deferred tax liability	8.43%	9.06%	8.45%	9.06%	7.23%
Retirement benefits obligation	0.43%	0.53%	0.63%	0.59%	0.58%
Total Non-Current Liabilities	13.42%	18.26%	21.86%	27.92%	26.44%
Current liabilities
Trade and other payables	7.22%	9.05%	9.03%	6.87%	6.03%
Amount due to subsidiaries	11.61%	8.03%	10.17%	5.57%	0.97%
Current tax payable	0.00%	0.00%	0.00%	0.00%	1.37%
Interest bearing borrowings	0.00%	0.00%	0.00%	0.00%	3.51%
Short-term borrowings	9.65%	7.66%	8.99%	8.34%	8.59%
Bank overdrafts	3.02%	2.55%	1.69%	1.97%	1.03%
Total Current Liabilities	31.50%	27.29%	29.88%	22.75%	21.50%
Total Equity and Liabilities	100.00%	100.00%	100.00%	100.00%	100.00%

 The company is having property, plant and equipment assets over 35% of the total assets through the past 5 years. It is a very good condition for a company because, even if their production and sales come down, still they have these assets with them and it helps to build their business back. Specially in 2013 and 2014 this value is over 50%. Even though this value is around 37% in 2017, it has been happened because the portion of investments in subsidiaries is increased. That implies a growth in their business. Even though they have invested more on subsidiaries, Amount due from Subsidiaries is less compared to other years and that is also a good condition.

Even though Tokyo Cement Company is a manufacturing company, they are having a very small proportion of inventory like less than 10% over these 5 years. By 2017 it is reduced below 5%. It is a very good condition for a company as they need to bear a huge cost on inventory management and also it implies that they are selling goods fast without having much of stocks.

 The total of Equity (Retained Earnings and Stated Capital) is around 50% of total of equity and liabilities throughout these 5 years. Out of that, stated capital value is going down while retained earnings value is going up by 2017 compared to past years. That is a good condition for a company because it implies that they have paid less as dividends and invested much on business growth or expansion. 

 

2.2. Vertical Analysis – Income Statement

	2013	2014	2015	2016	2017
Turnover	100.00%	100.00%	100.00%	100.00%	100.00%
Cost of Sales	-78.76%	-75.03%	-79.63%	-80.11%	-79.53%
Gross Profit	21.24%	24.97%	20.37%	19.89%	20.47%
Other Income	3.51%	0.53%	2.98%	9.68%	9.42%
Total Income	24.75%	25.50%	23.35%	29.58%	29.89%
Distribution Expenses	-10.33%	-10.47%	-9.57%	-9.29%	-7.47%
Administrative Expenses	-5.30%	-4.06%	-5.45%	-5.88%	-4.06%
Profit from Operations	9.12%	10.97%	8.33%	14.40%	18.36%
Finance Income	0.09%	0.05%	0.06%	0.11%	0.10%
Finance Expenses	-2.67%	-1.93%	-1.65%	-2.10%	-2.18%
Profit before Taxation	6.54%	9.09%	6.74%	12.41%	16.28%
Income Tax Expenses	-2.68%	-1.57%	-1.84%	-2.03%	-1.96%
Profit for the Year	3.86%	7.52%	4.90%	10.39%	14.32%

 

As it is depicted in above graph this company is having around 75% of Cost of Sales compared to the total sales (Turnover). It is a somewhat big amount. However, manufacturing companies have to spend a considerable amount as the cost of sales. Rupee depreciation also may have been affected to this as it is explained by Mr. S. R. Gnanam, Managing Director of Tokyo Cement Company. (Gnanam. S. R., 2018)

 Gross profit is also around 20% and not having much of variation throughout 5 years. However, Other Income have been 1% to 3% from 2013 to 2015 and in 2016 and 2017 it is around 9.5% which implies that the company has expanded their source of income may be by having some other businesses than the main business such as their biomass power plants because they have commenced their 3^rd plant in 2017. (Gnanam. S. R., 2018)

Net profit is also below 8% out of total sales during 2013 to 2015 period. It has been raised upto  14% by 2017 which is a good situation in the company. As overall, the company have been able to reduce the portion of distribution expenses and administrative expense and increase the portion of new profit compared to the total sales of each respective year. 

 3.     Ratio Analysis

3.1. Liquidity and Efficiency Ratios

 Following ratios are used to assess a company’s ability to pay debt obligations and ability to use its assets to generate income.

Ratio	2013	2014	2015	2016	2017
Working Capital	-1,210,918,828	-377,139,605	-1,034,000,636	324,062,325	-66,520,296
Current Ratio	0.60	0.87	0.77	1.09	0.99
Acid-test (Quick Assets) Ratio	0.35	0.64	0.54	0.88	0.78
Accounts Receivable Turnover	13.00	36.40	13.50	10.30	14.83
Merchandise Turnover	10.25	32.03	14.24	12.41	24.08
Days' sales uncollected	25.92	11.63	30.95	37.20	28.91
Days' sales inventory	35.26	10.76	31.08	25.18	16.47
Total Assets Turnover	1.01	2.86	1.14	0.86	1.31

Working Capital

Working Capital is the capital amount of a company which can be used to their day-to-day operations. Working Capital is very important in order to run the business specially in the short term, which means in order to settle down short term liabilities.

Following is the formula to derive the Working Capital;

Ratio	2013	2014	2015	2016	2017
Working Capital	-1,210,918,828	-377,139,605	-1,034,000,636	324,062,325	-66,520,296

As per the above graph this company is having a negative working capitalduring 2013 to 2015 period which means a dangerous condition for the company. In 2016 they have achieved a positive working capital but again in 2017 it is a negative working capital.

Even though they have proven a business growth in most of the analysis done with horizontal analysis and vertical analysis, this company is not at a good position in terns of working capital. They need to take necesarry actions in order to have a positive working capital by increasing their current assets than the current liabilities.

Current Ratio and Acid-test Ratio (Quick Assets Ratio)

Similar to Working Capital, Current ratio is also used to assess a company’s ability to settle their short-term liabilities with its assets, including inventory and pre-payments.

 

Acid-test ratio, also known as Quick Assets ratio is used to assess a company’s ability to settle their short-term liabilities with its quick assets which could be liquidate quickly, that means excluding inventory and pre-payments.

These two ratios can be used to make a rough estimate of a company’s financial health.

Ratio	2013	2014	2015	2016	2017
Current Ratio	0.60	0.87	0.77	1.09	0.99
Acid-test (Quick Assets) Ratio	0.35	0.64	0.54	0.88	0.78

As per the above graph, both current ratio and acid-test ratio are having a similar pattern throughout these 5 years. The company is having a more than 1 in current ratio only in 2016. In that year also acid-test ratio is less than 1. It implies that the company doesn’t have a enough assets which could be quickly liquated in order to settle down the short-term liabilities. That same condition is shown throughout the 5 years.

Compared to other years 2016 can be considered as a year which is closer to the milestone. However, again in 2017 it is dropped little bit but, still it is at a good condition compared to 2013 to 2015 period.

Accounts Receivable Turnover and Merchandise Turnover

Accounts Receivable Turnover is the number of times a company collects its average accounts receivables within a year. It shows the efficiency of a company to issue the credits to the customers and collect them timely.

Merchandise Turnover is the number of times a company’s inventory is sold and replaced during with a year. It shows the efficiency in turning a company’s inventory into sales.

Ratio	2013	2014	2015	2016	2017
Accounts Receivable Turnover	13.00	36.40	13.50	10.30	14.83
Merchandise Turnover	10.25	32.03	14.24	12.41	24.08

As per the above graph both accounts receivable turnover and merchandise turnover are having the value more than 10 during these 5 years. It is a very good condition for the company because they are collecting account receivable from their customers more than 10 times compared to their total sales. And also they are selling their inventory more than 10 times compared to the cost of sales.

Specially in 2014 it is over 30 and it is a very good condition to the business. Even though it has been dropped in 2015 and 2016, again in 2017 it has increased.

Days’ Sales Uncollected and Days’ Sales Inventory

Days’ Sales Uncollected is used to measure the average number of days a company takes to collect its trade receivable after a sale has been made.

Days’ Sales Inventory is used to measure the average number of days of inventory on hand during the year. In other words, the number of days a company takes to sell its inventory.

Ratio	2013	2014	2015	2016	2017
Days' sales uncollected	25.92	11.63	30.95	37.20	28.91
Days' sales inventory	35.26	10.76	31.08	25.18	16.47

                                    

As in above graph in 2014 both days sales uncollected and days sales inventory is around 10 days. It is a verify good condition which indicate that the company is able to collect trade receivables and sell inventory quickly. In 2015 both the figures have been increased unto around 30 days. Again in 2016  days sales uncollected has been increased while days sales inventory is reduced. In 2017 both the figures are reduced and days sales inventory is around 16 days which means a very good situation.

However, throughout the 5 years, maximum number of days is around 30 which means the company can collect their trade receivables as well as can sell their inventory within less than one month. It is a good condition in a business.

Total Assets Turnover

Total Assets Turnover measures a company’s ability to generate sales from its assets by comparing net sales with average total assets.

Ratio	2013	2014	2015	2016	2017
Total Assets Turnover	1.01	2.86	1.14	0.86	1.31

Almost all the years except 2016 are having a total assets turnover over 1 which means the company is making more revenue compared to its assets. In 2016 it is below 1 but, it is near to 1. Therefore, it is not a too bad condition. In 2014 it is near to 3 which indicates a really good condition.

3.2. Solvency Ratios

Solvency ratios are used to measure the ability of a company to meet its long-term liabilities.

Debt Ratio and Equity Ratio

Debt ratio compares a company’s total liabilities as a percentage of its total assets. In other words, it shows the company’s ability to pay-off its liabilities with its assets.

Equity ratio compares a company’s total shareholders’ equity as a percentage of its total assets. In other words, it shows the company’s ability to pay-off its liabilities with its assets. It gives a quick measure of the amount of debt that the company has compared to its assets.

	2013	2014	2015	2016	2017
Debt Ratio	63.01%	54.59%	59.77%	45.49%	43.00%
Equity Ratio	55.07%	54.45%	48.26%	49.33%	52.06%

Both debt ratio and equity ratio are over 40% in all 5 years. It is not a good situation because, if the debt ratio is high, that means the company is having more liabilities and as a result of that the company needs to pay more interests. And also if the equity ratio is high, that means the company is having more shareholders’ equity and as a result of that, the company needs to pay more dividends.

However, as it is represented in above graph debt ratio is having a downward trend after 2015 and it’s a good condition. However, equity ratio is having a upward trend after 2015. It might be because of having more shareholders with their business growth.

 

Times Interest Earned

The times interest earned ratio measures the ability of an organization to pay its debt obligations. The ratio is commonly used by lenders to ascertain whether a particular borrower (company) can afford to take any additional debt.

	2013	2014	2015	2016	2017
Times Interest Earned	3.45	5.70	5.09	6.90	8.47

As per the above graph, the company is having the value of this ratio over 2 throughout the 5 years. And also it is having an upward trend and in 2017 it has increased up to around 8. That is a good condition which shows their ability to pay its interest expenses when they come due. These kind of high figures help the company to take more loans and expand their business because, creditors would prefer a company with a higher times interest earned ratio.

3.3.Profitability Ratios

Profitability ratios are used to assess a company’s ability to generate profit compared its expenses during a specific time period. Profitability ratios are useful for the investors in order to make decisions on investing on a particular company.

Profit Margin and Gross Profit Margin

Profit Margin shows how much of each price unit sales generates a net income after all expenses are paid.

Gross profit margin shows how effective a company control their inventory and manufacturing costs and generate profit.

Profit Margin helps a company to get a much clearer picture of its overall expenses compared to its revenue.

	2013	2014	2015	2016	2017
Profit Margin	3.86%	7.52%	4.90%	10.39%	14.32%
Gross Profit Margin	21.24%	24.97%	20.37%	19.89%	20.47%

Tokyo Cement Company is having a gross profit margin over 20% in all the years. That is a good condition which indicates that the company can make a reasonable profit on sales, as long as it is possible to control the overhead costs.

Their profit margin is also above 5% in almost all the years. By 2017 it has reached to 14% and it is a good situation for a business because the company is generating profit even after reducing the production costs. It indicates how efficient and effective they are on controlling the overhead costs.

Return on Total Assets

Return on total assets compared the earning of the business against its total assets. This value indicates how effective the company on utilizing their assets to generate income.

	2013	2014	2015	2016	2017
Return on Total Assets	3.89%	21.54%	5.59%	8.92%	18.76%

 

In 2014 the company is having the highest return on total assets during these 5 years, which is over 21%. In 2015 it has been dropped up to 6% and again by 2017 it has been risen up to 18% which means the company is earning income around 18% relative to its total assets. This is a good condition because the company is able to generate more income out of fewer assets.

Return on Common Shareholder Equity

Return on shareholders’ equity measures how much net income was earned for the amount that shareholders have invested in a business. In other words, it indicates the ability of a company to generate profit from its shareholders’ investments.

	2013	2014	2015	2016	2017
Return on common shareholders’ equity	6.89%	39.35%	11.00%	18.27%	36.88%

In most of the years the company is having a Return on Common Shareholders’ Equity over 10%. Specially in 2014 it is nearly 40%. It is a very good situation because the company is able to make profit out of investors’ money. Even though it has dropped in 2015, it has risen in following years and in 2017 also it is over 35%.

 

Book Value per Common Share

Book value per common share is the amount of net assets that each share of common stock is representing. This measurement helps the investors to determine whether a stock price is undervalued or not.

	2013	2014	2015	2016	2017
Book value per ommon share	17.26	17.39	21.32	24.05	32.72

As per the above graph, book value per common share is having an upward trend throughout the 5 years. By 2017 it has been increased up to 32 rupees which is a somewhat good condition. However, they can focus to increase it further. If the book value is high, share price also should be high and as a result of that, the company can attract more investors.

Basic Earnings per Share

Basic Earnings per Share measures the net income earned by each common stock. This measurement can be used to compare the performance of companies in same industry.

	2013	2014	2015	2016	2017
Basic Earnings per Share	1.19	6.51	2.13	4.14	10.47

Basic earnings per share have been very low in 2013. However, after 2015 it indicates an upward trend. By 2017 it has been 10 rupees and it’s a somewhat good condition compared to the company history. However, they should focus more on the necessary actions to be taken in order to get this value up in coming years.

 

3.4. Stock Market Ratios

 Price Earnings Ratio

Price Earnings Ratio indicates the price amount an investor needs to invest in a company in order to receive one unit of price out of the company’s earnings as a return. This figure gives investors a better sense about the value of the company.

	2013	2014	2015	2016	2017
Price Earnings Ratio	19.70	5.56	25.80	8.93	5.83

 As per the above graph investors have had to invest around 20 rupees and 25 rupees in 2013 and 2015 respectively in order to get 1 rupee as a return. However, in other years it is less than 10 rupees and it is a good condition. 2015 onwards it is showing a downward trend which shows that investors need to spend few in order to get more as the return.

Dividend Yield

Dividend Yield indicates how much a company pays as dividend for shareholders relative to its share price. It helps investors to make decisions on buying shares of a particular company.

	2013	2014	2015	2016	2017
Dividend Yield	4.26%	4.14%	2.17%	3.65%	3.07%

In 2013, 2014 and 2016 the Dividend Yield is above 3.5%. But in 2015 it is around 2% and it is not a good situation. Even though it is increased little bit in 2016, again in 2017 it has been dropped. Compared to the market price of shares, investors are getting only around 3% in 2017.

 

3.5. The Altman Z-Score

 The Alman Z-Score is calculated based on some weighted financial ratios which are derived from the information available in Financial Position and Income Statement. This measurement helps to make decision on the health of company as it is going to be bankrupt or not.

Z-Score = 1.2T₁ + 1.4T₂ + 3.3T₃ + 0.6T₄ + 0.999T₅

T₁ = Working Capital/Total Assets
T₂ = Retained Earnings/Total Assets
T₃ = Earnings before Interest & Tax/Total Assets
T₄= Market Value of Equity/Total Liabilities
T₅ = Sales/Total Assets

	2013	2014	2015	2016	2017
T1	-0.1527	-0.0424	-0.0841	0.0239	-0.0038
T2	0.4229	0.3831	0.4011	0.4420	0.5359
T3	0.3003	0.9853	0.2722	0.3921	0.7086
T4	1.0017	1.4931	1.4411	0.8987	1.2148
T5	0.9866	2.7064	0.9827	0.8177	1.1618
Z-Score	2.5587	5.5255	3.0131	2.5744	3.6173

As depicted in above graph, the z-score has been less than 2.99, which means in the ‘Gray Zone’ in year 2013 and 2016 which indicates a risk in the future. However, even through in 2013 it indicated as there is a risk for the company to be bankrupt within few years in the future, in 2014 z-score has been raised over 5.5 (above the benchmark of 3.0) which is a very good condition and company was in the ‘Safe Zone’. In 2016 also the company has indicated a risk of bankruptcy in near future. However, in 2017 the company is having the z-score over 3.0 and it indicates that the company is in safe zone.