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A
company's financial statements are compared and evaluated annually to
understand its performance and growth. The decision-makers should have a
thorough understanding of the financial health of the company. The financial
statements represent a summary of important financial data of all business
activities throughout the year. Public limited companies include four main
statements in their annual reports: the income statement, the balance sheet, the
cash flow statement, and the statement of equity.
Financial
statement analysis is conducted to bring out the true meaning of data recorded
in the statements. There are two major parties interested in the analysis:
external stakeholders and internal stakeholders. External stakeholders such as
stockholders, potential investors, customers, creditors, and government use the
analysis to understand the overall business value and financial performance. In
contrast, internal parties such as management, internal auditors and employees
use it as a monitoring tool to manage finances.
Financial
statement analysis can be evaluated for the current, past, or future
performance. It can compare the same type of data yearly or important
relationship between two kinds of data in the same year in the same company or
compare data in different companies (competitors). Horizontal analysis,
vertical analysis and ratio analysis are the most used techniques in financial
statement analysis. The following report will use these three techniques to
interpret data and discuss the financial performance of Dilmah Ceylon Tea
Company PLC.
Dilmah
Ceylon Tea Company PLC is a globally renowned Sri Lankan tea company, with an
unparalleled reputation for producing authentic, natural, and ethical Sri
Lankan tea of the finest quality. Mr Merrill J Fernando established the company
in 1988 by introducing the concept ‘single-origin tea’ which means offering tea
which was ‘picked, perfected and packed’ at the origin. As the first
producer-owned global tea brand, the Dilmah Group is the only fully vertically
integrated tea company with presence along the entire value chain including
ownership in several Sri Lanka’s finest tea gardens, factories, and printing
and packaging facilities. Currently, Dilmah has over 3000 product types sold in
over 100 countries supported by an extensive global distribution network. The
company employees more than 587 members and more than 941 members are engaged
in the supply chain. The Group has remained true to its founder’s vision of
extending business as a matter of human service, with significant investments
directed every year towards supporting the humanitarian and environmental
initiatives of Dilmah Conservation and MJF Charitable Foundation. The Company,
DCTC is 86% owned by MJF Group of companies – MJF Teas (Pvt) Ltd and MJF
Exports (Pvt) Ltd.
Financial
statement analysis is conducted to interpret financial statements and explain
how well a company is doing financially. There are three techniques used to
analyse financial statements. Horizontal analysis is comparing a company’s
financial performance across time. It is conducted by analysing the value of
line items across two or more years. The trend analysis is also a part of the
horizontal analysis. Vertical analysis is comparing a company’s financial
performance to a base amount. It analyses the vertical effect the line items
have on other parts of the business and its proportions. Ratio analysis uses
key relations among financial statement items and uses important ration metrics
to calculate statistical relationships.
The
financial statements can be compared intracompany (over the years), with
competitors, within the industry and with guidelines.
Horizontal
analysis is conducted by comparing the values of financial items over time. It
is used to identify the change (increase or decrease) in values of each year
compared to the base year. The dollar change and percentage change are
calculated.
Dollar
(Rupee) Change = Analysis period amount – Base period amount
Percent
Change = (Dollar Change/Base period amount) * 100%
The
base year - 2014
Time
period - 2015-2019
Rupee
Change
2015 |
2016 |
2017 |
2018 |
All
values are in thousand Rupees |
||
Assets |
|
|
|
|
|
|
Non-current assets |
||||||
Property, plant, and equipment |
-125,774 |
718,003 |
1,099,973 |
1,806,726 |
1,717,278 |
|
Investment property |
0 |
0 |
0 |
282,010 |
406,774 |
|
Intangible assets |
378,234 |
382,747 |
439,320 |
437,564 |
303,237 |
|
Investment in subsidiary |
-30,610 |
-62,000 |
-98,160 |
-129,821 |
-129,821 |
|
Other non-current financial assets |
-75,488 |
-5,439 |
-10,865 |
1,198 |
9,646 |
|
Total non-current assets |
146,362 |
1,033,311 |
1,430,268 |
2,397,677 |
2,307,114 |
|
Current assets |
||||||
Inventories |
3,518 |
-50,778 |
-139,745 |
109,683 |
-16,476 |
|
Trade and other receivables |
-362,503 |
170 |
350,472 |
881,750 |
1,211,625 |
|
Advances and prepayments |
-26,843 |
-204,811 |
-189,156 |
-122,897 |
94,706 |
|
Income tax receivables |
0 |
0 |
483 |
41,308 |
0 |
|
Amounts due from related parties |
-4,053 |
9,356 |
35,668 |
34,980 |
50,886 |
|
Cash and cash equivalents |
391,528 |
586,122 |
2,065,800 |
-839,369 |
34,756 |
|
Total current assets |
1,647 |
340,059 |
2,123,522 |
105,455 |
1,375,497 |
|
Total assets |
148,009 |
1,373,370 |
3,553,790 |
2,503,132 |
3,682,611 |
|
Equity and Liabilities |
||||||
Equity (Capital and Reserves) |
||||||
Stated capital |
0 |
0 |
0 |
442,500 |
442,500 |
|
Other components of equity |
-75,488 |
-5,447 |
-10,883 |
1,180 |
9,628 |
|
Retained Earnings |
304,694 |
1,296,154 |
1,697,739 |
1,487,753 |
2,668,939 |
|
Total equity |
229,206 |
1,290,707 |
1,686,856 |
1,931,433 |
3,121,067 |
|
Non-current liabilities |
||||||
Deferred tax liabilities |
14,757 |
39,673 |
91,294 |
144,107 |
94,268 |
|
Retirement Benefit Obligations |
10,614 |
10,010 |
56,162 |
114,030 |
132,164 |
|
Total non-current liabilities |
25,371 |
49,683 |
147,456 |
258,137 |
226,432 |
|
Current liabilities |
||||||
Trade and other payables |
-78,456 |
-50,834 |
-30,369 |
-49,266 |
-153,733 |
|
Advances received |
-35,919 |
-14,688 |
-40,466 |
-40,466 |
-40,466 |
|
Interest bearing loans and borrowings |
-578 |
-578 |
1,521,422 |
-578 |
-578 |
|
Provisions and accrued expenses |
0 |
0 |
275,295 |
410,276 |
478,334 |
|
Income tax payables |
8,385 |
99,080 |
-6,404 |
-6,404 |
51,555 |
|
Total current liabilities |
-106,568 |
32,980 |
1,719,478 |
313,562 |
335,112 |
|
Total liabilities |
-81,197 |
82,663 |
1,866,934 |
571,699 |
561,544 |
|
Total Equity and Liabilities |
148,009 |
1,373,370 |
3,553,790 |
2,503,132 |
3,682,611 |
Percentage Change
2015 |
2016 |
2017 |
2018 |
2019 |
|
Assets |
|
|
|
|
|
Non-current assets |
|
|
|
|
|
Property, plant, and equipment |
-10.26% |
58.55% |
89.71% |
147.34% |
140.05% |
Investment property |
0.00% |
0.00% |
0.00% |
120.48% |
173.79% |
Intangible assets |
7051.34% |
7135.48% |
8190.16% |
8157.42% |
5653.19% |
Investment in subsidiary |
-23.58% |
-47.76% |
-75.61% |
-100.00% |
-100.00% |
Other non-current financial assets |
-15.02% |
-1.08% |
-2.16% |
0.24% |
1.92% |
total non-current assets |
6.98% |
49.25% |
68.17% |
114.28% |
109.96% |
Current assets |
|
|
|
|
|
Inventories |
0.33% |
-4.70% |
-12.93% |
10.15% |
-1.52% |
Trade and other receivables |
-12.79% |
0.01% |
12.36% |
31.10% |
42.74% |
Advances and prepayments |
-9.90% |
-75.53% |
-69.76% |
-45.32% |
34.93% |
Amounts due from related parties |
-8.72% |
20.13% |
76.74% |
75.25% |
109.47% |
Cash and cash equivalents |
14.14% |
21.17% |
74.63% |
-30.32% |
1.26% |
total current assets |
0.02% |
4.86% |
30.33% |
1.51% |
19.64% |
Total assets |
1.63% |
15.09% |
39.05% |
27.51% |
40.47% |
|
|
|
|
|
|
Equity and Liabilities |
|
|
|
|
|
Equity (Capital and Reserves) |
|
|
|
|
|
Stated capital |
0.00% |
0.00% |
0.00% |
221.25% |
221.25% |
Other components of equity |
-28.71% |
-2.07% |
-4.14% |
0.45% |
3.66% |
Retained earnings |
3.84% |
16.34% |
21.41% |
18.76% |
33.65% |
Total Equity |
2.73% |
15.38% |
20.10% |
23.01% |
37.18% |
Non-current liabilities |
|
|
|
|
|
Deferred tax liabilities |
23.12% |
62.15% |
143.01% |
225.74% |
147.67% |
Retirement benefit obligations |
10.12% |
9.54% |
53.53% |
108.69% |
125.98% |
Total Non-current liabilities |
15.03% |
29.44% |
87.38% |
152.97% |
134.18% |
Current liabilities |
|
|
|
|
|
Trade and other payables |
-16.03% |
-10.39% |
-6.21% |
-10.07% |
-31.42% |
Advances received |
-88.76% |
-36.30% |
-100.00% |
-100.00% |
-100.00% |
Interest bearing loans and borrowings |
-100.00% |
-100.00% |
263221.80% |
-100.00% |
-100.00% |
Income tax payables |
130.93% |
1547.16% |
-100.00% |
-100.00% |
805.04% |
Total current liabilities |
-19.85% |
6.14% |
320.34% |
58.42% |
62.43% |
Total liabilities |
-11.51% |
11.72% |
264.62% |
81.03% |
79.59% |
Total Equity and Liabilities |
1.63% |
15.09% |
39.05% |
27.51% |
40.47% |
The
property, plant and equipment value has significantly increased over the years.
The highest value is recorded in 2018 with a slight decrease in 2019.
Investment property has only increased in 2018 and 2019. Intangible assets have
gradually increased from 2015 to 2017 but has decreased slightly in 2018 and
drastically in 2019. Overall non-current assets had a gradual increment over
the years only to decline in 2019.
The
percentage of inventory value has fluctuated over the years compared to the
base year with the lowest rate in 2017 and highest in 2018. Trade and other
receivables and amount due from other parties have increased over the years
while advance and prepayment value has been less than 2014 value till 2018,
only to increase in 2019. Cash and cash equivalent value has increased from
2015 to 2017, plummeted to a negative value in 2018, and slightly increased in
2019. Total current assets values have fluctuated over the years with a maximum
in 2017 and a minimum in 2015.
However,
the percentage of the total assets has increased in the time period compared to
2014 only with a slight decrement in 2018. This is a good sign of the company’s
growth over the years in financial position perspective.
Stated
capital has only increased in the last two years while the total equity
percentage has gradually increased through retained earnings and other equity
types. Total non-current liabilities have increased over the years only to
decrease slightly in 2019.
Trade
and other payables of current liabilities have fluctuated values over the
years. Total current liabilities have increased till 2017 and have started to
decline. Hence the total liabilities also show a rapid increase till 2017 with
a sudden drop in 2018 and decreasing slowly in 2019.
All
values are in thousand Rupees
2015 |
2016 |
2017 |
2018 |
2019 |
|
Total Revenue |
-125,990 |
-243,290 |
-174,816 |
1,714,585 |
3,213,588 |
Cost of Sales |
67,255 |
393,841 |
229,396 |
-962,770 |
-1,408,976 |
Gross Profit |
-58,735 |
150,551 |
54,580 |
751,815 |
1,804,612 |
|
|
|
|
|
|
Other Income and Gains |
-8,307 |
-6,520 |
56,358 |
-2,049 |
-4,146 |
Selling and Distribution Expenses |
380,570 |
247,895 |
-158,570 |
-301,635 |
-946,229 |
Administrative Expenses |
-89,513 |
-295,301 |
-268,465 |
-436,430 |
-761,074 |
Foreign Exchange Gain |
-268,938 |
768,976 |
282,234 |
285,457 |
678,041 |
Finance Cost |
780 |
929 |
-18,385 |
-33,477 |
-13,511 |
Finance Income |
-17,544 |
-23,417 |
49,351 |
39,354 |
-30,304 |
Profit Before Tax |
-61,687 |
843,113 |
-2,897 |
303,035 |
727,389 |
|
|
|
|
|
|
Income Tax Expense |
4,333 |
-85,857 |
-27,717 |
31,728 |
-1,691 |
Profit for The Year |
-57,354 |
757,256 |
-30,614 |
334,763 |
725,698 |
|
|
|
|
|
|
Other Comprehensive
Income, Net of Tax |
|
|
|
|
|
Net Gain/(Loss) on
Available-for-Sale Financial Assets |
-112,353 |
33,176 |
-42,301 |
-24,802 |
-28,417 |
Actuarial Gains and
(Losses) on Defined Benefit Plans |
7,802 |
12,096 |
-25,364 |
26,943 |
17,421 |
Income Tax Effect |
-780 |
-1,209 |
2,537 |
-3,634 |
-2,209 |
|
|
|
|
|
|
Total Comprehensive
Income, Net of Tax |
-162,685 |
801,319 |
-95,742 |
333,270 |
712,493 |
Percentage Change
|
2015 |
2016 |
2017 |
2018 |
2019 |
Total Revenue |
-1.69% |
-3.26% |
-2.34% |
22.97% |
43.06% |
Cost of Sales |
-1.48% |
-8.65% |
-5.04% |
21.14% |
30.94% |
Gross Profit |
-2.02% |
5.18% |
1.88% |
25.84% |
62.03% |
|
|
|
|
|
|
Other Income and Gains |
-35.24% |
-27.66% |
239.06% |
-8.69% |
-17.59% |
Selling and
Distribution Expenses |
-27.05% |
-17.62% |
11.27% |
21.44% |
67.26% |
Administrative Expenses |
11.69% |
38.55% |
35.05% |
56.97% |
99.35% |
Foreign Exchange
Gain |
-324.63% |
928.22% |
340.68% |
344.57% |
818.46% |
Finance Cost |
-82.98% |
-98.83% |
1955.85% |
3561.38% |
1437.34% |
Finance Income |
-14.00% |
-18.68% |
39.37% |
31.40% |
-24.18% |
Profit Before Tax |
-6.38% |
87.18% |
-0.30% |
31.34% |
75.22% |
|
|
|
|
|
|
Income Tax Expense |
-3.98% |
78.81% |
25.44% |
-29.12% |
1.55% |
Profit for The Year |
-6.68% |
88.25% |
-3.57% |
39.01% |
84.57% |
|
|
|
|
|
|
Other Comprehensive
Income, Net of Tax |
|
|
|
|
|
Net Gain/(Loss) On Available-For-Sale
Financial Assets |
-304.77% |
89.99% |
-114.75% |
-67.28% |
-77.08% |
Actuarial Gains And
(Losses) On Defined Benefit Plans |
-227.26% |
-352.34% |
738.83% |
-784.82% |
-507.46% |
Income Tax Effect |
-227.41% |
-352.48% |
739.65% |
-1059.48% |
-644.02% |
|
|
|
|
|
|
Total Comprehensive
Income, Net of Tax |
-18.24% |
89.84% |
-10.73% |
37.37% |
79.89% |
Total
revenue from 2015 to 2017 has been less than the value in 2014. It has rapidly
increased in 2018 and doubled in size by 2019. Value of the cost of goods sold
has been fluctuating from 2015 to 2017 and has grown in 2018 and 2019.
Therefore, the gross profit has also performed similarly. Profit before tax has
the highest value in 2016 and the 2nd highest in 2019. Total comprehensive
income has also fluctuated over the years with the highest recorded in 2016 and
lowest in 2015.
2014 |
2015 |
2016 |
2017 |
2018 |
2019 |
|
Total Non-Current Assets |
100% |
107.0% |
149.2% |
168.2% |
214.3% |
210.0% |
Total Current Assets |
100% |
100.0% |
104.9% |
130.3% |
101.5% |
119.6% |
Total Assets |
100% |
101.6% |
115.1% |
139.1% |
127.5% |
140.5% |
Total Equity |
100% |
102.7% |
115.4% |
120.1% |
123.0% |
137.2% |
Total Non-Current Liabilities |
100% |
115.0% |
129.4% |
187.4% |
253.0% |
234.2% |
Total Current Liabilities |
100% |
80.1% |
106.1% |
420.3% |
158.4% |
162.4% |
Total Liabilities |
100% |
88.5% |
111.7% |
364.6% |
181.0% |
179.6% |
Total assets and equity have gradually
increased over the years while total liabilities has rapidly increased in 2017
and declined from 2018.
|
2014 |
2015 |
2016 |
2017 |
2018 |
2019 |
Total Revenue |
100% |
98% |
97% |
98% |
123% |
143% |
Cost of Sales |
100% |
99% |
91% |
95% |
121% |
131% |
Gross Profit |
100% |
98% |
105% |
102% |
126% |
162% |
|
|
|
|
|
|
|
Other Income and
Gains |
100% |
65% |
72% |
339% |
91% |
82% |
Selling and
Distribution Expenses |
100% |
73% |
82% |
111% |
121% |
167% |
Administrative
Expenses |
100% |
112% |
139% |
135% |
157% |
199% |
Foreign Exchange
Gain |
100% |
-225% |
1028% |
441% |
445% |
918% |
Finance Cost |
100% |
17% |
1% |
2056% |
3661% |
1537% |
Finance Income |
100% |
86% |
81% |
139% |
131% |
76% |
Profit Before Tax |
100% |
94% |
187% |
100% |
131% |
175% |
|
|
|
|
|
|
|
Income Tax Expense |
100% |
96% |
179% |
125% |
71% |
102% |
Profit for The Year |
100% |
93% |
188% |
96% |
139% |
185% |
According to the graph there is a sudden surge in
profit in year 2016 only to drop in 2017 and then increasing gradually in 2018
and 2019.
Every
item in the given financial statement is represented as a proportion of total
account in the vertical analysis. It is calculated within the given year. In
the statement of financial position, every item under assets is defined as a
proportion of total assets, every item under equity and liability is
represented as a proportion of total equity and liabilities. In the statement
of income, every item is described as a proportion of total revenue.
Common
– size percentage = Analysis Amount/Base Amount *100%
2015 |
2016 |
2017 |
2018 |
2019 |
|
Assets |
|||||
Non-Current Assets |
|||||
Property, Plant, and Equipment |
11.90% |
18.56% |
18.38% |
26.14% |
23.03% |
Investment Property |
2.53% |
2.23% |
1.85% |
4.45% |
5.01% |
Intangible Assets |
4.15% |
3.71% |
3.51% |
3.82% |
2.41% |
Investment in Subsidiary |
1.07% |
0.65% |
0.25% |
0.00% |
0.00% |
Other Non-Current Financial Assets |
4.62% |
4.75% |
3.89% |
4.34% |
4.01% |
Total Non-Current Assets |
24.27% |
29.90% |
27.88% |
38.75% |
34.46% |
Current Assets |
|||||
Inventories |
11.73% |
9.84% |
7.44% |
10.26% |
8.33% |
Trade and Other Receivables |
26.73% |
27.07% |
25.17% |
32.03% |
31.66% |
Advances and Prepayments |
2.64% |
0.63% |
0.65% |
1.28% |
2.86% |
Income Tax Receivables |
0.00% |
0.00% |
0.00% |
0.36% |
0.00% |
Amounts Due from Related Parties |
0.46% |
0.53% |
0.65% |
0.70% |
0.76% |
Cash and Cash Equivalents |
34.17% |
32.03% |
38.20% |
16.62% |
21.93% |
Total Current Assets |
75.73% |
70.10% |
72.12% |
61.25% |
65.54% |
Total Assets |
100.00% |
100.00% |
100.00% |
100.00% |
100.00% |
Equity and Liabilities |
|||||
Equity (Capital and Reserves) |
|||||
Stated Capital |
2.16% |
1.91% |
1.58% |
5.54% |
5.03% |
Other Components of Equity |
2.03% |
2.46% |
1.99% |
2.28% |
2.13% |
Retained Earnings |
89.06% |
88.11% |
76.10% |
81.18% |
82.93% |
Total Equity |
93.25% |
92.47% |
79.67% |
88.99% |
90.09% |
Non-Current Liabilities |
|||||
Deferred Tax Liabilities |
0.85% |
0.99% |
1.23% |
1.79% |
1.24% |
Retirement Benefit Obligations |
1.25% |
1.10% |
1.27% |
1.89% |
1.85% |
Total |
2.10% |
2.09% |
2.50% |
3.68% |
3.09% |
Current Liabilities |
|||||
Trade and Other Payables |
4.44% |
4.19% |
3.63% |
3.79% |
2.63% |
Advances Received |
0.05% |
0.25% |
0.00% |
0.00% |
0.00% |
Interest Bearing Loans and Borrowings |
0.00% |
0.00% |
12.03% |
0.00% |
0.00% |
Provisions and Accrued Expenses |
0.00% |
0.00% |
2.18% |
3.54% |
3.74% |
Income Tax Payables |
0.16% |
1.01% |
0.00% |
0.00% |
0.45% |
Total |
4.65% |
5.44% |
17.83% |
7.33% |
6.82% |
Total Liabilities |
6.75% |
7.53% |
20.33% |
11.01% |
9.91% |
Total Equity and Liabilities |
100.00% |
100.00% |
100.00% |
100.00% |
100.00% |
Total
non-current assets are not more than 40% of total assets throughout the five
years. The percentage of property, plant and equipment is only a 1/5 of total
assets in the first three years and increased slightly in 2018. Since this is a
manufacturing company, this is not a good condition. Total current assets
percentage has been fluctuating in the first three years and has decreased
rapidly from 2018. The inventory percentage has remained one-tenth of the total
assets throughout the years. Though the cash and cash equivalent percentage was
between 30% and 40 % for the first three years, it has a sudden flop in 2018
and a slight increase in 2019.
Total
equity percentage has remained more than 80% throughout the five years, while
total liabilities do not show a specific trend. Non-current liabilities are
less than 4% every year, and current liabilities are less than 8% every year
except for 2017. This is a good sign of the company’s wealth.
2015 |
2016 |
2017 |
2018 |
2019 |
|
Total Revenue |
100.00% |
100.00% |
100.00% |
100.00% |
100.00% |
Cost of Sales |
61.15% |
57.62% |
59.34% |
60.11% |
55.85% |
Gross Profit |
38.85% |
42.38% |
40.66% |
39.89% |
44.15% |
Other Income and Gains |
0.21% |
0.24% |
1.10% |
0.23% |
0.18% |
Selling and Distribution Expenses |
13.99% |
16.05% |
-21.48% |
-18.62% |
-22.04% |
Administrative Expenses |
11.66% |
14.70% |
-14.19% |
-13.10% |
-14.30% |
Foreign Exchange Gain |
2.54% |
11.80% |
5.01% |
4.01% |
7.13% |
Finance Cost |
0.00% |
0.00% |
-0.27% |
-0.38% |
-0.14% |
Finance Income |
1.47% |
1.41% |
2.40% |
1.79% |
0.89% |
Profit Before Tax |
12.34% |
25.07% |
13.23% |
13.84% |
15.87% |
Income Tax Expense |
-1.43% |
-2.70% |
-1.88% |
-0.84% |
-1.04% |
Profit for The Year |
10.91% |
22.37% |
11.35% |
13.00% |
14.83% |
Net Gain/(Loss) On Available-For-Sale Financial Assets |
-1.03% |
0.97% |
-0.07% |
0.13% |
0.08% |
Actuarial Gains And (Losses) On Defined Benefit Plans |
0.06% |
0.12% |
-0.40% |
0.26% |
0.13% |
Income Tax Effect |
-0.01% |
-0.01% |
0.04% |
-0.04% |
-0.02% |
Total Comprehensive Income, Net of Tax |
9.94% |
23.45% |
10.92% |
13.35% |
15.03% |
Cost of goods sold has remained almost 60% every year,
which meant the gross profit is 40% of total revenue. Profit before tax
percentage has fluctuated over the years with the highest recorded in 2016 and
lowest in 2015. The profit for the year and total comprehensive income show
similar behaviour in the percentage change.
Ratio
analysis is conducted by comparing various items in financial statements to
interpret different aspects of the business. It determines to address four main
components and to give a clear idea of company’s performance in each component.
1. Liquidity
and efficiency -Ability to meet short term obligations and to efficiently
generate revenues
2. Solvency
- Ability to generate future revenues and meet long-term
obligations
3. Profitability
- Ability to provide financial rewards sufficient to
attract and retain financing
4. Market
- Ability to generate positive market expectations
There
are many ratios under each category which support the stakeholders in
determining the nature of the business.
Ratio |
2015 |
2016 |
2017 |
2018 |
2019 |
Working
Capital |
6,573,221 |
6,772,085 |
6,869,050 |
6,256,899 |
7,505,391 |
Current
Ratio |
16.28 |
12.89 |
4.04 |
8.36 |
9.61 |
Acid
Test Ratio |
13.19 |
10.96 |
3.59 |
6.78 |
7.97 |
Accounts
Receivable Turnover |
2.76 |
2.72 |
2.42 |
2.66 |
2.75 |
Merchandise
Turnover |
4.14 |
3.93 |
4.39 |
5.17 |
5.29 |
Day's
Sales Uncollected |
122.99 |
143.33 |
159.52 |
147.81 |
138.34 |
Day's
Sales in Inventory |
88.23 |
90.40 |
79.45 |
78.78 |
65.17 |
Total
Assets Turnover |
0.80 |
0.73 |
0.63 |
0.76 |
0.88 |
Working
Capital: This represents current assets financed from long-term
capital resources that do not require near-term repayment. If a company lacks
liquidity, it doesn’t have adequate cash to pay for day-to-day business
activities (working capital). This is the difference between current assets and
current liabilities. In Dilmah Ceylon Tea PLC the working capital amount has
increased from 2015 with only a slight drop in 2018.
Current
Ratio: This ratio measures the
short-term debt-paying ability of the company. This ratio should not be too
high because too much liquidity is not suitable for the company. Then they
should invest the extra money. The highest recorded is in 2015 and lowest in
2017. All the values are positive and less than 20%, which depicts that the
company’s liquidity position is good.
Acid Test
Ratio: This ratio excludes current
assets such as inventories and prepaid expenses that may be difficult to
convert into cash quickly. Only consider the company's ability to pay its debt
by using assets that can be rapidly converted into cash. Dilmah PLC acid test
ratio values have decreased from 2015, hitting the lowest in 2017 and has increased
since then. However, it is more than zero every year. Therefore, it is good.
Accounts Receivable
Turnover: This ratio measures how many
times a company converts its receivables into cash each year or how effective
it is to extend credit and collect the debt. The bigger the value, the better
the company’s efficiency. The company has the highest value in 2015 and had
declined till 2017, and they have reached the highest value again in 2019. This
indicates a healthy performance.
Merchandise Turnover: This ratio measures the number of times merchandise
is sold and replaced during the year. This is also referred to as stock
turnover and inventory turnover. The higher the value, the better the company's
ability in selling goods. In Dilmah, this has been increasing over the years.
By 2019 the company can replace stock five times per year which is good.
Day's Sales Uncollected: This measures receivables' liquidity or the number of days between
the day of sales and the day the receivables are collected. Lesser the no of
days, the better the liquidity of the company. The value has fluctuated over
the years, and it is more than 100 days which is not good. (Less than 30 days
is optimal).
Day's Sales in Inventory: This measures the liquidity of inventory or the average
time in days that a company takes to turn its inventory, including goods that
are a work in progress, into sales. It is also the lower the value, the better.
Here, the highest number of days is recorded in 2017, but the value has
decreased, which is good. The value is more than 60 days which means an average
performance.
Total Assets Turnover: This ratio measures the efficiency of assets in
producing sales. The value should be greater than 1 to indicate a higher
efficiency rate. All five years' values are less than one, which implies the
average total assets are more than total revenue. This means the company is
less efficient.
Ratio |
2015 |
2016 |
2017 |
2018 |
2019 |
Debt Ratio |
6.75% |
7.53% |
20.33% |
11.01% |
9.91% |
Equity Ratio |
93.25% |
92.47% |
79.67% |
88.99% |
90.09% |
Times Interest Earned |
5,660 |
164,562 |
51 |
38 |
118 |
Debt Ratio: This ratio measures what portion of a company's
assets are contributed by creditors. The highest debt ratio is recorded in 2017
and has been declining since. The debt ratio has not exceeded more than 20% in
any year, which means its assets consist of lesser contribution from creditors.
This is good.
Equity Ratio: This ratio measures what portion of a company's
assets are contributed by owners. More than 90% of all assets are contributed
through the owners' equity except in 2017, a good sign.
Times
Interest Earned: This ratio
measures the ability of a firm's operations to protect the long-term creditor
or how strong the company is in paying the interest. The higher the value, the
higher the ability of the company. The values have fluctuated randomly every
year due to different amount of finance cost in each year.
Ratio |
2015 |
2016 |
2017 |
2018 |
2019 |
Profit
Margin |
9.94% |
23.45% |
10.92% |
13.35% |
15.03% |
Gross
Profit Margin |
38.85% |
42.38% |
40.66% |
39.89% |
44.15% |
Return on
Total Assets |
7.95% |
17.17% |
6.89% |
10.10% |
13.16% |
Return
on Common Shareholder's Equity |
8.57% |
18.50% |
8.06% |
12.01% |
14.69% |
Book Value
per Common Share |
0.43 |
0.48 |
0.49 |
0.50 |
0.56 |
Basic
EPS |
36.46 |
84.66 |
38.39 |
59.08 |
77.37 |
Profit Margin: This ratio
describes a company's ability to earn a net income from sales or how much
proportion is the net profit from the revenue. The higher the value, the more
profitable the company is. In here profit margin has fluctuated with the
highest recorded in 2016 and lowest in 2015. The profit is not increasing
yearly, which is not a good indication of the company's performance.
Gross Profit
Margin: This ratio measures the amount
remaining from $1(1 Rupee) in sales left to cover operating expenses and a
profit after considering the sales cost. The value should be high for a company
to survive. The margin is less than 50% in the company but has been increasing.
Therefore, the company is profitable.
Return on
Total Assets: This ratio
indicates how effectively a company uses its assets to generate earnings or the
proportion of net income from average total assets. This is the best overall
measure of a company’s profitability. The highest value recorded is in 2016 and
has plummeted in 2017. The value has increased in 2018 and 2019, which is good
even though the value is deficient.
Return on
Common Shareholder's Equity: This measure
indicates how well the company employed the owners' investments to earn income
or the proportion of income earned by 1 Rupee invested. This also has
fluctuating values from 2015 to 2019 with the highest recorded in 2016 and
lowest in 2017.
Book Value
Per Common Share: This ratio measures
liquidation at reported amounts or the amount a shareholder gets at the
situation of the company closing due to bankruptcy. The value has increased
with time which is a good indication.
Basic Earnings
Per Share: This measure indicates how much
income was earned for each share of common stock outstanding. This is an
essential factor to consider when buying/selling shares. If the value is high,
it is favourable to buy shares and if the value is low it is unfavourable to
buy shares. The value has fluctuated over the years.2016, and 2019 have a higher
value which means the company is profitable and good to invest in. However, in
2015 and 2017 it is not suitable to buy shares.
Ratio |
2015 |
2016 |
2017 |
2018 |
2019 |
P-E Ratio |
19.48 |
7.28 |
15.63 |
9.39 |
8.01 |
Dividend Yield |
3.17% |
4.87% |
2.50% |
8.11% |
5.65% |
Price-Earnings Ratio: Investors often use this measure as a general
guideline in gauging stock values. Generally, the higher the price-earnings
ratio, the more opportunity a company has for growth. This ratio compares the
company’s market price to earnings per share. The value has declined over time.
The highest value is recorded in 2015 and the lowest in 2016. This indicates
that there is a possibility that the company stocks are undervalued. Investors
can buy the stock at a discounted price, or it can mean a genuine lack of
growth potential.
Dividend Yield: This ratio identifies the return, in
terms of cash dividends, on the current market price of the stock. The highest
dividend yield is recorded in 2018 and the lowest in 2017. The values have
fluctuated throughout the years.
The objective of financial statement analysis is to understand and
diagnose the information in the financial statement to judge the
firm's profitability and financial soundness and make forecasts about
the firm's future prospects. Both internal and external stakeholders use the
result of the analysis. The above report consists of a thorough analysis of
Dilmah Ceylon Tea PLC. Data from five financial years were taken, and
horizontal, vertical and ratio analyses were performed.
We can
conclude that the Dilmah Ceylon Tea PLC has shown good performance and revenue
growth. Also, the percentage of total assets has been increasing. However, the
following issues were identified through the analysis.
According
to trend analysis, there is a sudden surge in profit for the year in 2016 and a
drop in 2017 while there is a surge in total liabilities in 2017 and a decline
in 2018.The vertical analysis shows a lack of property, plant and
equipment assets compared to net assets. Since this is a manufacturing company,
this is not a good sign. Even though the net revenue is increasing yearly, the
gross profit and profit for the year are comparatively meagre due to the massive cost of goods
sold. The company should focus more on to reduce COGS by reducing idle time,
unnecessary expenses and operations, wastage of resources, etc. The company's
total equity to total liability ratio is 9:1, which means the company is financed
by fewer debts, which indicates a more stable and profitable company.
According to ratio tests performed, the
company's liquidity position is at a healthy state. Too much liquidity and too
little liquidity is not beneficial for a company. The Dilmah Ceylon Tea PLC has
maintained the liquidity level at a stable amount. From the ratio test
performed to determine the company's efficiency, we can conclude that its
performance is inefficient. This can be a reason for the high cost of
production as well. Therefore, the top management should focus more on how to
increase the efficiency.
The solvency ratios indicate the company's
ability in paying long term liabilities is in a good position. Company's
profitability rates are very low and fluctuate over the years, meaning that
even though the revenue is growing company is not profitable.EPS ratio also
show fluctuating values, meaning the company's performance is unstable.
Market ratios do not show stable growth or
decline. The P-E ratio and dividend yield have fluctuated randomly throughout
the years. Therefore, there is a risk in investing in the company because
investors cannot decipher a clear idea on whether the company is growing or
not.
Dilmah Ceylon Tea PLC should evaluate growth
options through forecasting and focus more on how to increase net profit and
reduce cost. The company should give special attention to their business
strategies and in making policies to stabilize the company performance.
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