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FINANCIAL STATEMENT ANALYSIS OF DILMAH CEYLON TEA COMPANY PLC

 

1.Introduction

 

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.

 

2.Background of The Company

 

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.

3. Financial Statement Analysis

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.

 

4.Horizontal Analysis

 

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

4.1. Horizontal Analysis of Financial Position

Rupee Change                                                                                                                                 

	2015	2016	2017	2018	All values are in thousand Rupees 2019
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.

 

 

 

 

 

 

4.2. Horizontal Analysis of The Income Statement

All values are in thousand Rupees

Rupee Change

	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.

 

 

 

 

5.Trend Analysis

5.1. Trend Analysis of Financial Position

	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.

 

 

 

5.2. Trend Analysis of the Income Statement

 

	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.

6.Vertical Analysis

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%

6.1. Vertical Analysis of Financial Position

	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.

6.2. Vertical Analysis of the Income Statement

	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.

7.Ratio Analysis

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.

7.1. Liquidity and Efficiency

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.

7.2. Solvency

 

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.

7.3. Profitability

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.

7.4. Market

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.

 

 

8.Conclusion

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.