ANALYZING FINANCIAL REPORTS OF TOKYO CEMENT COMPANY PLC

 

TOKYO CEMENT PLC

Company Profile

Tokyo Cement Company (Lanka) PLC is a holding company. The Company's principal activities include manufacture and supply of ordinary Portland cement, Portland pozzolana cement, tile adhesives, water proofing products, pre-mix concrete, ready-mix concrete, cellular lightweight concrete (CLC) blocks, power generation, and manufacturing of sand and aggregate.

Its products include Nippon Ordinary Portland Cement, Tokyo Super Ordinary Portland Cement, Tokyo Super Portland Pozzolana Cement, Tokyo Super mix, Tokyo Superbond Tile Adhesive (Standard Set), Tokyo Superbond High Performance Tile Adhesive, Tokyo Superbond Rapid Set Tile Adhesive, Tokyo Super seal Water Proofer, Tokyo Super flow Flooring Compound, Tokyo Super cast (Internal Plaster and External Plaster), Tokyo Super Screed Mortar, Tokyo Superlight Block Bond and Tokyo Superlight Blocks.

Its subsidiaries include Tokyo Super Cement Company Lanka (Pvt) Ltd and Tokyo Cement Colombo Terminal (Pvt) Ltd.

Tokyo cement plc’s vision is to be “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, perusing sustainable development, assuring consistent quality, and committing to impeccable service; thereby building share holder value and cementing consumer trust.”

The company strives to enrich the country, its people and the environment by successfully ingraining social welfare and environmental conservation in their corporate DNA. Their keystone environmental initiatives; that are very much a part of what Tokyo Cement Group is, such as Coral Reef Rehabilitation, Mangrove Reforestation and Forestry Nurseries programs, exemplify strong belief in conserving those critical parts of the environment in order to sustain the country’s incomparable biodiversity.

 

 

 

 

 

 

 

 

 

1) Horizontal Analysis

Horizontal analysis of financial statements involves comparison of a financial ratio, a benchmark, or a line item over a number of accounting periods. This method of analysis is also known as trend analysis. Horizontal analysis allows the assessment of relative changes in different items over time.

Since this entire Statement Analysis is done by analyzing 5 years data including years 2015 to 2019, 2014 has been taken as the base year.

 

1.1) Horizontal Analysis of the Financial Position

Following table shows the percentage change of each item in the Statements of Financial Positions of years 2015 to 2019, compared to 2014 as the base year.

	Percentage change
	2015	2016	2017	2018	2019
Assets
Non-current assets
Property, plant and equipment	14.29%	21%	31.93%	51.37%	66.91%
Capital work-in-progress	-2.2%	210.37%	115.4%	76.67%	215.56%
Investments in subsidiaries	42.06%	129.88%	264.32%	188.97%	294.43%
Intangible assets	-	-25%	-98.75%	-65.8%	74.25%
Advance on share application	-	0%	-	-	-
Operating lease prepayment	-2.03%	-2.72%	-2.95%	-2.33%	-5.64%
Total Non - Current Assets	39.92%	50.72%	59.65%	66.98%	92.38%
Current assets
Inventories	53.98%	15.25%	37.08%	39.54%	59.83%
Trade and other receivables	3.37%	47.60%	57.11%	46.9%	76.1%
Operating lease prepayment	-0.15%	-33.33%	110.65%	87.87%	65.87%
Tax receivables	-87.07%	-73%	-100%	-65.67%	-55.45%
Amount due from subsidiaries	39.37%	129.27%	54.75%	58.67%	60.35%
Financial investments	118.91%	-100%	-100%	-	-
Cash and cash equivalents	-39.8%	110%	710.14%	304.35%	13.61%
Total current assets	33.17%	58.9%	65.86%	69.65%	170.37
Total assets	38.32%	65.43%	52.67%	106.12%	194.67%
EQUITY AND LIABILITIES
Stated capital	0.12%	0.15%	0.23%	0.43%	0.13%
Retained earnings	44.83%	192%	26.83%	54.06%	48.33%
Equity attributable to the equity holders of the parent	22.59%	34.67%	44.4%	15.87%	11.67%
Non-controlling interest	-	-	-	-	-
Total equity	22.59%	39.46%	17.85%	31.01%	135.92%
Non-current liabilities
Insurance contract liabilities	104.17%	129.43%	176.54%	458.57%	339.34%
Deferred tax liability	28.91%	33.34%	6.78%	11.91%	-0.19%
Retirement benefits obligation	63.85%	112.49%	95.46%	35.67%	168.61%
Total Non - Current Liabilities	65.63%	77.89%	184.98%	250.69%	179.72%
Current liabilities
Trade and other payables	38.12%	91.64%	77.78%	89.59%	280.23%
Amount due to subsidiaries	75.15%	-	-76.19%	-21.45%	16.80%
Short term borrowings	62.30%	-48.23%	14.19%	-	-
Current tax payable	-	-	-	-	-
Bank overdrafts	-8.48%	34.89%	56.77%	11.65%	198.16%
Total Current Liabilities	51.45%	76.54%	118.92%	278.36%	294.36%
Total equity and liabilities	38.32%	58.34%	162.35%	125.67%	187.14%

 

As a short summary of above table depicted below.

	2015	2016	2017	2018	2019
Total Non - Current Assets	39.92%	50.72%	59.65%	66.98%	92.38%
Total Current Assets	33.17%	58.9%	65.86%	69.65%	170.37
Total Equity	22.59%	39.46%	17.85%	31.01%	135.92%
Total Non - Current Liabilities	65.63%	77.89%	184.98%	250.69%	179.72%
Total Current Liabilities	38.32%	58.34%	162.35%	125.67%	187.14%

 

According to the above table all the five years have a positive percentage of Total assets. The values got increased over time upwardly. At the same time the current and non-current liabilities also increased compared to its base year over time from 2015 to 2019. The total equity also increased upwardly over time. Which means more shareholder’s capital is getting invested more in each passing year.  Here we could see most of the percentage values go beyond 100%. For example, we consider 118.92% means the base year 2014 amount considered as 100% and the following year shows 18.92% increasement than base year.

1.2) Horizontal Analysis of the Income Statement

	2015	2016	2017	2018	2019
Turnover	41.80%	57.45%	138.5%	101.66%	123.41%
Cost of sales	50.06%	63.26%	89.66%	79.32%	91.23%
Gross profit	16.17%	4.66%	97.24%	26.70%	30.07%
Other income	15.67%	515.12%	245.45%	341.67%	-91.84%
Distribution expenses	31.79%	17.46%	72.96%	71.73%	95.87%
Administrative expenses	30.30%	28.31%	36.54%	62.81%	71.68%
Profit from operations	-2.64%	54.6%	261.05%	333.71%	-86.39%
Finance income	0.70%	85.36%	200.04%	210.32%	-50.17%
Finance expenses	67.43%	55.45%	16.76%	27.2%	73.42%
Profit before taxation	-11.67%	49.50%	259.13%	378.76%	-222.65%
Income tax expenses	22.10%	23.5%	38.59%	227.2%	31.68%
Profit for the year	-19.97%	55.95%	293.87%	477.53%	-220.55%

 

According to the above table profit for the year shows a upward trend until 2018. In 2015 the company made a drop in profit than previous year. We could see a 19.97% of drop. After that from 2016 to 2018 the company’s profit increased upwardly and in 2018 the company yield nearly 5 times of profit than its base year which indicates as 477.53% where we consider base year as 100%. After that in 2019 it shows a very drastic decline in percentage. Which means company faced a drastic loss and around 2 times decline than base year.

 

2) Vertical Analysis

A vertical analysis is used to show the relative sizes of the different accounts on a financial statement.

For example, when a vertical analysis is done on an income statement, it will show the topline sales number as 100%, and every other account will show as a percentage of the total sales number. For the balance sheet, the total assets of the company will show as 100%, with all the other accounts on both the assets and liabilities sides showing as a percentage of the total assets number.

 

 

 

 

 

2.1) Vertical Analysis of the Financial Position

	Percentage change
	2015	2016	2017	2018	2019
Assets
Non-current assets
Property, plant and equipment	46.28%	41.81%	38.54%	32.31%	32.14%
Capital work-in-progress	0.04%	5.78%	3.65%	10.51%	2.40%
Investments in subsidiaries	19.73%	26.33%	29.57%	36.57%	40.23%
Intangible assets	0.018%	0.49%	0.11%	0.04%	0.06%
Advance on share application	10.16%	8.35%	4.86%	3.76%	0.48%
Operating lease prepayment	0.002%	0.91%	0.41%	0.03%	0.63%
Total Non - Current Assets	76.23%	83.67%	77.14%	85.22%	75.94%
Current assets
Inventories	6.67%	3.93%	5.56%	4.81%	7.50%
Trade and other receivables	8.34%	7.71%	6.02%	6.38%	10.75%
Operating lease prepayment	-	-	-	-	0.31%
Tax receivables	0.08%	0.24%	0.04%	1.45%	1.54%
Amount due from subsidiaries	6.62%	2.59%	5.12%	3.67%	0.09%
Financial investments	0.52%	1.12%	3.45%	0.36%	0.76%
Cash and cash equivalents	0.54%	0.74%	2.67%	0.11%	3.11%
Total current assets	23.77%	16.33%	22.86%	16.78%	24.06%
Total assets	100%	100%	100%	100%	100%
EQUITY AND LIABILITIES
Stated capital	14.23%	15.88%	16.56%	15.14%	13.83%
Retained earnings	31.89%	34.36%	27.88%	37.67%	30.9%
Non-controlling interest	0.00%	0.00%	0.00%	0.00%	0.00%
Total equity	46.12%	50.24%	44.44%	52.81%	44.73%
Non-current liabilities
Insurance contract liabilities	12.33%	14.77%	15.99%	18.43%	13.24%
Deferred tax liability	8.14%	6.54%	7.69%	5.40%	3.98%
Retirement benefits obligation	0.76%	1.03%	0.23%	0.56%	0.49%
Total Non - Current Liabilities	21.23%	22.34%	23.91%	24.39%	17.71%
Current liabilities
Trade and other payables	9.45%	10.56%	11.45%	6.53%	11.97%
Amount due to subsidiaries	2.59%	1.64%	2.07%	1.67%	3.27%
Short term borrowings	16.41%	14.23%	16.13%	12.04%	19.57%
Current tax payable	0.44%	0.01%	0.46%	0.04%	0.11%
Bank overdrafts	3.76%	0.98%	1.56%	2.52%	2.64%
Total Current Liabilities	32.65%	27.42%	31.65%	22.80%	37.56%
Total equity and liabilities	100%	100%	100%	100%	100%

 

Here the company shows non-current values between 20-25% all five years. Which is a fair indication; that depicts even their production and sales come down, still they have these assets with them to build up the company back.

Here the inventory percentage is between 3 to 7% in all 5 years. It’s a good condition for the company because they don’t have to bear a huge cost for inventory management and also it depicts that their inventory sells fast without keeping a stock.

The total equity is over 50% in all the 5 years. Which consist of both stated capital and retain earnings. Here the retain earning percentage is higher. Around 30%. This is an amount left over for the business after settling the dividends to shareholders. This is a good indication that the company has enough capital to run its operations.

Total current assets also, shows around 16- 25%; which means in case of settling the current liabilities the company has fair amount of assets which can be easily liquifiable. Which is a good indication.

 

 

 

 

 

 

 

 

 

2.2) Vertical Analysis of the income statement

 

	2015	2016	2017	2018	2019
Turnover	100%	100%	100%	100%	100%
Cost of sales	-78.40%	-80.11%	-79.52%	-84.44%	-85.58%
Gross profit	21.59%	19.89%	20.47%	15.55%	14.42%
Other income	8.84%	9.75%	9.42%	26.47%	0.13%
Distribution expenses	-7.33%	-9.29%	-7.47%	-8.77%	-9.67%
Administrative expenses	-6.01%	-5.88%	-4.05%	-5.15%	-4.59%
Profit from operations	8.58%	14.40%	18.36%	24.61%	-0.73%
Finance income	0.24%	0.11%	0.10%	0.06%	17.53%
Finance expenses	-1.97%	-2.10%	-2.18%	-3.32%	-5.22%
Profit before taxation	7.29%	12.41%	21.00%	24.84%	-5.93%
Income tax expenses	1.60%	0.20%	1.96%	0.0038%	1.26%
Profit for the year	5.69%	10.38%	14.32%	24.83%	-4.67%

 

The company is having a figure of around 80% for cost of sales compared to the total revenue. Though it is a high amount, as the company does productions mainly, they have to have a considerable amount of cost of sales.

Gross profit is around 20% from 2015 to 2017 and around 15% in 2018 and 2019. Here the last years the amount has been declined. But the other operating incomes have been reduced year by year and in 2019 it was very low.. It is not a good thing for a company.

Net profit has been increased in great amount from 2015 to 2018.which shows excellence performance of company until 2018. And in 2019 the company made a huge loss. The cause of this because of no other forms of income has been got by the company when compared to previous years.

But the distribution expenses and administrative expenses are not having a much variation along the five years. Better if they try to reduce those expenses and increase the profit for the year.

 

 

 

 

 

 

3) Ratio Analysis

Ratio analysis is the comparison of line items in the financial statements of a business. Ratio analysis is used to evaluate a number of issues with an entity, such as its liquidity and efficiency of operations, profitability, solvency and market. Trend lines can also be used to estimate the direction of future ratio performance.

 

3.1) Liquidity and Efficiency Ratios

 

Ratio	2015	2016	2017	2018	2019
Working Capital	287567907	324062325	-66520296	- 775488221	-4628557766
Current Ratio	1.126	1.039	0.982	0.872	0.593
Acid Test Ratio	1.071	0.943	0.877	0.750	0.484
Accounts Receivable Turnover	10.437	8.542	9.370	9.010	9.565
Total Assets Turnover	0.663	0.578	0.614	0.592	0.648
Day's Sales in inventory	39.327	30.819	26.171	31.450	26.559
Day's Sales uncollected	51.378	40.929	39.124	40.141	36.957
Merchandise Turnover	14.667	12.978	14.889	16.351	7.906

 

·        Working Capital

 

Working Capital represents current assets financed from long – term capital sources that do not require near – term repayment. Working Capital is the money need to run the day to day business, specially in settling the short-term liabilities.

Tokyo plc for 2015 and 2016 shows positive values. That is a good condition for the company because they have money to settle the short term liabilities and to run the day to day business.

In 2018, 2019 and 2020 they show negative figures. Which is not a good sign for the company. Also the amount also increases in each year in minus figures. This is very dangerous for the company since they haven’t enough money to settle their liabilities.

 

 

 

 

 

·        Current Ratio and Acid Test Ratio

 

The current ratio is a liquidity ratio that measures whether a firm has enough resources to

meet its short-term obligations. It compares a firm's current assets to its current liabilities.

A good current ratio is between 1.2 to 2, which means that the business has 2 times more current assets than liabilities to covers its debts.

In Tokyo cement plc 2015 and 2016 they have ratio more than 1, which is some what a good indication. But in 2017, 2018, and 2019 it shows current ratio below 1, which means that the company doesn’t have enough liquid assets to cover its short term liabilities; Which is not good for the company itself.

 

The quick ratio or acid test ratio is a liquidity ratio that measures the ability of a company to pay its current liabilities when they come due with only quick assets. Quick assets are current assets that can be converted to cash within 90 days or in the short-term.

A result of 1 is considered to be the normal quick ratio. It indicates that the company is fully equipped with enough assets to be instantly liquidated to pay off its current liabilities. Except 2015, all the following years 2016, 2017, 2018 and 2019 show ratio value below than 1.

Also, the ratio values keep decreasing each year which is not good for the company.

 

 

·        Accounts Receivable Turnover and Merchandise Turnover

 

Receivable Turnover Ratio or Debtor's Turnover Ratio is an accounting measure used to

measure how effective a company is in extending credit as well as collecting debts. The

receivables turnover ratio is an activity ratio, measuring how efficiently a firm uses its assets.

High receivable turn over ratio can indicate that a company’s collection of accounts receivable is efficient. Here is shows value near to 10; which is a very good condition for the company because they are collecting account receivable from their customers nearly 10 times compared to their total sales.

 

Merchandise turnover indicates how many times a company sells and replaces its stock of

goods during a particular period. The formula for merchandise turnover ratio is the cost of goods sold divided by the average inventory for the same period. A good inventory turn over is nearly 10 to 12, which indicates that the company sell and restock the inventory every 1 to 2 months. Here the values are nearly to 14. That is a good indication for the company.

 

 

 

 

 

·        Days’ Sales Uncollected and Days’ Sales in Inventory

 

Days' sales uncollected is a liquidity ratio that is used to estimate the number of days before receivables will be collected. The days sales of inventory (DSI) is a financial ratio that indicates the average time in days that a company takes to turn its inventory, including goods that are a work in progress, into sales.

 

Both Days’sales uncollected and Days’sales in inventory is around 30 times. That implies that 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

 

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

 

All the five years are having a figure less than 1 as the Total Assets Turnover. That implies that the average total assets are higher than the revenue. This is not a much-preferred condition for a company. It is better if the company can have a figure more than 1. For that company needs to take necessary actions.

 

 

3.2) Solvency Ratios

Ratio	2015	2016	2017	2018	2019
Debt ratio	0.5387	0.5066	0.4806	0.4717	0.5526
Equity ratio	1.1027	1.0269	1.0076	0.8930	1.2353

 

·        Debt Ratio

 

Debt Ratio is a financial ratio that indicates the percentage of a company's assets that are provided via debt. It is the ratio of total debt and total assets.

In general, many investors look for a company to have a debt ratio between 0.3 – 0.6. from a pure risk perspective, debt ratios of 0.4 or lower considered better, while a debt ratio of 0.6 or higher makes it more difficult to borrow money from investors. Here the company’s some what near to 4; which is a good indication.

 

·        Equity Ratio

 

The equity ratio is a financial ratio indicating the relative proportion of equity used to finance a company's assets.

 

Here the company’s Equity Ratio is above 100% in all other four years except 2018. It is also a bad condition because it implies that higher portion of company’s assets have been contributed by the owners. It gives a bad situation because when this ratio is high the company has to pay a higher number of dividends to the shareholders.

    

3.3) Profitability Ratios

 

Ratio	2015	2016	2017	2018	2019
Profit margin	4.897%	15.661%	14.322%	24.836%	-4.679%
Gross profit margin	20.371%	19.912%	20.472%	15.551%	14.413%
Return on Total Assets	27.044%	17.330%	16.657%	18.320%	-3.494%
Return on Common Shareholder's Equity	9.982%	33.441%	31.997%	34.681%	-7.810%

 

·        Profit Margin

 

The net profit margin is equal to how much net income or profit is generated as a percentage of revenue. Net profit margin is the ratio of net profits to revenues for a company or business segment.

 Net profit margin is typically expressed as a percentage but can also be represented in decimal form. The net profit margin illustrates how much of each dollar in revenue collected by a company translates into profit.

Profit Margin shows an upward trend from 2015 to 2018. It is a good situation for the

company which depicts that the company can make a reasonable profit on sales, as long as it is possible to control the overhead costs.

And in 2019 it shows a negative figure which means company undergone a loss. Here the cost of production exceeds the sales. So company need to take actions which mitigate and control the costs.

 

 

 

 

 

·        Gross Profit Margin

 

Gross profit margin is a metric used to assess a company's financial health and business model by revealing the amount of money left over from sales after deducting the cost of goods sold. The gross profit margin is often expressed as a percentage of sales and may be called the gross margin ratio.

 

Here Tokyo plc shows figures around 14% for all the years, which is a good indication. 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

 

This ratio is considered to be an indicator of how effectively a company is using its assets to generate earnings.

In all four years except 2019 this ratio takes a figure around 20%. It is a very good condition for the company because the company is able to generate more income out of fewer assets.

In 2019, company made a financial loss that leads the ratio to become negative. This indicates that the company can’t use its assets effectively to generate income.

 

 

·        Return on Common Shareholder Equity

 

This ratio indicates the proportion of the net income that a firm generates by each dollar of common equity invested.

In 1^st four years from 2015 to 2018; this ratio shows a positive value and in 2016. 2017 and 2018 it shows around 30%; It is a very good condition for the company because the company is able to make profit out of investors’ money.

Here in 2019, the company makes a loss, hence no net income, negative ROE value. If net come is negative, cash flow can be used in such conditions to get better idea about the financial situation of the company.

 

 

 

 

3.4) Market Ratios

	2015	2016	2017	2018	2019
P/E ratio	18.015	15.825	14.095	11.588	10.5

 

·        Price Earnings Ratio

 

The price-earnings ratio, also known as P/E ratio, P/E, or PER, is the ratio of a company's share price to the company's earnings per share. The ratio is used for valuing companies and to find out whether they are overvalued or undervalued.

This table depicts a downward trend along the five years. It is a good condition for the

company because it implies that investors need to spend few in order to get more as the

return.

 

 

Conclusion

By analyzing the annual reports, we can see that Tokyo Cement Plc has shown a growth during 2015 to 2018. In 2019 it has been gone through a loss. Almost all the ratios have the same behavioral pattern along the five years.

Tokyo cement plc is having a high debt and equity ratios. It can adversely affect the company. This study concludes that Tokyo cement plc should give special attention on company’s existing credit policy and as well as market strategies to develop the profit of the company. The company should give special attention on their business strategies and making policies to increase the profit of the company.

As per the liquidity and efficiency ratios Tokyo cement plc is currently having a good condition as a company. To continue this the company should give special attention on their business strategies and making policies to increase these figures of the company.