CIC HOLDINGS PLC Financial statement analysis

 

1.0 EXECUTIVE SUMMARY

 

This report is showing connection between five year  term financial summaries of CIC Holdings PLC. This project is an effort to practically exploit the analytical techniques Ratio analysis, Horizontal analysis, Vertical analysis, Profitability Ratios, Long Term Solvency Ratio.

This undertaking will assist with understanding the peruser of the task about the monetary parts of the organization in regards to Profitability of the organization, market worth, venture pattern, profit installment arrangements, resources and liabilities usage, devaluation system, assets and liabilities management, product sale & cost plan, management policies and other accounting procedures of the said company.

The main purpose of this project is to compare the financial statements of the said company within five years and to reach conclusions about their financial strength and relative stability. Due to ratio analysis every company can make future planning.

After study of this project every investor and shareholder can judge financial position of the company. All financial ratios present correct financial position of the company.

 

 CIC Holdings PLC

 

2.0 INTRODUCTION

 

This report provides a comparative analysis of financial performances over five years of one selected company, namely CIC Holdings PLC.

Business organizations can use various analytical techniques such as horizontal analysis, vertical analysis, trend analysis, common size analysis, ratio analysis and cash flow analysis to figure out financial strengths and weaknesses. Similarly, this financial information can be compared with past years budgeted / standard or benchmarked values, intra company (divisional) and inter company (industry) and with Competitor Company to get a relative understanding.
This assignment task intends to carry out horizontal, vertical, trend analysis and Intra Company (Industry) analysis. This comparison enables financial users to make their decisions and ratio analysis provides the items of the financial statements as comparative figures as ratios. Mainly this assignment has used Liquidity and Efficiency ratios, Profitability ratios and Solvency ratios, Market ratios with a relative analysis CIC Holdings PLC over past five-year time period.

 

ADVANTAGES OF ANALYSING FINANCIAL STATEMENT

Budget report examination is a helpful instrument that has numerous benefits to inner clients and External clients to settle on better choices.

It provides investors with information about deciding to invest their funds in an organization.

Governments and regulatory authorities will be provided with an insight into whether the organization meets the accounting principles.

Government agencies can analyze what the organization’s tax liabilities are.

 

 

 

 

 

 

 

 

 

 

2.1 OVERVIEW OF THE COMPANY

This comparative analysis has been presented upon the five year financial performances of CIC Holdings PLC. The last phase of the CIC Re- Strategizing Initiative which the Board had previously embarked upon and which was aimed at accelerating the CIC Group’s migration towards becoming a world- class organization, was implemented during the course of this year, with its positive impact already reflecting in the Group’s performance during the course of this year.

CIC is the only company in Sri Lanka that manages the entire supply chain from seed to shelf connecting rural farmers to urban consumers and facilitating the socio economic progress of rural communities with the guarantee of CIC quality.

 

CIC Agribusiness manages over 10,000 acres of farmland and work with over 20,000 rural farmers in producing a wide range of Agri Produce including Healthy Rice, Fruits, Vegetables, Seeds and grains and Dairy products which caters to the country’s food security, nutrition and import substitution initiatives. CIC uses internationally-accepted food safety standards and good agricultural practices, that create produce that contains the wholesome goodness and nutritional value required for nourishment. We also make substantial investments in our research and development facilities which include rice breeding, soil labs, seed labs, food labs and tissue culture labs and work with reputed overseas principals for developing modern technologies comprising high yielding and pest resistant crop varieties into the country.

In addition, its own crop and livestock farms act as technology transfer centers to the farming community of Sri Lanka introducing new agricultural technologies.

 

 

 

3.0 HORIZONTAL ANALYSIS

 

Horizontal analysis is a financial statement analysis technique that shows changes in the amounts of corresponding financial statement items over a period of time. It is a useful tool to evaluate the trend situations.

The statement for two or more periods are used in horizontal analysis. The earliest period is usually used as the base period and the items on the statements for all later periods are compared with items on the statements of the base period.

Horizontal analysis allows investors and analysts to see what has been driving a company’s financial performance over a number of years, as well as spotting trends and growth patterns such as seasonality. By looking at the income statement, balance sheet and cash flow statement at the same time, one can create a complete picture of operational results and see what has been driving a company’s performance and whether it is operating efficiency and profitability.

Compare a company’s financial condition and performance across time

• Dollar change = Analysis period amount – Base period amount

• Percent change = (Dollar change/ Base period amount) *100

 

	Percentage Change
	2015		2016		2017		2018		2019
Assets
Non-current Assets
Intangible assets	0.00	17.45		30.23		52.95		61.34
Financial assets	0.00	-15.38		-5.87		-5.59		-10.21
Property, plant and equipment	0.00	5.60		11.47		-0.58		-1.19
Deferred tax assets	0.00	-7.85		5.29		-15.63		-13.14
Goodwill	0.00	10.73		20.37		15.29		18.43
Pension asset for funded schemes in surplus	0.00	148.40		84.57		477.93		359.57
Other non-current assets	0.00	17.35		9.28		-15.22		-1.37
Total Non-current Assets	0.00	11.02		19.24		21.36		23.25
Current Assets
Inventories	0.00	4.01		2.64		-4.94		3.19
Trade and other current receivables	0.00	-4.47		1.45		3.84		28.95
Current tax assets	0.00	-18.15		12.81		73.67		67.97
Cash and cash equivalents	0.00	7.02		57.23		54.21		50.16
Other financial assets	0.00	24.59		-10.73		14.75		30.25
Assets held for sale	0.00	280.85		338.3		6759.57		153.19
Total Current Assets	0.00	2.75		12.45		37.55		24.42
Total Assets	0.00	8.89		17.49		25.52		23.55
Current liabilities
Financial liabilities	0.00	-13.49		-1.55		43.93		-41.56
Trade payables and other current liabilities	0.00	9.38		10.03		6.5		14.68
Current tax liabilities	0.00	4.26		-21.92		0.65		33.67
Provisions	0.00	-26.08		-6.7		25.6		49.28
Liabilities held for sale	0.00	500.00		0		16900		1000
Total current liabilities	0.00	1.92		4.65		18		0.61
Non-current liabilities
Financial liabilities	0.00	37.13		55.09		129.08		201.28
Non-current tax liabilities	0.00	-24.84		-25.47		-26.71		8.07
Pensions and post-retirement healthcare liabilities	0.00	-17.56		-2.03		-30.73		-34.08
Provisions	0.00	-9.28		12.77		-13.32		-23.91
Deferred tax liabilities	0.00	13.69		34.35		24.71		25.36
Other non-current liabilities	0.00	3.97		76.46		85.19		-8.47
Total non-current Liabilities	0.00	14.69		33.78		60.89		93.97
Total Liabilities	0.00	7.26		16.84		35.94		39.65
Equity
Shareholder’s equity
Called up share capital	0.00	0.00		0		0		-4.13
Share premium account	0.00	4.83		-7.59		-10.34		-11.03
Other reserves	0.00	3.69		-1.26		80.86		102.79
Retained profit	0.00	10.01		12.74		29.61		27.75
	0.00	13.10		19.8		-0.16		-15.23
Non-controlling interests	0.00	5.07		2.29		23.86		17.65
Total Equity	0.00	12.75		19.05		0.87		-13.82
Total Equity & Liabilities	0.00	8.89		17.49		25.52		23.77

 

 

 

 

 

 

4.0 VERTICAL ANALYSIS

 

Vertical Analysis indicate the relationship of different items of a financial statement with a common item by expressing each item as a percentage of that common item. The percentage thus calculated can be easily compared with the results of corresponding percentages of the previous year or of some other firms, as the numbers are brought to common base. Such statements also allow an analyst to compare the operating and financing characteristics of two companies of different sizes in the same industry. Thus, vertical analysis is useful, both, in intra-firm comparisons over different years and also in making inter-firm comparisons for the same year or for several years. This analysis is also known as “Common Size Statements”.

	Percentage change
	2015	2016	2017	2018	2019
Assets
Non-current Assets
Intangible assets	15.68	16.91	17.38	19.11	20.48
Financial assets	1.49	1.16	1.19	1.12	1.08
Property, plant and equipment	21.80	21.14	20.69	17.27	17.44
Deferred tax assets	2.68	2.27	2.40	1.80	1.88
Goodwill	30.49	31.00	31.23	28.00	29.22
Pension asset for funded schemes in surplus	0.78	1.79	1.23	3.60	2.91
Other non-current assets	1.37	1.47	1.27	0.92	1.09
Total Non-current Assets	74.29	75.74	75.40	71.83	74.11
Current Assets
Inventories	8.68	8.29	7.58	6.57	7.25
Trade and other current receivables	10.47	9.19	9.04	8.66	10.93
Current tax assets	0.59	0.44	0.56	0.81	0.80
Cash and cash equivalents	4.48	4.40	5.99	5.50	5.44
Other financial assets	1.40	1.60	1.06	1.28	1.47
Assets held for sale	0.10	0.34	0.37	5.35	0.20
Total Current Assets	25.71	24.26	24.60	28.17	25.89
Total Assets	100.00	100.00	100.00	100.00	100.00
Current liabilities
Financial liabilities	11.53	9.16	9.66	13.22	5.44
Trade payables and other current liabilities	26.25	26.36	24.58	22.27	24.32
Current tax liabilities	2.25	2.15	1.50	1.80	2.43
Provisions	0.87	0.59	0.69	0.87	1.05
Liabilities held for sale	0.00	0.01	0.00	0.28	0.02
Total current liabilities	40.90	38.28	36.43	38.45	33.24
Non-current liabilities
Financial liabilities	14.96	18.84	19.75	27.31	36.42
Non-current tax liabilities	0.34	0.23	0.21	0.20	0.29
Pensions and post-retirement healthcare liabilities	8.22	6.22	6.85	4.54	4.38
Provisions	1.91	1.59	1.83	1.32	1.17
Deferred tax liabilities	3.19	3.33	3.65	3.17	3.23
Other non-current liabilities	0.79	0.75	1.18	1.16	0.58
Total non-current Liabilities	29.40	30.97	33.48	37.69	46.08
Total Liabilities	70.30	69.25	69.91	76.14	79.32
Equity
Shareholder’s equity
Called up share capital	1.01	0.93	0.86	0.80	0.78
Share premium account	0.30	0.29	0.24	0.22	0.22
Other reserves	-15.70	-14.95	-13.19	-22.61	-25.71
Retained profit	42.81	43.25	41.08	44.20	44.18
	28.42	29.52	28.98	22.61	19.47
Non-controlling interests	1.27	1.23	1.11	1.26	1.21
Total Equity	29.70	30.75	30.09	23.86	20.68
Total Equity & Liabilities	100.00	100.00	100.00	100.00	100.00

 

The company is having a very small proportion of inventory like less than 10% over these 5 years. This is a good condition as they do not need to spend much on inventory management. Not only that, it implies that goods are being sold fast.

 The total of Equity is around 30% of total of equity and liabilities throughout these 5 years. Liabilities represent around 70%. This is not a good condition for the company. It shows that they have paid much as dividends and invested less on business growth.

 

Vertical Analysis of Income statement

	2015	2016	2017	2018	2019
Turn over	100	100	100	100	100
Cost of sales	58.6072	57.8315	57.3464	56.8687	56.4297
Gross profit	41.39277	42.16849	42.65361	43.13134	43.57028
Other income(+)	0.092906	0.170821	0.197295	0.03351	0.043152
Operating expenses(-)	24.9174	28.0616	27.8546	26.6425	18.9832
Net finance costs(-)	0.9848	0.92544	1.06805	1.63269	0.94347
Operating income (income bfr taxes)	15.58345	13.35223	13.92825	14.8897	23.68679
Tax	4.39962	3.68111	3.64616	3.57814	5.0508
Net income	11.18383	9.671122	10.28209	11.31155	18.63599

 

The company is having noncurrent assets over 70% of the total assets through the past 5 years. Even if their sales come down, still they have these assets to build their business back.

The company is having a very small proportion of inventory like less than 10% over these 5 years. This is a good condition as they do not need to spend much on inventory management. Not only that, it implies that goods are being sold fast.

 The total of Equity is around 30% of total of equity and liabilities throughout these 5 years. Liabilities represent around 70%. This is not a good condition for the company. It shows that they have paid much as dividends and invested less on business growth.

 

 

5.0 RATIO ANALYSIS OF CIC Holdings PLC FROM 2015 TO 2019

 

5.1 LIQUIDITY AND EFFICIENCY

Liquidity ratios m201easure a company’s ability to meet its maturing short-term obligations. In other words, can a company quickly convert its assets to cash without a loss in value if necessary to meet its short-term obligations? Favorable liquidity ratios are critical to a company and its creditors within a business or industry that does not provide a steady and predictable cash flow. They are also a key predictor of a company’s ability to make timely payments to creditors and to continue to meet obligations to lenders when faced with an unforeseen event.

 

	2015	2016	2017	2018	2019
1. Current ratio current assets/ current liabilities	0.42	1.27	0.51	0.60	0.28
2. Acid test ratio quick assets/ current liabilities	0.42	1.27	0.51	0.60	0.03
3. Accounts receivable turnover Revenue/Average accounts receivable	16.0 times	18.1 times	22.5 times	25.3 times	26.8 times
4. Merchandise turnover cost of goods sold/ average inventory	144.8 times	113.4 times	103.3 times	142.0 times	193.3 times
5. Day's sales uncollected (days) accounts receivable*365/ Revenue	16.0	19.6	14.1	15.1	15.5
6. Day's sales in inventory (days) ending inventory/cost of sales*365	2.3 days	4.1 days	3.1 days	2.4 days	1.8 days
7. Total assets turnover revenue/average total assets	0.01	0.02	0.02	0.02	0.01

 

 

 

 

 

 

In 2016 the CIC’s current assets was the highest which was 1.27. We can see from graph the current ratio is fluctuated over the year. At 2019 current ratio was lowest.

The current ratios and Acid test ratios are same in 2015 to 2018, because less amount of inventories. But in 2019 there is considerable difference between acid test ratio and current ratio because in 2019 most of the current asset of CIC PLC is inventory. This can create cash flow problem.

 

5.1.1 CURRENT RATIO

This ratio reflects the number of times short-term assets cover short-term liabilities and is a fairly accurate indication of a company's ability to service its current obligations. A higher number is preferred because it indicates a strong ability to service short-term obligations. The composition of current assets is a key factor in the evaluation of this ratio.

Depending on the type of business or industry, current assets may include slow-moving inventories that could potentially affect analysis of a company's liquidity how long could it potentially take to convert raw materials and inventory into finished products? (For this reason, the acid test ratio may be preferable to the current ratio because it eliminates inventory and prepaid expenses from this ratio for a more accurate gauge of a company's liquidity and ability to meet short-term obligations.)

 

5.1.2 ACID-TEST RATIO

This ratio, also known as the quick ratio, measures immediate liquidity - the number of times cash, accounts receivable, and marketable securities cover short-term obligations. A higher number is preferred because it suggests a company has a strong ability to service short-term obligations. This ratio is a more reliable variation of the Current ratio because inventory, prepaid expenses, and other less liquid current assets are removed from the calculation.

According to the table which depicts that the rate which company converts its receivables into cash is preferred. Because it shows continuous increase during past five years.

It seen that the company’s merchandise turnover changes frequently

5.1.3 ACCOUNT RECIEVABLE TURNOVER

This ratio measures the number of times receivables turn over in a year and reveals how successful a company is in collecting its outstanding receivables. A higher number is preferred because it indicates a shorter time between sales and cash collection.

 

5.1.4 MERCHANDISE TURNOVER

This ratio measures the number of times merchandise is sold and replaced during the year. A higher number is preferred because it indicates a shorter time between merchandise sold and replaced during the year.

Day’s sales uncollected period is pretty much stable at 2016

 

5.1.5 DAY’S SALES UNCOLLECTED

This ratio indicates that the average how many days it takes to collect an accounts receivable or number of times debtors will pay money. If the days are high this indicates that there is poor credit control by the management of the company.

 

5.1.6 DAY’S SALES IN INVENTORY

This ratio measures the average number of days a company's receivables are outstanding. A lower number of days is desired. An increase in the number of days’ receivables are outstanding indicates an increased possibility of late payment by customers. Companies should attempt to reduce the number of days’ sales in Inventory in order to increase cash flow. The general rule used is that the time allowed for payment by the selling terms should not be exceeded by more than 10 or 15 days.

 

5.1.7 TOTAL ASSETS TURNOVER

This ratio measures the firm’s ability to generate sales from its assets. This includes all assets company has and if higher this value is the more efficiently the company is producing sales.

 

 

5.2 SOLVENCY RATIOS

Solvency ratios measure an organization’s ability to meet their long-term interest expenses and repayment obligations.

 

5.2.1 DEBT RATIO

This ratio measures what proportion of debt a company is carrying relative to its assets. A ratio value greater than one indicates a company has more debt than assets. Naturally, companies and creditors prefer a lower number.

 

5.2.2 TIMES INTEREST EARNED

This is the most common measure of the ability of a firm’s operations to provide protection to the long term creditors. A higher number is preferred.

	2015	2016	2017	2018	2019
1.Debt Ratio total liabilities/ total assets	47.2%	42.2%	40.2%	33.8%	53.1%
2. Equity ratio total shareholder's equity/ total assets	52.8%	57.8%	59.8%	66.2%	46.9%
3. time interest earned profit before tax+ finance expenses/ interest expenses	0.4	0.1	1.3	1.2	0.9

 

 

 

 

 

5.3 PROFITABILITY

Profitability ratios measure a company’s ability to use its capital or assets to generate profits. Improving profitability is a constant challenge for all companies and their management. Evaluating profitability ratios is a key component in determining the success of a company.

 

5.3.1 PROFIT MARGIN

This ratio measures how much profit a company makes on each sales dollar received and how well a company could potentially deal with higher costs or lower sales in the future.

 

5.3.2 GROSS MARGIN

This ratio measures the gross profit earned on sales and reports how much of each sales dollar is available to cover operating expenses and contribute to profits.

 

5.3.3 RETURN ON TOTAL ASSETS

This ratio measures how effectively a company's assets are being used to generate profits. It is one of the most important ratios when evaluating the success of a business. A higher number reflects a well-managed company with a healthy return on assets. Heavily depreciated assets, a large number of intangible assets, or any unusual income or expenses can easily distort this calculation.

 

5.3.4 RETURN ON COMMON SHAREHOLDERS EQUITY

This ratio expresses the rate of return on equity capital employed and measures the ability of a company's management to realize an adequate return on the capital invested by the owners in a company. A higher number is preferred for this commonly analyzed ratio.

5.3.5 BOOK VALUE FOR COMMON SHARE

This ratio measures liquidation at reported amount.

5.3.6 BASIC EARNINGS PER SHARE

This measures indicates how much income was earned for each share of common stock outstanding.

 

 

 

 

 

	2015	2016	2017	2018	2019
1. profit margin net income / net sales	235.2%	264.8%	262.9%	277.4%	384.9%
2. Gross margin net sales- cost of sales/ net sales	26.2%	42.3%	48.7%	44.8%	40.0%
3. return on total assets net income/ average total assets	3.4%	4.5%	9.5%	4.3%	4.5%
4. Return on common shareholder's equity net income/ Average Common shareholder's equity	6.5%	8.0%	8.1%	6.7%	8.2%
5. Book value per common share Total equity/ no of shares issued	5.3	6.7	7.0	10.8	11.7
6. Basic earnings per share Net profit after tax/ No of shares issued	0.34	0.48	0.55	0.60	0.93

 

 

5.4 MARKET

5.4.1 PRICE EARNINGS RATIO

This measure is often used by investors as a general guideline in gauging stock values. Generally, the higher the price-earnings ratio, the more opportunity a company has for growth.

5.4.2 DIVIDEND YIELD

This ratio identifies the return, in terms of cash dividends on the current market price of the stock.

 

	2015	2016	2017	2018	2019
Price -Earnings Ratio	838.24	625.00	446.73	441.67	215.81
Dividend yield	1.8%	2.0%	2.6%	2.8%	2.5%

 

 

TREND ANALYSIS

Income Statement

	2015	2016	2017	2018	2019
turnover	100%	109.98%	108.83%	110.90%	105.26%
Profit before tax	100%	94.24%	97.27%	105.96%	159.99%
Taxation	100%	92.02%	90.19%	90.19%	120.84%
Profit after tax	100%	93.75%	95.71%	102.49%	151.37%

 

Balance Sheet

	2015	2016	2017	2018	2019
Stated Capital	100%	100%	100%	100%	100%
Capital reserves	100%	100%	100%	100%	100%
Revenue reserves	100%	120%	112%	436%	125%
Shareholders' Equity	100%	103%	105%	155%	108%
Non-current assets	100%	111.02%	119.24%	121.36%	123.25%
Current assets	100%	102.75%	112.45%	137.55%	124.42%
Current liabilities	100%	101.92%	104.65%	118.00%	100.61%
Non-current liabilities	100%	114.69%	133.78%	160.89%	193.97%
Provisions	-	-	-	-	-
Capital employed	100%	123%	105.56	150.65%	102%

 

 

Trend Analysis of the Income statement

The trend analysis is analyzing series of account data over the period of time, baselining 100 as a selected year. This method is useful to graph the changes in absolute cost and values shown in financial statement. In this study, revenue, cost of sales and gross profit of the CIC was analyzed using trend analysis which was used company’s financial statements of last five years such as  2015, 2016, 2017, 2018,2019 as got 2015 the baselining for 100%.

Item	2015	2016	2017	2018	2019
Revenue	228494000	284949000	330083000	338222000	379173000
Cost of sales	168537000	164457000	169221000	186551000	218789000
Gross profit	59957000	120492000	160862000	151671000	160384000

 

Item	2015	2016	2017	2018	2019
Revenue	100%	125%	116%	102%	112%
Cost of sales	100%	98%	103%	110%	117%
Gross profit	100%	201%	134%	94%	106%

Trend analysis of CIC PLC Revenue, Cost of sales and Gross profit (2015-2019)

 

7.0 CONCLUSION

 

CIC Holdings PLC has come up with a fluctuating current ratio in the last five years. So the company should improve and maintain its current ratio so that it can meet the short term obligations smoothly.

The firms do not maintain a stable liquidity position over the last five years. So maintaining proper liquidity funds like cash and bank balance is suggested.

The firm should enhance employee’s efficiency, more training to its employees in order to increase their production capacity and minimize mistakes while doing tasks.

The firms should have a check in the manufacturing process to provide better products.

This study can be concluded that the company should give special attention on company’s existing credit policy and as well as market strategies to develop the profit of the company.