Analysis of Financial Reports LANKA TILES PLC 2017-2021

 

01.Introduction

 Financial statements are the collection of formed records about organization’s financial situation and cash flows.  They are considered as one of the more essential components of business information and as the principal method of communicating financial information of firm to desired parties. Basically, financial statements provide a summation of the financial position of an entity at a given point in time.

There are four main financial statements. Including;

1.      Balance sheet-It shows company’s assets, liabilities, and stockholders' equity as of the reporting date.

2.      Income statements-This statement communicates how much revenue and income the company generated during a specific period including expenses, losses.

3.      Cash flow statement-The cash flow statement presents firm's cash receipts and cash payments relating to its operating, investing, and financing activities during a specific period.

4.      Statement of Shareholders’ equity- this reports the changes in the value of shareholders’ equity or ownership interest in a company from the beginning of an accounting period to end.

These all-financial statements are prepared on the basis that all transaction can be expressed in monetary value. In addition to that these statements should be formed according to generally accepted accounting principles (GAAP).

            The main purpose of this report is to conduct a comparative analysis of financial performance of a Colombo Stock Market listed company over five consecutive years. According to that purpose five annual reports (2017-2021) of Lanka Tiles PLC were analysed using financial statement analysis techniques; Horizontal Analysis, Trend Analysis, Vertical Analysis, Ratio Analysis as well Altman Z-Score method. This Intra-company comparison can provide financial accounting information and Management account information to not only organizational decision makers and also external related parties such as shareholders.

 

Aims of analysing Financial Statements

·         To provide idea about better future direction of business

·         To determine the ability of a business organization to generate cash, cash sources and effective utilization of cash.

·         To find out whether a business has a capability to pay back their debts

·         To help investment community to take their decisions about their investments.

·         To determine financial results on trend lines and avoid future profitability issues.

·         To compare financial situation of company with competitors

 02.Company Profile

Lanka Tiles PLC

Lanka Tiles PLC is the largest tile manufacture in Sri Lanka as well market leader for diverse glazed ceramic and porcelain floor and wall tiles since 1984. Lanka Tiles PLC became a listed company in 1986. They manufacture a wide range of tiles in a variety of Style, Texture and size using quality raw materials in Sri Lanka. In 2021, they are fully responsible for LKR 14,248 Mn. Assets, LKR 2,769 Mn. market capitalization and LKR 774 Mn government taxes. There supply chain is equipped with massive tile manufacturing factory in Ranala, 4 large warehouses,2 own and 47 franchise showrooms ,15 factory outlets and 31 distributors around the island. Lanka Tiles PLC has a total work force of 702 permanent employees. Currently their product quality and Organizational management effectiveness is certified through SLS ISO 14001:2015, SLS ISO 9001:2015, CE Mark certification, OHSAS 18001:2007 and SLS 1181:2003 certifications.

When March of 2021, 265,252,050 Ordinary shares of Lanka Tiles PLC were held among 3327 shareholders. Currently, as a major shareholder 68% of total shares belongs to Lanka Wallties PLC. They export 2% of their total output to more that 20 international destinations including New York, Sydney, Montreal, Singapore and Wellington.

Lanka Tiles PLC group structure consists with

·         LTL Development Ltd

·         Lanka Tiles (Pvt) Ltd-India

·         Swisstek Aluminium Ltd

·         Swisstek Development Ltd

·         Beyond Paradise Collections Ltd

 In addition to performing business activities conforming to environmental standards they annually involve in CSR projects associate with,

·         Donations to more than 149 island wide pre-schools

·         Ragama Hospital Renovation project

·         Donations for Sri Lankan Educational sector

 

 

 

 

03.Financial Statement Analysis

Financial statement analysis is the evaluation of both the relationships among financial statement figures and the trends in those numbers over time. The main objective of this financial statement analysis is to use past performance data of company to predict how will be in the future. Both company internal parties and external parties conduct financial statement analysis with different purposes. In the company relevant managers use this analysis to take operating, investing, and financing decisions. Meanwhile investors and creditors analyse financial statements to decide whether to invest money, or loan money to the company.

Fundamental financial analysis of company mostly starts with the information found in a company’s financial reports. Because, financial reports contain almost all the information needed to perform reasonable financial analysis. Then considering the statement data that contains in annual reports, financial analysing techniques can be utilized for better financial analysis.  

These techniques include;

·         Horizontal Analysis

·         Vertical Analysis

·         Ratio Analysis

 

 

3.1. HORIZONTAL ANALYSIS

Horizontal analysis is a financial statement analysis technique that use to identify changes in the figures of corresponding financial statement items over a period of time. Then it guides to identify if there are unusual growth or decline in financial figures with comparison to a base year. It is a useful tool to evaluate the trend situations.

Here, the previous year of annual report is usually used as the base year and the figures related to financial element for current periods are compared with figures of same financial element on the base year. The changes are generally shown both in Dollars and percentage.

Horizontal analysis allows investors and analysts to see what happens to values in statement of financial position and/or income statement over the period in review. However, to complete this analysis all needed financial values should be available over the period of review.

 

Dollar change = (Analysis period amount - Based period Amount)

Percentage change = (Dollar change/Based period amount) *100

 Horizontal Analysis of Statement of Financial Position -Lanka Tiles PLC

Base Year-2017

	2018(Rs.'000)	2017(Rs.'000)	Dollar change 2018	% Change in 2018
Assets
Non-Current Assets
Plant, Property and Equipment	3,855,576	3,608,790	246,786	6.84
investment in subsidiaries	6,242	-	-	-
investment in associates	933,633	881,052	52,581	5.97
Intangible Assets	10,898	20,422	-9,524	-46.64
Total Non-current	4,806,349	4,510,264	296,085	6.56
Current Assets
Inventories	1,945,726	1,434,412	511,314	35.65
Trade and other receivables	1,514,996	1,187,787	327,209	27.55
Cash and cash equivalents	433,975	1,227,119	-793,144	-64.63
	3,894,697	3,849,318	45,379	1.18
Total Assets	8,701,046	8,359,582	341,464	4.08
Equity
stated capital	900,968	900,968	0	0.00
Reserves	1,190,666	1,299,007	-108,341	-8.34
Retained earnings	4,778,698	4,394,551	384,147	8.74
Shareholders' funds	6,870,332	6,594,526	275,806	4.18
Total Equity	6,870,332	6,594,526	275,806	4.18
Liabilities
Non -current liabilities
Borrowings	7,374	56,224	-48,850	-86.88
Deferred tax liabilities	634,246	443,787	190,459	42.92
Retirement benefit liability	166,370	124,394	41,976	33.74
	807,990	624,405	183,585	29.40
Current liabilities
Trade and other payables	781,972	583,540	198,432	34.00
Current tax liabilities	46,724	68,558	-21,834	-31.85
Borrowings	194,028	488,553	-294,525	-60.29
	1,022,724	1,140,651	-117,927	-10.34
Total liabilities	1,830,714	1,765,056	65,658	3.72
Total equity and liabilities	8,701,046	8,359,582	341,464	4.08

 

Table01-Dollar and Percentage change of statement of financial position -2018

	2019(Rs.'000)	2017(Rs.'000)	Dollar change 2019	% Change in 2019
Assets
Non-Current Assets
Plant, Property and Equipment	5,743,130	3,608,790	2,134,340	59.14
investment in subsidiaries	6,242	-	-	-
investment in associates	923,924	881,052	42,872	4.87
Intangible Assets	-	20,422	-	-
Total Non-current	6,673,296	4,510,264	2,163,032	47.96
Current Assets
Inventories	3,019,769	1,434,412	1,585,357	110.52
Trade and other receivables	1,801,542	1,187,787	613,755	51.67
Cash and cash equivalents	132,717	1,227,119	-1,094,402	-89.18
	5,005,598	3,849,318	1,156,280	30.04
Total Assets	11,678,894	8,359,582	3,319,312	39.71
Equity
stated capital	900,968	900,968	0	0.00
Reserves	1,190,666	1,299,007	-108,341	-8.34
Retained earnings	5,025,691	4,394,551	631,140	14.36
Shareholders' funds	7,117,325	6,594,526	522,799	7.93
			0
Total Equity	7,117,325	6,594,526	522,799	7.93
Liabilities
Non- current liabilities
Borrowings	1,351,169	56,224	1,294,945	2,303.19
Deferred tax liabilities	715,407	443,787	271,620	61.21
Retirement benefit liability	172,514	124,394	48,120	38.68
	2,239,090	624,405	1,614,685	258.60
Current liabilities
Trade and other payables	1,571,590	583,540	988,050	169.32
Current tax liabilities	-	68,558	-	-
Borrowings	750,889	488,553	262,336	53.70
	2,322,479	1,140,651	1,181,828	103.61
Total liabilities	4,561,569	1,765,056	2,796,513	158.44
Total equity and liabilities	11,678,894	8,359,582	3,319,312	39.71

 

Table 02 -Dollar and Percentage change of statement of financial position -2019

 

 

	2020(Rs.'000)	2017(Rs.'000)	Dollar change 2020	% Change in 2020
Assets
Non-Current Assets
Plant, Property and Equipment	5,974,804	3,608,790	2,366,014	65.56
investment in subsidiaries	6,242	-	-
investment in associates	1,005,793	881,052	124,741	14.16
Intangible Assets	12,594	20,422	-7,828	-38.33
Total Non-current	7,105,620	4,510,264	2,595,356	57.54
Current Assets
Inventories	4,780,594	1,434,412	3,346,182	233.28
Trade and other receivables	1,702,492	1,187,787	514,705	43.33
Cash and cash equivalents	64,953	1,227,119	-1,162,166	-94.71
	6,548,039	3,849,318	2,698,721	70.11
Total Assets	13,653,659	8,359,582	5,294,077	63.33
Equity
stated capital	900,968	900,968	0	0.00
Reserves	1,190,666	1,299,007	-108,341	-8.34
Retained earnings	5,606,252	4,394,551	1,211,701	27.57
Shareholders' funds	7,697,886	6,594,526	1,103,360	16.73
Total Equity	7,697,886	6,594,526	1,103,360	16.73
Liabilities
Non-current liabilities
Borrowings	1,216,342	56,224	1,160,118	2063.39
Deferred tax liabilities	776,804	443,787	333,017	75.04
Retirement benefit liability	181,034	124,394	56,640	45.53
	2,228,719	624,405	1,604,314	256.93
Current liabilities
Trade and other payables	1,382,482	583,540	798,942	136.91
Current tax liabilities	2,222	68,558	-66,336	-96.76
Borrowings	2,294,871	488,553	1,806,318	369.73
	3,727,054	1,140,651	2,586,403	226.75
Total liabilities	5,955,773	1,765,056	4,190,717	237.43
Total equity and liabilities	13,653,659	8,359,582	5,294,077	63.33

 

 

Table 03 -Dollar and Percentage change of statement of financial position -2020

                                                  

	2021(Rs.'000)	2017(Rs.'000)	Dollar change 2021	% Change in 2021
Assets
Non-Current Assets
Plant, Property and Equipment	6,373,888	3,608,790	2,765,098	76.62
investment in subsidiaries	6,242	-	-	-
investment in associates	1,283,017	881,052	401,965	45.62
Intangible Assets	11,295	20,422	-9,127	-44.69
Total Non-current	7,738,320	4,510,264	3,228,056	71.57
Current Assets
Inventories	2,322,116	1,434,412	887,704	61.89
Trade and other receivables	1,026,380	1,187,787	-161,407	-13.59
Cash and cash equivalents	2,316,965	1,227,119	1,089,846	88.81
	6,277,304	3,849,318	2,427,986	63.08
Total Assets	14,015,624	8,359,582	5,656,042	67.66
Equity
stated capital	900,968	900,968	0	0.00
Reserves	1,582,523	1,299,007	283,516	21.83
Retained earnings	7,262,288	4,394,551	2,867,737	65.26
Shareholders' funds	9,745,779	6,594,526	3,151,253	47.79
Total Equity	9,745,779	6,594,526	3,151,253	47.79
Liabilities
Non-current liabilities
Borrowings	971,206	56,224	914,982	1627.39
Deferred tax liabilities	740,486	443,787	296,699	66.86
Retirement benefit liability	198,598	124,394	74,204	59.65
	1,910,290	624,405	1,285,885	205.94
Current liabilities
Trade and other payables	1,628,073	583,540	1,044,533	179.00
Current tax liabilities	262,947	68,558	194,389	283.54
Borrowings	321,727	488,553	-166,826	-34.15
	2,359,555	1,140,651	1,218,904	106.86
Total liabilities	4,269,845	1,765,056	2,504,789	141.91
Total equity and liabilities	14,015,624	8,359,582	5,656,042	67.66

Table 04 -Dollar and Percentage change of statement of financial position -2021

 

 

When considering about the Assets, Total Non-current assets has been continuously increased from 2017 to 2021.Its Major portion belongs to ‘Plant, property and equipment’. That means company has invested more year by year to expand their operational capabilities. In addition to that investment in their associate also expanded. Meanwhile their intangible assets continuous decline over the last five years. Among the current assets, Trade and other receivables also continuously arise over studied period. It is a good sign about company tradings.

Major portion of ‘Total Equity and Liabilities’ category has been from equity section. Reserves and retained earnings of the company have seen a continuous growth. In equity, reserves have been dropped 2017-2020.but company could increase it again in 2021.In addition to that retained earnings and Shareholders’ fund has been continually raised. Which means Total equity also increased over last five years.

According to the non-current Liabilities, Long term borrowings has been dropped from 2019 to 2021.Within five-year period, total liabilities of company has been increased by 3.72% compare to the base year.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trend Analysis

Trend analysis is an analysis of the trend of the company by comparing its financial statements to identify the future of company on the basis of results of past performance and it’s an attempt to make the best decisions on the basis of results of the analysis done.

This analysis helps to;

·         Measure financial performance – To measure the financial performance of the organisation over a specific period of time on behalf of make better decisions regarding the future of the company.

·         Enable comparison – Ability to make a comparison between business and its competitor. Then it helps to identify financial strengthen and weakness as well gaps. and implement changes to make company a more viable proposition in the future.

Trend Percent = (Analysis period Amount / Base year Amount) *100%

Trend Analysis of Statement of Financial Position 2017-2021

 

	2017	2018	2019	2020	2021
	%	%	%	%	%
Assets
Non-Current Assets
Plant, Property and Equipment	100	106.84	159.14	165.56	176.62
investment in subsidiaries	100	-	-	-	-
investment in associates	100	105.97	104.87	114.16	145.62
Intangible Assets	100	53.36	-	61.67	55.31
Total Non-current Assets	100	106.56	147.96	157.54	171.57
Current Assets
Inventories	100	135.65	210.52	333.28	161.89
Trade and other receivables	100	127.55	151.67	143.33	86.41
Cash and cash equivalents	100	35.37	10.82	5.29	188.81
Total Current Assets	100	101.18	130.04	170.11	163.08
Total Assets	100	104.08	139.71	163.33	167.66
Equity
stated capital	100	100.00	100.00	100.00	100.00
Reserves	100	91.66	91.66	91.66	121.83
Retained earnings	100	108.74	114.36	127.57	165.26
Shareholders' funds	100	104.18	107.93	116.73	147.79
		-	-	-
Total Equity	100	104.18	107.93	116.73	147.79
Liabilities
Non-Current Liabilities
Borrowings	100	13.12	2403.19	2163.39	1727.39
Deferred tax liabilities	100	142.92	161.21	175.04	166.86
Retirement benefit liability	100	133.74	138.68	145.53	159.65
Total Non-current Liabilities	100	129.40	358.60	356.93	305.94
Current liabilities
Trade and other payables	100	134.00	269.32	236.91	279.00
Current tax liabilities	100	68.15	-	3.24	383.54
Borrowings	100	39.71	153.70	469.73	65.85
Total current liabilities	100	89.66	203.61	326.75	206.86
Total liabilities	100	103.72	258.44	337.43	241.91
Total equity and liabilities	100	104.08	139.71	163.33	167.66

 

Table 05 -Trend percentages of statement of financial position Lanka Tiles PLC  2017-2021

Assets -Trend Analysis

According to this analysis among non-current assets, ‘Plant property and equipment’ and Investment in associates has continuous increment. Among the current assets inventory has been increased from 2017 to 2020 but again inventory level has been declined in 2021.

Trade and other receivables have been increased from 2017 to 2019.then it has been decreased 2020 and 2021. From 2017 to 2020 cash and cash equivalent has been drastically decreased. But it has been suddenly increased in 2021.Therefore as a whole total asset has upward trend.

 

 

 

 

 

 

 

 

 

 

Graph 01. Total Non-current Assets Trend Lanka Tiles PLC 2017-2021

 

 

Graph 02. Total Current Assets Trend Lanka Tiles PLC 2017-2021

 

Equity -Trend Analysis

In equity, both retained earnings and shareholders’ fund has been continuously increased throughout the study period.in addition to that 2021, company Reserves has sudden increment. When consider the total equity, it also has upward trend in study period.

 

 

Graph 03. Total Equity Trend Lanka Tiles PLC 2017-2021

 

 

Liability -Trend Analysis

In considering the deferred tax liabilities and long-term loans, both are increase slightly. Then both have been declined to slightly lower level in 2021.However Trade and other payable liabilities have been increased continuously within 2017 -2021.

Short term debt liabilities have been maximized in 2020 as 470%, after that it has been suddenly dropped to 65.8% in 2021.Then we can state it has haphazard movement over last five years.

 

 

 

 

 

 

 

 

 

 

 

                          Graph 04. Total Non-current liability Trend 2017-2021

 

 

 

 

 

 

 

 

 

 

                            Graph 05. Total Current liability Trend Lanka Tiles PLC 2017-2021

 

                                          

Graph 06. Total Assets, Equity and liability Trend Lanka Tiles PLC 2017-2021

 

Graph 06 shows long term upward trend in both total assets and total equity. According to the graph, total liabilities have been raised in 2020.but it has been slightly declined in 2021.However it also has long term upward trend within study period.

 

Trend Analysis of Income Statement summary

Year	2017	2018	2019	2020	2021
Revenue after tax (%)	100	118.35	135.40	129.33	243.93
Cost of sales (%)	100	131.00	174.90	149.59	275.50
Gross Profit (%)	100	102.73	86.63	104.32	204.93

 

Table 06 -Trend Analysis of Income Statement Lanka Tiles PLC  2017-2021

Trend analysis of basic elements of income statement shows how company revenue, cost of sales and gross profit has been changed over last five years and what kind of trends associate with them.

Among last five years, 2019 reported lowest gross profit but highest gross profit reported in 2021 year. When consider revenue after tax, it has been increased form 143.93% respect to 2017 base year.

 

Graph 07. Trend analysis of Revenue after tax, cost of sales and gross profit of Lanka Tiles PLC (2017-2021)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3.2. VERTICAL ANALYSIS

 

This analysis also known as Common -size financial statement. Vertical analysis is a method of financial statement analysis in which each line item is shown as a percentage of the base figure.

When carry out vertical analysis on the income statement, it shows the top-line sales figure as 100%, and every other item is shown as a percentage of the total sales for that year. Each item in the income statement is divided by the company’s total sales for that year.

In the case of a balance sheet, the total assets of a company will be shown as 100%, while all other items in the assets and liabilities sections are shown as a percentage of the total assets for that year

Through vertical analysis,

·         It helps to evaluate the structural composition of items from the company’s financial statements.

·         Multi-Year analysis provides comparable percentages that can be used for the comparison of financial statements with the previous years. Then its vertical analysis of financial statements is also very useful in analysing key trends over time.

·         vertical analysis can use to compare and contrast the financial statements of one company with their competitors

Vertical Analysis of Balance Sheet-Assets

 

	Common -Size Percentages
	2017	2018	2019	2020	2021
	%	%	%	%	%
Assets
Non-Current Assets
Plant, Property and Equipment	43.17	44.31	49.18	43.76	45.48
investment in subsidiaries	-	0.07	0.05	0.05	0.04
investment in associates	10.54	10.73	7.91	7.37	9.15
Intangible Assets	0.24	0.13	-	0.09	0.08
Total Non-current	53.95	55.24	57.14	52.04	55.21
Current Assets
Inventories	17.16	22.36	25.86	35.01	16.57
Trade and other receivables	14.21	17.41	15.43	12.47	7.32
Cash and cash equivalents	14.68	4.99	1.14	0.48	16.53
Total Current Assets	46.05	44.76	42.86	47.96	44.79
Total Assets	100.00	100.00	100.00	100.00	100.00

 

Table 07. Vertical Analysis of Balance Sheet Total Assets in Lanka Tiles PLC (2017-2021)

When consider about this statement both total non-current and current assets have been remained more or less constant as a percentage of the Total Assets. But 49.18% percentage of total assets belonged to ‘plant, property and equipment’ in 2019.However it has been dropped to 45.48 % in 2021. Investment in associate 2021 has been increased by 1.96% relative to the 2019 year.

Among these five-year period, lowest percentage of inventories with respect to total assets has been reports in 2021.it may be occurred due to higher sales in 2021 year. Minimum percentage composition of ‘Trade and other receivables ‘can be observed in 2021 as 7.32% of total assets. In addition to that highest percentage of ‘Trade and other receivables’ with respected to total assets was recorded in 2021 as 16.57% among studied period.

 

Graphical representations of Common size of Assets (2017-2021 Lanka Tiles PLC)

 

Graph 08. Graphical Representation of Common size of assets in 2017 Lanka Tiles PLC

 

 

 

Graph 09. Graphical representation of Common size of Assets in 2018 Lanka Tile PLC

Graph 10. Graphical representation of Common size of Assets in 2019 Lanka Tile PLC

 

01. Vertical Analysis of Balance Sheet-Equity and Liabilities

	2017	2018	2019	2020	2021
	%	%	%	%	%
Equity
stated capital	10.78	10.35	7.71	6.60	6.43
Reserves	15.54	13.68	10.20	8.72	11.29
Retained earnings	52.57	54.92	43.03	41.06	51.82
Shareholders' funds	78.89	78.96	60.94	56.38	69.54
Total Equity	78.89	78.96	60.94	56.38	69.54
Liabilities
Non-current liabilities
Borrowings	0.67	0.08	11.57	8.91	6.93
Deferred tax liabilities	5.31	7.29	6.13	5.69	5.28
Retirement benefit liability	1.49	1.91	1.48	1.33	1.42
Total Non-current Liabilities	7.47	9.29	19.17	16.32	13.63
Current liabilities
Trade and other payables	6.98	8.99	13.46	10.13	11.62
Current tax liabilities	0.82	0.54	-	0.02	1.88
Borrowings	5.84	2.23	6.43	16.81	2.30
Total current liabilities	13.64	11.75	19.89	27.30	16.84
Total liabilities	21.11	21.04	39.06	43.62	30.46
Total equity and liabilities	100.00	100.00	100.00	100.00	100.00

 

According to the analysis total equity of the company has decreased from 2017 to 2021 by 9.35%. Among this five-year period, highest total equity percentage composition has reported in 2017 as 78.89%. Meanwhile Highest total liabilities have been reported in 2020 as 43.62 from the total equity and liabilities.

Among the non-current liabilities, ‘Deferred tax liabilities ‘have remained more or less constant as a percentage of total equity and liabilities.

 

 

 

 

 

 

 

 

02. Vertical Analysis of Income Statement

 

	Common size Percent (%)
	2017	2018	2019	2020	2021
Revenue from contract with customers	100.00	100.00	100.00	100.00	100.00
Cost of sales of goods	55.26	61.17	71.38	63.91	62.41
Gross profit	44.74	38.83	28.62	36.09	37.59
Distribution cost	13.65	14.61	14.81	15.30	11.58
Administrative expenses	7.37	6.60	5.76	5.81	3.89
Other income	0.51	0.32	0.36	0.40	0.34
other gains/(losses) - net	0.13	0.00	0.09	0.00	-
Operating profit	24.10	17.94	8.27	15.32	21.99
Finance income	2.91	1.80	0.11	0.00	0.13
Finance cost	0.61	0.36	0.31	5.00	1.77
Finance income-net	2.30	1.45	0.20	4.99	1.64
Share of net profit of associate	3.58	2.70	0.11	1.23	2.27
Profit before tax	29.98	22.08	8.18	11.56	22.61
Income tax expense	6.94	5.69	2.42	2.89	3.25
Profit for the year	23.04	16.39	5.76	8.68	19.36

 

Table 09. Vertical Analysis of Income statement in Lanka Tiles PLC (2017-2021)

 

According to this table highest percentage of cost of goods sold has reported in 2019 as 71.38% with respect to the revenue. As a result of that lowest percentage of profit has been reported in 2019 as a 5.76% of total revenue. In addition to that most of other elements in income statement remain more or less constant as a percentage of revenue over 2017-2021.

 

 

Graph 13. Graphical representation of Common size of Income statement in 2017 Lanka Tile PLC

 

Graph 14. Graphical representation of Common size of Income statement in 2018 Lanka Tile PLC

 

Graph 15. Graphical representation of Common size of Income statement in 2019 Lanka Tile PLC

 

Graph 16. Graphical representation of Common size of Income statement in 2020 Lanka Tile PLC

 

Graph 17. Graphical representation of Common size of Income statement in 2021 Lanka Tile PLC

 

 

3.3. RATIO ANALYSIS

 

Ratio analysis is the process of determining and comparing financial information of annual report by calculating meaningful financial statement figure percentages instead of comparing line items from each financial statement. Ratio analysis is much different than other analysis. Ratio analysis compares relationships between financial statement accounts. These relationships between financial statement accounts will not only give a manager or investor an idea of the how healthy the business is on a whole.

 

 

Mainly There are 4 pillars in Ratio Analysis;

01.  Liquidity and efficiency ratio

02.  Solvency Ratio

03.  Profitability Ratio

04.  Market Ratio

 

 

 

 

3.3.1. Liquidity and Efficiency Ratios

 

·         Liquidity is the ability to convert assets into cash quickly and cheaply. Liquidity ratios are used to determine a debtor's ability to pay off current debt obligations without raising external capital.

·         In addition to that, efficiency ratio measures the company’s ability to use its assets to generate profit. This ration is used to determine the company’s short-term performance.

Several ratios can be categorised under liquidity and efficiency ratios and they are given below in the perspective of Lanka Tiles PLC over last five years.

Working capital

Working capital is the difference between company’s current assets and current liabilities.it measured the available money to cover all of a company's short-term expenses, including inventory, payments on short-term debt, and day-to-day expenses called operating expenses. Working capital is critical since it is used to keep a business operating smoothly and meet all its financial obligations within the coming year.

Working Capital
Year	2017	2018	2019	2020	2021
Current Assets (Rs.'000)	3,849,318	3,894,697	5,005,598	6,548,039	6,277,304
Current Liabilities (Rs.'000)	1,140,651	1,022,724	2,322,479	3,727,054	2,359,555
Working Capital (Rs.'000)	2,708,667	2,871,973	2,683,119	2,820,985	3,917,749

Table 10. Working capital of Lanka Tiles PLC (2017-2021)

Graph 18. Working capitals of Lanka Tile PLC 2017-2021

In this five-year period, company has highest working capital in 2021 year. It indicates company has good capability to run business smoothly with day-today activities.

a.    Current Ratio

This ratio measures the ability to pay company’s debts in the short term with the comparison of current assets with the current liabilities. If firm can’t meet its obligations in the short run, it may not survive to enjoy the long run.

Current Ratio
Year	2017	2018	2019	2020	2021
Current Assets (Rs.'000)	3,849,318	3,894,697	5,005,598	6,548,039	6,277,304
Current Liabilities (Rs.'000)	1,140,651	1,022,724	2,322,479	3,727,054	2,359,555
Current assets/Current Liabilities	3.37	3.81	2.16	1.76	2.66
Current Ratio	3.37:1	3.81:1	2.16:1	1.76:1	2.66:1

Therefore, a current ratio that is in line with the industry average or slightly higher is generally considered acceptable. A current ratio that is lower than the industry average may indicate a higher risk of distress or default.  Higher ratio indicates a strong ability to service short-term obligations. Higher ratio indicates that there is a large gap between the current assets and current liabilities.

 

 

b.    Acid – Test Ratio (Quick Asset Ratio)

The acid-test ratio, compares a company's most short-term assets to its most short-term liabilities to see if a company has enough cash to pay its immediate liabilities. Companies with an acid-test ratio of less than 1 do not have enough liquid assets to pay their current liabilities and should be treated with caution

.

Acid Test ratio
Year	2017	2018	2019	2020	2021
Current Assets (Rs.'000)	3,849,318	3,894,697	5,005,598	6,548,039	6,277,304
Inventories (Rs'000)	1,434,412	1,945,726	3,019,769	4,780,594	2,322,116
Quick Assets (Rs.'000)	2,414,906	1,948,971	1,985,829	1,767,445	3,955,188
Current Liabilities (Rs.'000)	1,140,651	1,022,724	2,322,479	3,727,054	2,359,555
Quick Assets/Current Liabilities	2.117	1.906	0.855	0.474	1.676
Acid Test ratio	2.117:1	1.906:1	0.855:1	0.474:1	1.676:1

Table 12. Acid Test ratios of Lanka Tiles PLC (2017-2021)

Graph 20. Acid Test Ratios of Lanka Tile PLC 2017-2021

In 2019 and 2020 acid test ratios are lower than one, it means company do not have enough liquid assets (Cash) to pay their current liabilities. In addition to that acid-test ratio is much lower than the current ratio, it means that a company's current assets are highly dependent on inventory. The lowest acid test ratio in 2020 as 0.474:1, But in 2021 company could manage it again in 2021 to 1.676:1.

c.     Accounts Receivable Turnover

The accounts receivable turnover ratio is an accounting measure used to quantify a company's effectiveness in collecting its receivables. Higher value indicates that cash collection is very efficient and within a shorter period of time receivables are collected. As well as low ratio could be as the result of inefficient receivable collection.

Account Receivable Turnover
Year	2017	2018	2019	2020	2021
Sales on Account (Rs.'000)	5,176,372	6,126,307	7,008,992	6,694,824	12,626,485
Account Receivables (Rs.'000)	1,187,787	1,514,996	1,801,542	1,702,492	1,638,223
Average Account Receivable (Rs.'000)	1,087,887	1,351,392	1,658,269	1,752,017	1,670,358
Sales on Account/Average Account receivables	4.758	4.533	4.227	3.821	7.559
Account Receivable Turnover	4.758 times	4.533 times	4.227 times	3.821 times	7.559 times

Table 13. Accounts Receivable Turnover ratios of Lanka Tiles PLC (2017-2021)

Graph 21. Accounts receivable turnover Ratios of Lanka Tile PLC 2017-2021

If we analyse the above Graph, ratios are more or less similar from 2017 to 2020. But in 2021, Accounts receivable turnover has largely increased as 7.559 times. It tells collection of accounts receivable is efficient and company has a high proportion of quality customers that pay their debts quickly.

 

 

d.    Merchandise Turnover

Merchandise or Inventory turnover measures how many times in a given period a company is able to replace the inventories that it has sold. According to this ratio A slow turnover implies weak sales and possibly excess inventory, while a faster ratio implies either strong sales or insufficient inventory.

Inventory turnover
Year	2017	2018	2019	2020	2021
Cost of Sales(Rs.'000)	2,860,369	3,747,180	5,002,702	4,278,797	7,880,382
Inventory(Rs.'000)	1,434,412	1,945,726	3,019,769	4,780,594	2,322,116
Average Inventory(Rs,'000)	1,183,334	1,690,069	2,482,748	3,900,182	3,551,355
Cost of Sales/Average Inventory	2.42	2.22	2.01	1.10	2.22
Merchandise Turnover	2.42 times	2.22 times	2.01 times	1.10 times	2.22 times

Table 14. Merchandise Turnover ratios of Lanka Tiles PLC (2017-2021)

Graph 22. Merchandise turnover Ratios of Lanka Tile PLC 2017-2021

Based on the graph we can tell; over five-year period averagely inventory turnover ratio remains around 2 times. That means 2 times per year inventory is replaced.it is a indicator of strong sales. But in 2020 Inventory turnover has been reduced to 1.1 times within year. We can predict it might be due to beginning of COVID-19 pandemic.

 

 

 

 

e.    Day’s Sales Uncollected

Day’s sales uncollected estimate the average number of days that takes by the company to collect payment for a sale. It helps to Investors for the assessment of the short-term liquidity position of a company If this ratio is high, company is experiencing delays in receiving payments. If Day’s sales uncollected is lower, company is getting its payments quickly.

Day's Sales Uncollected
Year	2017	2018	2019	2020	2021
Account Receivables (Rs.'000)	1,187,787	1,514,996	1,801,542	1,702,492	1,638,223
Net sales (Rs.'000)	5,176,372	6,126,307	7,008,992	6,694,824	12,626,485
(Account Receivables/Net sales)*365	83.75	90.26	93.82	92.82	47.36
Day's Sales Uncollected	83.75 Days	90.26 Days	93.82 Days	92.82 Days	47.36 Days

 

                Table 15. Day’s sales uncollected ratios of Lanka Tiles PLC (2017-2021)

Graph 23. Day’s sales uncollected Ratios of Lanka Tile PLC 2017-2021

 

From 2017 to 2020, averagely about 85 days was taken by company to collect its account receivables. But this figure has been reduced to about 48 days in 2021.It is a good sign for investors. Because company could collect money for a sale within 48 days. Company has reduced its cash flow risk in 2021 compared to previous years.

 

 

f.     Day’s Sales in inventory

This financial ratio indicates the average time in days that a company takes to turn its inventory in to sales. Smaller values for Day’s sales in inventory preferred. Because it indicates company is more efficiently selling inventory. If this ratio is high, company takes long period to earn profit also comparatively. However, these values vary with different industries.

 

Day's sales in inventory
Year	2017	2018	2019	2020	2021
Ending Inventory (Rs.'000)	1,434,412	1,945,726	3,019,769	4,780,594	2,322,116
Cost of sales (Rs.'000)	2,860,369	3,747,180	5,002,702	4,278,797	7,880,382
(Ending Inventory /Cost of sales) *365	183.04	189.53	220.32	407.81	107.55
Day's Sales in inventory	183.04 Days	189.53 Days	220.32 Days	407.81 Days	107.55 Days

Table 16. Day’s sales in inventory ratios of Lanka Tiles PLC (2017-2021)

Graph 24. Day’s sales in inventory of Lanka Tile PLC 2017-2021

 

This shows that in 2020, company has record a highest DSI value as 408 days over last five-year period. That indicate company had a struggle with inventory in 2020. But in 2021, lowest value over five years as 107 days was achieved by Lanka Tile PLC. It shows that the company could manage inventory effectively in 2021.

 

 

 

g.    Total Assets Turnover

The total Assets turnover ratio is an efficiency ratio which determine the company’s capability to generate sales form its average total assets by comparing to revenue. If this value is high, it means company can use its assets to generate sales effectively. Like other ratios this also vary with industries sector.

 

Total Assets Turnover
Year	2017	2018	2019	2020	2021
Revenue (Rs.'000)	5,176,372	6,126,307	7,008,992	6,694,824	12,626,485
Total Assets (Rs.'000)	8,359,582	8,701,046	11,678,894	13,653,659	14,015,624
Average Total Assets (Rs.'000)	8,019,665	8,530,314	10,189,970	12,666,277	13,834,642
Revenue/Average total assets	0.645	0.718	0.688	0.529	0.913
Total Assets Turnover	0.645 times	0.718 times	0.688 times	0.529 times	0.913 times

Table 17. Total Assets Turnover of Lanka Tiles PLC (2017-2021)

 

Graph 25. Total Assets Turnover of Lanka Tile PLC 2017-2021

According to the table and graph, the highest total assets turnover of Lanka Tile PLC over last five years Has been recorded in 2021.it indicates company was using its assets to generate sales. In Other rest of 4 years, company has earned less than a Rs. 0.913 in sales from an asset.

 

3.3.2 Solvency Ratios

·         Solvency ratios show a company’s ability to meet its long-term obligations to creditors, bondholders, and banks. Better solvency ratios indicate a more creditworthy and financially stable company in the long-term.

·         Mainly Lenders determine these ratios to investigate whether the long-term debt paying ability of company.in addition to that Investors use that ratios for decision making in long – term investments.

These are the mostly used Solvency ratios;

 

a.    Debt Ratio

Debt ratio measures a firm’s total liabilities as a percentage of its total assets. In a sense, the debt ratio shows a company’s ability to pay off its liabilities with its assets. It is called as financial leverage of a company. The debt ratio can help investors to identify a company’s risk level.

Debt Ratio
Year	2017	2018	2019	2020	2021
Total Liabilities (Rs.'000)	1,765,056	1,830,714	4,561,569	5,955,773	4,269,845
Total Assets (Rs.'000)	8,359,582	8,701,046	11,678,894	13,653,659	14,015,624
(Total Liabilities/Total Assets) *100	21.11	21.04	39.06	43.62	30.46
Debt Ratio	21.11%	21.04%	39.06%	43.62%	30.46%

Table 18. Debt Ratio of Lanka Tiles PLC (2017-2021)

Graph 26. Debt Ratio of Lanka Tile PLC 2017-2021

According to the table, in the last five-year period company has more assets than debt. Therefore, it is a sign for more stable business with good solvency. Lowest debt ratio has been reported in 2021 as 21.04%. Highest ratio is related to 2020 as 43.62%. 

 

b.    Equity Ratio

The equity ratio is a solvency ratio that measures the amount of assets that are financed by owners’ investments by comparing the total equity in the company to the total assets. Higher ratio indicates that company has minimized the use of debt to funding its assets requirements.

Equity Ratio
Year	2017	2018	2019	2020	2021
Total Shareholder's Equity (Rs.'000)	6,594,526	6,870,332	7,117,325	7,697,886	9,745,779
Total Assets (Rs.'000)	8,359,582	8,701,046	11,678,894	13,653,659	14,015,624
(Total Shareholder's Equity/Total Assets) *100	78.89	78.96	60.94	56.38	69.54
Equity Ratio	78.89%	78.98%	60.94%	56.38%	69.54%

 

Table 19. Equity Ratio of Lanka Tiles PLC (2017-2021)

 

Graph 27. Equity Ratio of Lanka Tile PLC 2017-2021

As shows in above, over the five-year study period equity ratio is always higher than 50%. It represents that company is running in a conservative way by minimizing the use of debt to fund for assets requirement. Because Funding for assets was mostly done by shareholders’ funds.

c.     Times Interest Earned

 The times interest earned ratio is a measure of a company's ability to meet its debt obligations based on its current income. A higher ratio means a company has enough cash after paying its debts to continue to invest in the business.

Times Interest Earned
Year	2017	2018	2019	2020	2021
Net Income before interest expenses and income tax (Rs.'000)	1,583,574	1,374,511	595,616	1,108,778	3,078,902
Interest Expenses (Rs.'000)	31,749	21,768	22,077	334,565	223,839
Times Interest Earned	49.88	63.14	26.98	3.31	13.75

 

            Table 20. Times interest earned of Lanka Tiles PLC (2017-2021)

Graph 28. Times interest earned of Lanka Tile PLC 2017-2021

 

Within last five-year period highest times interest earned was obtained by Lanka Tiles PLC at 2018 year as 63.14 times. It means about 63 times; company could pay the interest with its profit before tax. But it has been dropped to 3.3 times in 2020.However it has been increased in to 13.75 times in 2021. This is a sign that shows company can generate a cash flow to invest the business.

 

 

3.3.3.  Profitability Ratios

·         Profitability ratios compare income statement accounts and categories to show a company’s ability to generate profits from its business operations. These ratios basically show how well companies can achieve profits from their operations.

·         Profitability ratios focus on a company’s return on investment in inventory and other assets. Therefore, investors and creditors use these ratios to decide how efficiently a company generates profit and value for shareholders.

This includes following Ratios;

a.    Profit Margin

Profit Margin
Year	2017	2018	2019	2020	2021
Net Profit After Tax(Rs.'000)	1,192,823	1,004,022	403,614	580,897	2,444,675
Net Sales (Rs.'000)	5,176,372	6,126,307	7,008,992	6,694,824	12,626,485
(Net Profit after tax/Net sales) *100	23.04	16.39	5.76	8.68	19.36
Profit Margin	23.04%	16.39%	5.76%	8.69%	19.36%

 The profit Margin ratio measures the degree to which a company makes money from sales. It can be shows as a percentage value or as cents. It indicates how many cents of profit the business has generated for each Dollar/Rupee of sales. The Net profit margin is commonly used by investors.

Table 21. Net Profit Margins of Lanka Tiles PLC (2017-2021)

 

 

According to the table, the lowest net profit margin was recorded in 2019 as 5.76% due to the lowering the net profit after tax. It might be due to higher expenses and cost of sales. However, company could to increase their net profit margin up to 19.36% in 2021. Because company could reduce expense like distribution cost and administrative costs in 2021.it indicates Lanka Tiles PLC has well managed their expenses after 2019.

 

b. Gross Margin

The gross Margin ratio is also a profitability ration that shows how much profit a company makes after paying off its cost of goods sold (COGS).  If the gross margin is higher, the more capital a company retains, which it can then use to pay other costs or satisfy debt obligations.

Gross Margin
Year	2017	2018	2019	2020	2021
Gross Profit(Rs.'000)	2,316,003	2,379,127	2,006,290	2,416,027	4,746,103
Revenue(Rs.'000)	5,176,372	6,126,307	7,008,992	6,694,824	12,626,485
(Gross Profit/Revenue)*100	44.74	38.83	28.62	36.09	37.59
Gross Margin	44.74%	38.83%	28.62%	36.09%	37.59%

 

Table 22. Gross Margins of Lanka Tiles PLC (2017-2021)

Graph 30. Gross Margins of Lanka Tile PLC 2017-2021

As shown in above data, within last five-year period, highest gross margin was recorded in 2017. Then Gradually it has been declined to 28.62 % in 2019.After that company could increase gross margin up to 37.59% in 2021. That means company could retain a Rs. 0.3759 from each Rupee of revenue generated in 2021.

 

c. Return on Total Assets

Return on total Assets
Year	2017	2018	2019	2020	2021
Profit for the year (Rs.'000)	1,192,823	1,004,022	403,614	580,897	2,444,675
Total Assets (Rs.'000)	8,359,582	8,701,046	11,678,894	13,653,659	14,015,624
Average total assets (Rs.'000)	8,019,665	8,530,314	10,189,970	12,666,276.50	13,834,641.5
(Profit for the year/Average total Assets) *100	14.87	11.77	3.96	4.59	17.67
Return on total Assets	14.87%	11.77%	3.96%	4.59%	17.67%

The return on total assets, is another profitability ratio that measures the net income produced by total assets during a period by comparing net income to the average total assets. This indicates how efficiently a company can manage its assets to produce profits.

Table 23. Return on Total Assets of Lanka Tiles PLC (2017-2021)

 

Graph 31. Return on Total Assets of Lanka Tile PLC 2017-2021

As graph shows in above, return on total assets of Lanka Tiles PLC has been changed largely over last five-year period. Based on that, this ratio has been decreased from 2017 to 2019 then it records lowest ratio as 3.96% in 2019.After that ratio has been increased to maximum in 2021. It shows company could more effectively managing its assets to produce greater amounts of net income 2021.

 

 

 

 

d. Return on common Shareholders’ Equity

Return on Common Shareholders' Equity
Year	2017	2018	2019	2020	2021
Net Profit after tax (Rs.'000)	1,192,823	1,004,022	403,614	580,897	2,444,675
Preferred Dividends	0	0	0	0	0
Shareholders' equity (Rs.'000)	6,594,526	6,870,332	7,117,325	7,697,886	9,745,779
Average Shareholders' equity (Rs.'000)	6,189,494.00	6,732,429.00	6,993,828.50	7,407,605.50	8,721,832.50
(Net profit after tax-Preferred dividends)/Average Shareholders' equity*100	19.27	14.91	5.77	7.84	28.03
Return on Common Shareholders' Equity	19.27%	14.91%	5.77%	7.84%	28.03%

The return on common equity ratio indicates the proportion of the net income that a firm generates by each dollar of common equity invested by shareholders. companies with a higher return on shareholders’ equity are more efficient in generating cash flows. Therefore, investors have higher confidence with such companies for investment.

 

Table 24. Return on Common shareholders’ equity of Lanka Tiles PLC (2017-2021)

 

Graph 32. Return on common shareholders’ Equity of Lanka Tile PLC 2017-2021

In the case of Lanka Tiles PLC, the ratio was dropped from 19.27% to 5.77% within 2017 -2019 period. But again, they could increase it up to 28.03%. which means company could generate 28.03% of its net income to the common stockholders for each Rupee invested. Therefore, company need to maintain higher ration to attract more investors.

 

e. Book Value per Common Share

The book value per common share is a financial ratio that determine the amount of equity applicable to each outstanding common stock. This ratio used to compute the price per share of a company’s stock during liquidation. The book value per share can provide information on how a company’s stock is valued.

Book Value per common shares
Year	2017	2018	2019	2020	2021
Shareholders’ Equity (Rs.'000)	6,594,526	6,870,332	7,117,325	7,697,886	9,745,779
No of common Shares ('000)	53,050.41	53,050.41	53,050.41	53,050.41	265,252.05
Book Value per common shares (Rs Per Share)	124.307	129.506	134.162	145.105	36.742

Table 25. Book value per common share of Lanka Tiles PLC (2017-2021)

 

Graph 33. Book value per common share of Lanka Tile PLC 2017-2021

 

According to the graph the ratio continuously increases from 2017 to 2020. But suddenly Book value per common share was reduced to Rs 36.74 because Lanka Tiles PLC  effected the sub-division of Ordinary Shares on the basis of a sub-division of every one (01) Ordinary Shares into five (05) Ordinary Shares, thus increasing the existing 53,050,410 issued Ordinary Shares of the Company to 265,252,050 Ordinary Shares. Although market capitalization remains unchanged.  Theoretically this is done for improve the liquidity of the shares to allow more affordable investment opportunities

f. Basic earnings per share

Earnings per share (EPS), also called net income per share, is a market ratio which measures the amount of net income earned per share of stock outstanding if all of the profits were distributed to the outstanding shares at the end of the year. This ratio is used by investors to identify how company is profitable on a shareholder basis. Higher earnings per share is always batter because if EPS is high company is more profitable and company has more profits to distribute among shareholders.

Basic Earnings Per Share
Year	2017	2018	2019	2020	2021
Net income (Rs.'000)	1,192,823	1,004,022	403,614	580,897	2,444,675
Preferred dividends	0	0	0	0	0
Weighted Average Common shares outstanding ('000)	53,050.41	53,050.41	53,050.41	53,050.41	265,252.05
Net income/Weighted Average common shares outstanding	22.48	18.93	7.61	10.95	9.22
Basic earnings per share (Rs per Share)	22.48 per share	18.93 per share	7.61 per Share	10.95 per share	9.22 per share

Table 26. Basic earnings per share of Lanka Tiles PLC (2017-2021)

 

Graph 34. Basic earnings per share of Lanka Tile PLC 2017-2021

Within last five-year period Lanka Tiles PLC has reported the lowest earning per share in 2019 as Rs. 7.61 per share. But in 2021 Lanka Tiles PLC sub divided each share in to five. Then number of outstanding shares have been increased. So, EPS declined.

3.3.4. Market Ratios

 

Market value ratios are used to evaluate the current share price of a publicly-held company's stock. These ratios are employed by current and potential investors to determine whether a company's stocks are rightly valued or not and at what price shares should be bought or sold.

a.    Price per Earning Ratio (P/E Ratio)

This ratio measures company’s current share price relative to its earning per share. Higher PE indicates a positive future performance, and investors have higher expectations for future earnings growth. As well low PE ratio is usually an indication of weak current as well as future performance.

Price Earnings Ratio
Year	2017	2018	2019	2020	2021
Market Price Per Share (Rs)	102	99.7	70	50.1	37.15
Earnings per Share (Rs)	22.48	18.93	7.61	10.95	9.24
Market price per share/Earning per Share	4.54	5.27	9.20	4.58	4.02
Price Earnings Ratio	4.54   times	5.27 times	9.20 times	4.58 times	4.02 times

Table 27. Price per earning of Lanka Tiles PLC (2017-2021)

Graph 35. Price earnings Ratio of Lanka Tile PLC 2017-2021

According to the graph highest P/E ratio of last five-year period of Lanka Tiles PLC recorded in 2019 as 9.2 times. Which means in 2019 investors were willing to pay Rs. 9.20 for every Rupee of company earnings. But this ratio has been declined to 4.02 times in 2021.This shows stocks of company were undervalued in 2021.

b. Dividend Yield

Dividend Yield
Year	2017	2018	2019	2020	2021
Annual Dividend per Share (Rs.)	7.5	10	3.15	3.85	3.23
Market Price per Share (Rs.)	102	99.7	70	50.1	37.15
Annual Dividend per Share/Market price per share	0.074	0.100	0.045	0.077	0.087
Dividend Yield (%)	7.35	10.03	4.50	7.68	8.69

The dividend yield is displayed as a percentage, the amount of money a company pays shareholders for owning a share of its stock divided by its current market price per price. Dividend yield will rise when the price if stock falls. As well dividend yield will fall when price of stock rises.

 

Table 28. Dividend Yield of Lanka Tiles PLC (2017-2021)

 

Graph 36. Dividend Yield of Lanka Tile PLC 2017-2021

According to the graph the dividend yield of Lanka Tiles PLC has been fluctuated over the last five-year period. Which means both dividend per share and market price per share change year to year drastically. But Lanka Tiles PLC shows a positive growth in Dividend Yield, where it was increased by 4.19 from 2019 to 2021. It shows company pays a large dividend compared to the market value of stock.

 

 

04. ALTMAN Z-SCORE ANALYSIS

 

Basically, Altman’s Z-Score model is a numerical measurement that is used to predict the chances of a business going bankrupt in the next two years. According to the studies this model has showed 72% accuracy. This model is based on five key financial ratios Based on the numerical value for the Z-Score, a company can be categorized in to three operational zones.

 

Z = 1.2T₁+ 1.4T₂ + 3.3T₃ + 0.6T₄ + 0.99T₅

T_1, T₂, T₃…. are specific ratios among financial elements.

Z < 1.81 = Distress Zone

1.81 < Z < 2.99 = Grey Zone

Z > 2.99 = Safe Zone

Year	2017	2018	2019	2020	2021
Working capital (Rs.'000)	2,708,667	2,871,973	2,683,119	2,820,985	3,917,749
Total Assets (Rs.'000)	8,359,582	8,701,046	11,678,894	13,653,659	14,015,624
Earnings before interest and tax (Rs.'000)	1,583,574	1,374,511	595,616	1,108,778	3,078,902
Total Liabilities (Rs.'000)	1,765,056	1,830,714	4,561,569	5,955,773	4,269,845
Sales (Rs.'000)	5,176,372	6,126,307	7,008,992	6,694,824	12,626,485
Retained earnings (Rs.'000)	4,394,551	4,778,698	5,025,691	5,606,252	7,262,288
Market valve of equity (Rs.'000)	5,411,142	5,289,126	3,713,529	2,657,826	9,854,114
T1	0.324	0.330	0.230	0.207	0.280
T2	0.526	0.549	0.430	0.411	0.518
T3	0.189	0.158	0.051	0.081	0.220
T4	3.066	2.889	0.814	0.446	2.308
T5	0.619	0.704	0.600	0.490	0.901
Z-SCORE	4.202	4.117	2.129	1.844	4.062

Table 29. Z-Scores of Lanka Tiles PLC (2017-2021)

According to this Z-scores, in 2017, 2018 company could operate in safe zone. But due to start of COVID -19 Pandemic in 2019 and 2020 company has been felt into Grey zone. However again in 2021 they have moved to Safe zone due to proper strategic planning for pandemic situations and higher sales.

 

 

05.Conclusion

The main objective of this Financial statement analysis is to evaluate past and current Lanka Tiles PLC performance and financial position of company for the taking investment, credit and other managerial decision based on financial reports prepared by company.

According to this financial statement analysis of Lanka Tiles PLC, in 2020, most of the efficiency, liquidity and solvency ratios shows relatively lower performance comparatively with other years. But we can see in 2021 company could recover this reduction by increasing almost of these ratios.

In Lanka Tiles PLC shareholders fund and retained earning has been raised over five-year period. However averagely times interest earned has been reduced. Then it is not a good indicator for company. Because company should have money for invest in business after paying debts. Meanwhile, Book value per common share is continuously increased as well it is a good sign for common stock holders. These are indicating currently Profitability ratios remain satisfactory level. But 2021 it was dropped due to stock spilt. This stock splitting strategy will be an advantage to a company to increase the shareholders’ investment.

In this company, higher debt ratio and return on assets within five-year period indicates Lanka tiles PLC has an ability to meet long term obligation with bondholders. It tells Solvency performance of company remain good position relatively to industry ratios.

According to the Analysis, good levels of Total assets turnover and account receivable turnover tells company could increase their efficiency to operate business activities and collecting receivables. Finally, Altman’s Z-Score Models shows Lanka Tiles PLC has achieved 4.062 as Z-Score while explaining company is operating in safe zone.