Financial Statement Analysis of Dilmah Ceylon Tea Company PLC (2017 – 2021)

 

1. Introduction

   1.1 Introduction of the Company – Dilmah Ceylon Tea Company PLC

Dilmah is one of the leading tea manufacturing companies in the world. It was founded in 1988 by Merill J. Fernando and it’s a family owned company. Dilmah Ceylon Tea PLC produces authentic and natural Sri Lankan tea of the finest quality. Dilmah headquarters is located in Peliyagoda, Sri Lanka and its value added products are available in more than 100 countries including UK, USA, Australia, India and Japan around the world through an extensive network. The main products are Ceylon tea, flavoured tea and green tea. Approximately 554 employees work there. In 2009 it was considered that Dilmah was the sixth-largest tea brand in the world. By the year ended 31^st March 2021, Dilmah produces over 3000 products which are being sold in over 300 markets with the help of 848 supply chain partners. Total equity is calculated as Rs.13.8 Billion while the profit after tax is Rs.1.7 Billion. Market capitalization of the company is Rs.13 Billion.

   1.2 Introduction of the Analysis of Financial Statements

Financial statement analysis refers to the process of analyzing the financial position of a company for the use of both the internal and external stakeholders. Internal stakeholders use this information for making decisions and evaluating the business value while external stakeholders use for getting an overall idea about the performance of the company. Several techniques such as horizontal analysis, vertical analysis and ratio analysis are commonly used to analyze the financial statements including balance sheet, income statement and cash flow statements. Horizontal analysis compares data horizontally, by analyzing values of line items across two or more years. Vertical analysis looks at the vertical effects line items have on other parts of the business and also the business’s proportions. Ratio analysis uses important ratio metrics to calculate statistical relationships. Analysis of financial statements helps to identify financial strengths and weaknesses. There are several benefits of effective financial statements. Optimizing financial performance, improving communication, cash flow management and reducing risk exposure are some of them.

 

 

2. Analysis of Financial Statements

   2.1 Horizontal Analysis

Horizontal analysis refers to the financial trends over a specific number of accounting periods. Mostly horizontal analysis is used annually. It can be used with the income statement or the balance sheet.

	2021	2020	2019	2018	2017
ASSETS
Non-Current Assets
Property, Plant and Equipment	2.68%	8.31%	-2.95%	30.38%	19.65%
Investment Property	-1.61%	2.76%	24.18%	120.48%	0.00%
Intangible Assets	-10.15%	-36.49%	-30.33%	-0.39%	14.58%
Other Non-Current Financial Assets	-19.27%	-8.31%	1.68%	2.45%	-1.09%
Total Non-Current Assets	-1.35%	28.41%	-2.01%	27.42%	12.68%
Current Assets
Inventories	14.60%	25.44%	-10.59%	26.50%	-8.63%
Trade and Other Receivables	-5.86%	21.19%	8.88%	18.43%	10.70%
Advances and Prepayments	-46.39%	22.35%	146.78%	80.81%	23.60%
Amounts Due from Related Party	-4.37%	-8.61%	19.53%	-0.84%	47.12%
Cash and Cash Equivalents	-34.63%	72.58%	45.32%	-60.10%	44.11%
Total Current Assets	-3.75%	38.63%	17.87%	-21.71%	23.65%
Total Assets	-2.96%	35.11%	10.17%	-7.96%	20.37%
EQUITY AND LIABILITIES
Capital and Reserves
Stated Capital	0.00%	0.00%	0.00%	221.25%	0.00%
Other Components of Equity	-36.88%	-15.62%	3.20%
Retained Earnings	14.18%	8.08%	12.54%	-2.18%	4.35%
Total Equity	12.49%	7.07%	11.52%	2.43%	4.09%
Non-Current Liabilities
Deferred Tax Liabilities	-26.95%	58.28%	-23.97%	34.04%	49.87%
Retirement Benefit Obligations	21.89%	-3.24%	8.28%	35.93%	40.16%
Total Non-Current Liabilities	-0.44%	292.62%	-7.43%	35.00%	44.76%
Current Liabilities
Trade and Other Payables	-4.87%	53.35%	-23.74%	-35.96%	56.71%
Provisions and Accrued Expenses	-8.01%	28.28%	16.59%
Total Current Liabilities	-60.35%	288.75%	2.53%	-61.51%	287.74%
Total Liabilities	-41.53%	289.96%	-0.80%	-49.42%	220.40%
Total Equity and Liabilities	-2.96%	35.11%	10.17%	-7.96%	20.37%

Table 1 – Horizontal analysis of the Statement of financial position (Balance Sheet)

	2021	2020	2019	2018	2017
Revenue from Contracts with Customers	-20.59%	8.23%	16.33%	25.92%	0.95%
Cost of Sales	-12.12%	3.41%	8.09%	27.57%	3.95%
Gross Profit	-30.29%	14.33%	28.76%	23.53%	-3.14%
Other Income	192.35%	-27.26%	-9.74%	-73.07%	368.68%
Administrative Expenses	-0.39%	7.49%	27.00%	16.24%	-2.53%
Selling and Distribution Costs	-23.62%	-7.34%	37.73%	9.14%	35.07%
Foreign Exchange Gain	198.34%	-46.46%	106.59%	0.88%	-57.14%
Finance Costs	7.71%	1158.91%	-58.01%	78.10%	175581.82%
Finance Income	118.38%	91.65%	-42.29%	-5.72%	71.39%
Profit Before Tax	-3.73%	17.38%	33.41%	31.73%	-46.74%
Income Tax Expense	-61.67%	287.88%	43.28%	-43.50%	-29.85%
Profit for the year	12.21%	-1.52%	32.77%	44.15%	-48.77%

Table 2 – Horizontal analysis of the Statement of Profit or Loss (Income Statement)

   2.2 Vertical Analysis

Vertical analysis refers to the proportional analysis of a financial statement. It also can be used with the income statement or the balance sheet. When it is used with the income statement, revenue is used   as the base amount. When it is used with the balance sheet, total asset is used as the base amount.

	2021	2020	2019	2018	2017
ASSETS
Non-Current Assets
Property, Plant and Equipment	19.53%	18.46%	23.03%	26.14%	18.45%
Investment Property	3.87%	3.81%	5.01%	4.45%	1.86%
Intangible Assets	1.05%	1.13%	2.41%	3.82%	3.53%
Other Non-Current Financial Assets	2.26%	2.72%	4.01%	4.34%	3.90%
Total Non-Current Assets	33.30%	32.76%	34.46%	38.75%	27.99%
Current Assets
Inventories	9.13%	7.73%	8.33%	10.26%	7.47%
Trade and Other Receivables	27.55%	28.40%	31.66%	32.03%	24.89%
Advances and Prepayments	1.43%	2.59%	2.86%	1.28%	0.65%
Amounts Due from Related Party	0.51%	0.52%	0.76%	0.70%	0.65%
Cash and Cash Equivalents	18.87%	28.01%	21.93%	16.62%	38.34%
Total Current Assets	66.70%	67.24%	65.54%	61.25%	72.01%
Total Assets	100.00%	100.00%	100.00%	100.00%	100.00%
EQUITY AND LIABILITIES
Capital and Reserves
Stated Capital	3.83%	3.72%	5.03%	5.54%	1.59%
Other Components of Equity	0.87%	1.33%	2.13%	2.28%
Retained Earnings	78.06%	66.34%	82.93%	81.18%	76.38%
Total Equity	82.76%	71.39%	90.09%	88.99%	79.97%
Non-Current Liabilities
Deferred Tax Liabilities	1.09%	1.45%	1.24%	1.79%	1.23%
Retirement Benefit Obligations	1.67%	1.33%	1.85%	1.89%	1.28%
Total Non-Current Liabilities	9.22%	8.98%	3.09%	3.68%	2.51%
Current Liabilities
Trade and Other Payables	2.92%	2.98%	2.63%	3.79%	5.45%
Provisions and Accrued Expenses	3.37%	3.55%	3.74%	3.54%
Total Current Liabilities	8.02%	19.63%	6.82%	7.33%	17.52%
Total Liabilities	17.24%	28.61%	9.91%	11.01%	20.03%
Total Equity and Liabilities	100.00%	100.00%	100.00%	100.00%	100.00%

Table 3 – Vertical analysis of the Statement of financial position (Balance Sheet)

	2021	2020	2019	2018	2017
Revenue from Contracts with Customers	100.00%	100.00%	100.00%	100.00%	100.00%
Cost of Sales	59.06%	53.36%	55.85%	60.11%	59.34%
Gross Profit	40.94%	46.64%	44.15%	39.89%	40.66%
Other Income	0.45%	0.12%	0.18%	0.23%	1.10%
Administrative Expenses	17.82%	14.21%	14.30%	13.10%	14.19%
Selling and Distribution Costs	18.15%	18.87%	22.04%	18.62%	21.48%
Foreign Exchange Gain	13.25%	3.53%	7.13%	4.01%	5.01%
Finance Costs	2.14%	1.57%	0.14%	0.38%	0.27%
Finance Income	4.34%	1.58%	0.89%	1.79%	2.40%
Profit Before Tax	20.87%	17.21%	15.87%	13.84%	13.23%
Income Tax Expense	1.79%	3.71%	1.04%	0.84%	1.88%
Profit for the year	19.07%	13.50%	14.83%	13.00%	11.35%

Table 4 – Vertical analysis of the Statement of Profit or Loss (Income Statement)

 

 

 

 

 

 

   2.3 Ratio Analysis

Ratio analysis refers to the comparison of line-item data from a company's financial statements to reveal insights regarding liquidity and efficiency, solvency, profitability and market share.

      2.3.1. Liquidity and Efficiency Ratios

         2.3.1.1. Current Ratio

Year	Current Ratio
2021	8.32
2020	3.43
2019	9.61
2018	8.36
2017	4.11

 

 

 

 

Table 5 – Current ratios for 5 years

Current ratio is a liquidity ratio which measures the company’s ability to pay the short term obligations. It is the ratio in between current assets and current liabilities. If the ratio is more than one it is better and it indicates that company has remaining money also. From 2017 to 2019 current ratio has increased gradually, but in 2020, current ratio has declined rapidly. It is may be due to the COVID-19 pandemic. However, it has increased in the following year.

         2.3.1.2. Acid Test Ratio

Year	Acid Test Ratio
2021	7.00
2020	2.90
2019	7.97
2018	6.78
2017	3.65

 

 

 

 

Table 6 – Acid test ratios for 5 years

 

 

 

 

 

Acid test ratio is also known as quick asset ratio. This measures the ability of debt paying without inventories. Since all ratio values are greater than 1, cash position of the company is good. It futher says that Dilmah Ceylon Tea Company PLC is a strong company in Sri Lanka. The debt of the company can be paid even without inventories. In 2020, a decline can be seen in acid test ratio may be due to the pandemic situation.
         2.3.1.3. Accounts Receivable Ratio

Year	Accounts Receivable Turnover
2021	1.93
2020	2.58
2019	2.75
2018	2.68
2017	2.44

Table 7 – Accounts receivable turnover ratios for 5 years

 

 

 

 

 

Account receivable turnover is also a liquidity measure which measures how efficiently the company collects its receivables or money owed by customers. A high receivables turnover ratio may indicate that a company’s collection of accounts receivable is efficient and that the company has a high proportion of quality customers that pay their debts quickly. A low receivables turnover ratio can be the result of lack of trustworthy customers who don’t pay their debts quickly. In 2021, account receivable turnover is lesser than that of the previous year. But, from 2017 to 2019 it has increased.

         2.3.1.4. Total Asset Turnover

Year	Total Asset Turnover
2021	0.54
2020	0.77
2019	0.88
2018	0.76
2017	0.63

 

 

 

 

Table 8 – Total asset turnover ratios for 5 years

Total asset turnover is one of the liquidity measures which is the ratio of revenue to total assets. The asset turnover ratio is used to measure the efficiency of a company of using its assets to generate revenue. The higher the asset turnover ratio, the more efficient a company is at producing revenue from its assets. On the other hand, if a company has a low asset turnover ratio, it indicates it is not efficiently using its assets to produce revenue. From 2017 to 2019, there is an increase in change in total asset turnover while 2019 to 2021 it has decreased.

         2.3.1.5. Day's Sales in Inventory

Year	Day's Sales in Inventory
2021	103.08
2020	79.05
2019	65.17
2018	78.78
2017	79.45

 

 

 

 

 

Table 9 - Day's Sales in Inventory ratios for 5 years

Day’s sales in inventory refers to the number of days that take a company to convert the inventory to cash or to sell off the inventory and generate money. When it comes to Dilmah Ceylon Tea Company PLC, its Day’s Sales Inventory has increased from 2019 to 2021. Inventories were difficult to be sold as expected at that time due to the pandemic situation globally.

         2.3.1.6. Day's Sales Uncollected

Year	Day's Sales Uncollected
2021	183.66
2020	154.91
2019	138.34
2018	147.81
2017	157.16

Table 10 - Day's Sales uncollected ratios for 5 years

        

Day’s sales uncollected is a liquidity measure which measures how long it will take to collect the money from debtors. When going through the annual reports of Dilmah, it has increased from 2019 to 2021. A few number of days is considered as good. But this depends on the business type and the structure.

2.3.1.7. Merchandise Turnover

Year	Merchandise Turnover
2021	3.78
2020	5.14
2019	5.29
2018	5.17
2017	4.39

Table 11 – Merchandise turnover ratios for 5 years

Merchandise turnover ratio is one of the liquidity measures which refers to the rate at which inventory of the company is sold or replaced. A higher merchandise turnover ratio indicates strong sales while a lower ratio indicates weak sales. As same as the previous liquidity ratios from 2017 to 2019 there’s an increase in merchandise turnover which shows strong sales while from 2019 to 2021 sales are weak as merchandise turnover ratios are low. Sales may have been declined by COVID-19 pandemic.

      2.3.2. Solvency Ratios

         2.3.2.1. Debt Ratio

Year	Debt Ratio
2021	17.24%
2020	28.61%
2019	9.91%
2018	11.01%
2017	20.03%

Table 12 – Debt ratios for 5 years

Debt ratio refers to the amount of leverage used by a company in terms of total debt to total assets. Debt ratio of the company has decreased gradually from 2017 to 2019. But it has again increased from 9.91% to 28.61% by 2020.

         2.3.2.2. Equity Ratio

Year	Equity Ratio
2021	82.76%
2020	71.39%
2019	90.09%
2018	88.99%
2017	79.97%

Table 13 – Equity ratios for 5 years

Equity ratio is a solvency ratio which refers to the percentage of company’s assets contributed by the shareholders. Equity ratio also shows the same pattern as similar as debt ratio throughout the five years.

         2.3.2.3. Times Interest Earned

Year	Times Interest Earned
2021	10.77
2020	11.93
2019	118.25
2018	37.90
2017	50.89

Table 14 - Times interest earned values for 5 years

Times interest earned is one of the solvency measures the Ability of the company to meet its debt obligations based on its current income. In 2017, times interest earned of Dilmah Ceylon Tea Company PLC is 50.89% while it has become 10.77% in 2020. Times interest earned ratios less than 2.5 indicate a higher risk of bankruptcy. According to the values of Dilmah company obtained thrugh the analysis, it can be said that the company is financially stable.

      2.3.3. Profitability Ratios

         2.3.3.1. Profit Margin

Year	Profit Margin
2021	19.07%
2020	13.50%
2019	14.83%
2018	13.00%
2017	11.35%

Table 15 - Profit margin ratios for 5 years

Profit margin indicates the ability of the company to earn a net income from sales. It has increased from 2017 to 2019 but there’s a decline in profit margin in 2020.

 

         2.3.3.2. Gross Margin

Year	Gross Margin
2021	40.94%
2020	15.15%
2019	44.15%
2018	39.89%
2017	40.66%

Table 16 – Gross margin ratios for 5 years

Gross margin is the amount of money a company retains after incurring the direct costs associated with producing the goods. No any clear trend can be seen in gross margin variation of Dilmah Company.

         2.3.3.3. Return on Total Assets

Year	Return on Total Assets
2021	10.29%
2020	10.38%
2019	12.99%
2018	9.85%
2017	7.17%

Table 17 - Return on total assets values for 5 years

Return on total assets is a profitability ratio which refers to the best financial ratio that indicates how profitable a company is. Variation in return on total assets is also similar as most of the other ratios.

         2.3.3.4. Return on Common Shareholder's Equity

Year	Return on Common Shareholder's Equity
2021	13.36%
2020	13.08%
2019	14.50%
2018	11.69%
2017	8.37%

Table 18 - Return on common shareholder's equity values for 5 years

Return on common shareholder’s equity refers to the ability of a company to generate income from the available shareholder’s equity. There’s an overall increase in return on common shareholder’s equity from 2019 to 2021. This ratio can be used to compare the performance of the selected company with other competitors in the same industry.

         2.3.3.5. Book Value per Common Share

Year	Book Value Per Common Share
2021	668.82
2020	594.55
2019	555.29
2018	497.93
2017	504.06

Table 19 - Book values per common share for 5 years

Book value per common share refers to the ratio of equity available to common shareholders divided by the number of outstanding shares. There is an increase in book value per common share up to 2021.

         2.3.3.6. Basic Earnings per Share

Year	Basic Earnings Per Share
2021	84.39
2020	75.21
2019	76.37
2018	57.52
2017	41.38

Table 20 - Basic earnings per share values for 5 years

Basic earnings per share is also used to measure the profitability of the company. Here also an overall increase can be seen in the company for 5 years. In 2020, it is 84.39.

2.3.4. Market Ratios

         2.3.4.1. Price Earnings Ratio

Year	Price Earnings Ratio
2021	7.55
2020	7.06
2019	8.12
2018	9.23
2017	14.50

Table 21 - Price earnings ratios for 5 years

Price earnings ratio is the measure which is used to value a company’s current share price relative to its earnings per share. Higher the price earnings ratio, the more opportunity a company has for growth. There is a decline in price earnings ratio from 2017 to 2020 but it has increased by 2021.

         2.3.4.2. Dividend Yield

Year	Dividend Yield
2021	0.79%
2020	6.59%
2019	3.23%
2018	11.30%
2017	3.33%

Table 22 - Dividend yields for 5 years

Dividend yield is a market ratio that measures the percentage of a company's share price that it pays out in dividends each year. It is used when dealing with the stock market. Dividend yield of the company shows a strong decline in 2021 than the previous years.

   2.4 Altman’s – Z Score Analysis

Altman’s Z-Score Model

Z = 1.2 T₁+1.4T₂+3.3T₃+0.6T₄+0.999T₅
Where,

T₁ – Measure of Liquidity

T₂ – Measure of Leverage

T₃ – Measure of Profitability

T₄ – Measure of the Market’s confidence in the company

T₅ – Measure of Efficiency

 

Year	T1	T2	T3	T4	T5
2021	0.586813692	0.78	0.125939808	4.57	0.54752
2020	0.476190162	0.66	0.125695198	2.23	0.66908
2019	0.587161661	0.83	0.13369088	1.01	0.83526
2018	0.53924764	0.81	0.112428958	8.62	0.79098
2017	0.544877978	0.76	0.112428958	4.75	0.57814

 

Year	Z Score	Zone
2021	5.50	Safe
2020	3.92	Safe
2019	3.75	Safe
2018	8.12	Safe
2017	5.52	Safe

Table 23 - Z Scores for 5 years

Z > 2.99                        - Safe Zone

1.81 < Z < 2.99             - Grey Zone

Z < 1.81                         - Distress Zone

Dilmah Ceylon Tea Company PLC is in safe zone according to the values obtained for five years. Therefore it can be considered as a financially stable manufacturing company in Sri Lanka.

3. Conclusion

When analyzing the financial statements of five years of Dilmah Ceylon Tea Company PLC, most of the ratios have increased from 2017 to 2019 gradually. But as a result of global COVID-19 pandemic, there is a rapid decline in growth of the company from 2019 to 2020. Somehow, company has managed to survive in the pandemic situation, overcome the weaknesses and perform well in the year of 2021 although there are slight recessions.