1.
Company Overview
Commencing
the business in 1991 with a vision to build a brand synonymous with
contemporary lifestyles, innovation, design, and quality, Royal Ceramics Lanka
PLC (Rocell) has now grown into a conglomerate that is primarily focused on
manufacturing items supporting the housing and construction industry. In 2013,
the Group acquired the Lanka Walltiles PLC Group, their main competitor,
enhancing the market leadership by adding ‘Lanka Tiles’ also to the portfolio.
Today the Group is diversified across 6 key sectors which include its core
competency Tiles, Aluminium, Sanitaryware, Plantations, Packaging and Mining
through acquisitions and strategic investments. The group also represents in
Finance and services sectors through their associate undertaking of LB Finance
PLC and Delmege Ltd.
The
group consists of 12 nos of subsidiaries and 02 nos of associate companies. The
Rocell Group continues to invest a significant portion of its monetized capital
in enhancing the manufacturing capabilities to maintain the competitive edge.
Superior product quality and innovative designs have gained a strong brand
presence not only in Sri Lanka but also across the export destinations.
Designed by prominent architects in Italy, the company’s flagship brand
‘Rocell’ have won the customers across the world. The combination of
aesthetically appealing designs and functionality of Rocell Bathware with its
superior quality has enabled them to become market leader in the domestic
market. Rocell together with Lankatiles dominate the local wall tile and floor
tile market by having more than 71% of the market share while Rocell Bathware
meets 39% of the domestic requirement.
2.
Analysis
2.1
Horizontal analysis
Horizontal analysis is the comparison of financial
information of a company with historical financial information of the same
company over a number of reporting periods. The main purpose is to
see if the numbers are high or low in comparison to past records, which may be
used to investigate any causes for concern. In this method of 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. The changes are generally shown both in rupees and percentage.
2.1.1
Statement of Comprehensive Income of Royal Ceramics Lanka PLC - Year on Year
|
Description |
2018 |
2019 |
2020 |
2021 |
2022 |
|
Revenue |
-9.74% |
9.91% |
69.86% |
94.31% |
14.77% |
|
Cost
of sales |
-5.31% |
14.26% |
56.74% |
92.89% |
9.69% |
|
Gross
profit |
-14.04% |
5.28% |
85.04% |
95.71% |
19.69% |
|
Other
income - net |
52.55% |
-62.32% |
-2.19% |
34.86% |
117.78% |
|
Administrative
expenses |
-31.62% |
1.32% |
8.04% |
-10.07% |
31.91% |
|
Distribution
expenses |
7.54% |
27.12% |
24.20% |
35.55% |
-0.90% |
|
Other
Expenses |
19.79% |
-73.72% |
576.20% |
71.73% |
-80.93% |
|
Operating
profit |
42.48% |
-69.47% |
108.81% |
159.28% |
69.14% |
|
Finance
costs |
10.21% |
24.64% |
76.11% |
-42.36% |
-98.72% |
|
Profit
before tax |
50.85% |
-87.30% |
169.58% |
404.01% |
92.43% |
|
Income
tax expense |
67.24% |
-78.98% |
167.67% |
382.97% |
81.41% |
|
Profit
for the year |
49.27% |
-88.19% |
169.94% |
408.02% |
94.43% |
2.1.2
Statement of Financial Position of Royal Ceramics Lanka PLC - Year on Year
|
Description |
2018 |
2019 |
2020 |
2021 |
2022 |
|
ASSETS |
|||||
|
Non-current
assets |
|||||
|
Property,
plant and equipment |
61.41% |
5.03% |
23.98% |
-3.44% |
20.68% |
|
Investment
in Subsidiaries |
25.17% |
2.35% |
0.25% |
0.00% |
0.86% |
|
Investments
in Associates |
0.00% |
0.00% |
0.00% |
0.00% |
10.28% |
|
Differed
Tax Assets |
-100.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Other
Non-financial assets |
0.00% |
0.00% |
0.00% |
-56.38% |
-100.00% |
|
Right
of use assets |
0.00% |
0.00% |
0.00% |
-11.47% |
3.12% |
|
Intangible
Assets |
-8.45% |
-2.97% |
-10.39% |
-12.55% |
-10.57% |
|
Total
Non- Current Assets |
28.07% |
2.91% |
15.80% |
-2.29% |
10.94% |
|
Current
assets |
|||||
|
Inventories |
16.30% |
37.19% |
141.83% |
-35.29% |
-2.77% |
|
Trade
and other receivables |
23.82% |
29.73% |
20.51% |
-5.72% |
-22.62% |
|
Other
non-financial assets |
0.52% |
-25.74% |
22.41% |
-24.99% |
94.45% |
|
other
financial assets |
234.07% |
-55.93% |
14.64% |
- |
- |
|
Tax
receivable |
5.31% |
-34.24% |
100.00% |
- |
- |
|
Cash
and cash equivalents |
-2.89% |
59.68% |
-13.10% |
362.98% |
286.94% |
|
Total
Current Assets |
16.61% |
23.49% |
81.80% |
1.05% |
77.90% |
|
Total
Assets |
26.25% |
5.92% |
27.06% |
-1.48% |
27.70% |
|
EQUITY AND LIABILITIES |
|||||
|
Capital
and reserves |
|||||
|
Stated
capital |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Reserves |
288.79% |
0.00% |
43.62% |
14.03% |
102.79% |
|
Accumulated
Profit/ (Loss) |
15.86% |
0.50% |
60.22% |
14.64% |
12.71% |
|
Total
Capital and reserves |
20.42% |
0.39% |
50.31% |
13.22% |
19.07% |
|
Non-current
liabilities |
|||||
|
Employee
benefit obligations |
17.80% |
6.36% |
65.28% |
11.63% |
6.76% |
|
Deferred
tax liability |
0.00% |
2.79% |
65.51% |
1.34% |
45.32% |
|
Loans
and borrowings |
0.22% |
-10.71% |
-0.94% |
-24.31% |
-25.52% |
|
Total Non-current liabilities |
12.61% |
-8.29% |
11.34% |
-16.16% |
-6.55% |
|
Current
liabilities |
|||||
|
Trade
and other payables |
80.62% |
32.20% |
-66.77% |
-0.25% |
1.25% |
|
Other
current liabilities |
-27.17% |
-69.75% |
20.14% |
106.02% |
8.87% |
|
Loans
& borrowings |
61.19% |
15.50% |
148.74% |
-67.45% |
-2.12% |
|
Dividends
payable |
5.99% |
-18.06% |
-11.31% |
-38.85% |
143.53% |
|
Contract
liability |
0.00% |
0.00% |
17.79% |
188.70% |
228.46% |
|
Tax
payable |
0.00% |
0.00% |
0.00% |
264.88% |
58.52% |
|
Total
Current liabilities |
52.40% |
25.79% |
2.82% |
-23.16% |
74.77% |
|
Total
Liabilities |
32.81% |
11.57% |
5.74% |
-20.63% |
43.74% |
|
Total
Equity and Liabilities |
26.25% |
5.92% |
27.06% |
-1.48% |
27.70% |
2.1.3
Statement of Comprehensive Income of Royal Ceramics Lanka PLC – Base year 2017
|
Description |
Base Year 2017 Amounts |
2018 |
2019 |
2020 |
2021 |
2022 |
|
Revenue |
3,824,904 |
-9.74% |
-0.79% |
68.51% |
227.44% |
275.81% |
|
Cost
of sales |
-1,881,390 |
-5.31% |
8.20% |
69.59% |
227.11% |
258.80% |
|
Gross
profit |
1,943,514 |
-14.04% |
-9.49% |
67.47% |
227.76% |
292.28% |
|
Other
income - net |
1,808,744 |
52.55% |
-42.52% |
-43.78% |
-24.18% |
65.12% |
|
Administrative
expenses |
-698,556 |
-31.62% |
-30.72% |
-25.15% |
-32.69% |
-11.21% |
|
Distribution
expenses |
-1,072,067 |
7.54% |
36.70% |
69.78% |
130.14% |
128.06% |
|
Other
Expenses |
-105,658 |
19.79% |
-68.51% |
112.91% |
265.63% |
-30.28% |
|
Operating
profit |
1,875,977 |
42.48% |
-56.51% |
-9.18% |
135.48% |
298.29% |
|
Finance
costs |
-386,159 |
10.21% |
37.36% |
141.90% |
39.44% |
-98.21% |
|
Profit
before tax |
1,489,818 |
50.85% |
-80.84% |
-48.34% |
160.38% |
401.06% |
|
Income
tax expense |
-130,701 |
67.24% |
-64.85% |
-5.92% |
354.38% |
724.28% |
|
Profit
for the year |
1,359,117 |
49.27% |
-82.37% |
-52.42% |
141.72% |
369.98% |
2.1.4
Statement of Financial Position of Royal Ceramics Lanka PLC - Base year 2017
|
Description |
Base Year 2017 Amounts |
2018 |
2019 |
2020 |
2021 |
2022 |
|
ASSETS |
||||||
|
Non-current
assets |
||||||
|
Property,
plant and equipment |
4,064,061 |
61.41% |
69.52% |
110.17% |
102.95% |
144.92% |
|
Investment
in Subsidiaries |
5,157,343 |
25.17% |
28.11% |
28.43% |
28.43% |
29.53% |
|
Investments
in Associates |
3,162,937 |
0.00% |
0.00% |
0.00% |
0.00% |
10.28% |
|
Deferred
Tax Assets |
194,858 |
-100.00% |
-100.00% |
-100.00% |
-100.00% |
-100.00% |
|
Other
Non-financial assets |
- |
0.00% |
0.00% |
100.00% |
100.00% |
0.00% |
|
Right
of use assets |
- |
0.00% |
0.00% |
100.00% |
100.00% |
100.00% |
|
Intangible
Assets |
186,756 |
-8.45% |
-11.17% |
-20.40% |
-30.39% |
-37.75% |
|
Total
Non- Current Assets |
12,765,955 |
28.07% |
31.80% |
52.63% |
49.13% |
65.44% |
|
Current
assets |
||||||
|
Inventories |
1,198,259 |
16.30% |
59.55% |
285.83% |
149.65% |
142.74% |
|
Trade
and other receivables |
440,409 |
23.82% |
60.62% |
93.57% |
82.50% |
41.22% |
|
Other
non-financial assets |
367,189 |
0.52% |
-25.35% |
-8.63% |
-31.46% |
33.27% |
|
other
financial assets |
43,981 |
234.07% |
47.24% |
68.80% |
893.46% |
-2.90% |
|
Tax
receivable |
52,483 |
5.31% |
-30.75% |
-100.00% |
-100.00% |
-100.00% |
|
Cash
and cash equivalents |
300,095 |
-2.89% |
55.07% |
34.75% |
523.88% |
2314.04% |
|
Total
Current Assets |
2,402,416 |
16.61% |
44.01% |
161.81% |
164.57% |
370.66% |
|
Total
Assets |
15,168,371 |
26.25% |
33.73% |
69.92% |
67.41% |
113.78% |
|
EQUITY AND LIABILITIES |
||||||
|
Capital
and reserves |
||||||
|
Stated capital |
1,368,673 |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Reserves |
213,634 |
288.79% |
288.79% |
458.40% |
536.73% |
1191.21% |
|
Accumulated Profit/ (Loss) |
6,444,556 |
15.86% |
16.44% |
86.56% |
113.88% |
141.05% |
|
Total Capital and reserves |
8,026,863 |
20.42% |
20.89% |
81.70% |
105.72% |
144.95% |
|
Non-current liabilities |
||||||
|
Employee benefit obligations |
208,701 |
17.80% |
25.29% |
107.09% |
131.18% |
146.81% |
|
Deferred tax liability |
- |
100.00% |
100.00% |
100.00% |
100.00% |
100.00% |
|
Loans and borrowings |
3,307,021 |
0.22% |
-10.52% |
-11.35% |
-32.90% |
-50.02% |
|
Total Non-current liabilities |
3,515,722 |
12.61% |
3.27% |
14.98% |
-3.59% |
-9.91% |
|
Current
liabilities |
||||||
|
Trade and other payables |
1,815,045 |
80.62% |
138.78% |
-20.66% |
-20.86% |
-19.88% |
|
Other current liabilities |
731,380 |
-27.17% |
-77.97% |
-73.53% |
-45.47% |
-40.63% |
|
Loans & borrowings |
1,033,981 |
61.19% |
86.18% |
363.10% |
50.74% |
47.55% |
|
Dividends payable |
45,380 |
5.99% |
-13.15% |
-22.97% |
-52.90% |
14.71% |
|
Contract liability |
- |
0.00% |
100.00% |
100.00% |
100.00% |
100.00% |
|
Tax payable |
- |
0.00% |
0.00% |
100.00% |
100.00% |
100.00% |
|
Total Current liabilities |
3,625,786 |
52.40% |
91.71% |
97.11% |
51.46% |
164.71% |
|
Total Liabilities |
7,141,508 |
32.81% |
48.17% |
56.68% |
24.36% |
78.75% |
|
Total Equity and Liabilities |
15,168,371 |
26.25% |
33.73% |
69.92% |
67.41% |
113.78% |
2.1.5
Horizontal Analysis - Discussion points
Horizontal analysis has been done in both ways by
considering year on year change and the change by taking 2017 as the base
year. When considering the year-on-year
comparison, the percentage change of the horizontal analysis of total assets
shows the growth rate of the company, Royal Ceramics. The years 2018, 2019,
2020, 2021 and 2022 show growth rates of 26.25%, 5.92%, 27.06%, (-1.48%) and
27.7% respectively. It reflects that the growth rate of the company has
gradually increased when considering the recent years except for the year 2021.
The negative growth of year 2021 is mainly due to the drop of inventories
significantly by 35% by the year end. Revenue and profitability also show
positive values in the year-on-year comparison in recent past.
When considering base year comparison, it can be noted that
the net profit has significantly increased in the years 2021 and 2022 although
it shows a decrease during past period, i.e.2019 and 2020. However, revenue
also has increased during the period 2020 to 2022 despite the decline in 2018
and 2019.
In the assets side, total assets have increased over the
period as a result of increase in both non-current assets and current assets.
Current assets show a significant increase in years 2020, 2021 and 2022 mainly
due to the increase in inventory levels and cash balances.
When considering the Equity and liabilities side of the
company, the equity value has been increasing over the period while total
non-current liabilities have been decreased over the period compared to the
base year 2017. This is mainly due to the decrease in loans and borrowings
giving a positive indication of the company’s solvency. Further trade payables
also show a decrease during the period from 2020 to 2022. Other current
liabilities show a significant decrease after 2019 due to the effect that the
company has recognized the advance payments received on behalf of timber
flooring and sanitaryware and tiles orders from customers separately under
contract liabilities separately. Accordingly, the contract liability has
increased by 100% compared to the base year.
2.2
Trend Analysis
Trend analysis is the process of comparing business data over
time to identify any consistent results or trends. Trend analysis helps to
understand how the business has performed and predict where current business
operations and practices. It will give ideas about how might change things to
move the business in the right direction.
2.2.1
Statement of Comprehensive Income of Royal Ceramics Lanka PLC
|
Description |
Base Year 2017 Amounts |
2018 |
2019 |
2020 |
2021 |
2022 |
|
Revenue |
100 |
90.26 |
99.21 |
168.51 |
327.44 |
375.81 |
|
Cost
of sales |
100 |
94.69 |
108.20 |
169.59 |
327.11 |
358.80 |
|
Gross
profit |
100 |
85.96 |
90.51 |
167.47 |
327.76 |
392.28 |
|
Other
income - net |
100 |
152.55 |
57.48 |
56.22 |
75.82 |
165.12 |
|
Administrative
expenses |
100 |
68.38 |
69.28 |
74.85 |
67.31 |
88.79 |
|
Distribution
expenses |
100 |
107.54 |
136.70 |
169.78 |
230.14 |
228.06 |
|
Other
Expenses |
100 |
119.79 |
31.49 |
212.91 |
365.63 |
69.72 |
|
Operating
profit |
100 |
142.48 |
43.49 |
90.82 |
235.48 |
398.29 |
|
Finance
costs |
100 |
110.21 |
137.36 |
241.90 |
139.44 |
1.79 |
|
Profit
before tax |
100 |
150.85 |
19.16 |
51.66 |
260.38 |
501.06 |
|
Income
tax expense |
100 |
167.24 |
35.15 |
94.08 |
454.38 |
824.28 |
|
Profit
for the year |
100 |
149.27 |
17.63 |
47.58 |
241.72 |
469.98 |
According to the above trend analysis on profit or
loss statement, revenue has been decreased in the year 2018 and 2019 and then
showing an increasing trend from 2020 to 2022 period. Same trend shows for
gross profit as well while net profit shows an increase in 2018 but has been
declined significantly in the year 2019 and 2020. However, the company has been
able to overcome such drawback and to mark a significant growth in 2021 and
2022. When considering the profitability level throughout the period, year 2022
is the highest performing year for the company in terms of revenue, gross
profit and net profit growth compared with the base year 2017.
2.2.2
Statement of Financial Position of Royal Ceramics Lanka PLC
|
Description |
Base Year 2017 Amounts |
2018 |
2019 |
2020 |
2021 |
2022 |
|
Total Non- Current Assets |
100 |
128.07 |
131.80 |
152.63 |
149.13 |
165.44 |
|
Total Current Assets |
100 |
116.61 |
144.01 |
261.81 |
264.57 |
470.66 |
|
Total Assets |
100 |
126.25 |
133.73 |
169.92 |
167.41 |
213.78 |
|
Total Equity |
100 |
120.42 |
120.89 |
181.70 |
205.72 |
244.95 |
|
Total Non-current liabilities |
100 |
112.61 |
103.27 |
114.98 |
96.41 |
90.09 |
|
Total Current liabilities |
100 |
152.40 |
191.71 |
197.11 |
151.46 |
264.71 |
|
Total Liabilities |
100 |
132.81 |
148.17 |
156.68 |
124.36 |
178.75 |
According
to the above trend analysis on the statement of financial position, it can be
seen that almost all the line items in assets, equity and liabilities shows an
increasing trend compared with the base year 2017 except for non-current
liabilities which have been decreased in the years 2021 and 2022. This decrease
is mainly due to the drop in the long-term loans and borrowings of the company.
In addition, the current assets show a significant growth in the year 2022 as a
result of high inventory levels and cash and bank balance maintained by the
company at the year-end 2022.
2.3
Vertical Analysis
Vertical analysis of financial statements is a
technique in which the relationship between items in the same financial
statement is identified by expressing all amounts as a percentage of a
total amount. This method compares different items to a single item in the same
accounting period. When applying this method on the balance sheet, all of the
three major categories of accounts (i.e., assets, liabilities, and equity) are
compared to the total assets. All of the balance sheet items are presented as a
proportion of the total assets. When applying this technique to the income
statement, each of the expenses is compared to the total sales revenue.
The main advantages of vertical analysis are that the
balance sheets of businesses of all sizes can easily be compared. It also makes
it easy to see relative annual changes within one business. The financial
statements prepared by using this technique are known as common size financial
statements.
2.3.1
Statement of Comprehensive Income of Royal Ceramics Lanka PLC
|
Description |
2018 |
2019 |
2020 |
2021 |
2022 |
|
Revenue |
100.00% |
100.00% |
100.00% |
100.00% |
100.00% |
|
Cost
of sales |
51.60% |
53.64% |
49.50% |
49.14% |
46.96% |
|
Gross
profit |
48.40% |
46.36% |
50.50% |
50.86% |
53.04% |
|
Other
income - net |
79.93% |
27.40% |
15.78% |
10.95% |
20.78% |
|
Administrative
expenses |
-13.84% |
-12.75% |
-8.11% |
-3.75% |
-4.32% |
|
Distribution
expenses |
-33.39% |
-38.62% |
-28.24% |
-19.70% |
-17.01% |
|
Other
Expenses |
-3.67% |
-0.88% |
-3.49% |
-3.08% |
-0.51% |
|
Operating
profit |
77.43% |
21.50% |
26.43% |
35.27% |
51.98% |
|
Finance
costs |
12.33% |
13.98% |
14.49% |
4.30% |
0.05% |
|
Profit
before tax |
65.10% |
7.52% |
11.94% |
30.97% |
51.93% |
|
Income
tax expense |
6.33% |
1.21% |
1.91% |
-4.74% |
7.49% |
|
Profit
for the year |
58.77% |
6.31% |
10.03% |
26.23% |
44.44% |
In considering the above vertical analysis of the profit
or loss statement, the cost of sales represents more than 45% of the sales
revenue over the period. Gross profit shows 48% and 46% in year 2018 and 2019
respectively but has gradually increased to 53% by year 2022. Other income
shows an exceptional increase compared with the sales revenue of 79.9% in the year
2018 due to recognition of Rs.1.3Bn investment disposal profit to the other
income. Generally, it has stood around 20% of sales. Operational profit also
significantly high comparing with sales in 2018 due to increase in other
income. Other than that, operating profit has increased significantly in year
2022 due to reduction in operational costs relative to the increased sales
revenue in that year. This has marked more than 50% of operational profit in
the year 2022 and a 44% net profit compared to the sales revenue. However,
highest net profit represents in the year 2018 over the period.
2.3.2
Statement of Financial Position of Royal Ceramics Lanka PLC
|
Description |
2018 |
2019 |
2020 |
2021 |
2022 |
|
ASSETS |
|||||
|
Non-current
assets |
|||||
|
Property, plant and equipment |
34.25% |
33.96% |
33.14% |
32.48% |
30.70% |
|
Investment in Subsidiaries |
33.71% |
32.57% |
25.70% |
26.08% |
20.60% |
|
Investments in Associates |
16.52% |
15.59% |
12.27% |
12.46% |
10.76% |
|
Other Non-financial assets |
0.00% |
0.00% |
0.16% |
0.07% |
0.00% |
|
Right of use assets |
0.00% |
0.00% |
3.75% |
3.37% |
2.72% |
|
Intangible Assets |
0.89% |
0.82% |
0.58% |
0.51% |
0.36% |
|
Total Non- Current Assets |
85.37% |
82.94% |
75.60% |
74.97% |
65.13% |
|
Current assets |
|||||
|
Inventories |
7.28% |
9.42% |
17.94% |
11.78% |
8.97% |
|
Trade and other receivables |
2.85% |
3.49% |
3.31% |
3.17% |
1.92% |
|
Other non-financial assets |
1.93% |
1.35% |
1.30% |
0.99% |
1.51% |
|
other financial assets |
0.77% |
0.32% |
0.29% |
1.72% |
0.13% |
|
Tax receivable |
0.29% |
0.18% |
0.00% |
0.00% |
0.00% |
|
Cash and cash equivalents |
1.52% |
2.29% |
1.57% |
7.37% |
22.34% |
|
Total Current Assets |
14.63% |
17.06% |
24.40% |
25.03% |
34.87% |
|
Total Assets |
100.00% |
100.00% |
100.00% |
100.00% |
100.00% |
|
EQUITY AND LIABILITIES |
|||||
|
Capital and reserves |
|||||
|
Stated capital |
7.15% |
6.75% |
5.31% |
5.39% |
4.22% |
|
Reserves |
4.34% |
4.09% |
4.63% |
5.36% |
8.51% |
|
Accumulated Profit/ (Loss) |
38.99% |
36.99% |
46.65% |
54.28% |
47.91% |
|
Total Capital and reserves |
50.47% |
47.84% |
56.59% |
65.03% |
60.63% |
|
Non-current liabilities |
|||||
|
Employee benefit obligations |
1.28% |
1.29% |
1.68% |
1.90% |
1.59% |
|
Differed tax liability |
2.08% |
2.02% |
2.63% |
2.71% |
3.08% |
|
Loans and borrowings |
17.31% |
14.59% |
11.37% |
8.74% |
5.10% |
|
Total Non-current liabilities |
20.67% |
17.90% |
15.68% |
13.35% |
9.77% |
|
Current liabilities |
|||||
|
Trade and other payables |
17.12% |
21.36% |
5.59% |
5.66% |
4.48% |
|
Other current liabilities |
2.78% |
0.79% |
0.75% |
1.57% |
1.34% |
|
Loans & borrowings |
8.70% |
9.49% |
18.58% |
6.14% |
4.70% |
|
Dividends payable |
0.25% |
0.19% |
0.14% |
0.08% |
0.16% |
|
Contract liability |
0.00% |
2.42% |
2.25% |
6.58% |
16.93% |
|
Tax payable |
0.00% |
0.00% |
0.43% |
1.60% |
1.98% |
|
Total Current liabilities |
28.85% |
34.27% |
27.73% |
21.63% |
29.60% |
|
Total Liabilities |
49.53% |
52.16% |
43.41% |
34.97% |
39.37% |
|
Total
Equity and Liabilities |
100.00% |
100.00% |
100.00% |
100.00% |
100.00% |
In considering the vertical analysis of the company. Property,
plant and equipment represents a value between 30% to 35% compared with total
assets over the period. Investment in subsidiaries and investment in associates
show a gradual decline throughout the period with the increase in total asset
base. However, the total non-current assets stood at 85% in 2018 and gradually
declined to 75% by 2021 and significantly dropped to 65% in 2022. This is
mainly due to the increase in current assets significantly in 2021 and 2022
with the increase in inventories and cash balance in 2021 and 2022. Accordingly,
the current assets have increased from 14% to 35% over the period from 2018 to
2022.
Total equity represents 50% in 2018 and has gradually
increased to 65% in 2021 and slightly decreased to 60% in 2022. Long term loans
and borrowings has decreased considerably over the period resulting a decrease
in non-current liabilities from 2018 to 2022.
Current liabilities stood around 30% of total assets over
the period. However, trade payables show an increase in 2019 but significantly
decreased by year 2022.Further, contract liability shows a considerable
increase to 16% of total assets due to the company has shifted more on order-based
production process with the prevailing situation. Total liabilities increased
to 52% in 2019 and then decreased to 39% in 2022.total equity and total
liabilities position of 50:50 in 2018 has changed to 60:40 in 2022 showing the
positive trend in the company’s solvency position.
2.4
Ratio Analysis
Ratio analysis is a foundation for evaluating and pricing
credit risk and for doing fundamental company valuation. A financial ratio, or
accounting ratio, is derived from a company’s financial statements and is a
calculation showing the relative magnitude of selected numerical values taken
from those financial statements.
Financial ratios are grouped into the following categories:
1. Solvency
ratios
2. Profitability
ratios
3. Market
value ratios
4. Liquidity
and Efficiency ratios
Financial ratios may be used internally by managers within a
firm, by current and potential shareholders and creditors of a firm, and other
audiences interested in understanding the strengths and weaknesses of a
company, especially compared to the company over time or compared to other
companies.
2.4.1
Solvency Ratios
2.4.1.1
Debt Ratio
This ratio measures what portion of
a company’s assets is contributed by creditors. The debt ratio is defined
as the ratio of total debt to total assets, expressed in percentage, and can be
interpreted as the proportion of a company’s assets that are financed by debt.
In considering the Royal Ceramics
Lanka PLC the debt ratio for the years are as follows;
|
2018 |
2019 |
2020 |
2021 |
2022 |
|
49.53% |
52.16% |
43.41% |
34.97% |
39.37% |
The
above results show that the debt ratio has increased in 2019 and shows a lower
percentage in recent years. If this ratio is high, the more leveraged the
company and the greater its financial risk. There is no absolute guide to the maximum safe debt ratio.
In practice, may companies operate successfully with a higher debt ratio than
50%. Therefore, the debt ratio has to be fallen in between 50% - 60%. If the
ratio shows beyond these limits, the debt position of the company should pay
high attention.
2.4.1.2
Equity Ratio
The equity ratio is a financial
ratio indicating the relative proportion of equity used to
finance a company's assets. Equity Ratio is a good indicator of the level
of leverage used by a company.
|
2018 |
2019 |
2020 |
2021 |
2022 |
|
50.47% |
47.84% |
56.59% |
65.03% |
60.63% |
In
considering the study period equity ratio is high in the Royal Ceramics
Lanka PLC. Higher equity ratios are typically favorable
for companies. Because higher investment levels by shareholders show
potential shareholders that the company is worth investing in since so many
investors are willing to finance the company. A higher ratio also shows
potential creditors that the company is more sustainable and less risky to lend
future loans. However, considering the low ratio investors are not willing to
invest in the company.
2.4.1.3
Debt to Equity Ratio
This ratio measures the extent to which a company can
cover its debt which is calculated as follows;
|
2018 |
2019 |
2020 |
2021 |
2022 |
|
98.13% |
109.05% |
76.72% |
53.78% |
64.92% |
In considering the Royal Ceramics
Lanka PLC, the debt-to-equity ratio for the years as above shows high
percentage in the years 2018 and 2019 and then has decreased by year 2022
showing a less leverage position of the company in recent years.
2.4.1.4
Interest Coverage
Ratio
This ratio reflects the ability of
firm’s operations to provide protection to long – term creditors. It simply
expresses how much the company is strong enough to pay the interest.
|
2018 |
2019 |
2020 |
2021 |
2022 |
|
6.18 |
1.50 |
1.79 |
7.43 |
25.60 |
In considering the Royal Ceramics
Lanka PLC, the interest coverage ratio shows a decrease in year 2019 and 2020,
but significantly increased to 25 times in 2022. Therefore, it reflects that
the company is strong enough to pay the loan and the interest thereon
throughout the period.
2.4.2
Profitability Ratios
2.4.2.1
Profit Margin
Profit margin ratios are calculated in order to determine the
overall profitability of an organization after reducing both cash and non-cash
expenditures. This ratio describes a company’s ability to earn a net income
from sales.
In considering the Royal Ceramics Lanka PLC the Profit
margin ratio for the years are as follows;
|
2018 |
2019 |
2020 |
2021 |
2022 |
|
58.77% |
6.31% |
10.03% |
26.23% |
44.44% |
Profit margin is exceptionally high in year 2018 and 2022.
This is due to recognition of
Rs.1.3Bn investment disposal profit during 2018 and Rs.2.5Bn dividend income in
2022 as other operating income by the company. The lowest net profit margin has
recorded in the year 2019. A higher net profit margin means that
a company is more efficient at converting sales into
actual profit.
2.4.2.2
Gross Margin
Gross margin is a profitability measure that is calculated
as the ratio of Gross Profit (GP) to Net Sales and therefore shows how much
profit the company generates after deducting its cost of revenues.
The gross profit ratio's main value is being an accurate
indicator of how efficiently a company is selling its goods and services. This
will give the organization's management and potential investors a view of how
well the company manages to optimize its processes, keep the costs to a minimum
and produce the highest possible profit.
In considering the Royal Ceramics Lanka PLC the Gross margin
ratio for the years are as follows;
|
2018 |
2019 |
2020 |
2021 |
2022 |
|
48.40% |
46.36% |
50.50% |
50.86% |
53.04% |
Gross margin has gradually increased over the period
under concern. The highest gross margin has been recorded in 2022 which is
53%. A high
gross profit ratio will make a company very attractive for potential investors,
as it can be interpreted as a clear sign that the investment will pay off in a
relatively short time.
2.4.2.3
Return on Equity (ROE)
The amount of net income returned as a percentage of
shareholders' equity. Return on equity measures a corporation's profitability
by revealing how much profit a company generates with the money shareholders
have invested.
In considering the Royal Ceramics Lanka PLC the Return on
equity for the years are as follows;
|
2018 |
2019 |
2020 |
2021 |
2022 |
|
22.93% |
2.47% |
5.33% |
21.13% |
35.32% |
In considering the above ROE ratio of the company over the
period, it can be seen that it is relatively low in year 2019 and 2020 but
shows an increasing trend in recent years. The highest ROE shows in the year
2022 which is at 35%. The
ROE allows an investor to determine the change in profitability over the
period.
2.4.2.4
Return on Assets (ROA)
ROA measures the ability to turn assets into profit. This is
a very useful measure of comparison within an industry. A low ratio compared to
the industry may mean that your competitors have found a way to operate more
efficiently. After-tax interest expense can be added back to the numerator since
ROA measures profitability on all assets whether or not they are financed by
equity or debt.
In considering the Royal Ceramics Lanka PLC the Return on
assets for the years are as follows;
|
2018 |
2019 |
2020 |
2021 |
2022 |
|
11.82% |
1.21% |
2.81% |
12.84% |
22.09% |
In considering the above ROA ratio
of the company over the period, it can be seen that it is relatively low in
year 2019 and 2020 but shows an increasing trend in recent years. The highest
ROA shows in the year 2022 which is at 22%.
2.4.3
Investors’/ Market Ratios
2.4.3.1
Book Value per Common
Share
This ratio represents the liquidation at reported amounts.
If the company is bankrupted the amount receives for one shareholder is
reflected through this ratio values.
|
2018 |
2019 |
2020 |
2021 |
2022 |
|
87.24 |
87.58 |
131.64 |
149.04 |
17.75 |
This ratio shows a gradual increase
from 2018 to 2021 and the highest book value per share shows in the year 2021
which is Rs.149.04. Book value per share shows a significantly low value in
year 2022 due to the sub-division of Ordinary Shares on the basis of a
sub-division of every one (01) Ordinary Shares into ten (10) Ordinary Shares,
thus increasing the existing 110,789,384 issued Ordinary Shares of the Company
to 1,107,893,840 Ordinary Shares during the year under concern.
2.4.3.2
Basic Earnings per
Share
Earnings per share (EPS) represents the net income earned for
each share of outstanding common stock. In a simple capital structure, it is
calculated by dividing net income by the number of weighted average common
shares outstanding. This
ratio is very important in stock exchange in stock market when buying and
selling stock market shares.
|
2018 |
2019 |
2020 |
2021 |
2022 |
|
18.31 |
2.16 |
5.84 |
29.65 |
10.48 |
When considering EPS of Royal Ceramics Lanka PLC, it
shows a relatively lower values for year 2019 and 2020. The highest value has
been recorded in 2021 and again it has dropped in 2022. Since it gives a
positive EPS of the company it is worth buying shares by the investors.
2.4.3.3
Price- Earnings Ratio
(P/E ratio)
The PE ratio indicates strong
shareholder confidence in the company and its future, in profit growth and a
lower PE ratio indicates lower confidence. The PE ratio of one company can be
compared with the PE ratios of other companies in the same business sector and
other companies generally. It is often used in stock exchange reporting where
prices are readily available. Therefore, this ratio is often used by investors
as a general guideline in gaining stock values. It is important in buying and
selling shares.
|
2018 |
2019 |
2020 |
2021 |
2022 |
|
5755.71 |
27285.18 |
9576.64 |
8666.77 |
3882.59 |
Price earnings ratio of the company
is at a good position during the period under concern. However, P/E ratio of
2019 is exceptionally high and the lowest P/E ratio is reported in 2022.
2.4.3.4
Dividend Yield
The dividend yield or dividend-price ratio of a share is the
dividend per share, divided by the price per share. It is also a company's
total annual dividend payments divided by its market capitalization, assuming
the number of shares is constant. It is often expressed as a percentage.
|
2018 |
2019 |
2020 |
2021 |
2022 |
|
0.01% |
0.00% |
0.01% |
0.01% |
0.02% |
2.4.4
Liquidity and Efficiency Ratios
2.4.4.1
Current Ratio
The current ratio is also called the working
capital ratio, as working capital is the difference between current assets and
current liabilities. This ratio measures the ability of a company to pay its current
obligations using current assets. The current ratio is calculated by dividing
current assets by current liabilities.
|
2018 |
2019 |
2020 |
2021 |
2022 |
|
0.51 |
0.50 |
0.88 |
1.16 |
1.18 |
A current
ratio below 1 means that the company doesn't have enough liquid assets to
cover its short-term liabilities. Therefore, in considering the above current
ratio for the period from 2018 to 2020 shows the lower liquidity position of
the company which is below the norm. However, the current ratio has gradually
increased showing the improved liquidity position of the company in 2021 and
2022.
2.4.4.2
Quick Ratio
A more stringent
liquidity test indicates if a firm has enough short-term assets (without
selling inventory) to cover its immediate liabilities. This is often referred
to as the “acid test” because it only looks at the company’s most liquid assets
only (excludes inventory) that can be quickly converted to cash).
|
2018 |
2019 |
2020 |
2021 |
2022 |
|
0.25 |
0.22 |
0.23 |
0.61 |
0.88 |
Considering the analysis period, it shows a low quick ratio
than the norm. However, the ratio is gradually improving towards the norm of
1:1. A low quick ratio can be concerning. It means your business has
fewer liquid assets than liabilities. A low ratio might mean your
business has slow sales, numerous bills, and poor collections for your accounts
receivable.
2.4.4.3
Accounts Receivables
Turnover
This ratio expresses how many times
company can convert its receivables into cash each year. If the value of
this ratio becomes equal to one, the company has not credited any.
In considering the Royal Ceramics Lanka PLC the accounts
receivables turnover for the years are as follows;
|
2018 |
2019 |
2020 |
2021 |
2022 |
|
7.00 |
6.06 |
8.26 |
15.12 |
20.16 |
Even though the company has recorded lower receivables
turnover during the period 2018 to 2020, this ratio has increased significantly
in 2021 and 2022. It reflects that the company has increased its collection
efficiency of debtors in recent years than the past.
2.4.4.4
Merchandise/ Inventory
Turnover
This ratio gives an idea that how
many times a company sell and replace its inventory during a year. If the value
for this ratio becomes higher, it shows that all inventory of the company is
sold quickly and the inventory level is very lower.
In considering the Royal Ceramics Lanka PLC the merchandise
turnover for the years are as follows;
|
2018 |
2019 |
2020 |
2021 |
2022 |
|
1.37 |
1.23 |
0.98 |
1.62 |
2.29 |
The merchandise turnover ratio values of the company are not
much higher according to the results. It shows that high amount of inventory is
left and not sold much.
2.4.4.5
Days of Sales
Uncollected
This ratio indicates the number of
days a company requires to collect its money from debtors back.
In considering the Royal Ceramics Lanka PLC the days sales
uncollected for the years are as follows;
|
2018 |
2019 |
2020 |
2021 |
2022 |
|
52.11 |
60.25 |
44.17 |
24.13 |
18.10 |
The results of the calculation reveals that the company has
recorded a higher debtors collection period in 2019, but thereon gradually
reduces such period over the recent years. The lowest value has reported in
2022, i.e. 18 days. It shows that the company has managed to decrease the
collection period year to year and it is an indication of efficiently managed
company.
If this ratio becomes lower it shows that the company can
collect money within few days. The company can provide several discounts, and
tricks such as buy one and get one free to motivate receivables to give money
back.
2.4.4.6
Days of Sales in
inventory
This ratio indicates the number of
days a company requires to collect its money from debtors back. The ratio
indicates the liquidity of inventory. The time period that
inventory is kept before selling. It is better if value of the
ratio become lower.
In considering the Royal Ceramics Lanka PLC the days sales
in inventory for the years are as follows;
|
2018 |
2019 |
2020 |
2021 |
2022 |
|
265.50 |
296.34 |
373.80 |
225.81 |
159.51 |
According to above analysis, the inventory holding period of
the company is considerably high. The highest holding period shows in 2020 and
the lowest value has recorded in 2022. The higher values shows that there is a
slowdown in trading or a build – up in inventory levels or the investment in
inventories has become excessive. Several aspects of inventory holding
policy must be balanced to lower the ratio values such as lead times, seasonal
fluctuations in orders, alternative use of warehouse space, bulk buying
discounts, likelihood of inventory perishing or becoming obsolete. The above
two ratios, days of sales in inventory and days sales uncollected give an
indication of how soon inventory is converted into cash/ companies’ liquidity.
According to the company theses values of these ratios are not in a good
position.
2.4.4.7
Total Assets Turnover
Ratio
This ratio measures the efficiency of the assets in
producing sales. If the value of this ratio is greater than one, it is good for
the company and the company is more efficient. The ratio value become very much
higher is also not good for the company.
In considering the Royal Ceramics Lanka PLC the total assets
turnover ratio for the years are as follows;
|
2018 |
2019 |
2020 |
2021 |
2022 |
|
0.20 |
0.19 |
0.28 |
0.49 |
0.50 |
The calculation reflects the revenue of the company is not
much higher compared to average total assets. However, the highest assets
turnover ratio has recorded in year 2022.
3.
conclusion
The ceramic tiles and
sanitaryware industry in Sri Lanka has a long history in manufacturing and
distribution of tiles and sanitaryware all over the country as well as
exporting to many foreign countries in the world. The analysis of the annual
reports of the company under concern and other peers in the industry shows that
the profitability has been increased significantly over the period under
concern.
Royal Ceramics Lanka PLC
is a public quoted company, which is listed on the Colombo stock exchange. Royal
Ceramics Lanka PLC, the pioneer floor tile and bath ware producer in Sri Lanka
was incorporated in 1990 with the manufacture of Ceramic Glazed Floor Tiles and
sanitaryware as its core business. Today they have a market capitalization of
Rs.27,918 Million. Currently, their financial capital is funded by Rs.19.7
billion from shareholders and Rs. 12.8 billion from debt. Lanka tiles PLC has 8859
employees at present.
In considering the
improvement EPS, it reported 29.65 in 2021 which is the highest value in the
analysis period. It is a considerable improvement. The total revenue and net
interest income is a considerable increase in the study period. Total revenue
increases 3.8Bn of 2017 to 14.4 million in 2021.
The calculations and
analysis represent that the profitability and the solvency of the company are
in a good position whereas liquidity and efficiency ratios are not much
positive during the period under concern. Therefore, company mush concern highly on
the weak areas of the company and implement remedies to overcome the hard
situation of the company in such areas. Improving the average collection period
for accounts receivables, increasing inventory turnover and reducing
prepayments, provide discounts or other benefits to gather money back on time,
implementation of proper management practices as a whole and increasing
inventory levels only up to requirement are several remedies that can be
implemented.
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