google.com, pub-5012522416583791, DIRECT, f08c47fec0942fa0 google.com, pub-5012522416583791, DIRECT, f08c47fec0942fa0 Colombo Stock Market Financial Research: Financial Statement Analyzing of Union Chemicals Lanka PLC. google.com, pub-5012522416583791, DIRECT, f08c47fec0942fa0
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Tuesday, February 14, 2023

Financial Statement Analyzing of Union Chemicals Lanka PLC.

 Introduction

Financial statement analysis can be identified as the process of analyzing a company's financial statements for decision-making purposes. Companies use it to it as a monitoring tool for managing the finance also; External stakeholders use it to understand the overall health of an organization and to evaluate financial performance and business value. The finance statements give a summary of all activities in the company within a particular year. There are four main financial statements in a Public limited company; balance sheet, income statement, statement of equity and cash flow statement.

Reduce uncertainty, application of analytical tools and involves transforming data are the aims of analysing financial statements. Financial statement analyses help users to make better decision. Internal users such managers, officers, internal auditors and External users such shareholders, customers, potential investors, creditors, and government. The financial statement of a company can be recorded financial data to evaluate current, past and projected performance. Information of financial analysis is used for interpretation and compares same type of data. There are several standards of comparison is used to help interpret financial statements; such Intracompany (compare in same company between last two-year company’s performance and this year) Competitor (comparing competitor’s company performance and own company performance) Industry (comparing similar organization together) Guidelines.

In General, Generally Accepted Accounting Principles (GAAP) are at the core of financial reporting (GAAP). The balance sheet, the income statement, and the cash flow statement are the three primary financial statements that must be produced and maintained by a business in accordance with these principles. Standards for financial statement reporting are more stringent for publicly traded corporations. Accrual accounting is required by GAAP, which public corporations must adhere to. Private businesses can choose between accrual and cash accounting, giving them more freedom in how they prepare their financial statements.

Mainly there are tree analysis tools which used as part of financial analysis. They are Horizontal Analysis, Vertical Analysis, and Ratio Analysis. The following report will use these three techniques to interpret data and discuss the financial performance of UNION CHEMICALS LANKA PLC. 


 

About the company 

UNION CHEMICALS LANKA PLC

Union Chemicals Lanka PLC (UCLL) is a manufacturing cum trading organization for chemicals & allied products specialized in waterborne polymer dispersions. They are a public quoted company listed in the Colombo stock exchange and a leading supplier of chemical products to Paints, inks, Packaging, Detergents, Cosmetics, Rubber, Latex, Textile, Food and Pharmaceutical industries.

The company began its chemical manufacturing operation in 1984 under Union Carbide Ceylon Ltd. They remained as an affiliate of Union Carbide Corporation (UCC) until year 2000 after which Dow Chemicals acquired UCC and the company was renamed as Union Chemicals Lanka Ltd. In November 2003, Dow Chemicals divested itself from Union Chemicals Lanka Ltd.

UCLL is the pioneering organization for manufacture of waterborne polymer dispersions in Sri Lanka. The company ventured in to the consumer market through manufacturing a range of waterborne coatings for wood and leather. UCLL represents Dow Chemicals (USA), Eastman (USA), Macropolymers Pte Ltd (India), Dominian Color Corporation (Netherlands), and Sunflag Chemicals (India) for a range of chemical products.

Logo of the company

VISION

‘‘To be the most respected Chemical Company in South Asia’’

MISSION

‘‘We are the most customer focused, quality conscious, preferred supplier of industrial chemicals in our key markets. Our people are innovative, empowered, put safety first and act as company owner.’’


Analysing Financial Statements of Union Chemical Company 

Financial statement analysis analyses a company's balance sheet, income statement, or statement of cash flows to assess its performance or value. Investors may create a more complex picture of a company's financial profile by utilizing a variety of technologies, such as horizontal, vertical, and ratio analysis. Analysis is consistence with four building blocks. Liquidity and Efficiency, Profitability, Solvency, and Market. 

Here, by using these tree techniques, Financial Statements of union chemical company are analysed. First, horizontal analysis involves comparing historical data. Usually, the purpose of horizontal analysis is to detect growth trends across different time periods. Second, vertical analysis compares items on a financial statement in relation to each other. For instance, an expense item could be expressed as a percentage of company sales. Finally, ratio analysis, a central part of fundamental equity analysis, compares line-item data. Price-to-earnings (P/E) ratios, earnings per share, or dividend yield are examples of ratio analysis.















UNION CHEMICALS LANKA PLC

Statement of Profit or Loss and Other Comprehensive Income

For the years’ ended 25th December (2016 to 2021)

Year

2016

2017

2018

2019

2020

2021

 

Rs.'000

Rs.'000

Rs.'000

Rs.'000

Rs.'000

Rs.'000

Revenue

          761,242 

        700,396 

        874,392 

      955,829 

        1,026,165 

        1,596,759 

Cost of sales 

        (559,831)

(565,385)

(734,415) 

    (768,929) 

        (786,581) 

    (1,292,032) 

Gross profit/(loss)

          201,411 

        135,011 

        139,977 

      186,900 

            239,584 

          304,727 

Other income

              7,760 

            2,301 

            8,932 

        10,226 

                6,532 

              7,528 

Selling and distribution expenses

          (14,565) 

      (17,497) 

        (15,438) 

      (22,573) 

          (22,238) 

      (17,781) 

Administrative expenses

(59,687)

(52,253)

(58,901)

(64,442)

(70,164)

(80,084)

Results from Operating Activities

          134,919 

          67,562 

          74,570 

      110,111 

            153,714 

          214,390 

Finance Income

              3,336 

            6,031 

            2,929 

              949 

                1,580 

              1,718 

Finance costs

          (2,851) 

        (1,494) 

      (11,932) 

        (6,993) 

            (3,821) 

          (13,016) 

Net finance costs

                  485 

            4,537 

          (9,003) 

        (6,044) 

            (2,241) 

          (11,298) 

Profit before tax

          135,404 

          72,099 

          65,567 

      104,067 

            151,473 

          203,092 

Income tax expense

        (38,661) 

      (21,871) 

        (16,883) 

      (29,057) 

          (43,355) 

          (31,387) 

Profit for the year

            96,743 

          50,228 

          48,684 

        75,010 

            108,118 

          171,705 

Items that will not be reclassified to profit or loss

 


 


 

 

Remeasurements of defined benefit asset/obligation

              2,126 

 

          (93) 

          (614) 

            (1,679) 

              (2,225) 

Total other comprehensive income

              2,126 

            (93) 

        (614)

              (1,679) 

            (2,225) 

Total comprehensive income for the period

            98,869 

          50,228 

          48,591 

        74,396 

            106,439 

          169,480 




UNION CHEMICALS LANKA PLC

Statement of Financial Position

As at 25th December (2016 to 2021)


Year

2016

2017

2018

2019

2020

2021

 

Rs.'000

Rs.'000

Rs.'000

Rs.'000

Rs.'000

Rs.'000 

Assets






 

Non- current assets






 

Property, plant, & equipment 

        176,171 

      185,965 

      229,279 

      275,507 

      301,185 

    341,665 

Intangible assets

                    7 

                  1 



Retirement benefit assets

            5,864 

          5,865 

          7,203 

          8,103 

          8,147 

        6,079 

Other financial assets

                  74 

              545 

              188 

              124 

              461 

            294 

Total non- current assets

        182,116 

      192,376 

      236,670 

      283,734 

      309,793 

    348,038 

Current assets






 

Inventories

        156,636 

      175,431 

      202,291 

      237,088 

      201,479 

    345,449 

Trade and other receivables

        208,453 

      188,766 

      246,669 

      214,358 

      241,135 

    382,007 

Cash and cash equivalents

          71,033 

        62,511 

          1,919 

          9,072 

        57,872 

      76,623 

Total current assets

        436,122 

      426,708 

      450,879 

      460,518 

      500,486 

    804,079 

Total assets

        618,238 

      619,084 

      687,549 

      744,252 

      810,279 

  1,152,117 

 






 

Equity & liabilities






 

Equity 






 

Stated capital (1,500,000 ordinary shares)

          15,000 

        15,000 

        15,000 

        15,000 

        15,000 

      15,000 

Retained earnings

        468,927 

      492,154 

      525,604 

      577,500 

      643,907 

    769,887 

Equity attributable to owners of the Company

        483,927 

      507,154 

      540,604 

      592,500 

      658,907 

    784,887 

Non-current liabilities






 

Retirement benefit Obligations

          10,227 

        11,728 

        13,571 

        17,394 

        21,835 

      16,205 

Deferred tax liability

            7,685 

          7,685 

          4,909 

          2,142 

          3,211 

        5,463 

Loans and borrowings



        36,312 

        39,965 

          7,043 

        2,690 

Total non-current liabilities

          17,912 

        19,413 

        54,792 

        59,501 

        32,089 

      24,358 

Current liabilities






 

Loans and borrowings

          19,531 

        39,457 

        46,333 

        17,471 

        29,290 

      78,088 

Trade & other payables

          70,813 

        35,233 

        29,581 

        42,542 

        53,976 

    220,040 

Income tax payable / Current tax liability

          16,281 

          7,265 

          8,196 

        19,755 

        24,225 

      28,673 

Dividend payable

            8,045 

        10,565 

          8,043 

          7,694 

        10,460 

        6,372 

Bank overdrafts

            1,729 



          4,789 

          1,332 

        9,699 

Total current liabilities

        116,399 

        92,520 

        92,153 

        92,251 

      119,283 

    342,872 

Total liabilities

        134,311 

      111,933 

      146,945 

      151,752 

      151,372 

    367,230 

Total equity & liabilities

        618,238 

      619,084 

      687,549 

      744,252 

      810,279 

  1,152,117 























 1. Horizontal Analysis

Horizontal analysis is comparing a company’s financial condition and performance across the time. It is used in financial statement analysis to compare historical data, such as ratios, or line items, over a number of accounting periods. It gives a review of a company's financial statements over multiple periods.

Dollar (Rupee) Change = Analysis period amount – Base period amount (Previous Year)

Percent Change = (Dollar (Rupee) Change/Base period amount) * 100%


  1. Horizontal Analysis of Financial Position (Rupee Change)

Year

2017 vs 2016

2018 vs  2017

2019 vs 2018

2020 vs 2019

2021 vs 2020

 

Rupee Change   Rs.'000

Rupee Change   Rs.'000

Rupee Change   Rs.'000

Rupee Change   Rs.'000

Rupee Change   Rs.'000

Assets

 

 

 

 

 

Non- current assets

 

 

 

 

 

Property, plant, & equipment 

9,794

43,314

46,228

25,678

40,480

Intangible assets

- 6

- 1

-

-

-

Retirement benefit assets

1

1,338

900

44

-2,068

Other financial assets

471

-357

-64

337

- 167

Total non- current assets

10,260

44,294

47,064

26,059

38,245

Current assets






Inventories

18,795

26,860

34,797

- 35,609

143,970

Trade and other receivables

-19,687

57,903

-32,311

26,777

140,872

Cash and cash equivalents

-8,522

-60,592

7,153

48,800

18,751

Total current assets

- 9,414

24,171

9,639

39,968

303,593

Total assets

846

68,465

56,703

66,027

341,838

 






Equity & liabilities






Equity 






Stated capital (1,500,000 ordinary shares)






Retained earnings

23,227

33,450

51,896

66,407

125,980

Equity attributable to owners of the Company

23,227

33,450

51,896

66,407

125,980

Non-current liabilities






Retirement benefit Obligations

1,501

1,843

3,823

4,441

- 5,630

Deferred tax liability

-

        -2,776

  - 2,767

1,069

2,252

Loans and borrowings

                - 

        36,312 

          3,653 

-32,922 

-4,353 

Total non-current liabilities

        1,501 

        35,379 

          4,709 

- 27,412 

-7,731 

Current liabilities

                  

                   

                    

                 

                  

Loans and borrowings

19,926

6,876

- 28,862

11,819

48,798

Trade & other payables

- 35,580 

- 5,652 

        12,961 

      11,434 

166,064

Income tax payable / Current tax liability

-9,016 

            931 

        11,559 

        4,470 

4,448

Dividend payable

        2,520 

-2,522 

-349 

        2,766 

-4,088 

Bank overdrafts

-1,729


4,789

-3,457

8,367

Total current liabilities

-23,879 

-367 

                98 

      27,032 

223,589

Total liabilities

- 22,378

35,012

4,807

-380

215,858

Total equity & liabilities

846

68,465

56,703

66,027

341,838



Over the year Property, plant and equipment value has significantly increased. Highest Rupee change of total assets is recorded among 2020 and 2021.over the years total assets have gradually increased. Inventories has change has significantly increased over the years. The highest inventory change has recorded among 2020 and 2021. It may cause to pandemic period and due to decrease the demands of chemicals.

Rupee change of total equity has increased over the years between 2020 and 2021 years the total equity has drastically changed. 

Rupee change of total liabilities has fluctuated over the years compared to the total assets and total liabilities. 











  1. Horizontal Analysis of Financial Position (Percentage Change)

Year

2017 vs 2016

2018 vs 2017

2019 vs 2018

2020 vs 2019

2021 vs 2020

 

Percentage Change %

Percentage Change %

Percentage Change %

Percentage Change %

Percentage Change %

Assets

 

 

 

 

 

Non- current assets

 

 

 

 

 

Property, plant, & equipment 

5.56%

23.29%

20.16%

9.32%

13.44%

Intangible assets

-85.71%

-100.00%

 

 

 

Retirement benefit assets

0.02%

22.81%

12.49%

0.54%

-25.38%

Other financial assets

636.49%

-65.50%

-34.04%

271.77%

-36.23%

Total non- current assets

5.63%

23.02%

19.89%

9.18%

12.35%

Current assets

 

 

 

 

 

Inventories

12.00%

15.31%

17.20%

-15.02%

71.46%

Trade and other receivables

-9.44%

30.67%

-13.10%

12.49%

58.42%

Cash and cash equivalents

-12.00%

-96.93%

372.75%

537.92%

32.40%

Total current assets

-2.16%

5.66%

2.14%

8.68%

60.66%

Total assets

0.14%

11.06%

8.25%

8.87%

42.19%

 

 

 

 

 

 

Equity & liabilities

 

 

 

 

 

Equity 

 

 

 

 

 

Stated capital (1,500,000 ordinary shares)

0.00%

0.00%

0.00%

0.00%

0.00%

Retained earnings

4.95%

6.80%

9.87%

11.50%

19.56%

Equity attributable to owners of the Company

4.80%

6.60%

9.60%

11.21%

19.12%

Non-current liabilities

 

 

 

 

 

Retirement benefit Obligations

14.68%

15.71%

28.17%

25.53%

-25.78%

Deferred tax liability

0.00%

-36.12%

-56.37%

49.91%

70.13%

Loans and borrowings

 

 

10.06%

-82.38%

-61.81%

Total non-current liabilities

8.38%

182.24%

8.59%

-46.07%

-24.09%

Current liabilities

 

 

 

 

 

Loans and borrowings

102.02%

17.43%

-62.29%

67.65%

166.60%

Trade & other payables

-50.25%

-16.04%

43.82%

26.88%

307.66%

Income tax payable / Current tax liability

-55.38%

12.81%

141.03%

22.63%

18.36%

Dividend payable

31.32%

-23.87%

-4.34%

35.95%

-39.08%

Bank overdrafts

-100.00%

 

 

-72.19%

628.15%

Total current liabilities

-20.51%

-0.40%

0.11%

29.30%

187.44%

Total liabilities

-16.66%

31.28%

3.27%

-0.25%

142.60%

Total equity & liabilities

0.14%

11.06%

8.25%

8.87%

42.19%



  1. Horizontal Analysis of Income Statement (Rupee Change)

Year

2017 vs 2016

2018 vs 2017

2019 vs 2018

2020 vs 2019

2021 vs 2020

 

Rupee Change   Rs.'000

Rupee Change   Rs.'000

Rupee Change   Rs.'000

Rupee Change   Rs.'000

Rupee Change   Rs.'000

Revenue

-60,846

173,996

81,437

70,336

570,594

Cost of sales 

- 5,554

-169,030

-34,514

-17,652

-505,451

Gross profit/(loss)

- 66,400

4,966

46,923

52,684

65,143

Other income

-5,459

6,631

1,294

-3,694

996

Selling and distribution expenses

- 2,932

2,059

-7,135

335

4,457

Administrative expenses

7,434

-6,648

-5,541

-5,722

-9,920

Results from Operating Activities

-67,357

7,008

35,541

43,603

60,676

Finance Income

2,695

-          3,102

-          1,980

631

138

Finance costs

1,357

-        10,438

4,939

3,172

-9,195

Net financince costs

4,052

-13,540

2,959

3,803

-9,057

Profit before tax

-63,305

-6,532

38,500

47,406

51,619

Income tax expense

16,790

4,988

-12,174

-14,298

11,968

Profit for the year

- 46,515

-1,544

26,326

33,108

63,587

Items that will not be reclassified to profit or loss






Remeasurement of defined benefit asset/obligation

-2,126

-93

-521

-1,065

-546

Total other comprehensive income

-

-

- 521

-1,065

- 546

Total comprehensive income for the period

- 48,641

- 1,637

25,805

32,043

63,041

 








  1. Horizontal Analysis of Income Statement (Percentage Change)

Year

2017 vs 2016

2018 vs 2017

2019 vs 2018

2020 vs 2019

2021 vs 2020

 

Percentage Change  %

Percentage Change %

Percentage Change %

Percentage Change %

Percentage Change %

Revenue

-7.99%

24.84%

9.31%

7.36%

55.60%

Cost of sales 

0.99%

29.90%

4.70%

2.30%

64.26%

Gross profit/(loss)

-32.97%

3.68%

33.52%

28.19%

27.19%

Other income

-70.35%

288.18%

14.49%

-36.12%

15.25%

Selling and distribution expenses

20.13%

-11.77%

46.22%

-1.48%

-20.04%

Administrative expenses

-12.45%

12.72%

9.41%

8.88%

14.14%

Results from Operating Activities

-49.92%

10.37%

47.66%

39.60%

39.47%

Finance Income

80.79%

-51.43%

-67.60%

66.49%

8.73%

Finance costs

-47.60%

698.66%

-41.39%

-45.36%

240.64%

Net financier costs

835.46%

-298.44%

-32.87%

-62.92%

404.15%

Profit before tax

-46.75%

-9.06%

58.72%

45.55%

34.08%

Income tax expense

-43.43%

-22.81%

72.11%

49.21%

-27.60%

Profit for the year

-48.08%

-3.07%

54.08%

44.14%

58.81%

Items that will not be reclassified to profit or loss

 

 

 

 

 

Remeasurements of defined benefit asset/obligation

-100.00%

-

560.22%

173.45%

32.52%

Total other comprehensive income

-

-

560.22%

173.45%

32.52%

Total comprehensive income for the period

-49.20%

-3.26%

53.11%

43.07%

59.23%



Rupee change of revenue has increased from 2017 to 2021. In 2021, sales have increases more than doubled from 2020. Highest rupee change of gross profit has increased from 2017 to 2021. Total income has increased 59.23% with highest change recorded over five years. It is more than doubled from previous year income. Net financial cost has fluctuated 2017 to 2020and in 2021financial cost has increased drastically. Overall the company has been grown slowly.




  1. Trend Analysis

Trend analysis is a technique used in technical analysis that attempts to predict future stock price movements based on recently observed trend data. Trend analysis uses historical data, such as price movements and trade volume, to forecast the long-term direction of market sentiment

Base period 2016

Trend Analysis = (Analysis Period Amount/ Base Period) * 100%

Trend Analysis of Financial Position

Year

2016

2017

2018

2019

2020

2021

 

 

 


 

 

 

Assets

 

 


 

 

 

Non- current assets

 

 


 

 

 

Property, plant, & equipment 

100.00%

105.56%

130.15%

156.39%

170.96%

193.94%

Intangible assets

100.00%

14.29%

0.00%

0.00%

 

 

Retirement benefit assets

100.00%

100.02%

122.83%

138.18%

138.93%

103.67%

Other financial assets

100.00%

736.49%

254.05%

167.57%

622.97%

397.30%

Total non- current assets

100.00%

105.63%

129.96%

155.80%

170.11%

191.11%

Current assets

 

 


 

 

 

Inventories

100.00%

112.00%

129.15%

151.36%

128.63%

220.54%

Trade and other receivables

100.00%

90.56%

118.33%

102.83%

115.68%

183.26%

Cash and cash equivalents

100.00%

88.00%

2.70%

12.77%

81.47%

107.87%

Total current assets

100.00%

97.84%

103.38%

105.59%

114.76%

184.37%

Total assets

100.00%

100.14%

111.21%

120.38%

131.06%

186.35%

 

 

 


 

 

 

Equity & liabilities

 

 


 

 

 

Equity 

 

 


 

 

 

Stated capital (1,500,000 ordinary shares)

100.00%

100.00%

100.00%

100.00%

100.00%

100.00%

Retained earnings

100.00%

104.95%

112.09%

123.15%

137.31%

164.18%

Equity attributable to owners of the Company

100.00%

104.80%

111.71%

122.44%

136.16%

162.19%

Non-current liabilities

 

 


 

 

 

Retirement benefit Obligations

100.00%

114.68%

132.70%

170.08%

213.50%

158.45%

Deferred tax liability

100.00%

100.00%

63.88%

27.87%

41.78%

71.09%

Loans and borrowings

 

 


 

 

 

Total non-current liabilities

100.00%

108.38%

305.90%

332.19%

179.15%

135.99%

Current liabilities

 

 


 

 

 

Loans and borrowings

100.00%

202.02%

237.23%

89.45%

149.97%

399.82%

Trade & other payables

100.00%

49.75%

41.77%

60.08%

76.22%

310.73%

Income tax payable / Current tax liability

100.00%

44.62%

50.34%

121.34%

148.79%

176.11%

Dividend payable

100.00%

131.32%

99.98%

95.64%

130.02%

79.20%

Bank overdrafts

100.00%

0.00%

0.00%

276.98%

77.04%

560.96%

Total current liabilities

100.00%

79.49%

79.17%

79.25%

102.48%

294.57%

Total liabilities

100.00%

83.34%

109.41%

112.99%

112.70%

273.42%

Total equity & liabilities

100.00%

100.14%

111.21%

120.38%

131.06%

186.35%

                         

Graph 01: Trend Analysis of Financial Position

According to above graph, easily identified that how total assets, equity and total liabilities has change over the five years comparing with based year of 2016. A total liability has drastically increased than 2016 and 2021. Overall company’s total assets and total equity has significantly increased. But when consider the total liabilities, it has decreased in 2017 and the increased gradually.  Overall company has raised their assets and equities. So, further increasing them and by investing or issuing shares they can recover the liabilities.






Trend Analysis of Income Statement

Year

2016

2017

2018

2019

2020

2021

 

 

 

 

 

 

 

Revenue

100%

100%

100%

100%

100%

100%

Cost of sales 

-74%

-81%

-84%

-80%

-77%

-81%

Gross profit/(loss)

26%

19%

16%

20%

23%

19%

Other income

1%

0%

1%

1%

1%

0%

Selling and distribution expenses

-2%

-2%

-2%

-2%

-2%

-1%

Administrative expenses

-8%

-7%

-7%

-7%

-7%

-5%

Results from Operating Activities

18%

10%

9%

12%

15%

13%

Finance Income

0%

1%

0%

0%

0%

0%

Finance costs

0%

0%

-1%

-1%

0%

-1%

Net finance costs

0%

1%

-1%

-1%

0%

-1%

Profit before tax

18%

10%

7%

11%

15%

13%

Income tax expense

-5%

-3%

-2%

-3%

-4%

-2%

Profit for the year

13%

7%

6%

8%

11%

11%

Items that will not be reclassified to profit or loss

 

 

 

 

 

 

Remeasurements of defined benefit asset/obligation

0%

0%

0%

0%

0%

0%

Total other comprehensive income

0%

-

0%

0%

0%

0%

Total comprehensive income for the period

13%

7%

6%

8%

10%

11%


                     

Graph 02: Trend analysis of income statement

Here, cost of sales has gradually increased since 2016. In 2017 and 2018 gross profit has decreased than gross profit of 2016. But since 2018 gross profit is rapidly increased. Company’s sales has rapidly increased compare to 2016 and it show company growth for last five years  


  1. Vertical Analysis 


In the vertical analysis, each line item in the supplied financial statement is shown as a percentage of the overall account. It is computed for the specified year. Every item under assets and every item under equity and liability are defined in the statement of financial position as a percentage of total assets and liabilities, respectively. Every line item is broken down into a percentage of overall revenue in the income statement.

Common – size percentage = Analysis Amount/Base Amount *100%


Vertical Analysis of Financial Position

Year

2016

2017

2018

2019

2020

2021

 

 

 

 

 

 

 

Assets

 

 


 

 

 

Non- current assets

 

 


 

 

 

Property, plant, & equipment 

28.5%

30.0%

33.3%

37.0%

37.2%

29.7%

Intangible assets

0.0%

0.0%

0.0%

0.0%

 

 

Retirement benefit assets

0.9%

0.9%

1.0%

1.1%

1.0%

0.5%

Other financial assets

0.0%

0.1%

0.0%

0.0%

0.1%

0.0%

Total non- current assets

29.5%

31.1%

34.4%

38.1%

38.2%

30.2%

Current 

Assets

 

 


 

 

 

Inventories

25.3%

28.3%

29.4%

31.9%

24.9%

30.0%

Trade and other receivables

33.7%

30.5%

35.9%

28.8%

29.8%

33.2%

Cash and cash equivalents

11.5%

10.1%

0.3%

1.2%

7.1%

6.7%

Total current assets

70.5%

68.9%

65.6%

61.9%

61.8%

69.8%

Total assets

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

 

 

 


 

 

 

Equity & liabilities

 

 


 

 

 

Equity 

 

 


 

 

 

Stated capital (1,500,000 ordinary shares)

2.4%

2.4%

2.2%

2.0%

1.9%

1.3%

Retained earnings

75.8%

79.5%

76.4%

77.6%

79.5%

66.8%

Equity attributable to owners of the Company

78.3%

81.9%

78.6%

79.6%

81.3%

68.1%

Non-current liabilities

 

 


 

 

 

Retirement benefit Obligations

1.7%

1.9%

2.0%

2.3%

2.7%

1.4%

Deferred tax liability

1.2%

1.2%

0.7%

0.3%

0.4%

0.5%

Loans and borrowings

0.0%

0.0%

5.3%

5.4%

0.9%

0.2%

Total non-current liabilities

2.9%

3.1%

8.0%

8.0%

4.0%

2.1%

Current liabilities

 

 


 

 

 

Loans and borrowings

3.2%

6.4%

6.7%

2.3%

3.6%

6.8%

Trade & other payables

11.5%

5.7%

4.3%

5.7%

6.7%

19.1%

Income tax payable / Current tax liability

2.6%

1.2%

1.2%

2.7%

3.0%

2.5%

Dividend payable

1.3%

1.7%

1.2%

1.0%

1.3%

0.6%

Bank overdrafts

0.3%

0.0%

0.0%

0.6%

0.2%

0.8%

Total current liabilities

18.8%

14.9%

13.4%

12.4%

14.7%

29.8%

Total liabilities

21.7%

18.1%

21.4%

20.4%

18.7%

31.9%

Total equity & liabilities

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

 

Vertical Analysis of the Income Statement

Year

2016

2017

2018

2019

2020

2021

 

 

 

 

 

 

 

Revenue

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

Cost of sales 

-73.5%

-80.7%

-84.0%

-80.4%

-76.7%

-80.9%

Gross profit/(loss)

26.5%

19.3%

16.0%

19.6%

23.3%

19.1%

Other income

1.0%

0.3%

1.0%

1.1%

0.6%

0.5%

Selling and distribution expenses

-1.9%

-2.5%

-1.8%

-2.4%

-2.2%

-1.1%

Administrative expenses

-7.8%

-7.5%

-6.7%

-6.7%

-6.8%

-5.0%

Results from Operating Activities

17.7%

9.6%

8.5%

11.5%

15.0%

13.4%

Finance Income

0.4%

0.9%

0.3%

0.1%

0.2%

0.1%

Finance costs

-0.4%

-0.2%

-1.4%

-0.7%

-0.4%

-0.8%

Net financier costs

0.1%

0.6%

-1.0%

-0.6%

-0.2%

-0.7%

Profit before tax

17.8%

10.3%

7.5%

10.9%

14.8%

12.7%

Income tax expense

-5.1%

-3.1%

-1.9%

-3.0%

-4.2%

-2.0%

Profit for the year

12.7%

7.2%

5.6%

7.8%

10.5%

10.8%

Items that will not be reclassified to profit or loss

 

 

 

 

 

 

Remeasurements of defined benefit asset/obligation

0.3%

0.0%

0.0%

-0.1%

-0.2%

-0.1%

Total other comprehensive income

0.3%

-

0.0%

-0.1%

-0.2%

-0.1%

Total comprehensive income for the period

13.0%

7.2%

5.6%

7.8%

10.4%

10.6%



  1. Ratio Analysis

Ratio analysis is a mathematical technique for analysing a company's financial documents, such as the balance sheet and income statement, to gather knowledge about its liquidity, operational effectiveness, and profitability. Fundamental equity research is built on ratio analysis.

Ratio analysis compares line-item data from a company's financial statements to reveal insights regarding profitability, liquidity, operational efficiency, and solvency.

Worling Capital

Working capital indicates does the company have money to run the business for day-to-day expenses, salary payment, bills (outstanding, electricity, telephone bills). Before analyse the finance statements working capital situation should be analysed.

Working capital = Current assets – Current liabilities

YEAR

2017

2018

2019

2020

2021

Working Capital (Rs. '000)

334,188

358,726

368,267

381,203

461,207

Working capital measures, a company’s liquidity and short-term financial health. Over the five years this company shows increasing positive working capital values. That indicates company can fund its current operations and invest in future activities and growth. In 2021, company has highest working capital; it shows a good sign for running the company well. But high working capital isn’t always a good thing it might be indicate that business has too much inventory, not investing its excess cash or not capitalizing on low expense debt opportunity. Further, future growth of the company after 2021 will be depend on how company maintain inventory and other assets.   

Liquidity and Efficiency

Liquidity & Efficiency Ratios

Units

YEAR

2017

2018

2019

2020

2021

Current Ratio

 

4.61: 1

4.89: 1

4.99: 1

4.20: 1

2.35: 1

Acid Test Ratio

 

2.72: 1

2.70: 1

2.42: 1

2.51: 1

1.34: 1

Account Receivable Turnover

times

0.88

1.00

1.04

1.13

1.28

Merchandise Turnover

times

0.85

0.97

0.88

0.90

1.18

Days' Sales Uncollected

days

98.4

103.0

81.9

85.8

87.3

Days' Sales in Inventory

days

        113.25 

        100.54 

        112.54 

          93.49 

          97.59 

Total Assets Turnover

times

0.28

0.33

0.33

0.33

0.41


  • Current Ratio

This ratio measures the short-term debt-paying ability of the company. This ratio should not be too high because too much liquidity is not suitable for the company. Then they should invest the extra money.

Current ratio = Current assets / Current liabilities

Graph 03: changing of current ratio over the five years

According to the calculated values, this company’s all current ratio values are greater than 1.00 which strong values, it indicates that the company has the financial resources to remain solvent in short-term. 2017-2020’s values are high ratios and they are more than 3.00 related to current assets. it could be indicated that the company can cover its current liabilities more than three times. Also, it may indicate that the company was not using its current assets efficiently, securing financing very well or proper managing its working capital.

According to the graph (Graph 03), it is obvious that there is a gradual improvement during 2017 to 2019. May be due to the corona pandemic followed by economic crisis occurred in the Sri Lankan economy, cause to reduce the demand for the chemical production and chemical industry. It leads to gradually deceased the current ratio in 2020 to 2021.





  • Acid Test Ratio

This ratio is a quick test as inventory takes to convert to cash. This ratio excludes current assets such as inventories and prepaid expenses that may be difficult to convert into cash quickly. Only consider the company's ability to pay its debt by using assets that can be rapidly converted into cash. 

Acid test ratio = Quick assets / Current liabilities

Quick assets = Total current assets – Inventory and Prepayment 

This company has reduced the acid test ratio value over the five years. Decreasing acid test ratio is not good. But as all these values are greater than 1 it seems this company has been holding good acid test ratios; as ratios are moderate values it is good means this company has ability to pay current liabilities without inventories. 

Graph 04: Changing Acid Test Ratio over the five years

  • Account Receivable Turnover

Account Receivable Turnover ratio measures how many times a company converts its receivables into cash each year or how effective it is to extend credit and collect the debt. The bigger the value, the better the company’s efficiency.

Accounts receivable turnover =Sales on account / Average account receivables

 According to above (graph 05), the company has been maintained good values for account Receivable turnover ratio by increasing values and it was hitting thehighest value in 2021. This indicates a healthy performance.

  • Merchandise Turnover

This ratio measures the number of times merchandise is sold and replaced during the year related to its cost of sales. This is also referred to as stock turnover and inventory turnover. The higher the value, the better the company's ability in selling goods.

Merchandize turnover = Cost of goods sold / Average inventory

 In Union Chemicals Lanka company’s selling has been increasing over the years. But overall, a low inventory turnover ratio values can be observed values (graph 05) shows that company is not in good position in merchandise turnover compare to other values although over the years values has been increased.

Graph 05: Changing merchandise and account receivable turnover

  • Days' Sales Uncollected

This ratio measures the liquidity of receivables. It gives answer for How many days have to be waited to get cash. Lesser the no. of days, the better the liquidity of the company.

 Days’ sales uncollected = (Accounts receivable / Net sales) * 365

In this company, the values have fluctuated over the years, and it is more than 30 days which somewhat weak performance and it means the company is selling its products to customers on credit and waited long time to collect the money. This can lead to cash flow problems in the company.


  • Days' Sales in Inventory

This ratio measures the liquidity of inventory. Lesser days is good. It indicates efficiency of sales. 

Days’ sales in inventory = (Ending inventory / cost of sales) * 365

 According to calculated data, it seems the inventory is difficult to sale in the company. The highest number of days is recorded in 2017, but the value has decreased, which is a good sign of company’s health. But The value is near to 100 days or more 100 days which means results of weak performance of the company. The company needs manage their inventory properly.

  • Total Assets Turnover

This ratio measures the efficiency of assets in producing sales. The value should be greater than 1 to indicate a higher efficiency rate. 

Total assets turnover = Revenue / Average total assets

All five years' values are less than one, which implies the average total assets are more than total revenue. This means the company is less efficient towards utilizing assets of company. It might be due to excess production capacity, poor collection method or poor inventory management. From 2020 to 2021 it has increased after 2017 year which good sign for future. 

Solvency

Solvency Ratios

Units

YEAR

2017

2018

2019

2020

2021

Debt Ratio

%

18

21

20

19

32

Equity Ratio

%

82

79

80

81

68

Time Interest Earned

times

47.26

4.50

13.88

38.64

14.60


  • Debt Ratio

This ratio measures what portion of a company's assets are contributed by creditors. If debt ratio is greater values, it means company has more assets than debt and company’s risk level is high.

Debt ratio = (Total liabilities / Total assets) *100

The debt ratio has not exceeded more than 30% in any year except in 2021, which means its assets consist of lesser contribution from creditors and company has more assets than debt, means company is in safe level. But in 2021 debt ratio has increased. company should manage the debt level for better future of the company.

  • Equity Ratio

This ratio measures what portion of a company's assets are contributed by owners. It indicates how financial stable the company may be in the long run. 

Equity ratio = (Total shareholder’s equity / Total assets) *100

Approximately, over the year, more than 70% assets are contributed through the owners' equity except in 2021, means the more assets it has financed with stock rather than debt. a good sign.

Graph 06: annual debt ratio and equity ratio

  • Time Interest Earned Ratio

This ratio measures the ability of a firm's operations to protect the long-term creditor or how strong the company is in paying the interest. The higher the value, the higher the ability of the company. Higher time interest earned ratio is favourable.  

Times interest earned = Net income before interest expense and income taxes 

                                                              Interest expense

The values have fluctuated randomly every year due to different amount of finance cost in each year. Highest value in 2017 means company presents less of a risk to investors and creditors in term of solvency. Considered as acceptable risk, but in 2021 this value has reduced to 14.60. that is not good sign for the company. However overall values are in a good condition. The company has enough cash after paying its debts to continue to invest in the business.

Profitability

Profitability Ratios

Units

YEAR

2017

2018

2019

2020

2021

Profit Margin

%

7.2%

5.6%

7.8%

10.4%

10.6%

Gross Margin

%

19.3%

16.0%

19.6%

23.3%

19.1%

Return on Total Assets

%

2.0%

1.9%

2.6%

3.4%

4.3%

Return on Common Shareholders' Equity

%

2.5%

2.3%

3.3%

4.3%

5.9%

Book Value Per Common Share

(Rs.) per share

          338.10 

        360.40 

        395.00 

        439.27 

        523.26 

Basic Earnings Per Share

(Rs.) per share

33.49

32.46

50.01

72.08

114.47


  • Profit Margin

This ratio indicates a company's ability to generate a net profit from sales or the percentage of net profit generated from revenue. The company is more profitable the higher the valuation

Profit margin = (Net income / Net sales) *100

Here, the profit margin has varied, reaching its highest point in 2021 and its lowest point in 2018. The profit is growing since 2018 annually, which is a strong sign for the functioning of the business.

Graph 07: annual profit margin and gross margin

  • Gross Margin

This ratio calculates how much of $1(1 Rupee) in sales is left over after operating costs and a profit are taken into account. To exist, a corporation needs a high value.

Gross margin = (Net sales – Cost of sales / Net sales) * 100


 Here, as this is a manufacturing company it has larger cost of goods sale than service company. Consequently, Gross margin values are less values, further, in this company’s gross margin has fluctuated over the years and company gained highest value in 2020. The gross margin is not increasing yearly, which is not a good indication of the company's performance. It may strive to slash labour costs or source cheaper supplier of materials. It may decide to increase prices as revenue increasing. This ratio measure company efficiency. Efficiency has reduced 2020 to 2021. 

  • Return on Total Assets

This ratio indicates how effectively a company uses its assets to generate earnings or the proportion of net income from average total assets. This is the best overall measure of a company’s profitability.

Return on total assets = (Net income / Average total assets) * 100

According to this analysis, the highest value recorded is in 2021 and the value has increased since 2018, it seems the company is doing well at increasing the profits with cash investment rupee it spends. Overall, these values are not favourable as all values are below 5% it indicate the company is not been used its assets to generate earnings. 

  • Return on Common Shareholders' Equity

This metric shows how well the business used the owners' capital to generate money, or the percentage of income generated per rupee invested.

Return on common shareholders’ equity = Net income – preferred dividends    

                                                                       Average shareholder’s equity            

                                                                       

 Here also, the highest value recorded is in 2021 and the value has increased since 2018 to 2021 which shows good performance of the company. It means company’s management doing efficiently at generating income and growth from its equity financing. But when considering the years’ values company’s management is above average at using the company’s assets to create profits. 




  • Book Value Per Common Share

This ratio measures liquidation at reported amounts or the amount a shareholder gets at the situation of the company closing due to bankruptcy. 

Book value per common share = shareholders’ equity applicable to common shares 

                                                             Number of common shares outstanding

 According to calculated data, values have increased over the year showing good sign of the company performance. The company can use a portion of its earnings to buy assets that would increase common equity along with book value per share or  common stock can be repurchased from shareholders and many companies use earning to buy back shares to increase this ratio. 

  • Basic Earnings Per Share

This ratio is tools for before buying market share. This measure indicates how much income was earned for each share of common stock outstanding. This is an essential factor to consider when buying/selling shares. If the value is high, it is favourable to buy shares and if the value is low, it is unfavourable to buy shares. 

Basic earnings per share = (Net income - preferred dividends           

                                            Weighted average common shares outstanding

Graph 08: annual basic earnings per share

According to above graph 08, by the years this ratio has increased with showing highest value in 2021 which means the company is profitable and good to invest in. however in 2017 and 2018 not suitable to buy shares. 

Market Ratio

Market Ratio

Units

YEAR

2017

2018

2019

2020

2021

Price Earnings Ratio

times

12

12

8

11

7

Dividend Yield

%

3.2%

3.0%

5.3%

3.6%

2.9%


  • Price Earnings Ratio

This metric is frequently used by investors as a broad benchmark for assessing stock values. In general, a company has more potential for growth the higher its price-earnings ratio. This ratio evaluates the market value to earnings per share of the company. This value should be lower value for better results. 

Price Earnings per Share = Market price per share / Earning per share

The value has fixed same in 2017 and 2018 but the value is increased from 2019 to 2020. After 2020 it has going down for less value. This indicates that there is a possibility that the company stocks are undervalued. Investors can buy the stock at a discounted price, or it can mean a genuine lack of growth potential. 

Graph 09: annual price earnings ratio




  • Dividend Yield

This ratio identifies the return, in terms of cash dividends, on the current market price of the stock. It shows how much a company pays out in dividends each year relative to its stock price.

Dividend yield = Annual dividends per share 

                            Market price per share


The values have fluctuated throughout the years. The highest dividend yield is recorded in 2019 and lowest values recorded in 2021 which is not good sign. When observing the values, they are in moderate value range. From 2018 to 2019 the dividend yield has increased this could be because their share price is declining, or both. Depending on the circumstances, this may be seen as either a positive or a negative sign by investors. But from 2019 to 2021 the value has decreased. That is not good for the company. 


Graph 10: annual dividend yield







Conclusion and Recommendations 

The goal of financial analysis is to analyse whether an entity is stable, solvent, liquid, or profitable enough to warrant a monetary investment. It is used to evaluate economic trends, set financial policy, build long-term plans for business activity, and identify projects or companies for investment. 

The above report consists of a thorough analysis of Union Chemicals Lanka PLC Company, Data from five financial years were taken, and horizontal, vertical and ratio analyses were performed. The company has shown good performance and revenue growth. Also, the percentage of total assets has been increasing. This Financial analysis determines a company’s health and stability, providing an understanding of how the company conducts its business.

When considering above trend analysis, the company’s overall performance is going well. Especially after 2018 the company show a healthy growing sign. However, when observe the vertical analysis, the vertical analysis shows somewhat lack of property, plant and equipment assets compared to net assets. Although revenue is increased through the years, the cost for gaining the revenue (cost of sale) is huge. The company should focus to reduce cost of sales and suggesting use to new technology and as this is a chemical industry, new reaction steps and new method which reduced production cost can be discovered by helping the R&D department. Then wastage cost can be reduced and waste can be reused to earning more profit. When consider the ratio analysis, these tests performed, the company's liquidity position is at a healthy state. 

But by observing liquidity ratios It seems that the company has not maintained their inventory properly. Those are manageable problems. The company can increase sales by promotions, advertising etc. in solvency ratio the company is in favourable state. Company has lower risk for liabilities.  In profitability the company should more attention for earning profit more. increasing the price or increasing volume of unit sold or both will help to increase profit. But practically, a price rise is possible only to the extent of not losing the competitive edge in marketplace, while sale volumes remain depend on market dynamics like overall demand percentage of market share commanded by the business, and competitors’ existing position and future moves. So, company should consider all these factors. The company needs well managed and planed strategies for each division. Also, the company should give special attention to their inventory strategies and in making policies to stabilize the company performance.


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