1.
INTRODUCTION
Financial
Statements of a company are analysed, compared and evaluated annually in order
to understand the performance and the growth of that company. The financial
statements can be used to obtain a thorough understanding about the financial
health of the company and it shows a summary of important financial data of all
business activities of an organisation for a particular period of time. Public
listed companies prepare four main financial statements including income
statement, balance sheet, cash flow statement and the statement of equity.
These
financial statements provide information to both the internal and external
parties. The internal parties include management, internal auditors and
employees who use this financial information to take decisions. While in
contrast, external stakeholders such as shareholders, governments, potential
investors, customers and creditors use this information to understand the
financial performance of the company.
Furthermore,
financial statement analysis can be used to evaluate the present, past and the
future performance of company and also to compare with the performance of its
competitors. Horizontal analysis,
vertical analysis, trend analysis and ratio analysis are some of the techniques
used to analyse financial statements. This report will use the financial
statements of Teejay Lanka PLC to analyse the financial performance.
2.
BACKGROUND OF THE COMPANY
The
company was incorporated in 2000 as Textured Jersey Lanka and started their
commercial production in 2001. Later in 2011, the company got listed in the
Colombo Stock Exchange in the main board and rebranded the company as Teejay
Lanka PLC in 2016. And as of now, in 2021 the company has started to expand
their operations to India by incorporating Teejay India. The company has which
is based in Avissawella is a premier and leading multinational manufacturer of
weft knitted fabric. The company has expanded not only in the local market but
also in the international markets owing to the state of art printing
facilities. The company offers wide range of products and services related to
weft knit manufacturing, lace dyeing, yarn dyeing and synthetic fabric production.
The company has business partnerships with Brandix Lanka and Pacific Textiles
and cater to large number of international customer base including world
renowned leading retail brands from Europe, the US and Asia. The customers
include PVH, Calzedonia, L Brands, Decathlon, Marks & Spencer, Nike,
Uniqlo, and LIDL.
3.
FINANCIAL STATEMENT ANALYSIS
Under
this financial statement analysis, three techniques will be used namely 1)
Horizontal analysis; this refers to comparing company’s financial condition and
performance across time and is conducted by analysing the value of line items
across two or more years. The trend
analysis is also a part of horizontal analysis. 2) Vertical analysis is
comparing the company’s financial performance to a base amount while the 3)
ratio analysis uses key relations among the financial statement items and the
important ration metrics to calculate statistical relationships. These
financial statements can be compared
among other companies and with competitors within the industry.
3.1.
HORIZONTAL
ANALYSIS
Horizontal analysis is conducted to
compare the value over time. And it is used to identify the changes (increase/
decrease) in values of each year compared to the base year. The rupee change
and the percentage change are calculated as follows.
Historical analysis interprets the change in financial
statements over two or more accounting periods based on historical data. This
shows the percentage change in the same line item of the next accounting period
compared to the value of the baseline accounting period. This method is used to
obtain Year over Year (YoY) changes.
3.1.1 Horizontal Analysis
of Financial Position (Rupee change)
As at 31st March
All numbers in LKR million
|
|
2018 |
2019 |
2020 |
2021 |
2022 |
|
Non-Current Assets |
|
|
|
|
|
|
Property Plant & Equipment |
568 |
874 |
369 |
(15) |
5,934 |
|
Capital work in progress |
107 |
(325) |
470 |
(260) |
4,359 |
|
Intangible Assets |
(11) |
40 |
(17) |
48 |
37 |
|
Goodwill |
1 |
7 |
4 |
3 |
30 |
|
Receivables & Prepayments |
(12) |
8 |
(236) |
- |
- |
|
Right of use assets |
- |
- |
910 |
(11) |
442 |
|
Deferred Tax Asset |
(8) |
(14) |
145 |
(19) |
106 |
|
|
644 |
589 |
1,647 |
(254) |
10,909 |
|
Current Assets |
|
|
|
|
|
|
Inventories |
1,235 |
403 |
1,410 |
1,734 |
8,749 |
|
Receivables and Prepayments |
162 |
518 |
124 |
2,878 |
6,712 |
|
Derivative Financial Instruments |
10 |
(10) |
- |
- |
- |
|
Short-term investment |
789 |
(236) |
414 |
712 |
141 |
|
Cash and Cash Equivalents |
586 |
1,547 |
973 |
(686) |
1,398 |
|
Current Tax Receivable |
- |
9 |
9 |
(12) |
(6) |
|
|
2,782 |
2,232 |
2,930 |
4,626 |
16,994 |
|
Total Assets |
3,426 |
2,821 |
4,577 |
4,372 |
27,903 |
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
Stated Capital |
114 |
(0) |
- |
192 |
193 |
|
ESOP Fund |
21 |
11 |
- |
- |
57 |
|
Foreign Exchange Equalization Reserves |
132 |
1,594 |
1,092 |
957 |
8,995 |
|
Retained Earnings |
250 |
628 |
632 |
904 |
1,266 |
|
|
527 |
2,224 |
1,724 |
2,053 |
10,512 |
|
Non-Current Liabilities |
- |
- |
- |
- |
- |
|
Borrowings |
539 |
(306) |
(389) |
(215) |
5,384 |
|
Lease liabilities |
- |
- |
628 |
27 |
286 |
|
Deferred Tax |
70 |
220 |
109 |
(55) |
238 |
|
Retirement Benefit Obligation |
2 |
44 |
126 |
143 |
(96) |
|
|
611 |
(41) |
474 |
(99) |
5,812 |
|
Current Liabilities |
- |
- |
- |
- |
- |
|
Trade and Other payables |
2,074 |
216 |
940 |
2,775 |
8,663 |
|
Tax payable |
4 |
(15) |
92 |
35 |
106 |
|
Lease liabilities |
- |
- |
12 |
1 |
19 |
|
Borrowings |
210 |
437 |
1,335 |
(394) |
2,791 |
|
|
2,288 |
638 |
2,379 |
2,417 |
11,580 |
|
Total Equity and Liabilities |
3,426 |
2,821 |
4,577 |
4,372 |
27,903 |
3.1.2 Horizontal Analysis
of Financial Position (Percentage change)
As at 31st March
|
|
2018 |
2019 |
2020 |
2021 |
2022 |
|
Non-Current Assets |
|
|
|
|
|
|
Property Plant & Equipment |
8.16% |
11.60% |
4.39% |
-0.17% |
67.72% |
|
Capital work in progress |
31.66% |
-73.21% |
394.98% |
-44.10% |
1322.98% |
|
Intangible Assets |
-17.38% |
73.20% |
-17.59% |
61.39% |
29.55% |
|
Goodwill |
1.14% |
13.30% |
7.57% |
5.48% |
46.11% |
|
Receivables & Prepayments |
-5.20% |
3.54% |
-100.00% |
|
|
|
Right of use assets |
|
|
|
-1.25% |
49.22% |
|
Deferred Tax Asset |
-6.04% |
-11.23% |
130.82% |
-7.22% |
44.51% |
|
|
8.26% |
6.98% |
18.25% |
-2.38% |
104.70% |
|
Current Assets |
|
|
|
|
|
|
Inventories |
43.24% |
9.86% |
31.37% |
29.37% |
114.54% |
|
Receivables and Prepayments |
4.87% |
14.83% |
3.09% |
69.57% |
95.69% |
|
Derivative Financial Instruments |
|
-100.00% |
|
|
|
|
Short-term investment |
|
-29.90% |
74.82% |
73.62% |
8.38% |
|
Cash and Cash Equivalents |
27.15% |
56.41% |
22.67% |
-13.04% |
30.55% |
|
Current Tax Receivable |
|
|
107.84% |
-66.13% |
-97.70% |
|
|
33.33% |
20.06% |
21.93% |
28.40% |
81.25% |
|
Total Assets |
21.23% |
14.42% |
20.44% |
16.22% |
89.05% |
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
Stated Capital |
2.89% |
0.00% |
0.00% |
4.74% |
4.55% |
|
ESOP Fund |
33.27% |
13.16% |
0.00% |
0.00% |
58.63% |
|
Foreign Exchange Equalization Reserves |
5.41% |
61.84% |
26.18% |
18.18% |
144.60% |
|
Retained Earnings |
4.72% |
19.00% |
12.38% |
13.12% |
59.38% |
|
|
|
|
|
|
|
|
Non-Current Liabilities |
|
|
|
|
|
|
Borrowings |
95.05% |
-27.61% |
-48.55% |
-52.06% |
2724.19% |
|
Lease liabilities |
|
|
|
4.32% |
43.69% |
|
Deferred Tax |
28.08% |
69.26% |
20.31% |
-8.49% |
40.20% |
|
Retirement Benefit Obligation |
0.90% |
21.32% |
49.87% |
37.94% |
-18.44% |
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
Trade and Other payables |
85.95% |
4.81% |
19.99% |
49.18% |
102.92% |
|
Tax payable |
37.02% |
-100.00% |
|
38.02% |
84.20% |
|
Lease liabilities |
|
|
|
8.92% |
143.45% |
|
Borrowings |
13.81% |
25.28% |
61.63% |
-11.25% |
89.80% |
|
|
58.02% |
10.24% |
34.64% |
26.14% |
99.26% |
|
Total Equity and Liabilities |
21.23% |
14.42% |
20.45% |
16.21% |
89.05% |
The property plant and equipment
(PPE) has increased significantly by around 67.2% YoY in 2022. The significant
increase in 2022 can be attributed to capacity expansion project of the
company. These modernization initiatives in Sri Lanka mainly focused in
increasing the synthetic capacity by expanding the plant from 1.5 Tons- 6.7
Tons. Furthermore, the company invested in a dispersed printing, jacquard
printing, fleece technology and a lacer engraving machine which will give
results in the next financial year. These investments in PPE is mainly incurred
to yield a revenue of around USD 250 million during the financial year
2022/23.Similarly, the significant YoY growth of capital work in progress in
2022 can be attributed to the Teejay’s India expansion project.
In terms of non-current assets, it
can be observed that the inventories have grown by more than 100% YoY in 2022
which was due to the increased operational activities, supply chain disruptions
and logistics and freight challenges. On a similar note, the trade and trade
receivables have also increased by around 95% in 2022 compared to previous year
after reducing to its lowest in 2020.The YoY growth of cash and cash
equivalents, plummeted toa negative value in 2021 but increased by around 30.5%
YoY in 2022. All in all, the total assets have increased to all time high value
in 2022, with the high investments in expansion projects both in Sri Lanka and
India. Thus, this is a good sign of company’s growth over the years in
financial position perspective.
The stated capital has increased only
slightly by around 4.5% YoY in 2022, however, it could be observed that the
Foreign Exchange Equalization Reserves has increased significantly by around
144.6% in 2022. Another important element is the borrowings under non-current
liabilities which has significantly increased by around in 2022 compared to the
negative YoY growth rates compared to the previous years due to the increase in
short term bank borrowings. As a result the total liabilities have increased
significantly in the 2022.
3.1.3 Horizontal Analysis of the Income
Statement (Rupee Change)
Year ending 31st March
All numbers in LKR million
|
|
2018 |
2019 |
2020 |
2021 |
2022 |
|
Net
revenue |
2,510 |
7,099 |
1,530 |
(1,424) |
17,735 |
|
Cost
of Sales |
(2,674) |
(6,324) |
(987) |
961 |
(16,924) |
|
Gross
Profit |
(165) |
775 |
543 |
(463) |
811 |
|
Other
operating Income |
30 |
9 |
(73) |
18 |
(39) |
|
SG
& A expenses |
145 |
(73) |
(96) |
262 |
(589) |
|
Total
depreciation |
(150) |
(176) |
4 |
(87) |
(63) |
|
EBIT |
(140) |
534 |
378 |
(271) |
121 |
|
Non-operating
income |
- |
- |
- |
- |
- |
|
Finance
Income |
21 |
(4) |
142 |
24 |
172 |
|
Finance
Cost |
(52) |
(90) |
29 |
30 |
(18) |
|
Income
tax expense |
(169) |
(177) |
(30) |
(84) |
179 |
|
Profit
after taxation |
(340) |
263 |
499 |
(245) |
418 |
3.1.4 Horizontal Analysis
of the Income Statement (Percentage Change)
|
|
2018 |
2019 |
2020 |
2021 |
2022 |
|
Net revenue |
11% |
29% |
5% |
-4% |
56% |
|
Cost of Sales |
14% |
29% |
4% |
-3% |
60% |
|
Gross Profit |
-5% |
27% |
15% |
-11% |
22% |
|
Other operating Income |
14% |
4% |
-30% |
10% |
-20% |
|
SG & A expenses |
-35% |
27% |
28% |
-59% |
326% |
|
Total depreciation |
16% |
17% |
0% |
7% |
5% |
|
EBIT |
-7% |
29% |
16% |
-10% |
5% |
|
Finance Income |
24% |
-4% |
139% |
10% |
64% |
|
Finance Cost |
109% |
91% |
-15% |
-18% |
14% |
|
Income tax expense |
321% |
80% |
7% |
20% |
-35% |
|
Profit after taxation |
-18% |
16% |
27% |
-10% |
20% |
The total revenue
has been significantly increased YoY in 2022 after showing a negative growth in
2021. The negative growth of revenue in 2021 can be attributed to the
underutilization of resources due to the pandemic, while the growth in revenue
in 2022 can be attributed towards factors such as shifting of orders from China
to South Asian region, covering both the US and EU markets, price increases to
cover up the increasing raw materials, depreciation of rupee (helped to obtain
a higher dollar value through exports), skillful management and the
introduction of various new products with high quality. With the rise in
topline the gross profit has increased YoY by around 22% in 2022 after having a
negative growth in 2021 owing to the pandemic. Profit after taxes also
increased in a similar note, showing a 20% growth YoY in 2022 after showing a
negative growth in YoY in 2021.
3.2. Trend Analysis
Trend
Analysis helps to determine the financial performance over time. Here, time
period may varies according to the requirement of the analysis. Hence it could
be range from days to years and decades. In Trend Analysis, a base year is
considered and percentage growth compared to the base year is calculated.
3.2.1 Trend Analysis of the
Financial Position.
|
As at
31st March |
|||||
|
All numbers in LKR million |
2018 |
2019 |
2020 |
2021 |
2022 |
|
Non-Current Assets |
|||||
|
Property
Plant & Equipment |
100% |
112% |
116% |
116% |
195% |
|
Capital
work in progress |
100% |
27% |
133% |
74% |
1055% |
|
Intangible
Assets |
100% |
173% |
143% |
230% |
298% |
|
Goodwill |
100% |
113% |
122% |
129% |
188% |
|
Receivables
& Prepayments |
100% |
104% |
0% |
0% |
0% |
|
Deferred
Tax Asset |
100% |
89% |
205% |
190% |
275% |
|
Current
Assets |
|||||
|
Inventories |
100% |
110% |
144% |
187% |
401% |
|
Receivables
and Prepayments |
100% |
115% |
118% |
201% |
393% |
|
Derivative
Financial Instruments |
100% |
0% |
0% |
0% |
0% |
|
Short-term
investment |
100% |
70% |
123% |
213% |
231% |
|
Cash
and Cash Equivalents |
100% |
156% |
192% |
167% |
218% |
|
Current
Tax Receivable |
- |
- |
- |
- |
- |
|
Total
Assets |
100% |
114% |
133% |
156% |
296% |
|
Equity |
|||||
|
Stated
Capital |
100% |
100% |
100% |
105% |
110% |
|
ESOP
Fund |
100% |
113% |
113% |
113% |
180% |
|
Foreign
Exchange Equalization Reserves |
100% |
162% |
204% |
241% |
590% |
|
Other
components of equity |
100% |
- |
- |
- |
- |
|
Retained
Earnings |
100% |
113% |
125% |
144% |
169% |
|
Non-Current
Liabilities |
|||||
|
Borrowings |
100% |
72% |
37% |
18% |
504% |
|
Lease
liabilities |
- |
- |
- |
- |
- |
|
Deferred
Tax |
100% |
169% |
204% |
186% |
261% |
|
Retirement
Benefit Obligation |
100% |
121% |
182% |
251% |
205% |
|
Current
Liabilities |
|||||
|
Trade
and Other payables |
100% |
105% |
126% |
188% |
381% |
|
Tax
payable |
100% |
0% |
625% |
863% |
1590% |
|
Lease
liabilities |
-
|
-
|
-
|
-
|
-
|
|
Borrowings |
100% |
125% |
202% |
180% |
341% |
|
Total
Equity and Liabilities |
100% |
114% |
138% |
160% |
303% |
If we look at PPE, the growth is stag
until FY21. We can see an extreme growth in FY22 which is almost doubled as
base figure. Similar, approximately 10X increase in Capital work in progress is
seen. Thus, we can safely assume that company is moving towards rapid
expansion. Further value of Intangible Assets grown steadily over the years and
we can see a rapid growth in FY22 resulting around 1.9x growth. Company has
listed mainly Computer software as Intangible Assets and heavy investment in
system development can be seen.
When moving towards CA, Inventory and
Receivables & Prepayments increased by 4x in FY22 compared to base figure.
This will negatively affect the Cash conversion cycle of the company.
Investments and Cash & Cash Equivalents increased by 100% which is healthy
for the liquidity.
A
drastic 5x increase of Foreign Exchange Equalization Reserves can be seen due
to higher rupee depreciation in last two years. Similarly, borrowings is 5x as
the base figure. Management disclosed that excess borrowing mainly supported
company expansion and business growth. Tax payable also increased by 15x.
3.2.2 Trend Analysis of the
Income statement.
|
Year
Ending 31st March |
|||||
|
All
numbers in LKR million |
2018 |
2019 |
2020 |
2021 |
2022 |
|
Net
revenue |
100% |
129% |
135% |
129% |
201% |
|
Cost
of Sales |
100% |
129% |
134% |
129% |
207% |
|
Gross
Profit |
100% |
127% |
145% |
129% |
157% |
|
Other
operating Income |
100% |
104% |
73% |
80% |
64% |
|
SG
& A expenses |
100% |
127% |
162% |
66% |
282% |
|
Total
depreciation |
100% |
117% |
116% |
124% |
130% |
|
EBIT |
100% |
129% |
150% |
135% |
142% |
|
Finance
Income |
100% |
96% |
229% |
252% |
414% |
|
Finance
Cost |
100% |
191% |
161% |
132% |
150% |
|
Income
tax expense |
100% |
180% |
193% |
231% |
150% |
|
Profit
after taxation |
100% |
116% |
148% |
132% |
159% |
A
healthy topline growth has been recorded by TJL during last three years and a
strong growth of 2x compared to base figure was recorded in FY22. Further to
management discretions, such robust topline growth was driven by both volume
and price hike. COS also recorded a similar growth as topline over the years
which led to stable margins of TJL.
Furthermore,
there is a major drop in other operating income and recorded only 64% in FY22
compared to base figure. Expenses has been increased accordingly with the sales
growth. But we can see a notable uptrend in Finance Income which has grown
>4x. Further, a stable growth in PAT is shown by the company and recorded a
59% increase in FY22 compared to the base year, FY18.
3.3.
Vertical
Analysis
Method
of financial statement analysis listing each line item as a percentage of a
base figure within the statement. 100% shows the base figure. Here, Total
Assets (TA) considered for Balance sheet whereas Revenue is considered in
Income statement. Since the method uses percentages in each line items, it is
useful to compare financials of a firm with rivalry firms and industry despite
the company size.
3.3.1 Vertical Analysis of
the Financial Position.
|
As at
31st March |
|||||
|
All numbers in LKR million |
2018 |
2019 |
2020 |
2021 |
2022 |
|
Non-Current Assets |
|||||
|
Property
Plant & Equipment |
38.51% |
37.56% |
32.55% |
27.96% |
24.81% |
|
Capital
work in progress |
2.27% |
0.53% |
2.19% |
1.05% |
7.92% |
|
Intangible
Assets |
0.28% |
0.42% |
0.29% |
0.40% |
0.27% |
|
Goodwill |
0.26% |
0.26% |
0.23% |
0.21% |
0.16% |
|
Receivables
& Prepayments |
1.16% |
1.05% |
0.00% |
0.00% |
0.00% |
|
Right
of use assets |
0.00% |
0.00% |
3.38% |
2.87% |
2.26% |
|
Deferred
Tax Asset |
0.64% |
0.50% |
0.95% |
0.76% |
0.58% |
|
43.12% |
40.32% |
39.59% |
33.25% |
36.00% |
|
|
Current Assets |
|
|
|
|
|
|
Inventories |
20.91% |
20.08% |
21.90% |
24.38% |
27.66% |
|
Receivables
and Prepayments |
17.86% |
17.92% |
15.34% |
22.39% |
23.17% |
|
Derivative
Financial Instruments |
0.05% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Short-term
investment |
4.03% |
2.47% |
3.59% |
5.36% |
3.07% |
|
Cash
and Cash Equivalents |
14.02% |
19.16% |
19.52% |
14.61% |
10.09% |
|
Current
Tax Receivable |
0.00% |
0.04% |
0.07% |
0.02% |
0.00% |
|
56.88% |
59.68% |
60.41% |
66.75% |
64.00% |
|
|
Total
Assets |
100.00% |
100.00% |
100.00% |
100.00% |
100.00% |
|
Equity |
|
|
|
|
|
|
Stated
Capital |
20.73% |
18.12% |
15.05% |
13.56% |
7.50% |
|
ESOP
Fund |
0.44% |
0.43% |
0.36% |
0.31% |
0.26% |
|
Foreign
Exchange Equalization Reserves |
13.17% |
18.64% |
19.52% |
19.85% |
25.69% |
|
Other
components of equity |
0.05% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Retained
Earnings |
25.41% |
25.02% |
23.11% |
22.77% |
14.18% |
|
59.81% |
62.21% |
58.04% |
56.50% |
47.63% |
|
|
Non-Current Liabilities |
|
|
|
|
|
|
Borrowings |
5.66% |
3.58% |
1.53% |
0.63% |
9.42% |
|
Lease
liabilities |
0.00% |
0.00% |
2.33% |
2.09% |
1.59% |
|
Deferred
Tax |
1.63% |
2.40% |
2.40% |
1.89% |
1.40% |
|
Retirement
Benefit Obligation |
1.06% |
1.13% |
1.40% |
1.66% |
0.72% |
|
8.34% |
7.11% |
7.66% |
6.27% |
13.13% |
|
|
Current Liabilities |
|
|
|
|
|
|
Trade
and Other payables |
22.93% |
21.01% |
20.93% |
26.86% |
28.84% |
|
Tax
payable |
0.07% |
0.00% |
0.34% |
0.40% |
0.39% |
|
Lease
liabilities |
0.00% |
0.00% |
0.04% |
0.04% |
0.05% |
|
Borrowings |
8.84% |
9.68% |
12.99% |
9.92% |
9.96% |
|
|
31.85% |
30.69% |
34.30% |
37.23% |
39.24% |
|
Total
Equity and Liabilities |
100.00% |
100.00% |
100.00% |
100.00% |
100.00% |
When
we look at TJL, at the top, we can see PPE continuously drops down compared to
the Total Assets. Since TJL is an Apparel industry company, this can be
considered as a concern. Even though we see a reduction in PPE, company
recorded a huge increase in Capital work in progress up to 7.92% for in FY22.
It shows that company is getting ready to set up substantial PPE to support
manufacturing activities. Further, if we look at Cash and Cash Equivalents,
apart from FY22, it was between 14%-20% of TA. Yet, in FY22, it was dropped
down to 10.09% again raising concern for the company. When we look at Receivables
and Prepayments, it has considerably gone up from 17.86% in FY18 to 23.17% in
FY22. The figure surpassed 20% in FY21 onwards likely due to Covid impact on
the business. Inventory and other Asset side figures does not show notable
variability over the period.
Stated
Capital has shown a notable drop in last few years. It was mainly due to
raising of Borrowings from 0.63% in FY21 to 9.42% in FY22. Thus, it is clear
that company expansion activities has been carried out via external funding.
Drastic drop in interest rates during last year can be considered as a viable
reason for such massive increase in borrowings. Since TJL is engage in import
activities, a sizeable increase in Foreign Exchange Equalization can be seen
during last two years with rupee depreciation. Retain earnings dropped from
22.77% to 14.18% in FY22. Other figures does not show any drastic changes over
the period.
3.3.2 Vertical Analysis of the
Income Statement.
|
Year
Ending 31st March |
|||||
|
All
numbers in LKR million |
2018 |
2019 |
2020 |
2021 |
2022 |
|
Net revenue |
100.00% |
100.00% |
100.00% |
100.00% |
100.00% |
|
Cost
of Sales |
-88.19% |
-88.39% |
-87.29% |
-88.18% |
-90.77% |
|
Gross Profit |
11.81% |
11.61% |
12.71% |
11.82% |
9.23% |
|
Other
operating Income |
0.96% |
0.78% |
0.52% |
0.60% |
0.31% |
|
SG
& A expenses |
-1.11% |
-1.09% |
-1.33% |
-0.57% |
-1.55% |
|
Total
depreciation |
-4.32% |
-3.91% |
-3.72% |
-4.16% |
-2.80% |
|
EBIT |
7.35% |
7.39% |
8.18% |
7.70% |
5.19% |
|
Finance
Income |
0.43% |
0.32% |
0.73% |
0.84% |
0.89% |
|
Finance
Cost |
-0.40% |
-0.60% |
-0.48% |
-0.41% |
-0.30% |
|
Income
tax expense |
-0.90% |
-1.25% |
-1.29% |
-1.61% |
-0.67% |
|
Profit after taxation |
6.48% |
5.85% |
7.08% |
6.63% |
5.10% |
When
we look at COS, company managed to keep it constant between 88%-90% of the Net
Revenue. When we compared with the industry norms, 10% gross margin can be
considered as a reasonable return. Yet, a drop in other income can be seen over
the last five years from 0.96% in FY18 to 0.31% in FY22, almost a 2/3 dropped.
Company has managed to keep their expenses constant over the years despite many
economic challenges faced. Finance cost is constant yet an increase in finance
income can be seen during last 5 years. Furthermore, company has recorded a
constant PAT during the period.
4.
RATIO ANALYSIS
Ratio
analysis is done by comparing various items in the financial statements to
interpret different aspects of the business. It is mainly used to analyse four
main components as listed below.
1.
Liquidity and efficiency- These
ratios suggest the ability to meet short term obligations and to efficiently
generate revenues.
2.
Solvency- This revenue suggests the
ability to generate future revenues and meet long term obligations.
3.
Profitability- Ability to provide
financial rewards
4.
Market- Ability to generate positive
market expectations
4.1 Liquidity and Efficiency Ratios
|
|
2018 |
2019 |
2020 |
2021 |
2022 |
|
Working
Capital (LKR Mn) |
4,897 |
6,490 |
7,041 |
9,249 |
14,664 |
|
Current
Ratio |
1.79 |
1.94 |
1.76 |
1.79 |
1.63 |
|
Acid
Test Ratio |
1.13 |
1.29 |
1.12 |
1.14 |
0.93 |
|
Accounts
Receivable Turnover |
7.22 |
8.46 |
8.17 |
5.71 |
4.78 |
|
Merchandise
Turnover |
6.26 |
6.54 |
5.59 |
4.15 |
3.75 |
|
Day's
Sales Uncollected |
50.55 |
43.16 |
44.69 |
63.89 |
76.33 |
|
Day's
Sales in Inventory |
58.33 |
55.84 |
65.33 |
88.00 |
97.42 |
|
Total
Assets Turnover |
1.38 |
1.51 |
1.35 |
1.09 |
1.09 |
Working
capital- This ratio represents the current assets financed from long term
capital resources that will not require near term repayment. This is the
difference between current assets and current liabilities. If a company lacks
liquidity, it doesn’t have adequate cash to cover their day to day operations.
However, Teejay Lanka PLC’s working capital has increased significantly over
the period from 2018-22.
Current
ratio- This ratio measures the short term debt paying ability of a company and
this amount should not be too high as too much liquidity reduces profits of the
company. It can be observed that the company has maintained a healthy and
positive current throughout the period analysed.
Acid
test ratio- This ratio only considers assets that can be quickly converted into
cash, and therefore removes inventories and prepaid expenses. There has been a
slight decline in the acid test ratio in 2022. However, the ratio has been more
than 1 every year except for 2022, therefore it is a good condition
Accounts receivable
turnover- This ratio is used to measure how many times the company converts its
receivables into cash each year. The efficiency of the company is high when the
value is bigger. As shown in the chart, the turnover remained more than 5 over
2018-21 and declined suddenly in 2022.However, still this indicates a healthy
performance.
4.2 Solvency Ratio
|
|
2018 |
2019 |
2020 |
2021 |
2022 |
|
Debt Ratio |
15.56% |
14.38% |
15.92% |
12.21% |
20.10% |
|
Equity Ratio |
26.01% |
23.12% |
27.43% |
21.62% |
42.20% |
|
Times Interest Earned |
28.92 |
18.92 |
24.70 |
28.87 |
26.53 |
Debt Ratio- This ratio measures what
portion of a company’s assets are contributed by creditors. The highest debt
ratio was recorded in 2022, for the last five years. This is because the
borrowings have increased in 2022 compared to previous years due the
expansionary activities in the business. However, exceeding 20% would not be
healthy to the company.
Equity ratio -This ratio suggests what portion of a company’s
assets are contributed by owners. As per the statistics around 42% of the Teejay
Lanka PLC’s assets are financed through owners.
4.3. Profitability
|
|
2018 |
2019 |
2020 |
2021 |
2022 |
|
Profit Margin |
6.48% |
5.85% |
7.08% |
6.63% |
5.10% |
|
Gross Profit Margin |
11.81% |
11.61% |
12.71% |
11.82% |
9.23% |
|
Return on Total Assets |
8.16% |
8.30% |
8.74% |
6.74% |
4.27% |
|
Return on Common Shareholder's Equity |
13.64% |
13.35% |
15.06% |
11.94% |
8.97% |
|
Book Value per Common Share |
16.67 |
19.84 |
22.29 |
24.96 |
39.36 |
|
Earnings per share - unadjusted (1) |
2.27 |
2.65 |
3.36 |
2.98 |
3.60 |
Profit Margin- This indicates how
much proportion is the net profit from the revenue. Higher the value more the
profitable a company would be. Here, the profit margin has fluctuated where it
has recorded the highest profit margin in 2020 and thereafter the margin has
declined over 2021-22. As the profit margin is not increasing, it is not a good
sign regarding the company’s performance.
Gross Profit Margin- Here the amount
remaining from $1(1 Rupee) in sales left to cover operating expenses and a
profit after considering the sales cost. The gross profit margin has also
declined over 2020-22 after rising through 2018-20.
Return on Total Assets- This ratio
shows how a company uses its assets to generate earnings or the proportion of
net income from average total assets and this is considered as the best overall
measure of a company’s profitability. The highest value was recorded in 2020
and declined thereafter.
4.4 Market Ratio
|
|
2018 |
2019 |
2020 |
2021 |
2022 |
|
P-E Ratio |
14.03 |
11.48 |
6.94 |
13.43 |
11.04 |
|
Dividend Yield |
5.02% |
6.58% |
10.30% |
4.25% |
5.03% |
|
Dividend |
1.60 |
2.00 |
2.40 |
1.70 |
2.00 |
|
Price |
31.90 |
30.40 |
23.30 |
40.00 |
39.80 |
|
P-E Ratio |
14.03 |
11.48 |
6.94 |
13.43 |
11.04 |
|
Dividend Yield |
5.02% |
6.58% |
10.30% |
4.25% |
5.03% |
Price Earnings Ratio- This is used as
a measure to gauge stock values. A higher ratio suggests that there is more
potential for growth. As per the company stats, the PE ratio has increased in
2021 after declining in 2020 and has again declined in 2022.
Dividend Yield- This ratio indicates that the return, in terms of cash
dividends, on the current market price of the stock. The highest dividend yield
was recorded in 2020 and has declined thereafter over 2021-22.
5.
Conclusion
Objective of the Financial Statement
Analysis (FSA) is to determine the performance of a company in terms of
financial stability, liquidity, solvency, profitability etc. It further helps
to identify different trends of business activities, their long term plans,
project initiations and strategies. When considering TJL, we can say that the
company has performed quite well over the last five year period. When compared
to industry norms, the financial figures of TJL is healthy. Further with their
robust expansion, company will likely perform well in the future as well.
All these facts were reflected
through FSA carried out. Apart from slight decrease in profitability, overall
performance of the company for the last half decade is strong. Hence, if TJL
able to focus on improving profitability and margins, they will likely be one
of the major apparel exporters in Sri Lanka.
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