1. Introduction
Companies’ ultimate objective is maximizing shareholders’ wealth. Shareholders are the owners of the organization, and they expect a maximum return for their invested shares from the company. Apart from shareholders company is responsible for a number of people who have various interests in organizations’ activities. These people are known as stakeholders and they are managers, employees, customers, investors, government, lenders, suppliers, environmental bodies, etc. companies usually provide information about their performance to stakeholders through financial statements.
Financial statements are written records of the financial performance of a company that mainly consists of a statement of profit and loss, statement of financial position, statement of cash flow, statement of changes in equity, and notes to the accounts. Even though financial statements provide financial information about the company, it will be difficult to understand the real meaning of the data without analysis. Financial statement analysis evaluates companies’ performance using various analyzing techniques to understand the company’s performance in a better way to make decisions.
Financial statement analysis can be carried out in several ways using current, past, or future data. For example, one company’s performance can be compared to its own for different years or with other companies in the same industry or with the industry standard. This report consists of important financial statement analysis namely horizontal analysis, trend analysis, vertical analysis, and ratio analysis for the last five years (from 2018 to 2022)
2. About the Company
Hayleys is the most diversified conglomerate in Sri Lanka, with business interest across 16 sectors and a global footprint in 5 continents along with 144 years of heritage. The Hayleys Group is one of the country’s largest value-added exporters. Hayleys accounts for approximately 4.2% of Sri Lanka’s export income, 3.6% of its tea, and 4.3% of its rubber production, with business interests in 16 diverse sectors, catering to 70 markets worldwide. Hayleys commands globally leading market positions in several key sectors, such as transportation and logistics, agriculture and retail, accounts for 5% of global demand for household and industrial gloves. Hayleys is the world’s largest manufacturer of coconut-shell based activated carbon (wikipedia, 2022)
Hayleys portfolio includes eco-solutions, hand protection, purification, agriculture, consumer and retail, leisure, textile manufacturing, construction materials, plantations, industrial solutions, power and energy, transportation and logistics, BPO, tea exports, projects and engineering, and investments and services. Hayleys comprises over 130 business units and subsidiaries, nine of which are publicly listed on the Colombo Stock Exchange. In addition to Sri Lanka, Hayleys today has manufacturing facilities in Indonesia and Thailand and marketing operations in Australia, India, Bangladesh, Italy, Japan, Netherlands, UK, and the USA. And its products are sold in 80 countries. Due to its vast diversification, it has recorded the milestone that it is the first listed company in Sri Lanka to cross USD 1 bn revenue in the Fiscal Year 2017/18 (Hayleys, 2022)
It would be challenging and interesting to analyze the financial statement of a well-diversified conglomerate company like Hayleys to understand the trend and flow of significant elements in the statements and to evaluate the relationship between significant components using ratio analysis.
3. Financial Statement Analysis
As mentioned above financial statement analysis helps to draw a true picture of the company’s performance. Various analyzing techniques can be used to understand the interrelationship between the items, performance, and implication of policies.
This report focuses on three significant analyses. The first one is the horizontal analysis, and it compares the performance across time. Take a particular year as the base and compare other years’ performance with the base year. Trend analysis is also performed, and it is considered as part of horizontal analysis. Then the vertical analysis is performed to evaluate the performance taking total assets in the balance sheet and revenue in the profit and loss statement as a base or 100. Finally, ratio analysis is performed using various numerical values to understand the company’s liquidity, profitability, solvency, and market performance.
3.1 Horizontal Analysis
Horizontal analysis is used in the review a of company’s financial statements over multiple periods. This report considers the Heyley’s horizontal analysis for five years taking 2017 as the base year. First the amount changes have been calculated and then using the amount changes (rupee changes) percentage changes have been calculated that are summarized in the following tables.
Analysis Period- 2018 to 2022
Base Period- 2017
Amount Change= Current year amount – The base period amount
Percentage Change = (Amount Change/ Base period amount) *100
3.1.1 Horizontal Analysis of Financial Position
Table 1. Horizontal Analysis (Amount Change)
Description 2018 2019 2020 2021 2022
Assets
Non-current assets
Property, plant & equipment -2,065,550 -2,150,269 -2,198,509 -2,240,214 -2,277,344
Right-of-use assets 255,329 191,497
Investment properties 60,750 70,350 75,900 79,600 88,850
Intangible assets 35,229 58,698 74,310
Investments in subsidiaries 14,726,317 15,791,445 17,197,773 17,123,261 16,956,612
Investments in equity accounted investees 1,504,863 1,504,863 1,504,863 1,504,863
Other non- current financial assets -8,900 -17,800 -26,700 -39,610 -47,172
Deferred tax assets 71,215 24,525 14,771
Amount due from subsidiary 610,000 610,000
Total non-current assets 12,712,617 15,198,589 16,659,771 17,376,452 17,116,387
Current assets
Inventories -148 -297 569 533 6,287
Amounts due from subsidiaries 623,877 2,237,210 2,010,869 1,333,227 2,721,159
Amounts due from equity accounted investees -4,805 -85 26,584 77,330 -12,465
Trade and other receivables 4,166 7,063 31,431 26,645 20,161
Other current assets 33,677 -49,852 -52,801 -41,698 -29,859
Income tax recoverable 7,259 37,474 57,506 -5,411 63,234
Other current financial assets -8,396 -10,549 -12,086 -9,194 -9,490
Short term deposits 241,719 254,515
Cash in hand and at bank 263,664 -8,542 248,338 20,658 632,818
Total current assets 919,294 2,212,422 2,310,410 1,643,809 3,646,360
Total assets 13,631,911 17,411,011 18,970,181 19,020,261 20,762,747
Equity and liabilities
Stated capital 0 0 0 0 0
Capital reserves 0 0 0 0 0
Other components of equity -1,991,460 -1,991,460 -1,991,460 -1,991,460 -1,991,460
Revenue reserves 3,399,860 3,002,366 819,204 1,028,449 1,537,261
Total equity attributable to equity holders of the company 1,408,400 1,010,906 -1,172,256 -963,011 -454,199
Total equity 1,408,400 1,010,906 -1,172,256 -963,011 -454,199
Non-current liabilities
Interest-bearing borrowings 6,280,979 6,202,648 12,067,674 13,304,017 12,363,829
Employee benefit obligations 156,667 326,000 395,570 498,908 741,366
Total non-current liabilities 6,437,646 6,528,648 12,463,244 13,802,925 13,105,195
Current liabilities
Trade and other payables 62,760 200,350 218,458 890,597 1,011,978
Other current liabilities 15,184 1,694 -24,259 -13,322 -803
Other current financial liabilities 9,373 32,171 -1,281 -1,281 1,281
Amounts due to subsidiaries 5,573 2,526 34,535 190,104 638,030
Amounts due to equity accounted investees 3,152 3,152 3,152 322
Income tax payable 84,485
Current portion of long term interest-bearing borrowings 2,536,625 4,972,251 2,636,503 3,733,903 4,150,580
Short-term interest-bearing borrowings 3,156,350 4,659,313 4,812,085 1,292,709 2,312,925
Total current liabilities 5,785,865 9,871,457 7,679,193 6,180,347 8,111,751
Total liabilities 12,223,511 16,400,105 20,142,437 19,983,272 21,216,946
Total equity and liabilities 13,631,911 17,411,011 18,970,181 19,020,261 20,762,747
Table 2. Horizontal Analysis (Percentage Change)
Description 2018 2019 2020 2021 2022
Assets
Non-current assets
Property, plant & equipment -86.88% -90.44% -92.47% -94.23% -95.79%
Investments in subsidiaries 67.10% 71.95% 78.36% 78.02% 77.26%
Other non- current financial assets -8.53% -17.07% -25.60% -37.98% -45.23%
Total non-current assets 52.04% 62.22% 68.20% 71.13% 70.07%
Current assets
Inventories -12.27% -24.63% 47.18% 44.20% 521.31%
Amounts due from subsidiaries 53.02% 190.13% 170.89% 113.30% 231.26%
Amounts due from equity accounted investees -35.19% -0.62% 194.68% 566.31% -91.29%
Trade and other receivables 32.68% 55.41% 246.60% 209.05% 158.18%
Other current assets 54.84% -81.17% -85.98% -67.90% -48.62%
Income tax recoverable 134.15% 692.55% 1062.76% -100.00% 1168.62%
Other current financial assets -48.83% -61.35% -70.28% -53.47% -55.19%
Short term deposits
Cash in hand and at bank 405.92% -13.15% 382.32% 31.80% 974.24%
Total current assets 67.93% 163.49% 170.73% 121.47% 269.45%
Total assets 52.87% 67.53% 73.58% 73.77% 80.53%
Equity and liabilities
Stated capital 0.00% 0.00% 0.00% 0.00% 0.00%
Capital reserves 0.00% 0.00% 0.00% 0.00% 0.00%
Other components of equity -100.00% -100.00% -100.00% -100.00% -100.00%
Revenue reserves 25.20% 22.26% 6.07% 7.62% 11.40%
Total equity attributable to equity holders of the company 8.25% 5.92% -6.87% -5.64% -2.66%
Total equity 8.25% 5.92% -6.87% -5.64% -2.66%
Non-current liabilities
Interest-bearing borrowings 106.43% 105.10% 204.49% 225.44% 209.50%
Employee benefit obligations 28.12% 58.52% 71.01% 89.56% 133.08%
Total non-current liabilities 99.68% 101.09% 192.97% 213.72% 202.91%
Current liabilities
Trade and other payables 24.47% 78.10% 85.16% 347.18% 394.50%
Other current liabilities 49.77% 5.55% -79.52% -43.67% -2.63%
Other current financial liabilities 731.69% 2511.40% -100.00% -100.00% -100.00%
Amounts due to subsidiaries 16.02% 7.26% 99.30% 546.64% 1834.63%
Current portion of long-term interest-bearing borrowings 209.42% 410.50% 217.66% 308.26% 342.66%
Short-term interest-bearing borrowings 438.98% 648.01% 669.26% 179.79% 321.68%
Total current liabilities 256.76% 438.07% 340.79% 274.27% 359.98%
Total liabilities 140.31% 188.25% 231.21% 229.38% 243.54%
Total equity and liabilities 52.87% 67.53% 73.58% 73.77% 80.53%
Horizontal analysis of the balance sheet reveals that investment in property, plant, and equipment (PPE) decreased gradually year by year from 2018 to 2022. In contrast, the investment in subsidiaries increased year by year. The net effect on non-current assets shows an increasing trend from 2018 to 2022. The reason for this is the rise of investment in the subsidiary, investment properties, investment in equity accounted investee, intangible assets, and the amount due from the subsidiary amidst the fall in PPE.
The Amounts in inventory decreased in the years 2018 and 2019 but increased from 2020 to 2022. In 2022 it drastically reached a high percentage which is 521%. This is due to the rapid rise in the inventory of raw materials and consumables which is around 7.5 million (Hayleys Annual report , 2022). Amounts due from subsidiaries contribute to a large proportion of current assets that shows an increasing flow from 2018 to 2022. Trade and other receivables increased when compared with the base year. However, it drastically increased in the years 2020 and 2021. The total effect of current assets increased from 2018 to 2022 with the highest record in 2022. Altogether total assets showed an increasing trend for the years under study with a sudden 50% rise in 2018 compared to the base year. After that it shows a gradual rise from 2018 to 2022.
When it comes to equity and liability section, stated capital and capital reserves remain unchanged for the periods under study. However, the revenue reserve showed around 25% rise in 2018 and 2019 and only 6-7% rise in 2020 and 2021. The net effect of total equity showed a rise in 2018 and 2019 and a fall in the years from 2020 to 2022. Non-current liability increased by more than 100% in 2018 & 2019 and 200% from 2020 to 2022 compared to the base year 2017.
Trade and other payable under current liability depict an increased percentage from 2018 to 2022 with a sudden rise of around 350% in the years 2021 and 202The current portion of long-term interest-bearing borrowings takes the large portion of current liabilities and it shows 200% rise in 2018 and 400% rise in 2019 compared to the base year and showed increased tread for all years under review. Other current financial liabilities also showed a sudden rise in 2018 at 731% and nearly 2000% in 2019 and completely settled off in 2020. The overall movement of equity and liability showed an increasing trend from 2018 to 2022 with a 50% rise.
3.1.2 Horizontal Analysis of Profit and Loss Statement
Table 3. Horizontal Analysis of Profit and Loss Statement (Rupee Changes)
Description 2018 2019 2020 2021 2022
Revenue 40,951 50,523 61,880 84,412 159,420
Cost of sales 32,238 27,412 -13,356 182,149 192,666
Gross profit 8,713 23,111 75,236 -97,737 -33,246
Group dividend 285,184 8,963 -564,967 2,031,320 3,558,593
Other income 1,058,613 1,014,028 -55,765 81,739 -58,359
Administrative expenses -32,357 24,705 -105,579 -223,826 -349,139
Other expenses -23 2,526 -23 -23 6,066
Results from operating activities 1,384,890 1,018,871 -439,894 2,239,171 3,810,061
Finance income -12,711 -3,262 -12,809 -11,895 143,760
Finance cost 869,630 1,915,272 2,277,054 1,772,699 1,404,297
Net finance cost 882,341 1,918,534 2,289,863 1,784,594 1,260,537
Change in fair value of investment properties 10,250 9,600 5,550 3,700 9,250
Profit before tax 512,799 -890,063 -2,724,207 458,277 2,558,774
Tax expense -8,271 -5,192 -641 198,025 -149,579
Profit for the year 521,070 -884,871 -2,723,566 260,252 2,708,353
Table 4. Horizontal Analysis of Profit and Loss Statement (Percentage Changes)
Description 2018 2019 2020 2021 2022
Revenue 12.11% 14.94% 18.30% 24.96% 47.13%
Cost of sales 17.28% 14.69% -7.16% 97.64% 103.28%
Gross profit 5.74% 15.24% 49.60% -64.44% -21.92%
Group dividend 17.97% 0.56% -35.60% 128.00% 224.25%
Other income 1481.20%
1418.82% -78.03% 114.37% -81.66%
Administrative expenses -35.31% 26.96% -115.23% -244.28% -381.04%
Other expenses -100.00% 10982.61% -100.00% -100.00% 26373.91%
Results from operating activities 80.59% 59.29% -25.60% 130.31% 221.72%
Finance income -28.47% -7.31% -28.69% -26.64% 321.97%
Finance cost 106.69% 234.98% 279.37% 217.49% 172.29%
Net finance cost 114.53% 249.02% 297.22% 231.64% 163.62%
Profit before tax 54.09% -93.89% -287.37% 48.34% 269.92%
Tax expense -86.16% -54.08% -6.68% 2062.76% -1558.11%
Profit for the year 55.53% -94.30% -290.24% 27.73% 288.62%
The value of revenue has recorded a gradual increase from 2018 to 2021 and reached 47% rise in 2022 compared to the base year 2017. The cost of sales increased by 17% and 14% in 2018 and 2019 respectively and reduced by 7% in 2020. In contrast, in the years 2021 and 2022 it raised by 97% and 103%. Thus, the net effect on gross profit increased from 2018 to 2020 with the highest rise in 2020. Whereas it decreased by 64% and 22% in 2021 and 2022 respectively.
As mentioned previously, since Hayleys have a well-diversified portfolio, its group dividends and other incomes are 4 times and 2 times higher than revenue respectively. Admin expenses recorded a decreasing trend except in 2019. And other expenses increased dramatically in 2019 and in 2022. Finance income depicted decreasing trend except an increase by 321% in 2022. In contrast, finance costs increased from 2018 to 2022. Tax expenses showed a diminishing movement except 2021. Finally, the profit for the year recorded 55%, 27%, and 288% rise in the years 2018,2021, and 2022 respectively. And decreased by 94%, and 290% in the years 2019 and 2020 respectively.
3.2 Trend Analysis
Trend analysis is a type of horizontal analysis that compare the results with a base period. As discussed in the horizontal analysis 2017 was taken as the base period and all results are the same as the horizontal analysis. And the only difference is that instead of the difference of the current year and base year amount, directly the current period amount is taken.
Table 5. Trend Analysis of the Financial Position
Description 2017 2018 2019 2020 2021 2022
Assets
Non-current assets
Property, plant & equipment 100% 13% 10% 8% 6% 4%
Investments in subsidiaries 100% 167% 172% 178% 178% 177%
Other non- current financial assets 100% 91% 83% 74% 62% 55%
Total non-current assets 100% 152% 162% 168% 171% 170%
Current assets
Inventories 100% 88% 75% 147% 144% 621%
Amounts due from subsidiaries 100% 153% 290% 271% 213% 331%
Amounts due from equity accounted investees 100% 65% 99% 295% 666% 9%
Trade and other receivables 100% 133% 155% 347% 309% 258%
Other current assets 100% 155% 19% 14% 32% 51%
Income tax recoverable 100% 234% 793% 1163% 1269%
Other current financial assets 100% 51% 39% 30% 47% 45%
Cash in hand and at bank 100% 506% 87% 482% 132% 1074%
Total current assets 100% 168% 263% 271% 221% 369%
Total assets 100% 153% 168% 174% 174% 181%
Equity and liabilities
Stated capital 100% 100% 100% 100% 100% 100%
Capital reserves 100% 100% 100% 100% 100% 100%
Revenue reserves 100% 125% 122% 106% 108% 111%
Total equity attributable to equity holders of the company 100% 108% 106% 93% 94% 97%
Total equity 100% 108% 106% 93% 94% 97%
Non-current liabilities
Interest-bearing borrowings 100% 206% 205% 304% 325% 310%
Employee benefit obligations 100% 128% 159% 171% 190% 233%
Total non-current liabilities 100% 200% 201% 293% 314% 303%
Current liabilities
Trade and other payables 100% 124% 178% 185% 447% 494%
Other current liabilities 100% 150% 106% 20% 56% 97%
Other current financial liabilities 100% 832% 2611%
Amounts due to subsidiaries 100% 116% 107% 199% 647% 1935%
Current portion of long term interest-bearing borrowings 100% 309% 510% 318% 408% 443%
Short-term interest-bearing borrowings 100% 539% 748% 769% 280% 422%
Total current liabilities 100% 357% 538% 441% 374% 460%
Total liabilities 100% 240% 288% 331% 329% 344%
Total equity and liabilities 100% 153% 168% 174% 174% 181%
The following figure shows the movement of assets and liabilities derived from the above trend analysis.
Figure 1. The trend of Assets and Liabilities
Among all other elements, current liability fluctuates dramatically, and fluctuation of the current assets and non-current liability is also observed. The total equity, total assets, and non-current assets haven’t recorded high variations.
Table 6. Trend Analysis of Profit and Loss Statement
Description 2017 2018 2019 2020 2021 2022
Revenue 100% 112% 115% 118% 125% 147%
Cost of sales 100% 117% 115% 93% 198% 203%
Gross profit 100% 106% 115% 150% 36% 78%
Group dividend 100% 118% 101% 64% 228% 324%
Other income 100% 1581% 1519% 22% 214% 18%
Administrative expenses 100% 65% 127% -15% -144% -281%
Other expenses 100% 0% 11083% 0% 0% 26474%
Results from operating activities 100% 181% 159% 74% 230% 322%
Finance income 100% 72% 93% 71% 73% 422%
Finance cost 100% 207% 335% 379% 317% 272%
Net finance cost 100% 215% 349% 397% 332% 264%
Profit before tax 100% 154% 6% -187% 148% 370%
Tax expense 100% 14% 46% 93% 2163% -1458%
Profit for the year 100% 156% 6% -190% 128% 389%
The following figure has derived using the trend analysis of incent.
Figure 2. Trend Analysis of Revenue, Cost of sales and Gross Profit
The flow of revenue showed an increasing trend. Whereas the cost of sales recorded a reduced amount in 2020 and suddenly increased for the last two years which inversely affected the gross profit. Even though the gross profit decreased in 2021 and 2022 compared to the base year, the overall profit increased by 128% and 389% in the years 2021 and 2022 respectively. The reduction in gross profit was compensated by the increase in group dividend which increased the overall profit. And the flow of profit from 2018 to 2022 is illustrated by the given figure. Except for the year 2020, other years recorded a positive performance that is denoted by the company’s profit. The highest profit recorded in 2022 and the lowest profit in 2019.
3.3 Vertical Analysis
Vertical analysis is another significant analysis that denotes and evaluates each item in the financial statements as a percentage of a base figure in the statement. For the statement of financial position total assets taken as 100% and sales revenue considered as the base figure in profit and loss statement.
Common size percentage= (Analysis amount/ base amount) * 100
Table 7. Vertical Analysis of the Statement Financial Position
Description 2018 2019 2020 2021 2022
Assets
Non-current assets
Property, plant & equipment 0.79% 0.53% 0.40% 0.31% 0.22%
Right-of-use assets 0.00% 0.00% 0.00% 0.57% 0.41%
Investment properties 0.15% 0.16% 0.17% 0.18% 0.19%
Intangible assets 0.08% 0.13% 0.16%
Investments in subsidiaries 93.05% 87.37% 87.47% 87.21% 83.58%
Investments in equity accounted investees 3.48% 3.36% 3.36% 3.23%
Other non- current financial assets 0.24% 0.20% 0.17% 0.14% 0.12%
Deferred tax assets 0.16% 0.05% 0.03%
Amount due from subsidiary 0.00% 0.00% 0.00% 1.36% 1.31%
Total non-current assets 94.23% 91.74% 91.81% 93.31% 89.26%
Current assets
Inventories 0.0027% 0.0021% 0.0040% 0.0039% 0.0161%
Amounts due from subsidiaries 4.57% 7.90% 7.12% 5.60% 8.37%
Amounts due from equity accounted investees 0.02% 0.03% 0.09% 0.20% 0.00%
Trade and other receivables 0.04% 0.05% 0.10% 0.09% 0.07%
Other current assets 0.24% 0.03% 0.02% 0.04% 0.07%
Income tax recoverable 0.03% 0.10% 0.14% 0.15%
Other current financial assets 0.02% 0.02% 0.01% 0.02% 0.02%
Short term deposits 0.54% 0.55%
Cash in hand and at bank 0.83% 0.13% 0.70% 0.19% 1.50%
Total current assets 5.77% 8.26% 8.19% 6.69% 10.74%
Total assets 100.00% 100.00% 100.00% 100.00% 100.00%
Equity and liabilities
Stated capital 4.00% 3.65% 3.52% 3.52% 3.38%
Capital reserves 0.03% 0.03% 0.03% 0.03% 0.03%
Other components of equity
Revenue reserves 42.85% 38.18% 31.98% 32.41% 32.29%
Total equity attributable to equity holders of the company 46.88% 41.86% 35.52% 35.95% 35.70%
Total equity 46.88% 41.86% 35.52% 35.95% 35.70%
Non-current liabilities
Interest-bearing borrowings 30.91% 28.02% 40.15% 42.87% 39.24%
Employee benefit obligations 1.81% 2.04% 2.13% 2.36% 2.79%
Total non-current liabilities 32.72% 30.07% 42.28% 45.22% 42.03%
Current liabilities
Trade and other payables 0.81% 1.06% 1.06% 2.56% 2.73%
Other current liabilities 0.12% 0.07% 0.01% 0.04% 0.06%
Other current financial liabilities 0.03% 0.08%
Amounts due to subsidiaries 0.10% 0.09% 0.15% 0.50% 1.45%
Amounts due to equity accounted investees 0.01% 0.01% 0.01% 0.00%
Income tax payable 0.19%
Current portion of long term interest-bearing borrowings 9.51% 14.32% 8.60% 11.04% 11.52%
Short-term interest-bearing borrowings 9.83% 12.45% 12.36% 4.49% 6.51%
Total current liabilities 20.40% 28.07% 22.19% 18.82% 22.27%
Total liabilities 53.12% 58.14% 64.48% 64.05% 64.30%
Total equity and liabilities 100.00% 100.00% 100.00% 100.00% 100.00%
The composition of non-current assets in total assets is around 90% for all years with small fluctuations over the five years under study. The proportion of current assets is less than 10% of the total assets. Since Hayley operates in more than 16 sectors, it has a great non-current asset base. The proportion of inventory is negligible when compared with the total assets. The reason for this may be due to the nature of operations, the company mainly earns income from hotels, exports, and other diversified activities that require less amount of inventories.
When it comes to equity and capital reserve no great changes have been observed throughout the years and on average, they contribute 3.5% and 0.03% to the total Assets respectively. The average contribution of the revenue reserve is around 35% and the non-current liabilities also account for the proportion of 38%. Finally, the current assets recorded an average of 18% that reveals current liabilities are greater than current assets. Even though it is not a good sign of short-term liquidity, the company has well liquidity and solvency ability due to its diversification. The following figure shows the total assets, equity and liability composition for the year 2022.
In 2022 89% and 11% of fixed and current assets are financed using 36%, 42%, and 22% of equity, non-current liability, and current liability respectively.
Table 8. Vertical Analysis of the Statement Profit and Loss
Description 2018 2019 2020 2021 2022
Revenue 100% 100% 100% 100% 100%
Cost of sales 57.70% 55.04% 43.29% 87.24% 76.20%
Gross profit 42.30% 44.96% 56.71% 12.76% 23.80%
Group dividend 493.73% 410.52% 255.42% 856.12% 1033.98%
Other income 298.04% 279.23% 3.93% 36.25% 2.63%
Administrative expenses 15.63% 29.93% 3.49% 31.28% 51.75%
Other expenses 0.66% 1.22%
Results from operating activities 818.44% 704.13% 319.55% 936.41% 1110.93%
Finance income 8.42% 10.65% 7.96% 7.75% 37.86%
Finance cost 444.31% 702.35% 772.84% 612.30% 445.98%
Net finance cost 435.89% 691.70% 764.88% 604.55% 408.12%
Change in fair value of investment properties 2.70% 2.47% 1.39% 0.88% 1.86%
Profit before tax 385.25% 14.90% 443.94% 332.74% 704.67%
Tax expense 0.35% 1.13% 2.24% 49.13% 28.13%
Profit for the year 384.90% 13.77% -446.18% 283.61% 732.80%
The average gross profit is nearly 47% for the first three years under study and in 2021 it reduced to 12% and then increased to 23% in 2022. The proportion of administration expenses varies from year to year with the highest and lowest record of 51% and 3% of revenue respectively. Since Hayleys is one of the well-diversified conglomerates in Sri Lanka, it earns other incomes which are several times greater than the company’s sales revenue. On average group dividends are 6 times greater than revenue likewise finance costs are 5 times greater than revenue. Thus, the profit for the year was recorded 3.84 times higher than the revenue in 2018. And in 2019 profit is only 13% of revenue. 2020 the company experienced a loss that is nearly 4.4 times of revenue. Again, for the following years, it is 2.3, and 7.3 times larger than revenue.
3.4 Ratio Analysis
Ratio analysis is the widely used analysis for understanding the performance of a company. It uses various pieces of information to interpret the interrelationship between them. Four main characteristics of the companies can be understood by different ratio analyses namely liquidity and efficiency, solvency, profitability, and market performance. Each one of them is analyzed below.
3.4.1. Liquidity and efficiency
The below table consists of several ratios that are used to calculate the liquidity of the company.
Ratio 2018 2019 2020 2021 2022
Working Capital -5,766,687 -8,559,151 -6,268,899 -5,436,654 -5,365,507
Current Ratio 0.2827 0.2941 0.3689 0.3554 0.4824
Acid Test Ratio 0.2826 0.2940 0.3687 0.3552 0.4816
Accounts Receivable Turnover 25.57 21.17 12.51 10.11 13.77
Total Asset Turnover 0.01 0.01 0.01 0.01 0.01
Inventory Turnover 193.28 217.55 129.06 209.85 82.15
Days' Sales Uncollected 16.28 18.60 40.30 34.02 24.14
Days' Sales in Inventory 1.77 1.55 3.74 1.72 7.21
Working capital
Working capital is the difference between current assets and current liabilities which shows the short-term financial health and liquidity of the company. For the Hayleys company, the working capital amount is negative for all five years. Even though it is not a good sign company can meet the short-term obligations using the group’s cash flow. However, the groups or consolidated financial statement shows a positive networking capital of around 34 million.
Current Ratio
This ratio measures the company’s short-term debt paying ability. Too much of this ratio is not good and that illustrates a company wasting idle amount of money without making proper investments. 2:1 is the ideal ratio and for the Hayleys company the ratio is around 0.28 for 2018 and 2019 and slightly increased to 0.36 in 2020 and 2021. Reached the highest ratio of 0.48 in 2022. The increasing trend is a positive sign for the company. As discussed above current ratio calculated using consolidated figures shows the result as 1.16 times in 2022. Thus, the company can mitigate or make adjustments with the groups to increase its profitability and sort out short term obligations.
Acid Test Ratio
This ratio almost has a similar application as current ratio but illustrates the short-term obligations in a better way by excluding inventories that cannot be immediately converted into cash. For the Hayleys company, the amount of inventory is negligible since it has recorded a proportion that is less than 1% of total assets. Thus, the quick ratio didn’t record much variations from the current ratio. The variation is only around 0.001 times. The acid ratio for the group for 2022 is 0.77 times.
Accounts Receivable Turnover
This ratio measures the company’s effectiveness in collecting debt and a higher ratio is considered as a good sign. And higher ratio also indicates a lower possibility of bad debts and improved liquidity. For Hayleys highest receivable turnover recorded in 2018 and the lowest in 2021. And the ratio fluctuates from 2018 to 2022. And the last three years it has recorded a reducing trend which is not a good indicator. This is caused by the increased amount of receivable balance.
Total Assets Turnover
Assets are used by organizations to earn revenue. This ratio indicates the efficient use of assets that is denoted by a ratio greater than one. That shows that company earns more revenue than its assets. Total assets turnover for the Hayleys company remain unchanged for all years with a ratio 0.01. since it is a diversified conglomerate, the company has great asset base. The total asset turnover ratio for group is 0.84 times in 2022 which shows greater efficiency than company.
Inventory Turnover
This ratio shows the number of times inventories are sold out during the year. In Hayleys company the ratio is substantially peak than the ideal rate. The reason for this is that the company keeps very small amount of inventory compared to its revenue. For the first two years it showed an increasing trend and then it fluctuated and recorded as 82.15 in 2022. Inventory turnover calculated from consolidated financial statements for the year 2022 showed 3.14 times.
Days' Sales Uncollected
This ratio measures the number of days taken by the debtors to settle off their obligations. Less number of days shows high liquidity position of the company. Usually, less than 30 days are considered as optimal. This ratio increased in 2019 and 2020 whereas recorded a decreasing trend in 2021 and 2022. Except the years 2020 and 2021 other years’ results are less than 30 that gives a positive sign.
Days' Sales in Inventory
It measures the time taken to change the inventory into sales. As discussed earlier the amount of inventory held by this company is negligible. Small amount of inventory resulted small ratios. It oscillated over years and recorded a high amount of nearly 7 days in 2022. For the group data it was 116 in 2022 which should be reduced to boost the liquidity.
3.4.2. Solvency
Ratio 2018 2019 2020 2021 2022
Debt Ratio 53% 58% 64% 64% 64%
Equity Ratio 47% 42% 36% 36% 36%
Times Interest Earned 2.75 1.30 0.42019 1.84 2.68
Debt Ratio
This ratio shows the proportion of assets contributed by creditors. And around 40% or lower ratio is treated as ideal. The debt ratio showed a rising trend and remain unchanged as 64% in 2020, 2021, and 2022. And this should be reduced to increase efficiency and reduce finance costs.
Equity Ratio
This ratio is in contrast to the debt ratio and this illustrates the contribution of owners to the company. It reduced from 2018 to 2022 and remain unchanged as 36% for the last three years. Owners can increase their contribution to increase dividends.
Times Interest Earned
Times interest earned measures the ability of the firm to protect long term creditors. In 2018 it recorded the highest amount and reduced in 2019 and 2020. After that again increased in 2021 and 2022. And in 2022 it was 2.68 that shows a good signal.
3.4.3. Profitability
Ratio 2018 2019 2020 2021 2022
Profit Margin 385% 14% -446% 284% 733%
Gross Margin 42% 45% 57% 13% 24%
Return on Assets 4.48% 0.13% -4.06% 2.68% 7.98%
Return on Equity 8% 0.29% -11% 7% 22%
Book Value per Common Share 246.38 241.08 211.97 21.48 22.15
Earnings per Share 19.46 0.71 -23.80 1.60 4.86
Profit Margin
This ratio explains the company’s ability to earn profit from its revenue. Companies normally earn profit through their sales. Thus, this ratio is derived from dividing the net profit by sales.The Hayleys company earns more income through its group dividends which boosts the profit several times higher than sales. Therefore, this company’s profit margin is 385% for the year 2018. After that it suddenly reduced to 14% in 2019 and reached a negative value which means loss in the year of 2020. But this situation recovered and recorded a positive figure in 2021 and reached the highest value in 2022 which is 733%.
Gross Margin
Gross margin measures the amount remaining from sales to cover operating expenses and a profit after deducting the cost of sales. A higher value indicates a positive signal for survival. For the first three years it depicted an increasing trend with an average of 45%. The lowest amount observed in 2021 that is 13% but in 2022 it showed an improvement by 11%.
Return on assets
Assets are being used to generate revenue. This ratio measures the efficient utilization of assets and higher value beneficial for the company. This recorded the decreasing movement from 2018 to 2020 and started to rise from 2021 and reached the highest percentage of 7.98 in 2022. This indicates the recovery of the firm after experiencing loss in 2020.
Return on Equity
This measures the effective utilization of equity to generate profit. This also recorded a similar trend like return on assets. The highest value recorded in 2022 and lowest in 2020. Again, it gives the positive signal in last two years compared with the year 2020.
Book Value per Common Share
This value would be attributable to the equity holders at the time of liquidation. It slowly decreased from 2018 to 2020 and after that it recorded a sudden fall in 2021 to 21.48 and a slight rise in 2022 to 22.15. The reason for the sudden fall of book value is that the company issued 675 million new common shares in 2021.
Earnings per Share
It is commonly used to price stocks and a key measure of profitability. EPS indicates positive figures except in 2020 since the company experienced losses in 2020. The highest EPS recorded in 2018 and in 2022 the EPS was 4.86 that showed an upturn compared to the previous year.
3.4.4. Market
Ratio 2018 2019 2020 2021 2022
P/E Ratio 10.31 235.47 -5.19 38.04 15.82
Dividend Yield 2% 3% 0% 2% 5%
P/E Ratio
This ratio measures the current share price relative to the earnings per share. Higher ratio indicates high growth prospects for the company. The market price of shares recorded a reducing trend. And the P/E ratio fluctuates from 2018 to 2022 with the highest record and negative record in 2019 and 2020 respectively. These changes illustrate the instability of the growth trends.
Dividend Yield
Dividend yield evaluates the amount of dividend relative to its market price and this is used by the investors to determine their future income. Since the company faced losses in 2020, no dividend had been paid and the ratio is 0. The highest ratio recorded in the year 2022 that indicates a positive sign for investors.
4. Conclusion
Financial statement analysis gives meaning to the data published in the financial statement. Various parties use financial information for different purposes. The analysis provides meaningful information for the users of financial statements to make decisions. This report analyzed the financial statements of Hayleys PLC which is a well-diversified conglomerate company in Sri Lanka. Among the various analysis techniques, horizontal analysis, trend analysis, vertical analysis, and ratio analysis are used to examine the data.
The horizontal analysis observed the decreasing trend of non-current assets and an increasing trend in the investment in subsidiaries. The rise in the cost of sales for the last two years decreased the gross profit. Regardless of the reduction in gross profit net profit increased for the last two years under study. An increase in group dividends and other income rises are the main reasons for the profit rise. Net loss recorded in the year 2020 and a decrease in performance can be observed in 2019 itself. The covid-19 pandemic was the main reason for this negative or weak performance.
Under ratio analysis liquidity and efficiency ratios show a negative net working capital and it should be improved to enhance the short-term efficiency. Other ratios give a positive sign for the company’s short-term solvency. And the proportion of inventory is very low compared to revenue. Thus, higher inventory turnover was observed. The company’s long term solvency position is good that is measured with the indicators of debt and equity ratios. Almost all profitability and market ratios recorded the same pattern of decreasing profitability from 2018 to 2020. And in 2020 most profitability ratios are negative since the company experienced overall loss. After that, the performance started to recover in 2021, and in 2022 higher performance has been observed.
References
(2022). Retrieved from Hayleys: https://www.hayleys.com/
(2022). Hayleys Annual report . Hayleys .
wikipedia. (2022). Retrieved from https://en.wikipedia.org/wiki/Hayleys
Appendix
• The statement of Profit and Loss for six years from 2017 to 2022
Description 2017 2018 2019 2020 2021 2022
Revenue 338,222 379,173 388,745 400,102 422,634 497,642
Cost of sales (186,551) (218,789) (213,963) (173,195) (368,700) (379,217)
Gross profit 151,671 160,384 174,782 226,907 53,934 118,425
Group dividend 1,586,916 1,872,100 1,595,879 1,021,949 3,618,236 5,145,509
Other income 71,470 1,130,083 1,085,498 15,705 153,209 13,111
Administrative expenses (91,627) (59,270) (116,332) 13,952 132,199 257,512
Other expenses (23) - (2,549) - - (6,089)
Results from operating activities 1,718,407 3,103,297 2,737,278 1,278,513 3,957,578 5,528,468
Finance income 44,650 31,939 41,388 31,841 32,755 188,410
Finance cost (815,075) (1,684,705) (2,730,347) (3,092,129) (2,587,774) (2,219,372)
Net finance cost (770,425) (1,652,766) (2,688,959) (3,060,288) (2,555,019) (2,030,962)
Change in fair value of investment properties - 10,250 9,600 5,550 3,700 9,250
Profit before tax 947,982 1,460,781 57,919 (1,776,225) 1,406,259 3,506,756
Tax expense (9,600) (1,329) (4,408) (8,959) (207,625) 139,979
Profit for the year 938,382 1,459,452 53,511 (1,785,184) 1,198,634 3,646,735
• The statement of financial position for six years from 2017 to 2022
Year 2017 2018 2019 2020 2021 2022
Assets
Non-current assets
Property, plant & equipment 2,377,439 311,889 227,170 178,930 137,225 100,095
Right-of-use assets 255,329 191,497
Investment properties - 60,750 70,350 75,900 79,600 88,850
Intangible assets - - - 35,229 58,698 74,310
Investments in subsidiaries 21,947,100 36,673,417 37,738,545 39,144,873 39,070,361 38,903,712
Investments in equity accounted investees - - 1,504,863 1,504,863 1,504,863 1,504,863
Other non- current financial assets 104,297 95,397 86,497 77,597 64,687 57,125
Deferred tax assets - - - 71,215 24,525 14,771
Amount due from subsidiary 610,000 610,000
Total non-current assets 24,428,836 37,141,453 39,627,425 41,088,607 41,805,288 41,545,223
Current assets
Inventories 1,206 1,058 909 1,775 1,739 7,493
Amounts due from subsidiaries 1,176,681 1,800,558 3,413,891 3,187,550 2,509,908 3,897,840
Amounts due from equity accounted investees 13,655 8,850 13,570 40,239 90,985 1,190
Trade and other receivables 12,746 16,912 19,809 44,177 39,391 32,907
Other current assets 61,414 95,091 11,562 8,613 19,716 31,555
Income tax recoverable 5,411 12,670 42,885 62,917 - 68,645
Other current financial assets 17,196 8,800 6,647 5,110 8,002 7,706
Short term deposits - - - - 241,719 254,515
Cash in hand and at bank 64,955 328,619 56,413 313,293 85,613 697,773
Total current assets 1,353,264 2,272,558 3,565,686 3,663,674 2,997,073 4,999,624
Total assets 25,782,100 39,414,011 43,193,111 44,752,281 44,802,361 46,544,847
Equity and liabilities
Stated capital 1,575,000 1,575,000 1,575,000 1,575,000 1,575,000 1,575,000
Capital reserves 13,226 13,226 13,226 13,226 13,226 13,226
Other components of equity 1,991,460 - - - - -
Revenue reserves 13,490,522 16,890,382 16,492,888 14,309,726 14,518,971 15,027,783
Total equity attributable to equity holders of the company 17,070,208 18,478,608 18,081,114 15,897,952 16,107,197 16,616,009
Total equity 17,070,208 18,478,608 18,081,114 15,897,952 16,107,197 16,616,009
Non-current liabilities
Interest-bearing borrowings 5,901,449 12,182,428 12,104,097 17,969,123 19,205,466 18,265,278
Employee benefit obligations 557,063 713,730 883,063 952,633 1,055,971 1,298,429
Total non-current liabilities 6,458,512 12,896,158 12,987,160 18,921,756 20,261,437 19,563,707
Current liabilities
Trade and other payables 256,522 319,282 456,872 474,980 1,147,119 1,268,500
Other current liabilities 30,507 45,691 32,201 6,248 17,185 29,704
Other current financial liabilities 1,281 10,654 33,452 - - -
Amounts due to subsidiaries 34,777 40,350 37,303 69,312 224,881 672,807
Amounts due to equity accounted investees - - 3,152 3,152 3,152 322
Income tax payable - - - - 84,485 -
Current portion of long term interest-bearing borrowings 1,211,273 3,747,898 6,183,524 3,847,776 4,945,176 5,361,853
Short-term interest-bearing borrowings 719,020 3,875,370 5,378,333 5,531,105 2,011,729 3,031,945
Total current liabilities 2,253,380 8,039,245 12,124,837 9,932,573 8,433,727 10,365,131
Total liabilities 8,711,892 20,935,403 25,111,997 28,854,329 28,695,164 29,928,838
Total equity and liabilities 25,782,100 39,414,011 43,193,111 44,752,281 44,802,361 46,544,847
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