01.
COMPANY PROFILE
Lanka Wall tiles PLC was established in
1975 and it is a subsidiary of Lanka Ceramic PLC. Lanka Wall tile PLC engages
in the production and distribution of ceramic wall tiles in Sri Lanka. The
company offers a range of tiles in various colours, textures, and sizes,
including special trim tiles, decorated tiles, and handmade and hand painted
tiles. The product lines also include floor tiles, cartons and paper sacks for
packing, and tile grout and tile mortar. In addition, Lanka Wall tile PLC
engages in the trade of floor tiles, wall tiles, and parquet wooden flooring
and provision of management services to the plantation industry.
Lanka
Wall tiles PLC is the leading manufacturer of tiles in the country with a
market share of over 40% and investments in Aluminium, Plantations and
Packaging. A strong brand and a network of showrooms, distributors and
franchisees support distribution of its products island-wide and overseas. The
export markets are Australia, Bangladesh, Canada, France, Hong Kong, Japan, the
Middle East, the Maldives, the Netherlands, New Zealand, Singapore, South
Africa, Taiwan, the United States, India, and the United Kingdom.
Lanka Wall tiles PLC has been producing and exporting high quality
ceramic tiles for over thirty-five years. The market leader and premier ceramic
wall tile manufacturer in Sri Lanka, LANKA WALLTILES PLC is a major contender
in the highly competitive international arena, supplying quality tiles to
discerning markets. They have the capacity to produce approximately 2.3 million
square meters of tiles annually. Sri Lanka is a beautiful and diverse country
that has an abundance of raw materials for the production of tiles. They are
strongly committed to investment in Research & Development in order that our
tiles continue to meet the exacting manufacturing standards of the
international marketplace. Company equally committed to the well-being of the
environment and have many policies in place to help the company be on the
cutting edge of green tile production. As a result of this we have obtained the
GREENSL® Label (GREENSL® STAR) for our full range of wall tiles from the Green
Building Council of Sri Lanka (GBCSL) which is the local representative of the
World Green Building Council. Their tiles conform to ISO 13006. A wide range of
tiles in a variety of colors, textures and sizes including special trim tiles
and decorated tiles are manufactured by the company today.
The Company's segments are Tiles and associated items, Biological
Assets, Aluminum products and Packing materials. The Tiles and associated items
segment is engaged in manufacturing and distributing wall tiles, floor tiles
and related products. The Biological Assets segment is engaged in
cultivation, processing and sale of tea and rubber. Its Aluminum products
segment is engaged in manufacturing and distributing aluminum extrusions and
allied products through a network of dealers and distributors. Its Packing
materials segment is engaged in manufacturing and distributing packing
materials. The Company's subsidiaries include Lanka Tiles PLC, Vallibel
Plantation Management Ltd, Uni-Dil Packaging Ltd, Uni-Dil Paper Sacks (Pvt) Ltd
and LWL Development (Private) Limited.
In
order to proceed with my assignment, I have selected Lanka Wall tiles PLC
to conduct the financial statements analysis. This analysis includes Horizontal
Analysis, Trend Analysis, Vertical Analysis and Ratio Analysis, and peer
company analysis which will help the potential users to make better decisions
regarding the company.
02.
FINANCIAL STATEMENT ANALYSIS
Financial
statement analysis is the process of analysing a company's financial statements
for decision-making purposes. External stakeholders use it to understand the
overall health of an organization as well as to evaluate financial performance
and business value. Internal constituents use it as a monitoring tool for
managing the finances.
The financial statements of a company record important financial data on
every aspect of a business’s activities. As such they can be evaluated on the
basis of past, current, and projected performance.
Several techniques are commonly used as part of financial statement
analysis. Three of the most important techniques as follows.
Horizontal analysis compares data horizontally, by analysing values of
line items across two or more years
Vertical analysis looks at the vertical affects line items have on other
parts of the business and also the business’s proportions.
3. Ratio analysis.
Ratio analysis uses important ratio metrics to calculate statistical
relationships.
1.
Peer Company Ratio analysis
and Comparing
This is done by examining each company's past and current financial statements
and comparing them with one another.
03.
HORIZONTAL ANALYSIS
Horizontal analysis is a
financial statement analysis technique that shows changes in the amounts of
corresponding financial statement items over a period of time. It is a useful tool to evaluate
the trend situations.
Here, I have performed horizontal analysis for Lanka Wall tiles PLC by simply
taking the percentage change for each line-item year-over-year and also by
considering 2015-16 as the base year to compare each item of financial
statements. The following tables demonstrate the horizontal analysis as percentage
changes of financial statement items of Lanka Wall tiles PLC.
3.1 Horizontal analysis –
Year by Year
3.1.1
Statement of Comprehensive Income of Lanka Wall tiles PLC
|
Description |
2017/18 |
2018/19 |
2019/20 |
2020/21 |
2021/22 |
|
Revenue |
-0.87% |
-2.87% |
8.47% |
71.41% |
34.57% |
|
Cost of sales |
4.63% |
8.78% |
10.70% |
54.59% |
21.69% |
|
Gross profit |
-9.19% |
-23.18% |
2.97% |
116.02% |
59.00% |
|
Other income - net |
37.34% |
-49.46% |
-82.86% |
2137.69% |
105.11% |
|
Distribution expenses |
-0.66% |
-1.20% |
-9.93% |
13.78% |
36.96% |
|
Administrative expenses |
16.77% |
8.51% |
9.43% |
42.22% |
32.88% |
|
Other Expenses |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Operating profit |
-6.61% |
-53.63% |
-38.59% |
575.67% |
95.47% |
|
Finance costs |
7.52% |
47.09% |
32.19% |
-40.50% |
-86.99% |
|
Profit before tax |
-8.18% |
-66.78% |
-79.48% |
2869.24% |
109.08% |
|
Income tax expense |
8.80% |
2.59% |
-67.73% |
142.49% |
325.68% |
|
Profit for the year |
-11.59% |
-83.92% |
-98.02% |
73123.99% |
90.60% |
Considering
the above table, it reflects an abnormal change in other income in year 2020/21
and this is due to income received in investment of related parties as a
dividend. Revenue and cost increase in year 2020/21 compare to the previous
years as increase of local sales of tiles and associated items. Income tax
expense in each year compared to the previous year. There is a considerable
increase in finance cost in the year 2019 compared to 2018 and this may due to
the enhanced short term credit facilities.
3.1.2
Statement of Financial Position of Lanka Wall tiles PLC
|
Description |
2017/18 |
2018/19 |
2019/20 |
2020/21 |
2021/22 |
|
ASSETS |
|||||
|
Non-current assets |
|||||
|
Property, plant and equipment |
23.79% |
10.25% |
-0.27% |
1.77% |
7.54% |
|
Capital work in progress |
- |
- |
- |
0.00% |
- |
|
Investment in Subsidiaries |
0.00% |
0.00% |
0.00% |
0.00% |
22.41% |
|
Deferred Tax Assets |
0.00% |
0.00% |
0.00% |
- |
- |
|
Other long-term investments |
- |
- |
- |
- |
0.00% |
|
Loan - Related party |
0.00% |
0.00% |
0.00% |
- |
- |
|
Investment Property |
0.00% |
0.00% |
0.00% |
0.00% |
35.14% |
|
Total Non- Current Assets |
17.19% |
7.82% |
0.78% |
0.95% |
10.91% |
|
Current assets |
|||||
|
Inventories |
20.27% |
38.50% |
24.18% |
-48.93% |
4.90% |
|
Trade and other receivables |
45.20% |
12.39% |
-17.32% |
17.55% |
0.05% |
|
Contract Assets |
- |
- |
- |
- |
- |
|
Loan - Related Party |
0.00% |
0.00% |
0.00% |
- |
- |
|
Tax receivable |
- |
- |
- |
- |
3.38% |
|
Amounts due from related parties |
95.21% |
110.11% |
-10.69% |
8.79% |
68.88% |
|
Cash and cash equivalents |
40.65% |
-45.51% |
43.73% |
485.43% |
268.17% |
|
Total Current Assets |
27.95% |
29.58% |
12.82% |
-28.03% |
33.96% |
|
Total Assets |
20.34% |
14.58% |
5.02% |
-9.99% |
17.87% |
|
EQUITY AND LIABILITIES |
|||||
|
Capital and reserves |
|||||
|
Stated capital |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Reserves |
23.83% |
18.30% |
0.00% |
13.57% |
0.00% |
|
Accumulated Profit/ (Loss) |
6.68% |
2.95% |
1.13% |
31.56% |
26.76% |
|
Total Capital and reserves |
10.21% |
7.20% |
0.58% |
20.86% |
15.03% |
|
Non-current liabilities |
|||||
|
Employee benefit obligations |
43.36% |
9.24% |
20.34% |
21.09% |
-28.56% |
|
Borrowings - Related party |
0.00% |
0.00% |
0.00% |
0.00% |
- |
|
Lease liability |
0.00% |
- |
- |
- |
- |
|
Deferred tax liability |
- |
- |
- |
-35.55% |
0.75% |
|
Loans and borrowings |
-49.17% |
-27.88% |
-38.95% |
-45.02% |
-83.53% |
|
Total Non-current liabilities |
51.16% |
5.70% |
-3.57% |
-29.29% |
-9.34% |
|
Current liabilities |
|||||
|
Trade and other payables |
15.73% |
39.05% |
-27.52% |
31.56% |
72.23% |
|
Contract liabilities |
- |
- |
- |
- |
- |
|
Loans & borrowings |
57.88% |
51.65% |
44.95% |
-91.14% |
45.78% |
|
Short term loans |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Amounts due to related parties |
93.59% |
14.01% |
-23.69% |
-45.31% |
-73.98% |
|
Borrowings - Related party |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Lease liability |
0.00% |
0.00% |
- |
- |
- |
|
Tax payable |
-67.02% |
-64.75% |
52.81% |
1467.04% |
- |
|
Bank overdrafts |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Total Current liabilities |
38.57% |
42.64% |
19.31% |
-59.98% |
53.88% |
|
Total Liabilities |
43.45% |
27.53% |
11.56% |
-50.99% |
27.16% |
|
Total Equity and Liabilities |
20.34% |
14.58% |
5.02% |
-9.99% |
17.86% |
From the above analysis
it has been noted that the company is getting profitable each year. Specially
in year 2020/2021 accumulated profit increase % higher than the previous. Parallel
there is a considerable change in the Cash & Cash equaling, inventories, deferred
tax and income tax liabilities in 2020-2021 period. The above table shows that the
company is getting more focused on short term credit facilities in year 2018
2019 period and it was reduced in year 2021 and 2022. over the years. Comparing this five years’
period the last year, 2019 company shows a high growth in Assets as well as in
Liabilities
3.2 Horizontal analysis –
Considering a Base year 2016-2017
3.2.1 Statement of Comprehensive
Income of Lanka Wall tiles PLC
Rs,000
|
Description |
Base Year
2016-17 Amounts |
2018 |
2019 |
2020 |
2021 |
2022 |
|
Revenue |
3,209,560 |
-0.87% |
-3.72% |
4.43% |
79.01% |
140.89% |
|
Cost of sales |
-2,053,751 |
4.63% |
13.82% |
26.00% |
94.78% |
137.04% |
|
Gross profit |
1,155,809 |
-9.19% |
-30.24% |
-28.17% |
55.17% |
146.71% |
|
Other income - net |
283,146 |
37.34% |
-30.58% |
-88.10% |
166.30% |
446.20% |
|
Distribution expenses |
-201,519 |
-0.66% |
-1.85% |
-11.60% |
0.58% |
37.75% |
|
Administrative expenses |
-324,033 |
16.77% |
26.71% |
38.65% |
97.19% |
162.02% |
|
Other Expenses |
0 |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Operating profit |
913,403 |
-6.61% |
-56.69% |
-73.41% |
79.67% |
251.21% |
|
Finance costs |
-112,023 |
7.52% |
58.15% |
109.06% |
24.38% |
-83.82% |
|
Profit before tax |
801,380 |
-8.18% |
-69.49% |
-93.74% |
85.83% |
288.54% |
|
Income tax expense |
-158,002 |
8.80% |
11.62% |
-63.98% |
-12.65% |
271.83% |
|
Profit for the year |
643,378 |
-11.59% |
-85.78% |
-99.72% |
105.62% |
291.90% |
In
here all the items are compared with 2016-17 financial figures. Revenue, Gross
Profit, Other Income, Income tax shows a major positive variation over the
years and the PBT also shows a high growth compared to base year.
3.2.2 Statement of Financial Position
of Lanka Wall tiles PLC
LKR “000”
|
Description |
Base Year
2016-17 Amounts |
2018 |
2019 |
2020 |
2021 |
2022 |
|
ASSETS |
||||||
|
Non-current assets |
||||||
|
Property, plant and equipment |
3,321,977 |
23.79% |
36.48% |
36.11% |
38.51% |
48.96% |
|
Capital work in progress |
0 |
- |
- |
- |
- |
- |
|
Investment in Subsidiaries |
1,276,096 |
0.00% |
0.00% |
0.00% |
0.00% |
22.41% |
|
Deferred Tax Assets |
0 |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Other long term investments |
0 |
- |
- |
- |
- |
- |
|
Loan - Related party |
0 |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Investment Property |
0 |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Total Non- Current Assets |
4,598,073 |
17.19% |
26.36% |
27.35% |
28.56% |
42.59% |
|
Current assets |
||||||
|
Inventories |
1,196,576 |
20.27% |
66.56% |
106.84% |
5.63% |
10.81% |
|
Trade and other receivables |
517,726 |
45.20% |
63.20% |
34.93% |
58.62% |
58.69% |
|
Contract Assets |
0 |
- |
- |
- |
- |
- |
|
Loan - Related Party |
0 |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Tax receivable |
3,078 |
- |
- |
- |
- |
- |
|
Amounts due from related parties |
15,374 |
95.21% |
310.15% |
266.32% |
298.50% |
572.97% |
|
Cash and cash equivalents |
41,223 |
40.65% |
-23.36% |
10.15% |
544.88% |
2274.28% |
|
Total Current Assets |
1,773,977 |
27.95% |
65.80% |
87.06% |
34.63% |
80.35% |
|
Total Assets |
6,372,050 |
20.34% |
37.88% |
44.80% |
30.34% |
53.62% |
|
EQUITY AND LIABILITIES |
||||||
|
Capital and reserves |
||||||
|
Stated capital |
787,765 |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Reserves |
1,237,011 |
23.83% |
46.49% |
46.49% |
66.36% |
66.36% |
|
Accumulated Profit/ (Loss) |
2,118,262 |
6.68% |
9.82% |
11.06% |
46.11% |
85.21% |
|
Total Capital and reserves |
4,143,038 |
10.21% |
18.15% |
18.83% |
43.61% |
65.20% |
|
Non-current liabilities |
||||||
|
Employee benefit obligations |
82,569 |
43.36% |
56.61% |
88.46% |
128.21% |
63.03% |
|
Borrowings - Related party |
0 |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Lease liability |
0 |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Deferred tax liability |
338,863 |
- |
- |
- |
- |
- |
|
Loans and borrowings |
584,245 |
-49.17% |
-63.34% |
-77.62% |
-87.69% |
-97.97% |
|
Total Non-current liabilities |
1,005,677 |
51.16% |
59.77% |
54.07% |
8.93% |
-1.24% |
|
Current liabilities |
||||||
|
Trade and other payables |
373,245 |
15.73% |
60.92% |
16.64% |
53.45% |
164.28% |
|
Contract liabilities |
0 |
- |
- |
- |
- |
- |
|
Loans & borrowings |
716,759 |
57.88% |
139.43% |
247.05% |
-69.26% |
-55.18% |
|
Short term loans |
0 |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Amounts due to related parties |
93,856 |
93.59% |
120.72% |
68.43% |
-7.88% |
-76.03% |
|
Borrowings - Related party |
0 |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Lease liability |
0 |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Tax payable |
39,475 |
-67.02% |
-88.37% |
-82.23% |
178.40% |
367.76% |
|
Bank overdrafts |
0 |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Total Current liabilities |
1,223,335 |
38.57% |
97.65% |
135.82% |
-5.62% |
45.23% |
|
Total Liabilities |
2,229,012 |
43.45% |
82.95% |
104.10% |
0.03% |
27.20% |
|
Total Equity and Liabilities |
6,372,050 |
20.34% |
37.88% |
44.80% |
30.34% |
53.62% |
Considering the above table, it shows that the company
is growing rapidly compared to the base year 2016-17 with all its Assets,
Equity and Liabilities. However, the liabilities have been increased at a
higher rate compared to equity and Assets. This may be due to the company has
invested in more credit financed projects in short term.
04. VERTICAL ANALYSIS
Vertical analysis is a method of financial statement
analysis in which each line item is listed as a percentage of a base figure
within the statement. Thus, line items on an income statement can be stated as
a percentage of gross sales, while line
items on a balance sheet can be stated as a percentage of total assets or
liabilities, and vertical analysis of a cash flow statement shows each cash
inflow or outflow as a percentage of the total cash inflows.
The below tables reflect
a vertical analysis of financial statements of Lanka Wall tiles PLC
4.1
Statement of Comprehensive Income of Lanka Wall tiles PLC
LKR
“000”
|
Description |
2016/17 |
2017/18 |
2018/19 |
2019/20 |
2020/21 |
2021/22 |
|
Revenue |
100.00% |
100.00% |
100.00% |
100.00% |
100.00% |
100.00% |
|
Cost of sales |
60.19% |
63.53% |
71.16% |
72.62% |
65.49% |
59.23% |
|
Gross profit |
39.81% |
36.47% |
28.84% |
27.38% |
34.51% |
40.77% |
|
Other income -
net |
9.25% |
12.81% |
6.67% |
1.05% |
13.76% |
20.97% |
|
Administrative
expenses |
-6.28% |
-6.29% |
-6.40% |
-5.31% |
-3.53% |
-3.59% |
|
Distribution
expenses |
-11.40% |
-13.42% |
-15.00% |
-15.13% |
-12.55% |
-12.40% |
|
Other Expenses |
0.00% |
0.00% |
0.00% |
0.00% |
-0.68% |
0.00% |
|
Operating profit |
31.39% |
29.57% |
14.12% |
7.99% |
31.50% |
45.76% |
|
Finance costs |
3.15% |
3.41% |
5.17% |
6.30% |
2.19% |
0.21% |
|
Profit before tax |
28.24% |
26.16% |
8.95% |
1.69% |
29.31% |
45.55% |
|
Income tax
expense |
-4.72% |
5.18% |
5.48% |
1.63% |
-2.30% |
7.29% |
|
Profit for the year |
23.52% |
20.97% |
3.47% |
0.06% |
27.01% |
38.26% |
In
here, the revenue considered as the key factor and all other items shows as a
percentage over the revenue. So, it is reflected that the gross profit and Net
profit has been decrease in year 2017,2018 and 2019 compare with year 2016/17
and then increased in year 2020/21 and 2021/22 compared to revenue. However, the
other income increases in year 2020/21 and 2021/22 compare with revenue.
4.2
Statement of Financial Position of Lanka Wall tiles PLC
|
Description |
2016/17 |
2017/18 |
2018/19 |
2019/20 |
2020/21 |
2021/22 |
|
ASSETS |
||||||
|
Non-current assets |
||||||
|
Property, plant
and equipment |
51.14% |
52.61% |
50.62% |
48.07% |
54.35% |
49.59% |
|
Capital work in
progress |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Investment in
Subsidiaries |
19.63% |
16.32% |
14.24% |
13.56% |
15.06% |
15.65% |
|
Deferred Tax
Assets |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Other long-term
investments |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Loan - Related
party |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Investment
Property |
0.00% |
0.00% |
0.00% |
0.62% |
0.40% |
0.46% |
|
Total Non- Current Assets |
70.78% |
68.93% |
64.86% |
62.25% |
69.81% |
65.69% |
|
Current assets |
||||||
|
Inventories |
20.55% |
20.54% |
24.82% |
29.36% |
16.65% |
14.82% |
|
Trade and other
receivables |
7.68% |
9.27% |
9.09% |
7.16% |
9.35% |
7.94% |
|
Contract Assets |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Loan - Related
Party |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Tax receivable |
0.05% |
0.04% |
0.04% |
0.04% |
0.05% |
0.04% |
|
Amounts due from
related parties |
0.27% |
0.44% |
0.81% |
0.69% |
0.83% |
1.20% |
|
Cash and cash
equivalents |
0.67% |
0.78% |
0.37% |
0.51% |
3.30% |
10.31% |
|
Total Current Assets |
29.22% |
31.07% |
35.14% |
37.75% |
30.19% |
34.31% |
|
Total Assets |
100.00% |
100.00% |
100.00% |
100.00% |
100.00% |
100.00% |
|
EQUITY AND LIABILITIES |
||||||
|
Capital and reserves |
||||||
|
Stated capital |
12.12% |
10.07% |
8.79% |
8.37% |
9.30% |
7.89% |
|
Reserves |
19.03% |
19.59% |
20.22% |
19.26% |
24.29% |
20.61% |
|
Accumulated Profit/
(Loss) |
38.39% |
34.03% |
30.57% |
29.44% |
43.03% |
46.28% |
|
Total Capital and reserves |
69.54% |
63.69% |
59.59% |
57.07% |
76.62% |
74.78% |
|
Non-current liabilities |
||||||
|
Employee benefit
obligations |
1.17% |
1.39% |
1.33% |
1.52% |
2.04% |
1.24% |
|
Borrowings -
Related party |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Lease liability |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Deferred tax
liability |
5.65% |
11.35% |
11.04% |
10.28% |
7.36% |
6.29% |
|
Loans and
borrowings |
5.00% |
2.11% |
1.33% |
0.77% |
0.47% |
0.07% |
|
Total Non-current liabilities |
11.82% |
14.85% |
13.70% |
12.58% |
9.88% |
7.60% |
|
Current liabilities |
||||||
|
Trade and other
payables |
6.37% |
6.13% |
7.44% |
5.14% |
7.51% |
10.97% |
|
Contract
liabilities |
0.00% |
0.00% |
0.00% |
0.00% |
0.36% |
0.20% |
|
Loans &
borrowings |
9.82% |
12.88% |
17.05% |
23.53% |
2.32% |
2.86% |
|
Short term loans |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Amounts due to
related parties |
1.33% |
2.15% |
2.14% |
1.55% |
0.94% |
0.21% |
|
Borrowings -
Related party |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Lease liability |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Tax payable |
1.11% |
0.30% |
0.09% |
0.14% |
2.38% |
3.39% |
|
Bank overdrafts |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Total Current liabilities |
18.64% |
21.46% |
26.72% |
30.36% |
13.50% |
17.62% |
|
Total Liabilities |
30.46% |
36.31% |
40.41% |
42.93% |
23.38% |
25.22% |
|
Total Equity and Liabilities |
100.00% |
100.00% |
100.00% |
100.00% |
100.00% |
100.00% |
In
this analysis Total assets has been considered as the base and assigned 100.
All the other items have been compared with that base figure. In here it is
clearly demonstrated that the total liabilities of the company have been decreased
compared to total assets over the year 2021 and 2022. This is due to increase
total capital and reserve with increasing accumulated profit in year 2021 and
2022. Fixed assets and current assets composition look at same in each year
compare to total assets.
05.
TREND ANALYSIS
Trend
Analysis in accounting compares the overall growth of key financial statement line item
over the years from the base case. In this calculation, only the key figures of
financial statements have been analyzed with graphics as mentioned below. Year
2016-17 has been considered as the base year of trend analysis calculations.
5.1
Statement of Comprehensive Income of Lanka Wall tiles
PLC
LKR
“000”
|
Description |
Base Year 2016-17Amounts |
2017/18 |
2018/19 |
2019/20 |
2020/21 |
2021/22 |
|
Revenue |
100 |
99.13 |
96.28 |
104.43 |
179.01 |
240.89 |
|
Cost of sales |
100 |
104.63 |
113.82 |
126.00 |
194.78 |
237.04 |
|
Gross profit |
100 |
90.81 |
69.76 |
71.83 |
155.17 |
246.71 |
|
Other income -
net |
100 |
137.34 |
69.42 |
11.90 |
266.30 |
546.20 |
|
Distribution
expenses |
100 |
99.34 |
98.15 |
88.40 |
100.58 |
137.75 |
|
Administrative
expenses |
100 |
116.77 |
126.71 |
138.65 |
197.19 |
262.02 |
|
Other Expenses |
100 |
0.00 |
||||
|
Operating profit |
100 |
93.39 |
43.31 |
26.59 |
179.67 |
351.21 |
|
Finance costs |
100 |
107.52 |
158.15 |
209.06 |
124.38 |
16.18 |
|
Profit before tax |
100 |
91.82 |
30.51 |
6.26 |
185.83 |
388.54 |
|
Income tax
expense |
100 |
108.80 |
111.62 |
36.02 |
87.35 |
371.83 |
|
Profit after tax |
100 |
88.41 |
14.22 |
0.28 |
205.62 |
391.90 |
Graphical
representation of Trend Analysis - SOCI
According
to trend analysis both revenue and gross profit increased gradually over the
years and there is abnormal increase in profit after tax in year 2020/21
compare to other years. That is because of other income increase through
dividend received from subsidiary company.
5.2
Statement of Financial Position of Lanka Wall tiles PLC LKR “000”
|
Description |
Base Year 2016-17 Amounts |
2017/18 |
2018/19 |
2019/20 |
2020/21 |
2021/22 |
|
Total Non-
Current Assets |
100 |
117.19 |
126.36 |
127.35 |
128.56 |
142.59 |
|
Total Current
Assets |
100 |
127.95 |
165.80 |
187.06 |
134.63 |
180.35 |
|
Total Assets |
100 |
120.34 |
137.88 |
144.80 |
130.34 |
153.62 |
|
Total Equity |
100 |
110.21 |
118.15 |
100.58 |
120.86 |
115.03 |
|
Total Non-current
liabilities |
100 |
151.16 |
159.77 |
154.07 |
108.93 |
98.76 |
|
Total Current
liabilities |
100 |
138.57 |
197.65 |
235.82 |
94.38 |
145.23 |
|
Total Liabilities |
100 |
143.45 |
182.95 |
204.10 |
100.03 |
127.20 |
Graphical
representation of Trend Analysis – SOFP
There is upward trend in
Total assets and Total liabilities up to year 2019/20 and thereafter total
liabilities drastically downward and total assets also downward trend up to
2020/21 and again unwarded. But Total equity has been increased till 2018/19
and down ward up to 2019/20 after year 2019/20 with increase in accumulated
profit. Result seems in 2019/20 period company is more levered and then become
less levered company.
6.
RATIO ANALYSIS
Ratio analysis is a quantitative method of gaining insight into a company's
liquidity, operational efficiency, and profitability by comparing information
contained in its financial statements. Ratio analysis is a cornerstone of fundamental analysis. Ratio analysis is used to evaluate a number of
issues with an entity, such as its liquidity, efficiency of operations, and profitability.
Trend lines can also be used to estimate the direction of future ratio
performance.
Ratio helps
to summarize large quantities of financial data and to make qualitative
judgment about the company’s performance. In view of the requirement of the
various users of ratios, we may classify them in to following important
categories.
Ø Liquidity
and efficiency ratios
Ø Profitability
ratios
Ø Solvency
ratios
Ø Market
ratios
6.1
Liquidity and efficiency ratios
6.1.1 Current Ratio = Current
Assets
Current
Liabilities
|
Description |
2017/18 |
2018/19 |
2019/20 |
2020/21 |
2021/22 |
Average |
|
Current
Ratio |
1.45 |
1.32 |
1.24 |
2.24 |
1.95 |
1.36 |
As a conventional rule a
current ratio of 2 to 1 or more is considered satisfactory. Lanka Wall tiles
PLC has
a current ratio of 1.36 on average over five years’ period. Considering the
norm this may reflect as the company is having sufficient liquidity to meet
their obligations. However, logically even if the current assets become half of
the liabilities the company will able to meet their obligations. So this a
favourable ratio to the company and it can be justified as higher the current
ratio greater the margin of safety for creditors.
6.1.2
Quick Ratio = Current
Assets – Inventories- Prepaid expenses
Current Liabilities
This is also called
acid-test ratio, establishes a relationship between quick or liquid assets and
current liabilities.
|
Description |
2017/18 |
2018/19 |
2019/20 |
2020/21 |
2021/22 |
Average |
|
Quick
Asset/Acid Test Ratio |
0.49 |
0.39 |
0.28 |
1.00 |
1.11 |
0.54 |
Generally,
a quick ratio of 1.1 is considered to represent a satisfactory level. Lanka
Wall tiles PLC has a quick ratio of 0.54 average over five years’ period. This
reflects a serious concern over the short-term liquidity position of the
company, and it may cause severe difficulties to the company in day-to-day
transactions.
Average
trade and other receivable
This is an accounting
measure used to quantify a firm’s effectiveness in extending credit and in
collecting debts on that credit.
|
Description |
2017/18 |
2018/19 |
2019/20 |
2020/21 |
2021/22 |
Average |
|
Debtors
Turnover Ratio |
5.42 |
4.18 |
4.69 |
8.17 |
10.17 |
5.44 |
Higher
the value of debtor turnover, the more efficient is the management of credit. Lanka Wall tiles PLC has
an average debtor turnover ratio of 5.44 over the five years it has been
increase gradually and it reflect efficient management of credit.
6.1.4 Day’s sales in inventory
= Ending inventory * 365
Cost of
goods sold
|
Description |
2017/18 |
2018/19 |
2019/20 |
2020/21 |
2021/22 |
Average |
|
Days'
Sales in inventory |
278.28 |
354.29 |
397.45 |
131.29 |
113.18 |
212.41 |
This
ratio indicates how long it takes a company to turn its inventory in to sales. Lanka Wall tiles PLC take
212.41 days on average to turn its inventory in to sales.
Although this ratio has been increased in year 2017 to 2020 it has decreased
rapidly over the year 2021 and 2022 up to 113 days. This is plus sign to
the company and there should be new strategy to reduce this further.
6.1.5 Day’s sales uncollected = Accounts receivable * 365
Net sales
This
measures the quality of debtors since it indicates the speed of their
collection.
|
Description |
2017/18 |
2018/19 |
2019/20 |
2020/21 |
2021/22 |
Average |
|
Days' Sales Uncollected |
79.80 |
92.34 |
70.39 |
48.27 |
35.89 |
54.45 |
The
debtors of Lanka
Wall tiles PLC
remain outstanding of 54.45 days on
average over the five years. Also, it shows an down ward trend in this ratio
over the period. When the uncollected days of debtors are decreasing it
reflects a quality of the company’s debtors. Hence it is good position to
company debtors’ collection efficiency.
6.1.6 Total asset turnover ratio = Revenue
|
Description |
2017/18 |
2018/19 |
2019/20 |
2020/21 |
2021/22 |
Average |
|
Asset
Turnover Ratio |
0.46 |
0.38 |
0.38 |
0.67 |
0.87 |
0.46 |
This ratio measures how
efficiently the assets are employed. Lanka Wall tiles PLC shows
a total asset turnover of 0.46 on average implies the company generates a sale
of 0.46 on 1 investment of total assets. This is a worst condition since it
doesn’t generate sufficient sales on assets, however the company shows an upward
trend in last five years (in 2021/22 it shown as .87) which can be considered
as a good sign.
6.2
Profitability ratios
The profitability ratios
are calculated to measure the operating efficiency of the company. Besides
management of the company, creditors and owner also interested in the
profitability of the company. Generally, the following types of profitability
ratios are calculated.
Ø Net
profit margin
Ø Gross
profit margin
Ø Return
on total assets
Ø Return
on equity
Ø Book
value per common share (EPS)
The profitability ratios
are calculated from the financial statements of Lanka
Wall tiles PLC are as follows.
6.2.1
Net profit margin = Net income
Net sales
|
Description |
2017/18 |
2018/19 |
2019/20 |
2020/21 |
2021/22 |
Average |
|
Net
Profit Margin |
20.97% |
3.47% |
0.06% |
27.01% |
38.26% |
14.96 |
This ratio is the overall measure of the firm’s
ability to turn each rupee sales in to net profit. Lanka
Wall tiles PLC shows an average net profit margin of 14.96% on net sales.
Although this ratio has been decreased in year 2017 to 2020 it has increased
rapidly over the year 2021 and 2022 up to 38.26 %. This shows good position of
the company profitability.
6.2.2
Gross profit margin = Gross profit
Net
sales
This margin reflects the efficiency with which the
management produces each unit of product.
|
Description |
2017/18 |
2018/19 |
2019/20 |
2020/21 |
2021/22 |
Average |
|
Gross
Profit Margin |
36.47% |
28.84% |
27.38% |
34.51% |
40.77% |
28.00 |
Lanka
Wall tiles PLC has a gross profit margin of 28.00% on
average over five years. When considering the graphical analysis of the ratio
it reflects that the company has able to enhance their gross profit margin year
by year which can be seen as a positive trend of growth.
6.2.3 Return on total assets
= Net income
Average total assets
|
Description |
2017/18 |
2018/19 |
2019/20 |
2020/21 |
2021/22 |
Average |
|
Return
On Assets |
13.70% |
1.33% |
3.04% |
18.09% |
39.96% |
12.69 |
This ratio is considered
to be an indicator of how effectively a company is using its assets to generate
earning before contractual obligations must be paid. The ROA of Lanka
Wall tiles PLC seems to be decreasing trend up to year 2020 and thereafter it
is increasing it shows growing trend in the graphical analysis, which can be
considered as a positive sign.
6.2.4 Return on Equity
= Net
income
Total Equity
|
Description |
2017/18 |
2018/19 |
2019/20 |
2020/21 |
2021/22 |
Average |
|
Return
On Equity |
14.64% |
2.17% |
0.04% |
27.27% |
44.18% |
14.72 |
This ratio indicates how
well the firm has used the funds of owners. Higher the ratio it reflects a
better utilization of funds. Lanka Wall tiles PLC shows
an upward trend after year 2020 and in 2021 it is 44.18%. It is positive sign
to company owners.
6.2.5 Earning per share (EPS)
= Net income – preferred dividend Weighted
average common share outstanding
|
Description |
2017/18 |
2018/19 |
2019/20 |
2020/21 |
2021/22 |
Average |
|
EPS
|
12.74 |
2.05 |
0.04 |
29.62 |
11.29 |
9.29 |
EPS simply shows the
profitability of the company of a per share basis. This is important ratio to
potential investors of the company as well as the existing owners. Lanka Wall tiles PLC
shows an average of Rs 9.29 EPS over fivers period. When considering the
graphical analysis EPS has been decreased rapidly up to year 2019/20 and it has
increased in 2020/21 and again decline in 2021/22 to Rs 11.29. This is due to
increasing no of share with share split in year 2021/2022 which is a positive
factor.
6.3
Solvency ratios
Solvency ratios measure a
company's ability to meet its long-term financial obligations. They do this by
comparing a company's level of debt against earnings, assets, and equity.
Solvency ratios are commonly used by lenders or investors to determine the
ability of a company to pay back its debts.
Better solvency ratios
indicate a more creditworthy and financially sound company in long term. The
following ratios are classified under solvency ratios.
Ø Debt
ratio
Ø Equity
ratio
Ø Debt
service cover ratio (DSCR)
6.3.1
Debt ratio = Total
liabilities
Total assets
|
Description |
2017/18 |
2018/19 |
2019/20 |
2020/21 |
2021/22 |
Average |
|
Debt
Ratio |
36.31% |
40.41% |
42.93% |
23.38% |
25.22% |
28.04 |
This ratio interprets as
the proportion of a company’s assets that are financed by debt. When
considering the financials of Lanka Wall tiles PLC,
there is a upward trend of this ratio up to 2020 and after that it shown as
downward trend and it reflects that less than half of the company’s assets are
financed by debt which indicates lower degree of debt finance.
6.3.2 Equity ratio = Total shareholder equity
Total assets
|
Description |
2017/18 |
2018/19 |
2019/20 |
2020/21 |
2021/22 |
Average |
|
Equity Ratio |
63.69% |
59.59% |
57.07% |
76.62% |
74.78% |
55.29 |
This represents the
amount of assets on which shareholders have a residual claim. Lanka
Wall tiles PLC has financed its assets by equity nearly by 55.29% on average. High
equity ratio is more preferable since the company is in increasing net profit
margin.
6.3.3 Debt to equity
ratio = Total liabilities
Total equity
|
Description |
2017/18 |
2018/19 |
2019/20 |
2020/21 |
2021/22 |
Average |
|
Debt to Equity Ratio |
57.01% |
67.83% |
75.23% |
30.51% |
33.73% |
44.05 |
Debt
to equity ratio It is a measure of the degree to which a company is financing
its operations through debt versus wholly-owned funds. This is good measurement
of leverage of the company, and in Lanka
Wall tiles PLC
this
shows both upward and downward trend over the five years and year 2020/21 it is
declined up to 33.73%. This demonstrates that this is a less leveraged company.
6.4
Market ratios
Market value ratios are
used to evaluate the current share price of a publicly-held company's stock.
These ratios are employed by current and potential investors to determine
whether a company's shares are over-priced or under- priced
These ratios used to make
market investment decisions in stock of companies. The market ratios are as
follows.
Ø Dividend
per share (DPS)
Ø Price
earnings ratio (PE ratio)
6.4.1
Dividend per share = Dividend paid
Number of ordinary shares outstanding
|
Description |
|
2017/18 |
2018/19 |
2019/20 |
2020/21 |
2021/22 |
Average |
|
Dividend
per share |
|
0.00 |
3.00 |
0.00 |
13.60 |
2.72 |
3.22 |
Dividend per share (DPS)
is the sum of declared dividends issued by a company for every ordinary share
outstanding. This is a vital ratio for both internal and external users. In Lanka
Wall tiles PLC DPS is 3.22 on average over five years. In graphical analysis it
clearly demonstrates that there is a downward trend up to 2019/20 and in 2020/2021
it shows upward, again 2021/22 down ward. It is due to 214,800 shares spilt in
year 2021/22 in which is a plus sign to investors.
6.4.2 Price earnings ratio (PE) = Market price per share
Earnings per share
|
Description |
2017/18 |
2018/19 |
2019/20 |
2020/21 |
2021/22 |
Average |
|
PE
Ratio |
4.32 |
32.03 |
1,465.72 |
1.39 |
3.64 |
251.18 |
PE ratio reflects investor’s
expectation about the growth in the company’s earnings. In Lanka Wall tiles PLC
has a 251.18 average PE over five years. In year
2019/20 it shows abnormal increasing due to EPS drastically reduce and in year
2020/21 and 2021/22 it seems normal that is 3.64.
07.
ALTMAN Z SCORE
Altman Z score is a type of Z score, which was
published by Edward I. Altman in 1968 as
a Z score formula, used to predict
the chances of bankruptcy. This methodology can be used to predict the chance
of a business organization to move into bankruptcy within a given time, which
is mostly about 2 years. This method is successful in predicting the status of
financial distress in any firm. Altman Z score can help in measuring the
financial health of a business organization by the use of multiple balance sheet
values and corporate
income.
The
Altman Z Score formula for this model for determining the probability that a
firm to close bankruptcy:
Altman
Z Score formula = (0.1 x A) + (0.31x B) + (0.13 x C) + (1.41 x D) + (0.44 x E)
- In this model, if the Z value is
greater than 2.99, then the firm is said to be in the “safe zone” and has
a negligible probability of filing bankruptcy.
- If the Z value is between 2.99
and 1.81, then the firm is said to be in the “grey zone” and has a
moderate probability for bankruptcy.
- And finally, if the Z value is
below 1.81, then it is said to be in the “distress zone” and has a very
high probability of reaching the stage of bankruptcy.
|
Description |
2017/18 |
2018/19 |
2019/20 |
2020/21 |
2021/22 |
Average |
|
Z
core value |
2.06 |
1.65 |
1.45 |
2.92 |
5.55 |
2.27 |
|
Status |
Grey
Zone |
Stage
of Bankruptcy |
Stage
of Bankruptcy |
Grey
Zone |
Safe
Zone |
Grey
Zone |
According to this model its show up to the financial
year 2017/18 Grey Zone and it has come to the stage of Bankruptcy in financial
year 2018/19 and 2019/20 and again it is in Grey Zone in year 2020/21 and safe
Zone in year 2021/2022. When consider the overall financials for the last 5
years and average value, the company is in position of Grey Zone.
08.
COMPARATIVE ANALYSIS -PEER COMPANY
Companies are grouped into
peer groups for ratio analysis as part of fundamental analysis. It allows
researchers to determine individual company liquidity, efficiencies, as well as
profitability. This is done by examining each company's past and current
financial statements and comparing them with one another. Peer company analysis may
lead to extraordinary results and comparisons and it identify triggers and
drivers to understand its business and the market.
Here I compared Lanka Wall
tiles PLC with Royall Ceramic Lanka PLC for the year 2021/22.
|
Lanka Wall Tiles
PLC |
Royal Ceramic
Lanka PLC |
|
|
Description |
2021/22 |
2021/22 |
|
Profitability
Ratios |
|
|
|
Return On Equity |
44.18% |
35.32% |
|
Return On Assets |
39.96% |
26.85% |
|
Gross Profit Margin |
40.77% |
53.04% |
|
Operating Profit Margin |
45.76% |
54.01% |
|
Net Profit Margin |
38.26% |
44.44% |
|
Profitability ratio of Royal
Ceramic Lanka shows more favorable than the Lanka Wall Tiles since Gross
profit, Operating profit and net profit ratios higher in Royal Ceramic with
compare to Lanka wall tiles. But ROE and ROA ratios more favorable in Lanka
Wall tiles than the Royal Ceramic PLC. |
||
|
Efficiency Ratios |
|
|
|
Asset Turnover Ratio |
0.87 |
0.50 |
|
Inventory/Stock Turnover Ratio |
3.30 |
2.29 |
|
Debtors Turnover Ratio |
10.17 |
24.24 |
|
Days' Sales Uncollected |
35.89 |
13.79 |
|
Days' Sales in inventory |
113.18 |
157.27 |
|
Activity Cycle |
149.07 |
171.06 |
|
Higher the value of debtor
turnover, and lesser the day sales uncollected is more efficient is the management
of credit, comparing both companies Royal Ceramic Lanka PLC having efficient
management of credit than the Lanka Wall Tiles PLC. However, Inventory
Turnover, Assets Turnover, Day’s sales in inventory and overall activity
Cycle more favorable in Lanka Wall Tiles PLC. |
||
|
Liquidity Ratios |
|
|
|
Current Ratio |
1.95 |
1.18 |
|
Quick Asset/Acid Test Ratio |
1.11 |
0.88 |
|
As a conventional rule a current ratio of 2 to 1 or more
is considered satisfactory. Lanka Wall tiles PLC has a current ratio of 1.95
and Royal Ceramic Lanka Plc has 1.18 Considering the norm this may reflect as
the both companies is having sufficient liquidity to meet their obligations. Generally,
a quick ratio of 1.1 is considered to represent a satisfactory level. Lanka
Wall tiles PLC has a quick ratio of 1.11 and it is satisfactory level and
Royal Ceramic Lanka PLC having 0.88 lesser ratio compare to the Lanka Wall
Tiles PLC. Company Liquidity position of Lanka Wall Tiles sounder than the
Royal Ceramic Lanka PLC. |
||
|
Gearing/Capital
Structure Ratios |
|
|
|
Debt to equity Ratio |
33.73% |
64.92% |
|
Debt Ratio |
25.22% |
39.37% |
|
Equity Ratio |
74.78% |
60.63% |
|
Interest Coverage Ratio |
216.48 |
25.99 |
|
Debt Service Cover Ratio |
0.34 |
1.41 |
|
When considering the financials of
Lanka Wall tiles PLC, it reflects that less than half of the company’s assets
are financed by debt which indicates lower degree of debt finance and Royal
Ceramic Lanka PLC consist more debt financing. It is resulted that it
interests coverage ratio more lesser than the Lanka Wall Tiles Plc. Finally,
we can conclude that Royal Ceramic Lanka PLC is more levered company than the
Lanka Wall Tiles PLC. |
||
|
Investors'/Market
Performance Ratios |
|
|
|
EPS |
11.29 |
5.77 |
|
Book value per share |
27.35 |
17.75 |
|
Operating cash flow per share |
8.24 |
2.03 |
|
Dividend per share |
2.72 |
4.20 |
|
PE Ratio |
3.64 |
7.06 |
|
These ratios are employed by current
and potential investors to determine whether a company's shares are
over-priced or under- priced. When compare both companies EPS Book Value per
share grater in Lanka Wall Tiles PLC than the Royal Ceramic Lanka Plc. But DPS and PE ratios of Royal Ceramic
Lanka Plc more favorable than the Lanka Wall Tiles Plc. |
||
09.
CONCLUSION
Financial statement analysis can be a very useful tool
for understanding a company’s performance and condition. It is a process of
identifying the financial strengths and weaknesses of the company by properly
establishing relationship between the items of the statement of financial
position and statement of comprehensive income.
A simple method of tracing periodic changes in the
financial performance of a company is to prepare comparative statements.
Comparative financial statements will contain at least two years’ period. Lanka
Wall tiles PLC is selected for the
analysis and this analysis consist five years’ period consecutively.
Horizontal, Vertical and Trend analysis indicates a direction of comparative
change of the company. It has enabled the users of financial statements to
identify the movements of the overall business.
Ratio analysis is a form of financial statement
analysis that is used to obtain a quick indication of a firm’s financial
performance in four important areas namely liquidity and efficiency,
profitability, solvency and market ratios. When considering the liquidity
position of Lanka Wall tiles PLC, it
is positive and favorable status of the company when meeting its short-term
obligations. So, the company needs to continue this level their liquidity
position. When considering the profitability, it is in a declining trend up to
year 2020 and thereafter it is increasing and it shows plus sign of company
profitability. When considering the leverage of the company, it can be
summarized as this company is financed by more on equity. This shows this
company is a less leveraged company. These ratios will enable both internal and
external users to make their investment decisions on the company. Overall
conclusion is that company position going to favorable status after year 2020.
10.
RECOMMENDATION
Lanka Wall tiles PLC was established in
1975 and it is a subsidiary of Lanka Ceramic PLC. Lanka Wall tile PLC engages
in the production and distribution of ceramic wall tiles in Sri Lanka. In 1994 the company was listed in the Colombo Stock Exchange.
In here I have analyzed five years of annual reports
and financial statements of this company in order to do a proper evaluation of
the business. Following issues are identified in my evaluation.
Ø Company is more focused on equity finance. This
company become less leveraged and company can increase their funds through
short term and long-term borrowing.
Ø Since current
profitability ratio is higher invest fund through borrowing more favorable to
equity shareholders.
Ø Current and quick assets position is acceptable level
and it means company can meet their short-term obligation easily.
Ø PE ratio in year 2019/20 it shows abnormal increasing
due to EPS drastically reduce and in year 2020/21 and 2021/22 it seems normal
that is 3.64.
Ø Company
DPS is 3.22 on average over five years. In graphical analysis it clearly
demonstrates that there is a downward trend up to 2019/20 and in 2020/2021 it
shows upward, again 2021/22 down ward. It is due to 214,800 shares spilt in
year 2021/22 in which is a plus sign to investors
Ø When Comparison to peer company Lanka Wall Tiles PLC
having good position in Liquidity and Solvency and some of market ratios.
Based on the above issues following recommendations
can be suggested to the company.
Since company is less leveraged company and currently
highly profitable it is considered to be less risky since businesses not having
more contractually obliged to pay interest on debt. So, there is more
probability to increasing funds through borrowings until maintain 50% debt to
equity level within the company. Then Equity holders can earn more.
Also, when considering the upward downward trend of
the net profitability of Lanka Wall tile PLC should keep a close watch on their
administrative and other expenses since they have a positive trend of gross
profit margin in current years. However, the company can conduct an activity-based
costing technique to find the real cost used in each and every specific
activity. This will help to identify and eliminate the unnecessary costs of the
company.
Although the company’s uncollected debtors and
inventory days are decline at a reducing rate over the years. The quality of
the debts needs to be identified and if there are any bad and doubtful debts
can be financed through invoice discounting, factoring methods in order to
enhance the company’s liquidity position.
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