Financial Statement Analysis of Richard Pieris Company & PLC (From 2018-2022)

 

Financial Statement Analysis of Richard Pieris Company & PLC (From 2018-2022)

 

Company Profile

Richard Pieris Company PLC is a company with a history for more than 83 years and it is engaged in retail plantations, tyres, insurance and financial services, healthcare and construction. It is now one of the biggest enterprises on the listed on the Colombo Stock Exchange with over 25000 employees and an annual turnover of over $250 million US dollars.

Retail sector of the Richard Pierris Group comprises with five entities as Richard Pieris Distributors Ltd, Arpimalls Development Company (Pvt) Ltd, RPC Retail Development Company (Pvt) Ltd, RPC Real Estate Development Company (Pvt) Ltd and Arpico Interiors (Pvt) Ltd. This segment offers a range of household, fast moving consumer goods, furniture and electronics and value added services such as ATMs, credit card and mobile bill payment facilities.

Plantation segment includes tea,rubber,palm oil, coconut and spices and the rubber segment comprises with products such as pillows,mattresses,shoe soles and electrical safety mats.Tyre segment involves with the tire retreading, tire trading while the financial segment offers the services such as insuarnace,finance,stock broking and logistics arm.

 

                                                                                                                                 (Annual reports)

Financial Statement Analysis

This report analysis audited financial statements of Richard Pieris Company PLC from year 2018 to 2022.Financial statements such as a statement of financial position, statement of profit and loss are primarily used in financial analysis to evaluate the company’s outcomes, performance and trends. The most important benefit of this is that it helps investors decide whether to invest in a certain company by providing direction.

1.0 Horizontal analysis

Horizontal analysis can use to compare a company’s present financial standing to its previous financial standing. Through this analysis, there will be a chance to compare and contrast the financial positions and income statement of Richard Pieris Company PLC from 2018 to 2022.

1.1Horizontal analysis of statement of comprehensive income statement

	2022	2021	2020	2019
Revenue from Contracts with Customers	173%	-4%	-55%	9%
Cost of Sales	-100%	-8%	0%	0%
Gross Profit	692%	5%	0%	0%
Other Operating Income	38%	74%	0%	0%
Distribution Costs	-100%	25%	0%	0%
Administrative Expenses	631%	3%	-87%	-23%
Other Operating Expenses	0%	-100%	0%	0%
Profit from Operations
Finance Income
Finance Cost	-3387%	-23%	-103%	51%
Other Financial Items	-4819%	-29%	-106%	38%
Share of Profit / (Loss) of Associate	-100%	-1%	0%	0%
Profit before tax
Taxation	280%	52%	839%	0%
Profit for the year from continuing operations
Discontinued Operations
Profit / (Loss) after Tax for the year from discontinued operations	0%	0%	0%	0%
Profit for the year	356%	13%	-74%	9%

 

Gross profit increased gradually from 2019 to 2022.Compared to 2021, the profit for 2022 has increased drastically. It is a good sign for the company but the decision makers have to control the administrative cost since the administrative expenses also increased considerably from 2021 to 2022.

 

1.2Horizonal analysis of statement of financial position

Assets	2022	2021	2020	2019
Non-current assets
Property, Plant and Equipment	182%	38%	-66%	16%
Long Term Investments	869%	-3%	-88%	0%
Advance Payment for Investment	0%	0%	0%	0%
Investment Property - Right of use Asset	0%	0%	0%	0%
Right of use Assets	0%	0%	-100%	0%
Other financial assets	0%	0%	-100%	159%
Deferred Tax Asset	585%	51%	0%	0%
Current assets
Inventories	-96%	24%	0%	0%
Trade and Other Receivables	-48%	34%	-20%	96%
Tax receivables	0%	0%	-100%	-22%
Short Term Investment	0%	0%	-100%	8%
Amounts Due from Related Parties	2251%	75%	-96%	78%
Leasehold Land Prepayment	0%	0%	0%	0%
Cash and Bank Balances	16%	42%	0%	0%
	524%	29%	0%	0%
EQUITY AND LIABILITIES
Equity attributable to Equity Holders of the Parent
Stated Capital	796%	0%	-89%	0%
Revenue Reserves	54%	18%	97%	-13%
Foreign Currency Translation	0%	0%	0%	0%
Other components of equity
Non-Controlling Interest	0%	0%	0%	0%
Non-Current Liabilities
Interest Bearing Loans and Borrowings	0%	0%	0%	-100%
Deferred Tax Liability	-8%	11%	0%	0%
Retirement Benefit Obligation	0%	0%	-100%	-14%
Lease Instalments Payable After One Year	0%	0%	0%	0%
Current Liabilities
Trade and Other Payables	135%	7%	-84%	138%
Income Tax Payable	1008%	339%	0%	0%
Amounts Due to Related Parties	-54%	901%	968%	-67%
Lease Instalments Payable In the Ensuing Year	0%	0%	-100%	37%
Interest Bearing Loans and Borrowings	0%	-100%	-100%	113%

 

When observing the most recent figures, can see that property, plant and equipment has been drastically increased by 144%.However it recorded a negative amount in 2020.There is a considerable increase in income tax payable throughout the years.

Total assets rapidly growing in 2022, when compared to 2019 and its showing a positive value indicating that Richard Pieris PLC is strong over years.

·         Income statement for five years

	2022	2021	2020	2019	2018
Revenue from Contracts with Customers	3,491,206	1,280,199	1,329,309	2,934,631	2,694,333
Cost of Sales	-	(839,570)	(909,483)	-	-
Gross Profit	3,491,206	440,629	419,826	2,934,631	2,694,333
Other Operating Income	267,520	194,108	111,439	-	-
Distribution Costs	-	(28,586)	(22,826)	-	-
Administrative Expenses	(457,430)	(62,605)	(60,805)	(459,304)	(599,004)
Other Operating Expenses	-	-	(2,757)	-	-
Profit from Operations	3,301,296	543,546	444,877	2,475,327	2,095,329
Finance Income
Finance Cost	(605,568)	18,421	24,069	(717,540)	(475,884)
Other Financial Items	88,617	(1,878)	(2,656)	41,035	29,758
Share of Profit / (Loss) of Associate	-	64,316	65,085	-	-
Profit before tax	2,784,345	624,405	531,375	1,798,822	1,649,203
Taxation	(326,227)	(85,864)	(56,323)	(5,999)	-
Profit for the year from continuing operations	2,458,118	538,541	475,052	1,792,823	1,649,203
Discontinued Operations
Profit / (Loss) after Tax for the year from discontinued operations	-	-	-	-	-
Profit for the year	2,458,118	538,541	475,052	1,792,823	1,649,203

 

·         Statement of financial position for five years

Assets	2022	2021	2020	2019	2018
Non-current assets
Property, Plant and Equipment	287,355	101,935	74,033	218,148	188,637
Long Term Investments	4,487,433	463,023	479,084	3,835,673	3,849,173
Advance Payment for Investment	1,249,479	-	-	-	-
Investment Property - Right of use Asset	2,668,247	-	-	-	-
Right of use Assets	260,654	-	-	1,221,180	1,225,565
Other financial assets	-	-	-	752,159	290,229
Deferred Tax Asset	10,984	1,604	1,064	-	-
	8,964,152	566,562	554,181	6,027,160	5,553,604
Current assets
Inventories	7,701	194,638	156,532	-	-
Trade and Other Receivables	286,918	550,409	410,072	510,636	260,947
Tax receivables	0	-	-	6,987	8,984
Short Term Investment	-	-	-	7,880,056	7,278,859
Amounts Due from Related Parties	4,582,315	194,927	111,266	2,656,390	1,492,101
Leasehold Land Prepayment	-	-	-	-	-
Cash and Bank Balances	1,011,831	875,017	616,956	-	-
	5,888,765	1,814,991	1,294,826	11,054,069	9,040,891
	14,852,917	2,381,553	1,849,007	17,081,229	14,594,495
EQUITY AND LIABILITIES
Equity attributable to Equity Holders of the Parent
Stated Capital	1,972,829	220,262	220,262	1,972,829	1,972,829
Revenue Reserves	2,488,980	1,616,436	1,372,776	697,798	800,325
Foreign Currency Translation	(670,434)	-	-	-	-
Other components of equity		-	-	5,768	5,768
	3,791,375	1,836,698	1,593,038	2,676,395	2,778,922
Non Controlling Interest	-	-	-
	3,791,375	1,836,698	1,593,038	2,676,395	2,778,922
Non-Current Liabilities
Interest Bearing Loans and Borrowings	364,611	-	-	-	2,143,673
Deferred Tax Liability	63,871	69,674	62,923	-	-
Retirement Benefit Obligation	-	-	-	70,609	82,471
Lease Instalments Payable After One Year	-	-	-	-	-
	428,482	69,674	62,923	70,609	2,226,144
Current Liabilities
Trade and Other Payables	394,507	167,767	156,199	974,203	408,813
Income Tax Payable	512,530	46,245	10,536
Amounts Due to Related Parties	118,952	261,169	26,080	2,442	7,369
Lease Instalments Payable In the Ensuing Year	49,149	-	-	11,186,636	8,155,234
Interest Bearing Loans and Borrowings	9,557,922	-	231	2,170,944	1,018,013
	10,633,060	475,181	193,046	14,334,225	9,589,429
	14,852,917	2,381,553	1,849,007	17,081,229	14,594,495

 

2.0 Vertical analysis

A financial analysis technique called vertical analysis uses the ratios of each line item in the financial statements to a base value to assess the company’s financial statements.Base amounts are,

Income statement-Total revenue

Balance Sheet-Total Assets

2.1 Vertical analysis for Income statement

According to the below table all items have been compared against the base of total revenue.

Can see that there was a fluctuation of cost of sales against the revenue over past 5 years. But the company was able to maintain it between 60%-70%.Other income have represented only a small amount against the total revenue which is within the range of 5%-15%.

	2022	2021	2020	2019	2018
Revenue from Contracts with Customers	100%	100%	100%	100%	100%
Cost of Sales	0%	-66%	-68%	0%	0%
Gross Profit	100%	34%	32%	100%	100%
Other Operating Income	8%	15%	8%	0%	0%
	0%	0%	0%	0%	0%
Distribution Costs	0%	-2%	-2%	0%	0%
Administrative Expenses	-13%	-5%	-5%	-16%	-22%
Other Operating Expenses	0%	0%	0%	0%	0%
Profit from Operations	95%	42%	33%	84%	78%
Finance Income
Finance Cost	-17%	1%	2%	-24%	-18%
Other Financial Items	3%	0%	0%	1%	1%
Share of Profit / (Loss) of Associate	0%	5%	5%	0%	0%
Profit before tax	80%	49%	40%	61%	61%
Taxation	-9%	-7%	-4%	0%	0%
Profit for the year from continuing operations	70%	42%	36%	61%	61%
Discontinued Operations
Profit / (Loss) after Tax for the year from discontinued operations	0%	0%	0%	0%	0%
Profit for the year	70%	42%	36%	61%	61%

 

Profit for the year is above 60% for past years except 2021 and 2020.It is a good thing for a company. It may happened due to Covid 19 pandemic situation. The other operating income have been decreased when compared to 2021.

3.0 Trend analysis

Trend analysis is a technique used to examine and predict movements of an item based on current and historical data. Can utilize trend analysis to make the business better by using trend data to guide your decision making.

Using trend analysis, the Richard pieris Co PLC’s revenue, cost of sales and gross profit were examined. The company’s financial statements for the previous five years from 2018 to 2022 were evaluated with 2017 serving as the base year for 100% of the analysis.

Graph 01-Trend analysis of Revenue and profits

In trend analysis, profit of the year shows 180% in 2022.It is good achievement of the company. When we compare the total profit with year 2018, the total gradually increased and it’s a good indication in profitability.

3.1 Trend analysis for Income statement   Income statement 2022 2021 2020 2019 2018 Revenue from Contracts with Customers 151% 55% 58% 127% 117% Cost of Sales 0% 100% 100% 0% 0% Gross Profit Other Operating Income 100% 100% 100% 0% 0% Distribution Costs 0% 100% 100% 0% 0% Administrative Expenses 84% 12% 11% 85% 111% Other Operating Expenses 0% 0% 9% 0% 0% Profit from Operations Finance Income Finance Cost 158% -5% -6% 187% 124% Other Financial Items 398% -8% -12% 184% 134% Share of Profit / (Loss) of Associate 0% 100% 100% 0% 0% Profit before tax Taxation 2782% 732% 480% 51% 0% Profit for the year from continuing operations Discontinued Operations Profit / (Loss) after Tax for the year from discontinued operations 0% 0% 0% 0% 0% Profit for the year 180% 40% 35% 132% 121%

 

 

 

 

3.2 Trend analysis for Statement of Financial Position

 

Assets	2022	2021	2020	2019	2018
Non-current assets
Property, Plant and Equipment	305%	108%	79%	231%	200%
Long Term Investments	118%	12%	13%	101%	101%
Advance Payment for Investment	100%	0%	0%	0%	0%
Investment Property - Right of use Asset	100%	0%	0%	0%	0%
Right of use Assets	21%	0%	0%	99%	100%
Other financial assets	0%	0%	0%	686%	265%
Deferred Tax Asset	100%	100%	100%	0%	0%
Current assets
Inventories	100%	100%	100%	0%	0%
Trade and Other Receivables	137%	262%	195%	243%	124%
Tax receivables	0%	0%	0%	139%	179%
Short Term Investment	0%	0%	0%	137%	127%
Amounts Due from Related Parties	234%	10%	6%	135%	76%
Leasehold Land Prepayment	0%	0%	0%	0%	0%
Cash and Bank Balances	100%	100%	100%	0%	0%
EQUITY AND LIABILITIES
Equity attributable to Equity Holders of the Parent
Stated Capital	100%	11%	11%	100%	100%
Revenue Reserves	178%	115%	98%	50%	57%
Foreign Currency Translation	100%	0%	0%	0%	0%
Other components of equity	0%	0%	0%	35%	35%
Non-Controlling Interest	0%	0%	0%	0%	0%
	112%	54%	47%	79%	82%
Non-Current Liabilities
Interest Bearing Loans and Borrowings	12%	0%	0%	0%	68%
Deferred Tax Liability	100%	100%	100%	0%	0%
Retirement Benefit Obligation	0%	0%	0%	88%	103%
Lease Instalments Payable After One Year	0%	0%	0%	0%	0%
Current Liabilities
Trade and Other Payables	142%	60%	56%	351%	147%
Income Tax Payable	100%	100%	100%	0%	0%
Amounts Due to Related Parties	3969%	8714%	870%	81%	246%
Lease Instalments Payable In the Ensuing Year	1%	0%	0%	225%	164%
Interest Bearing Loans and Borrowings	739%	0%	0%	168%	79%

Following trends can be observed with the trend analysis of Richard piers Company PLC for the period from 2018-2022.

o   The company presents positive trends in revenue and net profits.

o   The balance sheet of the company has grown and can be noticed that current assets has been significantly increased.

4.0 Ratio analysis

Ratio analysis is a quantitative method of studying company’s financial statements to gain an insight about company’s liquidity, efficiency and profitability.

In this report ratio analysis has done for the following categories.

·         Liquidity ratio

·          Efficiency ratio

·         Solvency ratio

·         Profitability ratio

4.1 Liquidity and efficiency ratio

 

Liquidity and efficiency ratios	2022	2021	2020	2019	2018
Current assets	0.55	3.82	6.71	0.77	0.94
Acid test ratio	0.55	3.41	5.90	0.22	0.18
Accounts receivables turnover	8.34	2.67	2.89	7.61	20.65
Merchandize turnover	-	4.78	11.62	-	-
Days' sales uncollected	0.02	0.01	0.01	0.02	0.06
Days' sales inventory	-	0.01	0.03	-	-
Total asset turnover	0.91	0.28	0.07	0.29	0.60

 

4.1.1 Liquidity ratio

Liquidity ratios measures the company’s ability to pay its short term debt obligations.

Current asset ratio measures the company’s ability to pay obligations those due within one year. A higher current ratio is better for a business. A good current ratio is between 1.2 and 2, which means that the business has 2 times more current assets than liabilities to cover its debts. In 2022, current asset ratio is less than 1 and it is not a good sign for the company. The company has maintained a good ratio in 2020 and it has reduced throughout the past three years.

Graph 02-Current ratio

 

 

Acid test ratio or quick ratio measures the company’s ability to pay its short term debt obligations using only its most liquid assets. Cash, cash equivalents and marketable securities can identify as the most liquid assets. Ideally, companies should have a ratio of 1 or greater, meaning the firm has enough liquid assets to cover all short term debt obligations. In 2021 and 2020, the company has maintained a good quick ratio which were more than 1.But in 2022 that has been decreased to a ratio below 1 and it is not a good sign for the company.

Graph 03-Acid Test ratio

 

 

4.1.2 Efficiency ratio

Efficiency ratios or activity ratios use to measure the performance of a company’s current performance. Through these ratios can get an idea how well a company utilizes its resources to make profits.

To measure how effective a business is at collecting debt can use accounts receivable turnover ratio .By indicating a good performance from 2021 to 2022 the ratio of Richard Pieris Company PLC has been increased from 2.67 to 8.34.

When it comes to the merchandize turnover which measures the number of times merchandize replaced during the year, this company is not showing a good performance since the ratio has continuously declined from 2020 to 2022.

Day sales uncollected ratio measure the days company will receive cash for its sales and when the number of days are low it indicates that the company’s collection method are efficient and customers are paying the debt quickly. From 2020 to 2022 it has been gradually increased .Therefore, the company shows an average performance.

Average number of days a company take to sell off its inventory measure through the day sales inventory ratio. From 2020 to 2022, the number has gradually declined and its indicating a good sign since the lower number of days are better.

Total asset turnover ratio measures the efficiency of a firm’s asset in generating sales. Richard Pieris Company PLC indicating a less efficient situation since all five years ratios are lesser than 1.This situation is unfavorable for the company since assets re not generating enough sales.

 

4.2  Solvency ratio

 

	2022	2021	2020	2019	2018
Debt ratio	72%	0%	0%	45%	53%
Equity ratio	28%	100%	100%	55%	47%

 

Solvency ratio is a key metric to determine the company’s ability meet its long term debt obligation. To measure the financial solvency can use this ratio of debt to equity.

Debt ratio measure the company’s total debt as a percentage of its total asset. A high debt ratio indicate that the company is a highly levered one. In 2022, Richard Pieris Company PLC have a high debt ratio which indicates that company may have borrowed more money than it can easily pay.

Equity ratio measure the value of the assets financed through the owner’s equity. In general, when a company has an equity ratio around 50% it indicates that company is using a good amount of its equity to finance its business. In 2019, Richard Pieris Company PLC has continued a ratio between 50% and in 2020 and 2021, the company has maintained a health equity ratio.

 

4.3 Profitability ratio

 

	2022	2021	2020	2019	2018
Profit margin	0.70	0.42	0.36	0.61	0.61
Gross margin	1.00	0.34	0.32	1.00	1.00
Return on total assets	0.17	0.23	0.26	0.10	0.11
Return on common shareholders	0.22	0.08	0.06	0.16	0.30

 

To determine the profitability of the firm or to determine the company’s ability to deliver profits, we calculate profitability ratios. This is a good measure of financial performance.

Profit margin ratio determines what percentage of a company’s sales consists of net income. Higher the ratio is good for the company. From 2018 to 2020 ratio has decreased and in 2022 Richard Pieris Company PLC has the highest ratio.

By comparing company’s gross profit to its net sales can use this gross profit margin as a financial metric. If the gross profit margin is less it’s not good for the company and when having a negative figure it indicates that company cannot survive. Here, this Richard Pieris Company PLC has good gross profit margin.

As the best ratio to measure the company’s profitability we can use Return on total assets. In general, the higher the ROA, the more efficient the company is at generating profits. From 2018 to 2020 the ratio has increased and in 2022 the ratio is significantly lower compare to the 2020 and 2021.

Return on common shareholders’ equity measure how much money common shareholders’ receive from a company compared with how much they invested. In 2022, the ratio has decreased compared to 2018.

 5.0 Altman Z-core

The likelihood of bankruptcy for a company can assess through the z-core output. This is a useful metric for an outsider who has access to company’s financial statements.

Zones of discrimination

Z > 2.99                  -    Safe zone

1.8 < Z < 2.99         -    Grey zone

Z<1.80                    -    Distress zone

 The Altman Z-core formula for Richard Pieris Company PLC as follows.

Zones of discrimination

	2022	2021	2020	2019	2018
Q1	(0.32)	0.56	0.60	(0.19)	(0.04)
Q2	0.17	0.68	0.74	0.04	0.05
Q3	0.22	0.23	0.24	0.14	0.14
Q4	0.18	0.40	0.86	0.14	0.17
Q5	0.24	0.54	0.72	0.17	0.18
Z	0.48	2.41	3.16	0.30	0.51

 

 

 

 

 

 

 

2022      0.32Q1+0.17Q2+0.22Q3+0.18Q4+0.24Q5 =0.48

2021       0.56Q1+0.68Q2+0.23Q3+0.4Q4+0.54Q5 =2.41

2020       0.60Q1+0.74Q2+0.24Q3+0.86Q4+0.72Q5 =3.16

2019      -0.19Q1+0.04Q2+0.14Q3+0.14Q4+0.17Q5 =0.30

2018       -0.04Q1+0.05Q2+0.14Q3+0.17Q4+0.18Q5 =0.51

	2022	2021	2020	2019	2018
Working capital	(4,744,295)	1,339,810	1,101,780	(3,280,156)	(548,538)
Total asset	14,852,917	2,381,553	1,849,007	17,081,229	14,594,495
Retained earnings	2,488,980	1,616,436	1,372,776	697,798	800,325
Earnings before interest and tax	3,301,296	543,546	444,877	2,475,327	2,095,329
Market value of equity	1,972,829	220,262	220,262	1,972,829	1,972,829
Booked value of total liabilities	11,061,542	544,855	255,969	14,404,834	11,815,573

 

 

Generally, if there is a score below 1.8 it indicates that the company is probably headed for bankruptcy situation. According to the above calculations, can identify that company is in “Distress Zone “in 2022.While throughout the past four years only 2020 was in the “safe zone”. Since the current year is in “Distress zone” decision makers of Richard Pieris Company PLC have to be more careful and have a huge part to do.