FINANCIAL STATEMENT ANALYSIS OF TEEJAY LANKA PLC

 

1. Introduction

Financial statement analysis is vital for companies due to several reasons. It can support stakeholders to make informed and important decisions about a company. Investors can determine whether to buy or sell a stock, lenders can decide whether to lend money, and management can check the effectiveness and efficiency of their strategies by analyzing financial statements.

The financial performance of an organization is analyzed over a period of time in Financial Statement Analysis. Stakeholders can determine whether the organization is generating profits, growth oriented, and operating efficiently by analyzing a company's financial statements. They can also assess the company’s ability to meet its obligations, liquidity, and solvency.

Under this report, it is expected to analyze the financial statements of Teejay Lanka PLC, a company which is listed under Colombo Stock Exchange. This report contains a detailed analysis of the financial statements Teejay Lanka PLC. Accordingly, it includes Horizontal analysis, trend analysis, vertical analysis, ratio analysis & computations of Altman’s Z score model.

A detailed analysis of Teejay Lanka PLC’s financial statements for five years is being conducted. This report is a detailed discussion on financial statement analysis covering all the areas learned under ACC 5102 – Accounting for Managers subject.

2. Background of the Company

 

Teejay Lanka PLC is a major textile and apparel company operates in Sri Lanka. It inspired by the belief that the feasible commences where the implausible comes to an end. “To be the preferred fabric solutions for branded clothing.” Is their vision and to “become a USD 300 company in 2022/23 providing customers with world-class fabric solutions delivered through sustainable operations and best in class talent in multiple locations” is their mission.

2000-Textured Jersey Lanka was initiated as a joint venture between Linea Clothing and Textured Jersey (lately known as Pacific Textiles)

2007-Changes in shareholding with Brandix joining Pacific Textiles

2011- The company was listed publicly

2016-The company rebranded as Teejay Lanka

2019-The company received the award of the best textile exporter in Sri Lanka at the Presidential Export Awards and was ranked in the first 100 companies in Sri Lanka

Teejay Lanka PLC weaves magical bonds between fabric and fashion, by nurturing a culture of innovative excellence. Moreover, this organization is one of the companies of S&P Sri Lanka 20 of the Colombo Stock Exchange. Now they expand their plant to India. And they recorded 50.38 MN turnover and 4.55 gross profit in 2022/23 according to the annual report.

3. Financial Statement Analysis

Financial statement analysis is conducted to analyze company’s financial statements and interpret the financial wellbeing of it. Basic tools used for the analysis of financial statements are horizontal analysis, trend analysis, vertical analysis and ratio analysis.

The behavior of individual financial statement items, over a period of time is analyzed under horizontal analysis. A base year is identified, and the changes of line items are recognized during the years taken into consideration. Trend analysis is another part of horizontal analysis.

Vertical analysis is used to compare individual components of financial statements to key statement figure. In Profit & Loss statement revenue (sales) is the key statement figure and for statement of financial position total assets is the key statement figure.

Ratio analysis can be done under the criteria of liquidity and efficiency, solvency, profitability and stock market ratios.

4. Horizontal Analysis

 

4.1. Horizontal Analysis of Financial Position

 

Rupee Change 

	2018/19	2019/20	2020/21	2021/22	2022/23
Assets
Non-Current Assets
Property Plant & Equipment	669,600	929,680	1,175,592	3,376,553	3,758,499
Right of Use Assets	0	467,711	472,602	671,156	716,426
Capital Work-in-progress	-286,201	227,059	-136,279	347,042	849,572
Intangible Assets	2,950	-6,831	60,402	75,775	88,760
Investment in Subsidiaries	354,697	228,776	177,956	1,580,614	512,187
Lease rentals paid in advance	6,646	-86,941	-86,941	-86,941	-86,941
	747,692	2,114,151	2,246,805	6,725,628	8,180,546
Current Assets
Inventories	-38,753	923,728	1,784,439	7,744,081	5,365,893
Trade and other receivables	571,753	483,809	2,872,410	7,490,202	7,027,170
Other Financial Assets	-268,330	131,209	823,896	840,314	2,230,559
Cash & Cash Equivalents	971,594	1,680,394	888,161	2,005,125	3,111,406
	1,236,264	3,219,140	6,368,906	18,079,722	17,735,028
Total Assets	1,983,956	5,333,291	8,615,711	24,805,350	25,915,574
Equity & Liabilities
Capital & Reserves
Stated capital	0	0	192,104	385,551	385,551
Exchange equalization reserve	1,395,884	2,326,700	3,143,732	10,789,204	13,039,973
Share option scheme	11,255	11,255	67,986	67,986	67,986
Retained earnings	297,823	523,404	1,200,167	2,301,767	4,633,367
	1,704,962	2,861,359	4,603,989	13,544,508	18,126,877
Non-Current Liabilities
Lease Liabilities	0	341604	351271	492520	494152
Deferred tax liabilities	59,437	62,275	-17,814	91,627	319,266
Retirement Benefit Obligations	9,933	45,736	160,211	-8,313	75,320
	69,370	449,615	493,668	575,834	888,738
Current Liabilities
Trade and other payables	89,250	665,097	1,932,964	6,718,161	2,878,970
Current tax liabilities	0	91594	126421	193454	488137
Borrowings	120,374	1,257,887	1,450,069	3,746,908	3,476,524
Lease Liabilities	0	7,739	8,600	26,485	56,328
	209,624	2,022,317	3,518,054	10,685,008	6,899,959
Total Liabilities	278,994	2,471,932	4,011,722	11,260,842	7,788,697
Total Equity & Liabilities	1,983,956	5,333,291	8,615,711	24,805,350	25,915,574

 

Percentage Change

	2018/19	2019/20	2020/21	2021/22	2022/23
Assets
Non-Current Assets
Property Plant & Equipment	19%	26%	33%	95%	106%
Right of Use Assets	0%	100%	101%	143%	153%
Capital Work-in-progress	-82%	65%	-39%	99%	243%
Intangible Assets	9%	-21%	183%	229%	269%
Investment in Subsidiaries	13%	9%	7%	59%	19%
Lease rentals paid in advance	8%	-100%	-100%	-100%	-100%
	11%	32%	34%	101%	122%
Current Assets
Inventories	-1%	33%	63%	275%	190%
Trade and other receivables	27%	23%	134%	348%	327%
Other Financial Assets	-43%	21%	131%	133%	354%
Cash & Cash Equivalents	46%	79%	42%	94%	146%
	16%	42%	82%	234%	230%
Total Assets	14%	37%	60%	172%	180%
Equity & Liabilities
Capital & Reserves
Stated capital	0%	0%	5%	10%	10%
Exchange equalization reserve	56%	93%	126%	433%	523%
Share option scheme	13%	13%	80%	80%	80%
Retained earnings	8%	14%	32%	61%	123%
	16%	27%	44%	130%	174%
Non-Current Liabilities
Lease Liabilities	0%	100%	103%	144%	145%
Deferred tax liabilities	22%	23%	-6%	33%	116%
Retirement Benefit Obligations	6%	27%	94%	-5%	44%
	16%	101%	110%	129%	199%
Current Liabilities
Trade and other payables	3%	24%	70%	242%	104%
Current tax liabilities	0%	100%	138%	211%	533%
Borrowings	16%	162%	187%	484%	449%
Lease Liabilities	0%	100%	111%	342%	728%
	6%	57%	99%	301%	194%
Total Liabilities	7%	62%	100%	281%	195%
Total Equity & Liabilities	14%	37%	60%	172%	180%

 

A significant increase of property plant & equipment can be recognized over the period. Even though there was no right of use assets at the beginning of the analysis period it has gradually increased by 153% at the end of the analysis period. Some sought of fluctuations can be seen in capital work-in-progress whereas it has declined in 2018/19 & 2020/21 while an increasing trend was reported in other 3 periods of consideration. Intangible assets have also recorded a mesmerizing increase during the periods of 2020-2023 while a slight decline was in 2019/20. Investments in subsidies also records an increasing trend. Lease rentals paid in advance have increased a bit in 2018 and recorded a nil value since 2019.

Inventories have gradually increased since 2019 & slightly declined in 2022. This might have occurred due to the prevailing economic crisis of the country, even though the price of goods has increased which resulted in an increase in revenue the quantity demanded might have declined resulted a decline of storing inventories. Changes in trade receivables also faced the same situation, increased since 2020 & declined in 2023. The increase has resulted due to covid-19 pandemic. Due to the local currency depreciation the company tends to collect cash more frequently from debtors. Other financial assets and cash have increased over the period.

Stated capital has increased during 2021-2022 & remained constant in the other 3 periods. Exchnge equalization reserve & retained earnings has increased in all 5 years. The increment of retained earnings shows the profitability of the company. An increase of share option scheme was recorded in 2020/21 & it remained constant since then.

A new lease liability was recorded in 2019 as a result of right of use asset and it has increased over the periods. Positive and negative fluctuations were recorded in deferred tax liabilities and retirement benefit obligations.

Trade and other payables also increased since 2018 & declined in 2022. This is due to the prevailing economic crisis in the country the creditors might have reduced the credit periods. Current tax liability, borrowings and current portion of lease liability have increased over the period.

4.2. Horizontal Analysis of the Income Statement

 

Rupee Change 

 

	2018/19	2019/20	2020/21	2021/22	2022/23
Revenue	2,127,798	3,453,872	5,054,274	13,527,051	34,471,681
Cost of Sales	-1,938,486	-2,865,591	-4,601,260	-12,835,649	-31,622,655
Gross Profit	189,312	588,281	453,014	691,402	2,849,026
Other Income-Net	43,874	92,272	-75,115	238,196	909,919
Distribution Expenses	-3,708	-27,312	-10,270	-103,333	-268,542
Administrative Expenses	-120,354	-134,126	-78,456	-109,065	-591,444
Net impairment losses on financial assets	-3,051	-32,640	26,829	-18,239	-175,586
Operating Profit	106,073	486,475	316,002	698,961	2,723,373
Finance Income	-13,961	88,913	155,791	340,063	634,741
Finance Costs	-19,942	-5,247	-5,683	-66,804	-367,226
Net Finance Income	-33,903	83,666	150,108	273,259	267,515
Profit Before Tax	72,170	570,141	466,110	972,220	2,990,888
Income Tax Expense	-84,807	-163,062	-84,444	-125,529	-1,066,291
Profit for the Year	-12,637	407,079	381,666	846,691	1,924,597
Other Comprehensive Income
Items that will not be reclassified to profit or loss
Remeasurement of retirement benefit obligations	-19,719	-61,214	-105,073	154,124	-98,144
Deferred tax attributable to remeasurement of retirement benefit obligations	2,761	8,570	14,710	-21,577	24,415
	-16,958	-52,644	-90,363	132,547	-73,729
Items that may subsequently reclassified to profit or loss
Cash Flow Hedges	-19,346	-9,673	-9,673	-9,673	-9,673
Currency translation differences	1,288,667	813,926	700,142	7,528,582	2,133,879
	1,269,321	804,253	690,469	7,518,909	2,124,206
Other Comprehensive Income for the year	1,252,363	751,609	600,106	7,651,456	2,050,477
Total Comprehensive Income for the year	1,239,726	1,158,688	981,772	8,498,147	3,975,074

 

Percentage Change

	2018/19	2019/20	2020/21	2021/22	2022/23
Revenue	13%	22%	32%	85%	217%
Cost of Sales	14%	20%	32%	90%	223%
Gross Profit	11%	34%	27%	40%	167%
Other Income-Net	7%	15%	-12%	39%	149%
Distribution Expenses	3%	26%	10%	97%	253%
Administrative Expenses	19%	21%	12%	17%	93%
Net impairment losses on financial assets	100%	1070%	-879%	598%	5755%
Operating Profit	7%	31%	20%	44%	173%
Finance Income	-13%	81%	141%	308%	575%
Finance Costs	155%	41%	44%	519%	2853%
Net Finance Income	-35%	86%	154%	280%	274%
Profit Before Tax	4%	34%	28%	58%	179%
Income Tax Expense	59%	112%	58%	87%	736%
Profit for the Year	-1%	27%	25%	55%	126%
Other Comprehensive Income
Items that will not be reclassified to profit or loss
Remeasurement of retirement benefit obligations	-63%	-195%	-334%	490%	-312%
Deferred tax attributable to remeasurement of retirement benefit obligations	-63%	-195%	-334%	490%	-555%
	-63%	-195%	-334%	490%	-273%
Items that may subsequently reclassified to profit or loss
Cash Flow Hedges	-200%	-100%	-100%	-100%	-100%
Currency translation differences	1102%	696%	599%	6441%	1826%
	1003%	635%	546%	5941%	1678%
Other Comprehensive Income for the year	815%	489%	391%	4982%	1335%
Total Comprehensive Income for the year	74%	69%	58%	505%	236%

 

A gradual increase in revenue & cost of sales can be recognized over the periods. The gross profit behaves simultaneously. A sudden boost can be seen in the year 2022/23. This might have occurred due to the higher inflation record in the country. As a result of price changes revenue and expenses also changed.

Even though there was a sudden drop in other income and finance income in covid-19 period, generally those incomes have a positive increase. Distribution & administration expenses also indicate the same deviation. Impairment expenditure was identified in 2018 onwards. Impairment losses were recorded in all other periods except 2020/21. Finance costs have increased in all five years.

Even though all incomes and expenses increased, this organization managed to earn a profit, which is a good sign. The ability to face pandemics and economic crisis is higher. Income tax expenditure also records a drastic boost in 202/23 period. This is due to the rapid changes and increases in income tax expenses by the government.

When summarizing the P&L it states that all incomes and expenses have increased throughout the periods, 2020/21 is an exception because the country faced the covid-19 pandemic during that year. A sudden boost of P&L components can be recognized in 2022/23 due to the economic crisis of the country & inflation rates were higher in that year.

Other comprehensive income & Total comprehensive income has a fluctuating trend. The net effect of those incomes is also positive. Income generated from currency translation differences contributes a higher proportion of the Other comprehensive income. A sudden boost of it can be seen in 2021/21, due to the rupee depreciation and dollar appreciation.

 

 

 

5. Trend Analysis

5.1. Trend Analysis of Financial Position

 

	2017/18	2018/19	2019/20	2020/21	2021/22	2022/23
Total Non-Current Assets	100%	111%	132%	134%	201%	222%
Total Current Assets	100%	116%	142%	182%	334%	330%
Total Assets	100%	114%	137%	160%	272%	280%
Total Equity	100%	116%	127%	144%	230%	274%
Total Non-Current Liabilities	100%	116%	201%	210%	229%	299%
Total Current Liabilities	100%	106%	157%	199%	401%	294%
Total Liabilities	100%	107%	162%	200%	381%	295%

 

Both current and non-current assets have increased over the periods which can be identified as a positive sign of the growth of the company. Total assets and equity record an increasing trend. Total non-current liabilities have increased while current liabilities have increased and suddenly declined in 2022/23. Due to this decline total liabilities also declined in 2022/23.

 

5.2. Trend Analysis of the Income Statement

 

	2017/18		2018/19	2019/20	2020/21	2021/22	2022/23
Revenue	100%	113%		122%	132%	185%	317%
Cost of Sales	100%	114%		120%	132%	190%	323%
Gross Profit	100%	111%		134%	127%	140%	267%
Other Income-Net	100%	107%		115%	88%	139%	249%
Distribution Expenses	100%	103%		126%	110%	197%	353%
Administrative Expenses	100%	119%		121%	112%	117%	193%
Net impairment losses on financial assets
Finance Income	100%	87%		181%	241%	408%	675%
Finance Costs	100%	255%		141%	144%	619%	2953%
Profit Before Tax	100%	104%		134%	128%	158%	279%
Income Tax Expense	100%	159%		212%	158%	187%	836%
Profit for the Year	100%	99%		127%	125%	155%	226%

 

A sudden urge of both incomes and expenses can be identified in 2022/23 period. This is due to the economic crisis that occurred in the country. During 2020/21, covid-19 pandemic period incomes and expenses have a quick drop. Even though during pandemics and crisis the company managed to gain profits which is appreciable.

6. Vertical Analysis

6.1. Vertical Analysis of Financial Position

 

	2018/19	2019/20	2020/21	2021/22	2022/23
Assets
Non-Current Assets
Property Plant & Equipment	25.74%	22.69%	20.52%	17.66%	18.12%
Right of Use Assets	0.00%	2.37%	2.05%	1.71%	1.78%
Capital Work-in-progress	0.39%	2.92%	0.93%	1.78%	2.97%
Intangible Assets	0.22%	0.13%	0.41%	0.28%	0.30%
Investment in Subsidiaries	18.43%	16.46%	14.89%	12.77%	13.69%
Lease rentals paid in advance	0.57%	0.00%	0.00%	0.00%	0.00%
	45.34%	44.57%	38.79%	34.20%	36.87%
Current Assets
Inventories	16.95%	18.95%	19.99%	26.93%	20.29%
Trade and other receivables	16.60%	13.34%	21.81%	24.58%	22.76%
Other Financial Assets	2.21%	3.86%	6.31%	3.75%	7.09%
Cash & Cash Equivalents	18.90%	19.28%	13.09%	10.54%	12.99%
	54.66%	55.43%	61.21%	65.80%	63.13%
	0.00%	0.00%	0.00%	0.00%	0.00%
Total Assets	100.00%	100.00%	100.00%	100.00%	100.00%
Equity & Liabilities
Capital & Reserves
Stated capital	24.75%	20.55%	18.45%	11.33%	11.02%
Exchange equalization reserve	23.73%	24.42%	24.48%	33.87%	38.52%
Share option scheme	0.59%	0.49%	0.67%	0.39%	0.38%
Retained earnings	24.82%	21.75%	21.59%	15.48%	20.84%
	73.88%	67.20%	65.19%	61.08%	70.76%
Non-Current Liabilities
Lease Liabilities	0.00%	1.73%	1.53%	1.26%	1.23%
Deferred tax liabilities	2.05%	1.71%	1.12%	0.94%	1.48%
Retirement Benefit Obligations	1.10%	1.10%	1.44%	0.42%	0.61%
	3.15%	4.54%	4.09%	2.61%	3.31%
Current Liabilities
Trade and other payables	17.51%	17.45%	20.47%	24.22%	14.03%
Current tax liabilities	0.00%	0.46%	0.55%	0.49%	1.21%
Borrowings	5.46%	10.30%	9.66%	11.53%	10.54%
Lease Liabilities	0.00%	0.04%	0.04%	0.07%	0.14%
	22.97%	28.25%	30.72%	36.31%	25.93%
Total Liabilities	26.12%	32.80%	34.81%	38.92%	29.24%
Total Equity & Liabilities	100.00%	100.00%	100.00%	100.00%	100.00%

 

Current assets hold a higher portion than non-current assets in total asset composition. It exceeds more than 50% of total assets throughout the periods. Property plant & equipment’s and investments in subsidies accounts for more than 30% of total assets & they are the highest contributors under non-current asset category.

When comparing equity and liabilities, equity holds more than 70% while liabilities limited to 30%. A slight decline of equity was recorded in 2021/22. Non-current liabilities remained less than 5% throughout the years considered. Highest portion of current liabilities accounts for trade and other payables.

 

6.2. Vertical Analysis of the Income Statement

 

	2018/19	2019/20	2020/21	2021/22	2022/23
Revenue	100.0%	100.0%	100.0%	100.0%	100.0%
Cost of Sales	-89.48%	-88.14%	-89.69%	-91.85%	-90.95%
Gross Profit	10.52%	11.86%	10.31%	8.15%	9.05%
Other Income-Net	3.62%	3.62%	2.55%	2.88%	3.01%
Distribution Expenses	-0.61%	-0.69%	-0.56%	-0.71%	-0.74%
Administrative Expenses	-4.19%	-3.97%	-3.41%	-2.53%	-2.44%
Net impairment losses on financial assets	-0.02%	-0.17%	0.13%	-0.06%	-0.35%
Operating Profit	9.33%	10.65%	9.03%	7.73%	8.53%
Finance Income	0.53%	1.03%	1.27%	1.53%	1.48%
Finance Costs	-0.18%	-0.09%	-0.09%	-0.27%	-0.75%
Net Finance Income	0.35%	0.94%	1.18%	1.26%	0.72%
Profit Before Tax	9.68%	11.59%	10.21%	8.99%	9.26%
Income Tax Expense	-1.27%	-1.59%	-1.09%	-0.92%	-2.40%
Profit for the Year	8.41%	10.00%	9.11%	8.07%	6.85%
Other Comprehensive Income
Items that will not be reclassified to profit or loss
Re-measurement of retirement benefit obligations	0.06%	-0.15%	-0.35%	0.63%	-0.13%
Deferred tax attributable to remeasurement of retirement benefit obligations	-0.01%	0.02%	0.05%	-0.09%	0.04%
	0.06%	-0.13%	-0.30%	0.54%	-0.09%
Items that may subsequently reclassified to profit or loss
Cash Flow Hedges	-0.05%	0.00%	0.00%	0.00%	0.00%
Currency translation differences	7.79%	4.81%	3.90%	25.97%	4.47%
	7.74%	4.81%	3.90%	25.97%	4.47%
Other Comprehensive Income for the year	7.79%	4.67%	3.59%	26.51%	4.37%
Total Comprehensive Income for the year	16.20%	14.67%	12.71%	34.58%	11.23%

 

Cost of goods remained 90% in every year. Therefore, gross profit of the company is 10% from total sales. Even though other income counts 3% from total sales the positive impact of it is declined from the administrative expenses. Due to that trade-off the company still manages to earn an operating profit of 8%.

 Finance income is always higher than the finance expenses therefore the ultimate result is a net finance income. Due to that the profit before tax is always higher than the operating profit.  After the income tax adjustments company profit used to be around 8%-9% since 2021/22 but it has dropped to 6.85% due to rapid changes of income taxes during 2022/23. Other comprehensive income provides a sizeable portion to total comprehensive income. Highest OCI was recorded in 2021/22 from currency translation differences. Other comprehensive income of the company varies from 4% - 7% if no significant events were not occurred.

 

7. Ratio Analysis

7.1. Liquidity and Efficiency

 

	2018/19	2019/20	2020/21	2021/22	2022/23
Working Capital	5,194,634	5,364,817	7,018,846	11,562,708	15,003,063
Current Ratio	2.38	1.96	1.99	1.81	2.44
Acid Test Ratio	1.64	1.29	1.34	1.07	1.65
Accounts Receivable Turnover	7.41	7.23	5.48	4.02	5.36
Merchandise Turnover	5.77	5.24	4.51	3.57	4.89
Days Sales Uncollected	49.27	50.46	66.64	90.89	68.16
Days Sales Inventory	63.27	69.71	80.97	102.35	74.65
Total Assets Turnover	1.17	1.07	0.98	0.95	1.27

 

Working Capital- Working capital is calculated by deducting current liabilities from current assets of the organization. It also indicates the current assets financed using long term liabilities which does not required to settle recently. Working Capital is a critical requirement for an organization’s day to day financing. It is crucial to keep sufficient working capital in a business. In Teejay Lanka plc the working capital amounts has gradually increased throughout the period. This can conclude that the company’s liquidity position is increasing. Company can utilize its existing resources better. If there are excess working capital than the required, it can be used to invest and generate more profits.

Current Ratio- Companies ability to settle short term debts is measured via this ratio. Current ratio which is equal or slightly higher to the industry average ratio is acceptable. It is not recommended to keep a too high current ratio. Current ratio of Teejay is 2, which is acceptable. Highest current ratio was recorded in 2022/23.  

Acid Test Ratio- This is also known as the quick ratio. Inventories, prepaid expenses are excluded from current assets when calculating this ratio. Company’s most liquid asset’s ability to set off its short-term debts is measured. The ratio equal or more than one is accepted. Teejays quick ratio is higher than one and lower than two during all five years which is a positive sign of companies’ liquidity.

Accounts Receivable Turnover- This ratio evaluates how long does a company takes to collect the outstanding debtor balances. A positive relationship can be identified between this ratio and companies’ efficiency, which means higher the ratio better efficiency. A declining trend can be recognized in this ratio. The highest ratio was recorded in 2018, thereafter it has declined which indicates an adverse sign. In 2022/23 a slight increase can be seen but it is better to change credit policies of the organization.

Merchandise Turnover- This ratio shows how many times a manufacturer sold and replaced its inventory during a period. If this ratio is lower, it is a signal of weakness of sales and excessive inventory stocking. If the ratio is higher, it either signals for strong sales or inadequate stock keeping. Merchandise turnover ratio of Teejay varies from 4 times to 6 times. At the end of 2022/23 company can replace its stock by 5 times per annum which is good.

Days Sales Uncollected- This ratio is used to estimate the number of days between credit sales and cash receivable for sales. It is better to have lesser number of days to maintain short term liquidity position. The number of days varied from 50-90. Highest number of days were recorded in 2021/22 (90 days) which is 3 months period. Even though it has reduced to 68 in 2022 it is better to keep less than 30 days optimal.

Days Sales Inventory- This ratio measures how many days the company will take to convert its inventory, working progress goods to finished goods. This ratio is also lesser the better. Highest number of days were recorded in 2021/22 but at present that value has decreased which is a positive signal.

Total Assets Turnover- Efficiency of company assets in producing sales are measure using this ratio. If this ratio is higher, it means the company performance is better. It is better if the value is greater than one. Except for the periods of 2020-2022, the ratio is greater than one, which means the company is efficient.

 

7.2. Solvency

 

	2018/19	2019/20	2020/21	2021/22	2022/23
Debt to Assets Ratio	26%	33%	35%	39%	29%
Debt to Equity Ratio	0.35	0.49	0.53	0.64	0.41
Times Interest Earned	26.47	11.39	7.64	6.14	11.78

 

Debt to Assets Ratio- This ratio measures the extent of companies’ assets that are financed via debt. Total debts to total assets are expressed as a percentage. As per the calculations nearly 35% of assets are funded using debts. The ratio has not exceeded 40% in any year. If the ratio is too high the company is at a risk of default if interest rates get sudden boosts. As per this ratio the assets were funded more by equity, which is good.

Debt to Equity Ratio- Financial leverage of the company is measured via this ratio. This is a particular type of gearing ratio. If the ratio is less than one, it is good if the ratio exceeds one the organization is in a risky position. The ratio is less than one in Teejay during the periods considered which is a positive sign.

Times Interest Earned- Companies’ ability to repay their debt obligations using the prevailing income is measured by this ratio. Higher value indicates a higher ability of repayment. The highest interest was earned in 2018 and it has generally dropped, but the company manages to increase it in 2022.

7.3. Profitability

 

	2018/19	2019/20	2020/21	2021/22	2022/23
Net Profit Margin	8.4%	10.0%	9.1%	8.1%	6.9%
Gross Profit Margin	10.5%	11.9%	10.3%	8.2%	9.0%
Return on Assets	9.8%	10.7%	8.9%	7.6%	8.7%
Return on Common Shareholder Equity	13.5%	15.3%	13.5%	12.2%	13.2%

 

Net Profit Margin- Companies’ ability to generate net income from revenue is measured by this ratio. If net profit margin is higher, profitability of the organization is also higher.Net profit margin has fluctuated between 7% to 10%. Highest net profit margin was recorded in 2018 while lowest margin was recorded in 2022.

Gross Profit Margin- Gross profit is calculated by deduction of the cost of goods from the sales. This ratio measures the gross profit as a percentage of sales. It is better to earn higher gross profit in order to survive in the market. The gross margin has not exceeded 12% but still the company managed to survive.

Return on Assets- Efficiency of generating profits by using total assets is measured here. A higher value of ROA indicates higher efficiency. This can also be recognized as the best overall measure of companies’ profitability. Return on Assets has fluctuated between 7% to 10%. Highest ROA was recorded in 2018 while lowest was recorded in 2022.

Return on Common Shareholder Equity- ROCE measures the profitability of an organization’s equity investments. A higher ROCE indicates that the company is more efficient in generating returns on its equity investments. On the other hand, a lower ROCE may indicate that, company is not generating sufficient returns on its equity investments. Return on Equity has fluctuated between 12% to 15%. Highest ROCE was recorded in 2019 while lowest was recorded in 2021.

7.4. Market

 

	2018/19	2019/20	2020/21	2021/22	2022/23
Earnings Per Share	2.65	3.40	3.04	3.54	3.00
Book Value Per Share (Rs.)	17.25	18.90	21.16	33.42	39.81
Price-Earnings (PE) Ratio	11.47	6.85	13.16	11.24	10.67
Dividend Yield	6.41%	10.30%	4.13%	5.03%	4.69%

 

Earnings Per Share- This ratio indicates how much money is generated by the company per share. The ratio has varied throughout the period and managed to be ended up at 3.00.

Book Value Per Share- Companies net asset value, per share basis is calculated by this ratio. An increasing trend was identified in this ratio. Book value per share can be compared with market value when making buying or selling decisions of stock.

Price-Earnings (PE) Ratio- This ratio can be used to check whether the stock prices are overvalued or undervalued. The ratio varied from 7% to 13% in this organization.

Dividend Yield- This ratio identifies the return, in terms of cash dividends, on the current market price of the stock. The highest dividend yield is recorded in 2019 and the lowest in 2022. The values have fluctuated throughout the years.

 

 

 

 

8.Altman-Z Score Analysis

Z Score analysis	2018/19	2019/20	2020/21	2021/22	2022/23
EBIT / TA	0.35	0.38	0.31	0.22	0.38
Net WC / TA	0.38	0.33	0.37	0.35	0.45
Sales / TA	1.10	0.98	0.91	0.75	1.25
MVE / BVD	2.99	1.52	0.85	0.25	0.07
RE / TA	0.35	0.30	0.30	0.22	0.29
Altman Z Score	5.17	3.50	2.74	1.80	2.44

 

The Altman-z score model calculates and forecasts the possibility of an organization getting bankrupt by using ratios related to leverage, liquidity, profitability, activity, and solvency. Based on the calculated z score, 3 zones were identified which are safe, grey and distress.

The zone discrimination is as follows.

Z-Score	Interpretation
> 2.99	Safe Zone – Low Likelihood of Bankruptcy
1.81 to 2.99	Grey Zone – Moderate Risk of Bankruptcy
< 1.81	Distress Zone – High Likelihood of Bankruptcy

 

According to the above calculations, Teejay Lanka PLC was under the safe zone during 2018-2019. It has slightly moved to the grey zone from 2021 & currently it operates under the gray zone.

 

9.Conclusion

The primary objective of financial statement analysis is to provide relevant data to financial statement users in order to take correct decisions. These analyses are used by both internal and external stakeholders of the company. This report provides a detailed analysis of the financial statements for the last five years of Teejay Lanka PLC.

As per the horizontal analysis, a significant increase of property plant & equipment can be recognized over the period. Changes in inventory might have occurred due to the prevailing economic crisis of the country, even though the price of goods has increased which resulted in an increase in revenue the quantity demanded might have declined resulted a decline of storing inventories. Trade receivables increase has resulted due to covid-19 pandemic. Due to the local currency depreciation the company tends to collect cash more frequently from debtors. Trade and other payables also increased since 2018 & declined in 2022. This is due to the prevailing economic crisis in the country the creditors might have reduced the credit periods.

A gradual increase in revenue & cost of sales can be recognized over the periods. The gross profit behaves simultaneously. A sudden boost can be seen in the year 2022/23. This might have occurred due to the higher inflation record in the country. As a result of price changes revenue and expenses also changed.

As per the trend analysis both current and non-current assets have increased over the periods, which can be identified as a positive sign of the growth of the company. Total assets and equity record an increasing trend. Total non-current liabilities have increased while current liabilities have increased and suddenly declined in 2022/23. Due to this decline total liabilities also declined in 2022/23. A sudden urge of both incomes and expenses can be identified in 2022/23 period. This is due to the economic crisis that occurred in the country. During 2020/21, covid-19 pandemic period incomes and expenses have a quick drop. Even though during pandemics and crisis the company managed to gain profits which is appreciable.

As per the vertical analysis Current assets hold a higher portion than non-current assets in total asset composition. When comparing equity and liabilities, equity holds more than 70% while liabilities limited to 30%.

Cost of goods remained nearly 90% in every year. Therefore, gross profit of the company is 10% from total sales. Even though other income counts nearly 3% from total sales the positive impact of it is declined from the administrative expenses. Due to that trade-off the company still manages to earn an operating profit of 8%.

As per the ratios analysed, the company's liquidity position is at a healthy state. Teejay Lanka PLC has maintained the liquidity level at a quite stable amount. As per the solvency ratios company is financed through more equity than debts and its ability in paying long term liabilities is in a good position. Profitability rates are low and fluctuate over the years. The performance is inefficient due to the high cost of production. Market ratios do not show a constant growth or decline.

Teejay Lanka PLC should try to grab growth opportunities from the market. It is vital to put up more consideration on reducing costs and boosting profits.