|
FINANCIAL
STATEMENT ANALYSIS OF THE KINGSBURY PLC |
1.
Introduction
Financial statement analysis is a crucial tool for understanding the
company’s performance and financial health by using past financial
information of the company. In this highly volatile business environment, financial statement
analysis provides insightful information to decision-makers to forecast the
future performance of the company as well as to identify potential issues. Then
they can make informed decisions to achieve the financial goals of the
company. This report intends to provide a
detailed analysis of the financial statements of The Kingsbury PLC over the period of five years by using public financial
reports. Financial statements were analyzed using horizontal analysis, vertical
analysis, trend analysis, ratio analysis, and Altman Z-Score analysis tools. From
this analysis, stakeholders of Kingsbury PLC can understand the company’s liquidity,
efficiency, solvency, profitability, and market value of the company. 2.
Background
of the Company
|
3.
Financial Statement Analysis
Financial
statement analysis evaluates the company’s past and present financial
information to forecast the future performance of the company. The primary
goal of financial statement analysis is to analyze past data to make accurate
decisions. As well as stakeholders can make better decisions about their
investments. There are various tools to analyze financial statements Which
are horizontal analysis, vertical analysis, trend analysis, ratio analysis
and Altman Z-Score analysis. 3.1. Horizontal
Analysis
Horizontal analysis of financial statements involves comparing
financial data over time to identify trends in financial
data. Dollar
(Rupee) Change = Analysis period amount – Base period amount Percentage
Change = (Dollar Change/Base period amount) * 100% The
base year – 2018 3.1.1. Horizontal Analysis of Statement
of Financial Position
3.1.1.1.
Rupee Change
3.1.1.2. Percentage Change
The
total value of property plant and equipment decreased in 2019 by 5% followed
by a 5% increase in 2020 followed by a slight decrease of property plant and
equipment from 2021 to 2023 by 1% to 7%. Intangible assets exceptionally decreased in
2022 by 72% compared to the base year 2018. There is a declining trend of
non-current assets of Kingsbury PLC at an increasing rate. Inventory
of the Kingsbury has increased in 2022 and 2023 compared to the base year due
to the current economic crisis. Overall value of current assets decreased
over the 5 years from 2019 to 2023 compared to 2018 which is the base year of
analysis. The
stated capital value is unchanged over the 5-year period. Kingsbury PLC’s
total equity value has decreased in an increasing trend from 12% to 83%
whereas non-current liabilities of the company have increased dramatically up
to 76% this indicates that Kingsburg PLC finances its assets from debt rather
than equity. 3.1.2. Horizontal
Analysis of Statement of Profit or Loss
3.1.2.1.
Rupee Change
|
3.1.2.2. Percentage Change
When analyzing the
revenue of the company there is a decrease of 4% to 34% starting from 2019 to
2022 at an increasing rate compared to the base year (2018) since Kingsbury PLC
was heavily affected by the easter Sunday terrorist attacks in 2019 which negatively
affected the revenue. Then in 2020 and 2021 whole hotel and tourism sector was
affected by the COVID-19 pandemic. The tourism sector collapsed because of the travel restrictions between
countries.
The cost of sales also decreases gradually
but it is less than the percentage decrease in revenue. Net profit of Kingsbury
PLC drastically decreased from 2019 to 2021 at an increasing rate and
accordingly, net loss of the company is decreased in 2022 by a considerable
amount.
3.2. Trend Analysis
Trend analysis also known as time series analysis
involves comparing the financial data over multiple reporting periods and gives
a deep understanding of the behavior of historical financial data.
3.2.1. Trend Analysis of Statement of Financial
Position
According to the above
graph, total non-current assets were not changed considerably. All the elements
of statement of financial position decreased in 2021 compared to 2018. There is
a huge increase in the total liabilities of Kingsbury PLC over the 5 years.
Furthermore, the total equity of the company decreased from 2019 to 2023.
3.2.2. Trend Analysis of Statement of Profit or Loss
Revenue of the company declined
up to 25% in 2021 it tends to increase in 2022 and 2023. In 2019 other income expenses decreased by
231% compared to 2018.
3.3. Vertical Analysis
Vertical analysis also called common size analysis compares
each item of the financial statements with the specific base item. Normally the
base item is a key line item such as total assets in the balance sheet and
total revenue in the statement of profit or loss. This analysis gives an idea
about the relative proportion of each line item within the same financial
statements in different time periods.
Common Size Percentage = Analysis Amount/Base Amount *
100%
3.3.1. Vertical Analysis of Statement of Financial Position
As per the above analysis, non-current assets were more the 80% of the
total assets of Kingsbury PLC. The highest value of total equity was recorded
in 2019 which is 60% of the total assets. In the proceeding years, the total
equity of the company declined and total liabilities were increased by more
than 50% from total assets. This indicates that more than 50% capital structure
consists of debt capital.
3.3.2. Vertical Analysis of Statement of Profit or Loss
Over the six-year period higher portion of revenue was utilized as the
cost of sales of Kingsbury PLC. Also, there is a decreasing trend of cost of
sales from the total revenue over the six-year period. Moreover, the
administrative cost also consumes a considerable portion of the revenue of the
company. The finance cost of the company is more than 5% of that revenue
because Kingsbury PLC is highly depend on debt capital rather than equity
capital. This will affect negatively the financial health of the company.
In 2021 percentage of net loss drastically changed up to 97% from the
revenue due to the fact that the prevailing economic crisis.
3.4. Ratio Analysis
Ratio analysis is a tool used in financial statements
analysis that identifies the relationship between different elements in financial
statements. This provides insights into a company's performance, profitability,
efficiency, liquidity, solvency and overall financial health to make informed
decisions about resource allocation, financing decisions, investment decisions,
as well as risk assessment. Ratio analysis is a useful tool to compare the
company's performance with the industry benchmarks.
3.4.1. Liquidity
& Efficiency
Liquidity measures the company’s ability to meet its
short-term liabilities. Simply this measures the short-term debt-paying ability
of a company.
3.4.1.1 Working Capital
The working capital value of Kingsbury PLC has been negatived
over the five years this indicates that they do not have enough funds to settle
short-term obligations. This will negatively affect the day-to-day operation of
the Kingsbury.
3.4.1.2. Current Ratio
|
|
2019 |
2020 |
2021 |
2022 |
2023 |
|
Current Ratio |
0.71 |
0.32 |
0.17 |
0.27 |
0.30 |
The current ratio measures the value of current assets
against the current liabilities of the company. The value of the ratio should
be one that the company has adequate assets to cover its short-term
liabilities. In the case of Kingsbury PLC ratio declined over the five years
because of socio-economic problems like the easter Sunday bomb attack, the
COVID-19 pandemic and the current economic downturn.
3.4.1.3. Acid Test Ratio
Acid test ratio consider about quick assets which can
easily converted to cash. To derive the quick assets we should inventories from
the current liabilities. This company maintain acid test ratio which less than
one which will negatively affect to the working capital position of the
company.
3.4.1.4. Accounts Receivable Turnover
This ratio measures the frequency of receivables converted
into cash. From 2019 to 2021 ratio decreased and in 2022 ratio tended to
increase. Ration decreased due to inflation and the current economic crisis.
3.4.1.5. Merchandise
Turnover
Merchandise turnover ratio measures the frequency of
selling the inventory. Higher indicates the high frequency of selling out its
inventory. In this scenario value of the merchandise turnover ratio is
decreased at an increasing rate. From 2022 it increased following a decrease in
2023 due to the inflation and economic crisis customer demand decreased.
3.4.1.6. Days
Sales Uncollected
The day sales uncollected ratio measures the average
number of days that the company takes to collect its payments from debtors. If
the ratio is below 100 days that indicates the proper working capital position
of the company. The highest days sales uncollected were reported in 2021
because of the COVID-19 pandemic situation.
3.4.1.7. Days
Sales Inventory
Day sales inventory measures the average number of
days that takes to convert its inventory into cash. Kingsbury PLC’s days sales
inventory increased from 2019 to 2021 since the customer demand decreased
because of the easter Sunday bomb attack incident so the company cannot sell
their inventory this will result in an increased days sales inventory ratio.
3.4.1.8. Total
Assets Turnover
This ratio measures the company’s ability to generate
revenue in relation to its assets. The total assets turnover ratio should be
more than one. In the case of Kingsbury PLC, the total asset turnover ratio is
less than one. This is a bad condition for Kingsbury PLC.
3.4.2. Solvency
The solvency ratio is used to analyze the long-term
debt-paying ability of the company. These ratios provide an overall understanding
of the financial leverage, stability and solvency of the company to internal
and external stakeholders.
3.4.2.1. Debt
to Assets Ratio
This ratio measures how much of the company’s assets
are financed from debt capital. There is an increasing trend in the case of
Kingsbury. If the ratio is below 0.5 it is favorable to the company if it is above
0.5 it indicates a higher level of debt funding. In 2023, 90% of the company’s
assets were financed from debt capital.
3.4.2.2. Debt to Equity Ratio
The debt-to-equity ratio measures the proportion of a
company’s total debt to its total equity. In this company debt to equity ratio
gradually increases over the five years. This will affect the financial
leverage of the company and it will increase the risk because the company is
highly depend on external financing sources.
3.4.2.3. Times Interest Earned
This ratio measures the company’s ability to cover its
interest expenses from its operating earnings. Kingsbury PLC’s times interest
earned ratio decreased and became negative because of the negative value of
earnings before interest.
3.4.3. Profitability
Profitability ratios measure the company’s ability to
generate profits relative to its revenue, assets and equity. This provides
insights into the company’s efficiency in converting its resources into
profits.
3.4.3.1. Net Profit Margin
This measures the percentage of revenue that converts
into net profit. Net profit margin is decreased over the five years and from
2020 it follows negative value because of the negative profits of Kingsbury
PLC. Net profits declined due to unfavorable economic conditions.
3.4.3.2. Gross Profit Margin
Gross profit margin measures the percentage of revenue
that remains after deducting the cost of goods sold. This indicates the
company’s ability to generate gross profits after deducting the production
cost. The ratio is reduced from 2019 to 2021. In 2021 ratio becomes negative
because of the negative gross profits due to the covid 19 pandemic situation.
3.4.3.3. Asset Turnover Ratio
This ratio measures the efficiency of the company to
generate profits from its assets. Kingsbury PLC’s value of the asset turnover
ratio is deceased in an increasing trend up to 2021.
3.4.3.4. Return on Investment
Return on
investment evaluates the efficiency of an investment by comparing the net
profit generated to the cost of the investment of the company. In Kingsbury PLC
value of return on investment has decreased in an increasing trend. This
indicates the unhealthy financial conditions of Kingsbury PLC.
3.4.3.5. Return on Common Shareholders’ Equity
This ratio measures the company’s ability to generate
proportionately the equity invested by common shareholders. In this company
return on common shareholders' equity decreased in an increasing trend over the
period of five years. This indicates the inefficiencies of using common
shareholders' equity.
3.4.4. Market
Market ratios evaluate the current share price of a
publicly-held company’s stock. These ratios give an in-depth understanding of
whether the company’s stocks are valued properly relative to the industry benchmarks.
3.4.4.1. Earnings Per Share
This ratio gives the average
value of income generated from each common stock. In Kingsbury PLC earnings per
share decreased from 2019.
3.4.4.2. Book Value Per Share
The book value per share ratio measures the value that
a shareholder gets in the event of a bankruptcy situation. This value has
declined over the past five years.
3.4.4.3. Price-Earnings (PE) Ratio
This ratio compares the company’s stock price with the
earnings per share. In Kingsbury PLC price earning ratio decreased drastically
which indicates less confidence to buy the shares of the company.
3.5.
Altman Z-Score Analysis
Altman’s Z-Score model is a numerical measurement that
is used to forecast the likelihood of a business going bankrupt in the next two
years. This model is considered an effective method of predicting the financial
distress of the organization by using multiple elements of statement of profit
and loss as well as statement of financial position.
According to the results derived through the Z-Score of Kingsbury PLC,
the company is in a distress zone since the year 2020 which implies the company
is headed to bankruptcy. For the year 2019, the Z-Score value is more than 1.23
which indicates the company was in the grey area at that time.
Z score implies that the company is in financial distress and with a
high probability of going bankrupt. Drastic reduction of sales due to the Easter
Sunday terrorist attack, the COVID-19 pandemic, closing down the operations of
the company during the lockdown and the curfew period and the prevailing
economic can be the reason for that.
4.
Conclusion
Primary
objective of financial statement analysis to give details to necessary
information to decision makers to make informed decisions. Financial statement
analysis of The Kingsbury PLC is done though the use of horizontal analysis,
trend analysis, vertical analysis, ratio analysis and altman z score analysis.
According to the analysis Kingsbury PLC show poor level of performance during
the period of five years which may have occurred due to the Easter Sunday bomb
attack, Covid 19 pandemic and the prevailing economic depression situation in
Sri Lanka. After the Altman Z score analysis it can be conclude that the
Kingsbury PLC in a high risk of bankruptcy.
No comments:
Post a Comment