ABSTRACT
This report presents a comprehensive
analysis of five consecutive annual reports of Alumex Pvt Ltd., a leading
company in the Aluminium manufacturing industry. The objective of this study
was to assess the financial performance, reporting practices, and overall
financial health of Alumex Pvt Ltd. over a five-year period, spanning from 2018
to 2022.
The analysis involved a thorough
examination of the company's financial statements, including the income
statement and balance sheet. Key
financial ratios were calculated and trends were identified to evaluate the company's
liquidity, profitability, solvency, and overall financial stability.
Additionally, the report scrutinized the company's disclosure practices,
accounting policies, and compliance with relevant accounting standards and
regulations.
The findings of this report reveal
valuable insights into the financial performance and reporting practices of
Alumex (Pvt) Ltd. Key trends, strengths, and areas for improvement have been
identified, providing a basis for stakeholders and investors to make informed
decisions regarding the company's financial prospects.
This analysis serves as a valuable
reference for both finance professionals and individuals interested in
understanding the financial health and reporting practices of Alumex (Pvt) Ltd.
ACKNOWLEDGEMENT
I would like to express my sincere
gratitude to all those who contributed to the successful completion of this
accounting and finance assignment report.
First and foremost, I would like to
express my heartfelt gratitude to my lecturer, Senior Prof. Kennedy D.
Gunawardene for his guidance, support, and valuable insights throughout the
process of teaching the course unit and on how to conduct this analysis. His
expertise and feedback were instrumental in shaping the content and direction
of this report.
I am grateful to my peers and classmates
who engaged in discussions and shared their perspectives, which enriched my
understanding of the subject matter.
Lastly, I want to acknowledge the
unwavering support of my family and friends. Your encouragement and patience
were essential in helping me stay focused and committed to completing this
assignment.
This report would not have been
achievable without the collective efforts and support of all those mentioned
above. Their contributions are sincerely appreciated.
CONTENT
Introduction to Financial Statements
1. Introduction to
the company
2. Financial
Statements of Alumex (Pvt) Ltd.
2.1. Statement of Financial
position
2.2. Statement of Profit and Loss
3.1. Horizontal Analysis of
Statement of Financial Position
4.1. Vertical Analysis of the
Statement of Financial Position
4.2. Vertical Analysis of the
Statement of Profit or Loss
6.1. Liquidity and efficiency
ratios
6.1.3. Acid Ratio / Quick ratio
6.1.4. Accounts Receivable Turnover
6.1.7. Days Sales in inventory
6.3.4. Return on Common shareholders’ Equity.
6.3.5. Basic Earnings per share
9.1. Statement
of Profit or Loss 2016/2017
9.2. Statement
of Financial Position 2016/2017
9.3. Statement
of Profit or Loss 2018/2019
9.4. Statement
of Financial Position 2018/2019
9.5. Statement
of Profit or Loss 2020/2021
9.6. Statement
of Financial Position 2020/2021
9.7. Statement
of Profit or Loss 2022/2023
9.8. Statement
of Financial Position 2022/2023
Introduction to Financial Statements
Financial statements are essential
tools that provide a snapshot of a company's financial performance and position
at a specific point in time, typically at the end of a fiscal period, such as a
quarter or year. These documents are crucial for investors, creditors,
analysts, and management to assess a company's health and make informed
decisions.
There are three primary financial
statements:
Income Statement (Profit and Loss Statement): This statement details a company's
revenues and expenses over a specific period, typically a quarter or a year. It
shows the company's profitability by revealing its net income (profit) or net
loss. The income statement helps stakeholders understand how well the company
generates revenue and manages its expenses.
Balance Sheet (Statement of Financial Position): The balance sheet provides a
snapshot of a company's financial condition at a specific date. It consists of
assets (what the company owns), liabilities (what the company owes), and
shareholders' equity (the residual interest in assets after deducting
liabilities). The balance sheet helps stakeholders assess the company's overall
financial health and its ability to meet its obligations.
Cash Flow Statement: The cash flow statement shows how
changes in balance sheet and income statement accounts affect a company's cash
and cash equivalents. It is divided into three sections: operating activities,
investing activities, and financing activities. The cash flow statement is
crucial for evaluating a company's ability to generate cash and meet its
short-term and long-term financial obligations.
These financial statements serve as
the backbone of corporate reporting, allowing stakeholders to make informed
decisions. They are also audited by external auditors to provide assurance
about their accuracy and compliance with accounting standards. Understanding
the information presented in financial statements is crucial for anyone looking
to assess a company's financial health, make investment decisions, or extend
credit to a business. Additionally, financial statements are vital for
regulatory bodies and tax authorities to ensure compliance and accurate
reporting within the business world.
1.
Introduction to the company
Alumex is a fully integrated
manufacturer of aluminium profiles in Sri Lanka since 1986. The company was
incorporated in 1986 as Alumex (Pvt) Ltd, a South Korean-Sri Lankan joint
venture. And Alumex is the leading Aluminium manufacturer in Sri Lanka, with a
46% market shareThey develop and manufacture aluminium extrusions for an
extensive range of applications such as fabrication of doors, windows, shop
fronts, curtain walls and other specialized commercial applications. With a
vast array of architectural, residential and industrial products made available
through our national and retail distribution system, we provide our customers
products which always meet International Standards. Alumex enjoys a clear
market leadership based on its superior range of products which are unmatched
by competition.
Alumex prides itself in being the
most trusted aluminium brand in Sri Lanka. Rooted in over three decades of
expertise and undisputed market leadership, our extensive experience and
high-quality products will fulfill all of your needs for aluminium extrusions
in Sri Lanka.
Alumex (Pvt) Ltd is a prominent and
well-established company in Sri Lanka, known for its significant contributions
to various industries. The company's operations encompass a range of sectors,
including manufacturing, distribution, and services. Alumex (Pvt) Ltd has
earned a strong reputation for its commitment to excellence, innovation, and
quality in its products and services.
With a history of reliability and a
dedication to customer satisfaction, Alumex (Pvt) Ltd has positioned itself as
a key player in the Sri Lankan business landscape. The company's diverse
portfolio may include activities in areas such as manufacturing, trading, or
services tailored to meet the needs of various markets and consumers. Their
commitment to sustainable business practices and local community engagement is
often noteworthy.
Alumex (Pvt) Ltd. success and
continued growth are indicative of its dedication to providing quality
solutions and contributing to the economic development of Sri Lanka. It plays
an integral role in the country's business ecosystem, further solidifying its
position as a significant player in the Sri Lankan corporate landscape.
2.
Financial Statements of Alumex (Pvt)
Ltd.
2.1.
Statement of Financial position
2.2.
Statement of Profit and Loss
3.
Horizontal Analysis
Horizontal analysis, also known as
trend analysis, is a financial assessment technique that involves comparing
financial data, such as income statements, balance sheets, and cash flow
statements, across different periods to identify trends, changes, and patterns.
This analysis method is crucial for evaluating a company's performance and
financial health over time, as it highlights both positive and negative trends
in key financial metrics. By comparing data from two or more consecutive
periods, analysts and stakeholders can gain insights into a company's growth,
stability, and potential areas of concern. Horizontal analysis aids in making
informed decisions, setting financial goals, and understanding the historical
evolution of a business's financial position.
The following are the key equations
used in horizontal analysis
(Base Year – 2017)
3.1.
Horizontal Analysis of
Statement of Financial Position
3.1.1.
Rupee Change
Rupee Change in horizontal analysis
is a method used to evaluate the changes in financial data, across consecutive
financial periods. This analysis aims to identify trends, variations, and
shifts in key financial metrics such as revenues, expenses, assets,
liabilities, and net income. By calculating and comparing the absolute rupee
value changes between periods, horizontal analysis enables stakeholders to gain
insights into a company's financial performance and track the direction of
financial trends over time. It provides a snapshot of how specific line items
have grown or declined, helping investors and analysts make informed decisions
regarding a company's financial health and performance
3.1.2.
Percent Change
Percentage change in horizontal
analysis is a valuable financial analysis method employed to evaluate the
relative growth or decline of specific financial line items, expressed as a
percentage, between two or more consecutive periods. This analysis provides a
more insightful perspective on how financial metrics, such as revenue,
expenses, assets, liabilities, and net income, have evolved over time. By
calculating and comparing the percentage change for each line item,
stakeholders gain a clearer understanding of the pace and direction of these
financial trends.
Rupee Change
Percentage Change
Total Assets exhibited a consistent
upward trend, with a substantial increase of 205.24% over the five-year period.
This indicates robust growth in the company's asset base, driven by various
factors, including investments and expansion.
Property, Plant and Equipment saw
steady growth, with a 44.40% increase from 2018 to 2022, reflecting investments
in tangible assets. Intangible Assets experienced significant growth of
110.98%, signifying investments in intangible assets.
Inventories grew by 40.04% over the
period, with a remarkable surge of 140.04% in 2022, indicating a substantial
buildup of inventory. Trade and Other Receivables showed a 88.30% increase,
with a notable rise in 2022, suggesting changes in sales terms or credit
policies. Advances and Prepayments surged by a significant 893.68%, with a
substantial positive shift in 2022.
Equity and Reserves showed
consistent growth, with a remarkable surge of 645.01% in 2022, indicating
positive developments in equity and retained earnings.
Interest Bearing Loans and
Borrowings grew by 120.51% from 2018 to 2022, depicting changes in long-term
financing. Retirement Benefit Liability and Deferred Tax Liabilities also
increased by significant percentages, with 80.24% and 139.30% growth,
respectively.
Trade and Other Payables increased
by 166.51%, with a significant rise in 2022, possibly indicating increased
payables and obligations. The Current Portion of Long-Term Interest Bearing
Borrowings grew by 37.72% over the five-year period.
In summary, the horizontal analysis
highlights substantial growth in Total Assets, especially in 2022, indicating a
significant transformation in the company's financial structure. The company
has made investments in both tangible and intangible assets, and Current Assets
have also seen substantial increases. Equity and Reserves have grown,
reflecting positive developments, while Non-Current Liabilities have increased,
potentially to support the company's expansion. However, the substantial
increase in Current Liabilities in 2022 may require careful management to
ensure short-term obligations are met effectively. Further analysis is
necessary to fully understand the drivers behind these changes and their
implications for the company's financial health and strategy.
4.
Vertical Analysis
Vertical analysis is a valuable tool
for gaining insights into the structure of a company's financial statements, as
it standardizes the presentation of data, making it easier to identify shifts
in resource allocation, cost structures, and profit margins. By breaking down
financial statements into percentages, it becomes simpler to assess the
company's financial health and to make comparisons within the same company over
time or with other companies in the same industry.
4.1.
Vertical Analysis of the Statement
of Financial Position
Vertical analysis in the Statement
of Financial Position, also known as the Balance Sheet, is a method for
analyzing and presenting financial data in a way that expresses each line item
as a percentage of the total assets. This allows for a detailed examination of
the composition of a company's assets, liabilities, and equity, making it
easier to assess the relative significance of various components.
4.2.
Vertical Analysis of the Statement
of Profit or Loss
This analysis reveals a significant
shift in the composition of assets. Non-current assets, primarily represented
by Property, Plant and Equipment, decreased from 55.48% of total assets in 2018
to 40.56% in 2022. This suggests a decreasing reliance on fixed assets in favor
of other investment avenues. Intangible Assets remained relatively stable, with
a peak at 1.44% in 2021, indicating consistent investment in intangible assets.
Investments in Subsidiaries stayed below 1% of total assets throughout the
period, showing a minor role in the asset structure.
The composition of current assets
underwent notable changes. Inventories became a more substantial component,
representing about 28.90% of total assets in 2022, indicating increased
emphasis on inventory management. Trade and Other Receivables consistently
represented around 12-14% of total assets. Advances and Prepayments exhibited a
remarkable increase from 1.02% in 2018 to 11.04% in 2022, implying a shift
towards greater reliance on prepayments and advances as part of current assets.
Total Equity as a percentage of
total equity and liabilities fluctuated over the years, with the lowest point
at 26.31% in 2022. This suggests changes in the company's financing structure
and capitalization, which could be attributed to various financial decisions
and strategic shifts.
Trade and Other Payables increased
from 19.30% in 2018 to 26.27% in 2022, indicating a higher reliance on
short-term obligations. The Current Portion of Long-Term Interest Bearing
Borrowings fluctuated but didn't exhibit a significant increase. Short-term
Interest Bearing Borrowings showed variations but displayed an upward trend,
reaching 23.52% of total equity and liabilities in 2022, possibly reflecting
adjustments in the company's financing and debt management strategies.
The analysis of the income statement
shows improving profitability. Gross Profit as a percentage of revenue
consistently increased over the years, reflecting more efficient cost
management and better sales margins. Administrative Expenses and Selling and
Distribution Costs, as percentages of revenue, decreased over time,
demonstrating the company's efforts to control operating expenses. Finance
Costs, while showing fluctuations, increased significantly in 2022, which could
be attributed to higher interest expenses related to increased borrowing.
In terms of profitability, Profit
Before Tax as a percentage of revenue increased from 10.37% in 2018 to 20.79%
in 2022, indicating a strong upward trend in the company's overall
profitability. Income Tax Expense remained relatively stable as a percentage of
profit. The company achieved remarkable profit growth, with Profit for the Year
as a percentage of revenue increasing from 8.68% in 2018 to 17.38% in 2022,
showcasing consistent improvement in the company's ability to generate profits
from its operations.
Overall, the vertical analysis
provides a comprehensive view of the company's evolving financial structure,
emphasizing shifts in asset composition, changes in liabilities, and
improvements in profitability. These insights can be instrumental in
decision-making and understanding the company's financial health and strategic
direction.
5.
Trend Analysis
Over the five-year period, there can
be seen a significant expansion in the company's asset base, with Total Assets
increasing by an impressive 96.88% from 2018 to 2022. This growth can be
attributed to the consistent increase in Total Non-Current Assets, which
reflects investments in long-term assets such as property, plant, and
equipment.
In 2022, Total Current Assets
increased to 196.88%, suggesting a shift in resource allocation or operational
requirements.
There is a notable growth in Total
Equity from 2018 to 2020, and in 2022, it experienced a remarkable increase of
72.63%. This substantial rise in equity may be attributed to retained earnings
or a reduction in liabilities, reflecting positive financial developments.
Simultaneously, Total Non-Current
Liabilities fluctuated over the years but ended slightly lower in 2022,
indicating potential improvements in debt management. More significantly, both
Total Current Liabilities and Total Liabilities dropped to 0.00% in 2022,
demonstrating an effort to strengthen the company's balance sheet and possibly
reduce its dependence on short-term financing.
Revenue shows consistent growth over
the five-year period, increasing by 41.0% from 2018 to 2022. This revenue
growth is a positive sign in the perspective of the company, indicating
improved sales performance or heightened demand for the company's products or
services.
Gross Profit also grew
significantly, reflecting efficient management of the Cost of Sales.
Moreover, Profit Before Tax depicted
fluctuations but experienced a substantial increase in 2022, showing improved
pre-tax profitability.
Profit for the Year exhibited
fluctuations but saw a significant rise in 2022, indicating the company's
ability to generate positive earnings.
In essence, the trend analysis
reveals positive developments in the company's financial performance. These
include substantial revenue growth, improved profitability, effective asset
management, and a focus on balance sheet strength by reducing liabilities.
However, it's essential to conduct a more in-depth financial analysis and
consider qualitative factors to gain a comprehensive understanding of the
company's financial health and future prospects. The observed trends provide a
starting point for a more thorough evaluation of the company's financial
performance and strategic direction.
6.
Ratio Analysis
Ratio analysis is a fundamental tool
used in the analysis of annual reports to evaluate a company's financial
performance and health. It involves the examination of various financial ratios
that provide insights into different aspects of a company's operations, such as
profitability, liquidity, solvency, and efficiency. By comparing these ratios
over time or against industry benchmarks, investors, analysts, and stakeholders
can make informed decisions about the company's financial standing and its
potential for future growth or stability. These ratios help assess how
effectively a company manages its resources, generates profits, and handles its
debt.
Analyzing annual reports through
ratio analysis allows stakeholders to gain a deeper understanding of a
company's financial strengths and weaknesses, aiding in investment decisions,
credit evaluations, and strategic planning. It serves as a valuable tool for
making informed financial assessments and comparisons.
6.1.
Liquidity and efficiency ratios
Liquidity ratios, such as the
current ratio and the quick ratio, measure a company's ability to cover its
short-term debts and operational expenses using its current assets. A higher
liquidity ratio indicates a better capacity to meet immediate financial
obligations.
Efficiency ratios, like inventory
turnover and accounts receivable turnover, assess how effectively a company
manages its assets and operations. These ratios show how quickly a company can
convert its assets into sales or cash, which is essential for minimizing waste
and maximizing profits.
In essence, these ratios help
stakeholders gauge a company's financial stability and efficiency in using its
resources to generate income, informing decisions about investments, loans, and
strategic
planning. Liquidity and efficiency
ratios are crucial tools in financial analysis for understanding a company's
short-term financial health and operational effectiveness.
6.1.1.
Working Capital
Working Capital = Current Assets – Current Liabilities
This is a fundamental concept in
finance and accounting that represents the resources a company has available to
cover its day-to-day operational expenses and short-term financial obligations.
It's calculated by subtracting a company's current liabilities such as
short-term debts and upcoming payment, from its current assets which are cash,
accounts receivable, and inventory.
In 2018, the company had a negative
working capital of Rs.-7072.00, suggesting that it faced short-term liquidity
challenges, with current liabilities exceeding current assets.
This negative working capital
increased in 2019 to a value of Rs.-374,912.00, indicating a worsening
financial situation, where the company's short-term obligations significantly
exceeded its available liquid assets.
While the working capital remained
negative in 2020 with a value of Rs.-218,029.00, it improved compared to the
previous year. However, the company still had difficulties covering its
immediate financial obligations.
In the year 2021, the working
capital still remained negative with a value of Rs.-250,993.00, indicating
ongoing liquidity issues, although it decreased compared to the previous year.
The working capital value in 2022
has reached a positive value of Rs.206,991.00 which is a positive sign. It
suggests that the company managed to increase its current assets sufficiently
to cover its short-term financial obligations. This is a good indication of
improved liquidity.
6.1.2.
Current ratio
Current Ratio = Current Assets / Current Liabilities
The current ratio is a financial
ratio used to assess a company's short-term liquidity and its ability to meet
its immediate financial obligations. It is calculated by dividing a company's
current assets by its current liabilities. Current assets include cash,
accounts receivable, and inventory, while current liabilities encompass
short-term debts and upcoming payments. The current ratio provides insight into
a company's financial health, as it measures the extent to which current assets
can cover current liabilities. A good acid-test ratio is typically considered
to be 1 or higher, as it indicates that a company has sufficient liquid assets
to cover its short-term obligations.
A current ratio below 1 may signify potential
liquidity issues. A current ratio of 1.00 [0.997] means that the company had
exactly enough current assets to cover its current liabilities in 2018. This
can be considered as a fairly good position, suggesting that the company had
good short-term liquidity.
In 2019, 2020 and 2021, the current
ratio of Alumex Pvt. Ltd. dropped to 0.87, 0.92, and 0.93 respectively, which
is below 1. This indicates that the company's ability to cover short-term
obligations without relying on inventory weakened throughout the years, and it
might have faced some liquidity challenges. The company’s Liquidity Ratios were
becoming better when compared to the previous years but they are not entirely
satisfactory as they still remain below 1.
In 2022, the current ratio improved
to 1.03, which is a positive sign. It suggests that the company had more than
enough current assets to cover its current liabilities, reflecting a strong
position in terms of short-term liquidity. This indicates that the short-term
liquidity has increased in 2022.
The trend in these ratios shows some
fluctuations over the years, with the company's liquidity improving in 2022.
6.1.3.
Acid Ratio / Quick ratio
Acid Ratio = (Current Assets – Inventory) / Current
Liabilities
This is a financial metric that
assesses a company's short-term liquidity and ability to meet its immediate
financial obligations without relying on inventory. It is a more conservative
measure of liquidity than the Current Ratio because it excludes inventory from
current assets.
The Quick Ratio is calculated by
dividing a company's quick assets, which typically include cash, cash
equivalents, marketable securities, and accounts receivable, by its current
liabilities. This ratio provides insight into a company's ability to cover its short-term
debts and liabilities with highly liquid assets.
A Quick Ratio of 1 or higher is
generally considered a good sign, as it suggests that the company has
sufficient liquid assets to meet its short-term obligations. It's a valuable
tool for investors, creditors, and analysts to assess a company's short-term
financial health and its ability to withstand unexpected financial challenges.
In Alumex Pvt. Ltd, in 2018, the
acid-test ratio was 0.41, which is below the ideal level of 1. This suggests
that the company had difficulty covering its short-term obligations without
relying on inventory, indicating a potential liquidity challenge. The quick
ratio further decreased to 0.32 in 2019, indicating a worsening liquidity
position. The company's ability to meet short-term obligations without relying
on inventory has diminished.
In 2020, the quick ratio remained
low at 0.31, indicating continued liquidity challenges. The company struggled
to meet its short-term liabilities without using inventory.
The quick ratio has then improved
slightly to 0.39 in 2021, suggesting a modest enhancement in liquidity but it
was still below the ideal level.
In 2022 also, the acid-test ratio
was 0.34, still below the ideal level of 1, indicating ongoing liquidity
concerns.
The trend in these ratios shows
consistent challenges in maintaining adequate liquidity over the years, with
the quick ratio consistently below 1. A quick ratio below 1 typically implies
that the company may face difficulties in meeting its short-term obligations
without relying on inventory or other measures to improve liquidity.
6.1.4.
Accounts Receivable Turnover
Accounts receivable Turnover = Sales
on Account / Average Accounts Receivable
This is a critical ratio for
assessing a company's effectiveness in converting credit sales into cash, as
well as its ability to manage its accounts receivable efficiently.
The Accounts Receivable Turnover
ratio is calculated by dividing the net credit sales (total credit sales minus
any returns or allowances) by the average accounts receivable balance during a
specific time period. A higher Accounts Receivable Turnover ratio generally
indicates that a company is collecting payments from its customers more
quickly, which is a sign of efficient credit management. A lower ratio may suggest
that the company's credit policies might need adjustment, or that it is
experiencing difficulties in collecting outstanding receivables.
In 2018, Alumex Pvt Ltd. had an
accounts receivable turnover ratio of 5.51. This suggests that, on average, the
company collected its entire accounts receivable balance approximately 5.51
times during the year. This is generally a sign of reasonably efficient
collections.
The turnover ratio remained
relatively stable for the next two years at 5.56, and 5.39 indicating a
continued reasonable level of efficiency in collecting payments from customers.
The ratio significantly improved in
2021 to 6.73, indicating a more efficient collection process. The company
likely experienced improved credit management practices or faster customer
payments during this year. In 2022, the accounts receivable turnover decreased
to 5.00, suggesting a slight reduction in the efficiency of collections
compared to the previous year.
The trend in these ratios shows some
fluctuations in the company's accounts receivable turnover over the years.
While the company demonstrated reasonable efficiency in collecting payments
throughout this period, there were variations. These variations may occur due
to credit policies, customer payment behavior, or other factors impacting
collections. Overall, these values suggest that the company generally
maintained an acceptable level of efficiency in collecting accounts receivable
during 2018-2022.
6.1.5.
Merchandise turnover
Merchandise turnover = Cost of goods sold / Average
Inventory
Merchandise turnover, also known as
inventory turnover, is a key financial metric used to assess how efficiently a
company manages its inventory. This ratio measures how quickly a company buys
and sells its inventory during a specific period, typically a year. A high
merchandise turnover ratio indicates that a company is effectively managing its
inventory by selling the purchased goods quickly, which by-default reduces the
carrying costs and improves cash flow.
Merchandise turnover is calculated
by dividing the cost of goods sold (COGS) by the average inventory value over
the same period. A higher turnover ratio generally suggests that a company is
renewing its inventory frequently and efficiently, ensuring that goods are sold
before they become obsolete or incur carrying costs.
Throughout the years 2018 - 2022,
the merchandise turnover shows positive values which is a good inventory
management sign. In 2018, the merchandise turnover of Alumex Pvt Ltd. ratio was
2.65. This suggests that, on average, the company replaced its entire inventory
approximately 2.65 times during the year. A higher merchandise turnover is
generally positive, indicating that the company is effectively managing its
inventory by selling goods more quickly.
In 2019, and 2020, the merchandise
turnover ratio decreased slightly to 2.42 and to 2,12 respectively. This could
indicate that the company's inventory turnover slowed down a bit compared to
the previous year, but it's still at a reasonable level. This might be due to
various reasons, such as changes in consumer demand, supply chain disruptions,
or overstocking.
In 2021, the merchandise turnover
improved to 2.44, indicating a slight increase in inventory turnover
efficiency. But it again dropped to 1.67 in 2022 which is notably lower than
the previous years. This could indicate a significant slowdown in inventory
turnover, which may result in increased carrying costs or potential
discontinuance.
6.1.6.
Days Sales Uncollected
Days Sales Uncollected = (Accounts receivable / Net Sales) *
365
Days Sales Uncollected is a
financial metric that measures the average number of days it takes for a
company to collect payments from its customers after making sales. DSO is a
crucial tool in assessing a company's accounts receivable management and its
efficiency in converting sales into cash. A lower Day Sales Uncollected is
generally preferred, as it indicates that a company collects payments more
quickly, which can improve cash flow and liquidity. A higher DSO may suggest
that a company faces challenges in collecting payments promptly, potentially
impacting its financial health.
In 2018, the Day sales uncollected
[DSO] in Alumex Pvt Ltd. was 75.68 days. This suggests that, on average, it
took approximately 75.68 days for the company to collect payments from its
customers after making sales. This is a relatively high value which may
indicate slower collections or issues with credit management.
The DSO continued to decrease in the
next few years from 2019 to 2021. The DSO is 66.59 in 2019, indicating a slight
improvement in collections, but it remained at a relatively high level,
suggesting that the company still faced challenges in collecting payments
promptly.
In 2020, the DSO decreased further
to 64.92, showing continued improvement in accounts receivable management.
However, it was still relatively high compared to some industry standards.
The DSO continued to decrease in
2021 to 57.61, indicating more efficient collections. This may be due to better
credit management practices or faster customer payments.
In 2022, the DSO increased
significantly to 88.41, which is considerably higher than the previous year.
This suggests that the company faced challenges in collecting payments promptly
during this year.
The trend in these Day sales
uncollected values shows fluctuations in the company's accounts receivable
management over the years. While there were some improvements in collections,
the DSO remained relatively high in comparison to industry benchmarks. It's
essential for the company to investigate and address the reasons behind these
fluctuations to maintain a healthy balance between credit sales and efficient
collections.
6.1.7.
Days Sales in inventory
Days Sales in inventory = (Ending Inventory / Cost of sales)
* 365
This is a financial metric used to
evaluate how efficiently a company manages its inventory. It measures the
average number of days it takes for a company to sell its entire inventory. It
helps assess the effectiveness of inventory management and provides insights
into whether a company is maintaining an appropriate level of inventory to
support its sales. A higher Day Sales Inventory value suggests relatively slow
inventory turnover, potentially leading to higher carrying costs and the risk
of obsolescence.
In 2018, the Day Sales Inventory
[DSI] was 168.93 days. This indicates that, on average, it took Alumex Pvt Ltd.
to approximately 168.93 days to sell its entire inventory.
In 2019, DSI decreased to 158.52
days, suggesting a slight improvement in inventory turnover. While it's still
relatively high, it indicates a modest increase in efficiency in managing the
company’s inventory.
In 2020, the DSI increased to 176.65
days, indicating a slowdown in inventory turnover. This may be due to factors such
as changing market conditions or overstocking.
The Day sales inventory value
decreased in 2021 to 148.72 days, showing improved efficiency in inventory
management. The company was selling its inventory more quickly during this
year.
In 2022, the DSI increased
significantly to 289.08 days, indicating a considerable slowdown in inventory
turnover. This could be a cause for concern, as a high DSI may lead to
increased carrying costs and potentially obsolete inventory.
The trend in these Day sales inventory
values shows fluctuations in inventory turnover over the years, with varying
levels of efficiency. The significantly higher DSI in 2022 may suggest
challenges in managing inventory effectively, and the company may need to
assess its inventory management practices maintaining a healthier balance
between inventory levels and sales.
6.1.8.
Total Asset Turnover
Total Asset Turnover = Revenue /
Average Total Asset
Total Asset Turnover is a financial
ratio that measures how efficiently a company utilizes its total assets to
generate their revenue. It is a key metric for assessing a company's
operational efficiency and asset management. By dividing a company's total
revenue by its average total assets, this ratio provides insights into how
effectively a company uses its assets to generate sales.
A higher Total Asset Turnover ratio
generally indicates that a company is performing efficiently in generating
revenue from its assets, which is a positive sign. Conversely, a lower ratio
suggests potential inefficiencies in asset utilization.
The Total Asset Turnover ratio of
Alumex Pvt Ltd. in 2018 was 0.69. This suggests that the company generated
Rs.0.69 in revenue for every Rs.1 of total assets it had.
The ratio increased slightly to 0.72
in 2019, indicating a modest improvement in asset utilization and revenue
generation. The company became slightly more efficient in using its assets to
produce revenue.
In 2020, the Total Asset Turnover
was 0.70, which is relatively consistent with the previous year. The company
maintained a similar level of efficiency in generating revenue from its assets.
The ratio increased to 0.78 in 2021,
suggesting a more significant improvement in asset utilization. In 2021 the
company became more efficient in converting its total assets into revenue
comparatively.
In 2022, the Total Asset Turnover
further improved to 0.80, indicating continued efficiency in asset utilization
and revenue generation. This is a positive sign, as Alumex Pvt Ltd. is using
its assets more effectively to produce sales.
The trend in these ratios shows a
gradual improvement in the company's efficiency in generating revenue from its
total assets over the years. A higher Total Asset Turnover ratio suggests that
the company is becoming more efficient in utilizing its assets to drive sales,
which is considered as a generally favorable factor for financial performance.
It's essential to continue monitoring and optimizing asset utilization to
maintain or further improve efficiency.
6.2.
Solvency Ratios
Solvency ratios are financial
metrics that assess a company's ability to meet its long-term financial
functions and continue its operations over the long haul. These ratios provide
an understanding of a company's financial stability and its capacity to cover
long-term debt and other financial commitments. Solvency ratios are critical
for investors, creditors, and management to evaluate the risk associated with a
company's financial structure. They typically include ratios like the
debt-to-equity ratio, interest coverage ratio, and long-term debt ratio, among
others, and help stakeholders gauge whether a company can bear up against
financial downturns and meet its long-term financial commitments. Solvency
ratios play a crucial role in financial analysis and risk assessment.
6.2.1.
Debt ratio
Debt Ratio = Total Liabilities / Total Assets
The debt ratio is a financial ratio
that measures the proportion of a company's assets that are financed through
debt. It is a fundamental metric used to assess a company's financial leverage
and solvency. By comparing a company's total debt to its total assets, the debt
ratio provides insights into the extent to which a company relies on debt as a
source of financing.
A high debt ratio shows a
significant reliance on borrowing to fund its operations and investments, which
can increase the financial risk. And also, a lower debt ratio shows that a
company relies more on equity financing, which may be considered less risky but
can limit growth potential.
In 2018, the company's debt ratio
was 44.65%. This shows that 44.65% of the company's total assets were financed
through debt.
In 2019, the debt ratio increased to
47.57%. This shows that the company relied more on debt to finance its assets
compared to the previous year. While it's still within a reasonable range, it
indicates a slightly higher level of financial leverage.
In 2020, the debt ratio decreased to
45.82%, indicating a reduction in the proportion of assets financed through
debt. This suggests that the company might have reduced its reliance on debt financing
during this year.
The debt ratio again increased to
48.69% in 2021, showing a higher reliance on debt and in 2022, the debt ratio
increased significantly to 57.59%. This suggests a substantial reliance on debt
financing for the company's assets, which may indicate higher financial risk.
6.2.2.
Equity Ratio
Equity Ratio = Total Shareholders’ equity / Total Assets
The equity ratio provides insights into the extent to which
the company's operations and investments are funded by the owner’s capital
rather than debt. A higher equity ratio suggests that the company relies more
on equity financing, which is often seen as a sign of financial stability and
lower financial risk. In other words, a lower equity ratio may indicate a
greater reliance on debt financing, which can increase financial risk but might
offer opportunities for growth and leverage.
The equity ratio of Alumex Pvt Ltd. in 2018 is 30.00%. This
indicates that 30.00% of the company's total assets were financed through
equity.
This equity ratio has decreased to 27.72% in 2019,
indicating a slightly lower proportion of assets financed through equity
compared to 2018. While it's still within a reasonable range, it suggests a
relatively lower reliance on equity financing.
In 2020, the equity ratio further decreased to 26.58%,
showing a continued reduction in the proportion of assets funded through
equity. This indicates a higher reliance on debt or other forms of financing.
The equity ratio increased to 31.74% in 2021, indicating a
higher reliance on equity financing compared to previous years. This shows a
shift towards a more balanced or equity-based financial structure.
In 2022, the equity ratio decreased to 26.31%, indicating a
lower proportion of assets funded through equity. This suggests a potentially
higher reliance on debt or other financing sources.
The trend in these equity ratio values shows fluctuations in
the company's reliance on equity financing over the years. A higher equity
ratio implies a more stable financial structure, while a lower ratio may
suggest a greater reliance on other forms of financing, including debt
6.2.3.
Times Interest Earned
Times Interest Earned = Net Income before Interest expense
and Income taxes / Interest
expenses
This is a financial ratio that evaluates a company's ability
to meet its interest payments on debt. It measures the extent to which a
company's operating income (earnings before interest and taxes) can cover the
company’s interest expenses. A higher Times Interest Earned ratio indicates
that a company has a more significant buffer to cover its interest expenses,
which is generally seen as a positive sign from the company's perspective. On
the other hand, a lower ratio suggests that the company may have limited
ability to cover its interest costs, raising concerns about its solvency and
financial risk.
In 2018, the Times interest earned ratio of Alumex Pvt Ltd.
was 3.70. This indicates that the company's operating income was 3.70 times
greater than its interest expenses.
The ratio decreased significantly to 1.07 in 2019 and it
further decreased to 0.90 in 2020. The 1.07 ratio indicates that the company's
operating income was only slightly higher than its interest expenses, and the
ratio of 0.90 suggests that the company's operating income was slightly lower
than its interest expenses. A Times interest earned ratio around or below 1 may
indicate a close or potentially challenging situation in covering interest
costs.
The Times interest earned ratio significantly improved in
2021 to 4.60. This shows that the company's operating income was 4.60 times
higher than its interest expenses, demonstrating a substantial improvement in
its ability to comfortably cover interest costs.
In 2022, the Times interest earned ratio decreased to 1.16.
While it improved compared to the previous values in 2019 and 2020, it still
suggests that the company's operating income was only slightly higher than its
interest expenses.
The trend in these values shows fluctuations over the years,
with the company experiencing periods of stronger and weaker interest coverage.
Maintaining this ratio comfortably above 1 is preferred, as it indicates a more
robust ability to meet interest obligations. Companies with these ratios below
1 might face challenges in servicing their debt and may be considered higher
risk by investors and creditors.
6.3.
Profitability Ratios
Profitability ratios are a category
of financial ratios which are used to assess a company's ability to generate
profits relative to its revenue, assets, equity, and other financial factors.
Profitability ratios provide insights into a company's overall financial
performance and efficiency in utilizing its resources to create profits.
6.3.1.
Profit margin
Profit Margin = (Net Income / Net Sales) * 100
Profit margin is a fundamental profitability ratio that
measures a company's net profit as a percentage of its total revenue. A higher
profit margin is generally preferred, as it indicates that the company is
efficient in managing its costs and generating profit from its sales. A lower
profit margin suggests that the company faces challenges in controlling
expenses or pricing its products and services competitively.
In 2018, Alumex Pvt Ltd. had a profit margin of 8.68%. This
shows that for every Rupee of revenue generated, the company retained 8.68
cents as net profit after covering all expenses. This is a reasonably healthy
profit margin, suggesting that the company managed its costs effectively and
generated a decent profit.
The profit margin decreased significantly to 1.19% in 2019.
This shows that the company's profit relative to revenue was substantially
lower compared to the previous year.
Alumex Pvt Ltd. reported a negative profit margin of -1.27%
in 2020. A negative profit margin indicates that the company incurred losses
rather than profits, which is a concerning sign. The company's expenses have
exceeded the revenue during this year.
The profit margin has improved in 2021 to 14.68%. This shows
a strong recovery, as the company generated 14.68 cents in profit for every
rupee of revenue. It suggests that the company effectively controlled expenses
and achieved healthy profitability.
The profit margin increased to 17.38% in 2021. This shows
further improvement in profitability, with the company generating 17.38 cents
in profit for each rupee of revenue. It suggests strong financial performance
during this year.
These profit margin values demonstrate fluctuations in the
company's profitability over the years, with periods of strong performance and
recovery following a year of losses in 2020. The positive profit margins in
2021 and 2022 are positive signs, which indicate that the company effectively
managed its costs and generated healthy profits relative to its revenue during
those years.
6.3.2.
Gross Margin
Gross Margin = (Gross profit / Revenue) * 100
Gross profit margin is a key
profitability ratio that assesses the profitability of a company's core
operations by measuring the percentage of revenue retained as gross profit
after accounting for the cost of goods sold.
A higher gross profit margin
indicates that a company retains a larger proportion of its revenue as profit
after accounting for the direct costs associated with production or service
delivery.
In 2018, the company had a gross
margin of 20.93%. This shows that, for every Rupee of revenue created, the
company retained approximately 20.93 cents as gross profit after covering the
direct costs associated with production or service delivery.
The gross margin in 2019 was 20.31%,
indicating a slight decrease compared to 2018. While the change is not
substantial, it suggests that the company may have faced slightly higher
production costs or had limited pricing power.
In 2020, the gross margin remained
relatively stable at 20.01%. This depicts that the company maintained a
consistent level of profitability from its core operations despite potential
economic challenges.
The gross margin increased
significantly to 26.28% in 2021. This shows a notable improvement in profitability.
The company may have effectively managed costs, increased pricing, or
experienced higher demand, to obtain this stronger gross margin.
The gross margin increased
dramatically to 173.72% in 2022. Such a high gross margin may indicate an
accounting anomaly, an extraordinary event, or a change in the company's
financial reporting.
6.3.3.
Return on Total Assets
Return on total assets = Net Income / Average Total Assets
Return on Total Assets is one of the
main financial ratios that helps to evaluate a company's efficiency in
generating profit from its total assets. It measures the return a company
generates for each rupee invested in its assets. Return on total asset is a
crucial metric for assessing a company's overall operational efficiency and its
ability to utilize its assets effectively to create profit.
In 2018, the company had an Return
on total asset of 7.29%. This indicates that, for every Rupee invested in total
assets, the company generated a return of approximately 7.29 cents in profit.
This shows a reasonably healthy return on total assets, suggesting that the
company effectively utilized its assets to create profit.
The Return on Total assets has
decreased significantly to 0.92% in 2019. This shows that the company's ability
to generate profit from its total assets diminished significantly compared to
the previous year.
The Return on total assets turned
negative in 2020, indicating a return of -0.88%. A negative ROA means the
company experienced losses, and its assets were not used efficiently to
generate profit during the year.
The ROA improved substantially in
2021 to 12.22%. This suggests a strong recovery, with the company effectively
utilizing its assets to generate a return of approximately 12.22 cents in
profit for every rupee invested in assets.
The return on Total Assets remained
healthy at 10.57% in 2022 and it indicates that the company continued to
utilize assets efficiently to create a return of approximately 10.57 cents in
profit for each rupee invested in assets.
In general, a higher Return on Total
Assets is considered to be better. A higher ratio indicates that the company is
more efficient at utilizing its total assets to generate profit. On other hand,
a lower Return on Total Assets ratio may suggest that the company is less
efficient at converting its assets into profit
6.3.4.
Return on Common shareholders’ Equity.
Return on Common Shareholders Equity
= (Net Income – Preferred Dividends) / Average Shareholders’ Equity
Return on Common Shareholders Equity
is a key metric in evaluating a company's financial performance and is of
significant interest to investors and analysts. A higher Return on Common
Shareholders Equity indicates that a company is efficiently using its equity
capital to generate profit, which is generally considered a positive sign. A
lower Return on Common Shareholders Equity ratio may suggest that the company
faces challenges in generating returns for its common equity shareholders.
In 2018, the Alumex Pvt Ltd. had a
Return on Common Shareholders Equity of 19.51%. This indicates that the company
generated a return of approximately 19.51 cents in profit for every rupee of
common equity held by shareholders.
The Return on Common Shareholders
Equity ratio has decreased significantly to 3.19% in 2019. This shows that the
company's ability to generate returns for common equity shareholders diminished
notably compared to the previous year. It may indicate lower profitability or
challenges in managing equity capital.
In 2020, the Return on Common Shareholders
Equity turned negative at -3.24%. A negative value indicates a period of
losses, and common equity shareholders did not see a return on their investment
during the year.
The Return on Common Shareholders
Equity improved in 2021 to 41.71%. This depicts a strong recovery, with the
company effectively using its common equity to generate a return of
approximately 41.71 cents in profit for every rupee of common equity.
In 2022, the Return on Common
Shareholders Equity remained healthy at 37.21%. This shows that the company
continued to efficiently utilize its common equity capital to produce a return
of approximately 37.21 cents in profit for each rupee of common equity held by
shareholders.
6.3.5.
Basic Earnings per share
Basic Earnings per share = Net profit for the year / Number
of shares
Basic Earnings per Share measures a
company's profitability and represents the portion of a company's net income
allocated to each outstanding common share. It is an important indicator for
investors and analysts as it helps assess a company's profitability on a
per-share basis. A higher Basic Earnings per share value indicates that a
company is generating more profit for each outstanding common share while a
lower Basic Earnings per share suggests that a company is generating less
profit for each outstanding common share.
In 2018, Alumex Pvt Ltd. reported a
basic earnings per share of 1.14. This means that for each outstanding common
share, shareholders received Rs.1.14 in earnings. It shows a healthy level of
profitability and earnings for the company during that year.
The Basic Earnings per share value
has decreased significantly to 0.18 in 2019. This depicts a notable reduction
in profitability on a per-share basis, which may be due to various factors such
as lower net income or an increase in the number of outstanding shares.
In 2020, the company reported a
negative value for Basic Earnings per share which is -0.09. A negative value
suggests that the company experienced losses during that year, which is a
challenging financial situation.
The Basic Earnings per share in the
year 2021 rebounded to 1.36 and it further increased to 1.61 in 2022,
indicating continued profitability and an improved level of earnings for each
outstanding common share.
The negative Basic Earnings per
shares in 2020 is a notable sign of financial challenges, but the subsequent
positive Basic Earnings per share values in 2021 and 2022 shows a recovery and
improved financial performance.
6.4.
Market ratios
Market ratios are financial ratios
that assess a company's performance and value to investors in the context of
the stock market. These ratios help investors and analysts evaluate how the
market perceives the company's stock and its potential for future growth and
returns. Market ratios are valuable in making investment decisions and
understanding a company's valuation in the stock market.
6.4.1.
Price Earnings Ratio
Price Earnings Ratio = Market Price per Share / Earnings per
Share
Price Earnings Ratio compares a
company's stock price to its earnings per share and provides insights into how
much investors are willing to pay for each rupee of earnings. A higher price
earnings ratio suggests that investors have higher expectations for the
company's future growth and are willing to pay more for each rupee of earnings.
A lower ratio may indicate that the stock is undervalued or that the market has
lower growth expectations.
In 2018, Alumex Pvt Ltd. had a P/E
ratio of 13.88. This shows that investors were willing to pay Rs.13.88 for each
rupee of the company's earnings. This is a moderate P/E ratio, that indicates a
relatively balanced valuation where investors had reasonable expectations for
the company's future earnings.
The price earnings ratio value has
increased to 23.66 in 2019 and in 2020, the ratio has significantly increased
to 69.86. This exceptionally high P/E ratio may indicate that the stock was
trading at a premium relative to its earnings.
The price earnings ratio decreased
to 7.31 in 2021 and it further decreased to 3.79 in 2022. This exceptionally
low ratio suggests that investors were willing to pay significantly less for
the company's earnings, possibly due to pessimistic expectations or concerns
about the company's performance.
6.4.2.
Dividend Yield
Dividend Yield = Annual Dividends per share / Market price
per share
Dividend Yield is another important
financial ratio that assesses the income generated by holding a particular
stock as a percentage of the stock's current market price. It is a crucial
metric for income-oriented investors and provides insights into the returns
they can expect to receive from their investment in the form of dividends of
the company.
In 2018, the Dividend Yield was 4.12% which means that, for
each rupee invested in the stock at that time, investors received an annual
dividend income equivalent to 4.12% of the stock's current market price. It
represents a decent yield and is attractive for income-oriented investors.
In 2019, the Dividend Yield was 3.33% which is slightly
lower than the previous year, but it still indicates a respectable dividend
income relative to the stock's market price.
There's no reported Dividend Yield for 2020, which could
mean that the company did not pay dividends during 2020, or the data might not
be available.
In 2021, the Dividend Yield was 1.65%. This value is notably
lower when compared to the previous years, suggesting a reduced dividend income
relative to the stock's market price.
The Dividend Yield has increased to 3.26% in 2022 and it
shows that the company resumed paying higher dividends compared to 2021, making
it more attractive to income-seeking investors.
6.4.3.
Z-score Test
Z = 1.2 A + 1.4 B + 3.3 C+0.6 D + 1.0E
The Altman Z-Score is a financial
formula which is a widely used bankruptcy prediction model that helps assess
the financial health and creditworthiness of a company. It is particularly
valuable for investors, creditors, and analysts in evaluating the risk of a
company facing financial distress or bankruptcy. A Z-Score of above 2.99 is
considered a safe zone for companies as it indicates that the company is in
good financial health and has a low risk of financial distress or bankruptcy.
On other hand, Z-Scores below, are considered the distress zone, suggesting
that there is a higher risk of financial distress or bankruptcy.
In 2018, the Z-Score shows an
exceptionally high value of 9.06. This is significantly above the safe zone threshold,
and it indicates that the company was in very good financial health with an
extremely low risk of financial distress or bankruptcy.
In 2019, the Z-Score decreased to
1.71. This Z-Score falls within the gray zone, showing possible financial risks
and a need for further analysis. The company's financial health may have been
reduced compared to the previous year.
In 2020, the Z-Score improved to
2.56 and it showed improvement compared to 2019, the company's financial health
remained uncertain.
The Z-Score increased to 4.67 in
2021, moving back into the safe zone. This indicates a more favorable financial
position and a lower risk of financial distress compared to the previous years.
In 2022, the Z-Score was 2.25,
falling back into the gray zone by depicting an increase in financial risk
compared to 2021.
7.
Conclusion
When considering Alumax Pvt Ltd., the
company's financial performance over the five-year period from 2018 to 2022
exhibited significant fluctuations in key financial ratios. This volatility can
be an indicator of changing market conditions, shifts in the company's
operational strategy, or other challenges that are specific to the aluminium
industry.
In terms of liquidity and
efficiency, both working capital and the current ratio showed fluctuations.
Working capital, which represents the company's short-term financial health,
showed values from negative to positive. Similarly, the current ratio,
reflecting short-term liquidity, varied above and below the critical threshold
of 1. These fluctuations are proof that the company faced periods of both
financial stability and potential liquidity challenges.
The acid test ratio or the quick
ratio, a more stringent measure of short-term liquidity, followed a similar
pattern, indicating changes in the company's ability to meet its immediate
obligations using its most liquid assets.
Accounts receivable turnover,
merchandise turnover, days sales uncollected, and days sales in inventory all
showed variations, reflecting the company's effectiveness in managing credit,
collections, and inventory. These fluctuations can be influenced by factors
such as changing customer payment patterns and inventory management practices.
Total asset turnover demonstrated
variability, highlighting shifts in the company's efficiency in using its
assets to generate revenue.
In terms of solvency ratios, the
debt ratio and equity ratio also fluctuated, suggesting changes in the
company's capital structure and leverage. Times Interest Earned, which assesses
the company's ability to cover interest expenses, also exhibited variability.
The profitability ratios, including
profit margin, Return on total asset, and Return on Common Shareholders'
Equity, showed a range of values over the analyzed 5 years. These ratios can be
influenced by factors such as changes in revenue, expenses, and the company's
overall financial performance.
In the market ratios, Price Earnings
Ratio indicated shifts in market sentiment and expectations regarding earnings.
Dividend Yield, reflecting the company's dividend distribution, changed over
the years. Finally, the Altman Z-Score showed fluctuations in the company's
risk of financial distress as it is a prying calculation used to predict if a
company would go bankrupt.
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