1) Introduction
Financial statement
analysis is the process of analyzing company’s financial statements for the
decision making purposes. External stakeholders use it to understand the
overall health of an organization and to evaluate financial performance.
Internal stakeholders use it as a monitoring tool for managing finances. Three
techniques are used by analysts when analyzing financial statements. They are
horizontal analysis, vertical analysis and ratio analysis. Horizontal analysis
compares data horizontally. The result of a horizontal analysis is shown as a
percentage increase in the same line item within the base year. In the Vertical
analysis each line item is a percentage of every other item on the statement.
Ratio analysis enables management to identify any departure from expectations
and implement remedial actions.
There are four types of
financial statements can be found in an annual report such as the balance
sheet, income statement, cash flow statement and statement of owner’s equity.
Balance sheet is also known as financial position. It displays three key
things: assets, liabilities and equity. Balance sheet helps to understand if
the organization can meet its financial obligations. Income statement is also
known as a statement of revenue and expense, or a profit and loss statement.
Income statement takes revenue, losses and expenses into account, so it can
show whether the company has turned a profit or loss. The cash flow statement
shows how money enters and leaves the business. Statement of owner’s equity
shows how equity share has changed among all the shareholders. Financial
statement analysis evaluates a company’s performance through these four
statements.
Richard Pieris and Company
PLC
Richard Pieris and Company is one of the largest and most successful
diversifies business conglomerates based in Sri Lanka. It is also is one of the
largest employment provider in the private sector in the country. The group
enjoys of its local market leadership in its traditional sectors of Rubber,
Tyres, Plastics, Retail and distribution. In addition to that group has
ventured into plantations, financial services, and construction logistics.
Today it has developed a more global perspective through an intense campaign
design to promote its products worldwide.
When it comes to the
history, the company was founded in 1932 as a partnership dealing with the
plantation and tire industries. Initially it started as a family business. The
founder member of the company was Mr.
Richard Pieris. Then it has gradually diversified into the areas of manufacturing,
pumps, retail and engineering sectors. The company also pioneered the concept
of hypermarkets in Sri Lanka through their ‘Arpico Super Centre’ chain. Today
the company has more than 1000 retail outlets including dealerships and Factories
Island wide. With staff strength of more than 25000, the company’s major brands
include Arpitec, Arpidag and Arpico.
3) Statement
of financial position (2017 – 2022)
|
|
2017 |
2018 |
2019 |
2020 |
2021 |
2022 |
|
Assets |
|
|
|
|
|
|
|
Non-current assets |
|
|
|
|
|
|
|
Property, plant and
equipment |
94,253 |
188,637 |
218,148 |
205,936 |
203,209 |
287,355 |
|
Investment properties |
- |
- |
1,221,180 |
1,213,756 |
1,443,062 |
2,668,247 |
|
Right-of-use assets |
1,229,014 |
1,225,565 |
- |
365,634 |
313,144 |
260,654 |
|
Intangible assets |
- |
- |
- |
- |
|
- |
|
Consumable biological assets |
- |
- |
- |
- |
- |
- |
|
Investments in
subsidiaries |
3,808,772 |
3,849,172 |
3,835,673 |
3,810,673 |
4,207,433 |
4,487,433 |
|
Investment in
associates |
- |
- |
- |
- |
- |
- |
|
Other non-current
financial assets |
109,595 |
290,229 |
752,159 |
554,405 |
717,066 |
1,249,479 |
|
Deferred tax assets |
- |
- |
- |
- |
6,833 |
10,984 |
|
Total non-current
assets |
5,241,634 |
5,553,603 |
6,027,160 |
6,150,404 |
6,890,747 |
8,964,152 |
|
Current assets |
|
|
|
|
|
|
|
Inventories |
- |
- |
- |
- |
- |
7,701 |
|
Produce on bearer
biological assets |
- |
- |
- |
- |
- |
- |
|
Trade and other
receivables |
209,982 |
260,947 |
510,636 |
425,807 |
403,057 |
286,918 |
|
Loans and advances |
- |
- |
- |
- |
- |
- |
|
Tax receivables |
5,012 |
8,984 |
6,987 |
- |
- |
- |
|
Amounts due from
subsidiaries |
1,961,764 |
1,492,101 |
2,656,390 |
2,872,277 |
3,567,840 |
4,582,315 |
|
Other current
financial assets |
- |
- |
- |
- |
- |
- |
|
Cash and short-term
deposits |
5,734,994 |
7,278,859 |
7,880,056 |
3,669,704 |
753,585 |
1,011,831 |
|
Total current assets |
7,911,752 |
9,040,891 |
11,054,069 |
6,967,788 |
4,724,482 |
5,888,765 |
|
Total assets |
13,153,386 |
14,594,494 |
17,081,229 |
13,118,192 |
11,615,229 |
14,852,917 |
|
|
|
|
|
|
|
|
|
Equity and liabilities |
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
Stated capital |
1,972,829 |
1,972,829 |
1,972,829 |
1,972,829 |
1,972,829 |
1,972,829 |
|
Revenue reserves |
1,400,185 |
800,325 |
840,371 |
1,329,484 |
1,255,550 |
2,488,980 |
|
Statutory reserve fund |
- |
- |
- |
- |
- |
- |
|
Other components of
equity |
16,612 |
5,768 |
-136,805 |
-334,560 |
-207,291 |
-670,434 |
|
Equity attributable to
equity holders of the parent |
3,389,626 |
2,778,922 |
2,676,395 |
2,967,753 |
3,021,088 |
3,791,375 |
|
Non-controlling
interests |
- |
- |
- |
- |
- |
- |
|
Total equity |
3,389,626 |
2,778,922 |
2,676,395 |
2,967,753 |
3,021,088 |
3,791,375 |
|
Non-current
liabilities |
|
|
|
|
|
|
|
Interest-bearing loans
and borrowings |
3,146,317 |
2,143,673 |
- |
- |
- |
- |
|
Lease liabilities on
Right-of-use Assets |
- |
- |
- |
449,434 |
413,760 |
364,611 |
|
Insurance provision |
- |
- |
- |
- |
- |
- |
|
Provisions |
- |
- |
- |
- |
- |
- |
|
Government grants |
- |
- |
- |
- |
- |
- |
|
Employee benefit
liabilities |
- |
- |
- |
3,759 |
67,922 |
63,871 |
|
Deferred tax
liabilities |
79,823 |
82,471 |
70,609 |
64,293 |
- |
- |
|
Total non-current
liabilities |
3,226,140 |
2,226,144 |
70,609 |
517,486 |
481,682 |
428,482 |
|
Current liabilities |
|
|
|
|
|
|
|
Trade and other
payables |
277,921 |
408,812 |
974,203 |
276,627 |
1325059 |
394,507 |
|
Customer deposits |
- |
- |
- |
- |
- |
- |
|
Current portion of
interest-bearing loans and borrowings |
1,293,285 |
1,018,013 |
2,170,944 |
- |
- |
- |
|
Current portion Lease liabilities
on Right-of-use Assets |
- |
- |
- |
24,410 |
35674 |
49,149 |
|
Amounts due to
subsidiaries |
2,997 |
7,369 |
2,442 |
5,940 |
15201 |
118,952 |
|
Income tax payable |
- |
- |
- |
77,232 |
260,304 |
512,530 |
|
Short term borrowings |
4,963,417 |
8,155,234 |
11,186,636 |
9,248,744 |
6476221 |
9,557,922 |
|
Total current
liabilities |
6,537,620 |
9,589,428 |
14,334,225 |
9,632,953 |
8,112,459 |
10,633,060 |
|
Total liabilities |
9,763,760 |
11,815,572 |
14,404,834 |
10,150,439 |
8594141 |
11,061,543 |
|
Total equity and
liabilities |
13,153,386 |
14,594,494 |
17,081,229 |
13,118,192 |
11,615,229 |
14,852,917 |
4) Income
statement 2017 - 2022
|
|
2017 |
2018 |
2019 |
2020 |
2021 |
2022 |
|
Total Revenue |
2,309,476 |
2,694,333 |
2,934,631 |
1,542,885 |
2,961,206 |
3,491,206 |
|
Cost of sales |
- |
- |
- |
- |
- |
- |
|
Gross profit |
2,309,476 |
2,694,333 |
2,934,631 |
1,542,885 |
2,961,206 |
3,491,206 |
|
|
|
|
|
|
|
|
|
Other operating income |
- |
- |
- |
3,164 |
36,434 |
267,520 |
|
Selling and distribution expenses |
- |
- |
- |
- |
- |
- |
|
Administrative expenses |
-541,451 |
-599,004 |
-459,304 |
-259,184 |
-354,731 |
-457,430 |
|
Other operating expenses |
-31,664 |
- |
- |
- |
- |
- |
|
Operating profit |
1,736,361 |
2,095,329 |
2,475,327 |
1,286,865 |
2,642,909 |
3,301,296 |
|
Finance costs |
-384,418 |
-475,884 |
-717,540 |
-690,034 |
-481,115 |
-605,568 |
|
Finance income |
22,290 |
29,758 |
41,035 |
66,578 |
82,773 |
88,617 |
|
Share of profit of an associate |
- |
- |
- |
- |
- |
- |
|
Profit before tax |
1,374,233 |
1,649,203 |
1,798,822 |
663,409 |
2,244,567 |
2,784,345 |
|
|
|
|
|
|
|
|
|
Income tax
expense |
-11,726 |
- |
-5,999 |
-189,374 |
-280,463 |
-326,227 |
|
Profit
for the year from continuing operations |
1,362,507 |
1,649,203 |
1,792,823 |
474,035 |
1,964,104 |
2,458,118 |
|
|
|
|
|
|
|
|
|
Discontinued
operations |
|
|
|
|
|
|
|
Loss after
tax for the year from discontinued operations |
- |
- |
- |
- |
- |
- |
|
Profit
for the year |
1,362,507 |
1,649,203 |
1,792,823 |
474,035 |
1,964,104 |
2,458,118 |
5) Horizontal
analysis
Horizontal analysis is a
financial analysis technique used to evaluate a company’s performance over
time. By comparing prior period financial results with more current financial results,
a company is able to spot the direction of change in account balances and the
magnitude in which that change has occurred.
Dollar (rupee) change = analysis period amount – base
period amount
Percent change = (dollar change /base period amount) *
100%
5.1) Horizontal Analysis of Financial Position
5.11) Rupee change
|
2018 |
2019 |
2020 |
2021 |
2022 |
|
|
Assets |
|
|
|
|
|
|
Non-current
assets |
|
|
|
|
|
|
Property,
plant and equipment |
94,384 |
29,511 |
-12,212 |
-2,727 |
84,146 |
|
Investment
properties |
0 |
0 |
-7,424 |
229,306 |
1,225,185 |
|
Right-of-use
assets |
-3,449 |
0 |
0 |
-52,490 |
-52,490 |
|
Intangible
assets |
0 |
0 |
0 |
0 |
0 |
|
Consumable
biological assets |
0 |
0 |
0 |
0 |
0 |
|
Investments
in subsidiaries |
40,400 |
-13,499 |
-25,000 |
396,760 |
280,000 |
|
Investment
in associates |
0 |
0 |
0 |
0 |
0 |
|
Other
non-current financial assets |
180,634 |
461,930 |
-197,754 |
162,661 |
532,413 |
|
Deferred
tax assets |
0 |
0 |
0 |
6,833 |
4,151 |
|
Total
non-current assets |
311,969 |
473,557 |
123,244 |
740,343 |
2,073,405 |
|
Current
assets |
|
|
|
|
|
|
Inventories |
0 |
0 |
0 |
0 |
7,701 |
|
Produce
on bearer biological assets |
0 |
0 |
0 |
0 |
0 |
|
Trade
and other receivables |
50,965 |
249,689 |
-84,829 |
-22,750 |
-116,139 |
|
Loans
and advances |
0 |
0 |
0 |
0 |
0 |
|
Tax receivables |
3,972 |
-1,997 |
0 |
0 |
0 |
|
Amounts
due from subsidiaries |
-469,663 |
1,164,289 |
215,887 |
695,563 |
1,014,475 |
|
Other
current financial assets |
0 |
0 |
0 |
0 |
0 |
|
Cash and short-term
deposits |
1,543,865 |
601,197 |
-4,210,352 |
-2,916,119 |
258,246 |
|
Total
current assets |
1,129,139 |
2,013,178 |
-4,086,281 |
-2,243,306 |
1,164,283 |
|
Total assets |
1,441,108 |
2,486,735 |
-3,963,037 |
-1,502,963 |
3,237,688 |
|
|
|
|
|
|
|
|
Equity
and liabilities |
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
Stated capital |
0 |
0 |
0 |
0 |
0 |
|
Revenue
reserves |
-599,860 |
40,046 |
489,113 |
-73,934 |
1,233,430 |
|
Statutory
reserve fund |
0 |
0 |
0 |
0 |
0 |
|
Other components of
equity |
-10,844 |
-142,573 |
-197,755 |
127,269 |
-463,143 |
|
Equity
attributable to equity holders of the parent |
-610,704 |
-102,527 |
291,358 |
53,335 |
770,287 |
|
Non-controlling
interests |
0 |
0 |
0 |
0 |
0 |
|
Total
equity |
-610,704 |
-102,527 |
291,358 |
53,335 |
770,287 |
|
Non-current
liabilities |
|
|
|
|
|
|
Interest-bearing
loans and borrowings |
-1,002,644 |
0 |
0 |
0 |
0 |
|
Lease
liabilities on Right-of-use Assets |
0 |
0 |
0 |
-35,674 |
-49,149 |
|
Insurance
provision |
0 |
0 |
0 |
0 |
0 |
|
Provisions |
0 |
0 |
0 |
0 |
0 |
|
Government
grants |
0 |
0 |
0 |
0 |
0 |
|
Employee
benefit liabilities |
0 |
0 |
0 |
3,629 |
-4,051 |
|
Deferred
tax liabilities |
2,648 |
-11,862 |
-6,316 |
-3,759 |
0 |
|
Total
non-current liabilities |
-999,996 |
-2,155,535 |
446,877 |
-35,804 |
-53,200 |
|
Current
liabilities |
|
|
|
|
|
|
Trade
and other payables |
130,891 |
565,391 |
-697,576 |
1,048,432 |
-930,552 |
|
Customer deposits |
0 |
0 |
0 |
0 |
0 |
|
Current
portion of interest-bearing loans and borrowings |
-275,272 |
1,152,931 |
0 |
0 |
0 |
|
Current
portion Lease liabilities on Right-of-use Assets |
0 |
0 |
0 |
11,264 |
13,475 |
|
Amounts
due to subsidiaries |
4,372 |
-4,927 |
3,498 |
9,261 |
103,751 |
|
Income
tax payable |
0 |
0 |
0 |
183,072 |
252,226 |
|
Short term borrowings |
3,191,817 |
3,031,402 |
-1,937,892 |
-2,772,523 |
3,081,701 |
|
Total
current liabilities |
3,051,808 |
4,744,797 |
-4,701,272 |
-1,520,494 |
2,520,601 |
|
Total
liabilities |
2,051,812 |
2,589,262 |
-4,254,395 |
-1,556,298 |
2,467,402 |
|
Total
equity and liabilities |
1,441,108 |
2,486,735 |
-3,963,037 |
-1,502,963 |
3,237,688 |
5.12) Percent Change
|
2018 |
2019 |
2020 |
2021 |
2022 |
|
|
Assets |
|
|
|
|
|
|
Non-current
assets |
|
|
|
|
|
|
Property,
plant and equipment |
100.14% |
13.53% |
-5.60% |
-1.32% |
41.41% |
|
Investment
properties |
0.00% |
0.00% |
-0.61% |
18.89% |
84.90% |
|
Right-of-use
assets |
-0.28% |
0.00% |
0.00% |
-14.36% |
-16.76% |
|
Intangible
assets |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Consumable
biological assets |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Investments
in subsidiaries |
1.06% |
-0.35% |
-0.65% |
10.41% |
6.65% |
|
Investment
in associates |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Other
non-current financial assets |
164.82% |
61.41% |
-26.29% |
29.34% |
74.25% |
|
Deferred
tax assets |
0.00% |
0.00% |
0.00% |
0.00% |
60.75% |
|
Total
non-current assets |
5.95% |
7.86% |
2.04% |
12.04% |
30.09% |
|
Current
assets |
|
|
|
|
|
|
Inventories |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Produce
on bearer biological assets |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Trade
and other receivables |
24.27% |
48.90% |
-16.61% |
-5.34% |
-28.81% |
|
Loans
and advances |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Tax receivables |
79.25% |
-28.58% |
0.00% |
0.00% |
0.00% |
|
Amounts
due from subsidiaries |
-23.94% |
43.83% |
8.13% |
24.22% |
28.43% |
|
Other
current financial assets |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Cash and short-term
deposits |
26.92% |
7.63% |
-53.43% |
-79.46% |
34.27% |
|
Total
current assets |
14.27% |
18.21% |
-36.97% |
-32.20% |
24.64% |
|
Total assets |
10.96% |
14.56% |
-23.20% |
-11.46% |
27.87% |
|
|
|
|
|
|
|
|
Equity
and liabilities |
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
Stated capital |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Revenue
reserves |
-42.84% |
4.77% |
58.20% |
-5.56% |
98.24% |
|
Statutory
reserve fund |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Other components of
equity |
-65.28% |
104.22% |
144.55% |
-38.04% |
223.43% |
|
Equity
attributable to equity holders of the parent |
-18.02% |
-3.83% |
10.89% |
1.80% |
25.50% |
|
Non-controlling
interests |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Total
equity |
-18.02% |
-3.83% |
10.89% |
1.80% |
25.50% |
|
Non-current
liabilities |
|
|
|
|
|
|
Interest-bearing
loans and borrowings |
-31.87% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Lease
liabilities on Right-of-use Assets |
0.00% |
0.00% |
0.00% |
-7.94% |
-11.88% |
|
Insurance
provision |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Provisions |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Government
grants |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Employee
benefit liabilities |
0.00% |
0.00% |
0.00% |
5.64% |
-5.96% |
|
Deferred
tax liabilities |
3.32% |
-16.80% |
-8.95% |
-100.00% |
0.00% |
|
Total
non-current liabilities |
-31.00% |
-3052.78% |
632.89% |
-6.92% |
-11.04% |
|
Current
liabilities |
|
|
|
|
|
|
Trade
and other payables |
47.10% |
58.04% |
-71.60% |
379.01% |
-70.23% |
|
Customer deposits |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Current
portion of interest-bearing loans and borrowings |
-21.28% |
53.11% |
0.00% |
0.00% |
0.00% |
|
Current
portion Lease liabilities on Right-of-use Assets |
0.00% |
0.00% |
0.00% |
46.15% |
37.77% |
|
Amounts
due to subsidiaries |
145.88% |
-201.76% |
143.24% |
155.91% |
682.53% |
|
Income
tax payable |
0.00% |
0.00% |
0.00% |
237.04% |
96.90% |
|
Short term borrowings |
64.31% |
27.10% |
-17.32% |
-29.98% |
47.58% |
|
Total
current liabilities |
46.68% |
33.10% |
-32.80% |
-15.78% |
31.07% |
|
Total
liabilities |
21.01% |
17.97% |
-29.53% |
-15.33% |
28.71% |
|
Total
equity and liabilities |
10.96% |
14.56% |
-23.20% |
-11.46% |
27.87% |
According to the horizontal analysis of the statement
of financial position of Richard Pieris Company PLC, total non-current assets
have gradually increased from 2018 to 2019 but have decreased in 2020 and again
increased in 2021 to 2022. Property plant and equipment indicate a decline from
2019 to 2020. However it drastically increases in 2021. Total current assets have
increased from 2018 to 2019 and remaining three years show same behavior as the
property plant and equipment. Total
assets have increased in first two years but in 2020 and 2021 shows negative
percentages
Total equity has increased throughout the period but
slightly decline in year 2021. And it is recorded the highest increment
(25.50%) in 2022. Deferred tax liabilities show negative percentages from 2019
– 2021. All non-current liabilities percentages are negative except in 2020
compared to the base year. Amounts in due to subsidiaries considerably increase
over the study period from 2019 to 2022. Current portion of interest bearing
loans and borrowings shows a negative percent change (-21.28%) in 2018 and it
drastically increases in 2019 with a positive percent change (53.11%).
5.2) Horizontal Analysis of the Income
statement
5.21) Rupee change
|
|
2018 |
2019 |
2020 |
2021 |
2022 |
|
Total Revenue |
384,857 |
240,298 |
-1,391,746 |
1,418,321 |
530,000 |
|
Cost of sales |
0 |
0 |
0 |
0 |
0 |
|
Gross profit |
384,857 |
240,298 |
-1,391,746 |
1,418,321 |
530,000 |
|
|
0 |
0 |
0 |
0 |
0 |
|
Other operating income |
0 |
0 |
3,164 |
33,270 |
231,086 |
|
Selling and
distribution expenses |
0 |
0 |
0 |
0 |
0 |
|
Administrative
expenses |
57,553 |
139,700 |
-200,120 |
95,547 |
102,699 |
|
Other operating
expenses |
-15691 |
0 |
0 |
0 |
0 |
|
Operating profit |
358,968 |
379,998 |
-1,188,462 |
1,356,044 |
658,387 |
|
Finance costs |
75493 |
241,656 |
-27,506 |
-208,919 |
124,453 |
|
Finance income |
7,468 |
11,277 |
25,543 |
16,195 |
5,844 |
|
Share of profit of an
associate |
0 |
0 |
0 |
0 |
0 |
|
Profit before tax |
274,970 |
149,619 |
-1,135,413 |
1,581,158 |
539,778 |
|
|
|||||
|
Income tax expense |
-11,726 |
5,999 |
183,375 |
91,089 |
45,764 |
|
Profit for the year
from continuing operations |
286,696 |
143,620 |
-1,318,788 |
1,490,069 |
494,014 |
|
|
0 |
0 |
0 |
0 |
0 |
|
Discontinued
operations |
0 |
0 |
0 |
0 |
0 |
|
Loss after tax for the
year from discontinued operations |
0 |
0 |
0 |
0 |
0 |
|
Profit for the year |
286,696 |
143,620 |
-1,318,788 |
1,490,069 |
494,014 |
5.22) Percentage Change
|
|
2018 |
2019 |
2020 |
2021 |
2022 |
|
Total Revenue |
16.66% |
8.19% |
-47.42% |
91.93% |
17.90% |
|
Cost of sales |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Gross profit |
16.66% |
8.19% |
-47.42% |
91.93% |
17.90% |
|
|
|||||
|
Other operating income |
0.00% |
0.00% |
0.00% |
1051.52% |
634.26% |
|
Selling and
distribution expenses |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Administrative
expenses |
10.63% |
30.42% |
-43.57% |
36.86% |
28.95% |
|
Other operating
expenses |
-100.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Operating profit |
20.67% |
15.35% |
-48.01% |
105.38% |
24.91% |
|
Finance costs |
23.79% |
33.68% |
-3.83% |
-30.28% |
25.87% |
|
Finance income |
33.50% |
27.48% |
62.25% |
24.32% |
7.06% |
|
Share of profit of an
associate |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Profit before tax |
20.01% |
8.32% |
-63.12% |
238.34% |
24.05% |
|
|
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Income tax expense |
-100.00% |
100.00% |
3056.76% |
48.10% |
16.32% |
|
Profit for the year
from continuing operations |
21.04% |
8.01% |
-73.56% |
314.34% |
25.15% |
|
|
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Discontinued
operations |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Loss after tax for the
year from discontinued operations |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Profit for the year |
21.04% |
8.01% |
-73.56% |
314.34% |
25.15% |
Total revenue and gross profit have decreased in first
three years and then again increased in 2021.Revenue show negative percent
change in 2020 compared to base year. Gross profit in 2021 shows a significant
increment when compared to base year. Other operating income shows a considerable
increment in 2021. Finance cost shows a negative percent change in 2020 and
2021. Profit
before tax percentage has the highest value in 2021 (238.4%) and the second
highest in 2022(24.05%). Total revenue and gross profit have decreased in first
three years and then again increased in 2021. Administrative expenses show
negative percent change in 2020 and others are positive percent changes.
Richard Pieris & Company shows huge increment in profit after tax from 2020
to 2021.
6) Trend analysis
Trend analysis analyzes
company data over a period of time by focusing on the change in specific line
items within the income statement and balance sheet. Changes are measured in
dollars (rupees) and percentages. Trends over several years can be evaluated by
calculating the trend percentage as the current year divided by the base year.
Trend percent = (Analysis period amount/Base period
amount) *100%
6.1) Trend Analysis of Financial Position
|
|
2018 |
2019 |
2020 |
2021 |
2022 |
|
Total Non Current Assets |
105.95 |
108.53% |
102.04% |
112.04% |
130.09% |
|
Total Current Assets |
114.27 |
122.27% |
63.03% |
67.80% |
124.64% |
|
Total Assets |
110.96 |
117.04% |
76.80% |
88.54% |
127.87% |
|
Total Equity |
81.98 |
96.31% |
110.89% |
101.80% |
125.50% |
|
Total Non Current Liabilities |
69.00 |
3.17% |
732.89% |
93.08% |
88.96% |
|
Total
Current Liabilities |
146.68 |
149.48% |
67.20% |
84.22% |
131.07% |
|
Total
Liabilities |
121.01 |
121.91% |
70.47% |
84.67% |
128.71% |
Graph
01: Trend analysis for the year 2019 - 2023
Total
Non Current Assets have increased from 2018 to 2019 and declined in 2020 and
again it has gradually increased from 2020 to 2022. Total current assets and
total assets show the same pattern of total non-current assets. Total Equity has
gradually increased from 2018 to 2020 and it has dropped in year 2021, however
again it has increased in 2022. According to the graph there is a sudden surge
in total non-current liabilities in year 2020. Total Current Liabilities and Total Liabilities show same pattern as total
non-current assets.
6.2) Trend analysis of Income statement
|
|
2018 |
2019 |
2020 |
2021 |
2022 |
|
Total Revenue |
116.66% |
108.92% |
52.58% |
191.93% |
117.90% |
|
Cost of sales |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Gross profit |
116.66% |
108.92% |
52.58% |
191.93% |
117.90% |
|
|
|
|
|
|
|
|
Other
operating income |
0.00% |
0.00% |
0.00% |
1151.52% |
734.26% |
|
Selling
and distribution expenses |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Administrative
expenses |
110.63% |
76.68% |
56.43% |
136.86% |
128.95% |
|
Other
operating expenses |
50.45% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Operating profit |
119.75% |
118.14% |
51.99% |
205.38% |
124.91% |
|
Finance costs |
119.64% |
150.78% |
96.17% |
69.72% |
125.87% |
|
Finance income |
133.50% |
137.90% |
162.25% |
124.32% |
107.06% |
|
Share
of profit of an associate |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Profit before tax |
121.04% |
109.07% |
36.88% |
338.34% |
124.05% |
|
|
|
|
|
|
|
|
Tax
expense |
0.00% |
0.00% |
3156.76% |
148.10% |
116.32% |
|
Profit for the year |
121.04% |
108.71% |
26.44% |
414.34% |
125.15% |
Graph 02: Trend analysis of the income
statement (2019 – 2022)
According to the graph
there is a sudden surge in tax expense in year 2020 and then decreasing
gradually in 2021 and 2022. Profit for the year has decreased from 2018 to 2020
and then it has increased in 2021 but then again declined in 2022. Revenue shows
the same pattern as profit for the year. Administrative expenses and operating
profit have gradually decreased from 2018 to 2020 and then again it has
increased in 2021.
7) Vertical analysis
Vertical analysis is a
financial statement technique in which each line item is listed as a percentage
of a base figure within the statement. Thus line items on an income statement
can be stated as a percentage of revenue, while line items on a balance sheet
can be stated as a percentage of total assets or total equity and liabilities.
Common size percent = (Analysis amount/Base
amount)*100%
7.1) Vertical analysis of Financial
position
|
2018 |
2019 |
2020 |
2021 |
2022 |
|
|
Assets |
|
|
|
|
|
|
Non-current
assets |
|
|
|
|
|
|
Property,
plant and equipment |
1.29% |
1.28% |
1.57% |
1.75% |
1.93% |
|
Investment
properties |
0.00% |
7.15% |
9.25% |
12.42% |
17.96% |
|
Right-of-use
assets |
8.40% |
0.00% |
2.79% |
2.70% |
1.75% |
|
Intangible
assets |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Consumable
biological assets |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Investments
in subsidiaries |
26.37% |
22.46% |
29.05% |
36.22% |
30.21% |
|
Investment
in associates |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Other
non-current financial assets |
1.99% |
4.40% |
4.23% |
6.17% |
8.41% |
|
Deferred
tax assets |
0.00% |
0.00% |
0.00% |
0.06% |
0.07% |
|
Total
non-current assets |
38.05% |
35.29% |
46.88% |
59.33% |
60.35% |
|
Current
assets |
|
|
|
|
|
|
Inventories |
0.00% |
0.00% |
0.00% |
0.00% |
0.05% |
|
Produce
on bearer biological assets |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Trade
and other receivables |
1.79% |
2.99% |
3.25% |
3.47% |
1.93% |
|
Loans
and advances |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Tax receivables |
0.06% |
0.04% |
0.00% |
0.00% |
0.00% |
|
Amounts
due from subsidiaries |
10.22% |
15.55% |
21.90% |
30.72% |
30.85% |
|
Other
current financial assets |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Cash and short-term
deposits |
49.87% |
46.13% |
27.97% |
6.49% |
6.81% |
|
Total
current assets |
61.95% |
64.71% |
53.12% |
40.67% |
39.65% |
|
Total assets |
100.00% |
100.00% |
100.00% |
100.00% |
100.00% |
|
|
|
|
|
|
|
|
Equity
and liabilities |
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
Stated capital |
13.52% |
11.55% |
15.04% |
16.98% |
13.28% |
|
Revenue
reserves |
5.48% |
4.92% |
10.13% |
10.81% |
16.76% |
|
Statutory
reserve fund |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Other components of
equity |
0.04% |
0.80% |
2.55% |
1.78% |
4.51% |
|
Equity
attributable to equity holders of the parent |
19.04% |
15.67% |
22.62% |
26.01% |
25.53% |
|
Non-controlling
interests |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Total
equity |
19.04% |
15.67% |
22.62% |
26.01% |
25.53% |
|
Non-current
liabilities |
|
|
|
|
|
|
Interest-bearing
loans and borrowings |
14.69% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Lease
liabilities on Right-of-use Assets |
0.00% |
0.00% |
3.43% |
3.56% |
2.45% |
|
Insurance
provision |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Provisions |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Government
grants |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Employee
benefit liabilities |
0.00% |
0.00% |
0.03% |
0.58% |
0.43% |
|
Deferred
tax liabilities |
0.57% |
0.41% |
0.49% |
0.00% |
0.00% |
|
Total
non-current liabilities |
15.25% |
0.41% |
3.94% |
4.15% |
2.88% |
|
Current
liabilities |
|
|
|
|
|
|
Trade
and other payables |
2.80% |
5.70% |
2.11% |
11.41% |
2.66% |
|
Customer deposits |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Current
portion of interest-bearing loans and borrowings |
6.98% |
12.71% |
0.00% |
0.00% |
0.00% |
|
Current
portion Lease liabilities on Right-of-use Assets |
0.00% |
0.00% |
0.19% |
0.31% |
0.33% |
|
Amounts
due to subsidiaries |
0.05% |
0.01% |
0.05% |
0.13% |
0.80% |
|
Income
tax payable |
0.00% |
0.00% |
0.59% |
2.24% |
3.45% |
|
Short term borrowings |
55.88% |
65.49% |
70.50% |
55.76% |
64.35% |
|
Total
current liabilities |
65.71% |
83.92% |
73.43% |
69.84% |
71.59% |
|
Total
liabilities |
80.96% |
84.33% |
77.38% |
73.99% |
74.47% |
|
Total
equity and liabilities |
100.00% |
100.00% |
100.00% |
100.00% |
100.00% |
According to the above table
property, plant and equipment percentage fluctuates 1% – 3% throughout the 5
years. In considering the investment properties, it has gradually increased
over 5 years. Trade and other receivables and amount due in subsidiaries have
gradually increased but trade and other receivables are declined in 2022. Cash
and short term deposits percentage reported the highest values compared with
other asset percentages in 2018 to 2020.
Total current asset
percentage has increased from 2018 to 2019 but again it has declined in 2020. However
it has increased from 2021 to 2022. Total equity percentages are less than 30%
every year while total liabilities percentage has remained more than 70%
throughout the five years. This is not a favorable situation for the company. Total
non-current assets and current assets vary 30% - 70% over 5 years. Stated
capital shows decrease from 2018 to 2019 and it has increased till 2021 and
again decreases in 2022. Revenue reserves shows same pattern as the stated
capital. Short term borrowings show the highest percentage of total equity and
liabilities throughout the 5 years.
7.2) Vertical analysis of Income statement
|
|
2018 |
2019 |
2020 |
2021 |
2022 |
|
Total Revenue |
100.00% |
100.00% |
100.00% |
100.00% |
100.00% |
|
Cost of sales |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Gross profit |
100.00% |
100.00% |
100.00% |
100.00% |
100.00% |
|
|
|
|
|
|
|
|
Other operating income |
0.00% |
0.00% |
0.21% |
1.23% |
7.66% |
|
Selling and
distribution expenses |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Administrative
expenses |
22.23% |
15.65% |
16.80% |
11.98% |
13.10% |
|
Other operating
expenses |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Operating profit |
77.77% |
84.35% |
83.41% |
89.25% |
94.56% |
|
Finance costs |
17.66% |
24.45% |
44.72% |
16.25% |
17.35% |
|
Finance income |
1.10% |
1.40% |
4.32% |
2.80% |
2.54% |
|
Share of profit of an
associate |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Profit before tax |
61.21% |
61.30% |
43.00% |
75.80% |
79.75% |
|
|
|
|
|
|
|
|
Income tax expense |
0.00% |
0.20% |
12.27% |
9.47% |
9.34% |
|
Profit for the year
from continuing operations |
61.21% |
61.09% |
30.72% |
66.33% |
70.41% |
|
|
|
|
|
|
|
|
Discontinued
operations |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Loss after tax for the
year from discontinued operations |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Profit for the year |
61.21% |
61.09% |
30.72% |
66.33% |
70.41% |
In considering the
vertical analysis of the income statement, profit before tax percentage is
almost same in 2018 and 2019. But it is dropped to 43.00% in the year of 2020
and again gradually increased from 2021. Highest profit before percentage is
recorded in the year of 2022 and lowest in 2019. The profit for the year
percentage show similar behavior as the profit before tax percentage.
8) Ratio Analysis
Ratio analysis helps to analyze financial factors like
liquidity and efficiency, solvency, profitability and market.
8.1) Liquidity and efficiency
Liquidity and efficiency
ratios measure a company’s ability to pay off its debt obligations by using the
currents assets. At times of financial crisis, the company can utilize the
assets and sell them for obtaining cash, which can be used for paying off
debts. Common liquidity and efficiency ratios include the following:
·
Current ratio
·
Acid test ratio
·
Accounts receivable turnover
·
Merchandise turnover
·
Days sales uncollected
·
Days sales in inventory
|
Ratio |
2018 |
2019 |
2020 |
2021 |
2022 |
|
Working capital |
-548,537 |
-3,280,156 |
-2,665,165 |
-3,387,977 |
-4,744,295 |
|
Current ratio |
0.94 |
0.77 |
0.69 |
0.58 |
0.53 |
|
Acid test ratio |
0.94 |
0.77 |
0.69 |
0.58 |
0.55 |
|
Account receivable turnover |
11.44 |
7.61 |
2.47 |
7.14 |
10.12 |
|
Merchandise turnover |
0 |
0 |
0 |
0 |
0 |
|
Days sales uncollected |
35.35 |
63.51 |
100.73 |
49.68 |
30.00 |
|
Days sales in inventory |
0 |
0 |
0 |
0 |
0 |
|
Total asset turnover |
0.19 |
0.19 |
0.10 |
0.24 |
0.26 |
Ø Working
capital: This represents current assets financed from long term capital sources
that do not require near term repayment. Working capital helps plan for future
needs and ensure the company has enough cash meet short term obligations. This
is the difference between current assets and current liabilities. Richard Pieris
&Company plc shows negative figures over years. Negative working capital
means the company may have trouble paying suppliers and creditors and
difficulty raising funds to drive business growth.
Ø Current
ratio: Current ratio measures the short term debt paying ability of the
company. To calculate the current ratio of a company, divide a company’s
current assets by its current liabilities. A ratio above 1 indicates company
can meet its short term obligations while below 1 suggests potential liquidity
issues. All values are less than 1 which depicts that the company’s liquidity
position is not good. However current ratios have gradually decreased from 2018
to 2022.
Ø Acid
test ratio: This ratio is like the current ratio but excludes current assets
such as inventories and prepaid expenses that may be difficult to quickly convert
into cash. To calculate the acid test ratio of a company, divide a company’s
quick asset by its current liabilities. A ratio above 1 indicates company has
sufficient quick assets to pay its current liabilities. Company can meets its
short term debt without rely on inventory sales. Acid ratio values of all years
are less than one. So it is not a favorable situation. The current ratios and
acid ratios are same except 2022.
Ø Account receivable
turnover: this ratio measures how many times a company converts its receivables
into cash each year. High AR turnover
ratio means a company can quickly converts its receivables into cash.
. To calculate the AR turnover ratio of a company, divide sales on account by
its average accounts receivable. High AR turnover mean company can very quickly
convert its receivables into cash each year and low AR turnover ratio mean
there are barriers converting its receivables into cash. AR turnover ratios of
Richard Piries Company have decreased from 2018 to 2020 and again have
increased from 2021. In 2018 shows highest AR turnover ratio.
Ø Merchandise turnover: This
ratio measures the number of times merchandise is sold and replaced during the
year. High turnover indicates that a company is selling its inventory quickly.
Short turnover suggests that a company is holding its inventory for a longer
period. To calculate the merchandise turnover, divide cost of goods sold by its
average inventory.
Ø Day’s sales uncollected:
This ratio measures the liquidity of inventory. Shorter days uncollected
indicate that a company is collecting payments more quickly. Longer days sales
collected suggest that a company takes more time to collect payments. From 2018
to 2020 days sales uncollected period has increased. It has again increased
from 2021 to 2022. Lowest number of day’s sales uncollected is recorded in 2022
which means company was able to collect their receivables more quickly. Highest
number of day’s sales uncollected is recorded in 2020 which is 100.73.
Ø Day’s
sales inventory: This ratio measures the liquidity of inventory. Shorter day’s
sales inventory indicates that a company is selling its inventory more quickly.
Longer day’s sales inventory suggests that a company is taking more time to
sell its inventory.
8.2) Solvency
Solvency ratios are referred to as the financial
leverage ratios. Solvency ratio is used to measure a company’s ability to meet
its long term debt obligations. It indicates whether a company’s cash flow is
sufficient to meet its long term liabilities and thus is a measure of its
financial health. Common solvency ratios include the following:
·
Debt ratio
·
Equity ratio
·
Times interest earned
|
Ratio |
2018 |
2019 |
2020 |
2021 |
2022 |
|
Debt ratio |
80.96% |
84.33% |
77.38% |
73.99% |
74.47% |
|
Equity ratio |
19.04% |
15.67% |
22.62% |
26.01% |
25.53% |
|
Times interest earned |
4.47 |
3.51 |
1.96 |
5.67 |
5.60 |
Ø Debt
ratio: This ratio measures what portion of a company’s assets is contributed by
creditors. The highest debt ratio is recorded in 2019 which is 84.33%. Company shows a debt ratio between 70% - 80%
over 5 years. A debt ratio above 70% is
a high risk and may discourage investment. So this is not a good situation.
Ø Equity
ratio: This ratio measures what portion of a company’s assets is contributed by
owners. The higher the number more capital has been contributed by owners and
less risky thus attracting more investors. A company with low equity ratio is
using more debt than equity, meaning it uses more borrowed capital as funding. In considering the study period in 2019 it
shows 15.67% and it has gradually increased, however it is again dropped to
25.53% in 2022. Companies with an equity ratio of more than 50% are preferred
by investors and creditors. In this company equity ratios are less than 50% in
all years meaning company is in risky situation.
Ø Time
interest earned: This is the most common measure of the ability of a firm’s
operation to provide protection to the long term creditor. Time inrerest earned
has decreased from 2018 to 2020 and again it has increased in 2021.
8.3) Profitability
Profitability ratios indicate how efficiently a
business will be able to generate revenues and profits through its operations. Common
profitability financial ratios include the following:
·
Profit margin
·
Gross margin
·
Return on assets
·
Return on common shareholders’ equity
·
Book value per common share
·
Basic earnings per share
|
Ratio |
2018 |
2019 |
2020 |
2021 |
2022 |
|
Profit margin |
61.21% |
61.09% |
30.72% |
66.33% |
70.41% |
|
Gross margin |
100.00% |
100.00% |
100.00% |
100.00% |
100.00% |
|
Return on total assets |
11.89% |
11.32% |
6.39% |
15.88% |
18.57% |
|
Return on common shareholders’
equity |
53.47% |
65.73% |
16.80% |
65.59% |
72.17% |
|
Book value per common
share |
1.37 |
1.32 |
1.46 |
1.48 |
1.86 |
|
Basic earning per
share |
1.32 |
0.99 |
0.56 |
2.21 |
3.38 |
Ø Profit
margin: This ratio describes a company’s ability to earn a net income from
sales. Higher profit margin means company generates more profits from its
sales. Lower profit margin means Company generates less profit from its sales.
Highest profit margin is recorded in 2022 which is 70.41% and lowest is 30.72%
in year 2020.
Ø Gross
margin: This ratio measures the amount remaining from 1 rupee in sales that is
left to cover operating expenses and a profit after considering cost of sales.
This value should be high for a company to survive.
Ø Return on total assets:
This ratio is generally considered the best overall measure of a company’s
profitability. The highest value is recorded in 2022 and lowest in 2020. The
ratio is gradually increasing from 2020 to 2022.
Ø Return on common shareholders’
equity: This measure indicates how well the company employed the owners’
investment to earn income. The ratio is increasing from 2020 to 2022 which is
favorable for the investors to invest on this company in the future.
Ø Book value per common
share: This ratio measures liquidation at reported amount. It attempts to
identify undervalued or overvalued securities.
From 2019 to 2022 book value for common share ratios have increased
gradually.
Ø Basic earnings per
share: This measure indicates how much income was earned for each share of
common stock outstanding. Basic earnings per share of Richard Pieris company
has decreased from 2018 to 2020, but after 2021 it has increased, so it is a
good sign to company.
8.4) Market
Market value ratios are used to evaluate the share
price of a company’s stock. Common market value ratio includes the following:
·
Price Earnings ratio
·
Dividend yield
|
ratio |
2018 |
2019 |
2020 |
2021 |
2022 |
|
price earnings ratio |
9.7 |
9.29 |
13.93 |
7.60 |
3.93 |
|
dividend yield |
8.59 |
9.24 |
0 |
5.95 |
4.51 |
Ø Price
Earnings ratio: This measure is used by investors as a general guideline in
gauging stock values. Generally the higher the price earnings ratio, the more
opportunity a company has for growth. When considering price earnings ratio of
this company it shows significant increase from 2018 to 2020 and again decreases
from 2021 to 2022. This is not a good condition for the company as it indicates
that the investors aren’t very confident about the company’s prospects
Ø Dividend
yield: this ratio identifies the return, in terms of cash dividends, on the
current market price stock. It increase from 2018 to 2019 and again decrease
from 2021 to 2022.
9) Z score bankruptcy model
The Z score model for predicting the probability of
bankruptcy was first introduced in 1968 by Edward I. Altman. This model
forecasted relatively accurately up to 2 years before bankruptcy occurred by
considering the z score value of enterprises.
. The original Z score formula is:
Z = 1.2X1 + 1.4X2 + 3.3X3
+ 0.6X4 + 0.999X5
X1 = Working capital / Total Assets
X2\ = Retained Earnings / Total Assets
X3 = Earnings before interest and taxes /
Total assets
X4 = Market value of equity / Total
liabilities
X5 = Sales / Total Assets
Where z – score of greater than 2.99 falls into the
“safe zone”, those having a z below 1.80 are “distress zone”. The area between
1.80 and 2.99 is defined as the “grey zone”.
|
|
2018 |
2019 |
2020 |
2021 |
2022 |
|
X1 |
-0.04 |
-0.19 |
-0.20 |
-0.29 |
-0.32 |
|
X2 |
0.00 |
0.01 |
0.03 |
0.02 |
0.05 |
|
X3 |
0.15 |
0.15 |
0.10 |
0.23 |
0.23 |
|
X4 |
2.20 |
1.30 |
1.56 |
3.98 |
2.45 |
|
X5 |
0.18 |
0.17 |
0.12 |
0.25 |
0.24 |
|
Z Score |
1.94 |
1.22 |
1.19 |
3.09 |
2.14 |
Z score values are lower than 1.80 means that the
company is in financial distress and with a high probability of going bankrupt.
In the year of 2021 shows a score of greater than 2.99 means that company is in
a safe zone is unlikely to file bankruptcy. 2018, 2019, 2020 and 2022 show Z
score of between 1.8 and 2.99 means that the company is in a grey area and with
a moderate chance of filing for bankruptcy.
10) Conclusion and Recommendations
Richard Pieris &
Company PLC shows negative working capital over years. There are several
strategies can be followed for that. They are increasing cash flow, secure
short term financing, reducing inventory and increase sales. Current ratio is
gradually decreasing over 5 years. In order to increase current ratio to
greater than 1 company need more current assets relative to current
liabilities. Some strategies can be suggested to improve it such as increase
current asset by increasing cash reserves, boosting account receivables,
managing inventory efficiently. In addition to that current liabilities can be
reduced by negotiating better payment terms, reducing short term debt and
minimizing accrued expenses. Richard Pieris & Company is recorded high
profit margin in last two years which is a positive sign for the company.
Richard Pieris & Company
PLC shows high debt ratios which are high risky and may discourage investment.
In order to reduce debt ratio company can reduce expenses, increasing revenue,
and restructuring debt to make it more manageable. In this company equity ratios are less than
50% in all years meaning company is in risky situation. One of the ways to
improve the equity ratio is to increase the value of a company’s assets. This
can be accomplished by achieving a higher amount of sales and net profit.
Price earnings ratio has
decreased significantly last year (2022) compared to other years. Generally the higher the price earnings
ratio, the more opportunity a company has for growth. To increase the P/E ratio
of a company, it is required to improve investor sentiment and profitability.
Some strategies are diversifying revenue streams, innovate and expand, effective
cost management. Further, dividend policy also helps to increase P/E ratio. A
consistent dividend policy can attract income focused investors and potentially
increase the P/E ratio.
Investors use Z score
bankruptcy model to make a decision on whether to buy or sell a company’s
stock, depending on the assessed financial strength. According to Z score, a
company can identify weaknesses of the company. After identifying weaknesses, company should take corrective actions to improve
financial ratios. In 2021, company shows a Z score closer to 3, investors may
consider purchasing the company stock since there is minimal risk of the
business going bankrupt in the next two years. Last year shows 2.14 which mean
company is in grey area so the company should develop a comprehensive strategic
plan to strengthen the company’s financial position.
References
1) Touching
The Lives Of Sri Lankans - Largest and Leading Manufacturer, Importer and
Exporter in Sri lanka. https://www.arpico.com/contents/investor_relations_fr.php
/ Accessed 15 Oct 2023
2) Current
Ratio Explained With Formula and Examples https://www.investopedia.com/terms/c/currentratio.asp/ Accessed
18 Oct 2023
3) Altman’s
Z-Score Model - Overview, Formula, Interpretation https://corporatefinanceinstitute.com/resources/commercial-lending/altmans-z-score-model/#:~:text=A%20Z%2Dscore%20that%20is,unlikely%20to%20file%20for%20bankruptcy./Accessed
18 Oct 2023
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