Lanka tiles PLC

 

Introduction – Lanka tiles PLC

Lanka Tiles is a well-known Sri Lankan company that specializes in the manufacturing and distribution of ceramic and porcelain tiles. It was established in 1984 and it has since become one of the leading tile manufacturers in Sri Lanka. Company provides a broad selection of porcelain and ceramic tiles for use in industrial, commercial, and residential environments. Their product line consists of outdoor tiles, ornamental tiles, wall tiles, and floor tiles. To accommodate the various needs of their customers, they frequently use cutting-edge designs and patterns.

 

Financial statement analysis

This report analyze financial statements of Lanka Tiles PLC from year 2018 to 2022. Financial statement analysis is use for decision making purposes.

 

Horizontal analysis

A company's financial information is compared with its historical financial data from previous reporting periods in a horizontal analysis. The basic goal is to compare the figures to historical data in order to determine whether they are high or low, which can be utilized to look into potential causes for concern.

 

Income statement – Table 01

P & L	2022 Rs	2021 Rs	2020 Rs	2019 Rs	2018 Rs
Revenue	14,591,620,000	12,626,485,000	6,694,824,000	7,008,992,000	6,126,307,000
Cost of sales	(7,982,698,000)	(7,880,382,000)	(4,278,797,000)	(5,002,702,000)	(3,747,180,000)
Gross profit	6,608,922,000	4,746,103,000	2,416,027,000	2,006,290,000	2,379,127,000
Other income	94,420,000	42,624,000	26,833,000	25,328,000	19,447,000
Distribution expense	(1,583,831,000)	(1,462,202,000)	(1,028,280,000)	(1,037,762,000)	(890,109,000)
Administrative expenses	(573,381,000)	(490,572,000)	(388,677,000)	(403,520,000)	(404,447,000)
Finance cost	(88,126,000)	(223,839,000)	(334,565,000)	(22,077,000)	(21,768,000)
Finance income	174,016,000	16,366,000	273,000	7,916,000	110,344,000
Other operating expenses	-	(59,962,000)	-	-	-
Share of Net Profit of Associate	402,764,000	286,545,000	82,602,000	7,888,000	165,383,000
Profit before tax	5,034,785,000	2,855,063,000	774,213,000	573,539,000	1,352,743,000
Income tax expense	(913,924,000)	(410,388,000)	(193,316,000)	(169,925,000)	(348,721,000)
Profit for the year	4,120,860,000	2,444,675,000	580,897,000	403,614,000	1,004,022,000

 

 

Horizontal Analysis of Statement of Comprehensive Income Statement – table 02 (Base year 2018)

Profit & loss	2022	2021	2020	2019
revenue	138.17%	106.10%	9.28%	14.41%
Cost of sales	113.03%	110.30%	14.19%	33.50%
Gross profit	177.78%	99.49%	1.55%	(15.67%)
Other income	385.52%	119.18%	37.98%	30.24%
Distribution expenses	77.93%	64.27%	15.52%	16.58%
Administrative expenses	41.77%	21.29%	(3.89%)	(0.23%)
Finance cost	304.84%	928.29%	1436.95%	1.42%
Finance income	57.70%	(85.16%)	(99.75%)	(92.82%)
Profit before tax	272.19%	111.05%	(42.76%)	(57.60%)
Income tax expense	162.08%	17.68%	(44.56%)	(51.27%)
Profit for the year	310.43%	143.48%	(42.14%)	(59.80%)

 

Gross profit has increased rapidly from 2019 to 2022. Profit after tax has decreased in 2019 and 2020 compared to 2018 but after that in 2021 & 2022 it has increased rapidly, which indicates currently organization is in healthy financial conditions.

 

Horizontal Analysis of Statement of Financial Position – table 03 (Base year 2018)

SOFP	2022	2021	2020	2019
Assets
Non current assets
Property, plant and equipment	67.84%	65.31%	54.96%	48.95%
Investments in subsidiaries	4229.41%	-	-	-
Investments in associates	13675.45%	37.42%	7.73%	(1.04%)
Total non current assets	73.04%	61.00%	47.83%	38.84%
Current assets
inventories	27.14%	19.34%	145.69%	55.20%
Trade and other receivables	(39.89%)	(32.25%)	(33.75%)	18.91%
Cash and cash equivalents	1033.63%	433.89%	(85.03%)	(69.41%)
Total current assets	114.89%	61.17%	68.12%	28.52%
Total assets	91.77%	61.08%	56.91%	34.22%
Equity and liabilities
Stated capital	0%	0%	0%	0%
reserves	32.30%	32.91%	0%	0%
Retained earnings	100.21%	51.97%	17.31%	5.17%
Total equity	75.30%	41.85%	12.04%	3.59%
Non current liabilities
Deferred tax liabilities	34.61%	16.75%	22.47%	12.79%
Employee benefit liability	(4.43%)	19.37%	8.81%	3.69%
Total non current liabilities	112.65%	136.42%	175.83%	177.12%
Current liabilities
Trade & other payables	98.06%	108.20%	58.31%	100.97%
Current tax liabilities	528.84%	462.76%	(95.24%)	(100%)
Total current liabilities	185.91%	130.71%	264.42%	127.08%
Total equity and liabilities	91.77%	61.08%	56.91%	34.22%

 

For the period of 2019 to 2022 total assets rapidly growing and it implies increasing healthy financial status of the organization. Total equity has been increased from 3.59% to 75.30% over the years and it’s a good indication of the stability of the organization. Total liabilities have also increased from 2020 to 2022 mainly due to the increase in tax liabilities. Cash and cash equivalents show a considerable increase in 2022 compared to other years. current tax liabilities show negative values in 2019,2020 years but after that it has been increased.

 

Trend analysis

Comparing company data over time to find any recurring patterns or trends is the practice of trend analysis. Trend analysis aids in understanding the performance of the firm and forecasts where existing business operations and practices will go.

Income statement – table 04

P & L	2022 Rs	2021 Rs	2020 Rs	2019 Rs	2018 Rs
Revenue	14,591,620,000	12,626,485,000	6,694,824,000	7,008,992,000	6,126,307,000
Cost of sales	(7,982,698,000)	(7,880,382,000)	(4,278,797,000)	(5,002,702,000)	(3,747,180,000)
Gross profit	6,608,922,000	4,746,103,000	2,416,027,000	2,006,290,000	2,379,127,000
Other income	94,420,000	42,624,000	26,833,000	25,328,000	19,447,000
Distribution expense	(1,583,831,000)	(1,462,202,000)	(1,028,280,000)	(1,037,762,000)	(890,109,000)
Administrative expenses	(573,381,000)	(490,572,000)	(388,677,000)	(403,520,000)	(404,447,000)
Finance cost	(88,126,000)	(223,839,000)	(334,565,000)	(22,077,000)	(21,768,000)
Finance income	174,016,000	16,366,000	273,000	7,916,000	110,344,000
Other operating expenses	-	(59,962,000)	-	-	-
Share of Net Profit of Associate	402,764,000	286,545,000	82,602,000	7,888,000	165,383,000
Profit before tax	5,034,785,000	2,855,063,000	774,213,000	573,539,000	1,352,743,000
Income tax expense	(913,924,000)	(410,388,000)	(193,316,000)	(169,925,000)	(348,721,000)
Profit for the year	4,120,860,000	2,444,675,000	580,897,000	403,614,000	1,004,022,000

 

Trend analysis of income statement – table 05

Profit & loss	2022	2021	2020	2019	2018
revenue	238.18%	206.10%	109.28%	114.40%	100%
Cost of sales	213.03%	210.30%	114.18%	133.50%	100%
Gross profit	277.78%	199.49%	101.55%	84.32%	100%
Other income	485.52%	219.18%	137.98%	130.24%	100%
Distribution expenses	177.93%	164.27%	115.52%	116.58%	100%
Administrative expenses	141.77%	121.29%	96.10%	99.77%	100%
Finance cost	404.84%	1028.29%	1536.95%	101.42%	100%
Finance income	157.70%	14.83%	0.24%	7.17%	100%
Profit before tax	372.19%	211.05%	57.23%	42.39%	100%
Income tax expense	262.08%	117.68%	55.43%	48.72%	100%
Profit for the year	410.43%	243.48%	57.85%	40.19%	100%

 

In the trend analysis profit for the years 2019,2020 decreased compared to 2018 but in 2022 it has increased by 410.43%, which is a significant increase and  which showed good indication in the profitability of the company. Company sales have increased in each year generating higher revenues. Other income largely increased in 2022. Administrative expenses decreased in 2019 and 2020 but again increased in 2021 and 2022.

 

 

Statement of financial position – table 06

SOFP	2022 Rs	2021 Rs	2020 Rs	2019 Rs	2018 Rs
Assets
Non current assets
Property, plant and equipment	6,471,179,000	6,373,888,000	5,974,804,000	5,743,130,000	3,855,576,000
Investments in subsidiaries	270,242,000	6,242,000	6,242,000	6,242,000	6,242,000
Investments in associates	1,501,249,000	1,283,017,000	1,005,793,000	923,924,000	933,633,000
Total non current assets	8,317,018,000	7,738,320,000	7,105,620,000	6,673,296,000	4,806,349,000
Current assets
inventories	2,473,794,000	2,322,116,000	4,780,594,000	3,019,769,000	1,945,726,000
Trade and other receivables	910,523,000	1,026,380,000	1,003,601,000	1,801,542,000	1,514,996,000
Cash and cash equivalents	4,919,853,000	2,316,965,000	64,953,000	132,717,000	433,975,000
Total current assets	8,369,338,000	6,277,304,000	6,548,039,000	5,005,598,000	3,894,697,000
Total assets	16,686,356,000	14,015,624,000	13,653,659,000	11,678,894,000	8,701,046,000
Equity and liabilities
Stated capital	900,968,000	900,968,000	900,968,000	900,968,000	900,968,000
reserves	1,575,310,000	1,582,523,000	1,190,666,000	1,190,666,000	1,190,666,000
Retained earnings	9,567,744,000	7,262,288,000	5,606,252,000	5,025,691,000	4,778,698,000
Total equity	12,044,022,000	9,745,779,000	7,697,886,000	7,117,325,000	6,870,332,000
Non current liabilities
Deferred tax liabilities	853,796,000	740,486,000	776,804,000	715,407,000	634,246,000
Employee benefit liability	158,999,000	198,598,000	181,034,000	172,514,000	166,370,000
Total non current liabilities	1,718,215,000	1,910,290,000	2,228,719,000	2,239,090,000	807,990,000
Current liabilities
Trade & other payables	1,548,770,000	1,628,073,000	1,237,977,000	1,571,590,000	781,972,000
Current tax liabilities	293,822,000	262,947,000	2,222,000	-	46,724,000
Total current liabilities	2,924,119,000	2,359,555,000	3,727,054,000	2,322,479,000	1,022,724,000
Total equity and liabilities	16,686,356,000	14,015,624,000	13,653,659,000	11,678,894,000	8,701,046,000

 

 

Trend analysis of statement of financial position – table 07

SOFP	2022	2021	2020	2019	2018
Assets
Non current assets
Property, plant and equipment	167.84%	165.31%	154.96%	148.95%	100%
Investments in subsidiaries	4329.41%	100%	100%	100%	100%
Investments in associates	160.79%	137.42%	107.72%	98.96%	100%
Total non current assets	173.04%	161.00%	147.83%	138.84%	100%
Current assets
inventories	127.14%	119.34%	245.69%	155.20%	100%
Trade and other receivables	60.10%	67.74%	66.24%	118.91%	100%
Cash and cash equivalents	1133.67%	533.89%	14.96%	30.58%	100%
Total current assets	214.89%	161.17%	168.12%	128.52%	100%
Total assets	191.77%	161.08%	156.92%	134.22%	100%
Equity and liabilities
Stated capital	100%	100%	100%	100%	100%
reserves	132.30%	132.91%	100%	100%	100%
Retained earnings	200.21%	151.97%	117.31%	105.16%	100%
Total equity	175.30%	141.85%	112.04%	103.59%	100%
Non current liabilities
Deferred tax liabilities	134.61%	116.75%	122.47%	112.79%	100%
Employee benefit liability	95.57%	119.37%	108.81%	103.69%	100%
Total non current liabilities	212.65%	236.42%	275.83%	277.12%	100%
Current liabilities
Trade & other payables	198.06%	208.20%	158.31%	200.97%	100%
Current tax liabilities	628.84%	562.76%	4.75%	-	100%
Total current liabilities	285.91%	230.71%	364.42%	227.08%	100%
Total equity and liabilities	191.77%	161.08%	156.92%	134.22%	100%

 

 

Vertical analysis

By stating all amounts as a % of a total amount, all items in the same financial statement can be analyzed vertically to determine the relationship between them. When applying this method on the balance sheet, all of the three major categories of accounts (i.e., assets, liabilities, and equity) are compared to the total assets. When applying this technique to the income statement, each of the expenses is compared to the total sales revenue.

 

Income statement – table 08

P & L	2022 Rs	2021 Rs	2020 Rs	2019 Rs	2018 Rs
Revenue	14,591,620,000	12,626,485,000	6,694,824,000	7,008,992,000	6,126,307,000
Cost of sales	(7,982,698,000)	(7,880,382,000)	(4,278,797,000)	(5,002,702,000)	(3,747,180,000)
Gross profit	6,608,922,000	4,746,103,000	2,416,027,000	2,006,290,000	2,379,127,000
Other income	94,420,000	42,624,000	26,833,000	25,328,000	19,447,000
Distribution expense	(1,583,831,000)	(1,462,202,000)	(1,028,280,000)	(1,037,762,000)	(890,109,000)
Administrative expenses	(573,381,000)	(490,572,000)	(388,677,000)	(403,520,000)	(404,447,000)
Finance cost	(88,126,000)	(223,839,000)	(334,565,000)	(22,077,000)	(21,768,000)
Finance income	174,016,000	16,366,000	273,000	7,916,000	110,344,000
Other operating expenses	-	(59,962,000)	-	-	-
Share of Net Profit of Associate	402,764,000	286,545,000	82,602,000	7,888,000	165,383,000
Profit before tax	5,034,785,000	2,855,063,000	774,213,000	573,539,000	1,352,743,000
Income tax expense	(913,924,000)	(410,388,000)	(193,316,000)	(169,925,000)	(348,721,000)
Profit for the year	4,120,860,000	2,444,675,000	580,897,000	403,614,000	1,004,022,000

 

Vertical analysis of the income statement – table 09

P & L	2022	2021	2020	2019	2018
Revenue	100%	100%	100%	100%	100%
Cost of sales	54.70%	62.41%	63.91%	71.37%	61.16%
Gross profit	45.29%	37.58%	36.08%	28.62%	38.83%
Other income	0.65%	0.33%	0.40%	0.36%	0.31%
Distribution expense	10.85%	11.58%	15.36%	14.80%	14.52%
Administrative expenses	3.93%	3.88%	5.80%	5.75%	6.60%
Finance cost	0.60%	1.77%	4.99%	0.31%	0.35%
Finance income	1.19%	0.13%	0.004%	0.11%	1.80%
Other operating expenses	-	0.47%	-	-	-
Share of Net Profit of Associate	2.76%	2.27%	1.23%	0.11%	2.69%
Profit before tax	34.50%	22.61%	11.56%	8.18%	22.08%
Income tax expense	6.26%	3.25%	2.88%	2.42%	5.69%
Profit for the year	28.24%	19.36%	8.67%	5.75%	16.38%

 

Gross profit margin has remained fairly stable and slightly increased during the last 3 years, while net profit decreased in 2019 and 2020 but rapidly increased during 2021 and 2022 indicating increasing profitability of the company during last 2 years. Other income is less than 1% from sales revenue during the analysis period. Finance income is less than 2% in every year from sales revenue.

 

Vertical analysis – statement of financial position – table10

SOFP	2022	2021
Assets
Non current assets
Property, plant and equipment	38.78%	45.47%
Investments in subsidiaries	1.62%	0.04%
Investments in associates	8.99%	9.16%
Total non current assets	49.84%	55.21%
Current assets
inventories	14.82%	16.56%
Trade and other receivables	5.45%	7.32%
Cash and cash equivalents	29.48%	16.53%
Total current assets	50.15%	44.78%
Total assets	100%	100%
Equity and liabilities
Stated capital	5.40%	6.42%
reserves	9.44%	11.29%
Retained earnings	57.33%	51.81%
Total equity	72.17%	69.53%
Non current liabilities
Deferred tax liabilities	5.11%	5.28%
Employee benefit liability	0.95%	1.41%
Total non current liabilities	10.29%	13.63%
Current liabilities
Trade & other payables	9.28%	11.61%
Current tax liabilities	1.76%	1.87%
Total current liabilities	17.52%	16.83%
Total equity and liabilities	100%	100%

 

This shows that the company has maintained a good percentage of property, plant, and equipment from the total assets. Total equity percentage remains around 70% while the total current liabilities are around 17% which is a good sign of the performance of the company. Also this shows that inventories are quite low from total assets. Trade and other payables are quite low (less than 12%) which is a good remark for the company.

 

Ratio analysis

The ratio analysis approach offers a thorough insight of the company's financial status, performance, and changes in the financial position of organization. Mainly this report will discuss financial ratios on the following topics.

1)      Liquidity and efficiency

2)      Solvency

3)      Profitability

4)      Market

 

 

Liquidity ratios – table 11

Ratio	formula	2022	2021
Current ratio		2.8621	2.6603
Acid test ratio		2.0161	1.6762
Accounts receivable turnover		15.0669 times	13.0378 times
Total asset turnover		0.95 times	0.8225 times
Days’ sales in inventory		113.11 days	107.55 days
Days’ sales uncollected		50.28 days	78.93 days
Merchandise turnover		3.3289	3.2863

 

Liquidity ratios quantify a company's liquidity. They reveal whether a business can use its liquid assets to pay off debts and other liabilities. Current ratio measures the short term debt paying ability of the company. Lanka tiles has obtained the current ratio more than 2 in both years that indicates company is capable to settle their short term liabilities and have good financial conditions.

 

Acid test ratio is a measure of paying current liabilities without inventory. If this is more than 1 means company is strong. In Lanka tiles acid test ratio has increased in 2022 respect to 2021 which means company is stronger to pay debts.

 

Account receivables turn over indicated how much time company convert their receivables into cash during the year. A higher number is better, since it means the company is collecting its receivables more quickly. Lanka tiles has recorded higher number of accounts receivable turnover in 2022 compared to 2021 implies that company is collecting its debt more efficiently in 2022.

 

Merchandise turnover ratio measures the no of times inventory is sold and replaced during the year. In Lanka tiles it’s more than 3 in both 2022 and 2021 implies that they quickly convert the stocks into sales.

 

Total asset turnover measures the efficiency of asset producing sales. The higher the asset turnover ratio, the better the company is performing, in Lanka tiles it is closer to 1 in 2022 indicates company performing well respect to the industry in Sri Lanka.

Days’ sales in inventory measures the liquidation of inventory of particular period of time. Lanka tiles show higher rate but it should be in lower rate for better performance.

 

 

Solvency ratios – table 12

Solvency ratio	formula	2022	2021
Debt ratio		27.82 %	30.46%
Equity ratio		72.18%	69.54%
Times interest earned		48.53	8.35

 

Debt ratio measures the portion of company assets contributed by the creditors.  Lanka Tiles recorded a debt ratio of between 27-31 % in both years which can be considered good.

 

Equity ratio measures what portion of company’s assets are contributed by the owners. Lanka tiles has recorded an equity ratio around 70% in both years. A high equity ratio is good because it means the company is using less debt to finance its assets.

 

Times interest earned has significantly increased in 2022 compared to 2021. A higher ratio indicates less risk to investors and lenders.

 

Profitability ratios – table 13

ratio	formula	2022	2021
Net Profit margin		28.24%	19.36%
Gross profit margin		45.29%	37.58%
Return on total assets		24.24%	17.42%
Return on shareholders’ equity		33.62%	27.44%
Book value per common share		45.41	36.74
Basic earnings per share		15.53	9.22

 

Net profit margin measures how much net income is generated as a percentage of revenues received. Lanka tiles net profit margin increased from 19.36% to 28.24% in 2022 implies that the profitability has increased in 2022 compared to 2021.

Gross margin ratio measures the amount remaining from Rs.1 sales that is left to cover operating expenses and a profit after considering cost of sales. If this ratio is high company doesn’t have to fear on expenses. Here Lanka tiles show high margin of gross profit indicates good financial health.

 

Return on total assets is the best overall measure of the company’s profitability. 17.42% in 2021 has increased to 24.24% in 2022 indicates increase in profitability in 2022. Return on shareholders equity implies how well the company employed the owners’ investments to earn income. In Lanka tiles this value has increased compared to the past year indicating company is generating high profits from its equity investments.

 

Book value per common share indicates a firm’s net asset value on a per share basis. Basic earnings per share also increased in 2022 indicating high profitability of the firm.

 

 

Market ratios – table 14

ratio	formula	2022	2021
Price earnings ratio		3.85 times	4.47 times
Dividend yield		11.72%	7.82%

 

Dividend yield identifies return in terms of cash dividends on the current market price of the stock. higher the value more favorable for the company.

 

Price earnings ratio tells how much paying for each dollar of earning. Higher value is better therefore it has decreased in 2022 compared to 2021. This indicates that there is a possibility that the company stocks are undervalued. Investors can buy the stock at a discounted price, or it can mean a genuine lack of growth potential.

 

 

 

 

 

Altman z score model

 

The Altman Z-Score model is a widely used financial tool that asses the probability of company going bankrupt within specific timeframe.

 

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 = total sales/ total assets

 

Zones of Discrimination:

     Z > 2.99                  -    Safe zone

    1.8 < Z < 2.99         -    Grey zone

    Z<1.80                    -    Distress zone

 

Year	X1	X2	X3	X4	X5	Z score
2022	0.3263276296	0.5733872632	0.3070119084	3.4111176372	0.874464143	5.1277350806
2021	0.2795272619	0.5181565944	0.2196764126	2.5656457471	0.9008863965	4.2251570664
2020	0.2066101841	0.4106043662	0.0812073892	0.0892520766	0.490331859	1.6341554911
2019	0.0842109057	0.305740451	0.0507381182	0.9045553307	0.3594243246	1.598323607
2018	0.3300721545	0.5492096008	0.1579707773	2.8891054949	0.7040885659	4.1231313659

 

year	Working capital	Total assets	Retained earnings	Earnings before interest and taxes	Market value of equity	Total liabilities	Total sales
2022	5,445,219,000	16,686,356,000	9,567,744,000	5,122,911,000	15,835,547,385	4,642,334,000	14,591,620,000
2021	3,917,749,000	14,015,624,000	7,262,288,000	3,078,902,000	10,954,909,665	4,269,845,000	12,626,485,000
2020	2,820,985,000	13,653,659,000	5,606,252,000	1,108,778,000	531,565,108	5,955,773,000	6,694,824,000
2019	2,683,119,000	11,678,894,000	5,025,691,000	595,616,000	3,713,528,700	4,561,569,000	7,008,992,000
2018	2,871,973,000	8,701,046,000	4,778,698,000	1,374,511,000	5,289,125,877	1,830,714,000	6,126,307,000

 

Upon the calculations can identify that company was in “distress zone” in year 2020 and 2019. But after that in 2021 and in 2022 it has been in the “safe zone” which indicates Lanka tiles plc has recovered well to stabilize the organization after the distress period.

 

 

Conclusion

When considering the financial reports total revenue and net income of the company has rapidly increased in last year compared to the previous years indicating good financial health of the company. Furthermore the z score value for the last two years indicates it is in the safe zone which implies the financial stability of the organization.

 

 

References

Lanka Tiles PLC | Integrated. (n.d.). Available at: https://cdn.cse.lk/cmt/upload_report_file/677_1654603926324.pdf.

 

‌ Lanka Tiles PLC Designed for Life. (n.d.). Available at: https://www.lankatiles.com/wp-content/uploads/2022/06/LankaTiles_Annual-Report-2020_21.pdf.

 

‌ Simply Wall St. (n.d.). Lanka Tiles (COSE:TILE.N0000) - Stock Price, News & Analysis. [online] Available at: https://simplywall.st/stocks/lk/capital-goods/cose-tile.n0000/lanka-tiles-shares [Accessed 20 Oct. 2023].

 

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