Tokyo Cement Company (Lanka ) PLC

 

Tokyo Cement Company (Lanka ) PLC

1.       Financial Analysis overview

Financial Analysis is the process of evaluating a company’s financial performance and position. Company financial statements are compared and evaluated annually. Examples of Internal uses are Managers, officers and Internal auditors. They are used by Internal uses and external uses to make better decisions. Examples of External uses are Share holders, lenders and customers. It can be used to compare last year and this year performance, check competitors and company performance and compare company  performance with industry.

There are 4 financial statements in company

·         Income statement - Shows a company revenues and expenses over a period of time.

·         Balance sheet – Shows a company assets, liabilities and equity.

·         Statement of cash flow – Shows how much cash flows company has generated and used over a time period.

·         Statement of changes in Stock holders’ equity – Shows the how much increase or decrease the share holder’s wealth.

 

2.       Company overview

Tokyo cement company (Lanka)PLC  is the first privately owned cement manufacture in Sri Lanka and has made an indelible mark in transforming the country’s construction industry. It was established in 1982 as a joint venture between Japan’s Mitsui Mining Co and Sri Lanka’s St.Anthony’s consolidated, under the leadership of founder chairman late Deshamnya A.Y.S.Gnanam. Today Tokyo cement group is the undisputed market leader in manufacturing high quality cement , concrete and cement based value added products in Sri Lanka. It achieved ISO 14001 and  ISO 9001certification. They delivering superior products for projects that symbolize Sri Lanka’s growth from iconic structures gracing the city skylines to overhear brides, railroads and highway networks.

3.       Evident Matter

Summary of income statements  (2019 – 2023)

	2023	2022	2021	2020	2019
Revenue from contracts with customers	35,665,412,644	32,157,358,637	22,069,354,476	21,511,174,801	22,877,783,623
cost of sales	-24,201,584,961	-27,193,413,071	-17,967,460,666	-16,234,235,506	-19,580,911,923
Gross profit	11,463,827,683	4,963,945,566	4,101,893,810	5,276,939,295	3,296,871,700
Other income	864,948,375	12,846,484	44,016,483	916,806,047	30,510,254
Total revenue	12,328,776,058	4,976,792,050	4,145,910,293	6,193,745,342	3,327,381,954
selling and distribution expenses	-4,355,652,058	-3,217,667,390	-2,709,028,477	-2,795,188,297	-2,256,263,965
Administrative expenses	-1,411,567,833	-947,261,204	-866,236,058	-1,197,113,490	-1,240,075,679
Profit from operations	6,561,556,167	811,863,456	570,645,758	2,201,443,555	167,957,690
Profit on disposal of vessel	-	471,788,684	-	-	-
Dividend income	1,000,000,026	2,009,000,000	1,500,000,000	-	-
Profit before interest and taxation	7,561,556,193	3,292,652,140	2,070,645,758	-	-
Finance income	75,032,801	34,462,604	24,113,092	6,770,228	4,011,579
Finance expenses	-4,291,528,013	-3,957,251,977	-926,780,347	1,418,626,367	-1,193,535,077
Profit/(loss) before taxation	3,345,060,981	-630,137,233	1,167,978,503	789,587,416	-1,358,481,188
Income tax expenses	-1,227,653,162	14,565,562	358,729,649	27,423,303	287,983,135
Profit/(loss) for the year	2,117,407,819	-615,571,671	1,526,708,152	817,010,719	-1,070,498,053

 

Summary of Balance Sheets  (2019 – 2023)

	2023	2022	2021	2020	2019
Assets
Non current assets
Property, plant and equipment	16,009,091,689	13,596,876,523	13,389,934,266	12,600,958,394	9,973,758,580
Intangible assets	18,115,955	25,345,899	34,125,290	52,578,252	72,498,597
Investment in subsidiaries	12,237,177,043	12,237,176,943	12,237,176,943	12,037,176,943	12,637,618,257
Right - of use assets	1,146,209,461	1,197,655,188	1,249,100,914	1,267,736,994	1,101,624,359
Total nun current assets	29,410,594,148	27,057,054,553	26,910,337,413	25,958,450,583	23,785,499,793
Current assets
Inventories	3,856,339,547	3,866,426,855	2,245,256,668	2,207,629,543	2,300,371,588
Trade and other receivables	3,609,467,702	3,186,707,776	2,905,862,385	3,198,109,286	3,722,273,239
Amount due from subsidiaries	683,815,191	547,442,633	589,094,067	806,981,944	679,454,386
Financial assets at a amortised cost	-	-	-	-	-
Cash and cash equivalents	1,237,821,538	4,072,997,493	240,976,328	205,616,726	153,348,023
Total current assets	9,387,443,978	11,673,574,757	5,981,189,448	6,418,337,499	6,855,447,236
Total assets	38,798,038,126	38,730,629,310	32,891,526,861	32,376,788,082	30,640,947,029
Equity and liabilities
Equity
Stated capital	4,239,611,750	4,239,611,750	4,239,611,750	4,239,611,750	4,239,611,750
Retained earnings	12,918,376,936	10,829,500,332	12,242,136,533	11,326,182,215	9,468,107,538
Equity attributable to the owners of the parent	17,157,988,686	15,069,112,082	16,481,748,283	15,565,793,965	13,707,719,288
Non-controlling interest	-	-	-	-	-
Total equity	17,157,988,686	15,069,112,082	16,481,748,283	15,565,793,965	13,707,719,288
Non-current liabilities
Interest bearing borrowings	3,427,917,300	3,750,000,000	3,450,000,000	6,720,751,206	4,058,450,000
Deferred tax liabilities	1,553,803,096	504,266,458	884,225,578	1,513,986,710	1,220,869,879
Retirement benefit obligations	271,092,394	216,176,559	262,726,645	217,792,737	153,239,552
Lease creditors	191,480,010	213,870,467	246,673,204	250,635,765	16,663,308
Total non-current liabilities	5,444,292,800	4,684,313,484	4,843,625,427	8,703,166,418	5,449,222,739
Current liabilities
Trade and other payables	5,214,879,097	11,036,387,426	4,441,816,788	1,586,777,310	3,669,913,511
Tax payables	160,682,879	126,968,404	-	-	-
Amount due to subsidiaries	4,509,697,138	3,229,357,185	2,963,094,710	1,149,018,163	1,001,530,793
Interest bearing borrowings	5,763,176,545	3,934,567,315	3,965,770,000	4,616,831,279	5,996,646,424
Lease creditors	22,706,392	32,870,641	35,002,488	34,461,157	4,585,012
Bank overdrafts	524,614,589	617,052,773	160,469,165	720,739,790	811,329,262
Total current liabilities	16,195,756,640	18,977,203,744	11,566,153,151	8,107,827,699	11,484,005,002
Total equity and liabilities	38,798,038,126	38,730,629,310	32,891,526,861	32,376,788,082	306,409,470,029
Net assets value per share	42.79	37.58	41.11	38.82	34.19

 

4.       Analysis Overview

This report contains a comparative financial analysis of company performance. The Analysis is done using the following techniques.

        I.            Horizontal Analysis

Comparing a company’s financial condition and performance across time. It is conducted by analyzing the value of line items across 2 or more years.

It is uses to identify change in values of each year compared to the base year.

·         Rupee change = Analysis period amount – Base period amount

·         Percent change = Rupee change *100/Base period amount

Horizontal Analysis Income statement

	Rupee change		Percent change
	2023	2022	2023	2022
Revenue from contracts with customers	3,508,054,007	10,088,004,161	10.91%	45.71%
cost of sales	2,991,828,110	-9,225,952,405	-11.00%	51.35%
Gross profit	6,499,882,117	862,051,756	130.94%	21.02%
Other income	852,101,891	-31,169,999	6632.96%	-70.81%
	7,351,984,008	830,881,757	147.73%	20.04%
selling and distribution expenses	-1,137,984,668	-508,638,913	35.37%	18.78%
Administrative expenses	-464,306,629	-81,025,146	49.02%	9.35%
Profit from operations	5,749,692,711	241,217,698	708.21%	42.27%
Profit on disposal of vessel		-	-
Dividend income	-1,008,999,974	509,000,000	-50.22%	33.93%
Profit before interest and taxation	4,268,904,053	1,222,006,382	129.65%	59.02%
Finance income	40,570,197	10,349,512	117.72%	42.92%
Finance expenses	-334,276,036	-3,030,471,630	8.45%	326.99%
Profit/(loss) before taxation	3,975,198,214	-1,798,115,736	-630.85%	-153.95%
Income tax expenses	-1,242,218,724	-344,164,087	-8528.46%	-95.94%

 

Horizontal Analysis of Balance sheet

	Rupee change		Percent Change
	2023	2022	2023	2022
Assets
Non current assets
Property, plant and equipment	2,412,215,166	206,942,257	17.74%	1.55%
Intangible assets	-7,229,944	-8,779,391	-28.53%	-25.73%
Investment in subsidiaries	100	0	0.00%	0.00%
Right - of use assets	-51,445,727	-51,445,726	-4.30%	-4.12%
Total nun current assets	2,353,539,595	146,717,140	8.70%	0.55%
Current assets
Inventories	-10,087,308	1,621,170,187	-0.26%	72.20%
Trade and other receivables	422,759,926	280,845,391	13.27%	9.66%
Amount due from subsidiaries	136,372,558	-41,651,434	24.91%	-7.07%
Financial assets ata amortised cost
Cash and cash equivalants	-2,835,175,955	3,832,021,165	-69.61%	1590.21%
Total current assets	-2,286,130,779	5,692,385,309	-19.58%	95.17%
Total assets	67,408,816	5,839,102,449	0.17%	17.75%
Equity and liabilities
Equity
Stated capital	0	0	0.00%	0.00%
Retained earnings	2,088,876,604	-1,412,636,201	19.29%	-11.54%
Equity attributable to the owners of the parent	2,088,876,604	-1,412,636,201	13.86%	-8.57%
Non-controlling interest
Total equity	2,088,876,604	-1,412,636,201	13.86%	-8.57%
Non-current liabilities
Interest bearing borrowings	-322,082,700	300,000,000	-8.59%	8.70%
Deferred tax liabilities	1,049,536,638	-379,959,120	208.13%	-42.97%
Retirement benefit obligations	54,915,835	-46,550,086	25.40%	-17.72%
Lease creditors	-22,390,457	-32,802,737	-10.47%	-13.30%
Total non-current liabilities	759,979,316	-159,311,943	16.22%	-3.29%
Current liabilities
Trade and other payables	-5,821,508,329	6,594,570,638	-52.75%	148.47%
Tax payables	33,714,475	-	26.55%
Amount due to subsidiaries	1,280,339,953	266,262,475	39.65%	8.99%
Interest bearing borrowings	1,828,609,230	-31,202,685	46.48%	-0.79%
Lease creditors	-10,164,249	-2,131,847	-30.92%	-6.09%
Bank overdrafts	-92,438,184	456,583,608	-14.98%	284.53%
Total current liabilities	-2,781,447,104	7,411,050,593	-14.66%	64.08%
Total equity and liabilities	67,408,816	5,839,102,449	0.17%	17.75%
Net assets value per share	5.21	-3.53	13.86%	-8.59%

 

Ø  Trend Analysis

This is a part of horizontal analysis and do for 5 or 10 years of time period to reveal pattern in data covering successive periods.

Trend Analysis = Analysis period amount *100/Base period amount

Trend Analysis of Income statement

	2023	2022	2021	2020	2019
Revenue from contracts with customers	155.90%	140.56%	96.47%	94.03%	100.00%
cost of sales	123.60%	138.88%	91.76%	82.91%	100.00%
Gross profit	347.72%	150.57%	124.42%	160.06%	100.00%
Other income	2834.94%	42.11%	144.27%	3004.91%	100.00%
	370.52%	149.57%	124.60%	186.14%	100.00%
selling and distribution expenses	193.05%	142.61%	120.07%	123.89%	100.00%
Administrative expenses	113.83%	76.39%	69.85%	96.54%	100.00%
Profit from operations	3906.67%	483.37%	339.76%	1310.71%	100.00%
Profit on disposal of vessel
Dividend  income
Profit before interest and taxation
Finance income	1870.41%	859.08%	601.09%	168.77%	100.00%
Finance expenses	359.56%	331.56%	77.65%	-118.86%	100.00%
Profit/(loss) before taxation	-246.24%	46.39%	-85.98%	-58.12%	100.00%
Income tax expenses	-426.29%	5.06%	124.57%	9.52%	100.00%
Profit/(loss) for the year	-197.80%	57.50%	-142.62%	-76.32%	100.00%

 

Trend Analysis of Balance sheet

	2023	2022	2021	2020	2019
Assets
Non current assets
Property, plant and equipment	160.51%	136.33%	134.25%	126.34%	100.00%
Intangible assets	24.99%	34.96%	47.07%	72.52%	100.00%
Investment in subsidiaries	96.83%	96.83%	96.83%	95.25%	100.00%
Right - of use assets	104.05%	108.72%	113.39%	115.08%	100.00%
Total nun current assets	123.65%	113.75%	113.14%	109.14%	100.00%
Current assets
Inventories	167.64%	168.08%	97.60%	95.97%	100.00%
Trade and other receivables	96.97%	85.61%	78.07%	85.92%	100.00%
Amount due from subsidiaries	100.64%	80.57%	86.70%	118.77%	100.00%
Financial assets at a amortised cost	-
Cash and cash equivalents	807.20%	2656.05%	157.14%	134.09%	100.00%
Total current assets	136.93%	170.28%	87.25%	93.62%	100.00%
Total assets	126.62%	126.40%	107.35%	105.67%	100.00%
Equity and liabilities
Equity
Stated capital	100.00%	100.00%	100.00%	100.00%	100.00%
Retained earnings	136.44%	114.38%	129.30%	119.62%	100.00%
Equity attributable to the owners of the parent	125.17%	109.93%	120.24%	113.55%	100.00%
Non-controlling interest	-	-	-
Total equity	125.17%	109.93%	120.24%	113.55%	100.00%
Non-current liabilities
Interest bearing borrowings	84.46%	92.40%	85.01%	165.60%	100.00%
Deferred tax liabilities	127.27%	41.30%	72.43%	124.01%	100.00%
Retirement benefit obligations	176.91%	141.07%	171.45%	142.13%	100.00%
Lease creditors	1149.11%	1283.48%	1480.34%	1504.12%	100.00%
Total non-current liabilities	99.91%	85.96%	88.89%	159.71%	100.00%
Current liabilities
Trade and other payables	142.10%	300.73%	121.03%	43.24%	100.00%
Tax payables	-	-	-	-
Amount due to subsidiaries	450.28%	322.44%	295.86%	114.73%	100.00%
Interest bearing borrowings	96.11%	65.61%	66.13%	76.99%	100.00%
Lease creditors	495.23%	716.92%	763.41%	751.60%	100.00%
Bank overdrafts	64.66%	76.05%	19.78%	88.83%	100.00%
Total current liabilities	141.03%	165.25%	100.72%	70.60%	100.00%
Total equity and liabilities	12.66%	12.64%	10.73%	10.57%	100.00%
Net assets value per share	125.15%	109.92%	120.24%	113.54%	100.00%

 

      II.            Vertical Analysis

 Comparing a company’s financial condition and performance to a base amount. It analysis the vertical effect the line items have on other parts of the business and its proportions.

In the Income statement every items described as a proportion of total revenue.

In Balance sheet every items under assets described as a proportion of total assets and every items under equity and liabilities described as a proportion of total equity and liabilities.

Common size percent = Analysis amount *100/Base amount

Vertical Analysis of Income statement

	2023	2022
Revenue from contracts with customers	100.00%	100.00%
cost of sales	-67.86%	-84.56%
Gross profit	32.14%	15.44%
Other income	2.43%	0.04%
	34.57%	15.48%
selling and distribution expenses	-12.21%	-10.01%
Administrative expenses	-3.96%	-2.95%
Profit from operations	18.40%	2.52%
Profit on disposal of vessel	-	1.47%
Dividend income	2.80%	6.25%
Profit before interest and taxation	21.20%	10.24%
Finance income	0.21%	0.11%
Finance expenses	-12.03%	-12.31%
Profit/(loss) before taxation	9.38%	-1.96%
Income tax expenses	-3.44%	0.05%
Profit/(loss) for the year	5.94%	-1.91%

 

·         In 2023 Cost of sale sales are  67.86% of the revenue.

·         Gross profit is 32.86% of the revenue

·         Profit for the year is 5.94% of revenue

 

·         In 2022 Cost of sales are 84.56% of the revenue

·         Gross profit is 15.44% of the revenue

·         Loss for the year is 1.91% of total revenue

 

Vertical analysis of Balance sheet

	2023	2022
Assets
Non current assets
Property, plant and equipment	41.26%	35.11%
Intangible assets	0.05%	0.07%
Investment in subsidiaries	31.54%	31.60%
Right - of use assets	2.95%	3.09%
Total nun current assets	75.80%	69.86%
Current assets
Inventories	9.94%	9.98%
Trade and other receivables	9.30%	8.23%
Amount due from subsidiaries	1.76%	1.41%
Financial assets at a amortised cost	-	-
Cash and cash equivalents	3.19%	10.52%
Total current assets	24.20%	30.14%
Total assets	100.00%	100.00%
Equity and liabilities
Equity
Stated capital	10.93%	10.95%
Retained earnings	33.30%	27.96%
Equity attributable to the owners of the parent	44.22%	38.91%
Non-controlling interest	-	-
Total equity	44.22%	38.91%
Non-current liabilities
Interest bearing borrowings	8.84%	9.68%
Deferred tax liabilities	4.00%	1.30%
Retirement benefit obligations	0.70%	0.56%
Lease creditors	0.49%	0.55%
Total non-current liabilities	14.03%	12.09%
Current liabilities
Trade and other payables	13.44%	28.50%
Tax payables	0.41%	0.33%
Amount due to subsidiaries	11.62%	8.34%
Interest bearing borrowings	14.85%	10.16%
Lease creditors	0.06%	0.08%
Bank overdrafts	1.35%	1.59%
Total current liabilities	41.74%	49.00%
Total equity and liabilities	100.00%	100.00%

 

·         In 2023 Total non current assets are 75.8% of the total assets and total current assets are 24.2% of total assets.

·         In 2022 Total non current assets are  69.86% of the total assets and total current assets are 30.14% of the total assets.

·         In 2023 Total equity is 44.22% ,Total non current liabilities are 14.03% and total current liabilities are41.74% of total equity and liabilities

·         In 2022 Total equity is 38.91 % ,Total non current liabilities are 12.09 % and total current liabilities are  49.00% of total equity and liabilities

 

    III.            Ratio Analysis

Ratio analysis uses key relationships among financial statements to calculate statistical relationships.

Working capital – represent current assets financed from long term capital sources that do not require near term repayment

Ø  Liquidity and Efficiency – Ability to meet short term obligations and to effectively generate revenues.

·         Current ratio – measures the short term debt paying ability of the company.

·         Acid-test ratio

·         Accounts receivable turnover – measures how many times a company convert its receivables into cash year.

·         Merchandising turnover – measures the number of times merchandise in sold and replaced during the year.

·         Total assets turnover – measures of assets in producing sales

·         Days’ sales uncontrolled – measures the liquidity of receivables.

·         Days sales’ in inventory – measures the liquidity of inventory

 

Ø  Solvency – Ability to generate future revenues and meet long term obligations.

·         Debt Ratio – measures what portion of a company’s assets are contributed by creditors.

·         Equity ratio – what portion of a company’s assets are contributed by owners.

·         Pledged assets to secured liabilities – measures the protection o secured creditors.

·         Times interest earned – measures the ability of a firm’s operations to provide protection to the long term creditors.

 

Ø  Profitability – Ability to provide financial rewards sufficient to attract and retain financing

·         Profit margin – measures company’s ability to earn a net income from sales.

·         Gross margin – measures the amount remaining from I rupee in sales that is left to cover operating expenses and a profit after considering cost of sales.

·         Return on total assets – measures company’s profitability

·         Return on common share holders’ equity – measures indicates how well the company employed the owners’ investments to earn income

·         Book value per common share – measures liquidation at reported amounts

·         Basic earnings per share – measures how much income was earned for each share of commom stock out standings.

 

Ø  Market – Ability to generate positive market expectation.

·         Price earnings Ratio

·         Dividend yield

Ratio Analysis

Year	2023	2022
Working capital	-6,808,312,662	-7,303,628,987
Liquidity and Efficiency
Current ratio	0.58	0.62
Acid-test ratio	0.34	0.41
Merchandise turnover	6.27	8.90	times
Accounts receivable turnover	10.50	10.56	times
Total assets turnover	0.92	0.90	times
Days' Sales in inventory	58.16	51.90	days
Days' sales uncollected	36.94	36.17	days
Solvency
Debt Ratio	55.78%	61.09%
Equity Ratio	44.22%	38.91%
Times interest earned	1.78	0.84
Profitability
Gross margin	32.14%	15.44%
Profit margin	5.94%	1.91%
Return on total assets	5.46%	1.72%
Return on common share holders' equity	13.14%	3.82%
Book value per common share	42.79	37.58
Basic earnings per share	5.28	1.54	per share
Market
Price earnings ratio	9.47	22.01	times
Dividend yield	3.00%	-

 

·         Tokyo cement working capital is increase from 2022 to 2023. But both years working capital is (-). It is deficit working capital.

·         This ratio should not be too high because too much liquidity is not suitable for the company. In Tokyo cement both current ratios are less than 1. It means both 2 years company weaker to pay debt. From 2022 to 2023 working capital is decrease ,so debt paying ability is decrease.

·         Tokyo Cement acid test ratio values are decreased from 2022 to 2023  and both ratios are less than 1 so it is not good for the company .

·         Account receivable turnover is bigger the value , better the company’s efficiency. Highest value in 2022.Performance is high.

·         Merchandise turnover is Higher the value, better the company’s ability to selling goods . 2022 has higher value it has higher ability to selling goods.

·         Total assets turnover value should be greater than 1 for higher efficiency rate. Both years it is less than 1 and its means average total assets are more than total revenue. This means company has less efficiency.

·         Days’ sales uncontrolled ,lesser the number of dates , higher the liquidity of company.2022 has least value it means 2022 has higher liquidity.

·         Days’ sales in inventory, lesser the number is better. 2022 has less number of days , it is better.

·         Highest debt ratio is recorded in 2022. Debt ratio exceeded more than 20% means its assets consist of higher  contribution of creditors. It is somewhat bad.

·         Equity ratio of both years are less than even 45% means less assets are contributed from the owners equity.

·         Time interest earned , higher the value, higher the ability of company. 2023 has higher value.

·         Profit margin , higher the value , more profitable. 2023 has higher record ,2023 has more profitability.

·         Gross margin, value should be higher for a company to survive. 2023 has higher margin so it is good for the company. But it is also less than 50%  means company profitability is not good.

·         Return on total assets, highest value record in 2023. It is good to the company more than 2022.

·         Book value per share is increased with a time from 2022 to 2023. It is a good indication of company.

·         Basic earnings per share, if the value is high it is favourable to the buy shares. 2023 has higher value, it means in 2023 company is profitable and good to invest it.

·         Generally, the higher the price-earnings ratio, the more opportunity a company has for growth. This ratio compares the company’s market price to earnings per share. This ration is decreased from 2022 to 2023. 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.

 

 

5.       Bankruptcy prediction

Z = 1.2X1 + 1.4 X2 + 3.3 X3 + 0.6 X4 + 0 .999 X5

X1 = Working Capital /total assets

X2 = Retaining earnings / Total assets

X3 = Earnings before interest and taxes/ total assets

X4 = Market value of equity/Total liabilities

X5 = Sales / Total assets

	2023	2022
X1	-0.18	-0.19
X2	0.33	0.39
X3	0.31	0.19
X4	0.20	0.18
X5	0.92	0.83

 

Where z-score is greater than 2.99 falls in to the “Safe Zone” , having a z-score below 1.8 are “distress zone” and the area between  1.8 and 2.99 defined as the “gray zone”.

2023      Z = 2.31  -  Gray zone

2022      Z =  1.88  -  Gray zone

 

6.       Conclusion

The objective is financial analysis is to understand the information in financial statements and judge the firm. In Tokyo cement (PLC), 5 years financial statements are taken to the analysis.

In bankruptcy prediction , both years z scores are in gray zone. That means moderate profitability for bankruptcy. And also profitability of bankruptcy in 2022 is more than  profitability of bankruptcy in 2923. Because Z-score of 2022 is nearest to the 1.80. This position become several reasons. By Effective budgetary control, effective budgetary cash flow plans , effective costing system z score can be increase more than 2.99.

 

7 . References

·         finacialsrilanka.blogspot.com

·         http://tokyocement.com

By  18^th   October 2023 – 21th October 2023