Financial Statement Analysis of Lanka Tiles PLC.

 

Financial Statement Analysis of Lanka Tiles PLC.

 

 

1.     Introduction

 

Financial statement analysis is a process of evaluating and interpreting company financial statements to gain insights into its financial performance and position. It involves examining the financial statements including balance sheet, income statement and cash flow statement to assess the company’s profitability, liquidity, solvency and overall financial health. Financial statement analysis is a valuable tool for investors, creditors, analysts and management to make informed decisions about a company’s financial performance.

 

 

Importance of Financial Statement Analysis

 

Financial Statement analysis helps to identify the risks and opportunities associated with investing or conducting business with a particular company. So that below are few reasons;

 

·         Investment Decisions: Investor analyze financial statements to evaluate the financial health and performance of company before making investment decisions. By analyzing the company profitability, liquidity and overall financial stability, investors can assess potential risks and rewards of investing in particular company’s stocks and bonds.

 

·         Credit Decisions: Creditors including banks and lending institutions analyze financial statements to determine creditworthiness of borrowers. Creditors male informed decisions after assessing company’s ability to generate cash flow and meet its financial obligations to extend loans or credit to the company.

 

·         Strategic Planning: Company management rely on financial statement analysis to make strategic decisions. After analyzing financial ratios and trends, management can identify areas to improve, allocate resources more efficiently and effectively and set goals for growth and expansion.

·           Performance Evaluation: Companies can evaluate their own performance over time by comparing current financial results to previous periods and industry benchmarks. Companies can identify strengths and weaknesses in their operations and take corrective actions.

 

·         Regulatory Compliances: Companies are required to prepare accurate and transparent financial statements in accordance with accounting standards and regulations. Regulators and auditors can analyze financial statements and ensure compliance and detect any potential irregularities and misstatements.

 

Financial statement analysis provides insights into a company’s long term financial sustainability. By assessing factors like debt levels, capital structure and cash flow, companies can plan for long term growth and stability. So that, financial statement analysis serves as a critical tool for assessing the financial health, performance and prospects of the company. The following report uses horizontal analysis, vertical analysis and ratio analysis to interpret data and discuss the financial performance of Royal Ceramics Lanka PLC.

 

 

2.     Background of the Company

 

Lanka Tiles PLC, established in 1984, is one of Sri Lanka's foremost manufacturers and exporters of high-quality ceramic and porcelain tiles. With nearly four decades of expertise, the company has grown from a local manufacturer to an internationally recognized brand, celebrated for its innovative designs, superior quality, and commitment to sustainable practices. Lanka Tiles is headquartered in Colombo and listed on the Colombo Stock Exchange, providing both national and international customers with a wide array of tiles that meet rigorous global standards.

 

Vision and Mission

 

Vision:

"Creating a fine art of living."

This vision underscores Lanka Tiles PLC's commitment to elevating living spaces through meticulously crafted tiles that blend aesthetics, functionality, and durability. By staying attuned to evolving design trends, Lanka Tiles aims to shape modern living environments and enhance architectural spaces locally and globally.

 

Mission:

"Creating contemporary, fashionable lifestyles for our customers while adding value to our stakeholders by excelling in everything we do with the strength of our inherited values." The mission reflects Lanka Tiles PLC’s dedication to consistently delivering products that meet the highest standards of quality and innovation. The company focuses on not only satisfying its customers but also enriching the lives of employees, suppliers, and investors, aiming for excellence in every aspect of its operations.

 

Core Values

 

Lanka Tiles PLC upholds key values that guide its business:

 

·         Quality: Ensuring that every tile meets high standards for durability, design, and performance.

·         Trust: Building long-standing relationships with customers and stakeholders through transparency and dependability.

·         Heritage: Embracing Sri Lankan craftsmanship and cultural heritage in designs that resonate globally.

·         Sustainability: Committing to environmentally responsible practices and minimizing its ecological footprint.

 

Product Portfolio

 

Lanka Tiles’ product portfolio includes a wide variety of tiles, from classic and elegant designs to innovative contemporary patterns. Notable collections include:

 

·         Majestica: Premium large-format tiles with fine finishes for luxurious spaces.

·         Mosaics: Modern and versatile mosaic tiles.

·         Essential+: Durable tiles for high-traffic areas.

·         Xilosophy: Wood-inspired tile designs that bring natural aesthetics indoors.

·         Hearts of Earth: A nature-inspired collection that reflects earthy tones and textures.

 

Commitment to Innovation and Sustainability

 

As a leader in the tile industry, Lanka Tiles PLC continually invests in research and development, introducing new products that are not only functional but also environmentally friendly. The company operates under internationally recognized management systems, including ISO 9001 for quality and ISO 14001 for environmental standards, which reinforce its commitment to quality and sustainable manufacturing practices.

 

The company has also implemented initiatives such as water recycling, efficient energy use, and resource optimization to minimize environmental impact, aligning its operations with global sustainability trends.

 

Global Expansion and Market Reach

 

Lanka Tiles PLC has a strong foothold in Sri Lanka and an expanding presence in international markets. Exports account for a growing portion of its revenue, with products reaching countries in North America, Europe, Australia, and South Asia. Through partnerships with leading global retailers and suppliers, the company is positioning itself to be a top tile brand in both the domestic and export markets.

 

Strategic Focus and Future Direction

 

Lanka Tiles’ future-oriented strategy emphasizes innovation, market expansion, and enhanced customer experiences. The company is focused on:

 

·         Expanding its product portfolio to cater to a diverse range of tastes and design preferences.

·         Enhancing operational efficiency to improve production speed and reduce costs.

·         Strengthening its international presence, particularly in high-growth markets like the United States.

 

Through its commitment to design, quality, and sustainability, Lanka Tiles PLC aims to remain at the forefront of the tile industry in Sri Lanka and beyond, delivering products that redefine spaces and inspire creativity.

 

3. Financial Statement Analysis

 

Financial statement analysis provides insights over financial statements and highlights over the financial performance of a company. So basically there are three techniques used to analyze financial statements. Horizontal analysis compares data of the company over several years. So that past data will be compared with the current situation. Trend analysis is also part of horizontal analysis which will analyze the trend of few years. Vertical analysis compare company’s financial performance in relative to a base year. It analyses the vertical effect of the line items of financial statements on other parts of the business and its proportion. Ratio analysis interpret key relations among financial statement items and calculate statistical relationships for better decision making of stakeholders of a business.

 

So these financial statements can be compared with the past data of the company over several years, with competitors and within the industry guidelines.

 

 

 

3.1 Horizontal Analysis

 

 

Horizontal analysis examines the changes in financial statement items over time, identifying trends and shifts. For Lanka Tiles PLC, the data below highlights significant trends between 2023 and 2024.

 

This can be calculated as follows.

 

Rupee change = Analysis period amount - Based Period Amount Percentage change = Rupee change / Based period amount *100

Base year – 2023

 

Time period – 2023 - 2024

 

3.1.1-Horizontal Analysis of Financial Position

 

	2024 Rs.’000	2023 Rs.’000	Rupee Change	Percentage Change %
ASSETS
Non-current assets
Property, plant and equipment	8,335,196	7,001,724	1,333,472	19.04%
Investment Properties	-	-	-	-
Intangible assets	85,244	92,155	(6,911)	-7.50%
Investments in subsidiaries	387,701	327,326	60,375	18.44%
Investments in associates	1,135,917	1,076,445	59,472	5.52%
Right of use assets	48,805	19,510	29,295	150.15%
	9,992,863	8,517,160	1,475,703	17.33%
Current assets
Inventories	7,403,268	5,036,886	2,366,382	46.98%
Trade and other receivables	1,448,229	2,410,052	(961,823)	-39.91%
Amounts due from related parties	901,118	1,618,889	(717,771)	-44.34%
Cash and cash equivalents	298,794	790,371	(491,577)	-62.20%
	10,051,409	9,856,198	195,211	1.98%
Total assets	20,044,272	18,373,358	1,670,914	9.09%
EQUITY AND LIABILITIES
Stated capital	900,968	900,968	0	0.00%
Reserves	2,092,276	1,462,469	629,807	43.06%
Retained earnings	11,781,461	10,389,489	1,391,972	13.40%
Equity attributable to equity holders of the	14,774,705	12,752,926	2,021,779	15.85%
Non-controlling interest	-	-	-	-
Total equity	14,774,705	12,752,926	2,021,779	15.85%
Non-current liabilities
Interest bearing liabilities	188,290	434,405	(246,115)	-56.66%
Deferred tax liabilities	1,492,040	1,261,933	230,107	18.23%
Retirement benefit liability	225,793	199,753	26,040	13.04%
	1,906,123	1,896,091	10,032	0.53%
Current liabilities
Trade and other payables	1,591,306	1,867,325	(276,019)	-14.78%

Contract liability	94,211	101,826	(7,615)	-7.48%
Income tax liabilities	581,051	310,577	270,474	87.09%
Amounts due to related parties	131,911	128,730	3,181	2.47%
Current    portion    of    interest bearing	964,965	1,315,883	(350,918)	-26.67%
	3,363,444	3,724,341	(360,897)	-9.69%
Total equity and liabilities	20,044,272	18,373,358	1,670,914	9.09%

 

 

 

3.1.2-Horizontal Analysis of Income Statement

 

	2024 Rs.’000	2023 Rs.’000	Ru.Change	%Change
Revenue from contracts with customers	16,130,887	18,684,042	(2,553,155)	-13.66%
Cost of Sales	-8,667,606	-10,256,396	1,588,790	-15.49%
Gross Profit	7,463,281	8,427,646	(964,365)	-11.44%
Other Income	34,572	38,377	(3,805)	-9.91%
Distribution Costs	-2,085,527	-2,160,121	74,594	-3.45%
Administrative Expenses	-1,276,815	-1,009,027	(267,788)	26.54%
Finance Cost	-170,276	-264,642	94,366	-35.66%
Finance Income	186,678	518,453	(331,775)	-63.99%
Share of Net Profit of Associate	-34,326	-271,424	237,098	-87.35%
Profit Before Tax	4,117,587	5,279,262	(1,161,675)	-22.00%
Income Tax Expense	-1,201,863	-1,583,154	381,291	-24.08%
Profit for the Year	2,915,724	3,696,108	(780,384)	-21.11%
Other Comprehensive Income
Net Other Comprehensive Income not to be reclassified to
profit or loss in subsequent periods (net of tax):
Revaluation / (Disposal) of Land and Building	899,724	-	-	-
Actuarial Gain/ (Loss) on Retirement Benefit	-54,906	-12,859	(42,047)	326.98%
Deferred    tax    on    components    of    other	-253,445	-108,983	(144,462)	132.55%
Net Other Comprehensive Income/(loss) that	591,373	-121,842	713,215	-585.36%
Net Other Comprehensive Income may be reclassified to
profit or loss in subsequent periods (net of tax):
Foreign currency translation differences of	-	-	-	-
Share of  other  comprehensive  income  of	132,720	-33,324	166,044	-498.27%
Net Other Comprehensive Income/(Loss) that	132,720	-33,324	166,044	-498.27%
Other Comprehensive Income/(loss) for the	724,093	-155,166	879,259	-566.66%

Total Comprehensive Income for the Year, net	3,639,817	3,540,942	98,875	2.79%
Profit attributable to :
Equity holders of the parent	2,915,724	3,696,108	(780,384)	-21.11%
Non-controlling interest	-	-	-	-
Profit for the year	2,915,724	3,696,108	(780,384)	-21.11%
Total comprehensive income attributable to :
Equity holders of the parent	3,639,817	3,540,942	98,875	2.79%
Non-controlling interest	-	-	-	-
Total Comprehensive Income for the Year	3,639,817	3,540,942	98,875	2.79%
Basic Earnings Per Share - Profit Attributable	10.99	13.93	(3)	-21.11%

 

 

 

Horizontal analysis examines the changes in financial statement items over time, identifying significant trends or variations. For Lanka Tiles PLC, notable changes occurred from 2023 to 2024:

 

·         Revenue and Profit: Revenue decreased by 13.66%, from LKR 18,684 million in 2023 to LKR 16,131 million in 2024, which reflects reduced sales possibly due to increased competition or economic conditions. Similarly, profit before tax fell by 22%.

·         Assets and Liabilities: Total assets grew by 9.09%, driven mainly by a 46.98% increase in inventory, indicating a build-up of stock possibly due to lower sales turnover.

·         Current vs. Non-Current Liabilities: Non-current liabilities decreased by 56.66% due to reductions in interest-bearing liabilities, suggesting an effort to reduce debt and improve financial stability.

 

Horizontal analysis shows that while Lanka Tiles PLC faced revenue declines, it strengthened its asset base and reduced non-current liabilities, positioning it for more stability in the long term.

3.2-Trend Analysis

3.2.1-Trend Analysis of Financial Position

 

	2023	2024
Non-Current Assets	100%	117%
Current Assets	100%	102%
Total Assets	100%	109%
Total Equity	100%	116%
Non-Current Liabilities	100%	101%
Current Liabilities	100%	90%
Total Equity and Liabilities	100%	109%

 

 

 

3.2.2-Trend Analysis of Income Statement

 

	2023	2024
Revenue from contracts with customers	100%	86%
Cost of Sales	100%	85%
Gross Profit	100%	89%
Other Income	100%	90%
Distribution Costs	100%	97%
Administrative Expenses	100%	127%
Finance Cost	100%	64%
Finance Income	100%	36%
Share of Net Profit of Associate	100%	13%
Profit Before Tax	100%	78%
Income Tax Expense	100%	76%
Profit for the Year	100%	79%
Revaluation / (Disposal) of Land and Building
Actuarial Gain/ (Loss) on Retirement Benefit Liability	100%	427%
Deferred tax on components of other comprehensive	100%	233%
Net Other Comprehensive Income/(loss) that will not be	100%	-485%
Foreign  currency  translation  differences  of  foreign
Share of other comprehensive income of associates	100%	-398%

Net Other Comprehensive Income/(Loss) that may be	100%	-398%
Other Comprehensive Income/(loss) for the Year, net of	100%	-467%
Total Comprehensive Income for the Year, net of tax	100%	103%
Equity holders of the parent	100%	79%
Non-controlling interest
Profit for the year	100%	79%
Equity holders of the parent	100%	103%
Non-controlling interest
Total Comprehensive Income for the Year	100%	103%
Basic  Earnings  Per  Share  -  Profit  Attributable  to	100%	79%

 

 

 

Trend analysis evaluates financial performance over multiple periods to identify consistent patterns or shifts. In this case, it helps assess performance stability and growth potential:

·         Revenue Trend: Revenue shows a downward trend from 2023 to 2024, decreasing to 86% of its base value in 2023, likely due to external market conditions or increased competition.

·         Profit and Efficiency: Gross profit decreased to 89% in 2024, while administrative expenses increased to 127%, indicating rising operational costs. Meanwhile, finance income saw a sharp decline, affecting overall profitability.

·         Equity and Liabilities: Total equity rose to 116% in 2024, while current liabilities decreased to 90%, showing an improvement in the company’s solvency and a reduced dependence on short-term debt.

 

The trend analysis highlights a need to boost revenue streams while maintaining cost control. However, the company’s increasing equity base and reduced current liabilities indicate enhanced financial stability.

3.3-Vertical Analysis

 

 

In vertical analysis, every item of the financial statement is represented as a proportion of total account and it is calculated within a given year. In the statement of financial position, every item under assets is calculated as a proportion of total assets and items under equity and liability is represented as a percentage of total equity and liabilities. Also every item under Income statement is expressed as a proportion of total revenue.

 

Common – size percentage = Analysis Amount/Base Amount *100%

 

 

 

 

3.3.1-Vertical Analysis of Financial Position

 

	2023	2024
ASSETS
Non-current assets
Property, plant and equipment	38%	42%
Investment Properties	-	-
Intangible assets	1%	0%
Investments in subsidiaries	2%	2%
Investments in associates	6%	6%
Right of use assets	0%	0%
	46%	50%
Current assets	0%	0%
Inventories	27%	37%
Trade and other receivables	13%	7%
Amounts due from related parties	9%	4%
Cash and cash equivalents	4%	1%
	54%	50%
Total assets	100%	100%
Equity and Liabilities
Equity
Stated capital	5%	4%
Reserves	8%	10%

Retained earnings	57%	59%
Equity attributable to equity holders of the	69%	74%
Non-controlling interest	-	-
Total equity	69%	74%
Non-current liabilities
Interest bearing liabilities	2%	1%
Deferred tax liabilities	7%	7%
Retirement benefit liability	1%	1%
	10%	10%
Current liabilities
Trade and other payables	10%	8%
Contract liability	1%	0%
Income tax liabilities	2%	3%
Amounts due to related parties	1%	1%
Current portion of interest bearing liabilities	7%	5%
	20%	17%
Total equity and liabilities	100%	100%

 

 

 

3.3.2-Vertical Analysis of Income Statement

 

	2023	2024
Revenue from contracts with customers	100%	100%
Cost of Sales	-55%	-54%
Gross Profit	45%	46%
Other Income	0%	0%
Distribution Costs	-12%	-13%
Administrative Expenses	-5%	-8%
Finance Cost	-1%	-1%
Finance Income	3%	1%
Share of Net Profit of Associate	-1%	0%
Profit Before Tax	28%	26%
Income Tax Expense	-8%	-7%
Profit for the Year	20%	18%
Other Comprehensive Income
Net Other Comprehensive Income not to be reclassified to	0%	0%
profit or loss in subsequent periods (net of tax):	0%	0%

Revaluation / (Disposal) of Land and Building	-	6%
Actuarial Gain/ (Loss) on Retirement Benefit Liability	0%	0%
Deferred tax on components of other comprehensive	-1%	-2%
Net Other Comprehensive Income/(loss) that will not be	-1%	4%
	0%	0%
Net Other Comprehensive Income may be reclassified to
profit or loss in subsequent periods (net of tax):	0%	0%
Foreign    currency    translation    differences   of    foreign	-	-
Share  of  other  comprehensive  income  of  associates	0%	1%
Net Other Comprehensive Income/(Loss) that may be	0%	1%
Other Comprehensive Income/(loss) for the Year, net of tax	-1%	4%
Total Comprehensive Income for the Year, net of tax	19%	23%
	0%	0%
Profit attributable to :	0%	0%
Equity holders of the parent	20%	18%
Non-controlling interest	-	-
Profit for the year	20%	18%
	0%	0%
Total comprehensive income attributable to :	0%	0%
Equity holders of the parent	19%	23%
Non-controlling interest	-	-
Total Comprehensive Income for the Year	19%	23%
Basic Earnings Per Share - Profit Attributable to Ordinary	0%	0%

 

 

 

Vertical analysis examines each financial statement item as a proportion of a base figure, usually total assets or revenue, to understand the relative structure of financial items within the statements:

 

·         Asset Structure: In 2024, 50% of total assets comprised current assets, while non-current assets represented the other 50%. Inventories, at 37% of total assets, increased significantly, indicating more stock on hand relative to total assets.

·         Equity vs. Liabilities: Equity as a percentage of total assets grew from 69% in 2023 to 74% in 2024, showing increased reliance on equity financing over debt.

·         Cost and Revenue Composition: Cost of sales was 54% of revenue in 2024, showing efficient cost control, as it declined from the previous year’s 55%. Gross profit margin was slightly up, representing 46% of revenue, indicating good operational efficiency despite revenue challenges.

Vertical analysis reveals a well-maintained equity structure, effective cost management, and an asset allocation strategy aligned with inventory buildup.

 

 

 

3.4-Ratio Analysis

They have been impacted by contractions in economic sector and country’s moderate economic growth has impacted on the business.

 

 

 

3.4.1   Liquidity and Efficiency

 

 

Liquidity ratios are financial ratios that measure a company’s ability to meet short term financial obligations with readily available assets. Liquidity ratios are important indicators of a company’s short term financial health and ability to handle financial challenges.

 

Ratio		2023	2024
Working Capital	Current Assets - Current Liabilities	6131857000	6687965000
Current Ratio	Current Ratio = Current Assets / Current Liabilities	2.65	2.99
Acid Test Ratio	Quick ratio = Quick assets/Current liabilities	1.29	0.79
Accounts Receivable Turnover	Net Annual Credit Sales/ Average Accounts Receivables	0.775	1.098
Accounts Receivable Turnover (Days)	Accounts     Receivables     Turnover Ratio/ 365	0.002	0.003
Inventory Turnover Ratio	Cost    of    goods    sold    /Average Inventory	2.036	1.393
Inventory Turnover Ratio (Days)	Inventory turnover ratio/365	0.005	0.003
Accounts Payable Turnover Ratio	Net       Sales/Average        Accounts Payable	10.006	10.137
Accounts Payable Turnover Ratio (Days)	Accounts Payable Turnover Ratio/ 365	0.027	0.028

Total Assets Turnover Ratio

Net Sales /Average Total Assets

1.017

0.840

 

 

 

Working capital represents company’s operational liquidity and short-term financial health. Or else working capital indicates how much capital or funds a company possess to cover its day-to- day operational expenses and short term obligations. Working capital is an important metric for assessing a company's ability to manage its short-term financial obligations, maintain its operations, and invest in growth opportunities. However, like the current ratio, the ideal level of working capital can vary by industry and company circumstances. But it doesn’t capture the entire financial health of the company. In Lanka Tiles PLC, working capital has improved in 2024.

 

The current ratio measures a company's ability to pay off its short-term liabilities using its short- term assets. A ratio higher than 1 indicates that the company has more current assets than current liabilities, suggesting a healthier liquidity position. So that, company will have excess assets that could be efficiently used elsewhere. This ratio should not be too high which might indicate excess cash within the business. In both 2023 and 2024, the current ratio is more than 1. Also this ratio has improved in 2024. This indicates a good position. However, this ratio can vary across industry.

 

Acid test ratio excludes current assets such as inventories and prepayments that can’t be easily converted into cash. So this ratio has slightly declined in 2024. The highest ratio is reported in 2023. Typically, a good acid-test ratio value is considered to be around 1 or higher, as this suggests that the company's liquid assets are sufficient to cover its current liabilities. But this ratio has been lower in year 2024. However, just like with the current ratio, the ideal acid-test ratio can vary by industry and company circumstances. It's important to analyze the acid-test ratio in conjunction with other financial metrics and industry benchmarks to gain a comprehensive understanding of a company's financial health and liquidity. However, it is more than zero every year and indicates good position.

 

Accounts receivable turnover is a financial metric that measures how efficiently company manages its credit and collect payments from its customers. This ratio indicates the number of times on average, a company’s debtors are collected and converted into cash within a year. A

higher accounts receivable turnover ratio is generally considered better because it implies that the company is collecting payments from its customers more quickly, which can improve its cash flow and liquidity. A lower turnover ratio might suggest that the company is facing difficulties in collecting payments or has lenient credit policies. So this ratio has improved from 2023 to 2024.

 

Also this can be calculated in terms of days. This measures liquidity of receivables or the number of days between the day of sales and the day receivables are collected. A shorter average collection period is preferred as it indicates that the company is collecting payments more quickly.

 

Inventory turnover ratio indicates how efficiently a company manage its inventory. So this shows how many times a company’s inventory is sold over a specific period. This ratio assists in effectively managing company’s inventory levels to meet demand and avoid overstocking. Higher ratio indicates company is selling its inventory more quickly, which can lead to better cash flow, reduced carrying costs, and potentially less risk of obsolete inventory. Also a lower inventory turnover ratio could indicate slower sales, overstocking, or inefficiencies in managing inventory. So this ratio has reduced in 2024.

 

This ratio also can be calculated in terms of days, which measures the liquidity of inventory or the average time in days’ company will turn its inventory into sales.

 

Accounts payable turnover ratio measures how efficiently a company manages its creditors. It indicates the number of times, that a company pay off its creditors within a specific period. A higher ratio indicates a company is paying off its creditors more quickly and suggest effective management of supplier relationships and favorable credit terms. So from 2023 to 2024, this ratio has improved in Lanka Tiles PLC.

 

This ratio also can be compared in terms of number of days.

 

Assets turnover ratio measures whether company is efficiently generating sales revenue from its total assets. This ratio is useful to analyze company’s operational efficiency and asset utilization. The value should be greater than 1 to indicate high efficiency rate. So that this ratio has been less than 1 in 2024 which implies that the average total assets are more than revenue. So that the company is less efficient in generating revenue.

3.4.2   Solvency

 

 

 

Solvency measures company’s ability to meet its long term financial obligations. It is crucial to evaluate a company’s overall financial health and its capacity to remain viable over the long term.

 

Ratio		2023	2024
Debt Ratio	Total Liabilities/ Total assets	0.306	0.263
Equity Ratio	Total Equity/ Total Assets	0.694	0.737
Times Interest Earned	EBIT/ Interest Expense	9.599	3.234

 

 

 

Debt ratio measures the portion of company’s assets contributed by creditors. The highest debt ratio has been recorded in 2023 and it has declined in 2024. This ratio has been between 26% to 31% which indicates a considerable gearing position in Lanka Tiles PLC.

 

Equity ratio measures the portion of company assets contributed by owners. So this has been 69% in 2023 and this has improved up to 73% in 2024 which is a good sign.

 

Times interest earned measures the ability of firm’s operations to protect long term creditors or how strong company is paying the interest. So this has been 9.59 in 2023 and decreased up to 3.23 times in 2024. The higher the value, the higher ability to pay interest out of the earnings generated.

 

 

 

 

 

 

3.4.3   Profitability

 

 

 

Profitability ratios are financial metrics that assess company’s ability to generate profits in terms of revenue, assets, equity or financial factors. These ratios provide insights regarding financial performance and its efficiency in generating profits.

 

Ratio		2023	2024
Gross Profit Margin	Gross Profit/ Net Sales *100	46.26%	45.11%
Profit Margin	Net Income/Net Sales *100	18.95%	22.56%
Return on Total Assets	Net Income/Total Assets	19.3%	18.2%
Return     on     Common Shareholder's Equity	Net Income/ Shareholder's Equity	27.8%	24.6%

 

 

 

Gross profit margin measures the percentage of revenue remains after deducting cost of sales. It indicates how well a company generates profits from core production or sales activities. Highest ratio is recorded in 2023. This indicates how well a company is generating profits from its core production or sales activities.

 

Net profit margin is the percentage of revenue that remains as net profit after all expenses including taxes, interest and non-operating items are deducted. The lowest ratio has been reported in 2023.

 

Return on assets ratio measures how efficiently a company uses its assets to generate profits. A high ROA indicates that company is more efficiently generating profits from its assets. So during the last few years, this ratio has been 19.3% in 2023 and has declined to 18.2% in 2024.

 

 

 

Return on common shareholder’s equity indicates whether the company is more efficient in generating profits for its shareholders in relative to the amount of equity invested. So that, this ratio provides insights to shareholders how effectively company is utilizing shareholder funds to generate returns. So the highest ratio is in 2023 which is 27.8%.

3.4.4   Market

 

 

 

 

Ratio		2023	2024
PE Ratio	Share price/EPS	7.44	9.64
Dividend yield	DPS/Share price	0.22	0.22
Dividend payout ratio	DPS/EPS	0.60	0.55

 

 

 

Price earnings ratio is often used by investors to measure stock values. Higher the ratio, more potential for growth. This ratio compares the company’s market price to earnings per share. The high value has been recorded in 2024.

 

Dividend yield identifies the return, in terms of cash dividends, on the current market price of the stock. The dividend yield in 2023 and 2024 are same. So this is often used by investors to assess the income potential of stock or income generating investment.

 

Dividend payout ratio measures the proportion of company’s earnings that are distributed to shareholders in forms of dividends. So this ratio has been improved in 2024.

Z-score bankruptcy model

 

Z =1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5

 

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	2024
X1	0.334	0.334
X2	0.314	0.322
X3	0.169	0.176
X4	2.11	2.23
X5	0.523	0.611
Z	3.187	3.381

 

 

 

Z > 2.99 – Safe zone

 

1.8 < Z < 2.99 – Grey zone Z < 1.8 – Distress zone

·         For 2023 – Safe Zone

·         For 2024 – Safe Zone

4. Conclusion

 

The financial analysis of Lanka Tiles PLC for 2023 and 2024 highlights the company's strategic responses to a challenging economic environment. Despite facing revenue declines, likely due to heightened competition and economic fluctuations, Lanka Tiles demonstrated resilience through a structured focus on cost efficiency, debt reduction, and maintaining a robust equity base. These efforts have allowed the company to maintain liquidity and reduce reliance on short-term debt, ultimately reinforcing its financial stability.

Horizontal analysis reflects that while revenue and profit margins were impacted, there was notable growth in total assets, largely through inventory increases, positioning the company to potentially capitalize on future demand. The reduction in non-current liabilities also underscores Lanka Tiles’ commitment to improving its financial health and long-term sustainability.

Vertical analysis provides insights into Lanka Tiles' balanced asset allocation and effective cost management. With equity now comprising a larger portion of the total financing mix, the company is less reliant on debt, a prudent strategy that aligns with its focus on enhancing liquidity. Cost of sales saw efficient control, preserving gross profit margins despite revenue challenges, indicative of sound operational management.

Trend analysis reveals some areas for improvement, especially in sales turnover and administrative costs, which saw increases relative to revenue. However, the consistent growth in equity and reduced short-term liabilities point towards an overall positive trajectory in financial solvency and resilience.

Liquidity indicators suggest a strong ability to meet short-term obligations, underscoring the company’s effective management of working capital. However, the decline in the acid test ratio highlights an increased reliance on inventory, suggesting room for optimizing inventory turnover to ensure quicker asset liquidity.

Efficiency ratios reflect both strengths and areas for improvement. The company has enhanced its accounts receivable turnover, indicating better cash flow management through timely

collections. However, slower inventory turnover points to the potential for improving sales cycles or inventory management to prevent capital from being tied up in unsold goods.

Solvency ratios indicate a prudent approach to financial health, with reductions in debt and increased equity demonstrating a strong capital structure. This shift reduces financial risk and highlights Lanka Tiles’ commitment to long-term stability, which enhances its appeal to investors and creditors.

Profitability ratios show a mixed outcome. While the net profit margin has improved, reflecting efficient cost management, there are slight declines in gross profit, ROA, and ROE, which may indicate the impact of a competitive market on pricing power and asset utilization. Nonetheless, the increase in net profit margin suggests the company has managed to navigate external challenges effectively, preserving shareholder value.

Lanka Tiles PLC's financial analysis for 2023 and 2024 highlights the business's flexibility and tenacity in a difficult economic environment. Lanka Tiles has maintained a healthy liquidity position and strengthened its financial stability by prudent cost control, debt reduction, and a deliberate focus on equity growth. Although there is room for improvement, especially in the areas of asset efficiency and inventory turnover, the company's strong capital structure and higher net profit margins show a consistent path toward long-term viability and value generation for shareholders. Lanka Tiles PLC is in a strong position to take advantage of upcoming market opportunities and improve its competitive position in the sector by maintaining a focus on operational effectiveness and sound financial management.

 

 

 

 

5.     References

 

Lanka Tiles PLC. (2023). Annual Report 2023. Colombo, Sri Lanka: Lanka Tiles PLC