Abans Electricals PLC

Abans Electricals PLC 

1.     COMPANY PROFILE

Abans Electricals PLC is engaged in the manufacturing and assembling of household electric and electronic appliances. The Company is also engaged in providing repair and maintenance services. The Company operates through two segments: Manufacturing and Services. The Manufacturing segment is engaged in the manufacturing and assembling of LG washing machines, refrigerators, cookers, freezers, air conditioners and solar photovoltaic (PV) system installation. The Services segment is engaged in installation, repair and maintenance, including after sales services, of electrical and household appliances sold by Abans PLC. The Company is providing services for a range of brands, including LG, Haier, Media, Philips, Electrolux, Mitsubishi and Hoover. The Company has approximately 15 regional service centers. The Company's parent entity is Abans PLC.The company was incorporated in 1981 and is headquartered in Colombo, Sri Lanka.

Abans Electricals PLC is a subsidiary of Abans PLC. Abans Electricals experienced a good turnover during the last five year periods. This was due to fact that the company made the decision not to raise the fees of their varied service offerings for Abans consumers. Further, the company continued to heavily invest in fixed deposits and do not rely on bank loans to cover any running costs.

In order to my assignment purpose here I selected the ABANS Electricals PLC, to conduct the financial statements analysis. This analysis helps the uses to make a better decisions, further this analysis included Horizontal analysis, Trend analysis, Vertical analysis and finally Ratio analysis

2.     HORIZONTAL ANALYSIS

Horizontal Analysis is a financial statement analysis technique that shows changes in the amounts of corresponding financial statement items over a period of time. The statements for five year periods are used in this horizontal analysis. The earliest period is used as the base period and the items on the statements for all later periods are compared with items on the statements of the base period. The base year of this analysis is 2013/2014.

The changes are shown both in Rupees and Percentage. The following Table shows the Rupee Change and Percentage Change of Financial Statement items of ABANS Electrical Plc.

Items in Comprehensive Income Statement of ABANS Electricals Plc

                                                                                                                        LKR “000”

                                   

Items	Base Year (2013 /2014) Amount	2014/2015		2015/2016		2016/2017		2017/2018
		LKR Change	% Change	LKR Change	% Change	LKR Change	% Change	LKR Change	% Change
Revenue/Sales	3205812	-474201	-14.7	300997	9.3	822798	25.6	286754	8.9
Cost of sales	2756672	-412417	-14.9	270739	9.8	837920	30.4	343049	12.4
Gross profit	449139	-61784	-13.7	30258	6.7	-15122	-3.3	-56294	-12.5
Other income	50744	4958	9.7	-10453	-20.6	12866	25.3	21581	42.5
Distribution cost	89803	-909	-1.0	9517	10.6	-3082	-3.4	-16710	-18.6
Administrative expenses	215377	7670	3.5	24032	11.1	35591	16.5	22344	10.3
Finance and other expenses	87784	-56669	-64.5	-47175	-53.7	-8487	-9.6	-25367	-28.9
Profit before tax	106919	-6918	-6.4	33430	31.2	-26279	-24.5	-14980	-14.0
Income tax expenses	6593	-337	-5.1	34931	529.8	18646	282.8	41645	631.6
Profit after tax	100326	-6581	-6.5	-1502	-1.5	-44925	-44.7	-56625	-56.4

Above table indicates an abnormal change in income tax expenses. Compare to 2013/2014, there is a huge increase in income tax expenses in 2015/2016, 2016/2017 and 2017/2018.

Items in Statement of Financial Position of ABANS Electrical Plc

LKR “000”

Items	Base Year (2013 /2014) Amount	2014/2015		2015/2016		2016/2017		2017/2018
		LKR Change	% Change	LKR Change	% Change	LKR Change	% Change	LKR Change	% Change
Property, plant and equipment	412388	128723	31.2	160493	38.9	195836	47.4	553648	134.2
Investments in fixed deposits	131530	-58490	-44.4	-11622	-8.8	4594	3.4	39037	29.6
Total Non-Current Assets	555372	70233	12.6	148870	26.8	200430	36.0	592685	106.7
Trade and other receivables	62351	9596	15.3	35880	57.5	81848	131.2	80239	128.6
Inventory	360769	-64197	-17.7	75113	20.8	288087	79.8	233354	64.6
Prepaid Expenses	22491	-1910	-8.4	-4088	-18.1	16323	72.5	25835	114.8
Amounts due from related parties	438468	82504	18.8	289166	65.9	42286	96.4	127558	29.0
Cash at bank and in hand	119895	-42628	-35.5	-87012	-72.5	-88660	-73.9	-46286	-38.6
Total Current Assets	1003974	-16635	-1.6	309060	30.7	720465	71.7	420700	41.9
Total Assets	1559346	53597	3.4	457930	29.3	920895	59.0	1013386	64.9
Stated capital	186732	0	0.00	0	0.00	0	0.00	0	0.00
Capital reserves	2100	0	0.00	0	0.00	0	0.00	0	0.00
Retained earnings	447977	55630	12.4	141163	31.51	203448	45.41	232543	51.1
Total Equity	636809	55630	8.7	141163	22.1	203448	31.95	542455	85.1
Borrowings	64968	-18456	-28.4	-36912	-56.8	-54468	-83.84	-62274	-95.8
Retirement benefit obligation	66897	19855	29.6	34993	52.3	12344	18.45	19470	29.1
Revenue grant	8614	-3230	-37.5	-6460	-75.0	-8614	-100	-8614	-100.
Deferred tax liability	11047	21757	196.9	29408	266.2	31276	283.1	152358	1379.1
Total Non Current Liabilities	151527	19926	13.1	21028	13.8	-19461	-12.8	100939	66.62
Trade and other payables	321601	9067	2.8	126887	39.4	331342	103.0	188992	58.77
Income tax payable	886	-886	-100.	23641	2666.5	4383	494.4	24466	2759.5
Deferred service income	7863	3631	46.1	29516	375.3	43788	556.8	75075	954.7
Amounts due to related parties	11487	41706	363	12937	112.6	73845	642.8	120541	1049.3
Borrowings	429172	-67564	-15.7	102767	23.9	283556	66	-18825	-4.39
Total Current Liabilities	771010	-14045	-1.8	295751	38.3	736915	95.5	390249	50.62
Total Liabilities	922537	5880	0.64	316779	34.3	717454	77.7	491189	53.24
Total Equity and Liabilities	1559346	61511	3.94	457943	29.3	920903	59.06	1033644	66.29

From this above analysis, it is noted that

·         The percentage change of stated capital and capital reserve is 0. It means the Abans Electricals Plc doesn’t change its stated capital over the five years period.

·         It is observed that there is an abnormal percentage change in income tax payable and deferred tax liability over the last three years as it is liable for higher income taxes.

·         Compare to other consecutive years, the last Assessment year 2017/2018 accounted higher changes in more items of Statement of Financial Position.

3.     TREND ANALYSIS

Normally trend analysis is used to reveal patterns in data covering successive period. In line with above fact, following depict the trend analysis of   

Statement of Comprehensive Income

Abans Electricals PLC

	2017/2018	2016/2017	2015/2016	2014/2015	2013/2014
Revenue/Sales	3492566499	4028609620	3506809241	2731611106	3205812382
Cost of sales	3099721387	3594592900	3027411655	2344255668	2756672885
Gross profit	392845112	434016720	479397586	387355438	449139497
Other income	72325131	63610069	40290408	55701954	50744273
Distribution cost	73092867	86720904	99320984	88893624	89803102
Administrative expenses	237721372	250968753	239409353	223047200	215377319
Finance and other expenses	62417421	79297777	40609179	31115745	87784606
Profit before tax	91938583	80639355	140348478	100000823	106918743
Income tax expenses	48237812	25238967	41525040	6256620	6593223
Profit after tax	43700771	55400388	98823438	93744203	100325520

Trend Percentage

The procedure followed is to assign the number 100 to items of the base year and to calculate percentage changes in each items of other year in relation to the base year

	2017/2018	2016/2017	2015/2016	2014/2015	2013/2014
Revenue/Sales	108.94	125.67	109.39	85.21	100
Cost of sales	112.44	130.40	109.82	85.04	100
Gross profit	87.47	96.63	106.74	86.24	100
Other income	142.53	125.35	79.40	109.77	100
Distribution cost	81.39	96.57	110.60	98.99	100
Administrative expenses	110.37	116.53	111.16	103.56	100
Finance and other expenses	71.10	90.33	46.26	35.45	100
Profit before tax	85.99	75.42	131.27	93.53	100
Income tax expenses	731.63	382.80	629.81	94.89	100
Profit after tax	43.56	55.22	98.50	93.44	100

Trend Analysis of the items in Comprehensive income statement of Abans Electricals PLC for the year ended 31^st March 2018,2017,2016,2015 and 2014

  

Statement of Financial Position

Abans Electricals PLC

	2017/2018	2016/2017	2015/2016	2014/2015	2013/2014
Non Current Assets
Property, plant and equipment	966036699	608223878	572881462	541111420	412388090
Investment property	20160000
Intangible assets	97695	7463	12735	17567
Investments in subsidiary	11454000	11454000	11454000	11454000	11454000
Investments in fixed deposits	170567277	136124319	119907426	73039864	131530121
Total Non-Current Assets	1168315671	755809660	704255623	625622851	555372211
Current Assets
Trade and other receivables	142590713	144199197	98231328	71947733	62351248
Inventory	594123935	648856296	435882590	296571713	360769143
Prepaid Expenses	48326068	38813976	18402949	20580863	22491026
Income tax receivable				7896156
Amounts due from related parties	566026454	861336261	727634815	520972307	438468147
Cash at bank and in hand	73608395	31234475	32882564	77266311	119895025
Total Current Assets	1424675565	1724440205	1313034246	995235083	1003974589
Total Assets	2592991236	2480249865	2017289869	1620857934	1559346800
Capital and Reserves
Stated capital	186732000	186732000	186732000	186732000	186732000
Capital reserves	2100000	2100000	2100000	2100000	2100000
Revaluation Reserve	309911359
Retained earnings	680521344	651426602	589141128	503607795	447977607
Total Equity	1179264703	840258602	777973128	692439795	636809607
Non Current Liabilities
Borrowings	2693825	10500000	28056000	46512000	64968000
Retirement benefit obligation	86367422	79241652	101890133	86752528	66897118
Revenue grant			2153651	5384126	8614600
Deferred tax liability	163405636	42323497	40455796	32804764	11047335
Total Non Current Liabilities	252466883	132065149	172555580	171453418	151527053
Current Liabilities
Trade and other payables	510594000	652943599	448488461	330668715	321601082
Income tax payable	25352700	5270077	24528197		886601
Deferred service income	82938277	51651365	37380094	11494714	7863197
Amounts due to related parties	132028288	85332858	24424887	53194068	11487207
Borrowings	410346385	712728215	531939521	361607225	429172053
Total Current Liabilities	1161259650	1507926114	1066761160	756964722	771010140
Total Liabilities	1413726533	1639991263	1239316740	928418140	922537193
Total Equity and Liabilities	2592991236	2480249865	2017289868	1620857935	1559346800

Trend Percentage

	2017/2018	2016/2017	2015/2016	2014/2015	2013/2014
Total Non-Current Assets	210.4	136.1	126.8	112.6	100.0
Total Current Assets	141.9	171.8	130.8	99.1	100.0
Total Assets	166.3	159.1	129.4	103.9	100.0
Total Equity	185.2	131.9	122.2	108.7	100.0
Total Non Current Liabilities	166.6	87.2	113.9	113.2	100.0
Total Current Liabilities	150.6	195.6	138.4	98.2	100.0
Total Liabilities	153.2	177.8	134.3	100.6	100.0

Trend Analysis of the important items in Statement of Financial Position of Abans Electricals PLC for the year ended 31^st March 2018,2017,2016,2015 and 2014

4.     VERTICAL ANALYSIS 

Vertical analysis is a method of financial statement analysis in which each entry for each of the three major categories of accounts, or assets, liabilities and equities, in a balance sheet is represented as a proportion of the total account. Vertical analysis is also used across other financial statements as a percentage measure. Vertical analysis is a method of financial statement analysis in which each entry for each of the three major categories of accounts, or assets, liabilities and equities, in a balance sheet is represented as a proportion of the total account. Vertical analysis is also used across other financial statements as a percentage measure.

5.     RATIO ANALYSIS

Ratio Analysis is a powerful tool of financial analysis. In financial analysis, a ratio is used as a benchmark for evaluating the financial position and performance of a firm. The absolute accounting figures reported in the financial statements do not provide a meaningful understanding of the performance and financial position of a firm. Ratios help to summarize large quantities of financial data and to make qualitative judgment about the firm’s performance. In view of the requirements of the various users of ratios, we may classify them into them into following important categories

1.      Liquidity and Efficiency Ratios

2.      Profitability Ratios

3.      Solvency Ratios

4.      Market Ratios

5.1 Liquidity and Efficiency Ratios

Liquidity ratios measure the firm’s ability to meet current obligations. It is essential for a firm to be able to mee its obligations as they become due. The ratios calculated from the financial statements of Abans Elecricals PLC are as follows:

1.      Current Ratio

Current Ratio = Current Assets

                           Current Liabilities

	2017/2018	2016/2017	2015/2016	2014/2015	2013/2014
Current Ratio	1.23:1	1.14:1	1.23:1	1.31:1	1.30:1

As a conventional Rule a current ratio of 2 to 1 or more is considered satisfactory. The Abans Electricals Plc has the liquidity ratios of 1.23, 1.14, 1.23, 1.31, and 1.30 for last five years. It can be interpreted to be sufficiently liquid. This rule is based on the logic that in a worse situation, even if the value of current assets becomes half, the firm will be able to meet its obligations. Higher the current raio greater the margin of safety for creditors.

2.      Quick Ratio

Quick ratio, also called acid-test ratio, establishes a relationship between quick or liquid assets and current liabilities

Quick Ratio = (Current Assets – Inventories – Prepaid Expenses)

                                                Current Liabilities

	2017/2018	2016/2017	2015/2016	2014/2015	2013/2014
Quick Ratio	0.67:1	0.69:1	0.81:1	0.90:1	0.81:1

Generally, a quick ratio of 1:1 is considered to represent a satisfactory current financial condition. The Abans Electicals Plc may face difficulties to meet its obligations because its quick ratios are below 1 over last five years. If the Abans Electicals Plc’s inventories do not sell, and it has to pay all its current liabilities.

3.      Accounts Receivable Turnover

The receivables turnover ratio is an accounting measure used to quantify a firm's effectiveness in extending credit and in collecting debts on that credit.

Accounts Receivable Turnover = Sales on Account

                                                       Average Accounts Receivable

	2017/2018	2016/2017	2015/2016	2014/2015	2013/2014
Accounts Receivable Turnover	24.36 times	33.24 times	41.21 times	40.68 times	52.58 times

Higher the value of debtors’ turnover, the more efficient is the management of credit. The Abans Electricals Plc has high turnover ratios over five years and it is observed that there is a gradual decline in the turnover ratio from 2013/2014 to 2017/2018.

4.      Merchandise Turnover

It indicates the efficiency of the firm in producing and selling its products

Merchandise Turnover = Cost of Goods Sold

                                          Average Inventory

	2017/2018	2016/2017	2015/2016	2014/2015	2013/2014
Merchandise Turnover	4.99 times	6.63 times	8.27 times	7.13 times	5.90 times

The Abans Electricals Plc is turning its inventory of finished goods into sales at 4.9 times in the year 2017/2018, 6.6 times in the year 2016/2017, 8.2 times in the year 2015/2016, 7.1 times in 2014/2015 and 5.9 times in 2013/2014. High inventory turnover shows good inventory management thus the company maintain an acceptable level of inventory management.

5.      Days Sales in Inventory

Days sales in Inventory = Ending Inventory   * 365

                                        Cost of Goods Sold

	2017/2018	2016/2017	2015/2016	2014/2015	2013/2014
Days sales in Inventory	69.96 days	65.89 days	52.55 days	46.18 days	47.77 days

It indicates how long it takes a company to turn its inventory into sales. Abans Electricals Plc take more than one month to turn its inventory into sales and it is gradually increase from the year 2013/2014 to 2017/2018.

6.      Days Sales Uncollected

Days Sales Uncollected = Accounts Receivable *365

                                                Net sales

	2017/2018	2016/2017	2015/2016	2014/2015	2013/2014
Days Sales Uncollected	15 Days	10.98 Days	8.86 Days	8.97 Days	6.94 Days

This measures the quality of debtors since it indicates the speed of their collection. The debtors of Abans Electricals Plc remain outstanding of 15 days in the year 2017/2018, 11 days in the year 2016/2017, 9 days in the year 2015/2016, 9 days in 2014/2015 and 7 days in 2013/2014. It indicates the better the quality of debtors since a short collection period implies the prompt payments by debtors.

7.      Total Asset Turnover

Total Asset Turnover = Revenue

                                      Average Total Assets

	2017/2018	2016/2017	2015/2016	2014/2015	2013/2014
Total Asset Turnover	1.38 times	1.79 times	1.93 times	1.72 times	1.81 times

This ratio measures how efficiency assets are employed. The total asset turnover of 1.38 times in 2017/2018 implies that Abans Electricals Plc generates a sale of Rs.1.38 for one rupee investment in fixed and current assets together.

Summary of Liquidity and Profitability Ratios

	2017/2018	2016/2017	2015/2016	2014/2015	2013/2014
Current Ratio	1.23:1	1.14:1	1.23:1	1.31:1	1.30:1
Quick Ratio	0.67:1	0.69:1	0.81:1	0.90:1	0.81:1
Accounts Receivable Turnover	24.36 times	33.24 times	41.21 times	40.68 times	52.58 times
Merchandise Turnover	4.99 times	6.63 times	8.27 times	7.13 times	5.90 times
Days sales in Inventory	69.96 days	65.89 days	52.55 days	46.18 days	47.77 days
Days Sales Uncollected	15 Days	10.98 Days	8.86 Days	8.97 Days	6.94 Days
Total Asset Turnover	1.38 times	1.79 times	1.93 times	1.72 times	1.81 times

5.2  Profitability Ratios

The profitability ratios are calculated to measure the operating efficiency of the company. Besides management of the company creditors and owners are also interested in the profitability of the firm. Generally the following types of profitability ratios are calculated.

1.      Net Profit Margin

2.      Gross Profit Margin

3.      Return on Total Assets

4.      Return on Common shareholders’ Equity

5.      Book value per common share

6.      Earnings Per Share (EPS)

The profitability ratios calculated from the financial statements of Abans Elecricals PLC are as follows:

1.      Net Profit Margin

Net profit Margin = Net Income

Net Sales

	2017/2018	2016/2017	2015/2016	2014/2015	2013/2014
Net profit Margin	1.25%	1.38%	2.82%	3.43%	3.13%

This ratio is the overall measue of the firm’s ability to turn each rupee sales into net profit. The Abans Elecricals PLC recorded less than 4% net profit margin over the last five years and it is observed a gradual decline from 2013/2014 to 2017/2018. It indicates that the Abans Elecricals PLC will fail to achieve satisfactory return on shareholders’ fund.

2.      Gross Profit Margin

Gross Profit Margin = Gross Profit

                                      Net Sales

	2017/2018	2016/2017	2015/2016	2014/2015	2013/2014
Gross Profit Margin	11.25%	10.77%	13.67%	14.18%	14.01%

This margin reflects the efficiency with which management produces each unit of product. The higher gross profit margin of Abans Elecricals PLC recorded in the period of 2014/2015 which is 14.18%. Gross profit margin shows the sign os good management of Abans Elecricals PLC.

3.      Return on Total Assets

Return on Total Assets = Net Income

                                         Average Total Assets

	2017/2018	2016/2017	2015/2016	2014/2015	2013/2014
Return on Total Assets	1.72%	2.46%	5.43%	5.90%	5.66%

The ratio is considered to be an indicator of how effectively a company is using its assets to generate earnings before contractual obligations must be paid. The Return on total assets of Abans Elecricals PLC are  seems to be in a low lever for last five years. In 2017/2018 it is recorded very low rate of 1.72% thus the investors may be reluctant to invest in Abans Elecricals PLC.

4.       Return on Common shareholders’ Equity

Return on Common shareholders’ Equity = Net Income – Preferred Dividend

                                                                        Average Shareholder’s Equity

	2017/2018	2016/2017	2015/2016	2014/2015	2013/2014
Return on Common shareholders’ Equity	4.33%	6.85%	13.44%	14.10%	16.89%

This ratio indicates how well the firm has used the resources of owners. Higher ratio of 16.89% recorded in 2013/2014 of Abans Elecricals PLC. The trend reveals decrecing trend from 2013/2014 to 2017/2018. The owners may be in the unsatisfactory condition regading the company as it has low rate in 2017/2018. This drop off  can be resulted from higher reserves and declining profit.

5.      Book value per common share

Book value per common share = Shareholders’ Equity applicable to common shares

                                                      Number of common Shares outstanding

	2017/2018	2016/2017	2015/2016	2014/2015	2013/2014
Book value per common share	230.75	164.42	152.23	135.49	124.61

                       
The book value per common share indicates the rupee value remaining for common shareholders after all assets are liquidated and all debtors are paid. Abans Elecricals PLC recorded higer value of 230.75 in 2017/2018 and it is in incresing trend.

6. Earnings Per Share (EPS)

Earnings Per Share (EPS) = Net Income – Preferred Dividend

                                             Weighted average common shares outstanding

	2017/2018	2016/2017	2015/2016	2014/2015	2013/2014
Earnings Per Share (EPS)	8.55	10.84	19.34	18.34	19.63

 EPS simply shows the profitability of the firm on a per share basis. EPS of Abans Elecricals PLC denotes declining trend which could affect the investors as well the company.

Summary of Profitability Ratios

	2017/2018	2016/2017	2015/2016	2014/2015	2013/2014
Net profit Margin	1.25%	1.38%	2.82%	3.43%	3.13%
Gross Profit Margin	11.25%	10.77%	13.67%	14.18%	14.01%
Return on Total Assets	1.72%	2.46%	5.43%	5.90%	5.66%
Return on Common shareholders’ Equity	4.33%	6.85%	13.44%	14.10%	16.89%
Book value per common share	230.75	164.42	152.23	135.49	124.61
Earnings Per Share (EPS)	8.55	10.84	19.34	18.34	19.63

5.3 Solvency Ratios

Solvency ratio is a key metric used to measure an enterprise’s ability to meet its debt and other obligations. In other words, solvency ratios identify going concern issues and a firm’s ability to pay its bills in the long term. Better solvency ratios indicate a more creditworthy and financially sound company in the long-term. The following ratios are classified under solvency ratio

1.      Debt Ratio

2.      Equity Ratio

3.      Time Interest Earned

The solvency ratios calculated from the financial statements of Abans Elecricals PLC are as follows:

1.      Debt Ratio

Debt Ratio = Total Liabilities

                        Total Assets

	2017/2018	2016/2017	2015/2016	2014/2015	2013/2014
Debt Ratio	54.5%	66.1%	61.4%	57.3%	59.2%

This ratio interpreted as the proportion of a company's assets that are financed by debt. More than half of the assets are financed by debt in the Abans Elecricals PLC which indicating higher degrees of debt financing.

2.      Equity Ratio

Equity Ratio = Total Shareholders’ Equity

                          Total Assets

	2017/2018	2016/2017	2015/2016	2014/2015	2013/2014
Equity Ratio	45.5%	33.9%	38.6%	42.7%	40.8%

It represents the amount of assets on which shareholders have a residual claim. The Abans Elecricals PLC financed its assets by equity less than 50%. Low Equity ratio is not preferable as the company’s profitability is in declining stage.

3.      Time Interest Earned

Time Interest Earned = Net Income Before interest and Tax

                                                Interest Expenses

	2017/2018	2016/2017	2015/2016	2014/2015	2013/2014
Time Interest Earned	2.47	2.02	4.46	4.21	2.22

This ratio measures how many times over a company could pay its current interest payment with its available earnings. Abans Elecricals PLC recorded low interest coverage for last five years. 1.5 is generally considered to be a bare minimum acceptable ratio for a company and the tipping point.  . Abans Elecricals PLC having the ratio closer to that minimum point and it indicates the debt expenses burden the company.

Summary of Solvency Ratios

	2017/2018	2016/2017	2015/2016	2014/2015	2013/2014
Debt Ratio	54.5%	66.1%	61.4%	57.3%	59.2%
Equity Ratio	45.5%	33.9%	38.6%	42.7%	40.8%
Time Interest Earned	2.47	2.02	4.46	4.21	2.22

5.4.Market Ratios

The market value ratios are important for investors, management, etc as these ratios are used to decide whether the valuation of the shares are overvalued, undervalued or at par with the market. These ratios are used for making investment decisions in stocks of companies. The market ratios are:

1.      Price Earnings Ratio

2.      Dividend Yield

The solvency ratios calculated from the financial statements of Abans Elecricals PLC are as follows:

1.      Price Earnings Ratio(P/E Ratio)

Price Earnings Ratio = Market Price per Share

                                      Earnings per Share

	2017/2018	2016/2017	2015/2016	2014/2015	2013/2014
Price Earnings Ratio	9.86 times	8.14 times	5.75 times	5.76 times	5.05 times

P/E ratio reflects investors’ expectations about the growth in the firm’s earning. Abans Elecricals PLC have low P/E ratio and the ratio is in inceasing trend. The P/E Ratio is 5.05 times in 2013/2014 and it gradually increased upto 9.86 times in 2017/2018.

2.      Dividend Yield

Dividend Yield = Dividend per Share

                             Market price per share

                   

	2017/2018	2016/2017	2015/2016	2014/2015	2013/2014
Dividend Yield	3.56%	3.40%	2.25%	2.37%	2.52%

Dividend yield ratio shows what percentage of the market price of a share a company annually pays to its stockholders in the form of dividends. The Abans Elecricals PLC provided very low percentage of dividend to its shareholders over the last five years and and it is in increasing treand.

Summary of Solvency Ratios

	2017/2018	2016/2017	2015/2016	2014/2015	2013/2014
Price Earnings Ratio	9.86 times	8.14 times	5.75 times	5.76 times	5.05 times
Dividend Yield	3.56%	3.40%	2.25%	2.37%	2.52%

6.     CONCLUSION

Financial Statement analysis can be a very useful tool for understanding a firm’s performance and condition. it is a process of identifying the financial strengths and weaknesses of the firm by properly establishing relationships between the items of the balance sheet and the profit and loss account.

A simple method of tracing periodic changes in the financial performance of a company is to prepare comparative statements. Comparative financial statements will contain at least two years period. Abans Electricals Plc is selected for this analysis and this analysis consists five years period. Horizontal and trend analysis indicates the direction of change while the vertical analysis indicates static relationships since relative changes are studied at a specific date.

Ratio Analysis is a form of Financial Statement Analysis that is used to obtain a quick indication of a firm's financial performance in four important areas namely liquidity and efficiency ratios, Profitability ratios, Solvency ratios and Market Ratios. When considering the liquidity position of Abans Electricals Plc, it is noted that it has to improve their liquidity level as it is not met the relevant standards. Further profitability of Abans Electricals Plc is in questionable as it has decreasing trend. In the view of leverage, the company financed by more debt rather than equity which denotes that it is high levered firm. This ratio analysis will help the stake holder to make a better decision.

7.     RECOMMENDATION

Abans Electricals Plc is a listed company listed in Colombo exchange and it is classified under manufacturing sector. When analyze the five year financial statements of particular company the following issues are arised.

·         The income tax expenses are abnormally high in the last three years

·         The company financed by high debt rather than equity

·         Profitability measures are in decreasing trend.

·         More the one month is needed to turn their inventory into sales.

·         Market ratios are in increasing trend

Based on the above facts, the following recommendations can be suggested to Abans Electicals Plc.

            Leveraged companies are considered riskier since businesses are contractually obliged to pay interests on debts regardless of their operating results. Even if a business incurs operating losses, it still is required to meet fixed interest obligations. In contrast, the payment of dividends to equity holders is not mandatory; it is made only upon the decision of the company’s board. Hence, it’s better to maintain 50% debt level

To avoid the declining stage of profitability, the Abans Electricals Plc should Keep close watch on their expenses and evaluate growth options through forecasting. Using activity-based costing is an effective way to find the real cost of specific business activities.