Dipped Products PLC

 

1.EXECUTIVE SUMMARY

Dipped Products PLC are a global leader in protective hand-wear, serving around 5% of global demand for natural and synthetic-latex based household and industrial gloves. With a track record of over four decades, we have built reputation for innovation, quality and sustainable manufacturing globally. The DPL Group also has interests in Sri Lanka’s plantation sector and producing tea and rubber through its holdings two leading regional Plantation Companies.

The DPL Group is represented by several subsidiaries engaged in the two business lines of hand protection and plantations. In hand protection, the parent entity together with four subsidiaries are involved in the manufacture of medical examination and non-medical disposable gloves, including Dipped Products (Thailand) Limited which engages in the production of medical examination and non-medical disposable gloves.

 

The Group’s consolidated turnover increased by 6% to Rs.30.1 billion during the year, contributed by growth in both the Hand Protection (+8%) and Plantations (+4%) sectors. Despite intense regional competition, the Hand Protection sector grew its pre-tax profit by 66% to Rs.712.15 million, supported by steady rubber prices, client acquisition and focus on productivity initiatives. The Italian based marketing company ICOGUANTI S.p.A also made a strong contribution to the Group’s profitability supported by low input costs and favourable currency movements. The Plantations sector recorded a pre-tax profit of Rs. 930.40 million (+15% growth) mainly due to the recovery of tea prices towards the latter part of the year, although overall performance remained subdued given adverse weather, and an increase in wage rates. Overall the Group’s consolidated pre-tax profit increased by 32% to Rs.1.64 billion while profit attributable to shareholders amounted to Rs. 868.42 million compared to Rs. 495.47 million in the previous year.

 

  

2.ANALYSIS OVERVIEW

DPL is one of the global leaders in hand-ware , serving close to 5% of the global demand for natural and synthetic latex based household and industrial gloves. This report contains a five year comparative financial analysis of companies performance. The analysis is done using the following techniques.

v  Horizontal analysis

ØDollar change

ØPercent change

 

v  Vertical analysis

Ø  Common size percent

 

v  Ratio analysis  

ØLiquidity and Efficiency

·         Working capital

·         Current ratio

·         Acid Test Ratio

·         Accounts receivable turnover

·         Merchandize turnover

·         Days’sales uncollected

·         Days’ sales in inventory

·         Total assets turnover

 

ØSolvency

·         Debt ratio

·         Equity ratio

·         Times interest earned

 

ØProfitability

·         Profit margin

·         Gross margin

·         Return on total assets

·         Return on common shareholders’ equity

·         Book value per common share

·         Basic earnings per share

 

ØMarket                                        

·         Price Earnings per Share

·         Dividend yield

  

 

 

03.EVIDENT MATTER

·         Statement of Financial position year 2015 -2019

Year	2015	2016	2017	2018	2019
ASSETS
Non current assets
Tangible  assets	463161	475894	570746	676108	637484
Formers (moulds)	37164	38328	34438	57648	67363
Investment properties	391993	411700	125500	156900	163176
Investment in subsidaries	3147684	3147684	3682546	3600546	3500546
Amount due from subsidaries	14457	19789	33163	38620	23748
Other non current financial assets
Defferred assets	14457	20744	40960	33163	87230
Current assets
Inventories	370192	361065	486544	605332	711417
Trade and other receivables	720604	767916	1000112	821265	1080365
Advances and pre payments	43605	89433	39639	52655	59535
Amounts due from subsidaries	932561	501123	294186	876255	1266170
Cash and short term deposits	124163	46458	28820	72417	181113
	2191125	1765995	1849301	2427924	3298600
Total assets	6245584	5880134	6339777	6990909	7837332
EQUITY AND LIABILITIES
Equity
Stated capital	598615	598615	598615	598615	598615
Capital reserves	195128	195128	220483	189682	189682
Revenue reserves	2698964	2598221	2843122	3853222	3732466
Equity attributable to equity holders	3492707	3391964	3662220	4641519	4570265
Total Equity	3492707	3391964	3662220	4641519	4570265
Non -current liabilities
Defined benefit obligation	320790	380492	347237	433820	472031
	320790	380492	347237	433820	472031
Current liabilities
Trade and other payable	497010	313066	368543	386272	558051
Interest bearing loans & borrowings	540509	295234	608466	905952	1506303
Amounts due to subsidaries	1394568	1499378	1353311	614229	730682
Income tax payable				9117
Total current liabilities	2432087	2107678	2330320	1915570	2795036
Total liabilities	2752877	2488170	2677557	2349390	3267067
Total equity & liabilities	6245584	5880134	6339777	6990909	7837332

 

 

 

·         Statement of Income 2015-2019

Year	2015	2016	2017	2018	2019
Revenue	2564913	1685401	1792509	2266036	3898365
Cost of sales	1939746	1242316	1381449	1836512	3025141
Gross profit	625167	443085	411060	429524	873224
Other income and gains	575550	191942	420163	261294	240238
Distribution costs	24541	25598	19505	27611	33671
Administrative expenses	369523	424171	404036	452036	621200
Other expenses
Impairment reversal / (loss) on investment and other amounts due	105000	15290	196	208	100406
Finance costs	73840	66880	104961	90484	127298
Finance income	7134	5001	8313	16088	55832
Profit before tax	626272	171299	335749	167967	292995
Tax (expense) / reversal	11217	5760	21182	4635	34772
Profit for the year	615055	177059	356931	163332	327767
Attributable to:
Equity holders of the parent	615055	177059	356931	163332	327767
Non-controlling interest
	615055	177059	356931	163332	327767
Basic earnings per share (Rs.)	10.27	2.96	5.96	2.73	5.48
Diluted earnings per share (Rs.)	10.27	2.96	5.96	2.73	5.48
Dividends per share (Rs.)	7	2	3	3	4.5

 

 

 

 

04.ANALYSIS

Horizontal Analysis

Dollar change=Analysis Period Amount-Base Period Amount

 

Year	2015	2016	2017	2018	2019
ASSETS
Non current assets
Tangible  assets	48407	12733	94852	105362	-38624
Formers (moulds)	-26848	1164	-3890	23210	9715
Investment properties	86024	19707	-286200	31400	6276
Investment in subsidaries	520000	0	534862	-82000	-100000
Amount due from subsidaries	-2210	5332	13374	5457	-14872
Other non current financial assets
Defferred assets	-2210	6287	20216	-7797	54067
Current assets
Inventories	-172139	-9127	125479	118788	106085
Trade and other receivables	-37463	47312	232196	-178847	259100
Advances and pre payments	-7.6E+10	45828	-49794	13016	6880
Amounts due from subsidaries	909887	-431438	-206937	582069	389915
Cash and short term deposits	-1650794	-77705	-17638	43597	108696
	-3012918	-425130	83306	578623	870676
Total assets	92064	-365450	459643	651132	846423
EQUITY AND LIABILITIES
Equity
Stated capital
Capital reserves	16043	0	25355	-30801	0
Revenue reserves	348878	-100743	244901	1010100	-120756
Equity attributable to equity holders	364921	-100743	270256	979299	-71254
Total Equity	364921	-100743	270256	979299	-71254
Non -current liabilities
Defined benefit obligation	23714	59702	-33255	86583	38211
	23714	59702	-33255	86583	38211
Current liabilities
Trade and other payable	-34439	-183944	55477	17729	171779
Interest bearing loans & borrowings	65392	-245275	313232	297486	600351
Amounts due to subsidaries	621953	104810	-146067	-739082	116453
Income tax payable				9117	-9117
Total current liabilities	652906	-324409	222642	-414750	879466
Total liabilities	676520	-264707	189387	-328167	917677
Total equity & liabilities	1041541	-365450	459643	651132	846423

 

Change as a percent

Percent change =Dollar change /Base Period Amount *100

 

Year	2015	2016	2017	2018	2019
ASSETS
Non current assets
Tangible  assets	10.45144	2.675596	16.61895	15.5836	-6.05882
Formers (moulds)	-72.242	3.036944	-11.2957	40.26159	14.42186
Investment properties	21.94529	4.786738	-228.048	20.01275	3.846154
Investment in subsidaries	16.52008	0	14.52424	-2.27743	-2.8567
Amount due from subsidaries	-15.2867	26.94426	40.32808	14.12998	-62.6242
Other non current financial assets
Defferred assets	-15.2867	30.30756	49.35547	-23.5111	61.98212
Current assets
Inventories	-46.4999	-2.5278	25.78986	19.62361	14.91179
Trade and other receivables	-5.19883	6.161091	23.217	-21.777	23.98264
Advances and pre payments	-1.7E+08	51.24283	-125.619	24.7194	11.55623
Amounts due from subsidaries	97.56863	-86.0942	-70.3422	66.4269	30.79484
Cash and short term deposits	-1329.54	-167.259	-61.2006	60.20271	60.01557
	-137.506	-24.0731	4.504729	23.83201	26.39532
Total assets	1.474066	-6.21499	7.250145	9.313982	10.79989
EQUITY AND LIABILITIES
Equity
Stated capital
Capital reserves	8.221783	0	11.49975	-16.2382	0
Revenue reserves	12.92637	-3.87738	8.613806	26.21443	-3.23529
Equity attributable to equity holders	10.44809	-2.97005	7.379568	21.09867	-1.55908
Total Equity	10.44809	-2.97005	7.379568	21.09867	-1.55908
Non -current liabilities
Defined benefit obligation	7.392375	15.69074	-9.57703	19.95828	8.095019
	7.392375	15.69074	-9.57703	19.95828	8.095019
Current liabilities
Trade and other payable	-6.92924	-58.7557	15.05306	4.589771	30.78195
Interest bearing loans & borrowings	12.09823	-83.0782	51.47897	32.83684	39.85593
Amounts due to subsidaries	44.59826	6.990232	-10.7933	-120.327	15.93758
Income tax payable				100
Total current liabilities	26.8455	-15.3918	9.554138	-21.6515	31.46528
Total liabilities	24.57502	-10.6386	7.073127	-13.9682	28.08871
Total equity & liabilities	16.67644	-6.21499	7.250145	9.313982	10.79989

 

 

 

 

 

 

 

 

 

Trend Analysis

Trend Percent=Analysis Period Amount/Base Period Amount*100%

 

Year	2019	2018	2017	2016	2015
Revenue	3898365	2266036	1792509	1685401	2564913
Cost of sales	3025141	1836512	1381449	1242316	1939746
Gross profit	873224	429524	411060	443085	625167
Year	2019	2018	2017	2016	2015
Revenue	151.99	88.35	69.89	65.71	100.00
Cost of sales	155.96	94.68	71.22	64.05	100.00
Gross profit	139.68	68.71	65.75	70.87	100.00

 

 

 

Vertical Analysis

Common size percent=Analysis Amount/Base Amount *100

Statement of Financial Position

Year	2015	2016	2017	2018	2019
ASSETS
Non current assets
Tangible  assets	52.57973	-3.4842	20.63602	16.18136	-4.56
Formers (moulds)	-29.1623	-0.31851	-0.84631	3.564561	1.15
Investment properties	93.43935	-5.39253	-62.2657	4.822371	0.74
Investment in subsidaries	564.8245	0	116.3647	-12.5935	-11.81
Amount due from subsidaries	-2.4005	-1.45902	2.909649	0.838079	-1.76
Other non current financial assets	0	0	0	0	0.00
Defferred assets	-2.4005	-1.72034	4.398196	-1.19745	6.39
Current assets	0	0	0	0	0.00
Inventories	-186.978	2.497469	27.29923	18.24331	12.53
Trade and other receivables	-40.6923	-12.9462	50.5166	-27.4671	30.61
Advances and pre payments	-8.2E+07	-12.5402	-10.8332	1.99898	0.81
Amounts due from subsidaries	988.3201	118.0566	-45.0212	89.39339	46.07
Cash and short term deposits	-1793.09	21.26283	-3.83733	6.69557	12.84
	-3272.63	116.3306	18.12407	88.86416	102.87
Total assets	100	100	100	100	100.00
EQUITY AND LIABILITIES
Equity
Stated capital
Capital reserves	1.540314	0	5.516238	-4.73038	0
Revenue reserves	33.49633	27.56684	53.2807	155.1298	-14.2666
Equity attributable to equity holders	35.03664	27.56684	58.79694	150.3995	-8.41825
Total Equity	35.03664	27.56684	58.79694	150.3995	-8.41825
Non -current liabilities
Defined benefit obligation	2.276819	-16.3366	-7.23496	13.2973	4.514409
	2.276819	-16.3366	-7.23496	13.2973	4.514409
Current liabilities
Trade and other payable	-3.30654	50.33356	12.06958	2.722797	20.2947
Interest bearing loans & borrowings	6.278389	67.11588	68.1468	45.68751	70.92801
Amounts due to subsidaries	59.71469	-28.6797	-31.7784	-113.507	13.75825
Income tax payable	0	0	0	1.400177	-1.07712
Total current liabilities	62.68654	88.76974	48.43803	-63.6968	103.9038
Total liabilities	64.95376	72.43316	41.20306	-50.3995	108.4182
Total equity & liabilities	100	100	100	100	100

Income Statement

Year	2015	2016	2017	2018	2019
Revenue	100	100	100	100	100
Cost of sales	75.6262	73.7104	77.0679	81.0451	77.6003
Gross profit	24.3738	26.2896	22.9321	18.9549	22.3997
Other income and gains	22.4394	11.3885	23.4399	11.5309	6.1625
Distribution costs	0.9568	1.5188	1.0881	1.2185	0.8637
Administrative expenses	14.4068	25.1674	22.5402	19.9483	15.9349
Other expenses
Impairment reversal / (loss) on investment and other amounts due	4.0937	0.9072	0.0109	0.0092	2.5756
Finance costs	2.8789	3.9682	5.8555	3.9931	3.2654
Finance income	0.2781	0.2967	0.4638	0.7100	1.4322
Profit before tax	24.4169	10.1637	18.7307	7.4124	7.5158
Tax (expense) / reversal	0.4373	0.3418	1.1817	0.2045	0.8920
Profit for the year	23.9796	10.5055	19.9124	7.2078	8.4078
Attributable to:
Equity holders of the parent	23.9796	10.5055	19.9124	7.2078	8.4078
Non-controlling interest
	23.9796	10.5055	19.9124	7.2078	8.4078
Basic earnings per share (Rs.)	0.0004	0.0002	0.0003	0.0001	0.0001
Diluted earnings per share (Rs.)	0.0004	0.0002	0.0003	0.0001	0.0001
Dividends per share (Rs.)	0.0003	0.0001	0.0002	0.0001	0.0001

 

 

Ratio Analysis

 

	2015	2016	2017	2018	2019
Working Capital	-240962	-341683	-481019	512354	503564
current ratio	0.350828	0.300332	0.291698	0.347297	0.420883
acid test ratio	0.730783	0.624145	0.567784	0.923974	0.904335
accounts receivable turnover	3.469214	2.264533	2.027693	2.488267	4.100025
merchandise turn over	2.623634	1.669196	1.5627	2.016619	3.181629
days sale's uncollected	102.5456	166.3042	203.648	132.2846	101.1535
Day's sales in inventory	69.65865	106.0831	128.5524	120.3075	85.8364
total assets turnover	0.413726	0.277988	0.293375	0.339973	0.525803
debt ratio	0.440772	0.423149	0.422342	0.336064	0.41686
equity ratio	0.559228	0.576851	0.577658	0.663936	0.58314
time interest earned	9.481473	3.561289	4.198798	2.856317	3.301647
profit margin	24.41689	10.16369	18.73067	7.412371	7.515843
Gross margin	0.243738	0.262896	0.229321	0.189549	0.223997
return on total assets	0.09921	0.029204	0.058418	0.024505	0.044208
return on common shareholder's equity	0.185803	0.051436	0.101197	0.039339	0.071163
book value per common share	0.058346	0.056664	0.061178	0.077538	0.076347
basic earnings per share	0.010275	0.002958	0.005963	0.002728	0.005475
price earnings ratio	7.4	14.3	10.33	5.38	5.38
dividend yield	0.050725	0.027397	0.032895	0.035088	0.057692

 

 

 

05.DISCUSSION

According to vertical analysis of DPL it figure out the company having 65% of noncurrent assets and about 35% current assets thought 5 years. It keeps 55% of equity and 45% liabilities through the recent 5 years but there is increment of the total liabilities in holistic view.

When analyze the trend of the company it figures out the increasing of revenue from contract with customer and decline of the cost of sales of the company. So that gross profit has treaded of increase. It is a good trend of the company

There is various type of ratio analysis. Current ratio of the DPL has trend of decreasing and suddenly increasing in2019.This ratio erasure the short term debit paying ability of the company in 2019 they become good in that case.

According to accounts receivable turnover of the DPL about 2-3 tie company convert its receivable in to cash in each year. Company is sold and replaces the merchandise in3-4 times during the year. But liquidity of receivable of the company is high sometimes it is more than 3 months according to day’s sales uncontrolled.

According to days sales inventory liquidity of the inventory is ore about 3 months but it decreases in recent year. There is about 0.20-0.5 times of efficiency of assets in producing sales.

Debt ratio and equity ratio confirm the vertical analysis results by saying about 55% equity ratio and 45% liability ratio. According to time interest earned there is decrement of that ability of firs operations to provide protection to long term creditors.

According to profit margin there is about 7-8% of ability to earn a net income from sales. There is 21-22% of amount remaining of one rupee for sales that is left to cover operating expenses and a profit after considering cost of sales. Return of the assets figure out the 20-50% profitability of the company.

There is 4-7% of owner’s investment employed to earn incomes. There is 0.05-0.07 fraction of liquidation at reported amount.0.002-0.005 of income was earned for each share of common stock outstanding.

DPL has about 10 times of price earnings ratio. When analyze the past 5 years there is a increasing trend It is an evidence for well-being of the company. There is about 3% of cash evident on the current market price of the stock.

 

ANALYZING FINANCIAL REPORTS OF SOFTLOGIC HOLDINGS PLC

 

Company Profile

 

Softlogic Holdings PLC, rated as one of Sri Lanka’s most dynamic and reputed conglomerates, commenced operations in 1991 as a software developer with just 12 employees; now has enlarged its footprint holding leading positions in domestic growth oriented sectors such as ICT, Healthcare, Retail, Financial Services, Automobiles and Leisure.

The Group now provides employment to over 8,000 individuals generating a turnover of more than USD300 mn. The Group’s representations and strategic alliances with reputed global institutions and large multinational corporations confirm its unparalleled local stature.

Softlogic Holdings PLC’s vision is to be “To be the most preferred and trusted product and service provider, delivering high quality solutions to corporates and retail customers so as to set new industry standards and enhance shareholder value.”

Their mission is “Making the right decisions to increase returns on money invested. Employing and rewarding the best, to leverage market potential and become the most admired corporate in Sri Lanka..”

 

1) Horizontal Analysis

Horizontal analysis is used in financial statement analysis to compare historical data, such as ratios, or line items, over a number of accounting periods. Horizontal analysis can either use absolute comparisons or percentage comparisons, where the numbers in each succeeding period are expressed as a percentage of the amount in the baseline year, with the baseline amount being listed as 100%. This is also known as base-year analysis.

Since this entire Statement Analysis is done by analyzing 5 years data including years 2015 to 2019, 2014 has been taken as the base year.

1.1) Horizontal Analysis of the Financial Position

 

According to the above table Softlogic Holdings PLC  had an incremental growth by considering the past five years annual report details. They  have a positive percentage of Total assets. The percent change of total has increased 32.27% to 165.38%. At the same time the current liabilities percent change is increased 6.78% to 124.03%. Then in 2017 the current liabilities have reduced to a low amount. In 2016 it has taken a rapid growth to 21.68% to 115.99%. That depicts that in 2017 current liabilities have dropped down when compared to 2014.

According to the above table almost all the figures have an upward trend. As a leading company it has increased current liabilities drastically.

1.2) Horizontal Analysis of the Income Statement

According to the above table profit for the year has an upward trend along the five years. But in 2019, it shows the decreased revenue percent change when comparing to 2018. Also Softlogic Holding PLC has an upward trend in the profit. According to above table the company has shown quick growth in the past five years..

 

2) Vertical Analysis

Vertical analysis is a method of financial statement analysis in which each line item is listed as a percentage of a base figure within the statement. Thus, line items on an income statement can be stated as a percentage of gross sales, while line items on a balance sheet can be stated as a percentage of total assets or liabilities, and vertical analysis of a cash flow statement shows each cash inflow or outflow as a percentage of the total cash inflows.

2.1) Vertical Analysis of the Financial Position

Softlogic  Holdings PLC is having a figure above 50% for Total Non - Current Assets in all the five years. It is a good condition for a company. That depicts even their production and sales come down, still they have these assets with them to build up the company back.

The total equity is over 20% from the total equity and liabilities. But their stated capital is low than the revenue reserves in the past five years. It is a good condition for the company. It implies that they have paid a low dividend amount and high amount is invested on business growth.

 

2.2) Vertical Analysis of Income Statement

 

 

Softlogic Holdings PLC is having a figure of around 30% for cost of sales compared to the total revenue.

Gross profit is above 60% in the past five years.The other operating incomes have been increased. It is a good thing for a company. Net profit for the year has been increased along the four years. It is a good condition for the company. But in 2019, the net profit has drastically reduced to loss .It may happen due to the ester attacks. But the administrative expenses are not having a much variation along the five years.The company should  try to reduce those expenses and increase the profit for the year.

3) Ratio Analysis

Ratio analysis is the comparison of line items in the financial statements of a business. Ratio analysis is used to evaluate a number of issues with an entity, such as its liquidity and efficiency of operations, profitability, solvency and market. Trend lines can also be used to estimate the direction of future ratio performance.

3.1) Liquidity and Efficiency Ratios

·         Working Capital

Working capital, also known as net working capital (NWC), is the difference between a company’s current assets, such as cash, accounts receivable (customers’ unpaid bills) and inventories of raw materials and finished goods, and its current liabilities, such as accounts payable.

 Softlogic Holdings  PLC has negative  figures for 2015,2016 and 2018. That is not a good condition for the company because they don’t have money to settle the short term liabilities and to run the day to day business. In 2015 and 2016 they have a negative amount of working capital and it has increased to positive amount in 2017.

·         Current Ratio and Acid Test Ratio

The current ratio is a liquidity ratio that measures whether a firm has enough resources to

meet its short-term obligations. It tells, investors and analysts how a company can maximize the current assets on its balance sheet to satisfy its current debt and other payables.

The quick ratio or acid test ratio is a liquidity ratio that measures the ability of a company to

pay its current liabilities when they come due with only quick assets. Quick assets are current

assets that can be converted to cash within 90 days or in the short-term.

Current Ratio and Acid Test Ratio have the same pattern throughout the five years.

·         Accounts Receivable Turnover and Merchandise Turnover

Receivable Turnover Ratio or Debtor's Turnover ratio is the number of times per year that a business collects its average accounts receivable.

The receivables turnover ratio is an activity ratio, measuring how efficiently a firm uses its assets.

Merchandise turnover indicates how many times a company sells and replaces its stock of

goods during a particular period. The formula for merchandise turnover ratio is the cost of

goods sold divided by the average inventory for the same period.

Accounts Receivable Turnover is around 1 times throughout the four years & in 2019 it has decreased to 0.71. Merchandise turnover is around 3 and 4 times. It is a not a good condition for the company because they are collecting account receivable from their customers around 3 or 4 times compared to their total sales. And also they are selling their inventory more than 3/4 times compared to the cost of sales.

·         Days’ Sales Uncollected and Days’ Sales in Inventory

Days' sales uncollected is a liquidity ratio that is used to estimate the number of days before

receivables will be collected.

The day’s sales of inventory (DSI) is a financial ratio that indicates the average time in days

that a company takes to turn its inventory, including goods that are a work in progress, into

sales.

Both Days ‘sales uncollected and Days ‘sales in inventory is around 200 times. That implies that

the company can collect their trade receivables as well as can sell their inventory within less

than one year. It is a good condition in a business.

·         Total Assets Turnover

The asset turnover ratio  measures the value of a company's sales or revenues relative to the value of its assets. The asset turnover ratio can be used as an indicator of the efficiency with which a company is using its assets to generate revenue. In other words, this ratio shows how efficiently a company can use its assets to generate sales.

All the five years are having a figure around 0.2 as the Total Assets Turnover. That implies that

the average total assets are higher than the revenue. This is not a much preferred condition

for a company. It is better if the company can have a figure more than 1.

 

3.2) Solvency Ratios

 

Debt Ratio and Equity Ratio

The debt ratio is a financial ratio that measures the extent of a company’s leverage. The debt ratio is defined as the ratio of total debt to total assets, expressed as a decimal or percentage. It can be interpreted as the proportion of a company’s assets that are financed by debt.

Debt Ratio is around 60% and 70 % in all the years except in 2019. It is not a good condition because if the debt ratio is high it shows that a high portion of assets have been contributed by

creditors.

 

The equity ratio is a financial metric that measures the amount of leverage used by a company. It uses investments in assets and the amount of equity to determine how well a company manages its debts and funds its asset requirements. The Equity Ratio is above 130% in all five years. It is also a very bad condition because it implies that higher portion of company’s assets have been contributed by the owners. It gives a bad situation because when this ratio is high the company has to pay a higher amount of dividends to the shareholders.

 3.3) Profitability Ratios

 

Profit Margin and Gross Profit Margin

The net profit margin is equal to how much net income or profit is generated as a percentage

of revenue. Net profit margin is the ratio of net profits to revenues for a company or business

segment. Net profit margin is typically expressed as a percentage but can also be represented

in decimal form. The net profit margin illustrates how much of each dollar in revenue

collected by a company translates into profit.

Gross profit margin is a metric used to assess a company's financial health and business model

by revealing the amount of money left over from sales after deducting the cost of goods sold.

The gross profit margin is often expressed as a percentage of sales and may be called theg ross margin ratio.

Profit Margin shows an upward trend along the four years. It is a good situation for the company which depicts that the company can make a reasonable profit on sales, as long as it is possible to control the overhead costs. But, in 2019, it has negative profit margin.

Gross profit margin shows figures above 100% and it is a very good condition because the company is generating profit even after reducing the production costs. It indicates how efficient and effective they are on controlling the overhead costs.

 

·         Return on Total Assets

 

Return on total assets (ROTA) is a ratio that measures a company's earnings before interest and taxes (EBIT) relative to its total net assets. It is defined as the ratio between net income and total average assets, or the amount of financial and operational income a company receives in a financial year as compared to the average of that company's total assets.

In all five years this ratio takes a figure around 1% for four years. It is a good condition for the company, because the company is able to generate more income out of fewer assets. But in 2019, it has negative value.

 

·         Return on Common Shareholder Equity

This ratio indicates the proportion of the net income that a firm generates by each dollar of

common equity invested.

In all five years this ratio shows a figure more than 5% for four years. In 2019 it has a -4.2% ratio. It is not a good condition for the company because the company is able to make profit out of investors ‘money.

3.4) Market Ratios

 

·         Price Earnings Ratio

The price-earnings ratio, also known as P/E ratio, P/E, or PER, is the ratio of a company's share

price to the company's earnings per share. The ratio is used for valuing companies and to find

out whether they are overvalued or undervalued.

This table depicts upward trend along the five years. It is not a good condition for the

company because it implies that investors need to spend more in order to get more as the

return.

·         Dividend Yield

 

The dividend yield is the amount of money a company pays shareholders for owning a share of its stock divided by its current stock price.

This company has upward dividend yield trend. It may be because of their share price is declining price is declining, or both. It may be seen as a positive or negative sign by investors.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CONCLUSION

 

By analyzing the annual reports, we can see that Softlogic Holdings PLC has shown a growth during the past five years. Almost all the ratios have the same behavioral pattern along the five years.

Softlogic Holdings PLC is having a high debt and equity ratios. It can adversely affect the company. This study concludes that Softlogic Holdings PLC should give special attention on company’s existing credit policy and as well as market strategies to develop the profit of the company. The company should give special attention on their business strategies and making policies to increase the profit of the company.

As per the liquidity and efficiency ratios Softlogic Holdings PLC is currently having a good condition as a company.

To continue this the company should give special attention on their business strategies and

making policies to increase these figures of the company.

KOTMALE HOLDINGS PLC.

 Horizontal Analysis of Financial Statements

Using this technology, the changes form one year to the next within each line item in the financial statements are analyzed on either as a currency or as a percentage. It   is a financial statement analysis technique that shows changes in the amounts of corresponding financial statement items over a period of time. It is a useful tool to evaluate the trend situation

Horizontal Analysis of Income Statement

Percentage Change

14/15 15/16 16/17 17/18 18/19

Revenue 6% 22% 16% 9% 10%

Cost of sales 3% 19% 18% 7% 9%

 

Gross profit 18% 32% 9% 14% 12%

Other income 15% 38% 16% 11% -98%

Distribution expenses -16% 45% 3% 13% 9%

Administrative expenses 20% -4% 23% 6% 20%

Result from operating activities 60% 76% 13% 18% 47%

Net finance income 32% 12% 71% -30% -74%

 

Profit before taxation 51% 59% 24% 5% -39%

Tax expense 159% 26% 70% 18% -57%

   

Profit for the year 24% 76% 6% -3% -26%

 

Other comprehensive income / (expense)

Actuarial losses on employee benefits -74% 12% 181% -84% -532%

Tax on other comprehensive income -74% -738% -149% -1677% -100%

 

Other comprehensive income / (expense) for the year, net of tax -74% -5134% -106% -5072% -46%

 

Total comprehensive income for the year 26% 98% -6% 34% -6%

We can clearly see that the gross profit and the operating profit have increased up to 2016 but again decrease in the 2018 and 2019. There is no significant increase in the revenue percentage value over the 5 years’ time. Company does not show significant growth according to percentage change figures. 

Horizontal Analysis of Statement of Financial Position

  14/15 15/16 16/17 17/18 18/19

ASSETS

Non-current assets

Property, plant and equipment -11% 12% 29% 32% 34%

Intangible assets 0% 0% 0% 0% 0%

Investments in subsidiaries  

Total non-current assets -9% 10% 24% 28% 31%

Current assets

Inventories -8% 28% 49% 2% 7%

Trade and other receivables 19% 4% 48% 26% 49%

Amounts due from related companies -57% 14% 41% -76% 90%

Short term investments 39% 21% -44% -56% -41%

Cash and cash equivalents -34% 85% -5% -32% -59%

Total current assets 15% 21% -2% -31% 0%

Total assets 7% 18% -9% -11% 19%

 

EQUITY

Stated capital -75% 0% 0% 0% 0%

Reserves 0% 27% 0% 65% 0%

Retained earnings -82% 793% 24% -51% 56%

Total equity 13% 21% 9% -21% 20%

 

LIABILITIES

Non-current liabilities  

Deferred tax liabilities 19% -7% 0% 32% 5%

Employee benefits 13% 20% 24% 7% 16%

Total non-current liabilities 17% 2% 9% 21% 9%

Current liabilities

Trade and other payables -19% -55% 2492% -9% 2%

Amounts due to related companies -63% -100% 0% -47% 1235%

Current tax liabilities 140% 25% 51% 24% 9%

Bank overdrafts -98% 1655% 3123% 71%

Total current liabilities -11% 6% 17% 11% 18%

Total liabilities -7% 8% 16% 13% 16%

Total equity and liabilities 7% 18% -9% -11% 19%

Though the cash and cash equivalence have decrease over the 5 years’ time which is bad for the company. The total assets percentage also have dropped for past 5 years. The total equity also has dropped for 5 years’ time. Total liability has increase over the period a percentage of while the total equity and liability is a decrease over 5 years’ time from last year. This shows that the company’s financial position is not stable, and it has a lot of debts to be paid in coming years.

06. Trend Analysis of Financial Statements.

This allows investors and analysts to see what has been driving a company’s financial performance over a few years, as well as spotting trends and growth patterns such as seasonality. It enables analysts to assess relative changes in different line items over time and project them. By looking at the income statement, balance sheet and cash flow statement at the same time, one can create a complete picture of operational results and see what has been driving a company’s performance and whether it is operating efficiently and profitably.

It is used to compare historical data, such as ratios, or line items, over a number of accounting periods. Horizontal analysis can either use absolute comparison or percentage comparison, where the number in each succeeding period are expressed as a percentage of the amount in the baseline year, with the baseline amount being listed as 100%.

Assume that base year is 2015/16

2014/15 2015/16 2016/17 2017/18 2018/19

 

Revenue 100% 122% 141% 154% 169%

Cost of sales 100% 94% 165% 177% 186%

   

Gross profit 100% 100% 175% 179% 189%

Other income 100% 138% 160% 178% 4%

Distribution expenses 100% 145% 150% 169% 185%

Administrative expenses 100% 96% 117% 124% 149%

   

Result from operating activities 100% 176% 199% 235% 160%

Net finance income 100% 112% 191% 133% 35%

   

Profit before taxation 100% 159% 197% 207% 126%

Tax expense 100% 126% 215% 253% 108%

   

Profit for the year 100% 176% 187% 182% 135%

 

There is an overall increase in the trends of all the above sections. But in 2019 all sections have decreasing trend.  Profit before taxation shows a higher increase compared to the others while the net revenue has a decreasing trend.

07. Vertical Analysis of Financial Statements

Here each line item is listed as a percentage of a base figure within the statement. Thus, line item on an income statement can be stated as a percentage of gross sales, while line items on a balance sheet can be stated as a percentage of total assets or liabilities and vertical analysis of a cash flow statement shows each cash inflow or outflow as a percentage of the total cash inflow.

Vertical analysis makes it much easier to compare the financial statement of one company with another as across industries because one can see the relative proportions of account balance. It also makes it easier to compare previous periods for time series analysis, in which quarterly and annual figures are compared over a number of years- in order to gain a picture of whether performance metrics improving or deteriorating.

Vertical Analysis for Statement of Profit or Loss and Other Comprehensive Income

2019 2018 2017 2016 2015

Revenue 100% 100% 100% 100% 100%

Cost of sales -74% -75% -76% -74% -79%

Gross profit 26% 25% 24% 26% 21%

 

Other income 0% 5% 5% 5% 4%

Distribution expenses -12% -12% -12% -13% -14%

Administrative expenses -6% -5% -5% -5% -6%

 

Result from operating activities 8% 13% 12% 12% 6%

 

Net finance income 1% 3% 4% 3% 3%

Profit before taxation 9% 16% 16% 15% 8%

Tax expense -3% -7% -6% -4% -2%

Profit for the year 6% 9% 10% 11% 7%

 

Other comprehensive income / (expense) 0% 0% - 1% -

Revaluation of land and building 0% 0% 0% 0% 0%

Actuarial losses on employee benefits 0% 0% 0% 0% 0%

Tax on other comprehensive income 6% 12% 0% 1% 0%

Other comprehensive income / (expense) for the year, net of tax 8% 10% 10% 12% 6%

Based on the revenue earned there is an increase of profit for the year, total comprehensive income for the year and gross profit when considered data over a 5 years’ span.

Vertical Analysis for Statement of Financial Position

  2019 2018 2017 2016 2015

ASSETS  

Non-current assets  

Property, plant and equipment 42% 29% 21% 26% 36%

Intangible assets 6% 4% 4% 5% 5%

Total non-current assets 47% 33% 24% 31% 41%

Current assets  

Inventories 13% 11% 7% 7% 9%

Trade and other receivables 15% 13% 8% 8% 12%

Amounts due from related companies 9% 6% 4% 10% 5%

Short term investments 46% 34% 54% 41% 30%

Cash and cash equivalents 4% 3% 3% 3% 2%

Total current assets 68% 67% 76% 69% 59%

Total assets 100% 100% 100% 100% 100%

 

EQUITY  

Stated capital 34% 22% 20% 25% 29%

Reserves 12% 8% 8% 8% 9%

Retained earnings 52% 40% 50% 38% 35%

Total equity 86% 71% 77% 71% 73%

 

LIABILITIES  

Non-current liabilities  

Deferred tax liabilities 2% 2% 2% 3% 2%

Employee benefits 2% 2% 1% 1% 1%

Total non-current liabilities 4% 4% 4% 4% 3%

Current liabilities 1% 0% 13% 0% 0%

Trade and other payables 17% 15% 1% 19% 20%

Amounts due to related companies 0% 0% 0% 4% 0%

Current tax liabilities 6% 9% 6% 2% 3%

Bank overdrafts 0% 0% 0% 0% 0%

Total current liabilities 27% 25% 19% 25% 24%

Total liabilities 27% 29% 23% 29% 27%

 

Total equity and liabilities 100% 100% 100% 100% 100%

Over the years the total non-current assets have fluctuated between 30-40% but does not show a drastic change. The total current assets round up to a 60% of total assets. Over the years the total equity and the total liability is steady without drastic fluctuations. And equity takes the majority % of total equity and liabilities which is favorable for the company.

08. Ratio Analysis for financial statements

Liquidity Ratios:

They usually focus on current assets and current liabilities. This measures the company’s ability to pay debt obligations and its margin of safety and repay its debts in the short-term.

Liquidity Ratios 2015 2016 2017 2018 2019

Current ratio (times) 2.8 4.0 2.7 2.4 2.9

Acid ratio (times) 2.5 3.6 2.3 2.4 2.1

Days sales uncollected 69.1 69.7 88.9 77.3 92.1

accounts receivables 1.3 1.6 1.3 1.7 2.1

total asset turnover 13.1 10.5 11.4 10.2 10.7

inventory turnover 9.5 13.3 12.9 13.1 13.7

days sales inventory 26.8 33.9 27.0 33.8 42.1

 

The current ratio indicates the ability of a company to repay the current liabilities out of the current assets. Over the past 4 years, this ratio has decreased which is not favorable. The acid ratio is a modified current ratio that takes into account the fact that inventory may be relatively difficult current asset to convert into cash. This ratio therefore reflects a more conservative view of the ability to repay the current liabilities within a short period. Here the acid ratio also has drastically dropped. The company should pay more attention to this.

Accounts receivable turnover, this ratio indicates the entity’s credit and collection efficiency. And it has fluctuated over the period.

Inventory turnover this indicated how fast inventory is turned to cash. Over time this has increased. A low turnover indicates over stocking and a high turnover indicates under stocking. In comparison to this days sales inventory brings us an indication as how long the stock will be held. As the company has a no

 

of days around 1 month it is acceptable. This can help to understand how investments should be done on inventory. Day’s sales uncollected has reduced over time which is favorable as it shows how fast we can collect the credit sales. Asset turnover ratio measures the value of a company’s sales or revenue generated relative to the value of its assets. This ratio shows only a slight fluctuation over the years.

Solvency Ratios:

These ratios measure the ability of the entity to repay its debts in the long-term. They usually deal with total assets and total liabilities. This shows the whether the company’s cash flow is sufficient to meet its long-term and short-term liabilities.

Solvency Ratios 2015 2016 2017 2018 2019

Debt ratio (%) 28.6 22.7 29.0 26.9 27.1

Equity ratio (%) 71.4 77.3 71.0 73.1 72.2

Time interest earned 3.2 5.1 3.7 9.7 9.4

 

Debt to asset ratio is the inverse of the debt ratio. It indicates how much of the liabilities are covered by assets- in essence the capacity of the company to repay its debts in a long run.it can be interpreted as the potion of a company’s assets that are financed by debts. It measures the extent of a company’s leverage. This ratio does not take in to account the timing of repayments and therefore the company appear to be solve and at the same time be liquid. Over the 5 years the ratio does not show any significant change meaning the ratio remains constant over five years.

Time interest earned ratio has decreased drastically over 5 years. This ratio indicated the company’s ability to meet the interest payment on its debts.

Profitability Ratios:

These are a class of financial metrics that are used to assess a business’s ability to generate earnings relative to its associated expenses. For most of these ratios having higher value relative to a competitor’s ratio or relative to the same ratio from a previous year indicate that the company is doing well.

Profitability Ratios 2105 2016 2017 2018 2019

profit margin 81.6 61.9 110.5 101.4 112.2

gross profit margin 295.6 199.2 245.1 236.5 247.6

Net margin/Net profit 0.28 0.31 0.43 0.42 0.47

return on total asset 7.3 8.1 14.6 14.6 15.7

return on common shareholders’

equity 0.11 0.11 0.20 0.20 0.20

Book value per common shares 25.1 28.0 38.4 31.9 41.1

Profit margin ratio calculated as net income divided by revenue. This ratio compares the earnings reported by a business to its sales. It is a key indicator of financial health of an organization. Over the 4 years profit margin is increased. This is a good indication.

Gross profit margin is a profitability ratio that calculates the percentage of sales that exceeds the cost of goods sold. In other words, it measures how efficiently a company uses its materials and labor to produce and sell products profitably. Over the 4 years it had decreased. But by a small amount.

Return on assets ratio shows how efficiently the company utilizes its assets. Here in Kothmale Company, this ratio has increased over time which is favorable for the company.

Return on common shareholder’s equity measure the success of a company in generating income for the benefit of common stakeholders. This ratio has increased over 3 years but by a small amount and the ratio value is not a large value as well. Based on its equity available to common shareholders. Book value per share is a market value financial ratio and the purpose of calculating it is to relate shareholder’s equity to the number of shares of common stock outstanding. This ratio has increased from 2015 to 2019 but reduced in 2019 by 6.8 percent.

Market Ratios:

This ratio asses the performance of the company’s shares.

Market Ratios 2015 2016 2017 2018 2019

earnings per share 3.7 3.0 6.5 6.9 7.2

dividend yield - - - 14.7 13.2

price earnings ratio 17.5 16.3 - 13.1 14.3

Earnings per share is the portion of a company’s profit allocated to each outstanding share of a common stock. Earnings per share serves as an indicator of a company’s profitability. The earnings per share had doubled from 2015/2016 to 2016/2017. Which is beneficial for the company. And it will attract more customers and investors to the company.

The company does not give dividend from 2015 to 2016 and provide 14.3 to shareholders in 2019. This indicate how much a company pays out in dividends each year relative to its share price. Dividend yield is represented as a percentage and can be calculated by dividing the dollar value of dividends paid in a given year per share of stock held by the dollar value of one share of stock.

 

Price earnings ratio indicates the amount an investor can expect to invest in a company in order to receive one dollar of that company’ earnings. This is why the P/E is sometimes referred to as the price multiple because it shows how much investors are willing to pay per dollar of earnings. The amount has reduced during 4 years which is good because more investors will invest because they can gain one dollar by investing less money that pervious years.

Conclusion

This examination investigates the impact of financial ratio of Kotmale Holdings PLC on corporate capital structure since 2015 to 2019, have secured that almost 72.2% of changes in capital structure could be depicted by selected independent variables.

The study also presents that the GDP growth rate has a significant and positive association with the capital structure which indicates that when the economy is at a growth phase, companies may tend to portray high profits so that it creates less demand for debt. As well as, interest rate has presents the negative relationships with capital structure decision (equity and debts financing ratio). Further, the inflation has demonstrated a negative but statistically significant association with the capital structure measures of the Kothmale Holding PLC in the manufacturing sector.

Since capital structure is one of the most questionable issues in corporate account there is a space for concentrate from various viewpoints. Accordingly, the creator further proposes that further examination on the impacts of financial ratio on the expense of capital should be executed to get a comprehensive view on how financial conditions influence firms' financing choices and in this way the estimations of the firms.

In organization perspective parties such as Mangers/Accountants of listed manufacturing firms are able to determine what type of accounting information that they should disclose in their annual reports or other publications. It can be suggest using these research findings to construct an industry bench mark for listed manufacturing firms in Sri Lanka. Furthermore, the disclosure of accounting ratios also can do in an informative manner by identifying which ratios are important and which are not important for determine capital structure. 

The ratio analysis laid out is a scheme for using ratios in an efficient and orderly manner in valuation analysis. It has a normative flavor to it but it is not offered as the definitive analysis. It does not suggest that a ratio not identified as an element of the decomposition here - the current ratio, for example - is not useful in forecasting future residual earnings.