LANKA WALLTILE PLC----FINANCIAL STATEMENT ANALYSIS

 

01.  COMPANY PROFILE

Lanka Wall tiles PLC was established in 1975 and it is a subsidiary of Lanka Ceramic PLC. Lanka Wall tile PLC engages in the production and distribution of ceramic wall tiles in Sri Lanka. The company offers a range of tiles in various colours, textures, and sizes, including special trim tiles, decorated tiles, and handmade and hand painted tiles. The product lines also include floor tiles, cartons and paper sacks for packing, and tile grout and tile mortar. In addition, Lanka Wall tile PLC engages in the trade of floor tiles, wall tiles, and parquet wooden flooring and provision of management services to the plantation industry.

Lanka Wall tiles PLC is the leading manufacturer of tiles in the country with a market share of over 40% and investments in Aluminium, Plantations and Packaging. A strong brand and a network of showrooms, distributors and franchisees support distribution of its products island-wide and overseas. The export markets are Australia, Bangladesh, Canada, France, Hong Kong, Japan, the Middle East, the Maldives, the Netherlands, New Zealand, Singapore, South Africa, Taiwan, the United States, India, and the United Kingdom.

Lanka Wall tiles PLC has been producing and exporting high quality ceramic tiles for over thirty-five years. The market leader and premier ceramic wall tile manufacturer in Sri Lanka, LANKA WALLTILES PLC is a major contender in the highly competitive international arena, supplying quality tiles to discerning markets. They have the capacity to produce approximately 2.3 million square meters of tiles annually. Sri Lanka is a beautiful and diverse country that has an abundance of raw materials for the production of tiles. They are strongly committed to investment in Research & Development in order that our tiles continue to meet the exacting manufacturing standards of the international marketplace. Company equally committed to the well-being of the environment and have many policies in place to help the company be on the cutting edge of green tile production. As a result of this we have obtained the GREENSL® Label (GREENSL® STAR) for our full range of wall tiles from the Green Building Council of Sri Lanka (GBCSL) which is the local representative of the World Green Building Council. Their tiles conform to ISO 13006. A wide range of tiles in a variety of colors, textures and sizes including special trim tiles and decorated tiles are manufactured by the company today.

The Company's segments are Tiles and associated items, Biological Assets, Aluminum products and Packing materials. The Tiles and associated items segment is engaged in manufacturing and distributing wall tiles, floor tiles and related products. The Biological Assets segment is engaged in cultivation, processing and sale of tea and rubber. Its Aluminum products segment is engaged in manufacturing and distributing aluminum extrusions and allied products through a network of dealers and distributors. Its Packing materials segment is engaged in manufacturing and distributing packing materials. The Company's subsidiaries include Lanka Tiles PLC, Vallibel Plantation Management Ltd, Uni-Dil Packaging Ltd, Uni-Dil Paper Sacks (Pvt) Ltd and LWL Development (Private) Limited.

In order to proceed with my assignment, I have selected Lanka Wall tiles PLC to conduct the financial statements analysis. This analysis includes Horizontal Analysis, Trend Analysis, Vertical Analysis and Ratio Analysis, and peer company analysis which will help the potential users to make better decisions regarding the company.

 

 

02.  FINANCIAL STATEMENT ANALYSIS

 

Financial statement analysis is the process of analysing a company's financial statements for decision-making purposes. External stakeholders use it to understand the overall health of an organization as well as to evaluate financial performance and business value. Internal constituents use it as a monitoring tool for managing the finances.

The financial statements of a company record important financial data on every aspect of a business’s activities. As such they can be evaluated on the basis of past, current, and projected performance.

Several techniques are commonly used as part of financial statement analysis. Three of the most important techniques as follows.

 

1. Horizontal analysis, 

 

Horizontal analysis compares data horizontally, by analysing values of line items across two or more years

 

2.Vertical analysis

 

Vertical analysis looks at the vertical affects line items have on other parts of the business and also the business’s proportions.

 

3. Ratio analysis.

 

Ratio analysis uses important ratio metrics to calculate statistical relationships.

 

1.   Peer Company Ratio analysis and Comparing

This is done by examining each company's past and current financial statements and comparing them with one another.

 

 

03.  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. It is a useful tool to evaluate the trend situations.

Here, I have performed horizontal analysis for Lanka Wall tiles PLC by simply taking the percentage change for each line-item year-over-year and also by considering 2015-16 as the base year to compare each item of financial statements. The following tables demonstrate the horizontal analysis as percentage changes of financial statement items of Lanka Wall tiles PLC.

3.1 Horizontal analysis – Year by Year

3.1.1 Statement of Comprehensive Income of Lanka Wall tiles PLC

Description	2017/18	2018/19	2019/20	2020/21	2021/22
Revenue	-0.87%	-2.87%	8.47%	71.41%	34.57%
Cost of sales	4.63%	8.78%	10.70%	54.59%	21.69%
Gross profit	-9.19%	-23.18%	2.97%	116.02%	59.00%
Other income - net	37.34%	-49.46%	-82.86%	2137.69%	105.11%
Distribution expenses	-0.66%	-1.20%	-9.93%	13.78%	36.96%
Administrative expenses	16.77%	8.51%	9.43%	42.22%	32.88%
Other Expenses	0.00%	0.00%	0.00%	0.00%	0.00%
Operating profit	-6.61%	-53.63%	-38.59%	575.67%	95.47%
Finance costs	7.52%	47.09%	32.19%	-40.50%	-86.99%
Profit before tax	-8.18%	-66.78%	-79.48%	2869.24%	109.08%
Income tax expense	8.80%	2.59%	-67.73%	142.49%	325.68%
Profit for the year	-11.59%	-83.92%	-98.02%	73123.99%	90.60%

 

Considering the above table, it reflects an abnormal change in other income in year 2020/21 and this is due to income received in investment of related parties as a dividend. Revenue and cost increase in year 2020/21 compare to the previous years as increase of local sales of tiles and associated items. Income tax expense in each year compared to the previous year. There is a considerable increase in finance cost in the year 2019 compared to 2018 and this may due to the enhanced short term credit facilities.

 

 

 

 

 

3.1.2 Statement of Financial Position of Lanka Wall tiles PLC

Description	2017/18	2018/19	2019/20	2020/21	2021/22
ASSETS
Non-current assets
Property, plant and equipment	23.79%	10.25%	-0.27%	1.77%	7.54%
Capital work in progress	-	-	-	0.00%	-
Investment in Subsidiaries	0.00%	0.00%	0.00%	0.00%	22.41%
Deferred Tax Assets	0.00%	0.00%	0.00%	-	-
Other long-term investments	-	-	-	-	0.00%
Loan - Related party	0.00%	0.00%	0.00%	-	-
Investment Property	0.00%	0.00%	0.00%	0.00%	35.14%
Total Non- Current Assets	17.19%	7.82%	0.78%	0.95%	10.91%
Current assets
Inventories	20.27%	38.50%	24.18%	-48.93%	4.90%
Trade and other receivables	45.20%	12.39%	-17.32%	17.55%	0.05%
Contract Assets	-	-	-	-	-
Loan - Related Party	0.00%	0.00%	0.00%	-	-
Tax receivable	-	-	-	-	3.38%
Amounts due from related parties	95.21%	110.11%	-10.69%	8.79%	68.88%
Cash and cash equivalents	40.65%	-45.51%	43.73%	485.43%	268.17%
Total Current Assets	27.95%	29.58%	12.82%	-28.03%	33.96%
Total Assets	20.34%	14.58%	5.02%	-9.99%	17.87%
EQUITY AND LIABILITIES
Capital and reserves
Stated capital	0.00%	0.00%	0.00%	0.00%	0.00%
Reserves	23.83%	18.30%	0.00%	13.57%	0.00%
Accumulated Profit/ (Loss)	6.68%	2.95%	1.13%	31.56%	26.76%
Total Capital and reserves	10.21%	7.20%	0.58%	20.86%	15.03%
Non-current liabilities
Employee benefit obligations	43.36%	9.24%	20.34%	21.09%	-28.56%
Borrowings - Related party	0.00%	0.00%	0.00%	0.00%	-
Lease liability	0.00%	-	-	-	-
Deferred tax liability	-	-	-	-35.55%	0.75%
Loans and borrowings	-49.17%	-27.88%	-38.95%	-45.02%	-83.53%
Total Non-current liabilities	51.16%	5.70%	-3.57%	-29.29%	-9.34%
Current liabilities
Trade and other payables	15.73%	39.05%	-27.52%	31.56%	72.23%
Contract liabilities	-	-	-	-	-
Loans & borrowings	57.88%	51.65%	44.95%	-91.14%	45.78%
Short term loans	0.00%	0.00%	0.00%	0.00%	0.00%
Amounts due to related parties	93.59%	14.01%	-23.69%	-45.31%	-73.98%
Borrowings - Related party	0.00%	0.00%	0.00%	0.00%	0.00%
Lease liability	0.00%	0.00%	-	-	-
Tax payable	-67.02%	-64.75%	52.81%	1467.04%	-
Bank overdrafts	0.00%	0.00%	0.00%	0.00%	0.00%
Total Current liabilities	38.57%	42.64%	19.31%	-59.98%	53.88%
Total Liabilities	43.45%	27.53%	11.56%	-50.99%	27.16%
Total Equity and Liabilities	20.34%	14.58%	5.02%	-9.99%	17.86%

 

From the above analysis it has been noted that the company is getting profitable each year. Specially in year 2020/2021 accumulated profit increase % higher than the previous. Parallel there is a considerable change in the Cash & Cash equaling, inventories, deferred tax and income tax liabilities in 2020-2021 period. The above table shows that the company is getting more focused on short term credit facilities in year 2018 2019 period and it was reduced in year 2021 and 2022.  over the years. Comparing this five years’ period the last year, 2019 company shows a high growth in Assets as well as in Liabilities

 

3.2 Horizontal analysis – Considering a Base year 2016-2017

3.2.1 Statement of Comprehensive Income of Lanka Wall tiles PLC  

Rs,000

Description	Base Year 2016-17 Amounts	2018	2019	2020	2021	2022
Revenue	3,209,560	-0.87%	-3.72%	4.43%	79.01%	140.89%
Cost of sales	-2,053,751	4.63%	13.82%	26.00%	94.78%	137.04%
Gross profit	1,155,809	-9.19%	-30.24%	-28.17%	55.17%	146.71%
Other income - net	283,146	37.34%	-30.58%	-88.10%	166.30%	446.20%
Distribution expenses	-201,519	-0.66%	-1.85%	-11.60%	0.58%	37.75%
Administrative expenses	-324,033	16.77%	26.71%	38.65%	97.19%	162.02%
Other Expenses	0	0.00%	0.00%	0.00%	0.00%	0.00%
Operating profit	913,403	-6.61%	-56.69%	-73.41%	79.67%	251.21%
Finance costs	-112,023	7.52%	58.15%	109.06%	24.38%	-83.82%
Profit before tax	801,380	-8.18%	-69.49%	-93.74%	85.83%	288.54%
Income tax expense	-158,002	8.80%	11.62%	-63.98%	-12.65%	271.83%
Profit for the year	643,378	-11.59%	-85.78%	-99.72%	105.62%	291.90%

 

In here all the items are compared with 2016-17 financial figures. Revenue, Gross Profit, Other Income, Income tax shows a major positive variation over the years and the PBT also shows a high growth compared to base year.

 

 

3.2.2 Statement of Financial Position of Lanka Wall tiles PLC                 LKR “000”

Description	Base Year 2016-17 Amounts	2018	2019	2020	2021	2022
ASSETS
Non-current assets
Property, plant and equipment	3,321,977	23.79%	36.48%	36.11%	38.51%	48.96%
Capital work in progress	0	-	-	-	-	-
Investment in Subsidiaries	1,276,096	0.00%	0.00%	0.00%	0.00%	22.41%
Deferred Tax Assets	0	0.00%	0.00%	0.00%	0.00%	0.00%
Other long term investments	0	-	-	-	-	-
Loan - Related party	0	0.00%	0.00%	0.00%	0.00%	0.00%
Investment Property	0	0.00%	0.00%	0.00%	0.00%	0.00%
Total Non- Current Assets	4,598,073	17.19%	26.36%	27.35%	28.56%	42.59%
Current assets
Inventories	1,196,576	20.27%	66.56%	106.84%	5.63%	10.81%
Trade and other receivables	517,726	45.20%	63.20%	34.93%	58.62%	58.69%
Contract Assets	0	-	-	-	-	-
Loan - Related Party	0	0.00%	0.00%	0.00%	0.00%	0.00%
Tax receivable	3,078	-	-	-	-	-
Amounts due from related parties	15,374	95.21%	310.15%	266.32%	298.50%	572.97%
Cash and cash equivalents	41,223	40.65%	-23.36%	10.15%	544.88%	2274.28%
Total Current Assets	1,773,977	27.95%	65.80%	87.06%	34.63%	80.35%
Total Assets	6,372,050	20.34%	37.88%	44.80%	30.34%	53.62%
EQUITY AND LIABILITIES
Capital and reserves
Stated capital	787,765	0.00%	0.00%	0.00%	0.00%	0.00%
Reserves	1,237,011	23.83%	46.49%	46.49%	66.36%	66.36%
Accumulated Profit/ (Loss)	2,118,262	6.68%	9.82%	11.06%	46.11%	85.21%
Total Capital and reserves	4,143,038	10.21%	18.15%	18.83%	43.61%	65.20%
Non-current liabilities
Employee benefit obligations	82,569	43.36%	56.61%	88.46%	128.21%	63.03%
Borrowings - Related party	0	0.00%	0.00%	0.00%	0.00%	0.00%
Lease liability	0	0.00%	0.00%	0.00%	0.00%	0.00%
Deferred tax liability	338,863	-	-	-	-	-
Loans and borrowings	584,245	-49.17%	-63.34%	-77.62%	-87.69%	-97.97%
Total Non-current liabilities	1,005,677	51.16%	59.77%	54.07%	8.93%	-1.24%
Current liabilities
Trade and other payables	373,245	15.73%	60.92%	16.64%	53.45%	164.28%
Contract liabilities	0	-	-	-	-	-
Loans & borrowings	716,759	57.88%	139.43%	247.05%	-69.26%	-55.18%
Short term loans	0	0.00%	0.00%	0.00%	0.00%	0.00%
Amounts due to related parties	93,856	93.59%	120.72%	68.43%	-7.88%	-76.03%
Borrowings - Related party	0	0.00%	0.00%	0.00%	0.00%	0.00%
Lease liability	0	0.00%	0.00%	0.00%	0.00%	0.00%
Tax payable	39,475	-67.02%	-88.37%	-82.23%	178.40%	367.76%
Bank overdrafts	0	0.00%	0.00%	0.00%	0.00%	0.00%
Total Current liabilities	1,223,335	38.57%	97.65%	135.82%	-5.62%	45.23%
Total Liabilities	2,229,012	43.45%	82.95%	104.10%	0.03%	27.20%
Total Equity and Liabilities	6,372,050	20.34%	37.88%	44.80%	30.34%	53.62%

 

Considering the above table, it shows that the company is growing rapidly compared to the base year 2016-17 with all its Assets, Equity and Liabilities. However, the liabilities have been increased at a higher rate compared to equity and Assets. This may be due to the company has invested in more credit financed projects in short term.

04.  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.

The below tables reflect a vertical analysis of financial statements of Lanka Wall tiles PLC 

4.1 Statement of Comprehensive Income of Lanka Wall tiles PLC  

LKR “000”

Description	2016/17	2017/18	2018/19	2019/20	2020/21	2021/22
Revenue	100.00%	100.00%	100.00%	100.00%	100.00%	100.00%
Cost of sales	60.19%	63.53%	71.16%	72.62%	65.49%	59.23%
Gross profit	39.81%	36.47%	28.84%	27.38%	34.51%	40.77%
Other income - net	9.25%	12.81%	6.67%	1.05%	13.76%	20.97%
Administrative expenses	-6.28%	-6.29%	-6.40%	-5.31%	-3.53%	-3.59%
Distribution expenses	-11.40%	-13.42%	-15.00%	-15.13%	-12.55%	-12.40%
Other Expenses	0.00%	0.00%	0.00%	0.00%	-0.68%	0.00%
Operating profit	31.39%	29.57%	14.12%	7.99%	31.50%	45.76%
Finance costs	3.15%	3.41%	5.17%	6.30%	2.19%	0.21%
Profit before tax	28.24%	26.16%	8.95%	1.69%	29.31%	45.55%
Income tax expense	-4.72%	5.18%	5.48%	1.63%	-2.30%	7.29%
Profit for the year	23.52%	20.97%	3.47%	0.06%	27.01%	38.26%

In here, the revenue considered as the key factor and all other items shows as a percentage over the revenue. So, it is reflected that the gross profit and Net profit has been decrease in year 2017,2018 and 2019 compare with year 2016/17 and then increased in year 2020/21 and 2021/22 compared to revenue. However, the other income increases in year 2020/21 and 2021/22 compare with revenue.

4.2 Statement of Financial Position of Lanka Wall tiles PLC  

Description	2016/17	2017/18	2018/19	2019/20	2020/21	2021/22
ASSETS
Non-current assets
Property, plant and equipment	51.14%	52.61%	50.62%	48.07%	54.35%	49.59%
Capital work in progress	0.00%	0.00%	0.00%	0.00%	0.00%	0.00%
Investment in Subsidiaries	19.63%	16.32%	14.24%	13.56%	15.06%	15.65%
Deferred Tax Assets	0.00%	0.00%	0.00%	0.00%	0.00%	0.00%
Other long-term investments	0.00%	0.00%	0.00%	0.00%	0.00%	0.00%
Loan - Related party	0.00%	0.00%	0.00%	0.00%	0.00%	0.00%
Investment Property	0.00%	0.00%	0.00%	0.62%	0.40%	0.46%
Total Non- Current Assets	70.78%	68.93%	64.86%	62.25%	69.81%	65.69%
Current assets
Inventories	20.55%	20.54%	24.82%	29.36%	16.65%	14.82%
Trade and other receivables	7.68%	9.27%	9.09%	7.16%	9.35%	7.94%
Contract Assets	0.00%	0.00%	0.00%	0.00%	0.00%	0.00%
Loan - Related Party	0.00%	0.00%	0.00%	0.00%	0.00%	0.00%
Tax receivable	0.05%	0.04%	0.04%	0.04%	0.05%	0.04%
Amounts due from related parties	0.27%	0.44%	0.81%	0.69%	0.83%	1.20%
Cash and cash equivalents	0.67%	0.78%	0.37%	0.51%	3.30%	10.31%
Total Current Assets	29.22%	31.07%	35.14%	37.75%	30.19%	34.31%
Total Assets	100.00%	100.00%	100.00%	100.00%	100.00%	100.00%
EQUITY AND LIABILITIES
Capital and reserves
Stated capital	12.12%	10.07%	8.79%	8.37%	9.30%	7.89%
Reserves	19.03%	19.59%	20.22%	19.26%	24.29%	20.61%
Accumulated Profit/ (Loss)	38.39%	34.03%	30.57%	29.44%	43.03%	46.28%
Total Capital and reserves	69.54%	63.69%	59.59%	57.07%	76.62%	74.78%
Non-current liabilities
Employee benefit obligations	1.17%	1.39%	1.33%	1.52%	2.04%	1.24%
Borrowings - Related party	0.00%	0.00%	0.00%	0.00%	0.00%	0.00%
Lease liability	0.00%	0.00%	0.00%	0.00%	0.00%	0.00%
Deferred tax liability	5.65%	11.35%	11.04%	10.28%	7.36%	6.29%
Loans and borrowings	5.00%	2.11%	1.33%	0.77%	0.47%	0.07%
Total Non-current liabilities	11.82%	14.85%	13.70%	12.58%	9.88%	7.60%
Current liabilities
Trade and other payables	6.37%	6.13%	7.44%	5.14%	7.51%	10.97%
Contract liabilities	0.00%	0.00%	0.00%	0.00%	0.36%	0.20%
Loans & borrowings	9.82%	12.88%	17.05%	23.53%	2.32%	2.86%
Short term loans	0.00%	0.00%	0.00%	0.00%	0.00%	0.00%
Amounts due to related parties	1.33%	2.15%	2.14%	1.55%	0.94%	0.21%
Borrowings - Related party	0.00%	0.00%	0.00%	0.00%	0.00%	0.00%
Lease liability	0.00%	0.00%	0.00%	0.00%	0.00%	0.00%
Tax payable	1.11%	0.30%	0.09%	0.14%	2.38%	3.39%
Bank overdrafts	0.00%	0.00%	0.00%	0.00%	0.00%	0.00%
Total Current liabilities	18.64%	21.46%	26.72%	30.36%	13.50%	17.62%
Total Liabilities	30.46%	36.31%	40.41%	42.93%	23.38%	25.22%
Total Equity and Liabilities	100.00%	100.00%	100.00%	100.00%	100.00%	100.00%

 

In this analysis Total assets has been considered as the base and assigned 100. All the other items have been compared with that base figure. In here it is clearly demonstrated that the total liabilities of the company have been decreased compared to total assets over the year 2021 and 2022. This is due to increase total capital and reserve with increasing accumulated profit in year 2021 and 2022. Fixed assets and current assets composition look at same in each year compare to total assets.

 

05.  TREND ANALYSIS

Trend Analysis in accounting compares the overall growth of key financial statement line item over the years from the base case. In this calculation, only the key figures of financial statements have been analyzed with graphics as mentioned below. Year 2016-17 has been considered as the base year of trend analysis calculations.

5.1 Statement of Comprehensive Income of Lanka Wall tiles PLC

LKR “000”

Description	Base Year 2016-17Amounts	2017/18	2018/19	2019/20	2020/21	2021/22
Revenue	100	99.13	96.28	104.43	179.01	240.89
Cost of sales	100	104.63	113.82	126.00	194.78	237.04
Gross profit	100	90.81	69.76	71.83	155.17	246.71
Other income - net	100	137.34	69.42	11.90	266.30	546.20
Distribution expenses	100	99.34	98.15	88.40	100.58	137.75
Administrative expenses	100	116.77	126.71	138.65	197.19	262.02
Other Expenses	100	0.00
Operating profit	100	93.39	43.31	26.59	179.67	351.21
Finance costs	100	107.52	158.15	209.06	124.38	16.18
Profit before tax	100	91.82	30.51	6.26	185.83	388.54
Income tax expense	100	108.80	111.62	36.02	87.35	371.83
Profit after tax	100	88.41	14.22	0.28	205.62	391.90

 

Graphical representation of Trend Analysis - SOCI

 

According to trend analysis both revenue and gross profit increased gradually over the years and there is abnormal increase in profit after tax in year 2020/21 compare to other years. That is because of other income increase through dividend received from subsidiary company.

 

5.2 Statement of Financial Position of Lanka Wall tiles PLC       LKR “000”

Description	Base Year 2016-17 Amounts	2017/18	2018/19	2019/20	2020/21	2021/22
Total Non- Current Assets	100	117.19	126.36	127.35	128.56	142.59
Total Current Assets	100	127.95	165.80	187.06	134.63	180.35
Total Assets	100	120.34	137.88	144.80	130.34	153.62
Total Equity	100	110.21	118.15	100.58	120.86	115.03
Total Non-current liabilities	100	151.16	159.77	154.07	108.93	98.76
Total Current liabilities	100	138.57	197.65	235.82	94.38	145.23
Total Liabilities	100	143.45	182.95	204.10	100.03	127.20

 

 

 

 

 

Graphical representation of Trend Analysis – SOFP

 

There is upward trend in Total assets and Total liabilities up to year 2019/20 and thereafter total liabilities drastically downward and total assets also downward trend up to 2020/21 and again unwarded. But Total equity has been increased till 2018/19 and down ward up to 2019/20 after year 2019/20 with increase in accumulated profit. Result seems in 2019/20 period company is more levered and then become less levered company.

 

 

 

 

 

 

 

 

 

 

 

 

 

6.      RATIO ANALYSIS

Ratio analysis is a quantitative method of gaining insight into a company's liquidity, operational efficiency, and profitability by comparing information contained in its financial statements. Ratio analysis is a cornerstone of fundamental analysis. Ratio analysis is used to evaluate a number of issues with an entity, such as its liquidity, efficiency of operations, and profitability. Trend lines can also be used to estimate the direction of future ratio performance.

Ratio helps to summarize large quantities of financial data and to make qualitative judgment about the company’s performance. In view of the requirement of the various users of ratios, we may classify them in to following important categories.

Ø  Liquidity and efficiency ratios

Ø  Profitability ratios

Ø  Solvency ratios

Ø  Market ratios

6.1 Liquidity and efficiency ratios

6.1.1 Current Ratio   =         Current Assets

                                                Current Liabilities

 

Description	2017/18	2018/19	2019/20	2020/21	2021/22	Average
Current Ratio	1.45	1.32	1.24	2.24	1.95	1.36

 

As a conventional rule a current ratio of 2 to 1 or more is considered satisfactory. Lanka Wall tiles PLC has a current ratio of 1.36 on average over five years’ period. Considering the norm this may reflect as the company is having sufficient liquidity to meet their obligations. However, logically even if the current assets become half of the liabilities the company will able to meet their obligations. So this a favourable ratio to the company and it can be justified as higher the current ratio greater the margin of safety for creditors.

 

6.1.2 Quick Ratio =               Current Assets – Inventories- Prepaid expenses

                                                                    Current Liabilities

 

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

Description	2017/18	2018/19	2019/20	2020/21	2021/22	Average
Quick Asset/Acid Test Ratio	0.49	0.39	0.28	1.00	1.11	0.54

 

Generally, a quick ratio of 1.1 is considered to represent a satisfactory level. Lanka Wall tiles PLC has a quick ratio of 0.54 average over five years’ period. This reflects a serious concern over the short-term liquidity position of the company, and it may cause severe difficulties to the company in day-to-day transactions.

6.1.3 Debtors turnover ratio   =                               Sales

                                                            Average trade and other receivable

 

This is an accounting measure used to quantify a firm’s effectiveness in extending credit and in collecting debts on that credit.

Description	2017/18	2018/19	2019/20	2020/21	2021/22	Average
Debtors Turnover Ratio	5.42	4.18	4.69	8.17	10.17	5.44

 

 

Higher the value of debtor turnover, the more efficient is the management of credit. Lanka Wall tiles PLC has an average debtor turnover ratio of 5.44 over the five years it has been increase gradually and it reflect efficient management of credit.

 

6.1.4 Day’s sales in inventory =       Ending inventory   * 365

                                                            Cost of goods sold

 

Description	2017/18	2018/19	2019/20	2020/21	2021/22	Average
Days' Sales in inventory	278.28	354.29	397.45	131.29	113.18	212.41

 

This ratio indicates how long it takes a company to turn its inventory in to sales. Lanka Wall tiles PLC take 212.41 days on average to turn its inventory in to sales. Although this ratio has been increased in year 2017 to 2020 it has decreased rapidly over the year 2021 and 2022 up to 113 days. This is plus sign to the company and there should be new strategy to reduce this further.

6.1.5 Day’s sales uncollected =         Accounts receivable * 365

                                                                  Net sales

 

This measures the quality of debtors since it indicates the speed of their collection.

Description	2017/18	2018/19	2019/20	2020/21	2021/22	Average
Days' Sales Uncollected	79.80	92.34	70.39	48.27	35.89	54.45

 

The debtors of Lanka Wall tiles PLC remain outstanding of 54.45 days on average over the five years. Also, it shows an down ward trend in this ratio over the period. When the uncollected days of debtors are decreasing it reflects a quality of the company’s debtors. Hence it is good position to company debtors’ collection efficiency.

6.1.6 Total asset turnover ratio =                      Revenue       

                                                                        Average total assets

 

Description	2017/18	2018/19	2019/20	2020/21	2021/22	Average
Asset Turnover Ratio	0.46	0.38	0.38	0.67	0.87	0.46

This ratio measures how efficiently the assets are employed. Lanka Wall tiles PLC shows a total asset turnover of 0.46 on average implies the company generates a sale of 0.46 on 1 investment of total assets. This is a worst condition since it doesn’t generate sufficient sales on assets, however the company shows an upward trend in last five years (in 2021/22 it shown as .87) which can be considered as a good sign.

6.2 Profitability ratios

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

Ø  Net profit margin

Ø  Gross profit margin

Ø  Return on total assets

Ø  Return on equity

Ø  Book value per common share (EPS)

The profitability ratios are calculated from the financial statements of Lanka Wall tiles PLC are as follows.

6.2.1 Net profit margin =                  Net income

                                                              Net sales

 

Description	2017/18	2018/19	2019/20	2020/21	2021/22	Average
Net Profit Margin	20.97%	3.47%	0.06%	27.01%	38.26%	14.96

 

 

This ratio is the overall measure of the firm’s ability to turn each rupee sales in to net profit. Lanka Wall tiles PLC shows an average net profit margin of 14.96% on net sales. Although this ratio has been decreased in year 2017 to 2020 it has increased rapidly over the year 2021 and 2022 up to 38.26 %. This shows good position of the company profitability.

 

 

6.2.2 Gross profit margin =             Gross profit

                                                              Net sales

This margin reflects the efficiency with which the management produces each unit of product.

Description	2017/18	2018/19	2019/20	2020/21	2021/22	Average
Gross Profit Margin	36.47%	28.84%	27.38%	34.51%	40.77%	28.00

Lanka Wall tiles PLC has a gross profit margin of 28.00% on average over five years. When considering the graphical analysis of the ratio it reflects that the company has able to enhance their gross profit margin year by year which can be seen as a positive trend of growth. 

6.2.3 Return on total assets =                Net income

                                                            Average total assets

 

Description	2017/18	2018/19	2019/20	2020/21	2021/22	Average
Return On Assets	13.70%	1.33%	3.04%	18.09%	39.96%	12.69

This ratio is considered to be an indicator of how effectively a company is using its assets to generate earning before contractual obligations must be paid. The ROA of Lanka Wall tiles PLC seems to be decreasing trend up to year 2020 and thereafter it is increasing it shows growing trend in the graphical analysis, which can be considered as a positive sign.

6.2.4 Return on Equity =                  Net income

                                                            Total Equity                          

Description	2017/18	2018/19	2019/20	2020/21	2021/22	Average
Return On Equity	14.64%	2.17%	0.04%	27.27%	44.18%	14.72

This ratio indicates how well the firm has used the funds of owners. Higher the ratio it reflects a better utilization of funds. Lanka Wall tiles PLC shows an upward trend after year 2020 and in 2021 it is 44.18%. It is positive sign to company owners.

6.2.5 Earning per share (EPS) =                   Net income – preferred dividend                                                                                       Weighted average common share outstanding

Description	2017/18	2018/19	2019/20	2020/21	2021/22	Average
EPS	12.74	2.05	0.04	29.62	11.29	9.29

 

EPS simply shows the profitability of the company of a per share basis. This is important ratio to potential investors of the company as well as the existing owners. Lanka Wall tiles PLC shows an average of Rs 9.29 EPS over fivers period. When considering the graphical analysis EPS has been decreased rapidly up to year 2019/20 and it has increased in 2020/21 and again decline in 2021/22 to Rs 11.29. This is due to increasing no of share with share split in year 2021/2022 which is a positive factor.

6.3 Solvency ratios

Solvency ratios measure a company's ability to meet its long-term financial obligations. They do this by comparing a company's level of debt against earnings, assets, and equity. Solvency ratios are commonly used by lenders or investors to determine the ability of a company to pay back its debts.

Better solvency ratios indicate a more creditworthy and financially sound company in long term. The following ratios are classified under solvency ratios.

Ø  Debt ratio

Ø  Equity ratio

Ø  Debt service cover ratio (DSCR)

6.3.1 Debt ratio =                  Total liabilities

                                                  Total assets

 

Description	2017/18	2018/19	2019/20	2020/21	2021/22	Average
Debt Ratio	36.31%	40.41%	42.93%	23.38%	25.22%	28.04

This ratio interprets as the proportion of a company’s assets that are financed by debt. When considering the financials of Lanka Wall tiles PLC, there is a upward trend of this ratio up to 2020 and after that it shown as downward trend and it reflects that less than half of the company’s assets are financed by debt which indicates lower degree of debt finance.  

6.3.2 Equity ratio =               Total shareholder equity

                                                       Total assets

 

Description	2017/18	2018/19	2019/20	2020/21	2021/22	Average
Equity Ratio	63.69%	59.59%	57.07%	76.62%	74.78%	55.29

This represents the amount of assets on which shareholders have a residual claim. Lanka Wall tiles PLC has financed its assets by equity nearly by 55.29% on average. High equity ratio is more preferable since the company is in increasing net profit margin.

 

6.3.3 Debt to equity ratio =              Total liabilities

                                                              Total equity

 

Description	2017/18	2018/19	2019/20	2020/21	2021/22	Average
Debt to Equity Ratio	57.01%	67.83%	75.23%	30.51%	33.73%	44.05

Debt to equity ratio It is a measure of the degree to which a company is financing its operations through debt versus wholly-owned funds. This is good measurement of leverage of the company, and in Lanka Wall tiles PLC this shows both upward and downward trend over the five years and year 2020/21 it is declined up to 33.73%. This demonstrates that this is a less leveraged company.  

 

6.4 Market ratios

Market value ratios are used to evaluate the current share price of a publicly-held company's stock. These ratios are employed by current and potential investors to determine whether a company's shares are over-priced or under- priced

These ratios used to make market investment decisions in stock of companies. The market ratios are as follows.

Ø  Dividend per share (DPS)

Ø  Price earnings ratio (PE ratio)

6.4.1 Dividend per share =                              Dividend paid

                                                             Number of ordinary shares outstanding

 

Description		2017/18	2018/19	2019/20	2020/21	2021/22	Average
Dividend per share		0.00	3.00	0.00	13.60	2.72	3.22

Dividend per share (DPS) is the sum of declared dividends issued by a company for every ordinary share outstanding. This is a vital ratio for both internal and external users. In Lanka Wall tiles PLC DPS is 3.22 on average over five years. In graphical analysis it clearly demonstrates that there is a downward trend up to 2019/20 and in 2020/2021 it shows upward, again 2021/22 down ward. It is due to 214,800 shares spilt in year 2021/22 in which is a plus sign to investors.

6.4.2 Price earnings ratio (PE) =     Market price per share

                                                               Earnings per share

 

Description	2017/18	2018/19	2019/20	2020/21	2021/22	Average
PE Ratio	4.32	32.03	1,465.72	1.39	3.64	251.18

 

PE ratio reflects investor’s expectation about the growth in the company’s earnings. In Lanka Wall tiles PLC has a 251.18 average PE over five years. In year 2019/20 it shows abnormal increasing due to EPS drastically reduce and in year 2020/21 and 2021/22 it seems normal that is 3.64.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

07.  ALTMAN Z SCORE

Altman Z score is a type of Z score, which was published by Edward I. Altman in 1968 as a Z score formula, used to predict the chances of bankruptcy. This methodology can be used to predict the chance of a business organization to move into bankruptcy within a given time, which is mostly about 2 years. This method is successful in predicting the status of financial distress in any firm. Altman Z score can help in measuring the financial health of a business organization by the use of multiple balance sheet values and corporate income.

 

The Altman Z Score formula for this model for determining the probability that a firm to close bankruptcy:

Altman Z Score formula = (0.1 x A) + (0.31x B) + (0.13 x C) + (1.41 x D) + (0.44 x E)

• In this model, if the Z value is greater than 2.99, then the firm is said to be in the “safe zone” and has a negligible probability of filing bankruptcy.
• If the Z value is between 2.99 and 1.81, then the firm is said to be in the “grey zone” and has a moderate probability for bankruptcy.
• And finally, if the Z value is below 1.81, then it is said to be in the “distress zone” and has a very high probability of reaching the stage of bankruptcy.

Description	2017/18	2018/19	2019/20	2020/21	2021/22	Average
Z core value	2.06	1.65	1.45	2.92	5.55	2.27
Status	Grey Zone	Stage of Bankruptcy	Stage of Bankruptcy	Grey Zone	Safe Zone	Grey Zone

 

According to this model its show up to the financial year 2017/18 Grey Zone and it has come to the stage of Bankruptcy in financial year 2018/19 and 2019/20 and again it is in Grey Zone in year 2020/21 and safe Zone in year 2021/2022. When consider the overall financials for the last 5 years and average value, the company is in position of Grey Zone.

 

 

 

 

 

 

 

08.  COMPARATIVE ANALYSIS -PEER COMPANY

 

Companies are grouped into peer groups for ratio analysis as part of fundamental analysis. It allows researchers to determine individual company liquidity, efficiencies, as well as profitability. This is done by examining each company's past and current financial statements and comparing them with one another. Peer company analysis may lead to extraordinary results and comparisons and it identify triggers and drivers to understand its business and the market.

Here I compared Lanka Wall tiles PLC with Royall Ceramic Lanka PLC for the year 2021/22.

 

	Lanka Wall Tiles PLC	Royal Ceramic Lanka PLC
Description	2021/22	2021/22
Profitability Ratios
Return On Equity	44.18%	35.32%
Return On Assets	39.96%	26.85%
Gross Profit Margin	40.77%	53.04%
Operating Profit Margin	45.76%	54.01%
Net Profit Margin	38.26%	44.44%
Profitability ratio of Royal Ceramic Lanka shows more favorable than the Lanka Wall Tiles since Gross profit, Operating profit and net profit ratios higher in Royal Ceramic with compare to Lanka wall tiles. But ROE and ROA ratios more favorable in Lanka Wall tiles than the Royal Ceramic PLC.
Efficiency Ratios
Asset Turnover Ratio	0.87	0.50
Inventory/Stock Turnover Ratio	3.30	2.29
Debtors Turnover Ratio	10.17	24.24
Days' Sales Uncollected	35.89	13.79
Days' Sales in inventory	113.18	157.27
Activity Cycle	149.07	171.06
Higher the value of debtor turnover, and lesser the day sales uncollected is more efficient is the management of credit, comparing both companies Royal Ceramic Lanka PLC having efficient management of credit than the Lanka Wall Tiles PLC. However, Inventory Turnover, Assets Turnover, Day’s sales in inventory and overall activity Cycle more favorable in Lanka Wall Tiles PLC.
Liquidity Ratios
Current Ratio	1.95	1.18
Quick Asset/Acid Test Ratio	1.11	0.88
As a conventional rule a current ratio of 2 to 1 or more is considered satisfactory. Lanka Wall tiles PLC has a current ratio of 1.95 and Royal Ceramic Lanka Plc has 1.18 Considering the norm this may reflect as the both companies is having sufficient liquidity to meet their obligations. Generally, a quick ratio of 1.1 is considered to represent a satisfactory level. Lanka Wall tiles PLC has a quick ratio of 1.11 and it is satisfactory level and Royal Ceramic Lanka PLC having 0.88 lesser ratio compare to the Lanka Wall Tiles PLC. Company Liquidity position of Lanka Wall Tiles sounder than the Royal Ceramic Lanka PLC.
Gearing/Capital Structure Ratios
Debt to equity Ratio	33.73%	64.92%
Debt Ratio	25.22%	39.37%
Equity Ratio	74.78%	60.63%
Interest Coverage Ratio	216.48	25.99
Debt Service Cover Ratio	0.34	1.41
When considering the financials of Lanka Wall tiles PLC, it reflects that less than half of the company’s assets are financed by debt which indicates lower degree of debt finance and Royal Ceramic Lanka PLC consist more debt financing. It is resulted that it interests coverage ratio more lesser than the Lanka Wall Tiles Plc. Finally, we can conclude that Royal Ceramic Lanka PLC is more levered company than the Lanka Wall Tiles PLC.
Investors'/Market Performance Ratios
EPS	11.29	5.77
Book value per share	27.35	17.75
Operating cash flow per share	8.24	2.03
Dividend per share	2.72	4.20
PE Ratio	3.64	7.06
These ratios are employed by current and potential investors to determine whether a company's shares are over-priced or under- priced. When compare both companies EPS Book Value per share grater in Lanka Wall Tiles PLC than the Royal Ceramic Lanka Plc.  But DPS and PE ratios of Royal Ceramic Lanka Plc more favorable than the Lanka Wall Tiles Plc.

 

 

 

 

 

 

 

 

 

 

 

 

09.  CONCLUSION

Financial statement analysis can be a very useful tool for understanding a company’s performance and condition. It is a process of identifying the financial strengths and weaknesses of the company by properly establishing relationship between the items of the statement of financial position and statement of comprehensive income.

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. Lanka Wall tiles PLC is selected for the analysis and this analysis consist five years’ period consecutively. Horizontal, Vertical and Trend analysis indicates a direction of comparative change of the company. It has enabled the users of financial statements to identify the movements of the overall business.

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, profitability, solvency and market ratios. When considering the liquidity position of Lanka Wall tiles PLC, it is positive and favorable status of the company when meeting its short-term obligations. So, the company needs to continue this level their liquidity position. When considering the profitability, it is in a declining trend up to year 2020 and thereafter it is increasing and it shows plus sign of company profitability. When considering the leverage of the company, it can be summarized as this company is financed by more on equity. This shows this company is a less leveraged company. These ratios will enable both internal and external users to make their investment decisions on the company. Overall conclusion is that company position going to favorable status after year 2020.

 

 

 

 

 

 

 

 

 

10.  RECOMMENDATION

Lanka Wall tiles PLC was established in 1975 and it is a subsidiary of Lanka Ceramic PLC. Lanka Wall tile PLC engages in the production and distribution of ceramic wall tiles in Sri Lanka. In 1994 the company was listed in the Colombo Stock Exchange.

In here I have analyzed five years of annual reports and financial statements of this company in order to do a proper evaluation of the business. Following issues are identified in my evaluation.

Ø  Company is more focused on equity finance. This company become less leveraged and company can increase their funds through short term and long-term borrowing.

Ø   Since current profitability ratio is higher invest fund through borrowing more favorable to equity shareholders.

Ø  Current and quick assets position is acceptable level and it means company can meet their short-term obligation easily.

Ø  PE ratio in year 2019/20 it shows abnormal increasing due to EPS drastically reduce and in year 2020/21 and 2021/22 it seems normal that is 3.64.

Ø  Company DPS is 3.22 on average over five years. In graphical analysis it clearly demonstrates that there is a downward trend up to 2019/20 and in 2020/2021 it shows upward, again 2021/22 down ward. It is due to 214,800 shares spilt in year 2021/22 in which is a plus sign to investors

Ø  When Comparison to peer company Lanka Wall Tiles PLC having good position in Liquidity and Solvency and some of market ratios.

Based on the above issues following recommendations can be suggested to the company.

Since company is less leveraged company and currently highly profitable it is considered to be less risky since businesses not having more contractually obliged to pay interest on debt. So, there is more probability to increasing funds through borrowings until maintain 50% debt to equity level within the company. Then Equity holders can earn more.

Also, when considering the upward downward trend of the net profitability of Lanka Wall tile PLC should keep a close watch on their administrative and other expenses since they have a positive trend of gross profit margin in current years. However, the company can conduct an activity-based costing technique to find the real cost used in each and every specific activity. This will help to identify and eliminate the unnecessary costs of the company.

Although the company’s uncollected debtors and inventory days are decline at a reducing rate over the years. The quality of the debts needs to be identified and if there are any bad and doubtful debts can be financed through invoice discounting, factoring methods in order to enhance the company’s liquidity position.