Analyzing Financial Statements of Ceylon Cold Stores PLC

 

Introduction

 

Financial statements are formal documents that provide a summary of a business's financial transactions, including its cash flows, assets, liabilities, and shareholders' equity. They offer a comprehensive view of the company's financial health and are used by investors, creditors, and analysts to assess its performance and make informed decisions.

Financial statements are prepared to report on the financial position of an entity and to show how the entity has performed (financially) over a particular period of time.

There are 04 financial statements, based on the summary of transactions. They are; Income statement, Balance Sheet, Cash flow statement and statement of equity.

Financial statement analysis is important to evaluate a company’s financial performance, stability, and investment potential. It is essential because it offers important information on the profitability, operational effectiveness, liquidity, and general financial health of a company. Horizontal analysis, Vertical analysis, Ratio analysis and Trend analysis are the tools of analysis.

Investors and stakeholders can assess risks, make decisions, and pinpoint opportunities for development by understanding trends and ratios. Financial statement analysis also enables creditors to evaluate a company's creditworthiness and make wise financing decisions. Internal financial statement analysis for organizations supports strategy planning, performance assessment, and efficient resource allocation.

This report provides a comparative analysis of financial performances over two years of period from 2022 to 2023 (interim- 31 st march) of Ceylon Cold Stores PLC.

 

 

 

 

 

 

 

 

 

 

 

 

Company Profile

 

Elephant House is a well-known division of Ceylon Cold Stores PLC, one of Sri Lanka's top conglomerates. Elephant House, which was founded in 1866, has a long history in the nation's consumer products sector. The company, which specializes in beverages and frozen foods, provides a wide range of products to a diverse consumer base, including soft drinks, dairy-based beverages, ice cream, and frozen delicacies. Elephant House is a household name in Sri Lanka thanks to its reputation for producing high-quality goods and strong brand loyalty.

Elephant House is a crucial part of Ceylon Cold Stores PLC and has a big impact on how successful the company is. The business has established itself as an industry leader thanks to its dedication to quality, innovation, and client happiness. Having a strong distribution network and a commitment to delivery

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Statement of Profit or Loss

Table 3. 1: Statement of profit or loss

For the year ended 31st March                                         Notes	2023 Rs.’000	2022 Rs.’000
Continuing operations Goods transferred at a point in time	19,006,937	12,837,064
Total revenue from contracts with customers	19,006,937	12,837,064
Cost of sales	14,935,067	9,269,113
Gross profit	4,071,870	3,567,951
Dividend income	814,637	592,799
Other operating income	792,098	577,831
Selling and distribution expenses	(2,647,215)	(2,122,653)
Administrative expenses	(901,209)	(820,140)
Other operating expenses	(465,423)	(142,510)
Results from operating activities	1,664,758	1,653,278
Finance cost	475,372	60,192
Finance income	54,481	33,684
Net finance cost	(420,891)	(26,508)
Change in fair value of investment property	24,148	16,955
Profit before tax	1,268,015	1,643,725
Tax (expense)/reversal	(118,545)	(209,052)
Profit for the year	1,149,470	1,434,673

Statement of Financial Position

Table 3. 2: Statement of Financial Position

As at 31st March	2023 Rs.’000	2022 Rs.’000
ASSETS Non-current assets Property, plant and equipment	5,357,019	4,876,455
Right- of - use assets	45,800	47,402
Investment property	341,398	317,250
Intangible assets	918,149	418,084
Investment in subsidiaries	2,968,410	2,965,049
Non-current financial assets	6,473,957	7,357,832
Other non-current assets	113,656	38,383
Total Non-current assets	16,218,389	16,020,455
Current assets Inventories	3,236,540	2,191,741
Trade and other receivables	2,421,496	2,228,542
Amounts due from related parties	243,885	207,243
Other current assets	120,031	267,746
Cash in hand and at bank	338,100	447,550
Total Current assets	6,360,052	5,342,822
Total assets	22,578,441	21,363,277
EQUITY AND LIABILITIES Equity attributable to equity holders of the parent Stated capital	918,200	918,200
Revenue reserves	10,859,721	11,014,022
Other components of equity	2,800,033	3,287,932
Total equity	14,577,954	15,220,154
Non-current liabilities Interest-bearing loans and borrowings	227,802	316,434
Lease liabilities	2,415	2,441
Deferred tax liabilities	800,371	628,002
Employee benefit liabilities	398,975	555,274
Other non-current liabilities	104,035	96,183
Total Non-Current Liabilities	1,533,598	1,598,334
Current liabilities Trade and other payables	2,080,873	2,715,007
Amounts due to related parties	451,641	50,133
Income tax liabilities	105,582	214,160
Interest-bearing loans and borrowings	101,400	55,864
Lease liabilities	38	36
Other current liabilities	349,885	399,054
Bank overdrafts	3,140,292	1,110,535
Total Current Liabilities	6,466,889	4,544,789
Total equity and liabilities	22,578,441	21,363,277

 

 

 

 

 

Horizontal Analysis

A financial analysis technique known as "horizontal analysis" in accounting is used to assess and contrast financial data across the time, in order to spot trends and patterns in a company's performance. It entails contrasting financial statement line items from various time periods, such as income statements or balance sheets. Analysts can evaluate the company's growth or fall in many aspects like revenue, costs, and net income by computing the percentage change in each line item. Investors and management can better comprehend the company's previous financial performance and future prospects with the help of horizontal analysis. It offers insightful information on the financial history of the business, which is helpful for strategic planning and decision-making.

In this technique the company’s financial condition and performance is calculated across the time in terms of Rupee change and percentage change. They are calculated as follows;

Rupee Change = Analysis Period Amount – Base Period Amount

Percentage Change = (Rupee Change/ Base Period Amount) × 100%

Table 3. 3: Horizontal analysis for 2022 and 2023

As at 31st March	Rupee Change	Percentage change
ASSETS Non-current assets Property, plant and equipment	480,564	9.854782
Right- of - use assets	-1,602	-3.3796
Investment property	24,148	7.611663
Intangible assets	500,065	119.6087
Investment in subsidiaries	3,361	0.113354
Non-current financial assets	-883,875	-12.0127
Other non-current assets	75,273	196.1103
Total Non-current assets	197,934	1.235508
Current assets Inventories	1,044,799	47.66982
Trade and other receivables	192,954	8.658307
Amounts due from related parties	36,642	17.68069
Other current assets	-147,715	-55.1698
Cash in hand and at bank	-109,450	-24.4554
Total Current assets	1,017,230	19.03919
Total assets	1,215,164	5.688097
Revenue reserves	-154,301	-1.40095
Other components of equity	-487,899	-14.8391
Total equity	-642,200	-4.21941
Non-current liabilities Interest-bearing loans and borrowings	-88,632	-28.0096
Deferred tax liabilities	172,369	27.44721
Employee benefit liabilities	-156,299	-28.1481
Other non-current liabilities	7,852	8.163605
Total Non- Current Liabilities	-64,736	-4.05022
Current liabilities Trade and other payables	-634,134	-23.3566
Amounts due to related parties	401,508	800.8856
Income tax liabilities	-108,578	-50.6995
Interest-bearing loans and borrowings	45,536	81.51224
Lease liabilities	2	5.555556
Other current liabilities	-49,169	-12.3214
Bank overdrafts	2,029,757	182.7729
Total Current Liabilities	1,922,100	42.29239
Total equity and liabilities	1,215,164	5.688097

 

Property, plant and equipment, Investment property, Investment in subsidiaries,   Total Non-current assets, Current assets Inventories, Trade and other receivables,  Amounts due from related parties, Total Current assets, Total assets, Deferred tax liabilities, Other non-current liabilities, Interest-bearing loans and borrowings, Lease liabilities, Total Current Liabilities and Total equity and liabilities have been increased in 2023 than 2022.

Right- of - use assets, Non-current financial assets, other current assets, Cash in hand and at bank, Revenue reserves, Other components of equity, Total equity, Interest-bearing loans and borrowings, Employee benefit liabilities, Total Non- Current Liabilities, Current liabilities
Trade and other payables,   Income tax liabilities,   and Other current liabilities  have been decreased in 2023 than 2022.

Intangible assets, Other non-current assets, Amounts due to related parties and Bank overdrafts have been significantly increased in 2023 than 2022.                                                                                                                                                                                                                           

                                                                                                                                                                                                                      

                                                                                                                                                                                                                                                                            

                                                                                                                                         

                                                                                

                                                                                                                                                                      

                                                                                                                                                                            

                                                                                                                                                                                                         

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trend Analysis

In order to find patterns and trends in a company's performance, trend analysis in accounting entails looking at financial data over a number of reporting periods. This analysis aids in comprehending the trajectory of important financial indicators over time, such as revenue, costs, and profits. Accountants and analysts can forecast future financial outcomes and evaluate the company's overall financial health by spotting trends. Budgeting, forecasting, and strategic planning all rely heavily on trend analysis since it shows if a company's financial performance is rising, falling, or stable. It enables companies to make proactive choices to adjust to shifting market conditions by assisting them in anticipating opportunities and problems.

In this technique Trend Percent is calculated as follows:

Trend Percent = (Analysis Period Amount / Base Period Amount) × 100%

Trend analysis for revenue, cost of sales and gross profit was done using financial statements of last five years from 2019 to 2023, considering 2019 as the base year for 100%.

Table 3. 4: Tremd analysis for 5 year period

For the year ended 31st March	2023 Rs.’000	2022 Rs.’000	2021 Rs.’000	2020 Rs. '000	2019 Rs. '000	2018 Rs. '000
Continuing operations Goods transferred at a point in time	139.2526	94.04956	77.5489	85.24858	85.17183	100
Total revenue from contracts with customers	139.2526	94.04956	77.5489	85.24858	85.17183	100
Cost of sales	162.6839	100.9661	77.97941	82.34691	86.14397	100
Gross profit	91.11706	79.84076	76.66449	91.20954	83.17474	100
Dividend income	109.1919	79.45728	68.35911	105.0433	95.55559	100
Other operating income	1207.743	881.0414	692.6874	542.2124	418.0468	100
Selling and distribution expenses	187.9285	150.6893	132.8512	137.1486	117.1289	100
Administrative expenses	139.8663	127.2845	112.1991	108.1845	104.8746	100
Other operating expenses	142.4427	43.61518	45.50198	79.69573	99.43258	100
Results from operating activities	57.39021	56.99445	56.78885	80.18254	70.79058	100
Finance cost	70634.77	8943.834	2279.495	240.8618	1700.743	100
Finance income	52.64475	32.5487	38.69531	49.35355	45.32216	100
Net finance cost	-409.367	-25.7822	24.02762	48.09999	34.48621	100
Change in fair value of investment property	112.0089	78.64465	17.96466	196.6139	117.9693	100
Tax (expense)/reversal	-3.91866	-6.91048	-1.58178	-16.0883	69.89294	100
Profit for the year	-177.312	-221.307	-251.135	-297.877	65.99185	100

 

Compared to 2018 Gross profit, Results from operating activities have increased in 2023.

Net finance cost, Tax, Profit for the year have been decreased over past 5 years.

 

All others have been significantly increased from 2018.

 

 

 

 

 

 

 

 

 

 

 

 

 

Vertical Analysis

Each line item in a financial statement is represented as a percentage of a base figure. Base figure for balance sheet is total assets and that of income statement is total revenue. This method enables quick comparison of the relative proportions of multiple items within the same financial statement by stating individual components in relation to the total. This is a within a year comparison. Vertical analysis facilitates quick evaluations of the relevance of various items and their contribution to the overall financial structure of the organization by assisting analysts and stakeholders in comprehending the composition of financial statements.

Table 3. 5: Vertical analysis for Balance sheet

As at 31st March	2023	2022
ASSETS Non-current assets Property, plant and equipment	23.72626	22.82634
Right- of - use assets	0.202848	0.221885
Investment property	1.512053	1.485025
Intangible assets	4.066485	1.957022
Investment in subsidiaries	13.1471	13.87919
Non-current financial assets	28.67318	34.4415
Other non-current assets	0.503383	0.179668
Total Non-current assets	71.83131	74.99063
Current assets Inventories	14.33465	10.25939
Trade and other receivables	10.72481	10.43165
Amounts due from related parties	1.080168	0.97009
Other current assets	0.531618	1.2533
Cash in hand and at bank	1.497446	2.09495
Total Current assets	28.16869	25.00937
Total assets	100	100
EQUITY AND LIABILITIES Equity attributable to equity holders of the parent Stated capital	4.066711	4.29803
Revenue reserves	48.09775	51.55586
Other components of equity	12.40136	15.39058
Total equity	64.56581	71.24447
Non-current liabilities Interest-bearing loans and borrowings	1.008936	1.481205
Lease liabilities	0.010696	0.011426
Deferred tax liabilities	3.544846	2.939633
Employee benefit liabilities	1.767062	2.599199
Other non-current liabilities	0.460771	0.450226
Total Non -Current Liabilities	6.792311	7.481689
Current liabilities Trade and other payables	9.216194	12.70876
Amounts due to related parties	2.00032	0.234669
Income tax liabilities	0.467623	1.002468
Interest-bearing loans and borrowings	0.449101	0.261495
Lease liabilities	0.000168	0.000169
Other current liabilities	1.549642	1.867944
Bank overdrafts	13.90837	5.198336
Total Current Liabilities	28.64188	21.27384
Total equity and liabilities	100	100

 

 

 

Table 3.6: Vertical analysis for the Income statement

For the year ended 31st March                                         Notes	2023	2022
Continuing operations Goods transferred at a point in time	1	1
Total revenue from contracts with customers	1	1
Cost of sales	0.785769	0.722059
Gross profit	0.214231	0.277941
Dividend income	0.04286	0.046179
Other operating income	0.041674	0.045013
Selling and distribution expenses	-0.13928	-0.16535
Administrative expenses	-0.04741	-0.06389
Other operating expenses	-0.02449	-0.0111
Results from operating activities	0.087587	0.128789
Finance cost	0.02501	0.004689
Finance income	0.002866	0.002624
Net finance cost	-0.02214	-0.00206
Change in fair value of investment property	0.00127	0.001321
Profit before tax	0.066713	0.128045
Tax (expense)/reversal	-0.00624	-0.01629
Profit for the year	0.060476	0.11176

 

Ratio Analysis

A financial method called ratio analysis compares different ratios taken from a company's financial records to evaluate how well the business is performing. Investors and analysts can make well-informed decisions regarding the company's financial stability and health by using these statistics, which offer insights into the company's liquidity and efficiency, profitability, market, and solvency. Ratio analysis assists in assessing a company's overall financial sustainability and operational efficiency by looking at the correlations between various financial factors.

1.      Liquidity and efficiency ratios

Table 3. 7: 1.   Liquidity and efficiency ratios

Ratio	2023	2022
Current Ratio	1:1	1:1
Acid Test Ratio	0.483:1	0.69334:1
Accounts receivable turnover	8.17496 times	10.6026 times
Total Asset Turnover	0.8651 times	1.13711 times
Days Sales Inventory	1.99929 days	3.36277 days
Days Sales Uncollected	46.5012 days	63.3648 days
Merchandise Turnover	5.50269 times	5.72779 times

 

The current ratio gives information about a company's liquidity and financial stability by assessing how well it can pay its short-term liabilities with its short-term assets. It is calculated as follows.

Current ratio = Current assets / Current liabilities

The current ratio remains same in both years.

The acid-test ratio gives a more thorough evaluation of a company's short-term liquidity position by assessing how well it can use its most liquid assets—cash, marketable securities, and accounts receivable—to pay off its current creditors. It is calculated as follows.

Acid test ratio = Quick assets / current liabilities

Quick assets = Current assets – Inventories - Prepayments

It has been weaken in 2023 than 2022.

Accounts receivable turnover gauges how well a business manages its sales force and credit rules by tracking how well it collects payments from clients within a given time frame. It is calculated as;

Accounts receivable turnover = Total Revenue / Average accounts receivable

It has been decreased in 2023 than 2022.

Days Sales Inventory measures how quickly inventory is sold and replenished by calculating the average number of days it takes a business to sell all of its inventory over a certain period of time. It is calculated as:

Days sales inventory = (Ending inventory / Cost of sales) × 365

Since days sales inventory is lesser in 2023, the company is doing well in 2023 than 2022.

Days Sales Uncollected measures how long it typically takes a business to get money from clients after a sale, providing insight into how effective that business's accounts receivable collection process is. It is calculated as:

Days Sales Uncollected = (Accounts receivable / Net sales) × 365

Since days sales uncollected is lesser in 2023, the company is doing well in 2023 than 2022.

Merchandise turnover counts the number of times a business sells and replaces its inventory over a given time frame to show how well the business controls its stock levels. It is calculated as:

Merchandise turnover = Cost of goods sold / Average inventory

Similar values for merchandiser turnover can be seen. But can be conclude that company is doing well in 2022 than 2023.

 

 

 

 

 

2.      Solvency Ratios

Table 3.7.2.     Solvency Ratios

Ratio	2023	2022
Debt ratio	35.4342%	28.7555%
equity ratio	64.5658%	71.2445%
Times interest earned	2.66742	27.308

 

The debt ratio indicates how much a business depends on borrowed money to run and expand by expressing the percentage of debt financing its entire assets. It is calculated as follows.

Debt ratio =   (Total Liabilities / Total Assets) × 100%

Better performance can be seen in 2023.

The equity ratio, which shows how much of a firm's total assets are financed by shareholders' equity, indicates how much ownership a company has and how well-equipped it is to use shareholder investments to pay down its debt. It is calculated as follows.

Equity ratio = (Total shareholder’s equity/ Total assets) × 100%

This has been decreased in 2023 than 2022.

Times Interest Earned ratio evaluates a company's ability to pay interest on its outstanding debt and provides insight into its financial stability and ability to manage borrowing-related risks. It is calculated as follows.

Time interest earned = (Net income before interest expense and income taxes/Interest expense)×100%

Much better in 2022.

 

3.      Profitability Ratios

Table 3.7: 3.    Profitability Ratios

Ratio	2023	2022
Profit Margin	6.0476%	11.176%
Gross Margin	21.4231%	27.7941%
Return on Assets	5.23179%	12.7083%
Return on common shareholder's equity	7.71505%	19.6828%
Book value per common share	15.3388	16.0145
Basic Easrnings per share	1.20946	1.50955

 

The percentage of net income that a business keeps from its total revenue is known as its profit margin, and it shows how profitable the business is after all costs including interest and taxes are subtracted. It is calculated as follows.

Profit margin = (Net income / Net sales) × 100%

This has been weaken in 2023.

The gross margin, indicates how effectively a business produces goods or services when only the direct expenses of production are taken into account. It is calculated as follows.

Gross margin = (Gross profit / Net sales) × 100%

This has been weaken in 2023.

Return on Assets is a metric that assesses how profitable a business may be made of all of its assets, giving an indication of how well it uses its resources to produce revenue. It is calculated as follows.

Return on assets = (Net income / Average total assets) × 100%

This has been weaken in 2023.

Return on Common Shareholder's Equity, which measures the return on common shareholders' investments, compares net income to shareholders' equity to determine how profitable a company is. It is calculated as follows.

Return on Common Shareholder's Equity = ((Net income – Preferred dividends) / Average share holders’ equity) × 100%

This has been weaken in 2023.

After deducting total liabilities from total assets and dividing by the number of common shares, book value per common share is the theoretical worth of a company's common stock per outstanding share. It is calculated as follows.

Book value per common share = Total equity / Number of common shares outstanding

This has been weaken in 2023.

The amount of a business's profit allotted to each outstanding common share is known as basic earnings per share. This important statistic for investors gives information on the profitability of the company on a per-share basis. It is calculated as follows.

Basic Earnings per share = ((Net income – Preferred dividends) / Weighted average common shares outstanding)

This has been weaken in 2023.

 

 

4.      Market Ratios

Table 3.7: 4.    Market Ratios

Ratio	2023	2022
Price-Earnings Ratio	15.13 times	17.88 times
Dividend Yield	2.97%	3.08%

 The price-earnings Ratio The market's expectations for a company's future growth and profitability are reflected in the ratio, a financial indicator that is computed by dividing the market price of a stock by its earnings per share (EPS). This ratio shows how much investors are prepared to pay for each dollar of corporate earnings.

Price-earnings ratio = Market price per share / Earnings per share

This has been weaken in 2023.

Dividend Yield, a financial ratio that shows the percentage return an investor can anticipate from dividends in relation to the stock's current market price, is computed by dividing the annual dividend payment per share by the share price. This information can be used to determine an investment's potential income stream.

Dividend yield = (Annual dividends per share / Market price per share) × 100%

This has been weaken in 2023.

 

 

 

 

 

 

 

 

 

 

Z-Score Bankruptcy model

 

Dr. Edward Altman created the Z-Score bankruptcy model, a financial formula that helps creditors and investors evaluate a company's financial health by evaluating a number of financial measures to determine the bankruptcy risk of the enterprise.

Z = 1.2 X₁ + 1.4 X₂ + 3.3 X₃ + 0.6 X₄ + 0.995 X₅

X₁ = Working capital / Total assets

X₂ = Retained earnings / Total assets

X₃ = Earnings before interest and taxes / Total assets

X₄ = Market value of equity / Total liablities

X₅ = Sales / Total assets

 

Table 3.8: Ratios needed to calculate Z-score

Ratio	2023	2022
X1	-0.0047	0.03736
X2	0.48098	0.51556
X3	0.077215	0.079759
X4	4.751711	6.018203
X5	0.841818	0.600894

Z score for 2023 = 4.614501

Z score for 2022 = 5.241028

When Z > 2.9 company is in safe zone. Therefore this company is in safe zone in the both years.

 

Conclusion

 

Based on the above analysis company’s financial performance have been weaken in 2023 than 2022. According to the Z-Score bankruptcy model company is still lies in between safe zone.