Introduction

Since the end of the war in May 2009, Sri Lanka has experienced a boom in the construction
industry, especially in property development. Rapid urbanization, progress in tourism and
higher consumer spending, among other factors, has led to the construction boom.

Several plans and strategies announced by the Sri Lankan Government indicate that the
country S construction industry is poised for significant growth because of investments in
property development sectors such as roads, highways, expressways, high-rise buildings,
bridges and flyovers, ports and airports, hydropower, housing, and telecommunications.
S Construction (Pvt) Limited is a one of the housing development company operating in Sri
Lanka. S Construction (Pvt) Limited has been able to maintain continues whilst improve
the profit before tax by 201% compared with the last year, which is a significant
improvement compared with the other competitors in the industry. The Company has been
able to maintain our position in the top 5 builders in Sri Lanka.
As the chairmans message stated that The strategy the S Construction (Pvt) Limited have
consistently pursued over the last five years has again resulted in a significant improvement.
Even though the company is making good profits, there are more things to be done, to
become the overall market leader in the construction industry.

Financial statement analysis will help business owners and other interested people to analyze
the data in the financial statement to provide them with better information about such key
factors for decision making and ultimately business survival. A comparison can be done in
the companys past performance and competitors performance.
To compare the financial performance A Engineering has selected which is one of the
success Construction Company in Sri Lanka. Both construction companies listed under the
Institute for Construction Training and Development in Sri Lanka (ICTAD) registration on
the C1 grade level as a top ranking construction company.
A Engineering holds strengthening position as one of the most stable and technically
advanced engineering service providers in Sri Lanka. Taking account to these considerations

A Engineering financial performance will be analyzed and compared with our company S
Construction in this report to highlight mainly on Profitability, liquidity, working capital and
financial strength by using both companies Annual reports 2013.

OVERVIEW OF CONSTRUCTION (PVT) LTD

Introduction

Legal Status: Private limited company

Industry: Construction Industry
Established: 1988
(S Construction (Pvt) , Ltd Annual Report 2013

Company Overview
S construction (PVT) Ltd is operating the construction related industries Civil Engineering
construction works. The services include property development, supply of ready-mix
concrete, hire of scaffolding material, hire or lease of construction machinery and equipment,
hire of skilled manpower for construction projects, project consultancy, designs and
development of project, piling work and supply of construction material. S Construction is an
ICTAD C1 graded company, in major disciplines of building construction and water supply
drainage works.
It is important to understand company performance by analyzing the company financial
statement. It will help assess the organization.

Figure: 2.1: Financial Performance

Source: S Engineering PLC, Annual Report 2013

S Companys overall perform has increased by comparing to 2012. When profit figures
compare between the two years the Gross profit has increased by 34% and the Net Profit
Margin has increased by 74%. The revenue of S company has increased from Rs.
6,123,844,964 in 2012 to Rs. 8,547,206,402 in 2013 with an increase of Rs 2,423,356,438 in
absolute terms. This is a 40% increase compared to the previous year. The highest contributor
to the increase in revenue is the Building and other construction sector.
The sources of the revenues are analyzed below

Figure: 2.2: Sources of Revenue

Source: S Engineering PLC, Annual Report 2013

PROFITABILITY OF THE COMPANY

Profit Margins
They are intended to measure how efficiently the firm uses assets and how efficiency the
firm. When profit figures compare between the two years, the Gross profit has increased by
34 % and the Net Profit Margin has increased by 74%, due to Company revenue.

Figure: 3.1: Gross Profit Margin

Source: S Engineering PLC, Annual Report 2013

Table: 3.2: Net Profit Margin

Source: S Engineering PLC, Annual Report 2013

Figure: 3.2: Net Profit Margin

Source: S Engineering PLC, Annual Report 2013

The gross profit Margin has increased from 4% in 2012 to 8% by 2013. The main reason for
this is increasing in turnover and finance income in the years. Administration Expenditure
also has increased. This might have caused mainly due to increase in material and labor costs
with the rising inflation in the country and by offering complete prices to clients.

Direct Cost

Figure: 1.1: Financial Performance

Source: Access Engineering PLC, Annual Report 2013

Table: 3.3: Return of Capital Employed

LIQUIDITY OF COMPANY

While the profitability and activity ratios indicate how the business in performing it is also
important to supplement this review with an examination of the effects of the performance of
the liquidity and cash position of the business. It is important as it signals the firms ability to
meet short term debt obligations. How well assets are used to generate revenue will impact on
the overall profitability of the Business.

Current Ratio

Table: 4.1: Current Ratio

Source: S Engineering PLC, Annual Report 2013

This means the amount of current assets is similar for current liability. If short term fund
management is strength, there must be 2:1 rate.

Quick/Acid Test Ratio

The quick ratio recognizes the time taken to convert inventory into cash in many businesses it
is significantly longer than other current assets and so gives a more conservative view of
liquidity.

Table: 4.2: Quick/Acid Test Ratio

Source: S Engineering PLC, Annual Report 2013

This figure represents well inventory control. Slandered level is 1:1. S Engineering PLC was
achieved it. Current ratio and Quick ratio are similar. The company maintains low inventory
level for their manufacturing.

The numbers of days stocks have remained is significantly lower in 2013 compared to 2012

Table: 4.3: Receivable Days

Source: S Engineering PLC, Annual Report 2013

The numbers of days of average receivable have remained is considerably lower in 2013
compared to 2012.

Table:4.4: Payable Days

Source: S Engineering PLC, Annual Report 2013

The number of days of average payables have remained is considerably slight in 2013
compared to 2012.
The working capital cycle of the company has been effectively managed in the year 2013
compared to 2012 as the Inventory has remained shorter periods in warehouses, the cash has

been collected faster and the company has been able to obtain better credit periods from
creditors.
Financial Strength
The gearing ratio is an important measure of risk. This ratio helps to identify the level of risk
in long term borrowing of a business.

Equity Ratio

Table: 5.1: Equity Ratio

Source: S Engineering PLC, Annual Report 2013

Another useful ratio is the ratio of long term debt to total assets which measures the
availability of assets in the business in relation to total debt. of assets in the business in
relation to total debt.
Assets Ratio

Table: 1.1: Financial Performance

Source: Access Engineering PLC, Annual Report 2013

Overall the company financial position has increased with debt over assets being 1.45% in
year 2013 where as it has been 1.09 % in the year of 2012.The company has managed to
reduce the risk level.

COMPETITOR

Comparing the financial performance with one of key competitors will help to identify the
position of the company and it also helps to improve financial abilities. To compare the
financial performance A Engineering has selected which is one of success Construction
Company in Sri Lanka.
Introduction of A Engineering PLC.
Legal states: Public limited company
Industry: Construction Industry
Established: 2001
(A Engineering PLC, Annual Report 2013)
A Engineering continued to build on its reputation as a reliable and efficient contractor whilst
remaining a preferred partner for many clients. We continued our engagement in many
disciplines of construction with the honour of having obtained the highest ICTAD
accreditation C1 grade in all major disciplines of construction including building, highways,
bridges, water supply, drainage, irrigation, land drainage, dredging, reclamation, storm water
drainage, groynes, revetments, piling and telecommunication. A Engineering PLC is backed
by a stellar track record of successfully completing over 100 infrastructure development
projects island-wide for the public and private sector.

Figure: 6.1: Financial Performance

Source: A Engineering PLC, Annual Report 2013
The sources of the revenues is analyzed below,

Figure: 6.2: Sources of revenue

Source: Access Engineering PLC, Annual Report 2013

Propitability
Gross Profit Margin

Table: 6.3: Gross Profit Margin

Source: Calculation, Annual Report 2013

Table: 6.4: Net Profit Margin

Source: Calculation, Annual Report 2013

Return of Capital Employed

Table:.6.5: Return of Capital Employed

Source: Calculation, Annual Report 2013

Liquidity

Current Ratio

Table: 6.7: Current Ratio

Source: Calculation, Annual Report 2013

Quick/Acid Test Ratio

Table; 6.7: Quick/Acid Test Ratio

Source: Calculation, Annual Report 2013

Receivable Days

Table: 6.8: Receivable Days

Source: Calculation, Annual Report 2013

Table: 6.9: Payable Days

Source: Calculation, Annual Report 2013

Financial Strength

Table: 6.10: Equity Ratio

Source: Calculation, Annual Report 2013

Table: 6.11: Current Ratio

Source: Calculation, Annual Report 2013

COMPARISION
Taking account to these consideration A Engineering PLC financial performance will be
analyzed and compared with the company S Construction (Privet) Ltd in this chapter to
highlight mainly on Profitability, liquidity, working capital and financial strength by using
both companies Annual reports 2013.

A Engineering PLCs performance is higher than S Construction (Privet) Ltd. However, S

Construction (Privet) Ltd was done their best. By comparing ratio one by one, the company
can identify their strength and weakness.
While comparing the both companies performance, Return of capital equity is in similar
position. It is represented; both companies try to earn admirable returns for their stake
holders. Gross Profit Margin and Net Profit Margin are highly distance within two
companies. A Engineering PLC earn 22% GPM and S Construction (Privet) Ltd is 5%.

It is since, Cost of S Construction (Privet) Ltd was very high than A Engineering PLC. As a
large scale company, A Engineering PLC may have economic scale. Hence, S Construction
(Privet) Ltd must try to minimize both direct and indirect cost. It is better to attend wastage
management.

Working capital is important as it signals the firms ability to meet short term debt
obligations. How well assets are used to generate revenue will impact on the overall
profitability of the Business. S Construction (Privet) Ltd maintains well short term debt and
credit management than A Engineering PLC. Low Payable and Receivable Ratio is evidence
for that. The companys inventory management level also was well.
By comparing Equity and Asset Ratio, S Construction (Privet) Ltd must pay attention to
long term debt. It shows 80% from Equity. As suggestion, the company can increase their
Equity. Hence their Asset Ratio is in good level.
While considering above all factors, S Construction (Privet) Ltd has much strength and few
weaknesses. Thus S Construction (Privet) Ltd will achieve their goal in a short time.

GOOD LUCK!!!!

Reference
1.-http://www.icralanka.com
2. http://education-portal.com/academy/lesson/profitability-ratio-definition-formula-analysisexample.html#lesson