Professional Documents
Culture Documents
GROUP ASSIGNMENT
Analyzing Lanka Floor Tiles PLC Annual
Report
Group members:
1.
2.
3.
4.
5.
Welagedara R.C.
Wickramanayake C.K.
Wijemanna W.L.K.D.
Wijesundara S.B.
Gunarathna P.Y.T.D.
6. Muthuransi L.W.N.
100
100589
100600P
100610V
100624R
100627E
Department
: Electrical Engineering
Group
Table of Contents
: 06-09-2013
List of Tables.............................................................................................................2
Chapter 1: Introduction............................................................................................3
Chapter 2: Chairmans review..................................................................................5
Chapter 3: Managing Directors review...................................................................7
Chapter 4: Auditors review.......................................................................................9
Chapter 5: Financial ratio analysis..........................................................................11
5.1: Liquidity Ratios............................................................................................11
5.2 Asset Management or Activity Ratios...........................................................12
5.3 Financial Structure or Capitalization Ratios...............................................13
5.4 Profitability/Efficiency..................................................................................15
5.5 Market Test Ratios.........................................................................................17
5.6 Summary Table of Financial Ratio Analysis...............................................19
Chapter 6: Comparative financial statement analysis.............................................20
6.1 Common size Income statement...................................................................20
6.2 Common size Balance sheet.........................................................................21
6.3 Horizontal analysis of Balance sheet...........................................................22
6.3 Horizontal analysis of Balance sheet...........................................................23
6.3 Horizontal analysis of Balance sheet...........................................................24
Chapter 7: Interpretation..........................................................................................25
Chapter 8: Conclusion..............................................................................................28
List of Tables
Table 1.1.i
Working Capital
Table 2.1.ii
Current Ratio
Table 3.1.iii
Quick Ratio
Table 4.2.i
Inventory Turnover
Table 5.2.ii
Table 6.2.iii
Table 7.2.iv
Table 8.3.i
Debt/Equity Ratio
Table 9.3.ii
Table 10.3.iii
Equity Ratio
Table 11.3.iv
Table 12.4.i
Table 13.4.ii
Table 14.4.iii
Table 15.4.iv
:
Return on Assets
Table 16.4.v
Earning Power
Table 17.4.vi
Return on Equity
Table 18.5.i
Table 19.5.ii
Table 20.5.iii
Table 21.5.iv
Chapter 1
Introduction on Lanka Tiles
In this fast moving competitive world, we can identify that the
science and technology is being improving day by day and hence
the overall world is now in a position where they can manage anything. If we consider this vast
development of the world in the perspective of a businessman, we can identify that there is a huge
variety of various types of manufacturing companies, because of the development in the field of
Science and technology. So, in this carrier, our country Sri Lanka is somehow try to engage and be
with the modern developing world and as a result of that we can identify that there are several
manufacturing companies. In this assignment, we have chosen Lanka Floor Tiles as our source
company and attended to the given task- that is analyzing the annual report. Its better to have an
idea on the company, before were moving to our financial analysis part. Lets take a brief look at
Lanka Floor Tiles.
Lanka Floor Tiles PLC can be identified as the pioneer in the field of floor tile production in Sri
Lanka. In 1984, Lanka Floor Tiles PLC was incorporated with the manufacturer of Ceramic Glazed
Floor tiles as its core business.
In order to have an idea on the company goal and its particular objectives, its much more
convenient to consider the vision and mission of Lanka Floor Tiles.
Vision of Lanka Floor Tiles
Our vision is of a future in which Lanka Floor tiles will have become not only a household
name but a global one.
Mission of Lanka Floor Tiles
Our mission is to be a Company that sets and constantly exceeds our benchmarks of the
highest quality in producing ceramic products of exceptional beauty and functionality and to
cater every need of discerning customers both in Sri Lanka and abroad. These traits have
kept us at the forefront in our chosen spheres, creating peerless career development
opportunities within the organization. We believe that the improvement is a continuing
process. It is the constant endeavor of our employees and the driving force behind our
success.
Actually, Lanka Floor Tiles is a subsidiary of Lanka Wall tile PLC and its also a subsidiary
3
of Lanka Ceramic PLC group. Floor tiles, wall tiles and the sanitary wares were the most interested
areas that had been considered by Lanka Ceramics. Not only that, but also tableware, electro
porcelain insulators are some other areas that are covered.
Although the ultimate objective is making the profits, Lanka Floor Tiles have not only
thought about their own profits, but also they have thought of the betterment of the whole
community that is dealing with them. Mainly, the safety procedure that had been introduced to the
new employees in the orientation process and also there are programs on the regular safety refresher
that are conducted in order to increase the awareness. For that, we can identify that there are certain
programs and some are listed below.
Vision for Life Rural health program which was organized jointly with Lions club of
district 306 A2. (Have organized up to 15 free eye campaigns)
School Nutrition Development program- A number of rural community based nutrition and
educational programs were conducted.
Achievements
To convey the level of success that Lanka Floor Tiles has reached, the amount of awards that had
been achieved by the company is sufficient enough. The following are some of the awards that have
been achieved by Lanka Floor Tiles (the following list consists only the awards that had been
achieved recently.)
Bronze award- Manufacturing companies in the Annual Report Awards 2009 conducted by
the Institute of Charted Accountant of Sri Lanka.
4
Silver Award in the Extra Large category Industry sector at NCE Export Awards 2008 by
the National Chamber of Exporters of Sri Lanka.
Those are a few from all the awards that Lanka Floor Tiles had
been achieved.
Chapter 2
Chairmans review
The chairman of Lanka Floor Tiles- Mr.Anthony A. Page had clearly stated that the secret of being
the largest producer of ceramic floor tiles in Sri Lanka is the increase in production capacity. He had
revealed those facts in his review at the annual report of Lanka Floor Tiles, which is relevant for the
financial year ended in 31st of March 2012. Furthermore the chairman had mentioned that Lanka
Floor Tiles are confident of selling this increased capacity as the requisite infrastructure and there
are logistics that have been put in place and the brand investment which is required had been done.
Also, Mr.Anthony A. Page had forecasted that the company will definitely report growth in the
earnings.
Performance
The financial year 2012 can be considered as a better year for the whole business community of Sri
Lanka. Also, Lanka Floor Tiles had performed well through its carrier during the ear ended at 31 st
March 2012.
There had been an increase in the profit after the tax and its 19% from the previous year which had
been ended at 31st March 2011. Also, the overall performance of the company was in line with the
market expectations. But, on the other hand if the booking exchanges losses that occur due to the
foreign currency loans borrowings and other commitments were not presented, the profitability of
the company would have been increased much more than its present value. As the energy prices
were also very volatile throughout the particular year, that fact also had been contributed to the
lower margins.
Fixed Assets
There had been conducted an investment project in order to increase the production capacity of
Lanka Floor Tiles. It was an investment of Rs. 600 Mn for the purpose of increasing the production
capacity by 4,000 SqMt per day and at the present moment Lanka floor Tiles is really enjoying what
5
had been gained through the investment. Also, the company had invested in the machinery to
enhance and upgrade their facilities that are involving with the production. In the year ended at 31 st
of March 2012, Rs. 274 Mn was spent on acquiring plant and machinery to the company.
Appropriations
The amount of dividend paid by the company is Rs.4.00. A first interim dividend of Rs.1.00 per
share was paid by the company in January 2012 and a second interim dividend of Rs.3.00 per share
paid in July 2012. Hence, finally, the total amount of the dividend payment is Rs.212 Mn in the year
2011/2012 comparing with the 2010/2011, its Rs. 186 Mn. The certain year, which was ended in 31st
of March 2012, can be considered as the year where Lanka Floor Tiles had paid its largest or the
highest dividend payout. Lanka Floor Tiles has expected to keep on increasing the amount of the
dividend that is paid to the shareholders in the coming years.
Corporate Governance
In order to uplift the higher standards of transparency and integrity in the governance of Lanka Floor
Tiles, all the board of directors of the company had been committed up to their maximum. The
subsidiaries were allocated in cooperated with the Institute of Charted Accountants of Sri Lanka, the
Securities and Exchange Commission of Sri Lanka and the Colombo Stock Exchange.
Corporate Sustainability
The whole crew of Lanka Floor Tiles, including the board of directors and the management has
purposefully engaged in order to create long term shareholder value. The ultimate objective of the
company is to have a sustainable business with a higher amount of environmental protection and
corporate accountability. The company had invested in a considerable amount for the purpose of
reaching to the environmental sustainability. Not only that, but also Lanka floor Tiles had invested
to improve the life styles of the villagers who are living around the factory. As those investments had
added a value to the company for the last several years, this process will be never stopped.
Outlook
Lanka Floor Tiles is reaching towards the expected goal and reap benefits of its investment in
2011/2012, and the economic growth is there as a result of the new opportunities. The company is
being playing a vital role in the field of floor tiles due to its increased capacity of production and
hence, the company had been able to be the largest producer of ceramic floor tiles in Sri Lanka.
Lanka Floor Tiles is capable of selling the increased capacity and hence, the required brand
investment is also being done. All in all, the company will report growth in the earnings in the next
coming years.
6
In his review the chairman of Lanka Floor Tiles, Mr. Anthony A Page had commented a lot on
expanding the network and the work that had been engaged by the company over the last several
years.
The particular financial year (which is ended at 31 st of March 2012) can be considered as a
significant year with respect to its performance, Lanka Floor Tiles is always cares about the
future challengers. Among the major problems of the manufacturer, the depreciation of Rupee
can be considered as a major fact.
Chapter 3
Managing Directors review
Lanka Tiles PLC has gained a net profit after tax of tax of Rs. 600 Mn in 2011/12, up 19% from the
net profit after tax of Rs. 505 Mn recorded in 2010/2011. According to the Mr. J.A.P.M. Jayasekera,
Managing Director of Lanka Tiles PLC idea, this was not an easy task and this growth was achieved
by facing the formidable challenges through the year.
Performance of the Company
Lanka Tiles PLC has recorded a net profit after tax of Rs. 600 Mn in 2011/12, up 19% from the net
profit after tax of Rs. 505 Mn recorded in 2010/2011. Surely, this was not an easy task. Their
production was dropped to 121,000 sqm caused by having to dismantle a kiln to make way for a
newer unit with a higher production capacity. The drop in output resulted in a higher unit cost of
production, gross margins dropped from 36% in 2010/11 to 32% in 2011/12. But the turnover
however saw a significant increase of 19% to Rs. 3.57 Bn during the year. This increase in turnover
was achieved despite the lower production during the year owing to installation of machinery. Also
the Sri Lankan rupee saw a sudden drop in value by as much as 14% in February 2012. So,
increment of their net profit while facing such bigger problems is really a big achievement. For
surely, this massive achievement would correlated with the dedication of entire working force of the
company.
Factory operations
Their factory operations were unavoidably disrupted by the production expansion program that was
underway. Labour unrest in the Sorting Department of the factory also had a significant adverse
impact on production, unit cost and profitability. Expansion of production capacity by 40% was
7
undertaken at a cost of Rs. 600 Mn. Under that they installed a new spray drier and a kiln. Though it
was such a big investment, they can increase their productivity by manufacturing glazed porcelain
tiles to meet the increasing demands to them.
There were some complains towards Lanka Tiles PLC, that they alleging environmental pollution
specially sound and air. So improvements costing over Rs. 13 Mn were made to further strengthen
the environmental friendliness of factory operations. This is a very positive approach in any business
because earning profit should not be the one and only target.
Marketing
Companys products are now marketed under the new brand name LANKATILES. Further
investments have been made to strengthen and enhance the brand value of the company. They also
started to import both Spanish and Italian porcelain tiles to widen their product range. These new
products, though considerably more expensive than other porcelain tiles in the market, have been
very well received by customers. Company has opened 5 more showrooms during the year by
bringing the total to 19. Widening the product range by looking at the market demand is actually
very important and good marketing campaigns will do more in the near next year also.
Associates
Lanka Tiles PLC is associated with Swisstek (Ceylon) PLC (SCPLC) and made a satisfactory
progress during the year. It returned to profitability after 07 years. Tile mortar and grout
manufactured and marketed by the Company fared well. The Company installed a brand new silica
crushing plant to increase production of tile mortar and grout. For surely, these investments will
yield results in the forthcoming years.
The combination of Swisstek Aluminium Limited (SAL) and SCPLC has made benefits to both the
parties. Swisstek Aluminium Limited (SAL) is the major shareholder and they also performed
exceptionally well during the year. The Company reported a marginal net loss of Rs. 5 Mn compared
with the loss of Rs. 103 Mn in the previous year. SAL introduced a range of new products to the
market which were well received by the customers. It is clear that both SCPLC and SAL will gain
appreciable profits during the next year because of their combination.
Human resources
Lanka Tiles PLC has gained a big advancement in the year 2012. The main secret of their excellent
performance would be they have focused on having an efficient Human Resources Development
system to retain and develop its employees in all levels to benchmark standards. The remuneration
committee, the Board, and the Senior Management had to work hard to make this a success. The
total number of employees stood in the company throughout the year is 470. From that we can
determine that, the wages of the workers must be reasonable and promotion schemes must be well
structured. Otherwise, they will not stay in the company any longer.
The industrial issues are common to all the businesses and it is important to negotiate and settle
them successfully. Lanka Tiles also has to face some industrial issues during previous year, 2012.
The company will have to focus more on this area to have a harmonious relationship with the
workforce.
All the employees were trained on company requirements and a few were sent for overseas training.
The total spent on employees training in the year was nearly Rs. 5.0 Mn. There is no any doubt, that
they can expect these will lead to increase productivity and help the company to achieve business
excellence.
Future outlook
The value of Sri Lankan rupee against the US Dollar is decreasing. That has driven high local
product costs for all the businesses. We can predict that with the stabilization of the rupee they will
perform well than this year.
LPG prices that went to record highs have also fallen in international markets, directly benefiting the
company. One commendable development in the 04th quarter of 2011/12 was the Governments
decision to adjust kerosene prices to realistic levels. The kerosene subsidy afforded an unfair
advantage to local manufacturers who rely on it for energy. According to company policies they
prevent from using subsidized fuel for their energy requirements. So the company will able to face
competition in the local market as that factor does not affect their productivity.
Chapter 3
Auditors Report
As all the other companies, for the purpose of handling finance and informs the financial
performance of the company, the audit committee is there in Lanka Floor Tiles and its a
subcommittee of the main board.
9
In the audit committee of Lanka Floor Tiles, we can identify that its consisting of 3 non-executive
Directors where 2 are independent.
1. Chairman Mr. Anthony A. Page
2. Dr. S.Selliah (Independent)
3. Mr. A.T.P. Edirisinghe (Independent)
In according with Sri Lankan Accounting Standards, the committee oversaw of the
preparation and adequacy of disclosures in the financial statements of Lanka Floor Tiles. Not
only that, but also the information requirement and financial reporting related regulations are
also reviewed.
The monthly internal audit reporters are been reviewed by the committee. The internal audit
function of Lanka Floor Tiles is carried out by M/s. Ernst & Ypung Advisory Services (Pvt)
Ltd. In order to improve the process performance and the control, the internal auditors are
doing the monthly process based audits.
The recommendations which are proposed by the external auditors are discussed with the
senior partner. The management carries out the recommendations.
With respect to the risk management and risk assessment, the audit committee reviewed the
policies of the company
Conclusion
The audit committee of Lanka Floor Tiles PLC, is satisfied with the companys accounting
policies and the risk management. Also, the relevant risk management had been considered
as adequate for the company.
The financial statement of Lanka Floor Tiles have been audited which consists of the
balance sheet as at 31st March 2012, the income statement , changes in equity and cash flow
statement and the summary of accounting policies.
The management should responsible for the preparation and fair presentation of theses
financial statements with Sri Lanka Accounting standards. Designing, implementing and
maintaining internal controls are the responsibilities that are involving with the certain task.
Also, selecting and applying appropriate accounting policies are a major task.
Examining, conducting tests are included in an audit. Not only that, but also there are
accounting principles that are involved with the audit.
All the members of the internal audit sector have attended to their purpose very well and that
is to obtain all the information to the maximum effort.
Opinion
Lanka Floor Tiles had maintained proper accounting records for the ended of the year 31 st
March 2012. All the financial statements have provided a true and a fair view of the
companys state of affairs and its profits.
Chapter 4
Financial Ratio Analysis
1. Liquidity or Short-Term Solvency Ratios
i). Working Capital
WorkingCapital=Current AssetsCurrent Liabilities
2012
As at 31 March
Rs. 000
1,677,712
890,777
786,935
Current assets
(-) Current liabilities
Working Capital
2011
Rs.000
1,222,538
1,225,017
-2,479
Table 22.1.i
11
Current assets
Current Liabilities
As at 31 March
Current assets
Current liabilities
Current Ratio
2012
2011
Rs. 000
1,677,712
890,777
1.883
Table 23.1.ii
Rs. 000
1,222,538
1,225,017
0.998
Quick Assets
Current Liabilities
2012
As at 31 March
2011
Rs. 000
1,677,712
781,626
896,086
890,777
1.006
Table 24.1.iii
Current assets
(-) Inventories
Quick Assets
Current liabilities
Quick Ratio
Rs. 000
1,222,538
569,821
652,717
1,225,017
0.533
As at 31 March
Cost of goods sold
Average inventory
Inventory turnover
2011
Rs.000
1,931,791
569,821
3.39
12
2012
As at 31 March
Rs.000
3,567,209
857,365
4.16
Credit sales
Average debtors
Debtors turnover ratio
2011
Rs.000
3,002,191
498,303
6.02
Table 26.2.ii
iii). Average Collection Period
Average Collection Period=
360
Debtors Turnover Ratio
2012
As at 31 March
2011
Rs.000
4.16
Rs.
6.02
86.54
59.8
Table 27.2.iii
iv). Average Payment Period
Average Payment Period=
Average Creditors
x 360
Purchases
2012
As at 31 March
Rs.000
575,008
2,416,593
85.67
Average creditors
Cost of sales
Average payment period (days)
2011
Rs.000
1,042,424
1,931,791
194.26
Table 28.2.iv
13
Debt
Equity
2012
As at 31 March
Rs.000
683,954
2,764,588
0.247
Debt
Equity
Debt equity ratio
2011
Rs.000
168,758
1,677,133
0.101
Table 29.3.i
Debt
x 100
Total Assets
2012
As at 31 March
Rs.000
683,954
4,262,713
0.16
Debt
Total assets
Debt turnover ratio
2011
Rs.000
168,758
3,141,734
0.053
Table 30.3.ii
Equity
x 100
Total Assets
2012
As at 31 March
Rs.000
2,764,588
4,262,713
0.649
Equity
Total assets
Equity ratio
2011
Rs.000
1,677,133
3,141,734
0.534
Table 31.3.iii
As at 31 March
2012
2011
14
Rs.000
793,998
51,552
15.40
Rs.000
706,264
3,648
193.60
Table 32.3.iv
Gross Profit
Sales
2012
As at 31 March
Rs.000
1,150,616
3,567,209
0.323
Gross profit
Sales
Gross profit margin
2011
Rs.000
1,070,400
3,002,191
0.357
Table 33.4.i
ii). Net Profit Margin
Net Profit Margine=
Net Profit
Sales
2012
As at 31 March
Rs.000
600,136
3,567,209
0.168
Net profit
Sales
Net profit margin
2011
Rs.000
505,070
3,002,191
0.168
Table 34.4.ii
iii). Asset Turnover Ratio
Asset Turnover Ratio=
Sales
Average Assets
We could not find the assets value at the beginning of the financial year to calculate average
assets. So, we used value of the total assets at the end of the financial year as the average
assets value.
15
2012
As at 31 March
Rs.000
3,567,209
4,262,713
0.837
Sales
Average assets
Asset turnover ratio
2011
Rs.000
3,002,191
3,141,734
0.956
Table 35.4.iii
Net Profit
Average Assets
We could not find the assets value at the beginning of the financial year to calculate average
assets. So, we used value of the total assets at the end of the financial year as the average
assets value.
2012
As at 31 March
Rs.000
600,136
4,262,713
0.141
Net profit
Average assets
Return on Assets
2011
Rs.000
505,070
3,141,734
0.161
Table 36.4.iv
We could not find the assets value at the beginning of the financial year to calculate average
assets. So, we used value of the total assets at the end of the financial year as the average
assets value.
2012
As at 31 March
Rs.000
793,998
4,262,713
0.186
2011
Rs.000
706,264
3,141,734
0.225
Table 37.4.v
16
Net Profit
Average Equity
We could not find the equity value at the beginning of the financial year to calculate average
equity. So, we used value of the total equity at the end of the financial year as the average
equity value.
2012
As at 31 March
Rs.000
600,136
2,764,588
0.217
Net profit
Average equity
Return on equity
2011
Rs.000
505,070
1,677,133
0.301
Table 38.4.vi
As at 31 March
2011
505,070
53,050
9.52
As at 31 March
Dividends per share (Rs)
2012
3.50
2011
4.00
Table 40.5.ii
17
As at 31 March
Dividends per share
Earnings per share
Dividend payout ratio
2012 (Rs. )
3.50
11.31
30.95%
2011 (Rs.)
4.00
9.52
42.02%
Table 41.5.iii
As at 31 March
Market price per share
Earnings per share
Price earnings ratio
2012
65.10
11.31
5.76
Table 42.5.iv
2011
131.10
9.52
13.77
18
Ratio
Working Capital
Current Ratio
Quick Ratio
Inventory Turnover
Debtors Turnover
Average Collection period
Average Payment Period
Fixed Assets turnover
Total Assets Turnover
Debt/Equity
Debt/Total Asset
Equity Ratio
Times Interest Earned
Gross Profit Margin
Net Profit Margin
Return on Assets
Earning Power
Return on Equity
Earnings per Share
Dividends per Share
Dividend Payout Ratio
Price Earnings Ratio
2012
2011
786,935,000
-2,479,000
1.883:1
0.998:1
1.006:1
0.533:1
3.09 times
3.39 times
4.16
6.02
86.54 days
59.8 days
85.67 days
194.26 days
1.34
1.56
0.84
0.96
0.247
0.101
0.16
0.053
0.649
0.534
15.40 times
193.60 times
32.3%
35.7%
16.8%
16.8%
14.1%
16.1%
18.6%
22.5%
21.7%
30.1%
Rs. 11.31
Rs. 9.52
Rs.3.50
Rs.4.00
30.95%
42.02%
5.76
13.77
19
Chapter 5
Comparative Financial Statement Analysis
Common Size Analysis /Vertical Analysis
5.1 Common Size Income Statement
Common Size Income
2012 (Rs.000)
statement
2011(Rs.000)
2012
2011
3,567,209
3,002,191
100%
100%
Cost of sales
(2,416,593)
(1,931,791)
67.74%
64.35%
Gross Profit
1,150,616
1,070,400
32.26%
35.65%
21,406
18,476
0.60%
0.62%
Distribution costs
(199,349)
(152,770)
5.59%
5.09%
Administrative expenses
(188,557)
(229,842)
5.29%
7.66%
Operating profit
784,116
706,264
21.98%
23.52%
(51,552)
(3,648)
1.45%
0.12%
9,882
0.28%
0%
742,446
702,616
20.81%
23.40%
(142,310)
(197,546)
3.99%
6.58%
600,136
505,070
16.82%
16.82%
As at 31 March
2011 (Rs.000)
Common Size
Balanced Sheet
2012
2011
21
ASSETS
Non-Current Assets
Property, Plant & Equipment
2,237,069
1,494,858
52.48%
47.58%
86,819
85,071
2.04%
2.71%
Intangible assets
0%
0%
Investments in Subsidiaries
168,2543
0%
5.36%
261,113
171,013
6.13%
5.44%
2,585,001
1,919,196
60.64%
61.09%
Current Assets
Inventories
781,626
569,821
18.37%
18.14%
857,365
498,303
20.11%
15.86%
38,721
154,414
0.91%
4.91%
1,677,712
1,222,538
39.36%
38.91%
4,262,713
3,141,734
100%
100%
900,968
900,968
32.59%
53.72%
1,403,469
776,165
50.77%
46.28%
460,151
16.64%
0%
2,764,588
1,677,133
100%
100%
Borrowings
379,024
81,093
25.30%
5.54%
176,432
116,372
11.78%
7.95%
51,892
42,119
34.64%
2.88%
607,348
239,584
40.54%
16.36%
575,008
1,042,424
38.38%
71.17%
10,839
94,928
0.72%
6.48%
304,930
87,665
20.35%
5.99%
890,777
1,225,017
59.46%
83.64%
1,498,125
1,464,601
100%
100%
Investments in associate
Total Assets
EQUITY
Capital & Reserves
Stated Capital
Retained Earnings
Amalgamation reserve
Total Equity
LIABILITIES
Non-Current Liabilities
Current Liabilities
Trade & Other Payables
Current Income Tax Liabilities
Borrowings
Total Liabilities
2012 (Rs.000)
2011 (Rs.000)
Horizonta
l Analysis
22
ASSETS
Non-Current Assets
Property, Plant & Equipment
2,237,069
1,494,858
49.65%
86,819
85,071
2.05%
Intangible assets
Investments in Subsidiaries
168,2543
-100%
261,113
171,013
52.69%
2,585,001
1,919,196
34.69%
Current Assets
Inventories
781,626
569,821
37.17%
857,365
498,303
72.06%
38,721
154,414
-74.92%
1,677,712
1,222,538
37.23%
4,262,713
3,141,734
35.68%
900,968
900,968
0.00%
1,403,469
776,165
80.82%
460,151
2,764,588
1,677,133
64.84%
Borrowings
379,024
81,093
367.39%
176,432
116,372
51.61%
51,892
42,119
23.20%
607,348
239,584
153.50%
575,008
1,042,424
-44.84%
10,839
94,928
-88.58%
304,930
87,665
247.84%
890,777
1,225,017
-27.29%
1,464,601
2.29%
3,141,734
35.68%
Investments in associate
Total Assets
EQUITY
Capital & Reserves
Stated Capital
Retained Earnings
Amalgamation reserve
Total Equity
LIABILITIES
Non-Current Liabilities
Current Liabilities
Trade & Other Payables
Current Income Tax Liabilities
Borrowings
Total Liabilities
Total Equity and Liabilities
1,498,125
4,262,713
5.4 Horizontal analysis of Cash Flow Statement for year ended 31 March using base
year as 2011
Year ended 31 March
2012(Rs.000) 2011(Rs000)
Horizontal
Analysis
462,772
897,782
-48.45%
23
Interest paid
(28,728)
(24,298)
18.23%
1,966
6,709
-70.69%
(2,222)
(1,212)
83.33%
(174,421)
(120,049
45.29%
259,367
758,932
(659,169)
(148,862)
36,510
4,224
(117,766)
-100%
(214,657)
(143,330)
49.76%
(837,316)
(405,734)
(5,940)
-100%
(53,050)
(159,151)
-66.67%
(9,743)
(4,849)
100.93%
558,239
66,000
745.82%
Repayment of borrowings
(95,810)
(252,500)
-62.06%
399,636
(356,440)
(178,313)
(3,242)
131,142
134,384
Interest received
Gratuity paid
Tax paid
Net Cash Generated from Operating Activities
-65.82%
342.81%
764.35%
106.37%
(178,313)
(3,242)
111
(47,060)
-212.12%
5400.09%
-2.41%
5400.09%
131,142
-135.89
5.5 Horizontal analysis of Income Statement for year ended 31 March using base year
as 2011
24
As at 31 March
2012 (Rs.000)
Horizontal
2011(Rs.000)
Analysis
Gross revenue
3,567,209
3,002,984
18.79%
3,567,209
3,002,191
18.82%
Cost of sales
(2,416,593)
(1,931,791)
25.10%
Gross Profit
1,150,616
1,070,400
7.49%
21,406
18,476
15.86%
Distribution costs
(199,349)
(152,770)
30.49%
Administrative expenses
(188,557)
(229,842)
-17.96%
Operating profit
784,116
706,264
11.02%
(51,552)
(3,648)
1313.16%
9,882
742,446
702,616
5.67%
(142,310)
(197,546)
-27.96%
600,136
505,070
18.82%
Chapter 6
Interpretation
Liquidity
A poor current ratio of 0.998:1 in 2011 has improved to 1.883:1 in 2012. Despite the improvement it
is still below the accepted norm. This low current ratio is an indication that company may not have
the ability to weather short-term economic downturns. Quick ratio has increased from 0.533:1 in
25
2011 to 1.006:1 in 2012. This growth has ensured the ability of the company to pay current liabilities
without selling inventory.
Owing to low current and quick ratios, the company is not in a good position to fund promotional
efforts, fund mergers, increase sales force or territorial expansions.
Working capital has increased from a negative value to a large positive value. This is due to
increment in current assets and decrement in current liabilities. A closer look at the horizontal
analysis shows that though total current assets have increased, cash and cash equivalents have
decreased as a percentage. Major increment of current assets is due to increment in receivables. This
may be due to inefficiency in collecting cash from customers. Lack of cash and cash equivalents
will have bad effects on small promotional and advertising activities.
Current liabilities have decreased mainly because company has paid most of the trade and other
payables and income taxes. This will make it easy for the company to do further borrowings.
So the company has the ability to take loans and buy from suppliers on credit basis easily.
It appears that debt/equity ratio debt/total assets ratios have increased from year 2011 to 2012. But
both ratio values are low and the company is not at a risky position owing to debts.
Additional details in financial reports reveal that most of the debts of the company are long term
debts. Hence the company has a low total debt/LT debt ratio and has a relatively low
percentage of short term debts in its financing, and will be less sensitive to interest rate
fluctuations.
On the other hand low level of short term debt and low gearing ratio will have wider access to
funding if they wish to pursue a market expansion. We cannot forget that Lanka Flow Tiles is a
company with the mission and an aggressive nature. They have the ability to parlay these
strengths of low debt and risk in to new market places in local market. Average payment period
has decreased from 194 days to 86 days which will help the company in long term and short term
borrowings. But increase in average collection period will cause adverse effects to the company.
Bankruptcy Risk
In 2011 the company had a negative net working capital indicating that operations are not selfsupporting. Cash and receivables were less than expenses and payables. This was a bad sign for the
health of the company. But company has managed to reach a high positive net working capital in
2012. This strong net working capital will give management many strategic options. This will fuel
strong cash flow and provide tidy operating margins in the future. We can accept this company to
be aggressive because they have more room to move due to high working capital.
Another bankruptcy risks the debt /equity ratio which is low for the company. But it has increased
from 2011 to 2012, increasing the risk.
Out of current assets cash equivalents have decreased in percentage to 0.91%, which is very low.
Trade and other receivables have increased to 20.11% of current assets from 15.86%. this may be
because the company is depending heavily on credits sales and due to increasing average collection
period. This huge amount of debtors and low amount of cash is a risk to this company in long
term.
Other matters
Increase in the price of oil and kerosene effects this company in a very bad manner as production
line is heavily dependent on kerosene. We can expect oil prices to rise in the future as well which
will increased the cost of production and make the company unstable. The company will try to go
27
for electricity driven ovens and other production line equipment driven by electricity. However this
will not be easy to do in few years and this enhancement project will reduce their production
capacity because of interruptions.
Three of their main board members are all nearing retirement. It will be difficult or someone new to
the company to direct it through this challenges inside the company and the global market.
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Chapter 7
Conclusion
29