Table of Contents

List of Figures ............................................................................................................................ii

1.1 Introduction .......................................................................................................................... 1

1.2 Overview of Jetwings Lighthouse PLC. .............................................................................. 1

1.2.1 Highlights of the Year (2012-2016) .............................................................................. 3

1.2.1.1 Rooms Nights Occupied ........................................................................................ 3

1.2.1.2 Revenue.................................................................................................................. 3

1.2.1.3 Profit after Tax ....................................................................................................... 3

1.2.1.4 Earnings per Ordinary Share .................................................................................. 4

1.3 Financial Ratios Analysis .................................................................................................... 4

1.3.1 Liquidity Ratio Analysis ............................................................................................... 5

1.3.1.1 Current Ratio .......................................................................................................... 5

1.3.1.2 Quick Ratio ............................................................................................................ 6

1.3.2 Working Capital Management analysis ........................................................................ 6

1.3.2.1 Inventory turnover ................................................................................................. 7

1.3.2.2 Stock days .............................................................................................................. 7

1.3.2.3 Account Payable day ratio ..................................................................................... 8

1.3.2.4 Account Receivables day ratio............................................................................... 9

1.3.3 Long term capital .......................................................................................................... 9

1.3.3.1 Capital Gearing .................................................................................................... 10

1.3.3.2 Investor cover....................................................................................................... 11

1.3.4 Cash flow ratios .......................................................................................................... 11

1.3.4.1 Cash Flow from Operating Activities to Maturing Obligations .......................... 12

1.3.4.2 Cash exhaustion ................................................................................................... 12

1.3.4 Profitability Analysis .................................................................................................. 13

1.3.4.2 Gross Profit Margin and Operating Profit Margin ............................................... 13

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 1.3.4.3 Return on Capital Employed (ROCE) ................................................................. 14

1.3.5 Investment Ratios........................................................................................................ 14

1.3.5.1 Dividend Yield ..................................................................................................... 15

1.3.5.2 Dividend Cover .................................................................................................... 15

1.3.5.3 Earnings per Share and Price to Earning ............................................................. 16

1.4 Analysis of Sources of Finance.......................................................................................... 17

1.4.1 Internal Source of Finance .......................................................................................... 18

1.4.1.1 Working Capital Sources ..................................................................................... 18

1.4.1.2 Retained Earnings ................................................................................................ 18

1.4.2 External Source of Finance ......................................................................................... 19

1.4.2.1 Debt ...................................................................................................................... 19

1.4.2.2 Disposal of Assets ................................................................................................ 19

1.5 Conclusion ......................................................................................................................... 19

References ................................................................................................................................ 20

Appendix .................................................................................................................................. 25

List of Figures
Figure 1. The Organisational Structure of Jetwing Lighthouse Hotel PLC (Jetwing Lighthouse
Hotel PLC, 2016). ...................................................................................................................... 2
Figure 2. Rooms Nights Occupied (number) ............................................................................ 3
Figure 3. Revenue ...................................................................................................................... 3
Figure 4. Profit after Tax ........................................................................................................... 4
Figure 5. Earnings per Ordinary Share ...................................................................................... 4
Figure 6. Liquidity Ratios of Jetwing Lighthouse Hotel PLC ................................................... 5
Figure 7. Jetwing Lighthouse Hotel PLC Inventory turnover ................................................... 7
Figure 8. Stock days of the Lighthouse Hotel PLC ................................................................... 7
Figure 9. Account Payable day ratio .......................................................................................... 8

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Figure 10. Receivables day ratio ................................................................................................ 9
Figure 11. Capital Gearing ....................................................................................................... 10
Figure 12. Investor cover ......................................................................................................... 11
Figure 13. Cash Flow from Operating Activities to Maturing Obligations ............................. 12
Figure 14. Cash exhaustion ...................................................................................................... 12
Figure 15. Gross Profit Margin and Operating Profit Margin ................................................. 13
Figure 16. Return on Capital Employed .................................................................................. 14
Figure 17. Dividend Yield ....................................................................................................... 15
Figure 18. Dividend Cover ...................................................................................................... 15
Figure 19. Earnings Per Share and Price to Earning ................................................................ 16
Figure 20. Sources of Finance of Jetwing Lighthouse Hotel PLC .......................................... 17

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1.1 Introduction
Analysis of financial performance is the method to identify the strengths and weaknesses of
the organisation by accurately setting up the relationships between the financial statement and
balance sheet (Uotila et al., 2009). Conducting financial performance analysis supports the
organisations long-term and short-term growth and estimating (Orlitzky, Schmidt, and Rynes,
2003). Financial performance analysis could be carried out by organisation management or by
individuals outside such as investors, creditors, owners (Ittner and Larcker, 1998; Preston and
O'bannon, 1997).

The purpose of this report to conduct the financial performance analysis in of Jetwing
Lighthouse PLC understand whether their financial performance is effective or not. For this
financial performance analysis, the author uses the last two financial years (2015 and 2016)
balance sheets and financial statements of the Jetwing Lighthouse PLC. Initially, this report
will use the balance sheets and financial statements to conduct the liquidity ratio analysis.
Secondly, the author will review working capital ratios of the company. Afterwards, this report
will analyse the long-term gearing ratios, cash flow ratios, profitability ratios, and investment
ratios to understand the 2014 and 2015 financial year financial performance of the Jetwing
Lighthouse PLC. Finally, this report will conduct the sources of finance analysis.

1.2 Overview of Jetwing Lighthouse PLC.

In 1994, the Lighthouse Hotel PLC was fused with Jetwing Family of hotels and the Lighthouse
Hotel PLC is listed on the Colombo Stock Exchange as public quoted limited business. As a
vital member of Jetwing hotels chains, the Lighthouse PLC situated in the historic city of Galle.
The hotel has unique architectures and design fairs which are designed by Geoffrey Bawa.
Hotel Jetwing Lighthouse focuses up-market holiday and business tourists, with present
inventories of 60 rooms and three themed suites. Furthermore, Lighthouse has its own boutique
hotel known as Jetwing Kurulubedda which include two private dwellings and 4 rooms along
with the exclusive Jetwing Lighthouse Club with twenty-two rooms. The vision of the
Lighthouse Hotel PLC is To be world class in everything we do. Moreover, the mission
statement of the company is To be a family of people and companies committed to legendary
and innovative service leading to high stakeholder satisfaction.

As one of the members of the Jetwing Hotels chain, Lighthouse has the similar values and
cultures. With over forty years of involvement in the Sri Lankan tourism and hospitality

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 industry, the company has acquired more knowledge and experiences from the industry which
supports the Jetwing Lighthouse to remain competitive in the marketplace. Additionally,
Jetwing Family and Lighthouse Hotel PLC have four important traits which are humility,
tenacity, passion and integrity and those four traits support the company to design their
corporate culture to welcome their customers. The company follows the higher standards of
integrities and ethics and company also ensures that the company will apply the ethics in all
their actions. Moreover, the company remained focused and followed the all the applicable
laws and controls rules before every activity. Jetwing Lighthouse has the advantage of a long-
established status for the quality of services. The company brand has been delicately placed to
attract the chosen niche market segment.

General Manager

Resident Manager/
Assistant Manager

Executive Front Office Executive F&B Maintenance Assistant Spa Training/HR Chief
Naturalist
Housekeeper Manager Chef Manager Engineer Manager Executives Accountant

Figure 1. The Organisational Structure of Jetwing Lighthouse Hotel PLC (Jetwing Lighthouse Hotel PLC, 2016).

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1.2.1 Highlights of the Year (2012-2016)
1.2.1.1 Rooms Nights Occupied

Figure 2. Rooms Nights Occupied (number)

1.2.1.2 Revenue

Figure 3. Revenue

In the financial year of 2016, The Jetwing Lighthouse Hotel PLC revenue has been increased
considerably. In 2015, the company revenue was LKR 732 million, but it has increased to LKR
836 million in the financial year 2016. Moreover, revenue growth rate is 14%. Both room
revenue (20%) and food and beverage revenue (9%) have a huge influence on revenue of the
company.

1.2.1.3 Profit after Tax

Profit after tax of the Jetwing Lighthouse Hotel was LKR 129 while the company profit after
tax increased 25% in the 2016 financial year, profit of 2016 is LKR 162 million

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 Figure 4. Profit after Tax

1.2.1.4 Earnings per Ordinary Share

Figure 5. Earnings per Ordinary Share

The Jetwing Lighthouse Hotel PLC informed a solid financial performance and position in
2016. In the financial year 2016, the total company assets increased by 13%, the total assets of
the company increased to LKR 3,196 million from LKR 2,768 million. Likewise, shareholders
funds are increased in the financial year 2016 to LKR 2,923 million from LKR 2,467 million
(2015).

1.3 Financial Ratios Analysis

Financial ratios analysis is defined as investigating and compare the financial statement
(Altman, 1968). This relationship between correlations between the financial statement

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supports company management, investors and creditor realise how well the company is
performed and which areas company need to work on in order to improve their financial
performance in upcoming financial years (Vogel, 2014; Yeh, 1996; cal et al., 2007). Financial
ratios are the accounting techniques which utilised to examine financial standing of a company
(Laitinen, 1991). Financial ratios are simple and easy to calculate and understand. Moreover,
ratio analysis will not consider the size of the organisation or the industry, so in the
contemporary business world, most of the large and small-medium businesses utilised the ratio
analysis to assess their financial statistics (Sufi, 2009; Aizenman and Pasricha, 2010; Van der
Tak et al., 2007). Simply, financial ratios analysis is a just method which used to measure the
financial performance and position of all the businesses, and financial ratios analysis allows
the businesses to recognise strengths and weaknesses (Fayers and Machin, 2013).

1.3.1 Liquidity Ratio Analysis

Liquidity is described as the companys ability to meet their financial commitments (Horrigan,
1965). In addition, this ratio measures the ability of the organisation to pay their short-term
debts and their safety margin via metrics calculations including cash ratio, current ratio and the
quick/acid ratio (Chabotar, 1989; Kumbirai and Webb, 2010). Analysts of bankruptcy and
mortgage originator will utilise this ratio to assess the financial performance of the company
(Saleem and Rehman, 2011).

1.2 1.04
0.94
1 0.85
0.77
cent/LKR

0.8
0.6
0.4
0.2
0
Current Ratio Quick Ratio

2015 2016
Ratio
Figure 6. Liquidity Ratios of Jetwing Lighthouse Hotel PLC

1.3.1.1 Current Ratio

As mentioned above, the current ratio is one of the component of liquidity ratios which
calculates the companys capacity to settle their current liabilities (short-term) from their
current assets (Xia et al., 2010: Alam, Varghese and Kaczer, 2008). In 2015, Jetwing
Lighthouse Hotel PLC indicated that their current ratio was 1.04. However, a current ratio of
the company are decreased (10%) to 0.93 in the 2016 financial year; this indicates that the

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company has 93 cents to pay off their LKR 1 of current liabilities. In 2016, the current company
liabilities are increased by 12% which has a huge impact on the reduction of the companys
current ratio. Likewise, the company inventory also affects the current company ratio because
in 2016 it decreases to LKR 29,679,855 from LKR 29,808,973. Moreover, a current ratio of
the company also indicated that the company has inadequate current assets to settle their current
liabilities.

1.3.1.2 Quick Ratio

The quick ratio is another liquidity ratio which calculates the capacity of the organisation to
repay their current liabilities with quick assets (Edmister, 1972). Quick assets are a current
asset which company can convert into cash in short-term or within three months (Garrison,
Noreen, and Brewer, 2003). Quick assets include current account receivables, cash, short-term
investments or marketable securities and cash equivalents (Erturul and Karakaolu, 2009).
This ratio indicates how well an organisation is able to speedily change company assets into
cash to settle their current liabilities (Kum et al., 2004). A quick ratio of the Jetwing Lighthouse
Hotel PLC was 0.85 in 2015 financial year while the ratio is decline by 10.4% to become 0.77
in 2016; this indicates that the company does not have enough quick assets to repay their current
liabilities within three months. As a result, Lighthouse Hotel PLC required selling any of their
capital or long-term assets to pay their debts which clearly shows the ineffective financial
performance of the company. Moreover, selling the capital or long-term assets will affect the
company long-term financial performances and effectiveness of the firm as well.

In brief, the liquidity of the Jetwing Lighthouse Hotel PLC not enough to pay their current
obligations; it is logical that it must enhance the investments in short-term with the intention
of increase the liquidity assets. Moreover, if the Lighthouse Hotel PLC wants to settle their
current obligations they can consider the bank overdraft which will support the company to
repay their debt, but bank overdraft will have an adverse impact on profit of the company
because financial costs of the company will increase.

1.3.2 Working Capital Management analysis

Working capital management includes the relationships between short-term organisation assets
and liabilities (Padachi, 2006). The purpose of working capital management is to make sure
that the company can carry on their processes and that it has adequate capacity to fulfil both
growing short-term obligation and future operational expenditures (Deloof, 2003). The

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working capital management also includes a deal with stocks, cash and account payable and
receivable and payable (Filbeck and Krueger, 2005).

1.3.2.1 Inventory turnover

5.3
5.22
5.2

5.1
times

5 4.93
4.9

4.8

4.7
Inventory turnover

2015 2016

Figure 7. Jetwing Lighthouse Hotel PLC Inventory turnover

The stock/inventory turnover ratio is one of the ratios which displays how well inventories are
controlled by assessing the costs of goods sold with inventories. Moreover, this ratio calculates
how frequently inventories is sold in the financial year. In another word, this ratio quantifies
how often an organisation sold its total average stock in the particular financial year. In the
2015 financial year, the Lighthouse Hotel PLC inventory turnover was 4.93, while it increased
to 5.22 in the financial year of 2016 due to the increment of the cost of goods sold and
decrement of inventory (0.44%).

1.3.2.2 Stock days

75
74
74
73
72
Days

71
70
70
69
68
Stock days

2015 2016

Figure 8. Stock days of the Lighthouse Hotel PLC

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Stock days or inventory days measures a number of days organisation needs to sell their
available inventories (Demeter and Matyusz, 2011). In other words, stock day ratio indicates
how long an organisation's existing inventories will last. This ratio is imperative to investor
and creditors for several key reasons such as this ratio calculates the cash flows, value, and
liquidities (Farris and Hutchison, 2002). Moreover, both creditor and investor desire to identify
how important an organisation's stock is. Likewise, this ratio indicates how quick the
organisation is moving their stocks (Uyar, 2009). Stock days of the Lighthouse Hotel PLC
were 74 days in 2015. However, the company inventory turnover ratio decreased by 5.41% in
2016, so the inventory days of the company for the financial year is 70 days. This reduction is
good for the company as they are able to convert their inventories into cash within the 70 days.
However, when compared with the industry average, company inventory days is slightly
higher. If the company wants to reduce the inventory turnover days even further the company
has to implement the effective inventory management techniques such as just in time, two bin
systems which support the management to sell their inventory speedily and support them to
reduce the holding cost as well.

1.3.2.3 Account Payable day ratio

Chart Title
300 297
295
290
days

284
285
280
275
Account Payable day ratio

2015 2016

Figure 9. Account Payable day ratio

Account Payable day is organisation's normal payable time. Account Payable ratio shows how
many days that the organisation requires to pay their suppliers (Raheman and Nasr, 2007).
Trade and other payables of the Lighthouse Hotel PLC are increased by 9.13% in 2016 and
company cost of goods sold also increased 147,053,316 to 154,830,651 in the 2016 financial
years, which directly influenced the payable days of the company. In 2015 company payable
days was 284 days while it has been increased to 297 days because the company purchase more
in the 2016 financial years.

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1.3.2.4 Account Receivables day ratio

58 57

56

54
days

52 51

50

48
Account Receivables day ratio

2015 2016

Figure 10. Receivables day ratio

Account Receivables day ratio measures the number of days that an organisation requires to
receive the cash from customers who purchase the product for credit. In other words, this ratio
indicates how quickly an organisation can collect the money from their consumers (Cote and
Latham, 1999). The account receivables day ratio indicated that the Lighthouse Hotel PLC
account receivables decreased by 12% in the year 2016. In 2016, the company account
receivables decreased from 57 days to 51 days which is good for the company because they are
able to collect their cash from the customers. Collecting the cash quicker than expected date
support the organisation to generate more profit and they are able to use the collected cash for
other operations. Moreover, the company can reduce the receivable days further by offering
products and services in discount rates to the customers.

1.3.3 Long-term capital

Financial leverage or capital gearing point out the percentage of debts in the capital structures
of the organisation. If the company has a higher percentage of capital gearing will create
financial risks for the company (Campbell & Hamao, 1992). Financial debts require the
borrower to pay interest expenses despite income, hence during the adverse financial condition
when operating profits and income fall, payments of interest increase burden on incomes
(Jorion, 2000). The decline in the profit because of higher interest expenses result in either
rather fewer earnings or net loss completely; the force of the business to report bankruptcy
(Lane & Milesi-Ferretti, 2001). Nevertheless, during the positive situations, financial leverage

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could boost the returns to the investor; offered that the borrowing costs are lower than the return
on investments (Gradus & Smulders, 1993).

1.3.3.1 Capital Gearing

40.00%
35%
35.00%
30.00%
25.00%
20.00%
%

15.00%
10.00% 6.17%
5.00%
0.00%
Capital Gearing

2015 2016

Figure 11. Capital Gearing

Capital gearing ratios look at the percentages of the capital of proprietor and capital borrowed
to use develop and run businesses. Huge percentages of borrowed capital are extremely
dangerous for the organisation as the capital repayment and interest are lawful responsibilities
and should be met if the organisation is to stay away from bankruptcy. Moreover, the
percentage of gearing ratios will vary from industry to industry or company to company. In
2016, the company gearing ratio has been decreased by 77% which was good for the company
because they do not have less amount of long-term obligations. In 2015, the company capital
gearing ratio was 6.17% while it decreased by 3.5% in the 2016 financial year. There is few
factors impact on the reduction which are interest-bearing loans and borrowings and reserves.
Moreover, the company borrowing decreased massively which was almost 92%.

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1.3.3.2 Investor cover
18.50%
18.00%
18.00%
17.50%
17.00%
16.50%
16.00%
16.00%
15.50%
15.00%
Investor cover

2015 2016

Figure 12. Investor cover

Interest coverage ratio calculates the capacity of the company to make their interest payment
on their obligation in a convenient way. Creditor and investor are used interest coverage ratio
to comprehend the profitability and risks of an organisation (Sharpe, 1994). Moreover,
creditors, use this ratio to recognise whether the organisation is able to help extra obligations.
If an organisation cannot have the funds for paying their interest on debts, it surely will not
have the capacity to pay their principle payment. Accordingly, creditor uses this ratio to
measure the risks included in the lending (Bandopadhyaya & Jones, 2011). The company
interest coverage ratio was 16% in the 2015 financial year, but the ratio is grown by 6% to
become 18% in 2016. The reason for this increment is income tax. In 2016 the income tax
increased by 40% to LKR 16 million compared to 2015.

1.3.4 Cash flow ratios

Cash flow is considered as a more significant factor in measuring the financial performance of
the company than net profit, mainly as it is artificially influenced by the policies of accounting,
therefore, could not manipulate or manage simply (Gombola & Ketz, 1983). Hence, analyse
the relationships of cash flows generate with debt payments and other money requiring actions
are crucial to for the positive financial performance.

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1.3.4.1 Cash Flow from Operating Activities to Maturing Obligations
120.00%
97.00%
100.00%

80.00%
65%
60.00%

40.00%

20.00%

0.00%
Cash Flow from Operating Activities to Maturing Obligations

2015 2016

Figure 13. Cash Flow from Operating Activities to Maturing Obligations

Cash flow from operating activities to maturing obligations ratio shows the extent to which
cash generate from operations of the business can meet the present responsibilities (Dickinson,
2011). Cash flow from operating activities to maturing obligations of the company has
decreased by 49%, the company cash flow from operating activities to maturing obligations is
65% in 2016. It clearly says that the company effectively perform in their industry.

1.3.4.2 Cash exhaustion

Chart Title
200 186

143
150
days

100

50

0
Cash exhaustion ratio

2015 2016

Figure 14. Cash exhaustion

Cash exhaustion ratio supports to calculate a number of days till which cash generate from
operations are able to cover standard operating costs (Dubin, 1997). In 2016, Lighthouse Hotel
PLC cash exhaustion ratio is decreased to 143 days from 186 days. The reason for the decrease
is in 2016 cash in hand was decrease by 8% to LKR 19 million compared to 2015.

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1.3.4 Profitability Analysis
Profitability ratio compares income statements and groups to demonstrate the ability of the
organisation to produce more profit from their operations. Moreover, these ratios concentrate
on organisations return on investments in the inventories and different resources (Mulhern,
1999).

1.3.4.2 Gross Profit Margin and Operating Profit Margin

Chart Title
90%
80% 82%
80%

70%

60%

50%

40%

30%
19% 21%
20%

10%

0%
Gross Profit Margin Operating Profit Margin

2015 2016

Figure 15. Gross Profit Margin and Operating Profit Margin

The proportion of revenue which discovers its manner to turn out to be gross profit expresses
through gross profit margin (Stahl et al., 2012) while the percentages of revenue which converts
into operating profits after covered the expenses of operating express through operating operate
margin (Bikker & Hu, 2012). The gross profit margin of the Jetwing Lighthouse Hotel PLC is
increased from 80% to 82% in 2016 financial year. In 2016, the sales of the company increased
by 12.5% to LKR 836 million compared to a previous financial year. Likewise, the company
gross profit also increased by 14.2% to LKR 688 million in 2016. Likewise, the companys
operating profit margin ratio indicates that the company operating profit margin was 19% in
2015 while in 2016 the margin increased to by 9.5% to become 21%. The reason more the
increment is the profit before interest and tax increased by 21% to LKR 177 million compared
to 2015 financial year of Jetwing Lighthouse Hotel PLC.

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1.3.4.3 Return on Capital Employed (ROCE)

Chart Title
6.90%
6.80%
6.80%
6.70%
6.60%
6.50%
6.40%
6.30%
6.20%
6.20%
6.10%
6.00%
5.90%
Return on Capital Employed

2015 2016

Figure 16. Return on Capital Employed

ROCE is one of the profitability ratios which calculates how effectively an organisation can
make returns from their capital employed by compared the operating profit with capital
employed (Vishnani & Shah, 2007). In 2016, ROCE of Jetwing Lighthouse Hotel PLC slightly
increased 6.20% to 6.80%. In 2016, profit before interest and tax increased by 21% to LKR
177 million compared the previous financial year of the company which is the reason for the
increase in the ROCE.

1.3.5 Investment Ratios

The group of ratios have the maximum importance for the investor since it evaluates the
immediate return on investments produced in the shapes dividend incomes and capital gaining.
Dividend cover, dividend yield, earnings per share ratio and Price to Earning will be used in
this report analyse the performance of the stock (Danforth, 1990).

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1.3.5.1 Dividend Yield

Chart Title
4 3.33
3
1.76
2
1
0
Dividend Yield

2015 2016

Figure 17. Dividend Yield

The dividend yield ratio calculates the total of cash dividend issued to shareholders in respect
to the market values per share. This ratio utilised by investors to examine their return on
investments in stock (Van der Have et al., 1988). In 2016, the Jetwing Lighthouse Hotel PLC
Dividend Yield ratio has been decreased to 1.76% from 3.33%. In 2016, market price per share
decreased by 13.4% to 52.90 compared with 2015 market price per share.

1.3.5.2 Dividend Cover

Chart Title
2 1.76
1.41
1.5
1
0.5
0
Category 1

2015 2016

Figure 18. Dividend Cover

The dividend coverage ratio calculates the number of time that an organisation can pay a
dividend to shareholder. This ratio utilised by the investor to assess risks of getting dividends
(Strohm & Linsenmair, 1997). In 2016, dividend cover ratio of the Jetwing Lighthouse Hotel
PLC increased 1.41 to 1.76. The company profit before interest and tax increased by 21% to
LKR 177 million compared the previous financial year of the company which is the reason for
the increase in the dividend cover.

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1.3.5.3 Earnings per Share and Price to Earning
25
21.35
20
15.3
15

10

5 2.81 3.52

0
Earnings per Share Price to Earning

2015 2016

Figure 19. Earnings Per Share and Price to Earning

The earnings per share ratio/EPS ratio calculates the amounts of an organisations incomes that
are ideally obtainable for payments to the holder of normal stocks (Aron et al., 1995). While
price-earnings ratio/ P/E ratio that measures the value of the stocks in respect to its profit by
looking at the market cost per share by the profit per share (Pearson et al., 1995). In 2016,
earnings per share ratio of the company increased to 2.81 to 3.52 while price earnings ratio
decreased 21.35 to 15.3 in 2016. The reasons for the reduction in the price-earnings ratio is the
market price for a share is decreased 60 to 52.90 in 2016. While reasons for the increase in the
earnings per share ratio is the profit before interest and tax increased by 21% in 2016.

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1.4 Analysis of Sources of Finance

Source of
Finance

Internal Exteranl

Working Retained Common Disposal of

Debts
capital Earnings equity asset

Reduce Corporate
inventories bond

Delay
Bank
payment of
Borrowings
Supplier

Figure 20. Sources of Finance of Jetwing Lighthouse Hotel PLC

There is numerous internal and external source of finance are obtainable to a company like of
Jetwing Lighthouse Hotel PLC. The some of the vital and generally utilised are emphasised
below, nevertheless, before examining the source of finance, it is essential to briefly show the
aspects which influence the decisions of using the internal and external source of finance for
long and short-term.

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 It is vital for an organisation to balance its utilisation of finances with the source of
finances. In other words, comprehensive financial planning utilises short-term sources
of finance to funds immediate usages (Ratha, 2005).
Measuring the level of flexibilities in taking financing decision; for example, if the
interest rate is estimated to decrease, it was wise to hold up before increasing money
through long-term debts. Moreover, benefits of borrowings on short-terms are that
borrowers are not punished for quick payments (Du & Girma, 2012).
The interest rate is another factor affect the choices for short and long-terms source of
finance. Short-term debt has lesser interest rates than long-terms debt (Collier &
Hoeffler, 2004).

1.4.1 Internal Source of Finance

1.4.1.1 Working Capital Sources
Working capital is another source of finance. Having a lower level of stocks could offer fund
for different uses. Clearly, holding high-level of stocks signifies engage fund in the shapes
stocks for a longer timeframe. Nonetheless, blanking of stocks holding levels with demands is
important (Giudici & Paleari, 2000). Jetwing Lighthouse Hotel PLC does not seem to depend
on this internal sources of finance currently. Delays payments to the supplier are generally
practised in the source of finance and delaying payments to the supplier will support the
organisations to use those reserves for another purpose (Ballou & Godwin, 2007). During
financial 2016, Lighthouse Hotel PLC increased their accounts payable periods, which clearly
indicate that the company willing to use this factor as another source of finance.

1.4.1.2 Retained Earnings

The organisation could use the retain earnings as its finance; it is appropriate since it not
required any involvement from an external party, therefore is faster. Nevertheless retaining
finances in the larger percentage may result in unhappy stockholders and resulting fall in price
to earnings (Carlin & Mayer, 2003) Retention ratio of Jetwing Lighthouse Hotel PLC shows,
company tendencies toward retained earnings as one of its long-standing internal finance
sources.

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1.4.2 External Source of Finance
1.4.2.1 Debt
Issuing debts are one of the popular sources of finances for an organisation and it advantageous
because it will not reduce the control of the management and it inexpensive than the issuance
of equity (Tarca et al., 2013). Jetwing Lighthouse Hotel PLC uses bank borrowing as the
external source of finance. The company has obtained around sixty million interest-bearing
borrowings in the 2016 financial year.

1.4.2.2 Disposal of Assets

Assets sales also consider as the internal source of finance. Statement of Jetwing Lighthouse
Hotel PLC highlight that the company has used this factor as source finance during the financial
years. Sales of assets support the Jetwing Lighthouse Hotel PLC generate more profit. Briefly,
the study of the source of finance of Jetwing Lighthouse Hotel PLC, clearly indicates that the
organisation uses several internal and external source of finance in every financial year.

1.5 Conclusion
The aim of this report achieved by the authors by using numerous financial ratios. After
analysed the financial performance of the Jetwing Lighthouse Hotel PLC, the author has
identified that the Jetwing Lighthouse Hotel PLCs financial performance is stable and the
company is able to increase their financial performance by using the effective accounting and
inventory tools. For this analysis, the author used the last two financial years balance sheets
and financial statements of the Jetwing Lighthouse PLC. Initially, this report used the balance
sheets and financial statements to conduct the liquidity ratio analysis. Secondly, this report
reviewed working capital ratios of the company. Then this report analysed the long-term
gearing ratios, cash flow ratios, profitability ratios, and investment ratios to understand the
2014 and 2015 financial year financial performance of the Jetwing Lighthouse PLC. In
conclusion, this report conducted the sources of finance analysis.

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Appendix

As at 31st March, 2016 2015

Rs. Rs.

ASSETS

Non-Current Assets

Property, Plant and Equipment 2,934,915,923 2,510,502,910

Prepaid Lease Rent 2,363,637 2,393,940

Intangible Assets 1,170,429 1,278,947

Other Non-Current Financial Assets 87,591,631 87,975,788

3,026,041,620 2,602,151,585

Current Assets

Inventories 29,679,855 29,808,973

Trade and Other Receivables 117,798,702 114,904,835

Other Current Financial Assets 2,500,000

Cash at Bank and in Hand 19,827,179 21,347,489

169,805,736 166,061,297

Total Assets 3,195,847,356 2,768,212,882

EQUITY AND LIABILITIES

Capital and Reserves

Stated Capital 460,000,974 460,000,974

Reserves 2,084,874,099 1,696,305,264

Retained Earnings 378,240,320 310,753,593

Total Equity 2,923,115,393 2,467,059,831

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Non-Current Liabilities

Post-employment Benefit Liability 30,763,310 24,949,427

Interest-Bearing Loans and Borrowings 60,866,876 116,748,594

91,630,186 141,698,021

Current Liabilities

Trade and Other Payables 125,798,405 114,315,878

Current portion of Interest-bearing Loans and Borrowings 50,576,597 41,995,800

Income Tax Payable 4,726,775 3,143,352

181,101,777 159,455,030

Total Liabilities 272,731,963 301,153,051

Total Equity and Liabilities 3,195,847,356 2,768,212,882

Statement of Profit or Loss

Year ended 31st March, 2016 2015

Rs. Rs.
Revenue 836,071,927 731,742,995
Cost of Sales (154,830,651) (147,053,316)
Gross Profit 681,241,276 584,689,679
Other Income and Gains 2,083,333 4,926,568
Marketing and Promotional Expenses (33,916,856) (26,913,000)
Administrative Expenses (463,140,197) (413,895,103)
Finance Cost (9,049,892) (8,884,348)
Finance Income 536,331 532,424
Profit before Tax 177,753,995 140,456,221

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 Income Tax Expense (15,633,983) (11,048,829)
Profit for the Year 162,120,012 129,407,392

Earnings Per Share 3.52 2.81

Ratio

RATIO ANALYSIS 2016

Liquidity Ratios

1 Current

0.9376260
Current Assets $ 169,805,736.00 07

Current Liabilities $ 181,101,777.00

2 Quick

Current Assets- 0.7737410

Inventories 140,125,881 61

Current Liabilities $ 181,101,777.00

Profitability Ratios

3 Gross Margin

Gross Profit*100 $ 681,241,276.00 81.48%

Sales $ 836,071,927.00

4 Operating Profit Margin

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 Profit before interest and
21%
tax *100% $ 177,753,995.00

Sales $ 836,071,927.00

5 ROCE

Profit before interest

6.82%
and tax *100% $ 177,753,995.00

Capital, reserves and

long-term liabilities 2,605,741,949

Return on Equity

Profit available to
6.37%
ordinary shares *100% $ 162,120,012.00

Share Capital +
Reserves 2,544,875,073

6 Total Assets Turnover

0.2616119
Sales $ 836,071,927.00 71

Total assets $ 3,195,847,356.00

Efficiency Ratio

Inventory
7 turnover

5.2166916
Cost of Goods Sold $ 154,830,651.00 25

Inventory $ 29,679,855.00

8 Accounts Receivable days

Accounts 51.426826
Receivable*365 $ 117,798,702.00 86

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 Sales $ 836,071,927.00

9 Accounts Payable days

296.55896
Accounts Payable*365 $ 125,798,405.00 64

Cost of sales $ 154,830,651.00

10 Inventory turnover days

69.967716
Inventory*365 $ 29,679,855.00 37

Cost of sales $ 154,830,651.00

Investor Ratios

11 Dividend yield

Dividend per share

4.73%
*100% $ 2.50

Market price per share $ 52.90

12 Dividend Cover

Profit after interest and

1.76
tax $ 162,120,012.00

Dividend $ 92,000,000.00

13 Earnings per share (EPS)

Profit after interest and

3.52
tax $ 162,120,012.00

Number of ordinary
shares $ 46,000,000.00

14 Price /earnings per share (P.E.)

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 Market price per share $ 52.90 15.03

EPS $ 3.52

Long term capital

15 Capital gearing

Non-current
3.48%
Liabilities *100 $ 91,630,186.00

Share Capital +
Reserves +Non-current
liabs 2,636,505,259

16 Interest cover

Profit before interest and

17.91
tax $ 162,120,012.00

Interest charges $ 9,049,892.00

Cash flow ratios

17 cash flow to maturing obligations

Current Liabilities
65.44%
*100% $ 181,101,777.00

Cash Flow from

Operating Activities $ 276,740,777.00

Capital expenditures

18 Cash exhaustion ratio

Cash in hand * 365 $ 19,827,179.00 143.09

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 Short term liabilities $ 50,576,597.00

RATIO ANALYSIS 2015

Liquidity Ratios

1 Current

$ 1.041430
Current Assets 166,061,297.00 283

$
Current Liabilities 159,455,030.00

2 Quick

0.854487
Current Assets-Inventories 136,252,324 463

$
Current Liabilities 159,455,030.00

Profitability Ratios

3 Gross Margin

$
79.90%
Gross Profit*100 584,689,679.00

$
Sales 731,742,995.00

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4 Operating Profit Margin

Profit before interest and tax $

19%
*100% 140,456,221.00

$
Sales 731,742,995.00

5 ROCE

Profit before interest and $

6.18%
tax *100% 140,456,221.00

Capital, reserves and long-term

liabilities 2,273,054,832

6 Total Assets Turnover

$ 0.264337
Sales 731,742,995.00 689

$
Total assets 2,768,212,882.00

Return on Equity

Profit available to ordinary $

6.00%
shares *100% 129,407,392.00

Share Capital + Reserves 2,156,306,238

Financial Risk/Working Capital Management Ratios

7 Inventory turnover

$ 4.933189
Cost of Goods Sold 147,053,316.00 614

$
Inventory 29,808,973.00

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8 Accounts Receivable days

$ 57.31556
Accounts Receivable*365 114,904,835.00 716

$
Sales 731,742,995.00

9 Accounts Payable days

$ 283.7426
Accounts Payable*365 114,315,878.00 357

$
Cost of sales 147,053,316.00

10 Inventory turnover days

$ 73.98864
Inventory*365 29,808,973.00 195

$
Cost of sales 147,053,316.00

Investor Ratios

11 Dividend yield

Dividend per share *100% $ 2.00 3.33%

Market price per share $ 60.00

12 Dividend Cover

$
1.41
Profit after interest and tax 129,407,392.00

$
Dividend 92,000,000.00

13 Earnings per share (EPS)

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 $
2.81
Profit after interest and tax 129,407,392.00

$
Number of ordinary shares 46,000,000.00

14 Price /earnings per share (P.E.)

Market price per share $ 60.00 21.35

EPS $ 2.81

Long term
capital

15 Capital gearing

Non-current Liabilities $
6.17%
*100 141,698,021.00

Share Capital + Reserves

+Non-current liabs 2,298,004,259

16 Interest cover

$
15.81
Profit before interest and tax 140,456,221.00

$
Interest charges 8,884,348.00

Cash flow ratios

17 cash flow to maturing obligations

$
96.57%
Current Liabilities *100% 159,455,030.00

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 Cash Flow from Operating $
Activities 165,122,281.00

Capital expenditures

18 Cash exhaustion ratio

$
185.54
Cash in hand * 365 21,347,489.00

$
Short term liabilities 41,995,800.00

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