Making communications land - Are they received and understood as intended? we...
Ratio Analysis in 'ROYAL CERAMIC LANKA PLC'
1. 1
University of Kelaniya
Higher Diploma in Business
Faculty of Commerce
Financial Management
Members of Group
Student No Name
HDIB/2015/059 Nuwan Wijerathne
HDIB/2015/052 Sampath Kumarasinghe
HDIB/2015/077 Janaka Fernando
HDIB/2015/055 Chamara Thilanka
HDIB/2015/ Geethika Vitharanage
HDIB/2015/071 Miranga Senarathna
2. 2
Acknowledgement
We would like to express our gratitude to Lecture Mr. S.A.R. Lasantha and Dr. C.
Pathirawasamgives knowledge and motivation to do assignment in a particle industrial
environment. Also we thank for all of our group members who contribute their reliable
contribution to make this report successful.
Executive Summary
Royal Ceramic Lanka PLC is one of key players in the ceramic industry. Recent takeover of the
Lanka Tiles PLC by Mr Dhammika Perera the whole tile industry becomes a one owner mange
industry in Sri Lanka. With the introduction oversees on imported tiles the royal ceramic could
be able to dominate the industry in year of 2014 onwards.
3. 3
Table of Contents
Introduction on ROYAL CERAMIC LANKA PLC .................................................................................4
Introduction to Financial Ratios ......................................................................................................5
Profitability Ratio ............................................................................................................................7
Liquidity Ratios...............................................................................................................................10
Assets Management / Efficiency Ratios.........................................................................................12
Debit Management / Gearing Ratios.............................................................................................14
Market / Investor Ratios ................................................................................................................15
Conclusion......................................................................................................................................17
References......................................................................................................................................17
4. 4
INTRODUCTION ON ROYAL CERAMIC LANKA PLC
Royal Ceramic Lanka Plc consists of two top-of-the-line tile production facilities; the brand is
the quintessential interior market revolutionary, providing aesthetic masterpieces that work
flawlessly. The technology, the standards and the artistic maturity that provide for every Rocell
tile come from world leaders in their respective fields.
In 1990 when Royal Ceramics Lanka Ltd began operation as a tile manufacturing company it
was determined to rehabilitate the surface design market. By 1994 the company had made its
transition from a private company to a public entity, showing the results of its commitment to
quality and design innovation.
5. 5
Introduction to Financial Ratios
Financial analyses based on accounting information consistently involve comparisons. Amounts
or ratios may be compared with industry norms, the same measurement in a prior period, the
same measurement in a competitor’s organization, or with planned and budgeted amounts
previously established. Figuring out which comparisons will best answer the questions
motivating the analysis isone of the necessary steps in making the best use of accounting
information.
Financial ratios can help describethe financial condition of an organization, the efficiency of its
activities, its comparable profitability, and the perception of investors as expressed by their
behaviorin financial markets. Ratios often permit an analyst or decisionmaker to piece together a
story about where an organization has come from, its current condition, and its possible future. In
most cases, the story is incomplete, and important questions may remain unanswered.
Even though the analyst or decision maker is better informed as a result of doing the ratio
analysis, the indiscriminate use of financial ratioscan be extremely dangerous. Decision rules that
rely on a specific or minimum value of a ratio can easily lead to missed opportunities or losses.
Even the best ratio is not always indicative of the health, status, or performance ofan
organization. Ratios between apparently similar measurements in financial statements may be
affected by differences inaccounting classifications orby deliberate manipulation. However we
mostly use below ratios to analyze and classification of financial statement.
1 Profitability Ratio
2 Liquidity Ratios
3 Assets Management / Efficiency Ratios
4 Debit Management / Gearing Ratios
5 Market / Investor Ratios
6. 6
Horizontal Analysis (Trend Analysis)
Purpose is to determine the increase or decrease taken place as percentage
2015 2014 2013 2012
Revenue 2,649,932,737.00 2,413,817,238.00 2,296,294,536.00 2,178,913,382
Comparing Years 2015-2014 2014-2013 2013-2012
Differnace 236,115,499.00 117,522,702.00 117,381,154.00
Increase with Previous Year 9.78% 5.12% 5.11%
Vertical Analysis
As a % of Sale As a % of Sale
Revenue 2,649,932,737.00 100.00% 22,379,069,221.00 100.00%
Cost of sales 1,410,331,831.00 53.22% 15,071,039,608.00 67.34%
Gross Profit 1,239,600,906.00 46.78% 7,308,029,613.00 32.66%
Other Oper Income 1,255,378,179.00 47.37% 244,686,965.00 1.09%
Ditribution Expence 1,045,838,271.00 39.47% 2,442,509,458.00 10.91%
Administrative Expence 429,680,758.00 16.21% 1,319,493,545.00 5.90%
Other operating Expence 8,393,707.00 0.32% 8,393,707.00 0.04%
Finance Cost 376,515,218.00 14.21% 971,088,131.00 4.34%
Finance Income 1,091,332.00 0.04% 1,803,658.00 0.01%
Share of Associate Comapy Profit - 0.00% 830,546,235.00 3.71%
Profit Before Tax 635,642,463.00 23.99% 3,643,581,630.00 16.28%
Tax(expense)/Reversal 143,881,333.00 5.43% 576,674,380.00 2.58%
Net Profit For the Year 779,523,796.00 29.42% 3,066,907,250.00 13.70%
Company - 2015 Group - 2015
By considering above figures we can get an idea, that the Company Performance Better
than the Group Performance.
7. 7
1. Profitability Ratio
1.1 Gross profit Ratio is a financial metric used to assess a company's financial health and the
business model by revealing the proportion of money left over from revenues after
accounting for the cost of goods sold.
Gross Profit
Sales
2013 2014 2015
Gross Profit 987,527,901.00 1,098,317,620.00 1,239,600,906.00
Sales 2,296,294,536.00 2,413,817,238.00 2,649,932,737.00
GPR % 43.01 45.50 46.78
X 100GPR =
If Rocell sale Rs100.00 worth of good they can earn Rs.46.78 of gross profit.
This ratio evaluates the operational performance of the business. Gross profit is very important
for any business. This explains how much profit the product is making without overhead
considerations. A higher ratio is the better. In here the Rocell can reduce its product’s selling
price by 43% according to 2015/16 without incurring any loss. Rocell’s GPR has reduced over
the past two years.
1.2 Operating margin is used to measure a company's pricing strategy and operating efficiency.
Operating margin is a measurement of what proportion of a company's revenue is left over
after paying for the variable costs of production such as wages, raw materials, etc.
Operating Profit
Sales
2013 2014 2015
GP 987,527,901.00 1,098,317,620.00 1,239,600,906.00
Other Income 1,395,581,262.00 1,400,763,000.00 1,255,378,179.00
2,383,109,163.00 2,499,080,620.00 2,494,979,085.00
Ditribution Expence (817,435,606.00) (930,226,862.00) (1,045,838,271.00)
Administrative Expence (312,121,968.00) (391,395,360.00) (429,680,758.00)
Operation Profit 1,253,551,589.00 1,177,458,398.00 1,019,460,056.00
Sales 2,296,294,536.00 2,413,817,238.00 2,649,932,737.00
OPR % 54.59 48.78 38.47
X 100OPR =
8. 8
This ratio helps in determining the ability of the management in running the business. This
indicates the profitability of current operations of Rocell. A higher OPR is more favourable.
Company is making enough money from its operations to pay for its expenses. But in here,
Rocell’s OPR has reduced over the past years by 29% in between 2013 and 2015, incurring a
signal for Rocell to pay more attention on their sales as well as reducing the costs. Distribution
expenses were increased by 28% and administrative expenses were increased by 38% while sales
were increased by 15% in between 2013 and 2015.
1.3 The net profit percentage is the ratio of after-tax profits to net sales. It reveals the
remaining profit after all costs of production, administration, and financing have been
deducted from sales, and income taxes recognized.
Net Profit
Sales
2013 2014 2015
Net Profit For the Year 1,017,872,618.00 854,641,352.00 779,523,796.00
Sales 2,296,294,536.00 2,413,817,238.00 2,649,932,737.00
NPR % 44.33 35.41 29.42
X 100NPR =
This ratio is very useful to owners because it measures the overall profitability. Higher the ratio
is better because it specifies the company’s capacity to face adverse economic conditions. In
here, the NPR has reduced mainly due to high tax payments.
1.4 Return on assets is an indicator of how profitable a company is relative to its
total assets. ROA gives an idea as to how efficient management is at using its assets to
generate earnings. Calculated by dividing a company's annual earnings by its
total assets, ROA is displayed as a percentage.
Net Profit Before Tax
Total Asset
2013 2014 2015
Net Profit Before Tax 918,762,420.00 668,861,161.00 635,642,463.00
Total Assets 9,212,053,134.00 13,041,686,162.00 13,948,957,271.00
ROA % 9.97 5.13 4.56
X 100ROA =
Higher values of return on assets show that business is more profitable. Since rocell is more
assets insensitive (need more expensive plant and equipment to generate income when compared
to other businesses), the ROA is getting declined and it also shows profits are shrinking in
Rocell.
9. 9
1.5 Return on equity is a measure of profitability that calculates how many dollars of profit a
company generates with each rupees of shareholders' equity.
2013 2014 2015
Net Profit for the year 1,017,872,618.00 854,641,352.00 779,523,796.00
Total Equity 5,937,186,887.00 6,787,688,974.00 7,127,789,045.00
ROE % 17.14 12.59 10.94
X 100ROE =
Profit Attributable to the Equity holders
Equity
Higher values are favorable that the company is efficient in generating income on investments.
But higher ROE can be a result of high financial leverage and it will be dangerous for a
company.
1.6 Return On Capital Employed
2013 2014 2015
Profit Before Tax 918,762,420.00 668,861,161.00 635,642,463.00
Finance Cost (364,554,072.00) (543,275,556.00) (376,515,218.00)
NPBT&Interset 554,208,348.00 125,585,605.00 259,127,245.00
Total Equity 5,937,186,887.00 6,787,688,974.00 7,127,789,045.00
Long Term Debit
Non Current Portion 1,079,736,840.00 3,708,063,034.00 3,315,570,610.00
Current Portion 1,049,446,293.00 960,618,331.00 1,397,836,680.00
2,129,183,133.00 4,668,681,365.00 4,713,407,290.00
Capital Employed of 8,066,370,020.00 11,456,370,339.00 11,841,196,335.00
ROCE % 6.87 1.10 2.19
X 100ROCE =
NP Before Tax&Interest
Average Capital Employed
10. 10
1.7 Expense to Sales Ratio
Administative Expense
Sales
Distribution Expense
Sales
2013 2014 2015
Ditribution Expence 817,435,606.00 930,226,682.00 1,045,838,271.00
Administrative Expence 312,121,968.00 391,395,360.00 429,680,758.00
Sales 2,296,294,536.00 2,413,817,238.00 2,649,932,737.00
Sales to Distribution Cost % 35.60 38.54 39.47
Sales to Admine Cost % 13.59 16.21 16.21
X 100Sales to Admine Cost =
Sales to Distribution Cost = X 100
2 Liquidity Ratios
2.1 The current ratio is a liquidity ratio that measures a company's ability to pay short-term and
long-term obligations. To gauge this ability, the current ratio considers the current total assets
of a company (both liquid and illiquid) relative to that company's current total liabilities.
Currunt Asset
Currunt Liability
2013 2014 2015
Total Current Assets 2,049,796,707.00 1,929,082,602.00 2,215,854,893.00
Total Current Liabilities 2,048,727,976.00 2,394,872,268.00 3,333,914,149.00
Currunt Ratio 1.00 0.81 0.66
Currunt Ratio =
This ratio matches the current assets with current liabilities and explains whether the current
assets are enough to settle current liabilities. A current ratio of 1 or more means, current assets is
more than current liabilities. But in here. Current liabilities are more than current assets, which
indicates liquidity problems. Current ratio of rocell is below 1.
11. 11
2.2 The quick ratio is a liquidity ratio that measures the ability of a company to pay its current
liabilities when they come due with only quick assets. Quick assets are current assets that can
be converted to cash within 90 days or in the short-term
Quick Current Assets
Currunt Liability
2013 2014 2015
Total Current Assets 2,049,796,707.00 1,929,082,602.00 2,215,854,893.00
Inventories (620,791,205.00) (992,775,692.00) (1,226,218,623.00)
Quick Currunt Asset 1,429,005,502.00 936,306,910.00 989,636,270.00
Total Current Liabilities 2,048,727,976.00 2,394,872,268.00 3,333,914,149.00
Acid Test Ratio 0.70 0.39 29.68
Acid Test Ratio =
2.3 The cash ratio is the ratio of a company's total cash and cash equivalents to its current
liabilities. The metric calculates a company's ability to repay its short-term debt; this
information is useful to creditors when deciding how much debt, if any, they would be
willing to extend to the asking party. The cash ratio is generally a more conservative look at a
company's ability to cover its liabilities than many other liquidity ratios because other assets,
including accounts receivable, are left out of the equation.
High Liquid Assets
Currunt Liability
2013 2014 2015
Cash & Cash Equivalents 287,324,543.00 160,880,808.00 287,324,543.00
Total Current Liabilities 3,333,914,149.00 2,394,872,268.00 3,333,914,149.00
Cash Ratio 0.09 0.07 8.62
Cash Ratio =
Rocell’s cash ratio is above 1. The company has more cash other than current liabilities. The
company has ability to cover all short term debt and still have cash remaining.
12. 12
3 Assets Management/ EfficiencyRatios
3.1 Asset turnover ratio is the ratio of the value of a company's sales or revenues generated
relative to the value of its assets. The Asset Turnover ratio can often be used as an indicator
of the efficiency with which a company is deploying its assets in generating revenue.
Sales
Avg:Total Assets
2013 2014 2015
Sales 2,296,294,536.00 2,413,817,238.00 2,649,932,737.00
Total Assets 9,212,053,134.00 13,041,686,162.00 13,948,957,271.00
Assets T/O Ratio 0.25 0.19 0.19
Assets T/O Ratio =
The higher the assets turnover ratio, the better the company is performing. In rocell its 19% in
2015 and it seems that rocell is using its assets efficiently.
3.2 The inventory turnover ratio is an efficiency ratio that shows how effectively inventory is
managed by comparing cost of goods sold with average inventory for a period. This
measures how many times average inventory is "turned" or sold during a period.
Avg: Inventory = Opening Stock + Closing Stock /2 OR Closing Stock
Cost Of Sales
Avg:Inventory
365
Inventory T/O Ratio
2013 2014 2015
Cost of sales 1,308,766,635.00 1,315,499,617.00 1,410,331,831.00
Closing Inventory 620,791,205.00 992,775,692.00 1,226,218,623.00
Inventory Turn Over Ratio 2.11 1.33 1.15
Inventory Holding Days 173 275 317
Inventory Turn Over Ratio =
Inventory Holding Period =
Inventory turnover is a very industry specific ratio. The ratio has reduced in 2015 to 1.15 and it
can be an indication of slowdown in demand or over stocking. This indicates poor inventory
management, because tiding up funds unnecessarily. The inventory is valued on First-In-First-
out basis at rocell.
13. 13
3.3 The receivables turnover ratio is an activity ratio, measuring how efficiently a firm uses its
assets. A high ratio implies either that a company operates on a cash basis or that its
extension of credit and collection of accounts receivable is efficient.
Credit Sales
Avg:A/c receivables
365
Debit T/O Ratio
2013 2014 2015
Sales 2,296,294,536.00 2,413,817,238.00 2,649,932,737.00
Trade & Other Receivables 774,014,021.00 362,953,061.00 307,481,339.00
Debit Turn Over Ratio 2.97 6.65 8.62
Debit Collection Days 123 55 42
Debit Turn Over Ratio =
Debit Collection Period =
The higher the value of debtors turn over is more efficient. In rocell the ratio has increased to
8.62 in 2015. The company is having more liquid debtors and also proper management of
debtors
3.4 Accounts payable turnover ratio is calculated by taking the total purchases made from
suppliers, or cost of sales, and dividing it by the average accounts payable amount during the
same period.
Cost Of Sales
Avg:Creditors
365
Creditors T/O Ratio
2013 2014 2015
Cost of sales 1,308,766,635.00 1,315,499,617.00 1,410,331,831.00
Trade & Other Payables 877,986,364.00 1,145,866,646.00 1,392,583,392.00
Creditors T/O Ratio 1.49 1.15 1.01
Cr. Settelment Days 245 318 360
Creditors T/O Ratio =
Cr. Settelment Period =
The payable turnover ratio declined to 1.01 in 2015 from 1.15 in 2014. That indicates
rocell is paying more slowly to its suppliers or else rocell has altered payment plan with its
suppliers. Rocell can’t take the advantage of early payment discounts from suppliers.
14. 14
4 Debit Management/ Gearing Ratios
4.1 The debt ratio is defined as the ratio of total – long-term and short-term – debt to total
assets, expressed as a decimal or percentage. It can be interpreted as the proportion of a
company's assets that are financed by debt.
Long Term Debit
Total Assets
2013 2014 2015
Total Assets 9212053134 13041686162 13,948,957,271.00
Long Term Debit
Non Current Portion 1,079,736,840.00 3,708,063,034.00 3,315,570,610.00
Current Portion 1,049,446,293.00 960,618,331.00 1,397,836,680.00
2,129,183,133.00 4,668,681,365.00 4,713,407,290.00
Debit Ratio % 23.11 35.80 33.79
X 100Debit Ratio =
Long TermDebit= CurrentPortion+ NoncurrentPortion
It seems, rocell’s most of the assets are financed through equity. The higher this ratio, implies a
greater financial risk. In rocell, the debt ratio is low (below 0.5), and company’s assets are
sufficient to pay the debts.
4.2 The interest coverage ratio is a measure of a company's ability to meet its
interest payments. Interest coverage ratio is equal to earnings before interest and taxes for a
time period, often one year, divided by interest expenses for the same time period.
2013 2014 2015
Profit Before Tax 918,762,420.00 668,861,161.00 635,642,463.00
Finance Cost 364,554,072.00 543,275,556.00 376,515,218.00
1,283,316,492.00 1,212,136,717.00 1,012,157,681.00
Investor Cover Ratio % 3.52 2.23 2.69
Investor Cover Ratio =
Profit Before Interest & Tax
Interest
PBT & Interest =PBT + Finance Cost
15. 15
5 Market/ Investor Ratios
5.1 Earnings per share is the portion of a company's profit that is allocated to each outstanding
share of common stock, serving as an indicator of the company's profitability
2013 2014 2015
Profit for the Equity Share
holder 1,017,872,618.00 854,641,351.00 779,523,796.00
Weighted Avg number of
ordinary shares 110,789,384.00 110,789,384.00 110,789,384.00
Earning Per Share 9.19 7.71 7.04
Earning Per Share =
Profit for the Equity Share holder
Weighted Avg number of ordinary shares
5.2 The price-earnings ratio is the ratio for valuing a company that measures its current
share price relative to its per-share earnings.
2013 2014 2015
Market Price per Equ share 99.5 79.3 106.00
Earning per share 9.19 7.71 7.04
Price Earning Ratios 10.83 10.28 15.07
Price Earning Ratios =
Market Price per Equity share
Earning per share
The earning per share is covered by around 10times of its market price during last three years.
5.3 The Dividend Cover ratio of a company's net profits to the total sum allotted in dividends to
ordinary shareholders.
2013 2014 2015
Earning Per Share 9.19 7.71 7.04
Dividend Per Share 2.00 1.00 5.00
Dividend Cover 4.60 7.71 1.41
Dividend Cover =
Earning Per Share
Dividend Per Share
The company could pay in 4.60, 7.71 and 1.41 times of dividend from earning per shares in
2013, 2014 and 2015 years respectively.
16. 16
5.4 Dividend Yield is a dividend expressed as a percentage of a current share price.
2013 2014 2015
Dividend Per Share 2.00 1.00 5.00
Market Price per share 99.5 79.3 106.00
Dividend Yield % 2.01 1.26 4.72
X 100Dividend Yield =
Dividend Per Share
Market Price per Share
5.5 Earnings yield the quotient of earnings per share divided by the share price. It is the
reciprocal of the P/E ratio. The earnings yield is quoted as a percentage, allowing an easy
comparison to going bond rates
2013 2014 2015
Earning per share 9.19 7.71 7.04
Market Price per share 99.5 79.3 106.00
Earning Yield % 9.23 9.73 6.64
X 100Earning Yield =
Earnings Per Share
Market Price per Share
5.6 The dividend payout ratio is the amount of dividends paid to stockholders relative to the
amount of total net income of a company. The amount that is not paid out in dividends to
stockholders is held by the company for growth. The amount that is kept by the company is
called retained earnings.
2013 2014 2015
Dividend Per Share 2.00 1.00 5.00
Earning Per Share 9.19 7.71 7.04
Dividend payout ratio % 21.76 12.97 71.02
X 100Dividend payout ratio =
Dividend Per Share
Earnings Per Share
