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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

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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.

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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

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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.

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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

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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.

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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 =

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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.

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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

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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.

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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.

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3 Assets Management / Efficiency Ratios

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.

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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.

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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 Term Debit = Current Portion + Noncurrent Portion

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

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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.

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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

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Conclusion

References

www.rocell.com/

www.cse.lk/

Royal Ceramics Lanka Plc annual reports 2015/14/13

Lecture handouts