You are on page 1of 43

ACKNOWLEDGEMENT

Our sincere gratitude goes to Mr.S.C.Thushara, Fundamentals in Finance for Project


Managers Module Coordinator/Lecturer who spent his valuable time and effort over four
weeks of time to give us a vast knowledge about Accounting terms , Financial Statement
Analysis, Cost benefit Analysis, and Financial Management in project management using
very knowledgeable lecture series with active discussions. Our gratitude also goes to all the
colleges in Global institute of project management for their endless support throughout the
Module. At last but not least we would like to express our sincere gratitude to Dr. Madhu
Fernando and staff of the Global Institute of Project Management for their guidance and the
support given to us throughout the module.

1|Page

EXECUTIVE SUMMARY
This report contains the financial analysis between the John Keells Holdings PLC and Aitken
Spence PLC for the financial year 2014/2015. Initially there is an introduction for both John
Keells Holding PLC and Aitken Spence PLC and their interested sectors. Second Chapter
contains the financial ratio calculations and analysis between John Keells Holdings PLC and
Aitken Spence PLC. This calculation and analysis is done using five different financial ratio
categories, i.e. Liquidity, Financial Leverage, Interest Coverage, Activity and Profitability
ratios. These five categories further divided into sub ratios. All the possible financial ratios
are calculated and analyzed using the given financial reports.
Third chapter include the conclusion of the report and reference was include in the fourth
chapter. By going through all the financial statements it is known that overall John Keells is
working so well if compared to Aitken Spence. By going through all the financial ratio
analysis (except Return on Equity) the facts were that John Keells Holdings is much more
competitive than Aitken Spence. Comparing the Return on Equity ratio Aitken Spence returns
more money than John Keells to the Shareholders (Investors) who have invest in their firm.
Therefore we consider all the factors we found that John Keells is the best firm to invest
comparing Aitken Spence.

2|Page

TABLE OF CONTENTS

ACKNOWLEDGEMENT...............................................................................................................
EXECUTIVE SUMMARY.............................................................................................................
1.0 Introduction................................................................................................................................
2.0 Financial Ratio Calculation and Analysis..................................................................................
2.1 Liquidity Ratios Calculation.................................................................................................
2.1.1 Liquidity Current Ratio......................................................................................................
a)

John Keells Holdings PLC............................................................................................

b)

Aitken Spence PLC.......................................................................................................

2.1.2 Liquidity Quick/Acid Ratio...............................................................................................


a)

John Keells Holdings PLC............................................................................................

b)

Aitken Spence PLC.....................................................................................................

2.2 Financial Leverage Analysis...............................................................................................


2.2.1 Debt to Equity ratio..........................................................................................................
a)

John Keells Holdings PLC..........................................................................................

b)

Aitken Spence PLC.....................................................................................................

2.2.2 Debt to Asset Ratio......................................................................................................


a)

John Keells Holdings PLC..........................................................................................

b)

Aitken Spence PLC.....................................................................................................

a)

John Keells Holdings PLC..........................................................................................

b)

Aitken Spence PLC.....................................................................................................

2.3 Coverage Analysis...............................................................................................................


a)

John Keells Holdings PLC..........................................................................................

b)

Aitken Spence PLC.....................................................................................................

2.4 Activity Analysis.................................................................................................................


2.4.1 Receivable Turnover Ratio..........................................................................................
a)

John Keells Holdings PLC..........................................................................................

b)

Aitken Spence PLC.....................................................................................................

2.4.2 Average Collection Period...........................................................................................


a)

John Keells Holdings PLC..........................................................................................

b)

Aitken Spence PLC.....................................................................................................

2.4.3 Payable Turnover Ratio...............................................................................................


3|Page

a)

John Keells Holdings PLC..........................................................................................

b)

Aitken Spence PLC.....................................................................................................

2.4.4 Average Payable Period...............................................................................................


a)

John Keells Holdings PLC..........................................................................................

b)

Aitken Spence PLC.....................................................................................................

2.4.5 Total Assets Turnover Ratio........................................................................................


a)

John Keells Holdings PLC..........................................................................................

b)

Aitken Spence PLC.....................................................................................................

2.4.6 Inventory Turnover Ratio............................................................................................


a)

John Keells Holdings PLC..........................................................................................

b)

Aitken Spence PLC.....................................................................................................

2.5 Profitability Analysis...........................................................................................................


2.5.1 Gross Profit Margin.....................................................................................................
a)

John Keells Holdings PLC..........................................................................................

b)

Aitken Spence PLC.....................................................................................................

2.5.2 Net Profit Margin........................................................................................................


a)

John Keells Holdings PLC..........................................................................................

b)

Aitken Spence PLC.....................................................................................................

2.5.3 Return on Investment..................................................................................................


a)

John Keells Holdings PLC..........................................................................................

b)

Aitken Spence PLC.....................................................................................................

2.5.4 Return on Equity.........................................................................................................


a)

John Keells Holdings PLC..........................................................................................

b)

Aitken Spence PLC.....................................................................................................

3.0 Conclusion...............................................................................................................................
4.0 Reference.................................................................................................................................

4|Page

LIST OF FIGURES
Figure 1: Comparison of Obtained Liquidity Quick /Acid Ratio values.........................................
Figure 2 : Comparison of Obtained Liquidity Quick /Acid Ratio values......................................
Figure 3 : Comparison of Obtained Debt to Equity Ratio values..................................................
Figure 4: Comparison of Obtained Debt to Assets Ratio values...................................................
Figure 5: Comparison of Obtained Capitalization Ratio values....................................................
Figure 6 : Comparison of Obtained Interest Coverage Ratio values.............................................
Figure 7 : Comparison of Obtained Assets Turnover Ratio values...............................................
Figure 8 : Comparison of Obtained Inventory Turnover Ratio values..........................................
Figure 9 : Comparison of Obtained Gross Profit Margin values...................................................
Figure 10 : Comparison of Obtained Net Profit Margin values....................................................
Figure 11 : Comparison of Obtained Return on Investment values...............................................
Figure 12: Comparison of Obtained Return on Equity values......................................................

5|Page

1.0 Introduction
This report is about the financial analysis of two companies which represents nearly the same
industries in the market. Both the companies are listed companies on the Colombo Stock
Exchange, with business interests primarily in Transportation, Leisure (Tourism), Property,
Logistics and Financial Services for more than hundred years. The companies are well
reputed in the market and deal in a very wide range of Services.
As John Keells Holdings PLC (JKH), it is the largest listed company on the Colombo Stock
Exchange started in the early 1870s as a produce and exchange broking business by two
Englishmen, Edwin and George John, the Group has been known to constantly re-align, reposition and re-invent itself in pursuing growth sectors of the time. JKH was incorporated as
a public limited liability company in 1979 and obtained a listing on the Colombo Stock
Exchange in 1986. John Keells business interests primarily in Transportation, Leisure,
Property, Consumer Foods & Retail, Financial Services and Information Technology sectors.
Having issued Global Depository Receipts (GDRs) which were listed on the Luxembourg
Stock Exchange, JKH became the first Sri Lankan company to be listed overseas.
Aitken Spence PLC is one of Sri Lankas oldest and most successful diversified
conglomerates with a history going back for over 150 years. Today, operations of Aitken
Spence are categorized under four sectors, namely, Tourism, Maritime & Logistics, Services
and Strategic Investments. The Company's operations have a global reach spanning South
Asia, the Middle East, Africa and the South Pacific.
This report consist the financial statements analysis between John Keells Holdings PLC and
Aitken Spence PLC for the financial year 2015/2014.

6|Page

2.0 Financial Ratio Calculation and Analysis


It is difficult to infer organizational performance from one or two simple numbers.
Nevertheless, in practice a number of different ratios are often calculated in strategic planning
endeavors and, taken as a whole and with some caution, these ratios do provide some
information about the relative performance of an organization. In this financial analysis, we
are mainly focus on five different categories. These categories are as following.
Liquidity
Financial Leverage
Coverage
Profitability
Activity
2.1 Liquidity Ratios Calculation
In order to survive, firms must be able to meet their short-term obligations, pay their creditors
and repay their short-term debts. Thus, the liquidity of the firm is one measure of a firm's
financial health. Two measures of liquidity are in common. They are
Liquidity Current Ratio
Liquidity Quick/Acid Ratio
2.1.1 Liquidity Current Ratio
The organizations ability to meet its current liabilities with its current assets. It can be shown
in the equation bellow.
Current Ratio=

Current Assets
Current Liabilities

a) John Keells Holdings PLC


Current Assets
Current Liabilities

2015/Rs
90,493,026,000
35,172,123,000

By using the above equation,


7|Page

2014/Rs
82,206,411,000
33,708,684,000

Current Ratio ( for 2015 )=

Rs 90,493,026,000
Rs 35,172,123,000
= 2.5728622

Current Ratio ( for 2014 )=

Rs 82,206,411,000
Rs 35,172,123,000
= 2.438730951

b) Aitken Spence PLC


Current Assets
Current Liabilities

2015/ Rs
25,476,394,000
12,426,235,000

2014/ Rs
25,217,995,000
13,644,187,000

By using the above equation,


Current Ratio ( for 2015 )=

Rs 25,476,394,000
Rs12,426,235,000
= 2.050210221

Current Ratio ( for 2014 )=

Rs 25,217,995,000
Rs 13,644,187,000
= 1.848259262

The summary of calculated current ratio as shown below,


Liquidity current Ratio
John Keells
Aitken Spence

2015
2014
2.5728622 2.4387309
2.0502102 1.8482593

8|Page

Figure 1: Comparison of Obtained Liquidity Quick /Acid Ratio values


Current ratio tells us the short term solvency of the firm and tells the ability of the firm to
repay its short term obligations. In general, a higher current ratio is preferable (ratio value
>2). According to the calculations John Keells Liquidity Current ratio is better than the
Aitken Spence. John Keells has 2.57 times ability to repay against a unit liability while
Aitken Spence has 2.05. Further by comparing year 2014 and 2015; according to the Figure 1
the current ratios of both firms have been increasing. Therefore John Keells has more ability
to repay its short term obligations than Aitken Spence.
2.1.2 Liquidity Quick/Acid Ratio
The organizations ability to meet its current liabilities with its current assets other than
inventory. It can be shown in the bellow equation.
Current Ratio=

Current AssetsInventory
Current Liabilities

a) John Keells Holdings PLC


Current Assets
Current Liabilities
Inventory

2015/Rs
90,493,026,000
35,172,123,000
5,588,916,000

2014/Rs
82,206,411,000
33,708,684,000
6,966,020,000

By using the above equation,


Current Ratio ( for 2015 )=

( Rs 90,493,026,000Rs 5,588,916,000 )
Rs35,172,123,000
9|Page

= 2.41396034
Current Ratio ( for 2014 )=

( Rs 82,206,411,000Rs 6,966,020,000 )
Rs 33,708,684,000
= 2.232077378

b) Aitken Spence PLC


Current Assets
Current Liabilities
Inventory

2015/ Rs
25,476,394,000
12,426,235,000
1,484,504,000

2014/ Rs
25,217,995,000
13,644,187,000
1,723,718,000

By using the above equation,


Current Ratio ( for 2015 )=

Rs 25,476,394,000Rs1,484,504,000
Rs12,426,235,000
= 1.930744912

Current Ratio ( for 2014 )=

Rs 25,217,995,000Rs 1,723,718,000
Rs 13,644,187,000
= 1.721925755

The summary of calculated Quick/Acid ratio as shown below,

Liquidity Quick /Acid Ratio


John Keells
Aitken Spence

2015
2014
2.4139603 2.2320774
1.9307449 1.7219258

10 | P a g e

Figure 2 : Comparison of Obtained Liquidity Quick /Acid Ratio values


Quick ratio measures the firms ability to pay off short term obligations without relying on
the sale of inventory. John Keells has the Acid ratio of 2.41 whereas Aitken Spence has 1.93.
Further by comparing year 2014 and 2015; According to the Figure 2 the current ratio of both
firms has been rising at the same time acid ratio also increasing. John keells have higher
values (ratio values > 2) for both current and acid ratios in consecutive years (i.e. 2014,
2015). Therefore John Keells has more ability to paying off its short term obligations without
relying on the level or sales of inventory.
2.2 Financial Leverage Analysis
Firms are financed by some combination of debt and equity. The right capital structure will
depend on tax policyhigh corporate rates favor debt, high personal tax rates favor equity on
bankruptcy costs, and on overall corporate risk. There are three commonly used ratios of
leverage. They are,
Debt to Equity ratio
Debt to Assets ratio
Total Capitalization ratio
2.2.1 Debt to Equity ratio
Debt to Equity ratio shows the extent which the firm is financed by Debt. It can be shown in
the equation bellow.

11 | P a g e

Debt Equity ratio=

Total Debt
Shareholders Equity

Assume that total debt is equal to the total liabilities,


a) John Keells Holdings PLC

Total Liabilities
Shareholders Equity

2015/Rs
2014/Rs
68,009,034,000 67,263,123,000
150,076,810,000 134,318,090,000

By using the above equation,


Debt Equity ratio( For 2015)=

Rs 68,009,034,000
Rs 150,076,810,000

= 0.453161511
= 45.31%
Debt Equity ratio( For 2014 )=

Rs 67,263,123,000
Rs 134,318,090,000

= 0.500774862
= 50.07%
b) Aitken Spence PLC

Total Liabilities
Shareholders Equity

2015/Rs

2014/ Rs

23,153,638,000
42,279,450,000

22,138,029,000
38,926,447,000

By using the above equation,


Debt Equity ratio( For 2015)=

Rs 23,153,638,000
Rs 42,279,450,000
= 0.547633377
= 54.76%

12 | P a g e

Debt Equity ratio( For 2014 )=

Rs 22,138,029,000
Rs 38,926,447,000

= 0.56871435
= 56.87%
The summary of calculated

Debt Equity ratio as shown below,

Debt-to -Equity Ratio


John Keells
Aitken Spence

2015
2014
0.453161511 0.500774862
0.547633377 0.56871435

Figure 3 : Comparison of Obtained Debt to Equity Ratio values


Debt to Equity ratio measures the extent which the firm is financed by Debt. A lower debt to
Equity ratio is generally preferable, as a higher value signifies heavier borrowing and
increased financial risk. John Keells has the debt to equity ratio of 0.45 whereas Aitken
Spence has 0.55. Further by comparing year 2014 and 2015 according to the Figure 3; debt to
equity of both firms has been declining. John Keells rapidly declined their debt to equity
13 | P a g e

ratio compared to Aitken Spence .Therefore Aitken Spence has more financed by debt and it
makes the firm towards to a financial risk compared to John Keells.
2.2.2 Debt to Asset Ratio
Debt to Asset ratio shows the percentage of the firms assets that are supported by Debt
financing. It can be shown in the equation bellow.
Debt Equity ratio=

Total Debt
Total Asset

Assume that total debt is equal to the total liabilities,


a) John Keells Holdings PLC

Total Liabilities
Total Assets

2015/Rs
2014/Rs
68,009,034,000 67,263,123,000
218,085,844,000 201,581,213,000

By using the above equation,


Debt Asset ratio( For 2015)=

Rs 68,009,034,000
Rs 218,085,844,000

= 0.311845248
= 31.18%
Debt Asset ratio(For 2014 )=

Rs 67,263,123,000
Rs 201,581,213,000

= 0.333677539
= 33.36%
b) Aitken Spence PLC

Total Liabilities

2015/Rs

2014/ Rs

23,153,638,000

22,138,029,000

14 | P a g e

Total Assets

65,433,088,000

61,064,476,000

By using the above equation,


Debt Asset ratio(For 2015)=

Rs 23,153,638,000
Rs 65,433,088,000
= 0.353852137
= 35.38%

Debt Asset ratio(For 2014 )=

Rs 22,138,029,000
Rs 61,064,476,000

= 0.362535314
= 36.25%
The summary of calculated

Debt Asset ratio as shown below,

Debt-to Assets Ratio


John Keells
Aitken Spence

2015
2014
0.311845248 0.333677539
0.353852137 0.362535314

0.37
0.36
0.35
0.34
0.33

John Keells

0.32

Aitken Spence

0.31
0.3
0.29
0.28
2014

2015

15 | P a g e

Figure 4: Comparison of Obtained Debt to Assets Ratio values


Debt to Asset ratio shows the percentage of the firms assets that are supported by Debt
financing. A lower debt to asset ratio is generally preferable, as a higher value signifies
heavier borrowing and increased financial risk. John Keells has the debt to asset ratio of 0.31
whereas Aitken Spence has 0.35. Further by comparing year 2014 and 2015 according to the
Figure 4; the debt to asset of both firms has been declining nearly in a similar pace. But John
Keells has less debt to assets value compared to Aitken Spence. Therefore Aitken Spence has
more financed by debt and it makes the firm towards to a financial risk compared to John
Keells.
2.2.3 Total Capitalization ratio
This ratio shows the relative importance of long-term debt to the long-term financing of the
firm. It can be shown in the equation bellow.
Total Capitalization ratio=

Longterm Debt
Total Capitalization

Capitalization=Shareholders Equity+ Longterm Debt


Assume that Long-term debt is equal to the non-current liabilities.
a) John Keells Holdings PLC
2015/Rs 000'
150,076,810
32,836,911
182,913,721

Shareholders Equity
Long-Term Debt/ Non-current liabilities
Capitalization

2014/Rs 000'
134,318,090
33,554,439
167,872,529

By using the above equation,


Total Capitalization ratio (For 2015)=

Rs 32,836,911 , 000
Rs182,913,721,000
= 0.179521311

= 17.95%
Rs 33,554,439
Total Capitalization ratio (For 2014)=
Rs 167,872,529
16 | P a g e

= 0.199880464
= 19.98%
b) Aitken Spence PLC
2015/Rs 000'
42,279,450
10,727,403
53,006,853

Shareholders Equity
Long-Term Debt/ Non-current liabilities
Capitalization

2014/Rs 000'
38,926,447
8,493,842
47,420,289

By using the above equation,


Total Capitalization ratio (For 2015)=

Rs10,727,403,000
Rs53,006,853,000
= 0.202377662
= 20.23%

Total Capitalization ratio (For 2014)=

Rs 8,493,842 , 000
Rs 47,420,289 , 000
= 0.179118309
= 17.91%

The summary of calculated

Debt Asset ratio as shown below,

Capitalization Ratio

2015
0.17952131

2014
0.19988046

John Keells

1
0.20237766

4
0.17911830

Aitken Spence

17 | P a g e

Figure 5: Comparison of Obtained Capitalization Ratio values


This ratio shows the relative importance of long-term debt to the long-term financing of the
firm and reflects the extent to which the firm is operating on its equity. This ratio helps in the
assessment of risk. The firms with high capitalization ratio are considered to be risky because
they are at a risk of insolvency if they fail to repay their debt on time. Firm with a high
capitalization ratio may also find it difficult to get more loans in the future. According to the
obtained figures John Keells has capitalization ratio of 0.18 whereas Aitken Spence has 0.20.
These values are very similar to each other but John Keells having the lower. Further by
comparing year 2014 and 2015; the capitalization ratio of John Keells has been declining
while Aitken Spence increases nearly in a similar pace. Therefore Aitken Spence has risk of
insolvency if they fail to repay their debt on time.
2.3 Coverage Analysis
Coverage ratio shows a firms ability to cover interest charge. It can be shown in the equation
bellow.

18 | P a g e

Interest Coverage ratio=

Earning Before InterestTax( EBIT )


Interest Charge

a) John Keells Holdings PLC

Profit before tax


Interest Charge
Exchange loss
Total Interest charge
EBIT(Earnings before interest & Tax)

2015/ Rs 000
19,075,313,000
668,174,000
0
668,174,000
19,743,487,000

2014/ Rs 000
15,320,433,000
1,169,163,000
47,843
1,217,006,000
16,537,439,000

Assume that Total Interest charge for John Keells is equal to the sum of interest charge and
exchange losses.
By using the above equation,
Interest Coverage ratio(For 2015)=

Rs 19,743,487,000
Rs 668,174,000

= 29.54842152
Interest Coverage ratio( For 2014 )=

Rs 16,537,439,000
Rs 1,217,006,000

= 13.58862569
b) Aitken Spence PLC

Profit before tax


EBIT(Earnings before interest & Tax)
Interest Charge

2015/Rs 000' 2014/Rs 000'


5,709,923,000 5,444,946,000
6,516,288,000 6,619,184,000
806,365,000 1,174,238,000

By using the above equation,


Interest Coverage ratio(For 2015)=

Rs 6,516,288,000
Rs 806,365,000

= 8.081065026
19 | P a g e

Interest Coverage ratio(For 2014 )=

Rs 6,619,184,000
Rs 1,174,238,000

= 5.637003742
The summary of calculated

Interest Coverage ratio as shown below,

Interest Coverage Ratio


John Keells
Aitken Spence

2015
2014
29.5484215 13.5886257
8.08106503 5.63700374

Figure 6 : Comparison of Obtained Interest Coverage Ratio values


Interest Coverage ratio shows a firms ability to cover interest charge on its debt. A higher
Interest Coverage ratio is generally preferable. John Keells has the Interest Coverage ratio of
29.55 whereas Aitken Spence has 8.08. Further by comparing year 2014 and 2015 according
to the Figure 6; interest coverage ratio of both firms has been increases but John Keells
increased rapidly compared to Aitken Spence. Therefore John Keells has fewer chances of
failure and facing bankruptcy than Aitken Spence.
2.4 Activity Analysis
Activity ratios measure the effectiveness of the firm's use of resources. There are several
ratios under the activity ratio analysis.

20 | P a g e

2.4.1 Receivable Turnover Ratio


This ratio indicates the quality of receivables and how successful the firm is in its collection.
It can be shown in the equation bellow,
Receivable Turnover Ratio=

Annual Net Credit Sales


Receivables

Assume that all the sales are credit sales and annual revenue is equal to annual net credit
sales,
a) John Keells Holdings PLC
2015/ Rs
91,582,219,000
10,269,689,000

Annual Net Credit Sales


Account Receivables

2014/ Rs
86,706,426,000
12,146,573,000

By using the above equation,


Receivable Turnover Ratio(For 2015)=

Rs 91,582,219,000
Rs10,269,689,000
= 8.91772078

Receivable Turnover Ratio(For 2014)=

Rs 86,706,426,000
Rs 12,146,573,000
= 7.138344783

b) Aitken Spence PLC


2015/Rs
34,930,493,000
7,770,650,000

Annual Net Credit Sales


Avg Account Receivables

2014/Rs
34,577,379,000
9,049,706,000

By using the above equation,


Receivable Turnover Ratio( For 2015)=

Rs 34,930,493,000
Rs 7,770,650,000
= 4.4951829

21 | P a g e

Receivable Turnover Ratio(For 2014)=

Rs 34,577,379,000
Rs 9,049,706,000
= 3.820828986

The summary of calculated current ratio as shown below,


Receivable Turnover Ratio
John Keells
Aitken Spence

2015
8.91772078
4.4951829

2014
7.138344783
3.820828986

This ratio indicates the quality of receivables and how successful the firm is in its collection.
It is an important indicator of a company's financial and operational performance and can be
used to determine if a company is having difficulties collecting sales made on credit. A higher
Receivable Turnover Ratio is generally preferable. John Keells has Receivable Turnover
Ratio of 8.91 whereas Aitken Spence has 4.49. Further by comparing year 2014 and 2015;
Receivable Turnover Ratio of both firms has been increases. Comparing both firms John
Keells have a higher Receivable Turnover Ratio. Therefore John Keells is more successful in
their money collection.
2.4.2 Average Collection Period
This ratio indicates the average number of days that receivables are outstanding. It can be
shown in the equation bellow,
Average Collection Period=

Receivable Turnover Ratio


John Keells
Aitken Spence

Daysthe year
Receivable Turnover

2015
8.91772078
4.4951829

a) John Keells Holdings PLC


By using the above equation & the table,
Average Collection Period(For 2015)=

365
8.91772078

22 | P a g e

2014
7.138344783
3.820828986

= 40.92974079 Days
Average Collection Period (For 2014)=

365
7.138344783
= 51.13230183 Days

b) Aitken Spence PLC


By using the above equation & the table,
Average Collection Period (For 2015)=

365
4.4951829
= 81.1980309 Days

Average Collection Period ( For 2014 )=

365
3.820828986
= 95.52900727 Days

The summary of calculated current ratio as shown below,


Average Collection Period
John Keells
Aitken Spence

2015
40.92974079
81.1980309

2014
51.13230183
95.52900727

This ratio indicates the average number of days that receivables are outstanding. Lower
average collection period is preferable and its inversely proportion to the Receivable
Turnover Ratio. John Keells has Average Collection Period of 41 days whereas Aitken
Spence has 81 days. Further by comparing year 2014 and; Average Collection Period of both
firms has been decreases. Comparing both firms John Keells have a lower Average Collection
Period. Therefore John Keells is collecting their money in a short period compared to Aitken
Spence.

23 | P a g e

2.4.3 Payable Turnover Ratio


This ratio indicates the promptness of payment to supplier by firm. It can be shown in the
equation bellow,
Payable Turnover Ratio=

Annual Credit Purchases


Account Payable

Purchases = Cost of sales + Ending inventory Starting inventory


a) John Keells Holdings PLC
Annual Credit Purchases
Account Payable

2015/ Rs
64,814,227,000
11,267,339,000

By using the above equation,


Total Assets Turnover Ratio( For 2015)=

Rs 64,814,227,000
Rs11,267,339,000

= 5.75239877
b) Aitken Spence PLC
2015/Rs
12,231,681,00
Annual Credit Purchases
Account Payable

0
7,074,023,000

By using the above equation,


Total Assets Turnover Ratio(For 2015)=

Rs 12,231,681,000
Rs 7,074,023,000

= 1.72909828
The summary of calculated current ratio as shown below,
Payable turnover
24 | P a g e

2015

John Keells
Aitken Spence

5.75239877
1.72909828

Accounts payable turnover ratio is an accounting liquidity metric that evaluates how fast a
company pays off its creditors (suppliers). The ratio shows how many times in a given period
(typically 1 year) a company pays its average accounts payable. John Keells has payable
turnover ratio of 5.75 whereas Aitken Spence has 1.73. Comparing both firms John Keells
have a higher payable turnover ratio. In Financing its better to delay the payables as much as
possible (without violating the terms & conditions with the creditors). Many companies
extend the period of credit turnover (i.e. lower accounts payable turnover ratios) getting extra
liquidity. Therefore Aitken Spence is pays off their creditors in less number of times
compared to John Keells to getting extra liquidity.
2.4.4 Average Payable Period
This ratio indicates the average numbers of days that payable are outstanding. It can be
shown in the equation bellow,
Average Payable Period=

Daysthe year
Payable Turnover

Payable turnover
John Keells
Aitken Spence

2015
5.75239877
1.72909828

a) John Keells Holdings PLC


By using the above equation & the table,
Average Payable Period=

365
5.75239877

= 63.45179022 Days = 63 Days


b) Aitken Spence PLC
By using the above equation & the table,
Average Payable Period=

25 | P a g e

365
1.72909828

= 211.0926859 Days
The summary of calculated current ratio as shown below,
Average Payable Period
John Keells
Aitken Spence

2015
63.451790
211.0926859

Accounts payable turnover period is an accounting liquidity metric that evaluates how fast a
company pays off its creditors (suppliers). The ratio shows how many days the firm in a
given period (typically 1 year) a company pays its average accounts payable. John Keells has
payable turnover period of 63 days whereas Aitken Spence has 211 days. Comparing both
firms Aitken Spence has a higher payable turnover ratio. In Financing its better to delay the
payables as much as possible (without violating the terms & conditions with the creditors)
.Normally creditors will gave a period of 1 year i.e. 365 days .Therefore Aitken Spence is
paying off their creditors in an ideal period compared to John Keells.
2.4.5 Total Assets Turnover Ratio
This ratio measures how efficiently a firm uses its assets to generate sales. It can be shown in
the equation bellow.
Total Assets Turnover Ratio=

Net Sales
Total Assets

a) John Keells Holdings PLC


Net sales /revenue
Total Assets

2015/ Rs 000'
91,582,219
218,085,844

2014/ Rs 000'
86,706,426
201,581,213

By using the above equation,


Total Assets Turnover Ratio(For 2015)=

Rs 91,582,219,000
Rs 218,085,844 , 0 00

= 0.419936559
Total Assets Turnover Ratio( For 2015)=

26 | P a g e

Rs 86,706,426,000
Rs 201,581,213,000

= 0.430131483
b) Aitken Spence PLC
2015/Rs 000'
34,930,493
65,433,088

Net sales /revenue


Total Assets

2014/ Rs 000'
34,577,379
61,064,476

By using the above equation,


Total Assets Turnover Ratio( For 2015)=

Rs 34,930,493,000
Rs 65,433,088,000

= 0.533835313
Total Assets Turnover Ratio( For 2015)=

Rs 34,577,379,000
Rs 61,064,476,000

= 0.566243768
The summary of calculated current ratio as shown below,
Total Assets Turnover Ratio
John Keells
Aitken Spence

2015
0.419936559
0.533835313

27 | P a g e

2014
0.430131483
0.566243768

Figure 7 : Comparison of Obtained Assets Turnover Ratio values


This ratio measures how efficiently a firm uses its assets to generate sales and it helps to
measure the productivity of a company's assets. A higher Assets Turnover Ratio is generally
preferable. However it should be noted that the asset turnover ratio formula does not look at
how well a company is earning profits relative to assets. The asset turnover ratio formula only
looks at revenues and not profits. John Keells has Assets Turnover Ratio of 0.42 whereas
Aitken Spence has 0.53. Further by comparing year 2014 and 2015 according to the Figure 7;
Receivable Turnover Ratio of both firms has been decreases. Comparing both firms Aitken
Spence has a higher Receivable Turnover Ratio. Therefore Aitken Spence is more efficiently
uses its assets to generate sales.
2.4.6 Inventory Turnover Ratio
This ratio indicates the effectiveness of the inventory management system practices of the
firm. It can be shown in the equation bellow.

28 | P a g e

Inventory Turnover Ratio=

Cost of Goods Sold


Inventory

a) John Keells Holdings PLC


Cost of goods sold
Inventory

2015/Rs 000'
66,191,331
5,588,916

2014/ Rs 000'
62,711,967
6,966,020

By using the above equation,


Inventory Turnover Ratio( For 2015)=

Rs 66,191,331,000
Rs 5,588,916,000
= 11.84332185

Inventory Turnover Ratio( For 2014)=

Rs 62,711,967,000
Rs 6,966,020,000
= 9.002553395

b) Aitken Spence PLC


Cost of goods sold
Inventory

2015/Rs 000' 2014/ Rs 000'


10,837,263
9,023,459
1,723,718
1,484,504

By using the above equation,


Inventory Turnover Ratio(For 2015)=

Rs 9,023,459,000
Rs 1,484,504,000
= 6.078433605

Inventory Turnover Ratio ( For 2015 )=

Rs 10,837,263000
Rs 1,723,718,000
= 6.287143837

The summary of calculated current ratio as shown below,

29 | P a g e

Inventory Turnover Ratio


John Keells
Aitken Spence

2015
11.84332185
6.078433605

201
9.002553395
6.287143837

Figure 8 : Comparison of Obtained Inventory Turnover Ratio values


This ratio measures the effectiveness of the inventory management system practices of the
firm. It is a good indicator of inventory quality (whether the inventory is obsolete or not),
efficient buying practices, and inventory management .A Inventory Turnover Ratio is
generally preferable. John Keells has Inventory Turnover Ratio of 11.84 whereas Aitken
Spence has 6.08. Further by comparing year 2014 and 2015 according to the Figure 8 ;
Inventory Turnover Ratio of John Keells has been further increased while Aitken Spence has
a slight decrease. Therefore John Keells has an efficient buying practice, and a good
inventory management system compared to Aitken Spence.

2.5 Profitability Analysis


Every firm is most concerned with its profitability. One of the most frequently used tools of
financial ratio analysis is profitability ratios which are used to determine the company's

30 | P a g e

bottom line and its return to its investors. Profitability measures are important to company
managers and shareholders.
2.5.1 Gross Profit Margin
Gross profit margin indicates the efficiency of operation and firm pricing policy. It can be
shown in the equation bellow.
Gross Profit Margin=

Gross Profit
Net Sales

a) John Keells Holdings PLC


2015/Rs
2014/Rs
91,582,219,000 86,706,426,000
25,390,888,000 23,994,459,000

Net sales /revenue


Gross Profit
By using the above equation,

Gross Profit Margin ( For 2015)=

Rs 19,075,313,000
Rs 25,390,888,000

= 0.277246918
= 27.72%
Gross Profit Margin ( For 2014)=

Rs 86,706,426,000
23,994,459,000

= 0.276732188
= 27.67%
b) Aitken Spence PLC
Assume that Profit before tax is equal to the Gross profit.

Net sales /revenue


Gross Profit/Profit before tax

2015/ Rs 000 2014/ Rs 000


34,930,493,000 34,577,379,000
5,709,923,000 5,444,946,000

By using the above equation,


31 | P a g e

Gross Profit Margin ( For 2015)=

Rs 5,709,923,000
Rs 34,930,493,000

= 0.163465285
= 16.34%
Gross Profit Margin ( For 2014 ) =

Rs 5,444,946,000
34,577,379,000
= 0.157471334
= 15.74%

The summary of calculated Gross Profit Margin

as shown below,

Gross Profit Margin


John Keells
Aitken Spence

2015 %
27.72
16.34

2014 %
27.67
15.74

`
Figure 9 : Comparison of Obtained Gross Profit Margin values

32 | P a g e

Gross profit margin indicates the efficiency of operation and firm pricing policy. Its a good
indication of how profitable a company is at the most fundamental level, how efficiently a
company uses its resources, materials, and labor. It is usually expressed as a percentage, and
indicates the profitability of a business before overhead costs .A higher Gross Profit Margin
is generally preferable. John Keells has Gross Profit Margin of 27.72% whereas Aitken
Spence has 16.34%. Further by comparing year 2014 and 2015 according to the Figure 9 ;
Gross profit margin of John Keells remains nearly the same level while Aitken Spence has
improved. Therefore John Keells is more profitable business firm considering the, before
overhead costs.
2.5.2 Net Profit Margin
When doing a simple profitability ratio analysis, net profit margin is the most often margin
ratio used. The net profit margin indicates the firms profitability after taking account all the
expenses and the income tax. It can be shown in the equation bellow.
Net Profit Margin=

Net Profit After Taxes


Net Sales

a) John Keells Holdings PLC


Net sales /revenue
Net Profit after tax

2015/Rs 000'
2014/Rs 000'
91,582,219,000 86,706,426,000
15,745,537,000 12,958,327,000

By using the above equation,


Net Profit Margin(For 2015)=

Rs 15,745,537,000
Rs 91,582,219,000

= 0.171927883 = 17.20%
Net Profit Margin(For 2014)=

Rs 12,958,327,000
Rs 86,706,426,000

= 0.135189588 = 13.52%
b) Aitken Spence PLC

33 | P a g e

`
Net sales /revenue
Net Profit after tax

2015/Rs 000'
2014/Rs 000'
34,930,493,000 34,577,379,000
4,883,600,000 4,579,489,000

By using the above equation,


Net Profit Margin(For 2015)=

Rs 4,883,600,000
Rs 34,930,493,000

= 0.139809077 = 13.98%
Net Profit Margin(For 2014)=

Rs 4,579,489,000
Rs34,577,379,000
= 0.132441762
= 13.24%

The summary of calculated

Net Profit Margin as shown below,

Net Profit Margin


John Keells
Aitken Spence

2015 %
17.19
13.98

34 | P a g e

2014 %
13.52
13.24

Figure 10 : Comparison of Obtained Net Profit Margin values


Net Profit Margin indicates the firms profitability after taking accounts all the expenses and
the income tax .Net profit margin is a key ratio of profitability. It is very useful when
comparing companies in similar industries. A higher net profit margin means that a company
is more efficient at converting sales into actual profit .A higher net profit margin is always
preferable. John Keells has Net Profit Margin of 17.19% whereas Aitken Spence has 13.98
%. Further by comparing year 2014 and 2015 according to the Figure 10; net profit margin of
both firms has increased whereas John Keells increased their net profit margin better than
Aitken Spence. Therefore John Keells is more profitable business firm considering compared
to Aitken Spence.
2.5.3 Return on Investment
The Return on Investment is an important profitability ratio because it measures the
efficiency with which the company is managing its investment in assets and using them to
generate profit. It measures the amount of profit earned relative to the firm's level of
investment in total assets. It can be shown in the equation bellow.
35 | P a g e

Return on Investment=

Net Profit After Taxes


Tatal Assets

a) John Keells Holdings PLC


Net Profit after tax

2015/Rs 000'
15,745,537,000
218,085,844,00

2014/Rs 000'
12,958,327,000
201,581,213,00

Total Assets

By using the above equation,


Return on Investment (For 2015)=

Rs 15,745,537,000
Rs 218,085,844,000

= 0.072198804
= 7.22%
Return on Investment (For 2014 )=

Rs 12,958,327,000
Rs 201,581,213,000

= 0.064283406
= 6.42%
b) Aitken Spence PLC
`

2015 Rs 000'
4,883,600,00

2014 Rs 000'
4,579,489,00

Net Profit after tax

0
65,433,088,0

0
61,064,476,0

00

00

Total Assets
By using the above equation,
Return on Investment (For 2015)=

Rs 4,883,600,000
Rs 65,433,088,000

= 0.074635023
36 | P a g e

= 7.46%
Return on Investment (For 2014 )=

Rs 4,579,489,000
Rs 61,064,476,000
= 0.074994322
= 7.50%

The summary of calculated

Return on Investment

Return on Investment (ROI)


John Keells
Aitken Spence

as shown below,
2015 %
7.22
7.46

2014 %
6.42
7.50

Figure 11 : Comparison of Obtained Return on Investment values


Return on Investment is performance measure used to evaluate the efficiency of investment.
It compares the magnitude and timing of gains from investment directly to the magnitude and
timing of investment costs. It is one of most commonly used approaches for evaluating the
financial consequences of business investments. A higher ROI is preferable and it means that
investment gains compare favorably to investment costs. John Keells has Return on
Investment of 7.22 % whereas Aitken Spence has 7.46 %. Further by comparing year 2014
and 2015 according to the Figure 11; Return on Investment John Keells has increased their
37 | P a g e

Return on Investment while Aitken Spence remains nearly the same. Even though John
Keells having less ROI in 2015, there are able to increase their efficiency of the investment
compared to 2014.
2.5.4 Return on Equity
The Return on Equity ratio is perhaps the most important of all the financial ratios to
investors in the company. It measures the return on the money the investors have put into the
company. It can be shown in the equation bellow.
Return on Equity=

Net Profit After Taxes


Shareholder ' s Equity

a) John Keells Holdings PLC

Net Profit after tax

2015/Rs 000'
15,745,537,000
150,076,810,00

Shareholders Equity

2014/Rs 000'
12,958,327,000

0 134,318,090,000

By using the above equation,


Return on Equity( For 2015)=

Rs 15,745,537,000
Rs 150,076,810,000

= 0.104916522 = 10.49%
Return on Equity( For 2014)=

Rs 12,958,327,000
Rs 134,318,090,000

= 0.09647492 = 9.65%
b) Aitken Spence PLC
`
Net Profit after tax
Shareholders Equity

2015/Rs 000'
2014/Rs 000'
4,883,600,000 4,579,489,000
42,279,450,000 38,926,447,000
38 | P a g e

By using the above equation,


Return on Equity( For 2015)=

Rs 4,883,600,000
Rs 42,279,450,000

= 0.120276979 =12.02%
Returnon Equity( For 2014)=

Rs 4,579,489,000
Rs 38,926,447,000
= 0.126261536 = 12.62 %

The summary of calculated

Return on Equity

as shown below,

Return on Equity (ROE)


John Keells
Aitken Spence

2015 %
10.49
12.02

2014 %
9.65
12.62

Figure 12: Comparison of Obtained Return on Equity values


Return on Equity (ROE) is one of the most important financial ratios and profitability
metrics. It is often said to be the ultimate ratio or the mother of all ratios that can be
obtained from a companys financial statement. It measures how profitable a company is for
the owner of the investment, and how profitably a company employs its equity. A higher ROE
is preferable. John Keells has Return on Equity of 10.49 % whereas Aitken Spence has 12.02
%. Further by comparing year 2014 and 2015 according to the Figure 12; Return on
39 | P a g e

Investment John Keells has increased their Return on Equity while Aitken Spence decreases.
By compering both firms Aitken Spence having higher ROE. Therefore according to the
figures Aitken Spence return more money the investors have put into their firm.

3.0 Conclusion
Summary of the all calculations can be as shown below.
Financial Ratio

2015
John
Aitken
Keells
Spence
2.57
2.05
2.41
1.93

Liquidity Ratios
Current Ratio
Acid-Test Ratio

2014
John
Aitken
Keells
Spence
2.44
1.85
2.23
1.72

Financial
Leverage Ratios
Debt-to-Equity
Debt-to-Total-Assets
Total Capitalization

0.45
0.31

0.55
0.35

0.50
0.33

0.57
0.36

0.18

0.20

0.20

0.18

29.55

8.08

13.59

5.64

8.92

4.50

7.14

3.82

41
5.75
63
11.84
0.42

81
1.73
211
6.08
0.53

51

96

9.00
0.43

6.29
0.57

Coverage Ratios
Interest Coverage
Activity Ratios
Receivable Turnover
Average Collection Period
in Days
Payable Turnover
Payable Turnover in Days
Inventory Turnover
Total Asset Turnover

40 | P a g e

Profitability
Ratios
Gross Profit Margin %
Net Profit Margin %
Return on Investment %
Return on Equity %

27.72
17.19
7.22
10.59

16.35
13.98
7.46
12.02

27.67
13.52
6.43
9.65

15.75
13.24
7.50
12.63

From the financial statements it is clear that the financial position of the John Keels is far
better than Aitken Spence. According to the obtained Liquidity ratios John Keells has more
ability to paying off its short term obligations without relying on the level or sales of
inventory. Considering financial leverage ratios it can be seen that Aitken Spence has more
financed by debt and it makes the firm towards to a financial risk and also Aitken Spence has
risk of insolvency if they fail to repay their debt on time.
By considering the interest coverage ratio John Keells having very high value hence they
have fewer chances of failure and facing bankruptcy than Aitken Spence. John Keells is more
successful in their money collection and they have an efficient buying practice, and a good
inventory management system compared to Aitken Spence. Considering all the Activity ratios
it can be seen that the John Keells is doing their business activities well compared to Aitken
Spence.
Considering the profitability ratios from both Net profit margin and gross profit ratios John
Keells is more profitable business firm than Aitken Spence. But John Keells Return on
Equity and Return on Investment little less compared to Aitken Spence. Typically Investors
are looking for higher return for their investment. If we didnt consider the other factors in to
account, then Aitken Spence is more suitable firm to be investing. But John Keells is more
financially stable and having less financial risk compared to the Aitken Spence. Therefore we
consider all the factors John Keells is the best firm to invest comparing Aitken Spence.

41 | P a g e

4.0 Reference

www.myaccountingcourse.com/financial-ratios
http://www.investopedia.com/university/ratio-analysis/using-ratios.asp
https://www3.nd.edu/~mgrecon/simulations/micromaticweb/financialratios.html
https://en.wikipedia.org/wiki/Financial_ratio
http://www.businessplanhut.com/activity-ratios-examples-and-formulas
http://www.inc.com/encyclopedia/financial-ratios.html
http://www.accountingverse.com/managerial-accounting/fs-analysis/financial-ratios.html
http://www.readyratios.com/reference/debt/capitalization_ratio.html
http://www.readyratios.com/reference/debt/debt_ratio.html
http://www.readyratios.com/reference/asset/asset_turnover.html
42 | P a g e

http://www.readyratios.com/reference/asset/inventory_turnover.html
http://www.readyratios.com/reference/profitability/gross_margin.html
http://www.readyratios.com/reference/profitability/net_profit_margin.html
http://www.readyratios.com/reference/profitability/return_on_equity.html

43 | P a g e