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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)

b)

a)

b)

2.2.1 Debt to Equity ratio..........................................................................................................

a)

b)

a)

b)

a)

b)

a)

b)

2.4.1 Receivable Turnover Ratio..........................................................................................

a)

b)

a)

b)

3|Page

a)

b)

a)

b)

a)

b)

a)

b)

2.5.1 Gross Profit Margin.....................................................................................................

a)

b)

a)

b)

a)

b)

a)

b)

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

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

Current Assets

Current Liabilities

2015/Rs

90,493,026,000

35,172,123,000

7|Page

2014/Rs

82,206,411,000

33,708,684,000

Rs 90,493,026,000

Rs 35,172,123,000

= 2.5728622

Rs 82,206,411,000

Rs 35,172,123,000

= 2.438730951

Current Assets

Current Liabilities

2015/ Rs

25,476,394,000

12,426,235,000

2014/ Rs

25,217,995,000

13,644,187,000

Current Ratio ( for 2015 )=

Rs 25,476,394,000

Rs12,426,235,000

= 2.050210221

Rs 25,217,995,000

Rs 13,644,187,000

= 1.848259262

Liquidity current Ratio

John Keells

Aitken Spence

2015

2014

2.5728622 2.4387309

2.0502102 1.8482593

8|Page

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

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

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

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

Current Ratio ( for 2015 )=

Rs 25,476,394,000Rs1,484,504,000

Rs12,426,235,000

= 1.930744912

Rs 25,217,995,000Rs 1,723,718,000

Rs 13,644,187,000

= 1.721925755

John Keells

Aitken Spence

2015

2014

2.4139603 2.2320774

1.9307449 1.7219258

10 | P a g e

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

Total Debt

Shareholders Equity

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

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

Debt Equity ratio( For 2015)=

Rs 23,153,638,000

Rs 42,279,450,000

= 0.547633377

= 54.76%

12 | P a g e

Rs 22,138,029,000

Rs 38,926,447,000

= 0.56871435

= 56.87%

The summary of calculated

John Keells

Aitken Spence

2015

2014

0.453161511 0.500774862

0.547633377 0.56871435

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

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

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

Debt Asset ratio(For 2015)=

Rs 23,153,638,000

Rs 65,433,088,000

= 0.353852137

= 35.38%

Rs 22,138,029,000

Rs 61,064,476,000

= 0.362535314

= 36.25%

The summary of calculated

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

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

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

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

Total Capitalization ratio (For 2015)=

Rs10,727,403,000

Rs53,006,853,000

= 0.202377662

= 20.23%

Rs 8,493,842 , 000

Rs 47,420,289 , 000

= 0.179118309

= 17.91%

Capitalization Ratio

2015

0.17952131

2014

0.19988046

John Keells

1

0.20237766

4

0.17911830

Aitken Spence

17 | P a g e

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 Charge

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

EBIT(Earnings before interest & Tax)

Interest Charge

5,709,923,000 5,444,946,000

6,516,288,000 6,619,184,000

806,365,000 1,174,238,000

Interest Coverage ratio(For 2015)=

Rs 6,516,288,000

Rs 806,365,000

= 8.081065026

19 | P a g e

Rs 6,619,184,000

Rs 1,174,238,000

= 5.637003742

The summary of calculated

John Keells

Aitken Spence

2015

2014

29.5484215 13.5886257

8.08106503 5.63700374

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

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=

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

Account Receivables

2014/ Rs

86,706,426,000

12,146,573,000

Receivable Turnover Ratio(For 2015)=

Rs 91,582,219,000

Rs10,269,689,000

= 8.91772078

Rs 86,706,426,000

Rs 12,146,573,000

= 7.138344783

2015/Rs

34,930,493,000

7,770,650,000

Avg Account Receivables

2014/Rs

34,577,379,000

9,049,706,000

Receivable Turnover Ratio( For 2015)=

Rs 34,930,493,000

Rs 7,770,650,000

= 4.4951829

21 | P a g e

Rs 34,577,379,000

Rs 9,049,706,000

= 3.820828986

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=

John Keells

Aitken Spence

Daysthe year

Receivable Turnover

2015

8.91772078

4.4951829

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

By using the above equation & the table,

Average Collection Period (For 2015)=

365

4.4951829

= 81.1980309 Days

365

3.820828986

= 95.52900727 Days

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

This ratio indicates the promptness of payment to supplier by firm. It can be shown in the

equation bellow,

Payable Turnover Ratio=

Account Payable

a) John Keells Holdings PLC

Annual Credit Purchases

Account Payable

2015/ Rs

64,814,227,000

11,267,339,000

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

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

By using the above equation & the table,

Average Payable Period=

365

5.75239877

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

Net sales /revenue

Total Assets

2015/ Rs 000'

91,582,219

218,085,844

2014/ Rs 000'

86,706,426

201,581,213

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

Total Assets

2014/ Rs 000'

34,577,379

61,064,476

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

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

Cost of goods sold

Inventory

2015/Rs 000'

66,191,331

5,588,916

2014/ Rs 000'

62,711,967

6,966,020

Inventory Turnover Ratio( For 2015)=

Rs 66,191,331,000

Rs 5,588,916,000

= 11.84332185

Rs 62,711,967,000

Rs 6,966,020,000

= 9.002553395

Cost of goods sold

Inventory

10,837,263

9,023,459

1,723,718

1,484,504

Inventory Turnover Ratio(For 2015)=

Rs 9,023,459,000

Rs 1,484,504,000

= 6.078433605

Rs 10,837,263000

Rs 1,723,718,000

= 6.287143837

29 | P a g e

John Keells

Aitken Spence

2015

11.84332185

6.078433605

201

9.002553395

6.287143837

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.

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

2015/Rs

2014/Rs

91,582,219,000 86,706,426,000

25,390,888,000 23,994,459,000

Gross Profit

By using the above equation,

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.

Gross Profit/Profit before tax

34,930,493,000 34,577,379,000

5,709,923,000 5,444,946,000

31 | P a g e

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%

as shown below,

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 Sales

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

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

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%

John Keells

Aitken Spence

2015 %

17.19

13.98

34 | P a g e

2014 %

13.52

13.24

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=

Tatal Assets

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

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

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%

Return on Investment

John Keells

Aitken Spence

as shown below,

2015 %

7.22

7.46

2014 %

6.42

7.50

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=

Shareholder ' s Equity

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

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

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 %

Return on Equity

as shown below,

John Keells

Aitken Spence

2015 %

10.49

12.02

2014 %

9.65

12.62

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

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