Table of Contents

Executive summary...................................................................................................1

Introduction to Ceylon investments plc and Browns Investments plc...................1

Financial Performance...............................................................................................2

Ratio analysis.............................................................................................................2

Profitability ratios......................................................................................................3

Gross profit margin................................................................................................3

How to improve the gross profit margin?..............................................................5

Net profit margin....................................................................................................6

How to improve the net profit margin of the firm?................................................7

Liquidity ratios..........................................................................................................9

Current ratio...........................................................................................................9

What are the methods to improve the current ratio?............................................11

Acid test ratio.......................................................................................................11

How to improve the acid test ratio?.....................................................................14

Working capital ratio...............................................................................................14

How to improve the working capital performance?.............................................17

Which company has performed better?...................................................................17

Conclusion...............................................................................................................18

References...............................................................................................................18
Executive summary

On the Colombo Stock Exchange, we'll choose two companies that have long competed against

each other. Our investigation will focus on the company's financial performance and its position

in the industry. Financial records from the past four years are going to be thoroughly analyzed

and crucial ratios calculated to help us make better decisions in the future (CSE, 2022). As a

result of these ratios and statistics, we'll be able to identify the strengths and weaknesses of each

organization and make recommendations for how they can be strengthened. We'll be able to

explain why one company has done better than the others as we move forward.

Introduction to Ceylon investments plc and Browns Investments plc

Investing is the focus of Ceylon Investment PLC. The company's primary function is to hold and

manage a variety of investments. For the benefit of shareholders, it primarily invests in publicly

traded equity investment portfolios. There are investments in listed equity, unlisted equity, and

fixed income securities in its investment portfolio. A discretionary portion of its investment

portfolio is actively managed, while a nondiscretionary portion is factored in through its

associate company, Rubber Investment Trust Limited. Bottom-up stock selection is used in the

discretionary segment, which is managed using fundamental research and experience in the

capital markets to evaluate the investee companies. It makes investments in a wide range of

industries, such as banks, finance, and insurance, as well as beverages, food, and tobacco, as well

as a variety of other things, such as footwear and textiles. The company's investment manager is

Guardian Fund Management Limited (markets.ft.com, 2022).

Browns Investments Plc is a holding company for various investments. Investments, construction

and manufacturing, plantations, leisure and travel, and real estate and renewable energy make up
the company's business segments. Sri Lanka's capital city of Colombo serves as the company's

administrative hub (wsj.com, 2022).

Financial Performance

Companies' financial health can be evaluated by examining their Statement of Financial Position

(SFP) (SOFP). In terms of a company's financial picture, the balance sheet is its most important

component. Ratio analysis, which we'll go over in detail below, is essential for quickly finding

and assessing the success of an organization. There are a number of financial metrics that

investors use to evaluate a company's health. Financial analysis may appear daunting at first, but

it isn't as difficult as you might think. Progress on a project can be seen on a timeline using the

PERT (Program Evaluation Review Technique) project management tool (Team, 2022). There

are a number of factors that contribute to a company's financial success. Attributes are used to

calculate financial performance. A company's ability to meet its objectives can be assessed using

a wide range of business calculations.

Ratio analysis

It is common for companies to perform an account ratio analysis to determine their overall

financial well-being. An important factor in this investigation is the return on capital employed

(ROCE), as well as other ratios such as the debt-to-equity and working capital ratios. There are

many ways to measure a company's overall financial health.

A variety of Ratios can be used to evaluate a company's financial records to see if an investment

is worthwhile. Profitability, liquidity, efficiency, and gearing ratios are a few examples. – The

company's financial statements can be used to analyze a wide range of financial data. Using these

metrics, you can determine a company's profitability, liquidity, and solvency.

quantitative information about liquidity, efficiency, and profitability can be found in financial

records such as the balance sheet and income statement through ratio analysis

(BLOOMENTHAL, 2021). Fundamental equity research relies heavily on the analysis of

financial ratios.

Profitability ratios

Profitability can be assessed by looking at a company's sales, balance sheet assets and operating

costs as compared to its shareholders' equity at the time in question. The efficiency with which a

company utilizes its resources can be used to assess its profitability and overall value to

shareholders.

Most businesses believe that a higher ratio or value denotes a successful business that is making

money and generating cash flow. When compared to other organizations in the same industry

and to previous periods, the ratios shine. This section will examine a number of profit ratios

(HAYES, 2022). Profitability and the ability to turn a profit on sales, costs of goods sold, and

expenses, assets, and shareholders' equity are all measured using these metrics. Return on capital

employed (ROCE) is a key metric for evaluating a company's profitability (ROCE). Profitability

ratios are frequently used in business (HAYES, 2022). If you do some number crunching, you'll

be able to make better decisions.

Gross profit margin

Formula = (Gross profit/Sales) *100

Ceylon Investments plc

Year Working GPM

 2017 438,631/ 449,610*100 97%

2018 - 885,000/ 169,018*100 -523%

2019 - 427,844/ 227,437*100 -188%

2020 1,075,708/ 521,315*100 206%

Browns investments plc

Year Working GPM

2017 2,092,059/ 5,147,888*100 40.6%

2018 1,475,519/ 5,123,308*100 28.8%

2019 1,364,711/ 5,556,739*100 24.6%

2020 2,657,702/ 8,359,852*100 31.8%

These figures allow us to compare the gross profit margins of the two businesses. The profit

margin is the difference between the company's gross profit and its total sales. The net profit

margin is the difference between the total revenue and the total cost of a company's goods and

services. The company's operating expenses, fixed costs, and dividends can still be covered by its

high gross profit margin while still generating net profits (Team, 2022). Profit margins can be

low because of inefficient purchasing procedures, low selling prices, decreased sales, strong

market competition, and/or poor marketing techniques for the sale of those products.

The gross profit margin of Ceylon investments Plc decreased from 2017 to 2020. The gross

profit margin is expected to decrease by 3% in 2020. This year's decline in sales may be to

blame. The company's revenue dropped significantly from 2019 to 2020, making this difficult.

The stock price of the company has dropped by over 7.2%, which is a significant setback. This
could be a problem for the company when it comes to things like product pricing. Customers

would not accept or believe in the current pricing model. The company has cut costs, but it hasn't

been enough to counteract a drop in revenue.

Browns investments plc's gross profit margin has ranged from 60 to 65 percent. During the 2020

financial year, they were able to maintain a gross margin ratio of 63%. Compared to the 2017

financial year's 59 percent gross margin ratio, this seems reasonable. Ceylon Hospital plc, on the

other hand, has a much higher gross margin than Ceylon investments. For Ceylon Investments

plc, this means that it can earn more money by increasing sales and cutting costs. To improve the

company's GPM ratio, Ceylon investments plc should follow the following guidelines.

How to improve the gross profit margin?

You must raise your selling price without increasing the cost of the items sold if you want to

increase your gross profit margin. Before you make a price change, figure out how much more

money you'll make with the new adjustment to gross profit margin.

You can sell more items for less money per unit if you don't lower your selling price.

Manufacturing costs per unit decrease as production volume increases, resulting in lower selling

prices for the finished goods. A higher gross profit margin has been achieved as a result of

increased sales and decreased unit costs.

In order to save money, lower the selling price of your goods. The gross profit margin increases

in direct proportion to the decrease in the cost of goods sold. Suppliers, raw materials, labor-

saving technology, and outsourcing are all options for reducing product delivery costs. The gross

profit margin increases in direct proportion to the sales-to-cost ratio. This must be remembered at

all times.
Net profit margin

Formula = (Profit after tax/Sales) *100

Ceylon Investments plc

Year Working NPM

2017 512,245/ 449,610*100 113%

2018 - 1,186,302/ 169,018*100 -701%

2019 - 645,345/ 227,437*100 -283%

2020 1,484,197/ 521,315*100 284%

Browns Investments plc

Year Working NPM

2017 1,460,136/ 5,147,888*100 28.3%

2018 - 2,023,689/ 5,123,308*100 -39%

2019 7,185,442/ 5,556,739*100 129%

2020 - 4,785,811/ 8,359,852*100 -57%

Net income or profit as a percentage of revenue is known as the net profit margin, or simply the

net margin. It is the ratio of a company's or business segment's net profits to revenues. Most

commonly, the net profit margin is expressed as a percentage, but it can also be expressed as a

decimal number instead. To calculate a company's net profit margin, divide its revenue by its

total expenses (Dan, 2013). Property Development plc's NPM position in the 40 percent range

compared to Ceylon investment plc's isn't anything to be concerned about. Although the Net
profit margin has decreased from 60% in 2017 to 40% in 2020, it is still worth noting. Keep an

eye on their expenses and sales costs, as this could be a dangerous warning for the company.

This allows them to restart their business and make even more money. Ceylon investment plc

could benefit from the following discussion on ways to increase net profit margins.

Browns investment Plc, on the other hand, has seen its net profit margin plummet to a record low

of -38% in 2019, compared to a positive net profit margin of 11% in the previous year, according

to our calculations. Using this data, it appears that the company is struggling to keep costs and

sales costs in line with revenues. As a result, the company's net profit is reduced to a loss after

deducting all sales-related costs and expenses. There will be less profit from normal operations,

which increases the likelihood that the company will go bankrupt. Brown’s investment revenues

fell by over 21% in the fiscal year 2018 as evidence of this. In the wake of this, the company's

profitability has dipped while costs have remained flat. Another explanation is that they had to

deal with significant Losses during these two fiscal years. Due to rising expenses and the cost of

sales, they are unable to generate significant increases in revenues. Thus, they had to deal with

some negative consequences. Despite this, they were able to achieve a net present value of 5.1%,

which is a positive result.

How to improve the net profit margin of the firm?

In order to boost their net margins, companies can either sell more products or services or raise

their prices.

Businesses can increase their net profit margins by reducing costs (e.g., finding cheaper sources

for raw materials).

1)Cut back on your energy usage; Here are some tips for reducing utility consumption:
Turning off equipment that is in standby mode all night will save you money in the long run.

Check your faucets for leaks and install low-flow toilets in the workplace if you're planning any

bathroom renovations.

Lower the temperature by 7 to 10 degrees at night and on weekends.

reduce the amount of overtime work your employees are required to put in. 2) Reduce labor

costs. The higher overtime rate makes it more advantageous to schedule workers in such a way

that no one works more than is necessary.

Check to verify if your current employees can handle extra work before employing more.

Determine who can handle any additional duties and hold a meeting to discuss it.

When possible, make use of contract workers. Data input, software development, and event

marketing are frequently and successfully outsourced.

3)Decreasing the operating costs; Operating costs might be significantly raised by expensive

suppliers. To address this, see if you can get a discount on bulk purchases of popular items.

Inquire about a discount for timely payment from your suppliers.

Investigate less expensive options for handling administrative duties. Use software solutions like

Oracle or Zapier to automate and outsource repetitive tasks to save time and money

(taluspay.com, n.d.).
Liquidity ratios

Liquidity ratios can be used to assess an organization's ability to meet short-term obligations as

they come due. Liquidity ratios include two fundamental types of ratios. The current ratio and

the acid test ratio are two examples.

Short-term financial obligations can be assessed by using liquidity ratios. Liquidity ratios are

frequently used by prospective creditors and lenders to assess whether or not to extend credit or

debt to businesses. These ratios examine the relationship between the number of current

liabilities on a company's balance sheet and various combinations of reasonably liquid assets. An

organization's ability to meet deadlines is reflected in this ratio.

Current ratio

Formula = Current assets / Current liabilities

Ceylon Investment plc

Year Working Current ratio

2017 1,077,923/ 78,518 13.7:1

2018 3,701,957/ 62,106 59.6:1

2019 3,135,306/ 370,535 846:1

2020 3,768,480/ 32,247 116:1

Browns investment plc

Year Working Current ratio

2017 5,671,816/ 18,784,238 0.3:1

 2018 6,065,711/ 24,422,985 0.25:1

2019 12,377,065/ 40,553,954 0.31:

2020 20,489,483/ 34,902,462 0.59:1

The liquidity of a company is shown by the current ratio. The permissible current ratios vary by

industry. High current ratios are preferable to low current ratios because they indicate a

company's ability to repay its debts. High current ratios aren't always a good thing for investors

to look for. If a company's current ratio is too high, it may not be making the best use of its

current assets or short-term financing options.

The current ratio is less than one if current liabilities exceeds current assets. There may be a

problem paying the company's current liabilities if its current ratio is less than 1. It's possible for

some business models to operate with a current ratio of less than 1. The current ratio of a

company can safely remain below one if inventory turns into cash at a much faster rate than

accounts payable are due. Although the company intends to sell its inventory for more than its

cost of acquisition, the cost of acquisition is used to value goods. As a result, the sale will bring

in a lot more money than the inventory is worth on the balance sheet. Paying suppliers first and

then collecting customer money may allow companies with low current ratios as an alternative.

Even though the default current ratio benchmark is 2:1, a cursory look at Ceylon investments

Plc's current ratio figures reveals notable — if not exaggerated — current ratios. This shows that

the company is able to meet all of its short-term obligations as they come due. So, they can

maintain strong relationships with their suppliers and the financial institutions that lend them
money for their operations. The company's financial statements appear inflated, as I mentioned

earlier. A full audit would be worthwhile.

In contrast, Browns investment plc's current ratio shows that the company has typically run at a

lower current ratio of 0 decimals. This makes sense. A lack of ability to convert liquid assets into

cash quickly enough to cover decreasing current liabilities would explain this. A lack of funds

means that current liabilities will not be paid on time. Consequently, the business's relationship

with its suppliers could be damaged, making it impossible to honor the credit term. Additionally,

it raises the risk that the company will not be able to repay short-term debts like bank overdrafts.

So, Browns investment plc's reputation among its investors would be lowered.

What are the methods to improve the current ratio?

Operations can improve their liquidity by delaying any capital spending that requires immediate

cash payments as well as investigating whether any term loans can be repaid in order to reduce

personal demands on the company's resources.

To reduce current debt, sell any capital assets that aren't generating revenue (porkgateway.org,

n.d.).

Acid test ratio

Formula = Current assets-Closing inventory / Current liabilities

Ceylon Investment plc

Year Working Acid test ratio

2017 1,077,923- 239,670/ 78,518 1.7:1

 2018 3,701,957- 176,849/ 62,106 56.7:1

2019 3,135,306- 155,050/ 370,535 804:1

2020 3,768,480- 105,462/ 32,247 113:1

Browns investment plc

Year Working Acid test ratio

2017 5,671,816-445,163/ 0.3:1

18,784,238

2018 6,065,711-445,163/ 0.23:1

24,422,985

2019 12,377,065-3,374,905/ 0.22:1

40,553,954

2020 20,489,483-5,994,542/ 0.41:1

34,902,462

In order to account for inventory's lower liquidity, the acid test ratio was developed. Due to the

difficulty of converting inventory into cashflows in a timely manner, the Quick ratio was

devised. Shareholders and other stakeholders in an organization can draw important conclusions

from the results based on the data. The acid-test ratio (ATR), also known as the fast ratio, is used

to gauge a company's liquidity. It assesses the ability of current assets to meet current liabilities.

Only assets that can be converted to cash in less than 90 days are used to calculate the quick

ratio.
With an acid test ratio of between 10 and 20:1, Ceylon Investment plc is an exceptional

company. Although closing inventory balances are considered less liquid, this indicates that the

company does not plan to use these funds to meet short-term obligations. We can see that the

acid test ratio has exceeded the predetermined 1:1 or 1.5:1 benchmark here, which means that

there is a significant amount of money invested in the current assets that could be used elsewhere

to generate profitable returns. On top of all that, the inflated acid and quick ratios seem to

indicate a company intent on deceiving the public and investors by engaging in accounting

frauds and other forms of financial statement window dressing.

A minimum of one-to-one in the Acid Test Ratio is required. For the past four years, Browns

investment plc has been plagued by a negative Acid test ratio. Excessive reliance on their closing

inventory balance indicates that they have been making timely payments on short-term loans.

This raises the possibility that the current ratio, which appears to account for the inventory

balance, is misleading the investing public. As a result, the company's ability to pay its short-

term loans has fallen to an all-time low of 0.14:1, increasing the likelihood that it will go out of

business. Some of these loans could be made out to trade creditors and/or other financial

institutions. Interest-bearing loans and borrowings increased by 51.7 percent in the financial year

2019, while the item "amounts payable to related parties" went up by a whopping 149%.

Moreover, the current asset balance has fallen by 20%.

How to improve the acid test ratio?

To improve the acid test ratio, quickly pay off all of your debts. Keeping current liabilities low in

the acid test ratio will benefit your business. Paying off your debts as quickly as possible and

reducing the length of your loans can help.

In order to increase inventory turnover and cash on hand, you must increase sales. The

company's short-term cash flow will be boosted by increased sales and inventory turnover. The

more you sell, the more money you make. Your acid-to-base ratio improves as a result of

increased sales.

You'll see an improvement in your acid ratio test if you shorten the time it takes to collect

accounts receivable.

In order to improve a company's cash flow and reduce long-term creditors, sticky borrowers, and

bad debts, a shorter collection period should be implemented. Accounts receivable liquidity can

be maintained if invoice terms are made clear early on. Involve yourself in collecting data.

Working capital ratio

Formula = Current assets - Current liabilities

Ceylon Investment plc

Year Working Working capital ratio

2017 1,077,923- 78,518 999405

2018 3,701,957- 62,106 3639851

2019 3,135,306- 370,535 2764771

2020 3,768,480- 32,247 3736233

Browns investment plc

Year Working Working capital ratio

2017 5,671,816- 18,784,238 -13112422

 2018 6,065,711- 24,422,985 -18357274

2019 12,377,065- 40,553,954 -28176889

2020 20,489,483- 34,902,462 -14412979

Cash and accounts receivable/unpaid invoices from customers are two examples of current assets

and liabilities that make up working capital. Working capital is typically determined by a

company's industry. There may be higher working capital requirements in some sectors due to

lower inventory turnover in those industries with longer production cycles. However, retail

businesses typically raise short-term financing much more quickly and have lower working

capital requirements because they interact with thousands of customers each day (FERNANDO,

2022)..

Current assets include cash accounts receivable/unpaid invoices from customers, raw material

stocks, and finished goods, while current liabilities include debt and accounts payable. The

difference between the two is working capital (NWC). It's a common metric used to gauge how

well a business is doing right now.

Certain industries have a higher prevalence of companies with adequate working capital than

others. It is necessary for some industries to have additional working capital because they cannot

produce cash on demand quickly enough. Because retail businesses have a lower working capital

demand, they are able to raise short-term financing much more quickly.

The money you'll need to keep your business going in the short term is referred to as "working

capital." While long-term investments like fixed assets and R&D are important, working capital

has a much shorter time horizon.

The difference between current assets and current liabilities is known as working capital.

"Current" refers to the short-term fluctuation of these variables. Assets that can be converted into

cash within the next year or an operating cycle, such as inventory and accounts receivable, are

referred to as "short-term." Cash, short-term investments, accounts receivable, and inventories all

fall under the category of current assets (bdc.ca, n.d.).

Long-term debts that are expected to be repaid within 12 months include bank operating lines,

accounts payable, and accrued liabilities such as taxes owed. The monetary value and turnover of

each of these items are constantly fluctuating.

Ceylon investment plc has had a positive working capital balance for the last four years thanks to

adequate working capital management. As of 2020, the working capital balance has grown by

63% compared to 2017. As a result, business as usual at the company will go on as usual.

stockpiles of materials, both raw and finished (NWC). It's a widely accepted metric for assessing

a company's current state of well-being.

Working capital at Browns investment plc deteriorated to an unfavorable 2342014 rupees

balance over the course of four years. Failure to repay short-term loans, such as Bank ODs and

another short-term borrowing, within the agreed timeframe will increase their risk of bankruptcy

because of their difficulty supporting their day-to-day business operations.

How to improve the working capital performance?

Keeping an eye on your spending is easy if you follow these steps:

Look at the number of finished goods or raw materials in your inventory and streamline it. What

if you were able to reduce your spending?

Try switching providers to see if you can get a better deal. Shop around for the best price. With

the information you've gathered, you may be able to secure a discount on your current rates and

payment terms.

By negotiating better terms with your creditors and persuading your customers to accept shorter

payment terms, you can speed up the payment process. In this case, a payment incentive program

could be implemented.

It's important to keep track of your own payments in order to avoid getting into even more debt.

Paying your bills on time allows you to better forecast your financial situation.

You can make more money by offering extras or other choices to your customers.

The sooner you get paid, the better off you'll be with your cash flow.

Which company has performed better?

We can now conclude that Ceylon Investment plc is the most successful of the two competitors.

They have an extremely reliable liquidity position and the profitability ratios we calculated

reveal extremely good figures that make the company exceptional compared to Brown’s

investment plc. Additionally to that, their outstanding working capital balances enable the firm to

meet its daily cash expenditures and ensure an effective flow of operations within the

organization.

Conclusion

When deciding whether or not to invest in a company, nonfinancial factors should also be

considered. When deciding which companies to invest in, non-financial factors are just as

important as the numbers. A company's success can be impacted by a number of non-financial

factors that are unrelated to money. In order to achieve learning objectives and increase results,

non-financial elements are often overlooked.

Before making a purchase, it's critical to look into the company's goodwill to ensure that the

public has a positive impression of it. Location, customer base, market share, and employee

happiness are all important factors in a company's long-term success.

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