Assignment title Strategic Management & Leadership

Name Dinithi Madara Rathnayake

Student ID MBAQR1223712

Programme Qualify Level 7 Diploma in Strategic Management &

Leadership

Lecturer Name Nalin Anthony

Student Signature Dinithi

Date of Submission 25.03.2024

Lecturer Signature

Marks

Final Grading
Table of Content

Table of Content ..................................................................................................................................... 2

Statement of Authenticity ...................................................................................................................... 3
Task One - Dankotuwa Porcelain PLC ..................................................................................................... 4
1.1 Determine what financial information is needed & assess its validity ......................................... 4
1.2 Assessing Financial Performance and Stakeholder Needs............................................................ 4
1.3 Comparative analysis of financial information and data .............................................................. 6
1.4 Critically review and question financial information and data ..................................................... 8
Task Two - MAS Linea Aqua (Merchandising Department) .................................................................... 9
2.1 Strategic Budgeting: Integrating financial constraints, achievement of targets and accounting
conventions......................................................................................................................................... 9
2.2 Assess the budget ......................................................................................................................... 9
2.3 Strategic Budgeting: Aligning Organizational Objectives, Financial Constraints, and Accounting
Conventions ........................................................................................................................................ 9
Task Three - Managing Proposal and Projects: A Case Study of Linea Aqua ........................................ 10
3.1 Criteria for Judging Proposal ....................................................................................................... 10
3.2 Viability Analysis of Expenditure Proposal.................................................................................. 10
3.3 Strengths, Weaknesses, and Financial Feedback ........................................................................ 11
3.4 Analyse the viability of a proposal for expenditure .................................................................... 11
References ............................................................................................................................................ 12
Appendix ............................................................................................................................................... 13
Statement of profit or loss 2022-2023.............................................................................................. 13
Statement of Financial Position 2022-2023 ...................................................................................... 14
Statement of Cash flows 2022-2023 ................................................................................................. 15
Statement of Financial position 2021-2022 ...................................................................................... 16
Calculations ....................................................................................................................................... 17

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Statement of Authenticity

Dinithi Madara Rathnayake hereby certify that all tasks and components attached to below
assignment are entirely my own. I have not plagiarized or colluded in any way. As required by
academic standards, all information, data, and concepts obtained from outside sources have
been accurately cited and referenced.
I further confirm that the word count for each task is as follows:

• Task 1- 579

• Task 2- 408

• Task 3- 550

I understand the importance of maintaining academic integrity standards and the ramifications
of academic dishonesty. I have properly acknowledged any appropriation of ideas, concepts,
or material, and this project demonstrates my genuine efforts and comprehension of the
subject.

24.03.2024
Dinithi Madara Rathnayake

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Task One - Dankotuwa Porcelain PLC
Dankotuwa Porcelain is a leading provider of exquisite tableware, registered on the Colombo
Stock Exchange, the company has been shaping dining experiences for 40 years. Its main
products encompass a diverse range of fine porcelain tableware and grace the tables of homes
and hotels in over 50 countries. These days, Noritake Lanka Porcelain is its principal rival.
This report embarks on a comprehensive evaluation of Dankotuwa Porcelain PLC's
performance management framework.

1.1 Determine what financial information is needed & assess its validity

To assess the performance management of this company, it is essential to analyze operational

data on a daily, weekly, and monthly basis (Smith, 2018). To the report, I’ve taken below key
financial metrics from the audited financial statements of the years 2022 & 2023. Cross-
referenced the financial data with other sources; ERP systems and BI dashboards to confirm
its validity.

Year 2023 Year 2022

Key financial metrics Rs Rs
Local Revenue 1,609,639,000 1,232,008,000
Export Revenue 1,752,834,000 1,124,365,000
Gross profit 1,445,551,000 926,831,000
operating expenses 736,371,373 485,199,376
Operating profit 777,349,000 453,790,000
Net profit after tax 622,067,000 422,192,000
Cash and Cash Equivalents 440,902,153 381,451,418
Operating working capital 564,968,775 Rs. 114,108,137
Average settlement days 53 days 48 days
Average settlement days 25 days 26 days
Working capital cycle 142 days 148 days

1.2 Assessing Financial Performance and Stakeholder Needs

Financial performance evaluation shows how effectively a company is utilizing its resources
to achieve its objectives and generate value for its stakeholders. By analyzing various financial
statements, we gain insights into a company's profitability, liquidity, and overall financial
health.

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Finance Financial performance level How it affects to
documents and conclusion stakeholders' expectations
information
Balance sheet Total equity has increased. Shareholders- their value of
the business has increased.
Non-current assets have increased. Shareholders- There's a long-
term investment in the
company's operations and
future growth potential
Current assets - favorable ability to Creditors, such as banks,
meet its immediate financial financial institutions-
commitments
Non-Current Liabilities- There's a The company's strong
signify financial obligations, its liquidity position and
manageable levels suggest a manageable debt levels
reasonable ability to service long-term indicate a favorable ability to
debt. meet both short-term and
Current Liabilities- Company's strong long-term financial
liquidity position, as reflected in its commitments.
current assets, suggests an ability to
meet these short-term obligations.
Statement of cash Strong pre-tax earnings, Creditors- Assess the
flows Negative cash flow from investing impact of these activities on
activities and substantial cash outflow the company's liquidity and
from financing activities. debt servicing capacity.

There’s a net increase in cash flow The company has a healthy

cash reserve, which could be
used for strategic
investments or returning
value to shareholders.

Profit and loss There’s revenue growth in gross profit, Shareholders- They need
statement operation profit and net profit. But as explanations from
per the annual report no dividends management regarding the
were declared to its shareholders. decision to retain earnings to
settle loans rather than
distributing dividends.
Creditors-Positively
influence perception of
Dankotuwa Porcelain's
creditworthiness and
financial stability based on
improved revenue and
profitability
Employees- They feel job
security and expect salary

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 increments, bonuses and
promotions.
Government- Expect taxes

1.3 Comparative analysis of financial information and data

Financial ratios serve as important tools for shareholders to evaluate a company's financial
performance, risk profile, and valuation (Wright, 1975) With an in-depth review of these
parameters, shareholders can make sound decisions on their investment in the company and
decide if their requirements for efficiency, profitability, liquidity, and risk management are
being fulfilled (Tamplin, 2022)

Liquidity Year 2023 Year 2022

ratios
Current ratio 2.13 times 1.55 times
Quick ratios 1.36 0.98

Since the current ratio is greater than 1 in this manufacturing company and its < 2.5, which is
acceptable. Quick ratio has also an improvement and it’s >1 which implies sufficient liquid
assets to cover its short-term liabilities.

Gearing Ratio Year 2023 Year 2022

Debt turnover 16% 11%
Debt to Equity ratio 12.58% 22.34

In 2023 out of total assets 16% has been financed through debt and this is a low gearing
company. In 2023 company's debt represents 12.58% of its equity and it has reduced by 9.76%
when compared with 2022.

Profitability ratios Year Year 2022

2023
Gross profit margin ratio 42.99% 39.33%
Operating profit margin 23.12% 19.26%
Net profit margin 18.50% 17.92%
Return of assets (ROA) 14.67% 10.31%
Return of fixed assets 22.86% 15.12%
Return on Equity (ROE) 17.41% 14.02%
Return on capital employee 17.64% 12.98%
ROCE

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When comparing 2023 and 2022 profitability ratios, we can identify the company has improved
its effectiveness in terms of generating profits.

Efficiency ratio/ Asset Year 2023 Year 2022 Comment

management
Inventory turnover ratio 0.8 times 0.73 times The company should aim for
Inventory holding days 114 days 126 days further improvement in inventory
turnover to optimize its inventory
management.
Average collection days 69 days 68 days Overall, the company is managing
Average settlement days 82 days 100 days its receivables and payables more
effectively.
Asset turnover 17.33% 13.69% The company is generating more
revenue from its assets, which is a
positive sign for operational
efficiency and utilization of
resources.
Fixed asset turnover 26.26% 20.02% The company is generating higher
revenue relative to its investment
in fixed assets

Overall, while there are areas of improvement, such as further optimization of inventory
turnover and management of collection days, the company has shown progress in its efficiency
ratios. Continued focus on working capital management and operational efficiency will be key
for sustained improvement in the future.

Gearing Ratio Year 2023 Year 2022 Comment

Debt turnover 16% 11% In 2023 out of total assets 16% has been
financed through debt and this is a low
gearing company
Debt to Equity 12.58 22.34 A decrease in the company's level of debt
ratio relative to its equity indicates improved
financial leverage and reduced financial
risk.
Interest cover 5 times 7 times A lower interest cover ratio suggests that
the company's operating income is less
sufficient to cover its interest expenses
compared to the previous year. This may
indicate increased financial risk or higher
interest expenses relative to operating
income.

Overall, the company has shown positive signs of reducing its reliance on debt financing,
improving its debt management efficiency, and enhancing its financial stability. However, the

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decrease in the interest cover ratio warrants further examination to ensure the company's ability
to meet its interest obligations in the future.

Investor Ratios Year 2023 Year 2022 Comment

Dividends per No dividends were declared to its Cash generated from the
share share holders business was used to settle the
loans and further resulted in an
increase of retained earnings.

Dividend payout No dividends were declared to its

ratio share holders

Earnings per 3.83 2.60 There’s a profitability

share ratio improvement in 2023
Price earnings 5.36 times 3.81 times Earnings per share improved
ratio gradually between 2022 and
2023, showing a rise in profit.

Financial parameters called shareholder ratios are used to assess a company's investment
attractiveness and performance. (Nimalathasan Balasundaram 2012).
Although Dankotuwa Porcelain Company did not distribute dividends to shareholders in 2022
or 2023, its price-earnings ratio increased from 3.81 times in 2022 to 5.36 times in 2023. This
suggests investors may view the company's stock as more valuable relative to its earnings.

1.4 Critically review and question financial information and data

A crucial aspect of financial analysis and decision-making is examining and challenging

financial data and information. Below are some key steps to critically review and question
financial information which enhances stakeholders' confidence in the accuracy and reliability
of the information provided.
• Accuracy: Verified the reliability of finance with annual reports. The report is prepared
and audited by independent external auditors.
• Consistency and Comparability: Compared current financial statements with historical
statements from previous reporting periods. Consistency in key financial indicators
over time provides stability and reliability in the company's financial performance.
• Analyze ratios: There is no abnormal found in ratio analysis.

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Task Two - MAS Linea Aqua (Merchandising Department)
2.1 Strategic Budgeting: Integrating financial constraints, achievement of targets and
accounting conventions

MAS Linea Aqua's Merchandising Department faces challenges amidst a declining USA
swimwear market due to economic crises and growing rivalry in Vietnam. To overcome these
challenges, The company follows a budgeting process, considering financial constraints and
target achievement. The department's budget starts with top management setting overall
financial targets in alignment with strategic goals based on historical sales data analysis, market
trends, and product demand forecasts.
2024 company has created two budgets. The first is a target budget that is aligned with customer
order projections while the second budget reflects a worst-case scenario. The latter is developed
based on unverified order forecasts and the current state of the swimwear business in the USA,
with a focus on cost-cutting strategies to maintain profitability in the face of market volatility.
The conservative estimate for sales revenue is USD $95 million. On the other hand, the target
budget, with sales revenue forecast at USD $105 million, attempts to reduce operating costs
while boosting client orders and drawing in new small-scale clients.
Overall, the budgeting process consolidates accounting principles, target success, and financial
constraints to support organizational goals and promote long-term growth.

2.2 Assess the budget

The budget is assessed through variance analysis, comparing actual performance against
budgeted figures (Banks and Giliberti, 2018).
Moreover, monitoring and controlling mechanisms of a budget need to be established for the
financial year. Frequent monitoring enables prompt corrections and reduce deviations from the
planned budget vs actuals. This mostly includes sales, operation cost, advertising costs, R&I &
etc. For that company uses weekly, Bi-weekly management meetings to discuss budget
attributes with finance departments to identify areas in need of growth and to monitor efficiency
of budgetary allocations. This allows us to identify the company's status with budget and
enables timely adjustments and actions to reduce deviations from the budget.

2.3 Strategic Budgeting: Aligning Organizational Objectives, Financial Constraints, and

Accounting Conventions

Budget is a roadmap of complex organization which supports achieving organizational

objectives and targets with available funds by providing a structured framework that takes
accounting standards and budgetary restrictions into account (Banks and Giliberti, 2018) .This
framework guarantees that resources are allocated to important areas like growth initiatives,
innovation, operational efficiency, R&I, sustainability which directs to organizational
strategies and objectives. Budget is a all-departments collective output for the next financial
period and it provides provision to keep the business on track if there is any unexpected
deviation in a highly competitive and complex business environment. This provision is a must
thing of budgeting of a complex organization to keep going healthy.
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Task Three - Managing Proposal and Projects: A Case Study of Linea
Aqua
3.1 Criteria for Judging Proposal

The proposal to expand Linea Aqua's factory in Vietnam must be examined based on several
key factors. First, how well the project fits in with Linea Aqua's goals. The proposal should
demonstrate how expansion contributes to the company's long-term objectives. Based on the
projections below I have evaluated the investment. A detailed examination of the level of risk
is also necessary, as is a review of the potential solutions for risk mitigation. Finally demand
in competitor, supplier and revenue projections of the main customers based on this investment
is necessary.

Investment appraisal Result Decision criteria

methods
Discounted payback period 2 years 4 months
Net present value (NPV)
Internal rate of return
Profitability Index
Project payback period (2.4 years) <
cut off payback period (5 years).
Hence the project is accepted
$1,714,422,273 Since the NPV is positive this project
is accepted
46% Since the IRR 46%> discounted ratio
10% this project is accepted
1.71 Since PI> 1 this project can be
accepted

3.2 Viability Analysis of Expenditure Proposal

In assessing the proposal for expanding Linea Aqua's production plant in Vietnam, feasibility
of the project is a crucial factor besides investment appraisal methods.
Feasibility analysis: The project's feasibility includes resource availability, technical viability,
and operational practicality (Graham, Buffett and Zweig, 2013). Given Linea Aqua's
experience in the industry and its strategic positioning, coupled with the availability of cheap
labor in Vietnam and proximity to main suppliers, demonstrates strong feasibility.
• Discounted payback period- Based on the payback criteria the project is accepted with
result of 2 years and 4 months. Which is lower than company’s cut-off payback term,
5years.
• NPV- The NPV of the project suggests a positive return of 1,714,422,273 shows the
project’s acceptance.
• IRR- Despite a high IRR of 46%, which exceeds the discounted ratio of 10%, the project
is considered acceptable.
• PI Index- PI 1.71, indicates that the present value of future cash flows exceeds the initial
investment, the project is suitable for acceptance based on PI criteria.

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Considering these results alongside the feasibility analysis, it's evident that the proposal for
expanding Linea Aqua's production plant in Vietnam is not only financially viable but also
feasible in terms of resources and operations. The project’s attractiveness and its viability are
highlighted by its fitting with the company’s strategic objectives and the combination of good
financial indicators.
So, as the expansion project fits with Linea Aqua's strategic objectives and offers good returns
and operational viability, it is advised to move on with it.

3.3 Strengths, Weaknesses, and Financial Feedback

The proposal shows strengths such as access to cheap labor, proximity to main suppliers which
allow them to reduce overall production lead-time aligning with the company’s strategy.
However, weaknesses like the high cost associated with relocating technical staff and
executives, potential regulatory issues must be considered. Feedback has focused on optimizing
financial benefits, reducing risk and aligning projections with real market behavior and updated
data.

3.4 Analyse the viability of a proposal for expenditure

Review of the financial factors and project feasibility considerations are essential before
deciding if company’s proposal to expand its production unit in Vietnam is feasible.
Utilizing investment appraisal methods such as Discounted Payback Period, NPV, IRR, and PI
provides insights into the financial viability of the proposal. The positive NPV of
$1,714,422,273, discounted payback period of 2 years and 4 months, IRR of 46%, and PI of
1.71 collectively indicate favorable returns and financial attractiveness.
Besides to Finance factors assessing the feasibility of the project is also important. Human
resource availability, technical feasibility, and operational practicality must be considered. The
project is more feasible because of the company’s well-established position in the industry,
plus the accessibility to major suppliers and the availability of inexpensive labor.
Since the expansion project brings solid returns, operational viability, and strategic alignment,
it is advised to move forward with it to support the company’s ongoing growth.

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References

• Accelerating performance Dankotuwa world-class tableware annual report 2022/23

• Dankotuwa porcelain PLC annual report 2021/2022
• Smith, D. (2018). Performance Management for the 21st Century. Grosvenor House
Publishing.
• Nimalathasan Balasundaram (2012). Ratio analysis. Lap Lambert Academic Publ.
• Wright, M.G. (1975). What Management can Learn from Ratios. Managerial Finance,
1(1), pp.30–39. doi:https://doi.org/10.1108/eb013340.
• Tamplin, T. (2022). The Handy Financial Ratios Guide. True Tamplin.
• Banks, A. and Giliberti, J. (2018). Budgeting. North Ryde, N.S.W.: Mcgraw-Hill
Australia.
• Graham, B., Buffett, W.E. and Zweig, J. (2013). The intelligent investor : a book of
practical counsel. New York: Harper Collins.
• Chandran, D.R. (2018). Return on Investment (ROI) for Asset (Tools) Tracking.
Journal of Advanced Research in Embedded System, 05(03), pp.1–6.
doi:https://doi.org/10.24321/2395.3802.201801.

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Appendix

Statement of profit or loss 2022-2023

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Statement of Financial Position 2022-2023

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Statement of Cash flows 2022-2023

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Statement of Financial position 2021-2022

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Calculations

Profitability Formular Year 2023 Formular Year 2022

ratios

Gross profit (GP/ Sales) * 100 42.99% (1445551151/3362 39.33%

margin ratio 472253)*100

Operating Operating profit/ 23.12% (777348808/33624 19.26%

profit margin Sales 72253)*100

Net profit Net profit/ Sales 18.50% (622067443/33624 17.92%

margin 72253)*100

Return of Operating profit/ 14.67% (777348808/52999 10.31%

assests Total assests 65895)*100
(ROA)

Return of Operating profit/ 22.86% (777348808/34011 15.12%

fixed assests Non current 28920)*100
assests

Return on Net profit/Equity 17.41% (622067443/35736 14.02%

Equity (ROE) 82864)*100

Return on Operating profit/ 17.64% (777348808/44069 12.98%

capital Total capital 99848)*100
employee
ROCE

Liquidity
ratios
Current ratio Current Assets/ 2.13 times 1898836975/89296 1.55 times
Current Liabilities 6047

Quick ratios (Current Assets- 1.36 (1898836975- 0.98

Inventory)/ 688020455)/89296
Current Liabilities 6047

Es.

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Efficiency
ratio/ Asset
management

Inventory Cost of Goods 0.8 times 1916921102/(51188 0.73 times

turnover ratio Sold/average 4451+688020455)/2
inventory

Inventory Average inventory 114 days ((511884451+6880 126 days

holding days / (COGS * 365) 20455)/2)/(1916921
102/365)

Average (Average debtors/ 53 days (((500274270+7699 48 days

collection credit sales )*365 14367)/2)/3362472
days 253)*365
(Assumptions-
Total sales are on
credit sales)
Average (Average 25 days (((352,116,659+504 26 days
settlement creditors/ total 423560)/2)/191692
days credit purchases 1102)*365
)*365
(Assumptions-
Total purchases are
on credit sales)
Asset turnover Net Sales/ average 17.33% 3362472253/(44020 13.69%
total assests 50311+5299965895
)/2

Fixed asset Net sales/ average 26.26% 3362472253/(30016 20.02%

turnover fixed assests 06347+3401128920
)/2
Aa

Gearing
Ratio

Debt Total long term 16% 833316984/529996 11%

turnover debt/Total assest 5895

Debt to Total debt/ Total 1258% 892966047 2234%

Equity ratio equity /3573682864

Interest cover EBIT/ Interest 5 times 777348808/144339 7 times

cost 599

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Investor
Ratios
Price 5.36 times Directly got from 3.81 times
earnings ratio annual report
Stock price EPS * PE 20.53 5.36*3.83 9.91

Dividends Dividend/ Number 0 No dividends were 0

per share of shares declared to its share
holders

Dividend Total dividend/ 0 No dividends were 0

payout ratio Number of shares declared to its share
holders

Earning per Net profit/ 3.83 622067443/162552 2.60

share ratio Number of shares 920

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