Beruflich Dokumente
Kultur Dokumente
MSP9409
Reg#317134789
Executive Summary
Namunugala Plantations PLC, The Principal business activities of the Company are the
cultivation,manufacture and sale of Tea, Rubber, Coconut Oil, Palm ,Cinnamon and other
minor crops. In addition to the estate crops the Company also purchases Green Leaf and
Latex from smallholders. NPLC summary of FY2017/18 total equity is 2587086000/=, total
asset value is 4462602000/=, total liability is 1875516000/=, Liability was decresed by
29539000/= in 2018 compared to 2017, at the mean time total assets also increased by
321008000/=, one of the significant part is value of biological assets, which is company's
major production for the business. This is sort of good sign of improvement of productivity of
the company. in the non-current liability interest bearing loans and borrowings were reduced,
no change is deferred income, however differed tax liability was increased significantly. In
the area of current liability interest bearing loans and borrowings was increased significantly
from 2017 to 2018. In stakeholder point of view company doesn't provide much value only
1.06/= per share. Based on the study and ratio analysis company show weakness in many
areas, in the last five year 2013 – 2018, two year are not goo d for the shareholder, company
have not paid any dividend in 2014/15 & 2015/16.
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Background of the company
The company selected for the analysis is Namunugala Plantations PLC, The Principal
business activities of the Company are the cultivation,manufacture and sale of Tea, Rubber,
Coconut Oil, Palm ,Cinnamon and other minor crops.
In addition to the estate crops the Company also purchases Green Leaf and Latex from
smallholders.
In Namunugala PLC business model, plant and manufacturing involve a particular way of
defining what the product and how it is produced. In terms of the value chain, this concerns
technology development, procurement, inbound logistics, operations and procurement. In the
business model, sales involve a particular way of selling or diffusing a product. In terms of
the value chain, this concerns outbound logistics, marketing and sales and service.
The annual report 2017-18 was selected for this study. Page number 121 – 137 consist the
relevant information pertaining to this assignment. Components of company’s financial
statements are identified as below:
1. Financial Calendar
2. Annual Report of the Board of Directors
3. Statement of Directors’ Responsibility
4. Independent Auditors’ Report
5. Statement of Profit or Loss
6. Statement of Comprehensive Income
7. Statement of Financial Position
8. Statement of Change in equity
9. Statement of Cash Flows
10. Notes to the Financial Statements
Now as per the task#01 requirement, explanation of the nature and type of information
conveyed through each of these components are presented below:
1. Financial Calendar
Financial calendar also called as Fiscal year. A fiscal year (FY) is a period that a company or
government uses for accounting purposes and preparing financial statements. A fiscal year
may not be the same as a calendar year, and for tax purposes, the Internal Revenue Service
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(IRS) allows companies to be either calendar-year taxpayers or fiscal-year taxpayers. Fiscal
years are commonly referred to when discussing budgets and are often a convenient period to
reference when comparing a government's or a company's financial performance over time.
Namunugala PLC is having the fiscal year April to March for tax and financial report
preparation. Addition to this they have annual real calendar dates for Annual General
Meeting (AGM) calendar, Interim Financial Statements calendar, Dividend calendar. These
additional dates are to convince the shareholders and provide transparent information.
This part extensively deals with detail view of the company status by their board of directors.
This is consisting 18 sections of their business and its status update. Which include all
financial status of business and the reason for the decisions, etc.
Director board consist six directors. Out of six 02 are the only executive directors, others are
non-executive directors. Again three of them are independent and three are non-independent
Directors.
For Namunugalla plantations PLC E&Y Charted Accountants are the auditors. This statement
consist Opinion, basis of opinion, Key audit matters, Responsibilities of management and
Those Charged with Governance for the financial statements, Auditor’s responsibilities for
the audit of the Financial statements, Report on other legal and regulatory requirements are
highlighted by charted accountants .
Namunuala PLC reported for the year ended 31 March 2018, also comparison with 2017 also
provided.
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5. Statement of comprehensive income
Part of the financial report detailing the change in a company's net assets during a specific
period of time. A statement of comprehensive income differs from a typical income
statement, which details profits and losses, but may omit changes in net assets due to transfer
of equity holdings, change of ownership, or other factors. Comprehensive income provides a
holistic view of a company's income not fully captured on the income statement.
This is one of the main financial statements and it explains companies’ assets, liabilities, and
the difference in their totals. The amounts reported on the statement of financial position are
the amounts as of the final moment of an accounting period.
The structure of the statement of financial position is similar to the basic accounting equation.
For instance, a company will report amounts in the following format: Assets = Liabilities +
Stockholders' Equity.
The statement of financial position must reflect the basic accounting principles and guidelines
such as the cost, matching, and full disclosure principle. Accordingly, the statement of
financial position is more meaningful when it is prepared under the accrual method of
accounting.
Statement of Changes in Equity, also called as Statement of Retained Earnings, details the
change in owners' equity over an accounting period by presenting the movement in reserves
comprising the shareholders' equity.
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7. Statement of Cash Flows
A cash flow statement is a financial statement that provides aggregate data regarding all cash
inflows a company receives from its ongoing operations and external investment sources, as
well as all cash outflows that pay for business activities and investments during a given
period.
NPLC summury of total equity is 2587086000/=, total asset value is 4462602000/=, total
liability is 1875516000/=, Liability was decresed by 29539000/= in 2018 compared to 2017,
at the mean time total assets also increased by 321008000/=, one of the significant part is
value of biological assets, which is company's major production for the business. This is sort
of good sign of improvement of productivity of the company. in the non-current liability
interest bearing loans and borrowings were reduced, no change is deferred income, however
differed tax liability was increased significantly. In the area of current liability interest
bearing loans and borrowings was increased significantly from 2017 to 2018. in stakeholder
point of view company doesn't provide much value only 1.06/= per share.
to be a succesfull finance and profit earning company it have four elements cast investments,
financial operating resources, cash flow management, budgeting.
This balance sheet shows the indication business is taking more cast from loans to manage its
cash flow, then most of the cash in this business is liability not as an current asset. Cash and
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Cash Equivalents as current asset is 36,929000/=, Interest bearing loan and borrowings are
67,226000/=. Also retirement benefit obligation is very high in both years. this indicate
business in not earning profit however overhead staff cost is increasing every year.
companies cash flow depend on loans and borrowing, which will increase the liability
companies liability in retirement benefit obligations also high,
in current assets category inventory is high, this is really not liquid cash, products in
stores,
Ratio Analysis:
When we look at the quick ratio, says that the company has enough cash and liquid assets to
cover its short-term debt obligations. quick ratio of Namunugala plantation is 0.28, in
financially healthy organisation it must be more than 01, thus it is obvious Namunugala PLC
don't have enough current assets to pay their short term debts.
If we use the current ratio, which is current assets divided by current liabilities, The current
ratio, which is also known as the liquidity ratio, tells us whether or not a company can pay
back its short-term liabilities with its short-term assets. A ratio of less than 1 suggests that a
company cannot currently meet its obligations with its current liquidity. That doesn't
necessarily mean the company is heading toward bankruptcy, but it does mean the company
needs to tap other sources of liquidity to meet its current obligations. Current ratio of
Namunugala PLC is 0.70. thus Namunugala PLC is weak to meet its current obligation.
To look further deeper, we will use the debt ratio and the debt-to-equity ratio. The debt ratio
is simply total debt divided by total assets. A debt ratio of less than 1 tells us the company has
more assets than debt, so the lower the ratio, the stronger the balance sheet. Debt ratio of
Namunugala plantation is 0.42, which is weak position.
if we calculate the debt equity ratio, which measures the company's financial leverage. It is
calculated by dividing liabilities by shareholder equity. Here again, a higher debt-to-equity
ratio is a sign of a weaker balance sheet. That said, there is no line in the sand to say that a
ratio above 1, for Namunugala Plantation PLC this ratio is 0.72, this must be less value,
then this is actually weak balance sheet.
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B. Discuss how four major decisions in finance are reflected through financial
statements
The income statement shows how much profit a company has earned during a
given period. The format includes a gross profit calculation, followed by an
operating income section. This produces operating income. Non-operating
income or losses, including one-time or special sources of revenue or expense,
are then added to derive net income.
The statement of cash flows also reveals useful information when making
investment decisions. It shows the net change in the company's cash position
during a given period. In general, stable or growing cash flow means the
company can cover its short-term debt payments and expenses, while also
keeping up with any long-term debt obligations.
The statement of owners' equity isolates the equity section of the balance
sheet. Its primary purpose is to show the trend in retained earnings for the
company. Retained earnings are accumulated profits not paid out in dividends.
This is useful in investment decisions because higher retained earnings relative
to dividends means you get less dividend income.
Cash flow position: Cash flow is the regular day-to-day earnings of the company.
Good or bad cash flow position gives confidence or discourages the investors to
invest funds in the company.
Control: In the situation where existing investors need to hold control of the
business then finance can be raised through borrowing money, however, when
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they are prepared for diluting control of the business, equity can be utilized for
raising funds. How much control to give up is one of the main financing decisions.
Condition of the market: The condition of the market matter a lot for the financing
decisions. During boom period issue of equity is in majority but during a
depression, a firm will have to use debt. These decisions are an important part of
financing decisions.
Discuss the extent to which a company’s statement of cash flow may be more useful and
reliable than its statement of comprehensive income.
The cash flow statement measures the sources of a company's cash and its uses of cash over a
specific time period.
The comprehensive income statement measures a company's financial performance, such as
revenues, expenses, profits or losses over a specific time period.
A cash flow statement shows exactly how much money a company has received and how
much it has spent, over a period of one year it captures the current operating results and
changes on the balance sheet, such as increases or decreases in accounts receivable or
accounts payable, and does not include noncash accounting items such as depreciation and
amortization. The cash flow generally comes from revenue received as a result of business
activity, but it may be augmented by funds available as a result of credit. A cash flow
statement is used to determine the short-term viability and liquidity of a company,
specifically how well it is positioned to pay its bills and vendors.
The cash flow statement is linked to the income statement by net profit or net loss. The profit
or loss on the income statement then is used to calculate cash flow from operations. This is
referred to as the indirect method. Another technique, called the direct method, can also be
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used to prepare the cash flow statement: In this case, the money received is subtracted from
the money spent to calculate net cash flow.
Discuss the difference between the statement of profit or loss and statement of cash
flow.
Meaning The income statement is a part of The cash flow statement is a part of
financial statement which is used to financial statement which is used to
show the revenues, gains, expenses reflect the inflows and outflows of
and losses for a particular accounting cash for a particular accounting
period. period.
Objective To know the profitability and owner's To ascertain the liquidity and
equity. solvency of business.
Preparation On the basis of various records and On the basis of income statement and
ledger accounts. balance sheet.
Source: keydifferences.com
Income Statement reflects the net profit or loss from the business activities for a particular
accounting period. On the other hand, cash flow statement keeps a record of overall changes
in the cash and cash equivalents of the business organization during a particular financial
year.
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4. Ensuring timely payment of expenses and debts and
5. Very importantly – ensuring a level of regular business income without relying on
outside investment or cash borrowing.
Effectively managing and monitoring cash flows serves many purposes. The most significant
reason is to provide owners and managers insight into the company’s cash position. This
knowledge better equips management to make informed decisions about regular business
operations, the need for further investment in the business, and capital from equity or debt
partners.
Task – 02
Price Ratios
the price-to-earnings ratio as the price you'll pay for Rs.1 of earnings. A very, very general
rule of thumb is that shares trading at a "low" P/E are a value, though the definition of "low"
varies from industry to industry.
In 2017/18 Namunukala PLC this is 4.3, this is high value than normal rule.\
Dividend Yield
Dividends are the main way companies return money to their shareholders. If a company
pays a dividend, it will be listed on the balance sheet, right above the bottom line. Dividend
yield is used to compare different dividend-paying stocks. Some people prefer to invest in
companies with a steady dividend, even if the dividend yield is low, while others prefer to
invest in stocks with a high dividend yield.
Profitability Ratios
A company buys assets (factories, equipment, etc.) in order to conduct its business. ROA tells
you how good the company is at using its assets to make money. With ROA, higher is better.
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In 2017/18 Namunukala PLC ROA is 0.084, this is very low.
Equity is another word for ownership. ROE tells you how good a company is at rewarding its
shareholders for their investment. As with ROA, higher is better.
Profit Margin
Profit margin calculates how much of a company's total sales flow through to the bottom line.
As we can probably tell, higher profits are better for shareholders, as is a high (and/or
increasing) profit margin.
Liquidity Ratios
Current Ratio
The current ratio measures a company's ability to pay its short-term liabilities with its short-
term assets. If the ratio is over 1.0, the company has more short-term assets than short-term
debts. But if the current ratio is less than 1.0, the opposite is true and the company could be
vulnerable to unexpected bumps in the economy or business climate.
In 2017/18 Namunukala PLC current ratio is 0.71, this is very low, it mean company could be
vulnerable to unexpected bumps in the economy or business climate.
Quick Ratio
The quick ratio (also known as the acid-test ratio) is similar to the quick ratio in that it's a
measure of how well a company can meet its short-term financial liabilities. However, it
takes the concept one step further. The quick ratio backs out inventory because it assumes
that selling inventory would take several weeks or months. The quick ratio only takes into
account those assets that could be used to pay short-term debts today.
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Debt Ratios
These ratios concentrate on the long-term health of a business, particularly the effect of the
capital and finance structure on the business:
Total liabilities and total shareholder equity are both found on the balance sheet. The debt-to-
equity ratio measures the relationship between the amount of capital that has been borrowed
(i.e. debt) and the amount of capital contributed by shareholders (i.e. equity). Generally
speaking, as a company's debt-to-equity ratio increases, it becomes more risky because if it
becomes unable to meet its debt obligations, it will be forced into bankruptcy.
In 2017/18 Namunukala PLC debt to equity ratio is 0.27. this is seems to be good.
Efficiency Ratios
These ratios give investors insight into how efficiently a business is employing resources
invested in fixed assets and working capital. It's can also be a reflection of how effective a
company's management is.
The asset turnover ratio tells you how good the company is at using its assets to make
products to sell.
If the company you're analyzing holds has inventory, you want that company to be selling it
as fast as possible, not stockpiling it. The inventory turnover ratio measures this efficiency in
cycling inventory. By dividing costs of goods sold (COGS) by the average amount of
inventory the company held during the period, you can discern how fast the company has to
replenish its shelves. Generally, a high inventory turnover ratio indicates that the firm is
selling inventory (thereby having to spend money to make new inventory) relatively quickly.
In 2017/18 Namunukala PLC IRT is 7.80 which is high it indicate company sell inventory
relatedly quickly.
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Five year Ratio Analysis is presented below:
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Conclusion
Based on the study and ratio analysis company show weakness in many areas, in the last five
year 2013 – 2018, two year are not goo d for the shareholder, company have not paid any
dividend in 2014/15 & 2015/16.
References:
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