News Paper Article for General Public

cc,X\o n f"JcrX 2-\ ocLo-bq. e-ora Gable recouer$ I 201 1 I FTnis week discusseswith wltal vdM re onstulmd Year 2007 2010 20tl 2008 2009 fieflon ln.Ih@rcli@lly, Professor.Dr. Kennedv D 1.61 1.53 t-63 1.38 I Curent Ratio 1.49 llmd Derfomil@ indi@toN? W.6 l/Gunawardana. Professorof A. Theoreticallyany company must have ,ccountingInformalionSystems and 2:1 as a current ratioto be consldoredas Chart I ;hairmanof Board of Management Studies good performanceindicalor.Thue, ACL Cable aculty of graduatestudies, Universityof Sri PLC has maintainedths thoorotlcalstandard. ayaward€inepura;Ceylon FT'in perspectlve' |e FinancialSiatement ofAssociated Cables ln . ilEt do6 the Qulck llallo Indl@16 about CunertAssetsovcrCunentLl&lll0es posltion? td (ACL Cables Plc) St.ACk quick This report is prepared on the basis of data A.For ratio, it should be 1:1as a €m,g|liAxris xtraded trom past five years financial .{,500,000,000 theoreticalstandard, thus @mpany has low€l iirtements ol 'ACL Cable PIC and data .1.000.000.000 -+-Ormdurlffrt than the standard level, but exceot 201 1 that btainedfrom comparativeanalysisdone on 3,500.000,m0 is somewhat close to tho standardl€vgt. alaniCables PLC'which is in the same - 3,000,000,000 Because oftrade and other payableswers 2,500.000.000 dustry. However Kalani Cable is one of the I very high amount in 201 1. ACL Cablo ltd ls i 2,000,000,000 ubsjdiary of ACL Cable Plc. unable to settle its trado croditorsby using its t t.500.000.000 Major findings obtained at the end ol u 1.000.000.000 liquidityassets (quick assets).Sometimes, Elysis ar€ for reade/s cansideralion. t 500.000.000 this mightface tiquidityprobtemsince the 0 trade creditors requirs lt to setiletheir amounti iquiditi Position of ACL Cable PLC 2007 2008 2009 2010 20fi immediatelyin future. Ther6fore, management of the company must focus on i It can be noticed that liquidity position of ynr liquidityof he company. HoweverACL cable CL cable PLC, namely cr:nent and quick PLC should pay to its group companresmore rtjo, over the past five years is less than than 50.96% of as its trade md other €oretical standardsas well as comoetitofs payables in 2011.ln lhis case, other trad€ Alani Cable PLC). Theretore it is suggested payable except group companiescan be lat management of ACL cable PLc should setlled by its equity easity. )rcentrate to increasethe liquidit of However the Above chart shows that )mpany. remarkablo hike oflhe inventoryin the year 201 1 becauss ot that quick ratio was away fficiency of ACL Cable PLC from iho standardlevel. Thgrsfore managementoI lhe company For efficienry, company is pedorming in Summary of Llquldlty Retlot should lry to g€nerate liquidityas wellas )me extent that invehtory,receivablesand ,redlrcB,lbOpufrentliabitities,r;, ;,,_.,),::.i ryableslumover ratio aro reasonable,when 'l 200R Yea r 2007 2071 2009 2010 / r't'/:. )mpared with that ol como€titorthat ACL Kala ACL Kala ACL Kala ACL Kalmi ACL Kala m[ b ACr placod*tro (mpired anagement ot ACL Cable PLC should |n.ilffi ni tot . wfih I mpefitq mpary in the ncenlrate to increasethe etficiencyot the industyf Curcnt I.61 1 . 5 3 1.99 r.4e 2 . 9 3 1 . 6 3 2.O8 1.38 ll )mpany, group as well. Curont ratio - Comparative Anatysis with Ratio same rival company In the industry rofitability of ACL Cable PLC l 5 o.7z U . J J 0.94 t . 5 6 0.97 1 3 8 0.92 2.03 0.90 t . Quick A. We csmpare the cunent ratjo of ACL RaIio Cabl€' with cupetitor'KalaniCable, which is (Notc PtC/KalmiPrc) In spite of lluctuationin profitabllityovor in the same industry.Vvhenclmpared the las r$ f{r'&ISr, Qompa$y,b;pelom?iqg.lyltfip gt fiVeyear perlormancg on clnenl ratb wrth ofitaply, rqth€rthaq€.gqp€tjtqry'9€s,,,.,. t, that Kalani Cabte subsldiarycompany ofACL C h a n 5 Cable, the performanceof ACL Cable plc. ls lv€rage of ACL Cable PLC in a poor status.Thersforo th€ conclusionis Invcntory Tumowr Ratio that ACL Cable lac€s a problomin liquidity.It The leverageratios of ACL Cable pLC are pLC the management of ACL Cabte faits to lativelyhigh. Although debt linarce is 2009 2010 2 0 1I Year 2007 2008 take actions to recovor from the liquidity reaperfinancingsource, company should problem, it should bo a greatestdsk to the )timizeits capital structure.Otheruise Tmover 3 .l E 2.11 2-39 3.Zl company. Therefore managemenlof the lders might demand equity of clmpany. company should try to generateliquidityas well as redue the curent liabilities. rluation of AGL Cable PLG Cfrai(6' . tthal wu tfto oftGd ot th€ qokr nrio h . mmpartEm of othon In fto ltrdustry? Oulck Ratio - ComparatlvsAnalysis with sams rival company In the industry A. Wlth regad to,qulckratlo,ACL Cabte 5.000.000.Q00 l.fvrVwrednmt|t|wmdthuH PLC shows a poor performanc€ over th€ ftu€ 1.500.000,000 I . mti6 used to rmbzo ACI_,simcLl years 1.000,000i(eo plc. as compafod wlth Kalanl cable fod ts t'|c 'sr 20lol11p -3.S00.000,000 Sinc€ lt has also liquldltyprobl€m In yea.2O1O Auquid asset is one that can bo quickty I --t-Co$atGoodsSold !s,m0.000.000 nverted to cash at the going market prbe. tnl and 201 1 and bonowed the mon€v from i2,500.000,000 banks and othor inslitutons. th6 trade her worlds, liquidity ratios m€asure the -+.ln{antou p,e0,000,0m -1.500.000,000 borowings wers high In 2011 padicularlymid rility of a tirm to meet its short-tem r,000,000,000 of th6 2010. This IndicatesthaiACL Cabl€ 'ligations(clrrent ljabilities)as and wnen 5@,000.m has a serious liqulditylssuo. It the ry fall due to payment. Three @mmonlv 0 management of AcL cable pLC faits to take ed liquidtyratiosare the cunent ratio quick actions to recover from tls llquldlty probtem, it io and cash flows from operation ratio. could place ttte company In a serious Current Ratio situation. Therefore management of the Cunent ratio is calculated by dividing company should gonorato llquldityand reduce nent assels by crnent liabilities.Thar the cunent liab[ities. )ans, this ratio compares the liquid asseb Fig 5 he business w_ith lhe short - lerm liabilities. do6 tho omdmcy ranor of ACLptc rrent assets normally include cash and a.l.$'llat Accounit . Indl€lc Raclvrble Tumover and Collectlon Perlod a,boutIhGomputyp ih equivalents,marketablesecurilies, W A. Efliciency ratios are employed to :ounts rec€ivable, and inventories. Cunent evaluate the efficiency with which the firm 2011 Ycar 2007 z00E 2009 2010 )ilittesclnsist ol accounts payable,shod manages and utilizesits assets-These ratios m notes payable, and other a@rued are also called activity atjos. ActMty ratios, )enses. umovcr Ralio 2.69 3.49 3.07 3.03 2.68 thus involve a relationshipbetween sales and )uick Ratio |his ratio is calculatedby deducting I/O Period t05 119 tzl Inventorylumovef ralio of ACL pLC entoriesfrom current assets and then rdd treno indicates the efltciency of the firm in producing idingthe remainderby cunent liabilities, frus,te can naticethe imProved DebtorsTumover and selling its producl. This ratio is indicative i ratio representsa more stringenttest of inventoryturnoverol lastlive years'The CollectionPsriod of the average length of time for which stock is in inventorylumoverridity. AgingSchedulsol debtors. , regularimprovement year2009 slored before it is sold. A high ratio indicates :ash Flow trom operations Raflo psriodtor Aieige setttement I ca-nue vieweofromyear2007to lhat the goods are sold tast and such values his ratio compares the operating cash creditorralio' I andthe suddenfallin inventorytumoverIn I are desirablefrom the point of view of liquidity, rs with the cunent liabilitiesof the Thisratiomoasurohowlong,on average, vear2010canbo sesnandthenthe :nysnlsrylurnoverhasIncreased. The a low ratio indicatesexcessiveinventorvlevel iiness. lt gives a further indicationabititvot the businesstakosto payitstradscreditors than waranted by productionand salej business to meet its maturingobligations. '' i reasontorfall in inventoryiumoverin year AssetsTurnoverRaiiowar) (cold activities. ol I zot o migtrtbe the boaktime This ratiomeasuresthetumoverof the wfial l|@ Ep interpretadon ot tho firmshouldmanageaftertinishingthe civllwar. The assets. lirm's enlire . I dm tho A@unts R@tvabtG to maximizesales' ; . @mnt mtio? Thereforeinventoryls turninginiosales its assetsefficientty ll.Wtat tl{ rTumovcr Rallo Indicale? . When analysisand interpretationoithe O* Ur6t*entorytum6 rapidly.ThereforeACLCablesLtdhasgood I al -wfr"t A lt is also called ,ave|ageColection rent Ratio of ACL Cabtes pLC,, we first however inventorymanagemont' I lol I inai*te onacl's sal6 perfoffi? Period'and used to appraise acrounts rpare last five years liquidityposition. shouldonsurethatstockout management I iiventoryTumoverRatio /hen we view the last five years regarding receivable,and it is calculatedby divlding i willnotoccurin company. i A. Theinventorytumovershowshow 'ent a@ounts receivablesby average daily cost of Etio, Company has been higher I rapidlythe inventoryis tuminginlosales. Eamings per share and dividend per share e tow. l) lv ^l Htrrelf hGACLmsgpd it8 mdilt Hwsdl isACLpl@d in tem of Nts Jl AccDuntsReceivablesTumoverand Ketani @blea' bg.in @mpili$rvith {. : T-otal Asst{un}over - ConiPararlve olledion Pedd l..ACL Cables PLC Companys account \nalysis with same rival comFanyin the . , , - - r . . . , . . , . ' . r , 4 . , c€ivable indicales the speed of their ldustrv tlrc1ion. The shorter averago collection A. According to above table KalaniCable. ,riod, the better the quality of debtors,since ,LC used the assetsefficientlyto generate shorter collection period implies the prompt iales better than ACL cable PLC, allhough ryment by debtors. (alani cable is a subsidiaryol ACL Cable >LC. Thus, the value of debtors' turnover of ACL rbles PLC Company has incrgased from While ACL Cable PLC producing 1.05 of 58 in 2010 to 2.69 in 201 1 and then the ;ales for one ruDeeof lnvestmentin total Iue of accounls receivable has decreased rssets. Kalani Cable PLC is producingiust m 3.49 in 2007 to 03.07 in year 2OOgto 1.31of sales for one rupee of Invsstment In )3 in 20@ to 2.68 in 2010. This impties that otal assets in year 2008. This situatlonhas )L Cabels PLC had more inefficient in ,one worst in 20'l 1 as 0.92 of sales for one rnag€rent ot credit from 2008 and lpee.of Investmentin total assets while 1.36 )reafler loosed lha position gradually till )t sales for on rupee of investmenlwas 10. lroducing by KalaniCable PLC. Thus, ACL Moreover, ACL PLC had Shorter Collectjon lable PLC is not using its assets efficientlyto lriod until 2009 and thereafler cdleclion Jeneftrtesales againsttheir competitorand dod has gradually increased by t5 days in Subsidiary. 10 and 2011 Whlmsuru m usdro m6rrc rho { implies that ACL PLC is suffering delayed ln tt.pmfiteblllty of ACl-t yment to be obtained. A. Two maior lypes of profitabilityratios are I {ccording to lhe c*rart no 7, exc€pt 2009 i calculatedi I colleclion days are g€dually increasing Profitabllltyin rslationto sales d il cannot be considered an efficient credit Profltabllityin relationto investmenl tmg€menL Tho tlrst profitabllityratio in relatlonto sates nventory Tumovsr and Periods is ths gross protit margin.The gross profit mpaEtive Analysis with same dval filargln roflectsthe efficiencywlth which rpany in the industry managom€nt produc€ each unit of product. ilhen we compare the efficiency of Lanka This ratlo Indicatesthe average spread ;L Cable PLC in handlingthe inventorywith betweon the cosl ot gciods sold and the sales I ol Kalani Cable PLC, which is the one of revenuo. ior competitorof ACL Cabte Ph. ihe A high gross margin ratio is a sign of good management.A gross margin ratio may rdusion is that KalaniCable is tuming increase dus to any of the tollowingfactors €ntories into sale rapidtythan ACL. The big (i) Highersales prices,€st ot goods sld terence betwgen tumover ratios of both remaining constants mpanies can be seen except the Year (ii) Lowercost of goods sold, sale prices 11. rehaining constant fherefore ACL Cable pedormanc-eis nor (iii) Combinationof vadalions in sales pricos od with regards handlinginventorios. and cost of the margin wideningand \ccounts Rgceivabl€sTumover and (iv) An increase in the proportionate 'llection Period volums ol hlgher margin itsms Senerallythe lpw6r the value ot creditors' A low gross profil margin mlght reftectB nover, it implies more efncientand white, higher cost of goods sold due to lhe firm's fhe bnger settlementperiod implies inabilltyto purchase raw matorialat favofabl€ npany d€lays to settle the credit. Although terms, In€tficiontutilizationof plant sqd elps to uplift the companys tiquidity machinsry or over investmeniln ptaftand ition, it mlght atfeci goodwitlwith supplies. \ccounis PayableTumover and Setilement l macfilnery which result in high€rcost of productlon. riod - Comparative Analysis with same rival npany In the industry \ccording to above table, Kalani Cabls pLC I ; the higher value ofcreditot"s tumover. s implies that lGlani Cabte PLC creditols 'lover more efficientlhan ACL Cable pLC. : is possible for Lanka Kalani Kabte pLC to I e the goodwill if company takes too many i .s to settle suppli€rs tlfr w dE Aets Tumrer pGshtonot I ,.thc @opary? L Ass€ts ars used to generate sales refore a tlrm should manage its assets :iently to maimize sales. he netassetstumoverof ACLimptiesthat companyis producing certainamountot ,s tor capitalemployedin netassets hus,ACLCablePLCwasproducing 2.36 alestor one rupeeof capilalemployedin assetsin year2007andthis is gradually reaslngovsrthsyearstjll2010.ln 2011 - CablePLCls prcducing 2.3Ssateslor rupeeofcapital€mployed in netassets. retore,ACLPLCagalnmanagesitsnet :trsefficientlyto rnaximlzothe salesin Jrtotalassetstumover,ACLCablepLC ,ucedthesaleBS.1.07foronerupee 'slmentintotalassetsin year2007,and hasdecreased 0.92timesin year20.l.1. reforeACLCablePLCdoesnotmanage rtalassetsetficiently to maximize the Netprofit Margin Qulck Ratio - Comparatlve Analysls wlth samc rlvol company ln the industry Year ACL Ka.lmi Cable 2007 o.94 1.56 2009 0.92 2008 0.97 1.38 t .r 5 lrs$ haf Fira( Aeidl.a ,rdlh diftarant dsrges H. s 8 r 5 ts , 9+' q; Reportinson Lonsrermsorvency in2010.Rotof Czol") ?fl'fcablo 1l,iotr:y ALL PLChasincreased Oebit- Equity by j.g9o/o, lr 200714 yole lhe highestROIou6rrnepaei A measursof a @mpany,s flnanctal ji^" I?^1r-.Thoroforecompanyhas eamod l:vera.g:td-e?rlequtty railoir oquatrotong_ Ine averago 3.26%returnsoninvostment termdobtdivldodby oommonihrfchord;rs' ov€rtlvoyoars. equlty.TyplcallythoOatatrOmttrCpriorfiscal yearls usodInths calouleilon, j:!,T.o: Investm.enrrcomparailve Invrrttngin a' ^ An€ry418 wllhsamerivalclmpanyIntis companywltha hlgtrordobuoqulty ratiJmav Inoudtry be riskler,eop€clally ln llmorof ddnginter;t rates,.due *th ROI to th€ of adoirbncttntcrul Katsnt Cablo tfratfrasio ^,1n91PI?1e rLU, Al.:LcablePLChastowsrBOIexcopi be paidoutforth€dobt.lt lalmportant to lor2007.1fterhal it ras notpeaormeJ realizethattfthoratlolao,rietd tha; i;;e riit ur zul o. tsutoverlast5 KatanlcablepLc maiodtyof assetsareilnanoedthroughdebtconslsllng thesamawithsmaflchangol; f it is smallerthan.1,asrotBaropdmarily 2010. financedthroughsqulty. Returnon Equity . B?ollolill.,'",,"o,"aroswharpfoportionor R6rum onequity plcha,,n.1*?j.T$ff:t"l?,1ji,1"l.lilll,?iXT orAcLcabre ,*" grsater ROE 31% in 2007 and howevef company along with th€ potcnilal rlsis the had oecreas€d to 7ol"in 2005. The lowost ROE ol cgmpany faces in terms of lh dobt.load. ACLCab|ePLC wasr€ported in2o1o Adebtratioofgreatertha,lt Indicatesthat neleaner it had improvod in eaming the a compmy has more dgbl thrn assets, retum for equity dharoholdersby O.;o/o and. .' meanwhile, a debt ratio ot to68than 1 . . t ne average ROE ovsr flvo years might Indicales that a company has morq assets b€ i 6.91%. than debt. Used in conjunctionwith o't-h-ei i -ComparativeAnafvsis measures ot financial heatth,the debt on Equity: ratio _Fl€tum I wlh same_rivalclmpany In ths industrf I calr help investors determine a companfs level of risk. . _KalaniCablo PLC had hlgher ROEihan AUL Cabte pLC. For that perlod whilo AcL 2olorespecilvoty.rhe.srarersearsal:;;ff:iT,:ffii1i,:;t"i# ot soluentywouil_oolrgner CabtepLC,lt hasouncntratiois -cearingiattoAcrcabreptctrasconvenflonar rurs.Hor.,wecanc t.St timeiinyearZOtL ACLCablepLCshouldpaytolts ., GearingRutio,_compur"ttuu Ar companles morelhin 70%o, ltsr samerivalcompanyln rho.rndustrl p"vloi"..il*a"se oth"l or that, ee"ri"g"r"tiJoJ;cL-cabrop-Lcsurvrve ovorthetiveyearsevenil f'- tt'"t iii.i"nr C"or€plc, Thi insutflctont flquidandfacesshorr nCL CaOfepiCtrai tnelex at colr sotvencv. ' Iff1ff,il:Ti,:X.ixi$ll,?,li5 q;i.*r*,,,. This ratio shows the raw earring power of the company's asssts, before the in{kJenceof taxes and lavorage,and it is useful for c..^ 201 0.72 0.33 Chart4 Net-profil marginratioestabllshes a relationship betweennetprofitandsalesand indicates management's etficiency in manufacturing, administration andsellingthe cableplcrrarr",oirI,--i;i""oo.t-production. Thisratiols theoverallmeasureof rsspeclive in year2068,2009, aolOand2ol 1, lhe firm'sabilityto turneachrupeesalesinto KaranlcabtepLchad10%,6%'1C./",8% netprofit.lf lhe netmarginis inadequate, the fe8poc'tivemoreovsrROEof bothcfipanyis" firmwill lail to achiev€satisfactoryretumon ahoEt similarin 2008,tGtantcautepic tra6 sharoholders funds. graalestRoE in 2008ovorlastllv€ysars. summaryot profitabilvRatro Thebasicearningpowerratio (Note:- AcL' AcL cabiePLc/ lGlaniKalaniCablopLc.) _-_-^-.. 2010 0.90 greater in ACL Cable pLC. Of IntereSt COVef GqmfiAs$ts ltnus InrrcntoryOvotcutrant llrblltths +CwmlAssrts :+lwe.lu} .. Aflmrthbiffcs view rh",n,","., -rh€nwe "ouo,Llili,l,X'r1lJ:Sl,1;"131" pastllveyears,. interestpaymonlhon curontassetsis moreha-n6Oy gradually.ButIntoro0t(8ooworkings). At thesametima./ .oecroaslng y€ar2010wasveryhighand as 5 iPLCshouldpaymoreth an7)o/.ol nrgrestcoverratiowasvgrylow(Tpayables forgroupcompanies. AC canpayInterest28 timeslromeanCabtepLC suffersfromshortaqeot iT"j_"."tclverags railo Particulartyit sutferedfrom str6nag ,:1-"::i1:tf ncreased-to 1.2timesin 201I bgcllnyear2007.Inorderto recoverlro oecreasein interestpaidandIngl6;insufficient tundsandto raisefundb eamtngsCablepLCshouldissuesharc Interest.Cover - Comparaflve Ar WecannoticethatACt_CaOtep_ samerivalcompanyin theIndustryinsufficient fundswhencomoafodh Forrntereslc€ver,KalanlcablolcablepLc whichis considered as s . ravorable positionratherthanACL organization in sameindustry. rLU. HOWEVET. Hwwutdyou gliwannal sa ln nnilciat pertomee' \;.ACL's Current ratio - Compantive Arsl'sis with same rival compatry itr the industry Oulckrailot:1 ls considered sat aga conventlonal rule.In orderto r A. similar when making compara analysis, I taced some complicated which are described under headino limitattbnand assumption. Finally, this is my obligation to re\ findings to the stakeholdefs. j umma4yof Liquidity Ratios 9ar 2007 . ACL Kala 200E ACL llat n unenl 1.61 z.J> 0.94 l.Jt 2009 ACL Kala z0t0 ACL Kalani 20 ACL Kala ni il 1 . 5 3 1 . 9 9 1.49 2.93 1 . 6 3 2.08 1.38 2.11 1 . 3 8 0.92 2.03 0.90 o.72 0.33 0.97 1.1) almi Cables PLC) PLC / Kalmi - Kalmi ig5 GearingRatio ncial leverages. turn onEquity IOE measuresthe profilabilityin relationto ROEindicates how rl shareholders'finds: ll the companyhas usedthe resourcesof ofthe ners.Theretumon owners'equity npanyshouldbecomparedwithlhe ratios andtheindustry othersimilarcompanies rrage.Thiswillrevealtherelative tomanceandstrengthot thecompanyin investnents. actingt|Jture General tem descnung a fimial ratio that compares soms form oi owneis equity (or €pital) to botrowed tunds. Gearing is a measure of financlalleverage,demonstrating the degree to whlch a firm's activiliesare funded by ownefs funds versus creditofs tunds. Thehigher a companys degree of leverage, thgmorethecompanyis considsred rlsky.As formostratios,an acceptablo l€v6lis determined by its comparlson to ratiosof companies inthe sameindustry. Thebest-known examples of rturnonInvestment /Assets gearingratiosincludethedebt-to-equity Etio (totaldebt/toial equM, timesinteresteamed measureof business (EBIT/totalinter€st), iOA is a fundamental equityEtio (equity/ the tormarrce. Thisratiolndicates assets),anddebtratio(totaldebt/ total rtionshipbetweenthenetprofitgenerated assets). thebusiness andtheassetsownedbv A companywithhighgearing(high itness. loverage) ls morevulnerable to dowmumsIn the businessqale b€causethecompany lalysisandInterpretation mustcontinusto s€Mce itsdebtregardl€ssof howbadsalesars.A greaterproportionot )ros profit Margin equityprovidesa dJshionandis seenas a measureof fnancialstrength iross profit margin of ACL Cabl6PLC.was % i^ year 2@7 and it has lallen to 06% and L in yea( 200hnd 2009 respsc'tively. mpany faced a signifcanl fall In gross profit rgin on year 2010. Howevsr, clmpany uld have recovered from greater drop in 6s profit margin in yeat 201 1 and it was 'oand it has achieved 20% gross profit rgin in 2007 and afler that it has gone down stically. Whersas sales growttr rate of ACL 6le PLC was 10% in year 2007/2008 gross ,fitmargin had decrease by 18% (067d. ? reasons lor this are increased cost of duction ard cost of materials vhile the sales growth rate in 2005 was %, gross profit margin had tallen to 06%. rt means gross profit margin had lallen by % when compare with previousyear(20%). iross proft Margin - Comparativo Analysis h a rival company in ths industry Vhen clmpared with grogs prolit margin of L Cable PLC with Kalanl Cable PLC' L Cabls PLC has lower gross Prolit rgin ovor the five years. Therefore, .nagement should identity whers they nt to mako cost reduction and gross rfit margin has decreased bscause ol reased In cost of sale. Even if sales )ws the grorvth. Kalani Cable PLC has croximately consistent, gross protit rrgin ov€r tive years. fhus, ACL Cable PLC is sutleing lower ,ss profit margin than Kalani Cable PLC' et'profitmargin {et profit margin of ACL Cable PLC had en decreasingfrom 13% to 0.165% tween periods ol 2007 to 20 11. At the me time, cost ol sales was high in that riod. lt implies thal cost of produclion and fl material prices were high and because that, net profit margin was decreasing. Net profit margin - Comparative Analysis th same rivalcompany in the industry For net profit margin,ACL Cable PLC rd oerformed well in 2008 and Kalani ible PLC relativelyand had gone to drop net profit margin in 2009 and 2010 was e worst year. In the same position of rlani Cable PLC, but lower than ACL rble PLC and bigger ditferencebetween ld has increasedslightly net profit margin 201 1 getting the recovery ot the serious tuation. Although Kalani Cable PLC has been )od position for gross profit margin, it has )en low in net profit margin. The Analysis andInterpretation Debt-Equity ACL Cable PLC lenders have contributed more.fundsthan omers- The qhtibution of lenders is 1.21 times of the contdbutionof owners in 2007. lt was 1.13times in 20O8;it had slightlyfallen in 2009 and was 0.99 times. Debt equity ratio has b€€n increased agajn in 201 1 up to 1.55 it was th€ highest.And 2010 and 201 1 relativelylenders have contributed more funds than ownsrs and it is 1.16times ol owners' contributionin 2010 And 1.55 times for 2011. High debt equity ratio means that claims of creditors are greaterthan those of owners; high{evel debt introducesinflexibilityin the firm's operations due to the incr€asinginlerferenceand pressure from creditors. Debt- Equity:-Comparatlve Analysls with samerivalcsmpanyin theIndustry Whencomparewithdobt-equlty ratioot KalaniCablePLC, debt oquityratiosof ACL CablePLCls greater.Becaussot this,ths interterencs andpressure of creditors on managomant mlghtbe greatenACLpLCis at riskin rsspeclot solvencyratherthanKalanl CablePLC. GearingRatio Chart26 Long debt on capital employedwas t.O9 times in 2007 and had reduced up to 1.03 ,0.94 and 0.95 times in year 2008 , 2009and Efficiency:ACL Cable PLC is not efficient ir management and it is less €fficienl management and in settlementto I when compared with rival compan Cable PLC Because of it, ACL Cal has liquidity problem. Should utillz more efficiently. Profitabitityr Retumfor equityshareholdors KalaniCablePLC.Forgrossprofll andnetprotitmarginlheyshowst andarehighIn KalaniCablePLC in ACLCablePLC. Solvency:ACL Cable PLC has higher gea relativelyas per result of long tem ratios. Tn-.emain prosperitieshav( MarketBased:Eaming Per'share and dividen( are low. Finally,wd have to suggest th€ where manaoement musl concel improve the Performance.Thus, is liquidity.Management has to t( to increase liquidity.Specilicaltyi be taken to collecl the moneylro soon as reasonably and to delay payments to trade creditors as Pl lerms. Second one ls long term solve imoortant fo'rcontrol of sharehok company. Slnce d€bt finance is I equity, lond€rs mlght have deme and role In management in furlhl company has lo avold lt' it shoull equity to finance lhe Investment AssumPtions and Umitations Assumptions Revenue given in financialsta regarded as credit rsvsnue fortl ol account receivables. Credit Purchases are derived sales plus ctosing tinlshed good opening tinished goods as the d purchases are not given in linar statement. Market Value of GrouP of ACI is assumed as market value of I LC, because maket priii 6i6ioup ofACL LC instead of Kalani Cable PLC is givsn in lancial statement. In orderto calculato interest csver, the terest paid is only derived from finance cost imitationof RatioAnalysis Whenwe madethefinancialanalysisof CLCablePLC,facedsomelimitaticins in itainingthedetrailed information from Encial satementrslimilationsare: Whencalculatingefficiencyratios, articularlyaccountreceivablesfumover,we tn not derivethe detailsof creditsalesfrom tncial statements.Thusthe inlormationon urchasegcan not be obtainedfromfinancial htements. Forprotitabllityratio,thodet?ilsof costof quityand WACCcan not be obtained. hereforowe fac€dtheoroblemin nerpreting tho ROIandROE. Marl(stprlc€.ofshareof groupof ACL abl6 PLCwasglvenin annualreports(only yrs). Pracdcallywe havedifficultiesto obtain dustrial averagelor the comparison ecauseKalaniCableis oneof the b€st ompaniesbutil is a subsldiary ot ACLCabL ,LC. : Difficulty in Gomparisons Onssedouslimitation of ratloanalysis risesout of th6 diffic,uttyassoclatedwiih leir clmparlsonto drawinfetsnces. One .. ,c+rnique lhat is emdoyedls Induslry omparison. Butsuchcomparisons are itialledby dilferentproceduresadoptedby ariousfirms.The ditferentmayrelateto: Differenc€s in thebasicot inventory aluation( ie. Lastin Urstout,firstin fiistout, .veragecosl) Ditferentdepreciationmethod(i.estraight ne vs acceleratedbasic) Estimated workinglifeof assets, 'articularfy of plantandequlpment Amortization of intangible assotslike podwill,patentsandso on: Arnortizationof deferredrevenue xpendituresuchas preliminary bxpenditurc nd discountin issue.ofshares; Capitalization ot lease; Treatmentof erlraordinaryitemsof incofi)e nd expenditurg; andso on. Sscudly, aparlfromdifferentaccounting rrocedures, companies mayhavedit{erence periods,implyingdifterence rccounting inth€ cunent 4mpositionofthe assets,particularly Fsels.Fortherereasonsthe ratiosof two irmsmaynotbestricttycomparable. Anotherbasicot comparison is theindustry rverage. Thispresupposes theavailability on t'oomprehensivescale ofvariousiatiostor-: ll, )achidduStry oi'tidrei. Eioupwer a peirioO Impactof inflation Themajorlimitation of the ratioanalysisas a toolof linancialanalysisis associated with pricelevdlchanges.ThisInfac1,ls a weakness of thetraditional llnanclal statements whicharebasodon hlltorlcal cost.Theoneimptication ofthls teqtureofthe financialstatements as regatdifalioanalysis is thatassetsacquiredat dltt6r0ntDorlods ar€i,in ettect,shownat OitferontpribeeInttre balanc€sheet,as theyar6notidjulted for changesin thepricelevel.As a fogult,ratio analysis willnotyieldstrictlycomparabl€ and, lherefore, dependable results.To lllustrate, here,aretwoflrmswhichhavoldonilcaltates ]f refumon inv€stment, say 1S%,Butoneif lhesehadacqukeditsfixedassotswnen ,ric€swererelatively lowwhil6theother'one 1adpurchased ihemwhenpriceswerehigh. fhe rcsultwillbethatthebookvalueoftho ixedassetsof ths formertypeof firmwouh )e lower,whilethatof thelatterhigher,From ne pointot protitablllty the retumon nvestment of thefirmwithlowerbookvalue i rreover-stated.Obviously, identicalrates, f retumon investment arenotequal xofitability of thetwotirms.Thisis a limitaflon t ratios. Donceptual Diversity Yel anotherfactorwhichaffectstne tsefulness of ratiosis thatlhereis differcnce )f opinionregaroingthevariousconcoptg rsedto computetho ratios.As shown rlready,therels Bcopefor diversltyof. pinionas to whalconstitutes sharehold6r8' quity,dobt,assots,and profitsandso on. )lfteront tlrmemayus6thesotermsin lltfsrents€nsgsor thg6amslirm mayuse lem to msandlflerent thlngstimes. Reliancoon a singleratlofor a paricular urposomaynotb€ a concluslvo,indicator, ;orinstance,lhe cunenlratioaloneis not an .dequate measureof short-tefmtinancial trength;it shouldbe supplemented by tho cidtest ratio,debtor'sturnov€rratioand rventorytum ovgrratioto havsa real rsightintothe liquidityasp€ct. Finally,ratiosareonlya post-mortem of ,halhashappenedbstwgentwo balance heotdates.Foronethingthe positionin the ferim periodis not revealedby theratio nalysis.Moreover,theyglvono cluelo the nurc. .In brief,ratioanalysissuffgrsfromsenous nitations.Theanalystshouldnotbecaded wayby itsoverSlmpllfied naturg,€asy lmputationwitha highdegreeot precislon. he reliability andsigrtlflcancs attachedto rtioswilllargelydependuponthe qualityof rta whichtheyarebasod.Theyaregood i lhe dataitself.Nevertheless, theyarean lportanttoolpf financialanalysis.