ACL Cables financed more by debt than equity
By M Rishar M Saleem
ACL Cables Plc is more debt-financed than equity. Though the ratio has shown a marginal decline in the recent financial year, generally over 50% of its operations are financed by debt. The earnings per share of ACL Cables improved significantly during the recent years, mainly due to the increase in profitability, Prof. Kennedy D.Gunawardana Professor of Accounting Information Systems of Faculty of Graduate Studies and Coordinator PhD programme, University of Sri Jayawardenepura observed after analysis of the financial statements of ACL Cables Plc.
ACL Cables PLC is one of the largest manufacturers of cables in Sri Lanka. Having pioneered the industry in 1962, today ACL has grown and holds a 70% share of the cable market in Sri Lanka. ACL is the most sought after brand of cables in Sri Lanka, having supplied 80% of the requirements of duty free projects involving overseas investors approved by the Board of Investment, despite the presence of many competing, foreign brands of cables. ACL has already exported cables to projects and electricity distribution authorities in Bangladesh, the Maldives, the UK and Tanzania.
The study is focused on five financial years commencing from 2011/2012 - 2015/2016. The accounting information /data was analyzed using horizontal and vertical analysis methods. Four types of accounting ratios were also used to analyze the performance of the Company during the aforesaid financial period. Types of ratios are namely, Profitability Ratios, Liquidity Ratios, Solvency Ratios and Stock Market Ratios.
Considering the liquidity ratios of the Company, ACL Cables is in a satisfactory position to meet its obligations. However, one of the major drawbacks of the Company is that its collection period is fairly long, ranging four to five months, Professor Kennedy observed.
ACL Cables Plc is more debt-financed than equity. Though the ratio has shown a marginal decline in the most recent financial year, generally over 50% of its operations are financed by debt. The earnings per share of ACL Cables improved significantly during recent years mainly due to the increase in profitability, he further observed.
The performance of the Company is expected to improve in the next few years, considering the major projects the government and private sector have undertaken recently. The Megapolis and proposed housing schemes for low and middle income earners would increase the demand for cables considerably. Further, the private sector has also initiated major construction projects, which will have a positive impact of the performance of the Company.
The first profitability ratio in relation to sales is the gross profit margin. This ratio shows profits relative to sales after deduction of production costs and indicates the relation between production costs and the selling price. A high gross profit margin ratio is a sign of good management.
The gross profit margin of ACL Cables has shown a gradual increase from 2013/2014 financial year after recording a moderate decline from 2011/2012 onwards. This decrease in the gross profits is mainly due to the gradual increase in the cost of sales during that period.
The net profit margin of ACL Cables has recorded a notable decline from 2011/2012 financial year and reached its lowest point of 1.55% in 2013/2014. A significant increase in the distribution costs could be identified as the major reason for the low profitability. This may be due to increase in the advertising and other promotional expenditure due to stiff competition in the industry.
Asset turnover ratio measures the efficiency of a company's use of its assets in generating sales revenue to the company. In this respect, ACL Cables has a higher asset turnover ratio during the period under review implying that company is generating more revenue per rupee of assets.
Return on Assets (ROA) is an indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings.
The ACL Cables has recorded a low ROA in the financial year 2013/2014 most likely is due to low profits. However, ROA has increased considerably during the next two years indicating that company has managed to convert its investments into profits.
The return on shareholder's equity is calculated to see the profitability of owners' investment. Return on Equity (ROE) indicates how well the firm has used the resources of owners. The earnings of a satisfactory return is the most desirable objective of a business. The ratio of net profit to owners' equity reflects the extent, to which this objective has been accomplished.
The ROE of ACL Cables has declined from 2011/2012 onwards and reached its lowest in 2013/2014 financial year. This is mainly due to the gradual decline in net profits during that period.
The working capital represents the amount of current assets that is left if all current debts are paid. The company's ability to meet obligations, expand volume and take advantage of opportunities is often determined by its working capital.
ACL Cables has maintained a comfortable amount of working capital during the period under review. In the 2013/2014 financial year, the working capital has decreased to a certain extent mainly due to high borrowings. The burden of borrowings has eased afterwards and as a result, the Company maintained a comfortable working capital, which is a positive sign of growth and health.
The current ratio is a measure of the firm's short-term solvency. It indicates the availability of current assets in rupees for every one rupee of current liability. A ratio of greater than one means that the firm has more current assets than current claims against them.
ACL Cables has maintained a steady current ratio during the entire period. However, the ratio has dropped to 1.33:1 in 2013/2014 financial year nevertheless has managed to record a health ratio of close to 2:1 in 2015/2016. In other words, margin of safety for creditors has improved significantly.
Accounts receivable turnover indicates the number of times debtors turnover each year. Generally, the higher the value of debtors turnover, more efficient is the management of credit.
The accounts receivable turnover is relatively low at ACL Cables. The average of debtors turnover is 2.7 times which is consistent during the period with marginal fluctuations.
Overall profitability of ACL Cables has shown a significant improvement during 2011/2012-2015/2016 the period under review, although there were few difficult years. The returns on equity has shown a declining trend at the initial years but have recovered significantly during the last two years. This may be due to the effective utilization of borrowings the Company has obtained in the middle period of our analyzing period. Professor Kennedy made these remarks based on the analysis he had made by analyzing the financial statements of ACL Cables Plc.
- China to provide 90 water bowsers worth Rs 1b 2290
- Wag the Dog 2287
- A brief look at FARC’s origins in Colombia 2234
- ‘Panama Papers’ bags Pulitzer 2258
- SAITM will cooperate with Govt 2262
- dead man was near fashion mall 2300
- Japanese MPs back Lanka’s development 2263
- CB Bond earnings whitewashed – JVP 2273
- Talks to extend Lanka’s Continental Shelf 2281
- Ex-DIG and son re-remanded 2273
- Government can be sent home 2813
- GMOA flogging SAITM for Mahinda– Rajitha 2282
- Ranil invites Japan to invest in S. Asia 2250
- Somali Pirates’ Captives Back Home 2267
- Customs in Rs 8 M bust 2261
- Redefining Rape 2430
- The march of folly Our mad Cabinet system 1912
- First adventures in Europe 1998
- Inspiration for writers 1968
- Sri Lanka’s sustainable development dream 2285
- Sinhala and Tamil New Year with Easter 2167
- Filipino Oconer wins overall title 1903
- Unsporty conduct by Joes 1953
- Bertie Wijesinghe, pre-Test era Sri Lankan cricketer, dies aged 96 1927
- CEAT revs up for 2017 1917
- Palace shock Arsenal 1891
- Argentina fire coach Bauza 1912
- BCCI postpones SGM to 18 April 1882
- Murray returns from injury 1903
- New mum Azarenka to return to WTA 1861
- Galle win by 188 runs 1873
- Keeping Cool 1900
- Do the right thing and do it now! 1906
- Ravi Jayewardene Pious son of a political giant 2501
- In the heart of the old country 2325
- Sarath Weerasekera’s Geneva adventure 2153
- No moral right to play with public funds 2083
- No need for fine if route permits are issued in fair, just manner 1997
- UDA incurs Rs 330M Loss 1922
- DOUSING A MEGA SHIP FIRE 1739
- Health authorities in denial? 2226
- Minorities’ frustration a powder keg – VIDURA 2249
- Administrative powers a must for the Plantation Tamils –Radhakrishnan 1504
- Rajapaksa sought advice from McGuinness– Indika Perera 2649
- I will lead SLFP to victory in future elections – President 2029
- Hang the ‘traitors’– RTD. REAR ADMIRAL WEERASEKARA 2440
- We oppose Nationalism and Federalism – Samarasinghe 3104
- SilkAir launches direct flights to Colombo 1964
- Rupee falls on thin volumes 1936
- SriLankan, Japan Airlines add new routes 1924
- Colombo Port box volume up 5.6-pct in Jan 1918
- Private sector to transform into main domestic growth engine 1926
- Oil eases from 5-week top, rising US production weighs 1888
- Tight fiscal and monetary policies constrain SL’s growth 1916
- Shell admits dealing with money launderer 1898
- Toshiba may sell chip business to Foxconn for $27bn 1907
- Asian shares pressured by geopolitical risks; Nikkei down 0.25% 1892
- SLIM launches Certificate in Digital Marketing 1895
- Microsoft Hosts Second ‘Device Day’ in Sri Lanka 1894
- Emirates named Best Airline in the World 1877
- Turkish Airlines and social media assist Somalia 1896
- Brain cell therapy ‘promising’ for Parkinson’s disease 1890
- Trump pushed into bombing Syria 1951
- Thailand discovers Power of Women Travellers 1917
- Economics of gambling 1823
- Trans National Aural Identity 3479
- Queen Anula The Shadow of Cleopatra 3539
- Poetry and its possibilities Part 2 3540
- The Enigma of Labyrinths 3631
- From Couture to Kutir 3528
- Hybrid Sources 4919
- Offering Riddles & Enigmas 4982
- Poetry and its possibilities 5036
- With a festive bang! 1140
- Easter Fun 1130
- Arrogance and crowing is the way of the doomed 1177
- Avurudu on the streets 1187
- Tick control 1168
- Sunny Sunday on the beach 1148
- It’s time to save the world 1196
- From viewer to YouTuber! 1215
- Expert skincare and makeup 1237
- Avurudu at Induruwa 1206
- Exo 1233
- Remembering our fallen heroes 2324