Ratio analysis

MANAGERIAL FINANCE
Financial Ratios
Analysis
DIALOG AXIATA PLC
D.C.P.Sendanayaka
Adit Examiner
Auditor General’s Department
Sri Lanka

“Evaluation of Financial Performance based on Ratio Analysis of Dialog Axiata Plc”
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CONTENT
Description Page
Acknowledgements 01
Executive summary 02
Chapter 01
1 Introduction the company 04
1.1 Dialog Values 05
1.2 SWOT Analysis of Dialog Axiata PLC 06
1.3 Introduction the Competitor. 07
Chapter 02
2 Financial Statements
2.1 Statements of Financial Position of Dialog Axiata PlC 09
2.2 Statements of Comprehensive Income of Dialog Axiata Plc 10
2.3 Statements of Financial Position of Sri Lanka Telecom 11
2.4 Statements of Comprehensive Income of Sri Lanka Telecom 12
Chapter 03
3 Profitability Ratios:
3.1 Gross Profit Ratio 14
3.2 Net profit ratio 15
3.3 Return on Capital Employed 16
3.4 Return On Assets 17
4 Short - Term liquidity Ratios
4.1 Current Ratio 18
4.2 Quick Ratio/Acid Test Ratio 19
5 Efficiency Ratio
5.1 Debt Collection Period 21
5.2 Receivable Turnover Ratio 21
6 Long - Term liquidity Ratios
6.1 Debt-Equity Ratio 23
6.2 Debt to Asset Ratio 24
6.3 Interest Coverage Ratio 24
7 Investor ratios.
7.1 Earnings Per Share (EPS) 25
7.2 Price Earnings Ratio 26
7.3 Earning Yield 27
Chapter 04
8 Conclusion 32
9 Recommendation 34

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ACKNOWLEDGEMENTS
The report being submitted today is a result of collective effort. There are innumerous
helping hands behind who have guided me on my way. Writing this report appeared to be a
great experience to me. It added a lot to my knowledge. This report is one of my memorable
experiences in my MBA degree programme.
Though words are inadequate in offering thank to Mr. ……………………. for stimulating
my creative abilities by assigning this assignment to me and for his able guidance and useful
suggestions, which helped me in completing the assignment in time. Whatever we have learnt
from his and this assignment has put indelible impression on our minds and it is my
conviction that this learning experience will always be a source of help in my practical life
and professional career.
Finally, yet importantly, we would like to express my heartfelt thanks to my beloved parents,
for cooperation, help, kindness and blessings, my family and friends for their help and wishes
for the successful completion of the work.

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EXECUTIVE SUMMARY
Ratio Analysis is one of the techniques of financial analysis where ratios are used as a
yardstick for evaluating the financial condition and performance of a firm. Analysis and
interpretation of various accounting ratios gives a better understanding of financial condition
and performance of firm. It provides data for intra-firm comparison. They also revel
financially strong and weak such as overvalued and undervalued of firms. These ratios help
to indicate a company’s efficiency in the past and likely performance in future. It should be
noted that computing the ratios does not add any information in figures of profits and sales.
This assignment mainly aims to analyze and interpret Financial Statements of a listed
company with the use of main annual financial reports and the related financial ratios derived
from those. For this analysis I have selected Dialog Axiata plc and its annual reports from
2010 to 2014. There are five other telecommunications operators currently operating in Sri
Lanka, namely Sri Lanka Telecom , Mobitel, Itisalat, Airtel and Hutchison, but four mobile
companies other than Sri Lanka Telecom are not listed company and data is not available in
open market. Even though, Mobitel is the main competitor to Dialog, I selected Sri Lanka
Telecom PLC as competitor for Dialog Axiata plc due to non-availability of Mobitel’s annual
report. In this assignment, I hope to compare competitor data with the company data for the
year 2014 to get the clear idea about the company.
First Chapter of assignment contains the general introduction to the Dialog Axiata plc, which
mainly covers its history, vision and mission, Dialog Values, SWOT Analysis and little
introduction about Sri Lanka Telecom PLC including its vision and mission. Second Chapter
of assignment contains Statements of Financial Position and Statements of Comprehensive
Income of both companies. Third chapters include the detail analysis of the financial position
of the company using ratios analysis, which focused on the areas of liquidity and efficiency,
Solvency and profitability of the Dialog Axiata plc. The last chapter includes the conclusion
and recommendation for the client.

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Chapter 1

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1. Introduction the company
Dialog Axiata PLC, a subsidiary of Axiata Group Berhad (Axiata), operates Sri Lanka’s
largest and fastest growing mobile telecommunications network. The Company is also
one of the largest listed companies on the Colombo Stock Exchange in terms of market
capitalization. Dialog is also Sri Lanka’s largest Foreign Direct Investor (FDI) with
investments totaling over USD 1.7 billion.
Dialog, a winner of two GSMA Mobile World Awards in 2015 has the distinction of
being voted by Sri Lankan consumers as the Telecom Service Provider of the Year and
Internet Service Provider of the Year for four successive years at the SLIM-Nielsen
People’s Choice Awards. Dialog has topped Sri Lanka’s Corporate Accountability
rankings for the past 5 years in succession and is an ISO 9001 certified company. The
Company has received numerous local and international awards including the National
Quality Award and Sri Lanka Business Excellence Award.
Dialog has been at the forefront of innovation in the mobile industry in Sri Lanka since
the late 90’s, propelling the nation’s mobile telephony infrastructure to a level of
advancement on par with the developed world. The Company delivers advanced mobile
telephony and high speed mobile broadband services to a subscriber base in excess of 9.5
Million Sri Lankans, via 2.5G and 3G/3.5G and 4G networks. In April 2013, Dialog
secured the distinction of becoming the first service provider in South Asia to commence
commercial operations of 4GFD-LTE services, having previously introduced 3G to the
region in as far back as 2006. The Company also provides a comprehensive suite of
International Roaming Services across a global footprint comprising of more than 200
countries, and operates a wide portfolio of international telecommunication services,
including but not limited to retail and wholesale international voice and data services.
Dialog Axiata supplements its market leading position in the Mobile Telecommunications
sector with a robust footprint and market presence in Sri Lanka’s Fixed
Telecommunications and Digital Television markets through its fully-owned subsidiaries
Dialog Broadband Networks (Private) Ltd (DBN) and Dialog Television (Private)
Ltd.(DTV)

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DBN is Sri Lanka’s second largest Fixed Telecommunications service provider, serving
residential and enterprise customers with voice, broadband, lease lines and customized
telecommunication services. DBN is also a leading provider of Radio and Optical
Fibrebased transmission infrastructure facilities. DTV operates a Direct-to-Home (DTH)
Digital Satellite TV service and is the market leader in Sri Lanka’s Pay TV sector. DTV
supports a broad array of international and local content in both Standard Definition (SD)
and High Definition (HD) formats alongside a wide portfolio of Sri Lankan television
channels and delivers high quality infotainment to a viewer base of 452,000 Sri Lankan
households.
Vision
To be the undisputed leader in the provision of multi-sensory
connectivity resulting always, in the empowerment and
enrichment of Sri Lankan lives and enterprises.
Mission
To lead in the provision of technology enabled connectivity touching multiple human
sensors and faculties, through committed adherence to customer-driven, responsive and
flexible business processes, and through the delivery of quality service and leading edge
technology unparalleled by any other, spurred by an empowered set of dedicated
individuals who are driven by an irrepressible desire to work as one towards a common
goal in the truest sense of the team spirit.
1.1.Dialog Values
Service from the Heart
Create the Future
Champions of Change
Exceptional Performance
Uncompromising Integrity
Responsible Leadership
One Team

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1.2.SWOT Analysis of Dialog Axiata PLC
trengths
Strong infrastructure.
Strong public relationship that has been builds up since 1995.
Reputed brand name and dialog was the first digital network in south Asia.
Strong network coverage spread throughout the entire island.
Technical innovation – Dialog 4 G.
International services with GSM Roaming.
Large customer base
Partnership with Vodafone UK
pportunities
Rapid growth of telecommunication industry in Sri Lanka.
Can introduce new mobile under Vodafone UK as the authorized dealer.
Smartphone penetration is rapidly increasing.
Can go for business diversification.
Internet penetration is still low in Sri Lanka.
hreats
Other competitor.
Constant charges in technology.
Rapid Changes in law and regulation.
High inflation level in the country.
Mobitel promoting roaming package.
Other operators developing new services.

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eaknesses
High pricing on IDD calls compared with others.
Low Credit margins for business packages than other competitors
Focusing on the executive level & the above than the below level
Week packages for cooperate sectors compared to others
Dialog CDMA couldn’t hit much of the market
Even though dialog has a good roaming service covering wide areas, roaming
packages are high in cost than same other operator.
1.3.Introduction the Competitor.
Name of Competitor: Sri Lanka Telecom PLC
Sri Lanka Telecom is the pioneer communications provider to the Nation.150 years of
expertise in ‘giving life to thought’, fulfilling the evolving dreams and aspirations of all
Sri Lankans – from basic connectivity to the eclectic applications that distinguish the
communications sphere today.
Vision
All Sri Lankans seamlessly connected with world-class
information, communication and entertainment services.
Mission
Your trusted and proven partner for innovative and exciting
communication experiences delivered with passion, quality
and commitment

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Chapter 2

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2.1. Statements of Financial Position of Dialog Axiata PlC
2010 2011 2012 2013 2014
ASSETS Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000
Non-current assets
Property, plant and equipment 44,348,523 41,212,795 44,744,236 50,768,641 51,442,639
Intangible assets 1,397,140 1,619,582 1,485,313 6,318,363 5,561,147
Investments in subsidiaries 10,326,010 10,326,010 17,826,010 18,826,010 18,826,010
Investment in associates Nil 27,742 233,346 278,694 377,833
Other investment 30,596 30,596 30,596 16,885,475
Amount due from subsidiaries 8,771,992 14,007,435 9,559,729 13,864,601
Financial assets 115,000
64,874,261 67,224,160 73,879,230 90,056,309 93,208,104
Current assets
Inventories 266,159 395,515 213,178 551,256 131,810
Trade and other receivables 8,071,307 9,023,404 9,378,161 12,057,912 10,751,022
Cash and cash equivalents 5,079,135 6,900,163 7,767,439 2,063,250 9,805,322
13,416,601 16,319,082 17,358,778 14,672,418 20,688,154
Total assets 78,290,862 83,543,242 91,238,008 104,728,727 113,896,258
EQUITY
Capital and reserves
attributable
to equity holders
Stated capital 30,556,113 28,103,913 28,103,913 26,112,992 28,103,913
ESOS trust shares (1,990,921) (1,990,921) (1,990,921)
Dividend reserve 260,067 291,781 331,425
Revaluation reserve 96,820
Accumulated losses / earnings 10,744,469 15,794,723 19,948,823 23,702,833 27,713,534
Total equity 39,666,548 42,199,496 46,393,240 49,815,825 55,817,447
LIABILITIES
Non - current liabilities
Borrowings 20,122,753 17,017,956 12,094,321 17,451,422 25,453,950
Derivative financial instrument 55,837
Deferred income tax liabilities 1,612,510 1,972,933 Nil
Retirement benefit obligations 358,854 403,482 481,385 588,035 1,245,365
Provision for other liabilities 607,794 574,054 663,367 1,310,468 921,130
Deferred revenue 285,766 1,055,174 863,001 1,552,055 1,787,242
22,987,677 21,023,599 14,102,074 20,901,980 29,463,524
Current liabilities
Trade and other payables 10,443,631 14,280,082 18,187,872 21,504,891 23,926,468
Current income tax liabilities 10,898 60,668 15,535 1,113,356 627,991
Derivative financial instrument 9,090
Borrowings 5,182,108 5,979,397 12,539,287 11,392,675 4,051,738
15,636,637 20,320,147 30,742,694 34,010,922 28,615,287
Total liabilities 38,624,314 41,343,746 44,844,768 54,912,902 58,078,811
Total equity and liabilities 78,290,862 83,543,242 91,238,008 104,728,727 113,896,258

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2.2. Statements of Comprehensive Income of Dialog Axiata Plc
2010 2011 2012 2013 2014
Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000
Revenue 37,954,236 41,776,308 49,802,752 55,445,060 57,963,362
Direct costs (20,558,465) (22,494,294) (27,757,545) (31,369,285) (32,048,946)
Gross margin 17,395,771 19,282,014 22,045,207 24,075,775 25,914,416
Other operating income 81,525 69,961 119,637 77,590 86,199
Administrative costs (5,727,544) (6,260,281) (8,214,754) (8,106,116) (8,965,743)
Distribution costs (4,949,144) (5,906,107) (7,020,384) (7,700,619) (8,302,514)
Operating profit 6,800,608 7,185,587 6,929,706 8,346,630 8,732,358
Net finance (costs)/income 242,667 (305,402) (2,712,951) (1,171,208) (556,445)
Profit before tax 7,043,275 6,880,185 4,216,755 7,175,422 8,175,913
Taxation (491,322) (566,238) 1,973,509 (1,113,932) (1,221,989)
Profit for the year 6,551,953 6,313,947 6,190,264 6,061,490 6,953,924
Other Comprehensive Expenses
Actuarial loss/Gain from
retirement benefit obligation net
of tax (219) (3,788) (137,435)
Net change in cash flow hedge (39,337)
Attributable to:
Equity holders of the Company 6,551,953 6,313,947 6,190,045 6,057,702 6,777,152
Earnings per share for profit
attributable to the ordinary
shareholders of the Company
during the year (expressed in
Rupees per share)
- Basic 0.78 0.77 0.78 0.76 0.87
- Diluted
Working 01
Profit Befor tax and Interest
Finance Cost 538,533 1,188,475 2,983,165 1,278,276 755,615
Finance Income 781,200 883,073 270,214 107,068 199,170
Net Finance Cost
242,667
(305,402) (2,712,951) (1,171,208) (556,445)
Profit Befor tax and Interest (5,727,544) (6,260,281) (8,214,754) (8,106,116) (8,965,743)
Share Price 12 8 8 9 13

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2.3. Statements of Financial Position of Sri Lanka Telecom
2014 2013
Rs.000,000 Rs.000,000
Assets
Non-current assets
Property, plant & equipment 60,221 47,549
Intangible assets and goodwill 1,326 1,613
Financial prepayments
Investments in subsidiaries 14,189 14,156
Deferred tax assets
Other receivables 2,789 2,733
Total non-current assets 78,525 66,051
Current assets
Inventories 282 1,918
Trade and other receivables 12,728 10,870
Current tax receivable 83 225
Other investments 6,397 3,203
Cash and cash equivalents 1,002 823
Total current assets 20,492 17,039
Total assets 99,017 83,090
Equity
Stated capital 18,049 18,049
Insurance reserve 560 500
Retained earnings 39,968 38,554
Equity attributable to equity holders of the
company 58,577 57,103
Total equity 58,577 57,103
Liabilities
Non-current liabilities
Grants 22 28
Borrowings 11,700 2,662
Deferred income 2,512 2,747
Deferred tax liabilities 2,801 1,746
Employee benefits 3,512 2,725
Trade and other payables 250 270
Total non-current liabilities 20,797 10,178
Current liabilities
Borrowings 4,359 3,268
Deferred income 706 745
Trade and other payables 14,578 11,796
Total current liabilities 19,643 15,809
Total liabilities 40,440 25,987
Total equity and liabilities 99,017 83,090

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2.4. Statements of Comprehensive Income of Sri Lanka Telecom
2014 2013
Rs.000,000 Rs.000,000
Revenue 38,950 36,781
Operating costs (29,559) (26,821)
Operating profit before depreciation and amortization 9,391 9,960
Depreciation (6,875) (6,505)
Amortization of intangible assets (289) (299)
Operating profit 2,227 3,156
Refunds on Telecommunication Development Charge (TDC) 937 367
Other income 362 292
Dividend income 660 680
Interest expense and finance costs (49) (371)
Foreign exchange (loss)/gain 14 18
Interest income 708 872
Profit before tax 4,859 5,014
Income tax expenses (1,535) (1,379)
Profit for the year 3,324 3,635
Other comprehensive income
Defined benefit plan actuarial (losses)/gain (438) (76)
Tax on other comprehensive income 122 21
Other comprehensive income for the year net of tax (316) (55)
Total comprehensive income for the year 3,008 3,580
Profit attributable to:
Owners of the Company 3,324 3,635
Total comprehensive income attributable to:
Owners of the Company 3,008 3,580
Earnings per share
Basic (Rs.) 1.84 2.01
Working 02
Profit Before tax and Interest
Profit before Tax 4,859 5,014
Interest expense 49 371
4,908 5,385
Share Price (Last Traded) 49 37

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Chapter 3

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3. Profitability Ratios:
The primary objective of a business undertaking is to earn profits. Profit is the
difference between revenue & expenses over a period of time. Profit is output of a
company & company will have no further if it fails to make sufficient profit Profits are
thus a useful measure of overall efficiency of a firm.
These ratios are calculated to measure the operating efficiency of the company. Beside
management, creditors, owners are also interested in the profitability of the company.
Generally profitability ratios are calculated either in relation to sales or in relation to
investment. The various profitable ratios are:
3.1. Gross Profit Ratio
Gross Profit Ratio measures the relationship between gross profits & sales; it is usually
represented in percentage. Thus Gross profit margin highlights the production
efficiency at a concern.
Gross Profit Ratio is calculated as:
Gross Profit Ratio =
Gross Profit
x 100
Net Sales
Profitability Analysis Ratios (reference – Ratio Analysis.xlsx)
Ratio
Unit of
measurement
Dialog Axiata Plc SLT
2010 2011 2012 2013 2014 2014
Gross Profit
Ratio
% 45.83% 46.16% 44.27% 43.42% 44.71% N/A
Table 1.1
42.00%
43.00%
44.00%
45.00%
46.00%
47.00%
2010 2011 2012 2013 2014
45.83%
46.16%
44.27%
43.42%
44.71%
Gross Profit Ratio
Gross Profit
Ratio

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INRTEPRETATION
According to Table 1.1 gross profit of the company has decrease in year by year since
2011 to 2013. Gross profit ratio for the year 2011 was 46.16% and 2013 it was 43.42%.
As a result of increasing direct cost by 39% during the period company gross profit had
been decreased. For the year 2014 company recoded the 44.71% gross profit ratio with
the higher direct cost.
3.2. Net profit ratio
Net profit ratio establishes the relationship between net profit & sales. This ratio is used
as a measure of overall profitability & it helps in determining the efficiency of the firm
to carry on its business.
Net Profit Ratio is calculated as:
Net Profit Ratio =
Net Profit
x 100
Net Sales
Ratio
Unit of
measurement
2010 2011 2012 2013 2014 2014
Net Profit Ratio % 17.26% 15.11% 12.43% 10.93% 11.69% 8.53%
Table 1.2
Gross Profit For the year 2014
Gross Profit
Cost of Sale
0.00%
5.00%
10.00%
15.00%
20.00%
2010 2011 2012 2013 2014
17.26%
15.11%
12.43%
10.93% 11.69%
8.53%
Dialog
SLT

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INRTEPRETATION
As shown in table 1.2 it is clear that net profit ratio of the company continuously
decrease since 2010 to 2013. Main reason for this decrease is continuously increased of
finance cost in the company during the period by 137%. For the year 2014 Dialog
earning 11.69% against 8.53% of SLT, it shows in the profitability ratios Dialog is
earning more than SLT.
3.3. Return on Capital Employed
Return on Capital Employed is a financial ratio that measures a company's profitability
and the efficiency with which its capital is employed.
Return on Capital Employed (ROCE) is calculated as:
Return on Capital Employed
=
Earning before tax and interest
x 100
(ROCE) Capital employed
Ratio
Unit of
measurement
2010 2011 2012 2013 2014 2014
Return on Capital
Employed
% 17.14% 17.03% 14.94% 16.75% 15.64% 3.80%
Table 1.3
Dialog
Net Profit
SLT
Net Profit

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INRTEPRETATION
According to table 1.3 Return on Capital Employed in Dialog is depended on better
condition. For the year 2014 it is 15.64 %, it shows every hundred rupees invested in
employed capital, Dialog earns Rs.16. For the year 2014 dialog records return on
Capital Employed 15.64% against the SLT 3.80%. When considering both companies,
dialog has sound ability to generate the profit from Employed more than SLT.
3.4. Return On Assets
A profitability measure that indicates how well a company uses its capital resources to
generate income. To calculate after-tax return on assets, divide the company's total after-
tax income by the value of its total assets.
Return on Assets is calculated as:
Return on Assets =
Net Profit After Taxes
x 100
Total Assets
Ratio
Unit of
measurement
2010 2011 2012 2013 2014 2014
Return on Assets % 8.37% 7.56% 6.78% 5.79% 6.11% 4.91%
Table 1.4
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
2010 2011 2012 2013 2014
17.14% 17.03%
14.94%
16.75% 15.64%
3.80%
Dialog
SLT

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INRTEPRETATION
Dialog earns 6.11 every hundred rupees invested in assets for the year 2014 while SLT
earning 4.9. Dialog maintain normal rate of return on assets during the period and it is
fluctuated within the 8% and 6%. When considering both companies, dialog generates
more profit than SLT on Assets.
4. Short - Term liquidity Ratios
Short - Term liquidity Ratios measures the ability of the firm to meet its current
obligation (liabilities). In fact analysis of liquidity needs the preparation of cash budget
and cash and fund flow statement but liquidity ratio, by establishing a relationship
between cash and other current asset to current obligation, to provide a quick measure of
liquidity. A firm should ensure that it doesn’t suffer lack of liquidity and also that it does
not have excess liquidity.
4.1. Current Ratio
Current ratio may be defined as the relationship between quick or liquid asset and
current liabilities. This is a measure of general liquidity & is most widely used to make
analysis of short-turn financial position or liquidity of firm. It is calculated by dividing
the total current assets by total current liabilities.
Current Ratio is calculated as:
Current Ratio =
Current Assets
Current Liabilities
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
2010 2011 2012 2013 2014
8.37%
7.56%
6.78%
5.79%
6.11%
4.91%
Dialog
SLT

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Short - Term liquidity Ratios (reference – Ratio Analysis.xlsx)
Ratio
Unit of
measurement
2010 2011 2012 2013 2014 2014
Current Ratio Time 0.86 0.80 0.56 0.43 0.72 1.04
Table 2.1
INRTEPRETATION
According to Table 2.1 Current Ratio of Dialog has decrease continuously since 2010 to
2013.Main reason for this decrease is abnormal increase of current liabilities during the
period. Compering with year 2010, in 2013 current liabilities has gone up by 118% while
current liabilities increase by 9%. For the year 2014 Dialog recoded current ratio as 0.72
against the 1.04 of SLT. When consider the both companies SLT have more ability than
Dialog to pay off the current liabilities by using its currents assets. According to analysis
it is clear that dialog is facing short terms liquidity crises.
4.2.Quick Ratio/Acid Test Ratio
Quick ratio establishes relationship between quick or liquid assets & current liabilities. It
is also known as acid test ratio. An asset is said to be liquid if it can be converted into
case within short period of time without loss of value. The prepaid expenses and stock
were excluded.
Quick or Acid Test Ratio is calculated as:
Quick or Acid Test Ratio =
(Current Assets – Inventories)
Current Liabilities
0.00
0.20
0.40
0.60
0.80
1.00
1.20
2010 2011 2012 2013 2014
0.86
0.80
0.56
0.43
0.72
1.04
Dialog
SLT

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Short - Term liquidity Ratios (reference – Ratio Analysis.xlsx)
Ratio
Unit of
measurement
2010 2011 2012 2013 2014 2014
Quick Ratio Time 0.84 0.78 0.56 0.42 0.72 1.03
Table 2.2
INRTEPRETATION
When compared with previous years Quick Ratio of Dialog has increase in year 2014
and it is 0.72. SLT recoded 1.03 as Quick Ratio for the year showing its ability to pay off
its current liabilities by using Quick assets. Even in the 2014 dialog has not reach in
good condition regarding the short terms liquidity, its means dialog cannot pay off
current liabilities using Quick assets.
5. Efficiency Ratio
Funds are invested in various assets in business to make sales & earn profit. The
efficiency with which assets are managed directly affects the volume of sales. The better
the management of assets, the larger is the amount of sales & the profit. Efficiency Ratio
measures the efficiency or effectiveness with which a firm manages its resources or
assets.
0.00
0.20
0.40
0.60
0.80
1.00
1.20
2010 2011 2012 2013 2014
0.84
0.78
0.56
0.42
0.72
1.03
Dialog
SLT

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5.1.Debt Collection Period
Debt Collection Period show The approximate amount of time that it takes for a business
to receive payments owed, in terms of receivables, from its customers and clients.
Debt Collection Period is calculated as:
Debt Collection Period =
Average Debtors
x 365
Net Credit Sale
Efficiency Ratio Ratios (reference – Ratio Analysis.xlsx)
Ratio
Unit of
measurement
2010 2011 2012 2013 2014 2014
Debt Collection
Period
Day 43 48 49 47 46 67
Table 3.1
INRTEPRETATION
According to Table 3.1 Dialog is in good condition when collecting the cash from Debtor
when comparing with SLT. Normally within the 43 days to 49 days company collect the
money from debtors. In year 2014 Debt Collection Period of the Dialog is 67 days against
the SLT 67 day.
5.2.Receivable Turnover Ratio
This is an accounting measure used to quantify a firm's effectiveness in extending credit
as well as collecting debts. The receivables turnover ratio is an activity ratio, measuring
how efficiently a firm uses its assets.
0
10
20
30
40
50
60
70
2010 2011 2012 2013 2014
43
48 49 47 46
67
Dialog
SLT

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Receivable Turnover Ratio is calculated as:
Receivable Turnover Ratio =
Net Credit Sale
Average Debtors
Efficiency Ratios (reference – Ratio Analysis.xlsx)
Ratio
Unit of
measurement
2010 2011 2012 2013 2014 2014
Receivable Turnover
Ratio
Time 8 8 8 8 8 5
Table 3.2
INRTEPRETATION
According to the figures calculated in table 3.2 Dialog’s accounts receivable turned over
8 times during the past five years, which means that the average account receivable was
collected in 45 days. Receivable Turnover Ratio for the year 2014 in SLT is 8 day. When
compered both companies Dialog collect the money from debtor’s short period than SLT
6. Long - Term liquidity Ratios
Long - Term liquidity Ratios are also known as capital structure ratio. These ratios
indicate mix of funds provided by owners & lenders. As a general rule these should be
appropriate mix debt & owners’ equity in financing the firm’s assets. Long - Term
liquidity Ratios are calculated to judge the long long-term financial position of the
company
0
1
2
3
4
5
6
7
8
9
2010 2011 2012 2013 2014
8
8 8 8 8
5
Dialog
SLT

25 | P a g e
6.1.Debt-Equity Ratio
Debt-Equity ratio shows the relative contribution of creditors and owners. Debt-Equity
ratio is also known as External-Internal equity ratio. It is calculated to measure the
relative claims of outsiders against Shareholders Equity.
Debt-Equity Ratio is calculated as:
Debt-Equity Ratio =
Total Liabilities
Shareholders’ Equity
Long - Term liquidity Ratios (reference – Ratio Analysis.xlsx)
Ratio
Unit of
measurement
2010 2011 2012 2013 2014 2014
Debt-Equity Ratio Time 0.97 0.98 0.97 1.10 1.04 0.69
Table 4.1
INRTEPRETATION
According to table 4.1 year 2013 and 2014 Dialog shows high leverage. It means
Shareholders equity is lower than external Liabilities. In other words, the assets of the
company are funded 1.04 to 1 by creditors to investors. This means that investors own 01
rupee of company assets while creditors only own 1.04 Rupees. This situation is not good
so Company shows decrease of net profit over the past five years. When compered broth
companies SLT’s Debt-Equity Ratio is 0 .69 and good better than the Dialog.
0.00
0.20
0.40
0.60
0.80
1.00
1.20
2010 2011 2012 2013 2014
0.97 0.98 0.97
1.10 1.04
0.69
Dialog
SLT

26 | P a g e
6.2.Debt to Asset Ratio
Total debt to total assets is a leverage ratio that defines the total amount of debt relative to
assets. This enables comparisons of leverage to be made across different companies. The
higher the ratio, the higher the degree of leverage, and consequently, is financial risk.
Debt to Asset Ratio is calculated as:
Debt to Asset Ratio =
Total Debt
Total Assets
Ratio
Unit of
measurement
2010 2011 2012 2013 2014 2014
Debt to Asset Ratio Time 0.49 0.49 0.49 0.52 0.51 0.41
Table 4.2
INRTEPRETATION
Debt to asset ratio shows if the firms have more assets regardless of total debt than that
firm will easily pay off its debts. According to calculation in Table 4.2 the debt to asset
ratio in Dialog is 0.51 whereas 0.41 in SLT. So Dialog can pay off its debt more easily
than SLT.
6.3.Interest Coverage Ratio
Interest Coverage is a ratio used to determine how easily a company can pay interest on
outstanding debt. The interest coverage ratio is calculated by dividing a company's
earnings before interest and taxes (EBIT) of one period by the company's interest
expenses of the same period:
0.00
0.10
0.20
0.30
0.40
0.50
0.60
2010 2011 2012 2013 2014
0.49 0.49 0.49 0.52 0.51
0.41
Dialog
SLT

27 | P a g e
Interest Coverage Ratio is calculated as:
Interest Coverage Ratio =
Profit Before Interest and Tax
Interest Expense
Ratio
Unit of
measurement
2010 2011 2012 2013 2014 2014
Interest Coverage Ratio Time 14.08 6.79 2.41 6.61 11.82 99.16
Table 4.3
INRTEPRETATION
Interest coverage ratio measures the extent to which the operating income of the firm can
decline before the firm is unable to meet its annual interest cost. According to table 4.3
Dialog has 11.82 times interest coverage ratio whereas SLT has 99.16 times interest
coverage ratio so Dialog has less chances pay off annual interest cost.
7. Investor ratios.
7.1.Earnings Per Share (EPS)
Earnings per share serve as an indicator of a company's profitability and it is generally
considered to be the single most important variable in determining a share's price. It is
also a major component used to calculate the price-to-earnings valuation ratio.
Earning per Share (EPS) is calculated as:
Earnings Per Share (EPS) =
Profit attributable to the ordinary shareholders
Number of ordinary share
0.00
20.00
40.00
60.00
80.00
100.00
1 2 3 4 5
14.08
6.79 2.41 6.61 11.82
99.16
Dialog
SLT

28 | P a g e
Investor ratios (reference – Ratio Analysis.xlsx)
Ratio
Unit of
measurement
2010 2011 2012 2013 2014 2014
Earnings Per Share (EPS) Rs 0.78 0.77 0.78 0.76 0.87 1.84
Table 5.1
INRTEPRETATION
According to Table 5.1 dialog has Rs. 0.87 Earnings per Share for the year 2014 whereas
SLT has Rs.1.84. Its means dialog earn 0.87 cents for every shares while SLT earn
Rs.1.84. When compared both companies SLT has more ability to earn on shares than
Dialog.
7.2.Price Earning Ratio
Price Earnings Ratio is a valuation ratio of a company's current share price compared to
its per-share earnings.
Price Earnings Ratio is calculated as:
Price Earnings Ratio =
Market Value per share
Earnings Per Share
Ratio
Unit of
measurement
2010 2011 2012 2013 2014 2014
Price Earning Ratio Time 15.05 10.10 10.64 11.84 15.40 26.63
Table 5.2
0.00
0.50
1.00
1.50
2.00
2010 2011 2012 2013 2014
0.78 0.77 0.78 0.76
0.87
1.84
Dialog
SLT

29 | P a g e
INRTEPRETATION
According to Table 5.2 Price earnings per share in Dialog for the year 2014 has 15.40
times while SLT has 26.63 times. It means investors in the Dialog want to 15 times to
recover their investment from earning whereas in SLT investor want 27 times recover
their investment.
7.3.Earning Yield
The earnings yield (which is the inverse of the P/E ratio) shows the percentage of each
Rupee invested in the stock that was earned by the company
Earning Yield Ratio is calculated as:
Earning Yield =
Earnings Per Share
x 100
Market Value per share
Ratio
Unit of
measurement
2010 2011 2012 2013 2014 2014
Earning Yield % 6.64% 9.90% 9.40% 8.44% 6.49% 3.76%
Table 5.3
0
5
10
15
20
25
30
2010 2011 2012 2013 2014
15
10 11 12
15
27
Dialog
SLT

30 | P a g e
INRTEPRETATION
According to data calculated in the table 5.3 earning yield in the Dialog is 6.49 %
whereas SLT 3.76 for the year 2014. When compered both companies Dialog has good
earning yield more than SLT
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
2010 2011 2012 2013 2014
6.64%
9.90%
9.40%
8.44%
6.49%
3.76% Dialog
SLT

31 | P a g e
Chapter 4

32 | P a g e
8. Conclusion
Profitability Ratios
As shown throughout the financial analysis the ability of the company to generate a net
income from its operations is declining since 2010 to 2013, this is further emphasis by the
reducing values of the profit margin and gross margin. As the earning capabilities of the
company is getting reduced return on shareholders’ equity and the earning per share is
also declining gradually. But in the year 2014 net income generation capacity of company
have increased compare previous year. When compered both companies, Dialog Axiata
Plc have more ability to generate a net income from its operations than Sri Lanka
Telecom.
Liquidity and Efficiency Ratios
As per the ratios calculated in the previous chapter short term debt paying ability of the
company was poor value during the 2010 to 2014 period and this is confirmed by the poor
current ration during that period. Due to this reason short term debt paying capabilities
are not in a very good position. This factor is further highlighted with the very similar
behavior of the values of the acid test ratio. When consider the both companies SLT have
more ability than Dialog to pay off the current liabilities by using its currents assets.
According to analysis it is clear that dialog is facing short terms liquidity crises.
Further debt collection period is in a good situation during the whole period of analysis
compere with the Sri Lanka Telecom. Account Receivable Turnover figure also shows
good condition during the period of analysis than Sri Lanka Telecom.
Long - Term liquidity Ratios
According to the ratios calculate in previous chapter Debt-Equity Ratio shows a
continuous increment over the period of analysis high value of 1.04 in the year of 2014,
in other words which means that the close to 104 % of the assets are contributed by the
creditors instead of the equity of the company. Debt-Equity Ratio shows decreasing year
on year stressing the fact that the equity contribution in the company assets are reducing
compared to the external debt. Further Interest Coverage Ratio declining over the period

33 | P a g e
of analysis, it is clear that the ability of the company to give a protection against the long
term liabilities is reducing during the period of under review. When compare both
companies Sri Lanka Telecom is in good condition to give protection against the long
term liabilities than Dialog Axiata Plc.
Investor Ratios
During the entire period of analysis there are no very significant changes in price earnings
ratio and Earnings per Share (EPS). But these ratios are not in good condition compered
to Sri Lanka Telecom data for the year 2014.

34 | P a g e
9. Recommendation
To :- Managing Director
From :- Accountant
Date :- 24th
June 2015
Subject :- Purchase of Dialog Axiata Plc.
This report is based on the financial statements of Dialog Axiata Plc and Sri Lanka
Telecom, before taking a final decision details information (Non-financial information)
should be study furthermore.
Assumption
Both companies have prepared financial statement accurately.
Both companies have used same accounting policies.
All sales are credit sales.
Limitation of analysis
Recommendation is based on the Assumption’s validity. Therefore accuracy of
Assumption should further check.
Most of the data for calculating financial ratios comes from the financial statements. The
reliability of ratios is therefore affected by the reliability of the financial statements
themselves
------------------------------------------------------------------------------------------------------------
In general the company shows good performance in the revenue generating capabilities
throughout the period, despite the decrease of net profit since 2010 to 2013. It is further
emphasize by increasing revenue year by year during the period. Anyway it is the
responsibility of the company to reduce the unnecessary expense and special financial
cost which is increased highly during the period. As same as company give priority to
maintain the proper current ration to pay off the current liabilities without sailing the
other assets of the company. Finally taken as a whole, Dialog Axiata Plc shows good
performance both income generations and assets managements.
According to analysis, my opinion is no significant risk to face by purchasing the
Dialog Axiata Plc.

Ratio analysis

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