STUDY OF CONSISTENCY AND PROFITABILITY THROUGH FINANCIAL RATIO ANALYSIS IN PLANTATIONS INDUSTRY IN SRI LANKA

Abstract

Purpose - This paper aims to examine financial ratio disclosure in annual reports, and the degree to which the primary ratio components differ between and within the firms, and the stability of ratios over a period of time, moreover the relationship between the companies’ profitability, leverage and liquidity. Design/Methodology/Approach - Out of 297 public listed companies in Colombo Stock Exchange, financial ratios which are presented voluntarily in the annual reports of 18 public listed companies in Plantations Industry in Sri Lanka, from 2013 to 2017 were examined. Findings - Findings indicate that there is a significant variation in financial ratio component composition through firms in Plantations Industry. Further Earnings per Share, Interest Cover and Net Asset per Share are stable over a period of time across firms while Current Ratio, Debt to Equity and Return on Equity are not and that there is a positive relationship between Leverage and Liquidity with profitability in firms. Practical Implications - The significant variation in financial ratio component composition might imply the incompetency of Financial Statement preparers in selection of proper components in calculation of financial ratios and as well might imply the intended manipulation by them through deliberate wrong selection of components. Originality/Value - This paper provides support to those financial analysts and investors who rely much on financial ratios presented in companies’ annual reports. Further identification of factors affecting to profitability of companies will enrich companies with useful information for decision making purpose. KEYWORDS - Financial Ratios; Ratio Analysis; Annual Reports