Case Study FIN 240 Complete - Dutch LADY PDF

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FACULTY OF BUSINESS AND MANAGEMENTBACHELOR IN OFFICE SYSTEMS MANAGEMENT (HONS)FINANCIAL MANAGEMENT (FIN420)CASE STUDY: FINANCIAL RATIO ANALYSISDUTCH LADY MILK INDUSTRIES BERHAD (DLMI)PREPARED BY:NAME MATRIC IDNUR NAJWA ADILAH BINTI MOHD HUSAINI 2021172827HANNAH YASMIN BINTI ADAM 2021120427NUR RAIHAN...

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FACULTY OF BUSINESS AND MANAGEMENT BACHELOR IN OFFICE SYSTEMS MANAGEMENT (HONS) FINANCIAL MANAGEMENT (FIN420) CASE STUDY: FINANCIAL RATIO ANALYSIS

DUTCH LADY MILK INDUSTRIES BERHAD (DLMI) PREPARED BY: NAME

MATRIC ID

NUR NAJWA ADILAH BINTI MOHD HUSAINI

2021172827

HANNAH YASMIN BINTI ADAM

2021120427

NUR RAIHANA ANNISYA BINTI MOHD ROSDI

2021393435

NUR HUSNA BT ZULFIKRI

2021340965

NURFATIN FATINI BINTI MAT ROWI

2021101375

PREPARED FOR: DR. MOHD HANIF BAHARUDIN

GROUP: BA232/2C

SUBMISSION DATE: 14 JUNE 2021

TABLE OF CONTENT

ACKNOWLEDGEMENT EXECUTIVE SUMMARY 1.0 INTRODUCTION OF THE COMPANY…………………………………..…….…..1-4 2.0 STATEMENT OF FINANCIAL POSITION IN 2020 & 2019…………………..……5 3.0 STATEMENT OF PROFIT OR LOSS IN 2020 & 2019………………………..……6 4.0 CASE STUDY: FINANCIAL RATIO 2019………………………………………………………………..….7-8 2020…………………………………………………………..…..….9-10 5.0 ANALYSIS FOR 2 YEARS OF DUTCH LADY MILK COMPANY………..…..11-13 6.0 CONCLUSION…………………………………………………………………….......14

ACKNOWLEDGEMENT

Alhamdulillah, we are very thankful to Allah S.W.T, with His authorization allowing us the chance to finish our case study report. We had at last figured out how to wrap up our task that given by our lecturer with extraordinary enthusiasm and ascertainment. Most importantly, we would like to express our gratitude to Dr. Mohd Hanif Baharudin, as our lecturer of Financial Management (FIN420) and furthermore allocate as our tutor who had guided us a ton in finishing this case study report. We would be facing difficulties without help from him. His guidance and explanations really help us a lot in finishing our case study report. Even though we only learn through online classes, but he is always prepared in helping us and giving solution to us. He additionally had guided us on the best way to finish this task. Without direction and guidance from Dr. Hanif, we would not have the option to finish this task. Not to be forgotten, a big appreciation to our group members in helping and supporting each other to complete this case study report from the beginning till the end. Besides that, thank you to our parents and friends for their cooperation, encouragement, constructive suggestion and full of support in the completion of this report. Lastly, we had used our effort and acknowledgement to use ideas that approved by our lecturer. Hoped our effort was worth it. For those involved and directly or indirectly in this case study report, we are so thankful for each help and information that we received. We wish for everyone to stay healthy and stay safe.

EXECUTIVE SUMMARY

The purpose of this case study is to look into and analyse the situational impact of financial ratio of the Dutch Lady Industrial Berhad for 2019 and 2020. The findings showed that financial ratio is an accounting ratio or an analysis tool with purpose to evaluate firms’ performance based on firms’ financial statement. Financial ratios also used by financial analysts to compare the strengths and weaknesses in the firm itself. Examples such as liquidity ratios, activity ratios, leverage ratios, profitability ratios and market/equity ratios are used to analysis or interpret Dutch Lady Malaysia Industries (DLMI) performances. Generations in Malaysia have created up an expending of Dutch Lady. For a long time, Dutch Lady Industries Berhad (Dutch Lady Malaysia) has made the commerce to supply quality dairy and nourishment drinks to our nation. With a strong organization gather and workforce of roughly 600 representatives, Dutch Lady Malaysia sets its mission to help Malaysians to move forward in life with their trusted dairy food. Consequently, Dutch Lady proceed to driving inside the milk industry in 2020 with a 36.7% showcase. (Dutch Lady Industries Berhad Annually Report 2020).

The financial year finished on 31 December 2020, and has been an abnormal one for Dutch Lady Industries Berhad (DLMI). Plus, with outside and inside challenges that brought out the leading in their company in spite of the numerous obstacles set in their way, they remained centred on long term maintainable development by keeping enduring to their ‘Purpose’, ‘Individuals’, ‘Planet’ and ‘Performance’ for present day and new eras to come.

Dutch Lady Milk Industries posted a solid income of RM1.101 billion, accomplishing development of 3.2% and RM97.5 million Before Tax, in spite of rising worldwide dairy costs, foreign exchange fluctuations and suggestions due to COVID19. Dutch Lady Milk Industries also finished the year in a solid cash position, at RM55.6 million, regardless their investment in capital consumption. This incorporates invest of a land in Bandar Enstek, Negeri Sembilan where they make plans to contribute an encourage of RM340 million within few years later to build new

manufacturing facility. Hence, they had various community activities to guarantee the underprivileged communities. Over a long time, Dutch Lady Milk Industries sustainability has progressively become important to trade. They proceed to nourishing a higher population with trusted quality, secure, and reasonable nourishment whereas encouraging supportability over their value chain, which is ‘From Grass to Glass’. Besides, Dutch Lady Milk Industries also going begin setting out on more centred and streamlined activities based on new Sustainability Roadmap. In spite of the fact that affected by COVID-19, opportunities in this section give future roads for Dutch Lady development going forward. Which we attempt to answer the question: Does the financial ratio for 2020 is better than 2019?

1.0 INTRODUCTION TO DUTCH LADY MILK INDUSTRIES BERHAD (DLMI)

Background

Before they changed the company name to Dutch Lady Milk Industries Berhad (DLMI) in 2000, Pacific Milk Industries (Malaya) Sdn. Bhd. was started and well-known since 1963, where it was specially made to produce sweetened condensed milk in its factory in Petaling Jaya, Selangor. DLMI become Friesland Foods’ first production facility outside the Netherlands. For 57 years, they have comprised the changing lifestyles of their consumers and grew to meet the consumer nutritional needs well. Today, DLMI is a 600-tough corporation that offers a widespread range of quality and enjoyable milk based on cow milk and dairy products, from formulated milk powder, yogurt drinks to fresh milk.

DLMI have been using the Ultra-high Temperature

Processing (UHT) and packaging machinery since 1970s to produce milk in the country. It has been distributed countrywide with a good purpose statement and helps them to accomplish DLMI purpose. They strived to continuously providing consumers a better nutrition for the nation and to constantly help citizens of Malaysia to stay nourished and vigorous to keep moving forward in their life. The company endlessly to increasingly create and present new products into the Malaysians marketplace such as sterilised milk were locally made and sold in plastic bottles in 1983, meanwhile production of chilled milk products in 1986, and also fruit yogurt and keep growing up milk were presented into the marketplace in 1988.

Dutch Lady Malaysia was

described as the market share leader in the growing up milk sector by holding 40% of

1

national market share. DLMI is a leading dairy company with international managing framework that concentrate on a durable local presence to stay close with their consumers in Malaysia. Halal Commitment

Dutch Lady Milk Industries Berhad’s (DLMI) goods are certified Halal by the Halal Hub Division of the Section of Islamic Development Malaysia (JAKIM), Selangor Islamic Religious Section (JAIS) and more relevant recognised Foreign Halal Certification Bodies and Specialists.

DLMI industrial procedures reveal an

understanding which are Halal foods and drinks are vital to Malaysians, especially when it comes to every Muslim’s consumers. DLMI is totally dedicated to upholding these standards of Halal and also in preserving customer’s sureness in every DLMI’s product. As a Halal dairy products manufacturer, DLMI production services are subject to systematic routine, inclusive site visits by JAKIM and JAIS enforcement generals. There will be an official JAKIM Halal logo on every packets of products. Meanwhile for imported Dutch Lady Products, it will be certified Halal by the original country’s Halal Certification Bodies that must be accepted by JAKIM. Halal logo also guarantees the costumers that DLMI obey to strict hygienic exercises, begin with hygiene of employees and processing to ship and pack. This will sustain the brand’s long-lasting worthy reputation in modest marketplace.

Location Dutch Lady Milk Industries Bhd. Jalan 13/6, Pjs 13, 46200 Petaling Jaya, Selangor, Malaysia

2

Mission: Helping Malaysians move forward in life with trusted dairy nutrition.

Vision: To further strengthen our position as the leading dairy company, driving growth.

Organizational Chart

Dato' Zainal Abidin bin Putih CHAIRMAN

Datin Seri Sunita Mei-Lin Rajakumar DIRECTOR

Darren Kong Kam Seong DIRECTOR

Tarang Gupta

Katina Nurani Binti Abd Rahim

DIRECTOR

SECRETARY

Saw Chooi Lee

Bernardus Hermannus Maria Kodden DIRECTOR

DIRECTOR

Tengku Nurul Azian Binti Tengku Shahriman DIRECTOR

3

Jean Serge Krol DIRECTOR

Dato’ Dr Rosini Binti Alias DIRECTOR

Products

Growing Up Milk

UHT Milk

Pasteurised Milk

Sterilised Milk

Juicy Milk

Eating & Drinking Yogurt

Full Cream Milk

Foaming Milk

4

Milk Powder

2.0 STATEMENT OF FINANCIAL POSITION IN 2020 & 2019

5

3.0 STATEMENT OF PROFIT OR LOSS IN 2020 & 2019

6

4.0 CASE STUDY: FINANCIAL RATIO 2019 (RM’000)

SOLUTION

FORMULA

WORKING

ANSWER

Current Asset

RM314,460

1.08 X

Current Liabilities

RM292,043

Current Assets – Inventory

RM314,460 – 135,024

Current Liabilities

RM292,043

Current asset

RM314,460

Current liabilities

- RM292,043

Sales

RM1,066,662

Account Receivable

RM112,852

Sales

RM1,066,662

Total Assets

RM443,594

Liquidity Ratios i.

ii.

Current Ratio

Quick/ Acid Test Ratio

iii.

Net Working Capital

-

0.61 X

RM22,417

Activity Ratios

i.

Account Receivable

9.45 X

Turnover

ii.

Total Asset Turnover

iii.

Average Collection Period (days)

iv.

v.

Inventory Turnover

Fixed Asset Turnover

Account Receivables

RM112,852

Sales (360)

RM1,066,662

x 360

COGS/Sales

RM661,942

Inventory

RM135,024

Sales

RM 1,066,662

Fixed Asset

RM129,134

7

2.40 X

38 days

4.90 X

8.26 X

Leverage or Solvency Ratios i.

ii.

Debt Ratio

Debt to Equity

Total Debt

RM299,177

Total Assets

RM443,594

Long Term Debt Equity

iii.

Time Interest

RM7,134

X 100

X 100

67.44 %

0.05 %

RM144,417

EBIT/Operating Income

RM140,842

Interest

RM3,697

38.09 X

Profitability Ratios i.

Gross profit Margin

ii.

Operating Profit Margin

iii.

iv.

v.

Net Profit Margin

Return on Assets

Return on Equity

Gross Profit Sales

RM404,720

X 100

37.94 %

X 100

13.20 %

x 100

9.65 %

x 100

23.21 %

x 100

71.29 %

RM1,066,662

EBIT/Operating Income

RM140,842

Sales

RM1,066,662

Earning After Tax

RM102,958

Sales

RM1,066,662

Earning After Tax

RM102,958

Total Asset

RM443,594

Earning After Tax

RM102,958

Total Equity

RM144,417

8

2020 (RM’000)

SOLUTION

FORMULA

WORKING

ANSWER

Current Asset

RM288,435

0.88 X

Current Liabilities

RM324,181

Current Assets –

RM288,435 – 151,016

Inventory

RM324,181

Liquidity Ratios i.

ii.

Current Ratio

Quick/ Acid Test Ratio

0.42 X

Current Liabilities

iii.

Current asset

Net Working Capital

RM288,435

-

– RM324,181

RM35,746

Sales

RM1,100,659

13.50 X

Account Receivable

RM81,501

Sales

RM1,100,659

-

Current liabilities

Activity Ratios

i.

Account Receivable Turnover

ii.

Total Asset Turnover

Total Assets

iii.

iv.

v.

Average Collection

Account receivables

RM498,845

RM81,501

x 360

Period (days)

Sales (360)

Inventory Turnover

COGS/Sale

RM743,582

Inventory

RM151,016

Sales

RM1,100,659

Fixed Asset

RM210,410

Fixed Asset Turnover

9

2.20 X

26 days

RM1,100,659

4.92 X

5.23 X

Leverage or Solvency Ratios i.

ii.

Debt Ratio

Debt to Equity

Total Debt

RM332,265

Total Assets

RM498,845

Long Term Debt Equity

iii.

Time Interest

RM8,084

X 100

66.60 %

X 100

0.04 %

RM166,580

EBIT/Operating Income

RM100,001

Interest

RM3,173

31.51 X

Profitability Ratios i)

Gross profit Margin

Gross Profit Sales

ii) Operating Profit Margin

iii) Net Profit Margin

EBIT/Operating Income Sales

Earning After Tax Sales

iv) Return on Assets

v) Return on Equity

RM357,077

32.44 %

X 100

9.08%

x 100

6.66 %

x 100

14.70 %

x 100

44.04 %

RM1,100,659

RM100,001 RM1,100,659

RM73,363 RM1,100,659

Earning After Tax

RM73,363

Total Asset

RM498,845

Earning After Tax

RM73,363

Total Equity

RM166,580

10

X 100

5.0 ANALYSIS FOR 2 YEARS OF DUTCH LADY MILK INDUSTRIES BERHAD (DLMI) According to result the current ratio for Dutch Lady Milk Industries Berhad in 2019 is 1.08 times, while in 2020 is 0.88 times. The company’s liquidity reduces a little bit between 2019 and 2020 since it decreases from 1.08 times to 0.88 times. Under normal circumstances, higher liquidity is preferred as it indicates higher ability to meet short-term obligations as they come due. This shows that the company do not have a good liquidity within the year. For quick ratio, it is used to measure the firm ability to pay off its short-term obligations without having to rely on the sale inventory and prepaid, that tends to be the least liquid of the current assets. It is considering only for cash and current assets that can easily be converted into cash.

From the

table, the company do not perform the better performance as the times is decreasing from 0.61 times in 2019 to 0.42 times in 2020. Ratio of less than one is common, and should not cause an alarm because not all current liabilities are due at once. Besides that, for networking capital, we can analysis that the ratio has decreased from RM22,417 in 2019 to -RM35,746 in 2020. Next, we focus on activity ratio. The result of account receivable turnover is the ratio that used to measure the ability of the company to pay to their receivable. The higher the ratio, the more effect the company in collecting the debt from the receivable. In this table show that the Dutch Lady company have a good account receivable turnover ratio as it is increasing from 9.45 times in 2019 to 13.50 times in 2020. Besides that, TATO or Total Asset Turnover is used to measure the ability of the company to use their assets to generate sales. Here, the table shows that the TATO is decrease from 2.40 times in 2019 to 2.20 times in 2020. So, this means that the company is failing to efficiently employ its assets to generate sales because higher ratio is preferable to show that a company has effectiveness in using all of its asset to generate sales within years to years. For average collection periods, as a result we can recognize it decreased from 38 days in 2019 to 26 days in 2020. Shorter period is preferred as the cash cycle is lower and more cash is available in the company to meet cash requirements. So, average collection periods of the company in 2020 is better than in 2019 because it has shorter period. After that, in inventory turnover ratio, we identify that it was increased through the years from 2019 is 4.90 times to 11

4.92 times in 2020. Here we understand that the cost of goods sold is higher year to year as well as the turnover is also decreasing because the increasing rate of sales is higher than average inventory. Lastly, in fixed asset turnover ratio was high as 8.26 times in 2019 compared to 2020 which is 5.23 times. This lower fixed asset turnover ratio shows that Dutch Lady Milk Industries Berhad had less effectiveness in using the investment in fixed assets to generate its revenues and it is falling year after year. Thirdly, we move to leverage ratio which is debt ratio. As the name, this ratio is measuring the percentage of total assets that are financed by debts. Debt Ratio will indicate the amount of debt in the firm’s financial structure. Here, the table show that the firm debt ratio is in good condition as it become lower from 67.44% to 66.60%. The lower the debt ratio, the better it is for the company.

After that, debt to equity

ratio shows that in 2019, it is 0.05% but decreased to 0.04% in 2020. The lowest the ratio, the less leveraged the company and not fully utilizing the cheaper source of finance such as debt. Lastly, time interest ratio. We realize that the lower ratio indicates that firm cannot meet loan requireme...