FIN420 Company\'S Financial Ratio Individual Assignments (Hwa Tai vs Hup Seng) PDF

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UNIVERSITI TEKNOLOGI MARA (UiTM) CAWANGAN MELAKAKAMPUS BANDARAYA MELAKA FINANCIAL MANAGEMENT (FIN 420) INDIVIDUAL REPORT PREPARED FOR: MADAM SHAHREENAPREPARED BY:NUR BATRISYIA BALQIS BINTI MASLUKANGCLASS :BA2432BSUBMISSION DATE:8 th JUNE 2021TABLE OF CONTENT 1 INTRODUCTION Contents 2 FINANCIAL RATIO...

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UNIVERSITI TEKNOLOGI MARA (UiTM) CAWANGAN MELAKA KAMPUS BANDARAYA MELAKA FINANCIAL MANAGEMENT (FIN 420) INDIVIDUAL REPORT PREPARED FOR: MADAM SHAHREENA

PREPARED BY: NUR BATRISYIA BALQIS BINTI MASLUKANG CLASS: BA2432B SUBMISSION DATE: 8th JUNE 2021

TABLE OF CONTENT Contents 1.0 INTRODUCTION .......................................................................................................... 1 2.0

FINANCIAL RATIO ANALYSIS (CALCULATION) ................................................. 3

3.0

CROSS SECTIONAL..................................................................................................... 7

4.0

CONCLUSION ............................................................................................................. 10

5.0

RECOMMENDATIONS .............................................................................................. 11

6.0

REFERENCES ............................................................................................................. 12

7.0

APPENDICES .............................................................................................................. 13

1.0 INTRODUCTION I picked two firms from the consumer products industry for my research. The consumer goods sector is defined as an industry that manufactures products that are often used on a daily basis and are intended for direct use by individuals or families to meet their needs and desires. This covers the manufacturing of food, clothing, drinks, vehicles, and electronics. Food and beverage production is one of the most profitable sectors. As a result, I selected Hwa Tai Berhad and Hup Seng Industries Bhd for this research.

HWA TAI BERHAD

Hwa Tai Industries Berhad is one of Malaysia's largest biscuit makers. It has been on the market for about 60 years following its inception in 1962. Following that, in 1992, Hwa Tai berhad was listed on the Malaysian Stock Exchange and continued to grow to become Malaysia's leading maker of high-quality and diverse cookies. Hwa Tai Berhad, via its own planned and effective distribution network, not only dominates the local market but also the worldwide market. Hwa Tai biscuits are marketed under the brand names "HWA TAI" and "LUXURY."

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HUP SENG INDUSTRIES BHD (HSIB)

Hup Seng Perusahaan Makanan (M) Sdn. Bhd. (HSPM), Hup Seng Hoon Yong Brothers Sdn. Bhd. (HSHY), and In-Comix Food Industries Sdn. Bhd. are the three(3) subsidiaries of HSIB (In-Comix). HSIB is an investment holding company whose subsidiary firms make and sell crackers, biscuits, and confectionary food products. Hup Seng (合成), which translates to "Success by Teamwork" in Chinese, was founded in 1958 as Hup Seng Co., a partnership between the Group's four founding Directors, all of whom are brothers. Hup Seng Co. was dissolved in 1974 due to corporate development and higher capital requirements, and HSPM was formed with all of the partnership's assets and liabilities transferred to it. In 1977, HSHY was formed to oversee trade, and in 2005, HSIB purchased a 100 percent ownership stake in In-Comix. Hup Seng is now one of Malaysia's biggest cracker/biscuit manufacturers. With effect from the Financial Year ended 31 December 2009, HSIB introduced a Dividend Policy requiring an annual dividend distribution of at least 60% of net profit after tax.

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2.0 FINANCIAL RATIO ANALYSIS (CALCULATION) TREND ANALYSIS Trend analysis is a technical analysis methodology that seeks to forecast future stock price movements based on previously observed trend data. Trend analysis is founded on the premise that what has happened in the past may provide traders with insight into what will happen in the future. Trends are classified into three types: short-term, intermediateterm, and long-term.

i.

HWA TAI BERHAD FINANCIAL RATIO ANALYSIS 2020

2019

2018

LIQUIDITY RATIO CURRENT

42043.0

43798.5

42361.9

RATIO

38457.0

35128.0

32532.6

=1.09 x

=1.25x

=1.30x

From 2018 to 2020, the present ratio of Hwa Tai is falling. However, Hwa Tai's liquidity ratio is greater than the industry average. This demonstrates that Hwa Tai can still cover its short-term liabilities. QUICK

(42043.0-9258.0-294.0)

RATIO

38457.0 = 0.85x

( 43798.5-8226.6-282.4)

(42361.9-8036.9-253.6)

35128.0 = 1.01x

32532.6 = 1.05x

Hwa Tai's fast ratio is expected to fall from 1.05 times in 2018 to 0.85 times in 2020. This demonstrates that Hwa Tai's quick ratio is lower than the average. This suggests that Hwa Tai is not financially secure and is having difficulty meeting its obligations to its creditors. ACTIVITY RATIO INVENTORY

73030.0

46546.7

46540.0

TURNOVER

9258.0

8226.6

8036.9

=7.8x

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=5.66x

=5.79x

In 2018, Hwa Tai managed to sell their goods 5.79 times, only to see a decline in 2019 to 5.66 times. However, by 2020, Hwa Tai had sold 7.8 times of its items, indicating a significant change in inventory turnover. This is a positive signal of Hwa Tai's solid sales and efficient purchasing, indicating that the firm is making appropriate inventory investments without overstocking.

TOTAL

74950.0

65352.7

64739.1

ASSET

63401.0

58837.3

57847.4

TURNOVER

=1.18x

=1.11x

=1.12x

The total assets turnover decreases by 0.01 time from 2018 to 2019, then increases to 1.18 times in 2020. The total asset turnover for 2020 demonstrates that the corporation is competent at earning income, despite being unstable in prior years. This demonstrates that the corporation is adept at managing its resources in order to create revenues. LEVERAGE RATIO DEBT RATIO

39807.0 / 63401.0 × 100 =62.79 %

36339.5 / 58837.3 × 100

33080.1 / 57387.4 × 100

=61.76 % =57.64 %

Hwa Tai's debt ratio has been steadily growing throughout the years. Despite a growing tendency, the company's debt ratio remains lower than the industry average. This shows that the Hwa Tai firm is competent at debt management and may experience little financial risk. PROFITABILITY RATIO RETURN ON

1095.0 / 23594.0 × 100

2220.9 / 22497.8 × 100

3915.8 / 24757.3 × 100

EQUITY

=4.64 %

=9.87 %

=15.82 %

The return on equity is expected to fall dramatically from 15.82 percent in 2018 to 4.64 percent in 2020. The falling ROE shows that Hwa Tai is unable to generate profits and increase shareholder value. This demonstrates that the firm is getting inefficient. GROSS

1920.0 / 74950.0 × 100

18806.0 / 63352.7 × 100

18199.2 / 64739.1× 100

PROFIT

=2.56 %

=29.68 %

=28.11 %

MARGIN The GPM of Hwa Tai has increased from 28.11 percent to 29.68 percent between 2018 and 2019. However, in 2020, Hwa Tai will experience a sharp reduction in GPM, which is now at 2.56 percent. This decrease suggests that the firm is not performing well in managing its cost of sales, since the revenue generated is inadequate to cover the operational and other expenditures associated with net income. 4|P age

NET PROFIT

1095.0 / 74950.0 × 100

2220.9 / 63352.7 × 100

3915.8 / 64739.1 × 100

MARGIN

=1.46 %

=3.51 %

=6.05 %

The fact that Hwa Tai's NPM has been declining over the last three years indicates that the firm is inefficient in translating revenue into actual profit.

ii.

HUP SENG INDUSTRIES BERHAD FINANCIAL RATIO ANALYSIS 2020

2019

2018

LIQUIDITY RATIO CURRENT

144884.5/80668.4

RATIO

= 1.80x

147362.2/76906.8 = 1.92x

157477.7/72281.7 =2.18x

Despite the fact that Hup Seng's current ratios are decreasing in trend, its current ratio is still greater than the average, which is 1. This implies that Hup Seng is prepared and capable of meeting its responsibilities to pay its debts when they become due. QUICK

(144884.5-29742.2-

(147362.2-24297.1-709.2)

(157477.7-25414.3-576.1) /

RATIO

552.4) / 80668.4

/ 76906.8

72281.7

= 1.43x

= 1.60x

= 1.82x

The examination of Hup Seng's quick ratio reveals that it is decreasing from 1.83 times in 2018 to 1.43 times in 2020. Despite the fact that the quick ratio is decreasing, the ratio in 2020; 1.43 times is still greater than the average quick ratio value of 1.0 times. This demonstrates that Hup Seng's firm is robust and capable of covering its responsibilities. ACTIVITY RATIO INVENTORY =222749.0 / 29742.2

=204250.7 / 24297.1

=197611.0 / 25414.3

TURNOVER

=8.41x

=7.78x

=7.49x

The Hup Seng ITO increased in trend from 2018 to 2019. However, the ITO of Hup Seng is exhibiting a downward trend through 2020. Nonetheless, the company's ITO demonstrates consistency in sales and effective purchasing without overstocking because it is still higher than the average value of ITO. This signifies that stock rates and sales are in balance. TOTAL

=327325.4/228780.0

=309539.0/234205.8

=307372.9/236464.4

ASSET

=1.43x

=1.32x

=1.30x

TURNOVER

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The Hup Seng company's total asset turnover has increased steadily over the last three years, rising from 1.30 times in 2018 to 1.43 times in 2020. This demonstrates that the firm is effective in generating sales. LEVERAGE RATIO DEBT

= (89000.1 / 228780.0)

= (86806.5 / 234205.8)

= (78193.9 / 236464.4) × 100

RATIO

× 100

×100

=33.07 %

=38.90 %

=37.06 %

Hup Seng's debt ratio has been steadily growing throughout the years. Despite a rising tendency, the company's debt ratio remains lower than the average. This shows that the Hup Seng firm is competent at debt management and may experience little financial danger. PROFITABILITY RATIO RETURN ON

= (40380.5 / 139779.8)

= (38933.8 / 147399.3)

= (42959.4 / 158270.5) ×100

EQUITY

× 100

×100

=27.14 %

=28.90 %

=26.41 %

Despite the fact that Hup Seng's ROE has been decreasing and increasing over the last three years, it is still maintaining its streak by having a high ROE value, demonstrating that this company is capable of making profits without needing as much money and is efficient in using the shareholders' capital. GROSS

= (104576.5 /

= (105288.4 / 309539.0)

= (109764.0 / 307372.9) ×100

PROFIT

327325.4) × 100

×100

=35.71 %

MARGIN

=31.95 %

=34.01 %

Hup Seng's GPM is decreasing in trend, however the company's GPM value remains greater than the average. This shows that Hup Seng is good at controlling its sales and producing income, and that it has enough cash to pay for indirect and other expenditures like interest and one-time charges. NET PROFIT

= (40380.5 / 327325.4)

= (38933.8 / 309539.0)

= (42959.4 / 307372.9) ×100

MARGIN

× 100

×100

=13.98 %

=12.34 %

=12.58 %

Hup Seng's NPM is considered average, despite the fact that it is decreasing in trend. This demonstrates that Hup Seng is effective at translating sales into actual profit.

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3.0 CROSS SECTIONAL A cross-sectional study is a sort of observational research that examines data from variables gathered at a particular period of time across a sample population or a predefined subgroup. This sort of study is also known as a cross-sectional analysis, a transverse study, or a prevalence study. Although cross-sectional research does not require experimentation, it is frequently used to explain results in the physical and social sciences, as well as many commercial domains.

THE CROSS-SECTIONAL FOR HWA TAI BERHAD AND HUP SENG INDUSTRIES BERHAD FOR THE YEAR 2020

RATIO 1. Liquidity

HWA TAI

HUP SENG

INTERPRETATION

i)Current ratio:

i)Current ratio:

Hup Seng does well in liquidity

42043.0 / 38457.0

144884.5/80668.4

ratios such as current ratio and

= 1.09x

= 1.80x

quick ratio, with ratios of 1.80 times and 1.43 times,

ii)Quick ratio:

ii)Quick ratio:

respectively. It demonstrates that

(42043.0-9258.0-

(144884.5-29742.2-

the firm is in good financial

294.0) / 38457.0

552.4) / 80668.4

health and has few financial

= 0.85x

= 1.43x

problems. Meanwhile, Hwa Tai does poorly in the liquidity ratios of current ratio and quick ratio, with ratios of 1.09 times and 0.85 times, respectively. Despite the fact that the current ratio is above normal. However, the quick ratio is less than one, indicating that Hwa Tai may have difficulty paying its creditors. The higher the ratio, the greater the business's capacity to satisfy its present liabilities.

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2. Activity

i)Inventory

i)Inventory

Then, for the activity ratio, Hup

Turnover:

Turnover:

Seng demonstrates that the firm

73030.0/9258.0

222749.0/29742.2

outperforms Hwa Tai. Hup Seng's

=7.8x

=7.49x

total asset turnover is 1.43 times greater than Hwa Tai's, which is 1.18 times. It suggests that Hup Seng can control their sales better

ii)Total Asset

ii)Total Asset

than Hwa Tai. In comparison,

Turnover:

Turnover:

Hwa Tai's inventory turnover is

74950.0/63401.0

327325.4/228780.0

7.8 times that of Hup Seng, which

=1.18x

=1.43x

is 7.49 times. This suggests that Hwa Tai is better at controlling stock rates and acquiring than Hup Seng.

3. Leverage

i)Debt ratio:

i)Debt ratio:

For the leverage ratio Hup Seng

(39807.0/63401.0

(89000.1/228780.0)

has a debt ratio of 38.90%

) × 100

× 100

meanwhile Hwa Tai has a debt

=62.79%

=38.90%

ratio of 62.79%. Both organisations demonstrate that they are adept at debt management and may face a minimal financial risk.

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4. Profitability

i)Return on

i)Return on Equity:

In terms of profitability ratio, Hup

Equity:

= (40380.5 /

Seng outperforms Hwa Tai. Hup

(1095.0/23594.0)

139779.8) × 100

Seng's return on equity, gross

× 100

=28.90 %

profit margin, and net profit

=4.64%

margin are 28.90 percent, 31.95 ii)Gross Profit

percent, and 12.34 percent,

ii)Gross Profit

Margin:

respectively, whereas Hwa Tai's

Margin:

(104576.5 /

are 4.64 percent, 2.56 percent,

(1920.0/74950.0)

327325.4) × 100

and 1.46 percent. There is a

× 100

=31.95 %

significant difference in the

=2.56%

profitability ratios of both firms. iii)Net Profit

A corporation with a greater

iii)Net Profit

Margin:

profit margin has more money to

Margin:

(40380.5 / 327325.4) cover operating expenditures such

(1095.0/74950.0)

× 100

as salaries and wages. High and

× 100

=12.34 %

expanding operational margins

=1.46%

are preferable since they allow the firm to make more money per dollar of sales.

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4.0 CONCLUSION In conclusion, this case study employs eight distinct ratio analyses for three years of financial statements for each of the companies I have picked, Hwa Tai and Hup Seng. Ratio analysis and interpretation is a key tool for assessing a company's success. It highlights the company's strengths and flaws. The Hup Seng firm excels at creating income and profit from its operations. Hwa Tai, on the other hand, has a dismal track record. Hwa Tai loses its capital and is unable to pay interest on the debts. Nonetheless, it is reasonable to say that both organisations are improving their ability to use their resources and inventory to produce sales year after year. Both organisations also demonstrate that they are adept at controlling debt and avoiding significant financial risk. Because of my mastery of financial ratios and analysis, I feel I can apply its guidelines in this case study. Following that, I concentrated only on trend or time-series analysis, as well as cross-sectional analysis, which includes all of the ratios analysis that I conducted for this report.

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5.0 RECOMMENDATIONS Hwa Tai's return on equity (ROE) has dropped dramatically from 15.82 percent in 2018 to 4.64 percent in 2020. This demonstrates that the firm is inefficient at deploying its resources, and all reinvestment is not benefiting its investors, and it is also having a negative influence on profits growth. Hwa Tai could explore aggressive marketing to enhance their earnings growth and return on equity ratio as the Covid-19 epidemic hit the world and everyone is confined, this time might be a fantastic chance for Hwa Tai to promote its goods. For example, Hwa Tai can collaborate with a charitable organisation that provides meals to individuals all around the country. This measure may serve as a springboard for Hwa Tai to expand sales while also increasing earnings and ROE.

In the case of Hup Seng, the quick ratio for 2020 reveals that it is declining from prior years, standing at only 1.43 times. It is undeniable that it is still above average, and the corporation is capable of meeting its duties and paying its bills. However, it is worrying since, while the firm has the capacity to satisfy its present commitments as they come due, there is a possibility that the total current liabilities may continue to grow to the point that the firm may face a financial difficulty. Hup Seng must raise its sales in order to avoid this. Hup Seng can enhance their sales by promoting their goods on social media platforms such as Instagram or Facebook.

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6.0 REFERENCES 1) https://www.wsj.com/market-data/quotes/MY/XKLS/5024/financials/annual/incomestatement 2) https://www.wsj.com/market-data/quotes/MY/XKLS/5024/financials/annual/balancesheet 3) https://www.wsj.com/market-data/quotes/MY/XKLS/8478/financia...