FIN420 Individual Assignment (1) Ratio 2 PDF

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UNIVERSITI TEKNOLOGI MARA (UiTM) MALACCA BRANCHMALLACA CITY CAMPUSSEMESTER 1 SESION 2020/OCTOBER 2020 – FEBRUARY 2021FINFINANCIAL MANAGEMENTASSIGNMENT:INDIVIDUAL CASE STUDYASSIGNMENT TITLE:AN ANALYSIS OF CORPORATE FINANCIAL PERFORMANCE: A TREND ANDCOMPARATIVE STUDYPREPARED FOR:MADAM SHAHREENA BINTI ...

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UNIVERSITI TEKNOLOGI MARA (UiTM) MALACCA BRANCH MALLACA CITY CAMPUS

SEMESTER 1 SESION 2020/2021 OCTOBER 2020 – FEBRUARY 2021 FIN420 FINANCIAL MANAGEMENT

ASSIGNMENT: INDIVIDUAL CASE STUDY

ASSIGNMENT TITLE: AN ANALYSIS OF CORPORATE FINANCIAL PERFORMANCE: A TREND AND COMPARATIVE STUDY

PREPARED FOR: MADAM SHAHREENA BINTI DAUD

PREPARED BY:

NO.

NAME

STUDENT ID

CLASS

PROGRAMME

1.

NURUL ASYIQIN BINTI ABDULLAH

2020637258

MIFH

BA243

SUBMISSION DATE: 17 JANUARY 2021

Table of Contents

CONTENTS

PAGE

1.0 Introduction

1

1.1 REDtone International Bhd

2

1.2 XOX Bhd

2

2.0 Financial Ratio Analysis

3

2.1 Trend Analysis 2.2 Cross-sectional Analysis

4-11 12-13

3.0 Conclusion

14

4.0 Recommendation

15

5.0 References

16

6.0 Appendices

17-35

1.0 Introduction

The objective of this assignment is to study the financial health of two companies by conducting a comparative analysis. I decided to choose two companies from the telecommunications industry which are REDtone and XOX to analyse and evaluate the statement of financial position and income statement of both companies by computing the performance indicators such as liquidity, leverage, activity, and profitability for three years. Those financial analysis tools are important to measure the strengths and weaknesses of the organisations’ performances. There are four category of ratio analysis which are liquidity ratio, activity ratio, leverage ratio, and profitability ratio. Liquidity ratio is calculated to measure the overall ability of a firm to meet its current obligations, while activity ratio; also known as efficiency ratio is to evaluate the ability of a firm to manage its assets effectively and efficiently. Leverage ratio is used to evaluate a firm’s financial structure and determine the level of sustainable debt or the firm’s ability to meet its liabilities obligations. Lastly, profitability ratio shows combined effects of liquidity, assets managements and debt operating results of a firm. Based on the ratios, we can evaluate the performance of the two companies over three years’ time and do comparison between the two firms which are of the same industry.

1

1.1 REDtone International Bhd

REDtone International Bhd is a digital infrastructure and services provider that offers services under three categories that are Telecommunications Services which offers data and voice services to government, enterprises, and small and medium enterprises (SMEs), Managed Telecommunications Network Services (MTNS) which includes building, maintaining and operating large scale Wi-Fi hotspots, radio access network (RAN) infrastructure and fibre optic infrastructure, and Industry Digital Services (IDS) which includes data centre services, internet of things (IoT) services, cloud services and applications, and healthcare solutions to enterprises, government and the healthcare industry. The company’s Telecom services generate maximum revenue for the company.

1.2 XOX Bhd

XOX Bhd is a Malaysia based company involved in telecom business sector. The company is an investment holding company. The product line of this company includes onemusic, season pass, onexox, and voopee. It has branches and service centre’s located throughout Peninsular Malaysia and East Malaysia. The ONEXOX plan offers fourth generation (4G) prepaid Internet service in Australia, Canada, China, Hong Kong, Indonesia, Singapore, Taiwan, Thailand, the United Kingdom, and the United States.

2

2.0 Financial Ratio Analysis

Ratio analysis involves methods of calculating and interpreting financial ratios to assess a firm’s financial condition and performance. It is of interest to shareholders, creditors, and the firm’s own management. There are three types of ratio comparisons which are trend or time-series analysis, cross-sectional analysis, and combined analysis. Trend or time-series analysis is used to evaluate a firm’s performance over time and cross-sectional analysis used to compare different firms at the same point in time while combined analysis simply uses a combination of both time-series analysis and cross-sectional analysis. For the purpose of this assignment, the trend or time-series analysis and crosssectional analysis are chosen. The cautions for doing ratio analysis are ratios must be considered together, financial statements that are being compared should be dated at the same point in time, use audited financial statements when possible, the financial data being compared should have been developed in the same way, and be wary of inflation distortions. Ratio analysis is divided into four categories which are liquidity ratios, activity ratios, leverage ratio and profitability ratios.

3

2.1 Trend Analysis

2.1.1

REDtone International Bhd

REDTONE INTERNATIONAL BHD RATIOS ANALYSIS 1000.00

Ratios

800.00 600.00 400.00 200.00

0.00 -200.00 Current Ratio

Total Asset Quick Ratio Turnover 1.74

0.18

Average Collection Period

Debt Ratio

947.11

0.42

Times Interest Earned Ratio -2.79

Net Profit Margin

Return On Asset

-0.26

-0.05

2017

1.75

2018

2.29

2.29

0.25

459.16

0.32

4.09

0.09

0.02

2019

2.67

2.67

0.37

147.98

0.31

31.55

0.26

0.09

Based on the chart, REDtone International Bhd has enough current asset to meet its current obligations and its current ratio keeps increasing over the years which indicates that the firm’s short-term obligations decrease and becomes lower than their current assets resulting to the increasing of the current ratios. The firm quick ratio also increases over the past three years with the same reason. The firm improve its ability to manage all its resources to generate sales over the past three years but still in poor condition. This indicates that the firm’s sale increasing bit by bit. As for debt collection, the firm has poor management on debt collection, but we can see the management team is trying hard to overcome the condition as the average collection period keeps decreasing rapidly by the years. Debt ratio also decrease which indicates that the firm is financing its assets less through debt. In 2019, the time interest earned ratio are the highest as the company’s earnings are significantly greater than annual interest obligations for that year. The net profit margin of the firm increases by year which means that it uses an effective cost structure and a good pricing strategy resulting in lower expenses. Lastly, the firm’s return on asset also keeps increasing as the result of decreasing its asset and increasing its sales over the years.

4

Types of Ratio

Current Ratio

Year

Formula

2017

Total current assets

165799000.00

Total current liabilities

94984000.00

Total current assets Inventory- Prepaid Expenses

165142000.00

1.74 x

Total current liabilities

94984000.00

Net Sales

42439000.00

The firm has the ability to pay its short-term obligations without relying on its inventory 0.18 x

Liquidity Ratios Quick Ratio

Total Asset Turnover Activity Ratios

Average Collection Period

Debt Ratio

Leverage Ratio

Times Interest Earned Ratio

Net Profit Margin Profitability Ratio Return On Asset

Total assets

236899000.00

Accounts receivable

111651000.00

Net sales/360

117886.11

Total liabilities

99121000.00

Total assets

236899000.00

EBIT

-6874000.00

Interest

2468000.00

Net Profit After Taxes

-10848000.00

Net sales

42439000.00

Net Profit After Taxes

-10848000.00

Total assets

236899000.00

5

1.75 x The firm has enough current asset to meet its current obligations.

The firms have poor ability to manage all of its resources to generate sales 947.11 days The firm has poor management of debt collection 42% The firm is good at managing its debt and may face lower risk later. -2.79 x The firm is not good in meeting their interest payment obligations and faces higher risk of default -26% Company earns less per RM and not able to maximize shareholder's wealth -5% Company is not able to make maximum use of its assets for getting more profits.

Types of Ratio

Year

Formula

2018

Total current assets Current Ratio

Liquidity Ratios

62650000.00

Average Collection Period

Times Interest Earned Ratio

Net Profit Margin

The firm has enough current asset to meet its current obligations. 2.29 x

Total current liabilities

62650000.00

Net Sales

52495000.00

The firm has the ability to pay its short-term obligations without relying on its inventory 0.25 x

Total assets

208318000.00

Accounts receivable

66955000.00

Net sales/360

145819.44

Total liabilities

65771000.00

Total assets

208318000.00

EBIT

8624000.00

Interest

2111000.00

Net Profit After Taxes

4769000.00

Net sales

52495000.00

Net Profit After Taxes

4769000.00

Profitability Ratio Return On Asset

2.29 x

143173000.00

Quick Ratio

Debt Ratio

Leverage Ratio

Total current liabilities Total current assets Inventory- Prepaid Expenses

Total Asset Turnover Activity Ratios

143610000.00

Total assets

208318000.00

6

The firms have poor ability to manage all of its resources to generate sales 459.16 days The firm has poor management of debt collection 32% The firm is good at managing its debt and may face lower risk later. 4.09 x The firm is not good in meeting their interest payment obligations and faces higher risk of default 9% Company earns less per RM and not able to maximize shareholder's wealth 2% Company is not able to make maximum use of its assets for getting more profits.

Types of Ratio

Year

Formula

2019

Total current assets Current Ratio

185834000.00

Total current liabilities

69522000.00

Total current assets Inventory- Prepaid Expenses

Liquidity Ratios Quick Ratio

Total current liabilities Net Sales

Total Asset Turnover

Activity Ratios

Average Collection Period

Debt Ratio

Leverage Ratio

Times Interest Earned Ratio

Net Profit Margin

185485000.00

2.67 x

69522000.00

The firm has the ability to pay its short-term obligations without relying on its inventory 0.37 x

85184000.00

Total assets

231697000.00

Accounts receivable

35016000.00

Net sales/360

236622.22

Total liabilities

71065000.00

Total assets

231697000.00

EBIT

34707000.00

Interest

1100000.00

Net Profit After Taxes

21990000.00

Net sales

85184000.00

Net Profit After Taxes

21990000.00

Profitability Ratio Return On Asset

Total assets

231697000.00

7

2.67 x The firm has enough current asset to meet its current obligations.

The firms have poor ability to manage all of its resources to generate sales 147.98 days The firm has poor management of debt collection but getting better than previous years 31% The firm is good at managing its debt and may face lower risk later. 31.55 x The firm is good in meeting their interest payment obligations and faces lower risk of default 26% Company is getting better on earning but not able to maximize shareholder's wealth 9% Company is not able to make maximum use of its assets for getting more profits.

2.1.2

XOX Bhd

XOX BHD RATIOS ANALYSIS 250.00 200.00

Ratios

150.00 100.00 50.00 0.00 50.00 100.00

Times Interest Earned Ratio

Current Ratio

Quick Ratio

Total Asset Turnover

Average Collection Period

Debt Ratio

2017

1.96

1.75

0.58

197.69

0.26

19.88

0.02

0.01

2018

1.90

1.67

0.57

209.17

0.25

-49.05

-0.07

-0.04

2019

1.09

1.01

0.70

210.25

0.48

-42.83

-0.17

-0.12

Net Profit Margin

Return On Asset

Based on the chart, XOX Bhd has enough current asset to meet its current obligations, however, over the years the current ratio keeps decreasing which indicates that the firm’s short-term obligations increases rapidly than their current assets resulting to the decreasing of the current ratios. The firm quick ratio also decreases over the past three years with the same reason. In 2019, the firm improve its ability to manage all its resources to generate sales a bit but still in poor condition. This indicates that the firm’s sale increasing bit by bit. As for debt collection, the firm has poor management on debt collection as the average collection period keeps increasing by the years. Debt ratio also increased by 23% in 2019 which indicates that the firm is financing its assets more through debt. In 2018, the time interest earned ratio are the lowest as the company’s earnings are significantly lower than annual interest obligations for that year. The net profit margin of the firm decreases by year which means that it uses an ineffective cost structure and also a poor pricing strategy resulting in high expenses. Lastly, the firm’s return on asset also keeps decreasing throughout the past three years which indicates the firm might have over-invested in assets that have failed to produce revenue growth.

8

Year Types of Ratio

Formula 2017

Current Ratio

Total current assets

72,201,442.00

Total current liabilities

36,837,723.00

Total current assets Inventory- Prepaid Expenses

Liquidity Ratios Quick Ratio

Total current liabilities Net Sales

Total Asset Turnover Activity Ratios

Average Collection Period

Debt Ratio

Leverage Ratio Times Interest Earned Ratio

Net Profit Margin Profitability Ratio

Return On Asset

64,615,499.00

36,837,723.00 86,708,728.00

Total assets

148,247,197.00

Accounts receivable

47,614,005.00

Net sales/360

240,857.58

Total liabilities

38,577,209.00

Total assets

148,247,197.00

EBIT

2,447,953.00

Interest

123,107.00

Net Profit After Taxes

1,988,649.00

Net sales

86,708,728.00

Net Profit After Taxes

1,988,649.00

Total assets

148,247,197.00

9

1.96 x The firm has enough current asset to meet its current obligations. 1.75 x The firm has the ability to pay its short-term obligations without relying on its inventory 0.58 x The firm has poor ability to manage all its resources to generate sales 197.69 days The firm has poor management of debt collection 26% The firm is good at managing its debt and may face lower risk later. 19.88 x The firm is good in meeting their interest payment obligations and faces lower risk of default 2% Company earns less per RM and not able to maximize shareholder's wealth 1% Company is not able to make maximum use of its assets for getting more profits.

Types of Ratio

Year

Formula

2018 Total current assets Current Ratio

Total current assets Inventory- Prepaid Expenses

Liquidity Ratios Quick Ratio

Total Asset Turnover Activity Ratios

Average Collection Period

Debt Ratio

Leverage Ratio

Times Interest Earned Ratio

Net Profit Margin Profitability Ratio

Total current liabilities

Return On Asset

74,620,947.00

39,190,612.00

1.90 x The firm has enough current asset to meet its current obligations.

65,361,225.00

1.67 x

Total current liabilities

39,190,612.00

Net Sales

90,501,007.00

The firm has the ability to pay its short-term obligations without relying on its inventory 0.57 x The firms have poor ability to manage all of its resources to generate sales

Total assets

159,672,786.00

Accounts receivable

52,582,558.00

209.17 days

Net sales/360

251,391.69

The firm has poor management of debt collection

Total liabilities

40,687,159.00

Total assets

159,672,786.00

EBIT

-5,894,908.00

Interest

120,190.00

Net Profit After Taxes

-6,220,974.00

Net sales

90,501,007.00

Net Profit After Taxes

-6,220,974.00

Total assets

159,672,786.00

10

25% The firm is good at managing its debt and may face lower risk later. -49.05 x The firm is not good in meeting their interest payment obligations and faces higher risk of default -7% Company earns less per RM and not able to maximize shareholder's wealth -4% Company is not able to make maximum use of its assets for getting more profits.

Types of Ratio

Current Ratio

Quick Ratio

Total Asset Turnover Average Collection Period

Debt Ratio

Leverage Ratio

Times Interest Earned Ratio

Net Profit Margin Profitability Ratio

Total current assets

91,337,258.00

Total current liabilities

83,448,889.00

Total current assets I...