Financial Analysis Ratio Assignment for two company PDF

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FIN420 : FINANCIAL MANAGEMENTAn Analysis of Corporate Financial Performance: ATrend and Comparative Study for CCK ConsolidatedHoldings Berhad and Saudee Group BerhadReviewed by: MADAM ZARINAH BINTI ABU YAZID Prepared by: Name Student IDHAZIQ ADRI BIN SAIFUL RIZA 2020853518Group: BA2462AAcknowledgeme...

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FIN420 : FINANCIAL MANAGEMENT An Analysis of Corporate Financial Performance: A Trend and Comparative Study for CCK Consolidated Holdings Berhad and Saudee Group Berhad

Reviewed by: MADAM ZARINAH BINTI ABU YAZID Prepared by: Name

Student ID

HAZIQ ADRI BIN SAIFUL RIZA

2020853518 Group: BA2462A

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Acknowledgement I am grateful because I managed to complete my report of case study within the time given by my lecturer Madam Zarinah Binti Abu Yazid. This individual assignment will not get through without the effort and cooperation from my friends, family members, and my own lecturer. Their support, inspirations, comments and suggestions contribute a valuable strength to complete this assignment which is about the topic in the subject of Financial Management (FIN420). The case study is related to Chapter 3: “Financial Ratio and Analysis” in our syllabus and needed to explain both company’s trend and cross-sectional analysis. Besides, a big thanks addressed to our lecturer, Madam Zarinah Binti Abu Yazid, who taught me how to create good research. I would also like to thank her for motivating me to do my best shot as well as for her pieces of advice on how I improve it. Additionally, I would like to thank our Almighty God for guiding and giving me natural endowment, skills, healthy mind and body, of whom the researchers are eternally grateful and dedicated, having the patience to make this group assignments a better one. Also, for my parents give us support to do well in this case study: Thank you.

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Table of Contents INTRODUCTION .................................................................................................................. 4 TYPE OF RATIO................................................................................................................... 6 TREND ANALYSIS ............................................................................................................... 6 TREND ANALYSIS : CCK CONSOLIDATED HOLDINGS BERHAD (CCK) .......................... 6 TREND ANALYSIS: SAUDEE GROUP BERHAD ............................................................... 14 CROSS-SECTIONAL ANALYSIS : CCK CONSOLIDATED HOLDINGS BERHAD VS SAUDEE GROUP BERHAD ............................................................................................... 22 CONCLUSIONS.................................................................................................................. 26 RECCOMENDATION.......................................................................................................... 26 REFERENCES ................................................................................................................... 27

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INTRODUCTION

CCK Consolidated Holdings Berhad (“CCK”) was established on 5th August 1996 as an investment holding company and was listed on the Second Board of the Kuala Lumpur Stock Exchange on 10th December 1997. CCK Group is the collective name for CCK and its subsidiaries, with the principal activities of poultry and retailing. The businesses are carried out primarily in Sarawak, Sabah and Indonesia (Jakarta and Pontianak). Today, CCK have 65 wholesale and retail stores, trading departments as well as factories throughout Sabah and Sarawak. They also involves in prawn agriculture and prawn processing using the latest farming technology and robotics to ensure environmental friendly when producing a prawn-based product. Throughout the year, CCK Group has experienced dynamic growth and is fully committed towards expanding its presence throughout Malaysia to supply quality fresh and frozen food products in the region. CCK Group continues to upgrade its production capacities and increase its product range in quest to become one of the largest integrated poultry producers in the region.

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The Saudee Group of Companies, which includes Perusahaan Saudee Sdn Bhd and Saudi Cold Storage Sdn Bhd, was founded in 1985. The manufacturing plant is in Sungai Petani, which is in the heart of Kedah’s industrial sector. With a total workforce of 500 people, they are currently one of Malaysia’s largest and most progressive packaged frozen food manufacturers. Saudee Group Berhad was experts in manufacturing of frozen processed food products such as burger patties, nuggets, sausages, meat balls and many others. Saudee Group Berhad classify their product into two category which is Saudi Gold and Farm Gold. Although both product have the same type of production, Saudee Gold products are more superior than Farm Gold product based on their quality because only the freshest ingredients and latest manufacturing processes are used to produce the products of and exceptional quality, taste and flavor. They also have different clients or customer target that may be a factor to this different product. Saudi Gold’s clients are mostly frozen wholesalers, international key account hyper markets, local key account supermarkets, food and beverage stores, hotels, and other eateries while Farm Gold’s client are mainly wholesalers and cash and carry stores where food hawkers and school canteen operators will buy from these channels. The company's goal is to create revolutionary products that will outperform the competition and become one of the most widely distributed OEM products. Saudi Gold and Farm's Gold, our flagship brands, are available at all major retail outlets in Malaysia and have been recognised as some of the most creative items on the market. It's the culmination of our 30-year track record of producing high-quality goods.

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TYPE OF RATIO When comparing a financial ratio from a company or more than one companies, it is important to know about what type of ratio analysis you need to prepare in order to get a better view of your company’s financial level. There are 2 types of ratio analysis that can be used to evaluate your company’s financial performance which are Trend Analysis and Cross-Sectional Analysis. Both analysis have different purposes to get different views of your company financial performances

TREND ANALYSIS Trend analysis is an analysis of the trend of the company by comparing its financial statements to analyse the trend of market or analysis of the future on the basis of results of past performances and it’s an attempt to make the best decisions on the basis of results of the analysis done. Trend analysis involves collecting the information from multiple periods of time and plotting the collected information on the horizontal line with the objective of finding actionable patterns from the given information. In finance, trend analysis is used for Technical analysis and Accounting analysis of stocks.

TREND ANALYSIS : CCK CONSOLIDATED HOLDINGS BERHAD (CCK) When it comes to analyse a financial performance, there are 4 ratios that is involved to evaluate your company’s financial performance which are Liquidity ratios, Activity ratios, Leverage ratios, and Profitable ratios. All of them have different purposes and are required for you to review your financial statements in a different angle of views. a) Liquidity Ratios In a nutshell, a company's liquidity is its ability to meet its near-term obligations, and it is a major measure of financial health. Liquidity can be measured through several ratios which are Current ratios, and Quick ratios.

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i. Current ratio The most basic liquidity test is the current ratio. It denotes a firm's ability to fulfil shortterm obligations with short-term assets. A current ratio of one or greater means that current assets should be sufficient to meet short-term obligations. If the current ratio is less than one, the company could be experiencing liquidity problems. Current Ratio = (Current Assets) ÷ Current Liabilities Current Ratio Company / Years CCK

2018

2019

2020

1.58x

2.53x

1.99x

CCK’s Current ratio for all three years consecutive show good ratio performance. Although there is a decrease of current ratio in 2020, the company still manage to fulfill their current obligations with their available current assets. We can see that 2019 had the highest current ratio which indicates that the company had the most effectiveness to fulfill their current obligation with current assets. ii. Quick Ratio The quick ratio is more difficult to calculate than the current ratio. It gets rid of some current assets like inventory and prepaid expenditures, which can be difficult to turn to cash. A short ratio above one, like the current ratio, indicates that a business should have few problems with a state of liquidity. The higher the ratio, the more liquid the enterprise is, and the better able it is to ride out any downturn in its business. Quick Ratio = (Current Assets - Prepaid expenses - Inventory) / (Current Liabilities)

Quick Ratio Company / Years CCK

2018

2019

2020

0.88x

1.81x

1.24x

CCK’s quick ratio for all three years consecutive show good ratio performance. Based on the table above, we can see that the company had the highest quick ratio performance on 2019. Therefore, it shows that the company had the most effectiveness to pay its short term obligation without relying on their inventory on 2019.

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b) Activity Ratio type of the financial ratios which are used by the company in order to determine the efficiency with which the company is able to use its different operating assets that are present in its balance sheet and convert the same into the sales or the cash. There are 5 types of ratios in Activity ratio. i. Inventory Turn Over For a company to be profitable, it must be able to manage its inventory, because it is money invested that does not earn a return. The best measure of inventory utilization is the inventory turnover ratio (aka inventory utilization ratio), which is the total annual sales or the cost of goods sold divided by the cost of inventory. COGS ÷ Inventory Inventory Turn Over Ratio Company / Years CCK

2018

2019

2020

9.16x

9.47x

9.52x

CCK’s Inventory Turn Over Ratio for all three years consecutive show good ratio performance. Based on the table above, we can see that the company had the highest Inventory Turn Over Ratio performance on 2020. Therefore, it shows that the company had the most effectiveness of inventory to generate sales in 2020. ii. Average Collection Period (ACP) This indicates the collection period in days of the account receivable.

Account Receivable ÷ (Sales/360) Average Collection Period (ACP) Company / Years CCK

2018

2019

2020

23 days

22 days

18 days

CCK’s ACP for all three years consecutive show good ratio performance. This is because the company’s ACP is decreasing year by year, shows that the company has no problem in collecting debt. 8|Page

iii. Total Assets Turn Over (TATO) The assets turnover ratio compares the value of a company’s assets to the value of its sales or profits. The assets turnover ratio is a formula that measures how effectively a business uses its assets to produce revenue. Sales ÷ Total Assets Total Assets Turn Over (TATO) Company / Years CCK

2018

2019

2020

1.66x

1.62x

1.54x

CCK’s Total Assets Turn Over Ratio for all three years consecutive show good ratio performance. Based on the table above, we can see that the company had the highest Total Assets Turn Over Ratio performance on 2018. Therefore, it shows that the company had the most effectiveness of total assets to generate sales in 2018. Although the company’s TATO is decreasing from 2018 until 2020, it still shows a good performance because it is not a negative value. iv. Account Receivable Turn Over (ARTO) Accounts receivable is the total amount of money due to a company for products or services sold on an open credit account. The accounts receivable turnover shows how quickly a company collects what is owed to it.

Sales ÷ Account Receiveable Account Receivable Turn Over (ARTO) Company / Years CCK

2018

2019

2020

15.73x

16.41x

20.10x

CCK’s ARTO Ratio for all three years consecutive show good ratio performance. This is because the company’s ARTO was increasing from 2018 – 2020. Based on the table above, we can see that the company had the highest Inventory Turn Over Ratio performance on 2020. Therefore, it shows that the company had the most effectiveness of collecting receivable in 2020.

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v. Fixed Assets Turn Over (FATO) The fixed assets turnover ratio compares the value of a company’s fixed assets to the value of its sales or profits. The assets turnover ratio is a formula that measures how effectively a business uses its fixed assets to produce revenue. Sales ÷ Net Fixed Assets Fixed Assets Turn Over (FATO) Company / Years CCK

2018

2019

2020

2.88x

2.76x

2.61x

CCK’s FATO Ratio for all three years consecutive show good ratio performance. Based on the table above, we can see that the company had the highest Inventory Turn Over Ratio performance on 2018. Therefore, it shows that the company had the most effectiveness of using fixed assets to generate sales in 2018. Although the company’s FATO was decreasing from 2018 – 2020, it still shows good performance as its value were positive and more than 1. c) Leverage Ratio. Leverage ratio is a financial measurement used to measure the extent to which a firm is using debt financing and the degree of safety that the firm provides to the creditors. The leverage ratio is important because businesses use a combination of equity and debt to fund their operations, and understanding how much debt a company owes will help determine if it can pay off its debt. There are 3 ratios commonly use to analyze financial performance under Leverage ratio : i. Debt Ratio The debt ratio is defined as the ratio of total debt to total assets, expressed as a decimal or percentage. It can be interpreted as the proportion of a company’s assets that are financed by debt. Higher percentage of debt ratio means that higher amount of debt to finance the assets, it also indicate higher risk. (Total Liabilities ÷ Total Assets ) x 100 Debt Ratio Company / Years CCK

2018

2019

2020

32.38%

31.41%

49.84%

CCK’s debt ratio for all three years consecutive show good ratio performance. It shows that the company has more assets than debt as the percentage is less 100%. However, there was an increase of debt ratio from 2018 -2020 indicates that the risk is gradually increase. 10 | P a g e

ii. Debt to Equity Ratio (DER) In corporate finance, the Debt to Equity ratio is a crucial measure. It’s an indicator of how much a corporation relies on debt to finance its activities rather than wholly-owned funds. It also represent the willingness of shareholder equity to pay all the unpaid debts. (Total Liabilities ÷ Equity ) x 100 Debt to Equity (DER) Company / Years CCK

2018

2019

2020

47.87%

45.79%

41.48%

CCK’s DER for all three years consecutive show good ratio performance. This is because It shows that the company had a decrease in the percentage of DER from 2018-2020. It indicates that the company’s debt is gradually decrease from year to year. iii. Time interest earned (TIE) Time interest earned (TIE) is a financial ratio that measure of how much that the company can meet its fixed interest payment and lower risk of default. EBIT ÷ Interest Time interest earned (TIE) Company / Years CCK

2018

2019

2020

10.75x

10.51x

20.31x

CCK’s TIE for all three years consecutive show good ratio performance. This is because It shows that the company had an increase on the value of TIE from 2019-2020. It indicates that the company can meet its fixed interest payment and lower risk of default. Although the company’s TIE was decreasing from 2018-2019, its decreasing value change is much lesser than its increasing value change.

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d) Profitability Ratio Profitability is the most important factor for any business. Profitability ratios, which are used to calculate a company's bottom line, are one of the most commonly used financial ratio measurement methods. It is used to measures the efficiency of a company to generate profits. i. Gross Profit Margin (GPM) The gross profit margin is calculated by dividing the cost of products sold by the total revenue. This ratio examines how effectively a business manages the costs of inventory and product production, and then passes those costs on to its consumers. The corporation benefits from higher gross profit margin. (Gross Profit ÷ Sales) x 100 Gross Profit Margin (GPM) Company / Years CCK

2018

2019

2020

17.71%

18.82%

19.45%

CCK’s GPM for all three years consecutive show good ratio performance. It shows that the company’s GPM was gradually increasing from 2018-2020. In the year 2020, the company had the highest percentage of GPM which is 19.45%, indicates that every RM1 sales, the company makes appropriately 20 cents of gross profit. ii. Net Profits Margin (NPM) The net profit margin shows how much of each sales dollar shows up as net income after all expenses are paid. (Net Profit ÷ Sales) x 100 Net Profit Margin (NPM) Company / Years CCK

2018

2019

2020

4.20%

5.10%

5.71%

CCK’s NPM for all three years consecutive show good ratio performance. It shows that the company’s NPM was gradually increasing from 2018-2020. In the year 2020, the company had the highest percentage of NPM, indicates better income to shareholder 12 | P a g e

iii. Operating Profit Margin (OPM) The operating profit margin (OPM) determines how much profit a business earns from a dollar of revenue before paying its interest. Its measured by dividing a company’s net sales by its operating profits before interest. Higher ratios are usually better, indicating that the business is effective in its activities and adept at converting revenues into profits. (EBIT ÷ Sales) x 100 Operating Profit Margin (OPM) Company / Years CCK

2018

2019

2020

5.52%

6.39%

6.67%

CCK’s OPM for all three years consecutive show good ratio performance. It shows that the company’s OPM was gradually increasing from 2018-2020. In the year 2020, the company had the highest percentage of OPM, indicates better productivities than in other years. iv. Return On Assets (ROA) It measures the effectiveness with which an organization manages its assets and uses them to produce profit. It calculates the amount of profit gained in relation to the firm's total asset investment. The asset management division of financial ratios includes the return on assets ratio. (Net Profit ÷ Total Assets) x 100 Return On Assets (ROA) Company / Years CCK

2018

2019

2020

6.98%

8.25%

8.80%

CCK’s ROA for all three years consecutive show good ratio performance. It shows that the company’s ROA was gradually increasing from 2018-2020. In the year 2020, the company had the highest percentage of ROA, indicates a high returns of the company’s investment.

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v. Return On Equity (ROE) It calculates the return on investment made by the company's investors. This is the rat...