financial management PDF

Preview

Summary

FINANCIAL STATEMENT ANALYSIS (BD31303)SECTION 1 (1-2020/2021)GROUP ASSIGNMENTCOMPANY ANALYSIS ( IJM, GAMUDA & YTL)Name Of Members: Anastashah Amos Gaibin (BB18110304)An Jae Hyuk (BB20180064)Ernawati binti Capry (BB18110479)Herisha Clerice Laidin (BB16111022) Mohd Zulian Bin Zulkifli (BB18110905)...

Description

FINANCIAL STATEMENT ANALYSIS (BD31303) SECTION 1 (1-2020/2021) GROUP ASSIGNMENT COMPANY ANALYSIS ( IJM, GAMUDA & YTL)

Name Of Members:

Anastashah Amos Gaibin (BB18110304) An Jae Hyuk (BB20180064)

Ernawati binti Capry (BB18110479) Herisha Clerice Laidin (BB16111022) Mohd Zulian Bin Zulkifli (BB18110905) Nizham Bin Saer (BB18110899) Rexson Bison (BB18110252)

Lecturer's Name:

Dr. Azmi Abdul Majid

TABLE OF CONTENTS

NO

CONTENT

PAGE

1

1.0 Background of Company

1-2

2

2.0 The Economics Outlook of The Industry

2

3

3.0 The Company’s Financial Ratio Analysis

2-11

4

4.0 Industry And The Company’s Business Model

12-17

5

5.0 Company Share Price Analysis

18-19

6

6.0 Summary

19

7

7.0 References

20

1.0 COMPANY BACKGROUND 1.1 IJM IJM began as a daring dream of a group of civil engineers who were ahead of their time. The result of a merger between three medium-sized local construction companies – IGB Construction Sdn Bhd, Jurutama Sdn Bhd and Mudajaya Sdn Bhd, IJM was formed in 1983 to compete as equals with wellcapitalized foreign players who had entered the growing Malaysian construction industry. IJM has 5 types of business namely construction, industry, infrastructure, property and plantation. Construction is IJM's core business. Since IJM formation, the Construction Division has been sculpting the face of Kuala Lumpur and Malaysia. Always committed to the highest standards of quality and performance, IJM professionals are the foundation upon which we have built company name as an internationally competitive builder.

1.2 GAMUDA Gamuda Berhad is an engineering, property and infrastructure company based in Malaysia. It is one of the largest Malaysian infrastructure companies, with a proven track record of delivering innovative breakthrough solutions worldwide. Gamuda Bhd is one of Malaysia's largest firms in infrastructure and property development. It helps construct highways, plants, ports, and other industrial developments to aid connectivity throughout select regions, and develops residential and commercial communities catering to various lifestyle needs. The company has three core business divisions which is engineering and construction, property development, and infrastructure concessions. Concessions granted from government authorities pertain to operating highways and water management. Gamuda operates highway tolls and works to minimize traffic congestion. As a water provider, it utilizes a multi step process to supply fresh clean water.

1.3 YTL YTL Corporation Berhad is an integrated infrastructure developer with extensive operations in countries including Malaysia, the United Kingdom, Singapore, Indonesia, Australia, Japan, Jordan and China and total assets of RM70 billion (USD17.1 billion) (as at 30 September 2020). The core businesses of the 1

YTL Group comprise utilities, construction contracting, cement manufacturing, property development and investment, hotel development and management, e-commerce initiatives and internet-based education

solutions and services. Among the group's key businesses are utilities, operating and maintenance (O&M) activities, high-speed rail, cement manufacturing, construction contracting, property development, hotels & resorts, technology incubation, real estate investment trust ( REIT), and carbon consulting. 2.0 THE ECONOMY OUTLOOK OF THE INDUSTRY The Malaysian construction market is expected to register a CAGR of 4.7% over the forecast period, 2019 – 2024. The Malaysian construction industry registered an average annual growth rate of 7.9%, during 2010–2016. This growth was supported by the 10th Malaysian Plan 2011–2015, under which the government invested heavily in infrastructure, industrial parks, and residential buildings. In 2010, policies for public-private partnerships (PPPs) eased by the government to attract more investments for the country's infrastructural development. Between 2016 and 2017, the average growth rate was 7.1% per year. The construction industry contributed 5.9 % to the GDP in 2017, while total industry growth for the year stood at 6.7 %. The new ruling Pakatan Harapan administration has initiated reviews of several mega projects and the Prime Minister, Tun Dr. Mahathir Mohamad, had stated that budget 2019 would see a cut in the development expenditure. The Government’s vision 2020 project will also boost the subsector construction projects in the next few years supported by the government’s plan to improve the country’s transport network and tourism infrastructure and increase the volume of renewable projects. Moreover, government efforts to address the country’s housing shortage will help the industry to grow over the next five years. 3.0 THE COMPANY’S FINANCIAL RATIO ANALYSIS

3.1 LIQUIDITY RATIO A liquidity ratio is a type of financial ratio used to determine a company’s ability to pay its short-term debt obligations. IJM COMPANY

2016

2017

2018

2019

2020

Current Ratio

2.98

2.71

1.83

2.34

2.72

Quick Ratio

2.69

2.38

0.62

0.80

2.72

Inventory Turnover Ratio

0.54

0.66

0.62

1.15

0.70

2

Average Collection Period Ratio 2067

1909

1624

1890

1550

2016

2017

2018

2019

2020

Current Ratio

2.37

2.51

1.96

1.59

1.59

Quick Ratio

1.47

1.52

1.27

1.06

1.13

Inventory Turnover Ratio

0.82

0.99

1.33

1.41

1.09

315

270

285

392

2016

2017

2018

2019

2020

Current Ratio

2.22

1.75

1.30

1.44

1.22

Quick Ratio

2.22

1.75

1.30

1.44

1.22

Inventory Turnover Ratio

3.20

3.23

3.59

4.17

6.71

7

15

16

13

(Days) GAMUDA COMPANY

Average Collection Period Ratio 292 (Days) YTL COMPANY

Average Collection Period Ratio 9 (Days) A) CURRENT RATIO

Based on the table above, we can see that IJM has the highest current ratio in 2020 which is 2.72 followed by Gamuda (1.59) and YTL (1.22). That means IJM has been more efficient to ability to pay their shortterm obligations. YTL Company’s shows an decreasing number in current ratio from 2016-2020. A high ratio with is above 1 then the company are capable of paying their short-term (liquid) assets basically, whether the company has enough cash to pay their immediate debts, if necessary. The higher the ratio, the more capable the company. On the other hand, if the company’s current ratio is below 1, this suggests that 3 the company is not able to pay off their short-term liabilities with cash. This indicates poor financial health for a company, but does not necessarily mean they will unable to succeed.

B) QUICK RATIO A good quick ratio is any number greater than 1.0. If a business has a quick ratio of 1.0 or greater, that typically means the business is healthy and can pay its liabilities. The greater the number, the better off a business is. A high quick ratio means a business is financially secure in the short-term future. It also means a business has good growth and sales, and the company are collecting their accounts receivable. A low quick ratio can be concerning. It means a business has fewer liquid assets than liabilities. A low ratio might mean a business has slow sales, numerous bills, and poor collections for they accounts receivable. In 2020, IJM company’s quick ratio is 2.72, followed by YTL (1.22) and Gamuda (1.13) which has the highest quick ratio. This shows that IJM has a healthy of business who easily pay off their liabilities to the company than Gamuda and IJM Company. C) INVENTORY TURNOVER RATIO As we can see, the YTL inventory turnover ratio in 2020 is the highest which is 6.71, followed by Gamuda (1.09) and IJM (0.70). This is means that YTL company’s have a strong sales and can excess inventory. Inventory earnings measure how quickly a company sells inventory and how analysts compare it to the industry average. Low turnover indicates weak sales and possible inventory excess, also known as excess stock. This may indicate a problem with the goods being offered for sale or as a result of too little marketing. High ratios indicate either strong sales or insufficient inventory. Sometimes low inventory turnover is a good thing, such as when prices are expected to rise (preparations are positioned to meet rapidly rising demand) or when shortages are expected. The speed with which a company can sell inventory is an important measure of business performance. D) AVERAGE COLLECTION PERIOD RATIO

A company's average collection period is indicative of the effectiveness of its accounts receivable management practices. Businesses must be able to manage their average collection period in order to ensure they operate smoothly. A lower average collection period is generally more favorable than a higher average collection period. A low average collection period indicates the organization collects payments faster. There is a downside to this, though, as it may indicate its credit terms are too strict. Customers may seek suppliers or service providers with more lenient payment terms. Based on the table above, YTL average collection period ratio in 2020 is the lowest which is 13 days, followed by Gamuda (392 days)

and IJM (1550 days). This shows that YTL company’s more effective in their accounts receivable management. 3.2 LEVERAGE RATIO Both long-term and short-term creditors are concerned with the amount of leverage a company employs since it indicates the firm ‘s risk exposure in meeting its debt obligations. IJM COMPANY

2016

2017

2018

2019

2020

Debt Ratio

0.486

0.481

0.504

0.533

0.539

Debt-to-equity Ratio

0.947

0.934

1.018

1.142

1.172

2016

2017

2018

2019

2020

Debt Ratio

0.490

0.502

0.520

0.507

0.516

Debt-to-equity Ratio

0.964

1.010

1.084

1.030

1.066

2016

2017

2018

2019

2020

Debt Ratio

0.668

0.687

0.690

0.720

0.768

Debt-to-equity Ratio

2.057

2.256

2.283

2.645

3.440

GAMUDA COMPANY

YTL COMPANY

A)

DEBT RATIO

In 2016, the IJM Company’s debt ratio is 0.486 followed by Gamuda (0.490) and the YTL Company 5

(0.668). This means that 48.6% of IJM Company, 49% of Gamuda and 66.8% of YTL’s assets are financed by creditors such as banks and governments. In other words, for every one ringgit the company

has in its assets, it has RM0.48 in debt for IJM, RM0.49 for Gamuda and RM0.66 for YTL. On the end of 2020, IJM has a debt ratio of 0.539 while Gamuda’s debt ratio is 0.516. YTL get the highest debt ratio among three of the construction companies which is 0.768(76.8%) of its assets are financed by creditors. As a consequence, the higher payments each month and interest costs would gradually decrease the cash flow and net profits of the company. (B) DEBT-TO-EQUITY RATIO As we can see, the YTL debt-to-equity ratio in 2020 is the highest which is 3.44, followed by IJM (1.172) and Gamuda (1.066). This indicates that for every RM1.00 invested by the owners of the company, creditors such as banks have invested RM3.44 for YTL company, RM1.17 for IJM and RM1.06 for Gamuda. The debt-to-equity ratio of all businesses is rising, which indicates that the higher the debt-toequity ratio, the less stable a corporation is considered. If the company owes less debt, it would have a better and more secure financial position. The greater the debt-to-equity ratio of a corporation, the more money it owes, and the company becomes less solvent. 3.3 MANAGEMENT EFFICIENCY RATIO The efficiency ratio tests the ability of a company to use its assets efficiently and control its liabilities over the current period or in the short term. IJM COMPANY

2016

2017

2018

2019

2020

Inventory Turnover Ratio

0.505

0.614

0.578

0.506

0.644

Asset Turnover Ratio

(0.093)

0.149

(0.049)

(0.097)

0.112

Receivables Turnover Ratio

2.24

2.99

2.83

2.21

2.95

2017

2018

2019

2020

GAMUDA COMPANY

2016 6

Inventory Turnover Ratio

0.757

0.938

1.131

1.336

1.014

Asset Turnover Ratio

(0.235)

0.388

0.205

0.033

(0.238)

Receivables Turnover Ratio

1.25

1.16

1.33

1.29

0.96

2016

2017

2018

2019

2020

Inventory Turnover Ratio

3.47

2.04

3.65

4.19

5.41

Asset Turnover Ratio

(0.125)

(0.096)

0.049

0.12

0.073

Receivables Turnover Ratio

5.27

3.97

4.42

4.21

5.88

YTL COMPANY

A)

INVENTORY TURNOVER RATIO

Based on the table above, we can see that YTL has the highest inventory turnover ratio in 2020 which is 5.41 followed by Gamuda (1.014) and IJM (0.644). That means YTL has been more efficient in its inventory management. YTL Company’s shows an increasing number in inventory turnover ratio from 2016-2020. Same as Gamuda but its inventory turnover ratio decline in 2020. A high inventory turnover usually implies productive operations. Compared to the industry average, low inventory turnover and competitors imply poor management of inventories. It could be a sign of either a slow-down in demand or inventory over-stocking. Overstocking presents a risk of obsolescence and results in higher costs for keeping inventory. B)

ASSET TURNOVER RATIO

It has a higher turnover ratio if a business can produce more revenue with less assets, which shows us that it uses its assets more effectively. A lower turnover ratio, on the other hand, suggests that the company does not optimally use its assets. As we can see, all three of the company shows low asset turnover ratio which is below the industry average 1.15. This means that all of them not using their assets efficiently. C)

RECEIVABLES TURNOVER RATIO

A high turnover ratio of receivables can mean that the processing of accounts receivable by a business is 7 a high percentage of quality customers who easily pay off their productive and that the company has

debts. A high turnover ratio of receivables might also mean that a business operates on a cash basis. In 2020, IJM company’s receivables turnover ratio is 2.95, followed by Gamuda (0.96) and YTL (5.88)

which has the highest receivables turnover ratio. This shows that YTL has a productive account receivables and have the high percentage of quality customers who easily pay off their debts to the company than IJM and Gamuda Company. 3.4 PROFITABILITY RATIOS For investors, the profitability ratio is of great significance as it tests how efficiently management produces income from corporate assets and investments of the owner. IJM COMPANY

2016 (%)

2017 (%)

2018 (%)

2019 (%)

2020 (%)

Gross Profit Margin

100

23.5

19.4

20.3

18.7

Net Profit Margin

71.8

10.7

5.8

7.4

4.4

Return on Assets

2.1

3.1

1.6

1.8

1.2

Return on Equity

3.1

6.9

3.7

4.1

2.8

Operating Profit Margin

75.5

17.8

13.3

13.2

13.1

Operating Return on Assets

2.3

5.2

3.7

3.2

3.7

2016 (%)

2017 (%)

2018 (%)

2019 (%)

2020 (%)

Gross Profit Margin

-

26

23

22

23

Net Profit Margin

-

18.75

12.57

15.34

10.15

Return on Assets

-

3.19

3.82

4.07

2.0

Return on Equity

-

8.05

6.98

8.68

4.35

Operating Profit Margin

-

21.24

16.73

15.45

11.37

4.33

4.24

4.11

2.25

GAMUDA COMPANY

8

Operating Return on Assets YTL COMPANY

-

2016 (%)

2017 (%)

2018 (%)

2019 (%)

2020 (%)

Gross Profit Margin

27.97

52.26

28.07

22.76

18.69

Net Profit Margin

6.04

5.54

2.15

1.34

(0.99)

Return on Assets

1.31

1.12

0.48

0.32

(0.25)

Return on Equity

6.00

5.40

2.45

1.74

(1.45)

Operating Profit Margin

17.97

41.53

16.05

13.15

10.55

Operating Return on Assets

4.05

8.17

3.57

3.09

2.89

A) GROSS PROFIT MARGIN In 2020, Gamuda Company has the highest gross profit margin which is 23% or 0.23. This means that RM0.23 is made from every RM1.00 generated in sales. In other words, a cost of RM0.77 (RM1.00RM0.23) is charged by the company from revenue for every RM1.00 it brings in. RM0.77 is used to pay for the goods it sells for every RM1.00 produced by the company and the remaining RM0.23 stays in the company to pay income taxes and dividends. The IJM’s gross profit margin is 18.7% followed by YTL...