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We will discover the four types of ratios include Liquidity Ratios, Activity Ratios,
Leverage Ratios, Profitability ratios and DuPont System. A ratio analysis helps
determine how a business is currently performing, how the business performed in the
past, and how its performing based on 3 property company that we have selected
which is IJM Corporation Berhad, Gamuda Berhad and Johor Corporation
Johor Corporation
(IJM Corporation)
COMPANY HISTORY
I IGB Construction Sdn Bhd was incorporated in 1981
J Jurutama Sdn Bhd was incorporated in 1970 as Soon Tat Construction Sdn Bhd
M Mudajaya Construction Sdn Bhd was incorporated in 1965 as Chye Hin
Construction Co Ltd
The founders of Jurutama and Mudajaya were professionals serving as senior
government officials. Despite holding secure positions, their determination to search
for that legendary 'pot of gold at the end of the rainbow' led them to break new
grounds at a time when hardly any qualified engineer dared venture out as contractor.
With them at the helm, they steered Jurutama and Mudajaya through the high risk
contracting business. With their perseverance and diligence to give their best, they
brought new changes and professionalism to the entire Malaysian construction
industry. And, by the end of the '70s, Jurutama and Mudajaya have emerged as two of
the largest companies in Malaysia. Tough times set in at the turn of the decade when
the influx of large and well-capitalised foreign contractors, who had with them
surplus capacity and concessionary government loans, severely affected the
competitiveness of local construction companies. Local contractors were slowly being
relegated to being subcontractors or minority joint venture partners.
Jurutama and Mudajaya were not spared. Their founders saw the obvious. Local
companies have got to either merge, go public or come under the umbrella of larger
public companies if they are to survive the challenges posed by these foreign
contractors. A meeting of former Technical College mates brought the answer. IGB
Corporation Bhd, a public listed property company which then owned a small
building construction subsidiary, saw the synergies that a combination of IGB
Construction, Jurutama and Mudajaya could bring to the Group. In 1982, in a friendly
takeover, IGB Corporation Bhd acquired all the shares in Jurutama and Mudajaya.
Following this acquisition, Solidstate Sdn Bhd was incorporated (1983) and, in 1984,
the name was changed to IJM Engineering and Construction Sdn Bhd. IGB then
transferred all its equity interests in Jurutama and Mudajaya together with that of IGB
Construction in exchange for shares in this newly incorporated company. IJM had
thus become IGB's holding company for its construction interests. In 1986, IJM
turned public. An application made for its shares to be listed on the Bursa Malaysia
Securities Berhad was subsequently obtained in September 1986.
To better reflect the Group's diversified nature of activities, the present logo and a
new name, IJM Corporation Berhad, was adopted in 1989.
2015 2016
RM000 RM000
NON CURRENT ASSET
2,430 2,491
Property, plant and equipment
7,312 7,477
Investment properties
7,136,241
Subsidiaries 7,038,258
368,529
Associates 371,800
218,600
Joint ventures 225,700
2,050
Available-for-sale financial assets 2,050
2,520
Deferred tax assets 2,132
7,649,682 7,737,908
CURRENT ASSET
Trade and other receivables 1,357,059 1,099,484
1,610,459 1,316,262
TOTAL ASSET 9,260,141 9,054,170
EQUITY AND LIABILITIES
Share capital 6,022,651 3,584,805
Other reserves -
NON-CURRENT LIABILITIES
1,300,000 1,200,000
Bonds
176,940 157,300
Term loans
948,028 964,234
Trade and other payables
2,424,968 2,321,534
TOTAL EQUITY AND LIABILITIES 8,706,479 8,617,059
CURRENT LIABILITIES
342,564 347,111
Trade and other payables
Current tax liabilities -
Borrowings
- Bank draft 1,098 -
- others 210,000 90,000
553,662 437,111
Table 1 show the analysis statement of financial statements in 2015 and 2016.
2014 2015
RM000 RM000
NON CURRENT ASSET
3,254 2,491
Property, plant and equipment
3,904 7,477
Investment properties
7,058,013 7,136,241
Subsidiaries
366,142 368,529
Associates
211,512 218,600
Joint ventures
2,050 2,050
Available-for-sale financial assets
2,779 2,520
Deferred tax assets
7,647,654 7,737,908
CURRENT ASSET
1,822 -
Inventories
1,519,135 1,099,484
Trade and other receivables
5,536 39,156
Financial assets at fair value through profit or loss
1,125 -
Derivative financial instruments
55,804 173,043
Deposits, cash and bank balances
Tax recoverable - 4,579
NON-CURRENT LIABILITIES
800,000 1,200,000
Bonds
- 157,300
Term loans
999,360 964,234
Trade and other payables
1,799,360 2,321,534
TOTAL EQUITY AND LIABILITIES 8,100,573 8,617,059
CURRENT LIABILITIES
544,729 347,111
Trade and other payables
3,504 -
Current tax liabilities
586,007 90,000
Borrowings
1,134,240 437,111
Table 2 show the analysis statement of financial statements in 2014 and 2015.
LIQUIDITY RATIOS
The first classification of ratios are known as Liquidity Ratios. Liquidity Ratios
measure a company's ability to provide sufficient cash to cover its short term
obligations (debt). The most common liquidity ratios include; the current ratio and
the quick ratio
Current Ratio
The current ratio indicates the extent to which the claims of short-term creditors are
covered by assets that are expected to be converted to cash in a period roughly
corresponding to the maturity of the liabilities.The higher the ratio, the better the
companys liquidity position
Here's how the current ratio is calculated
Current Ratio = Currents Assets / Current Liabilities
By dividing the current assets by the current liabilities, we can determine whether or
not a company has the ability to pay off its short-term debt (current liabilities). Below
shows the current assets and current liabilities for IJM Corporation Berhad.
Years 2014 2015 2016
RM'000 RM'000 RM'000
Total Current Assets 1,610,459 1,587,159 1,316,262
Total Current
553,662 1,134,240 437,111
Liabilities
Current Ratio 2.91 1.40 3.01
Based on the table above, the current ratio in 2014 was 2.91 and it increased rapidly to
3.01 in 2016. 2016 was the highest amount of current ratio among those 3 years.
While the amount of current ratio in year of 2015 is only 1.40 %. Current ratio of year
2015 is 1.40% which is the lowest between the three years. In 2016, IJM Corporation
Berhad has the highest current ratio of 3.01. That is, for every RM1 the company
owes in current liabilities, it has RM3.01 worth of current assets. Therefore, if the IJM
Companys short-term debt was due tomorrow and their current ratio in 2014 stated
was increasing from 2.91 to 3.01 , they would not have any difficulty to pay its
current liabilities to continues their business. The higher the current ratio, the stronger
the company is thought to be.
Quick Ratio
The Quick Ratio, also referred to the acid test ratio, is an important ratio which helps
business owners, entrepreneurs, managers, and investors determine the companys
ability to pay its short term debt without relying on the sale of inventory.
The quick ratio, which is in the category of liquidity ratios, can be compared from
year to year to determine whether the companys liquidity is improving, declining or
remaining relatively stable. The process of comparing the quick ratio of one year to
another year is called trend analysis. Trend analysis is important since it shows
whether the companys performance is improving. A companys quick ratio can also
be compared to the industrys quick ratio to determine how well the company is doing
relative to the industry as a whole.
Quick Assets = Current Assets - Inventories
In 2015, the IJM company's total current assets are valued at RM1,587,159, inventory
valued at RM 783,912 and current liabilities are valued at RM1,134,240 which gives
the highest amount of quick ratio (0.71) . IJM Corporation Berhad shows decreased
in quick ratio from 2015 to 2016. The highest amount quick ratio is 0.71% in 2015
compared to the year 2016 (0.51%) and the lowest one in 2014 (0.34%). The different
between 2014 and 2015 is 0.37% while the different in quick ratio between 2015 and
2016 is 0.20%.
Since the quick ratio is decreasing from 0.71 in year 2015 to 0.51 in year 2016, we
can conclude the company is trending downwards and therefore is descending its
performance as it relates to paying its short term debts without relying on its
inventory. Furthermore, the quick ratio indicates the IJM companys may not have
ability to pay its short term debt, without relying on inventory.
ACTIVITY RATIO
The second classification of ratios are known as the Activity Ratios. Activity ratio
measure company sales per another asset account. The most common asset accounts
used are accounts receivable, inventory, and total assets. Activity ratios measure the
efficiency of the company in using its resources. Since most companies invest heavily
in accounts receivable or inventory, these accounts are used in the denominator of the
most popular activity ratios.
1. Inventory Turnover
2. Average Collection Period
3. Average Payment Period
4. Total Assets Turnover
Average Inventory
Based on the table above, we can see the inventory turnover ratios is decreasing over
the years. In 2014, IJM Companys has an Inventory Turnover Ratio of 4.2 times.
That is, the company used its inventory 4.2 times during 2014. If a company's
inventory turnover ratio is too high, it may mean a company is running out of
inventory at various times throughout the business year. Also, in many cases,
businesses with a high inventory turnover ratio will experience a loss of sales to
competitors. On the other hand, the lower an inventory turnover ratio, the less cash
required by a company to finance its inventory, and therefore the stronger a company
generally appears.
Sales
The formula is made up of three components; accounts receivable, sales, and finally
360 days. An account receivable is a promise made by a customer to pay for a product
or service at a later point in time. Sales represent a company's total receipts from
selling the products or services it offers to customers. In other words, when a
company sells products or services to its customers, the company is said to be making
sales. The 360 days represent the average number of days a business operates during a
normal business year. Below shows the values needed in order to calculate the
average collection period ratio for the IJM Company.
Based on the data above we can conclude that, in 2014 it takes 105 days,232 days in
2015 and lastly 107 days in 2016 IJM Company will receive payment from their
customer. Therefore, when a customer buys products or services on credit from the
IJM Company, it will take, on average, 232,107 and 105 days before the company
receives cash from the customer. If the company's credit granting policy requires
customers to pay within 30 days from the date of purchase, then we can conclude the
following;
In year 2014 Customers, on average, are taking 75 extra days to pay for purchases
placed on credit (105 days - 30 days = 75 days).
In year 2015 Customers, on average are taking 202 extra days to pay for purchases
placed on credit (232 days - 30 days = 202 days)
In year 2016 Customers, on average are taking 77 extra days to pay for purchases
placed on credit (107 days - 30 days = 77 days)
In other words, customers are not paying on time. However, its getting better year by
year. The lower the average collection period, the faster a company receives its money
from customers, and the stronger a company appears. On the other end of the
continuum, the higher the average collection period ratio, the longer customers take to
pay their bills, and the less stable a company appears.
Average payment period is a ratio which tell us the numbers of days for making the
payments of trade payable. The average payment period was increased in year 2014 to
2016, which is from 180 days in 2014 to 194 days in 2015 and 204 days in 2016. For
this instance, we can understand that IJM Corporation Berhad will take 180 days to
pay its creditors and account payable in 2014 and take 194 days to pay creditors in
year 2015 and 204 days in 2016.
sales
Total Assets Turnover =
Total asset
LEVERAGE RATIOS
The third classification of ratios are known as Leverage Ratios. 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. The most
common leverage ratios include; debt ratio, and debt to equity ratio.
Debt Ratio
The debt ratio measures the extent to which borrowed funds have been used to finance
a company's operation. Below depicts how the debt ratio is calculated.
Total liabilities
Debt Ratio =
Total asset
In 2014, the IJM Company's debt ratio is 1.10. This means, 101% of the company's
assets are financed by creditors such as banks, governments, etc. Or, for every one
ringgit the company has in assets, it has RM1.10 in debt. On the other end in 2015
IJM Company has a debt ratio of 1.14 This means, it has 114% of its assets financed
by creditors. As a result, the Higher principal payments and interest expenses will
ultimately reduce the company's cash flow and net income.
Total equity
As you can see, two values are needed to calculate the debt-to-equity ratio. As
indicated earlier, total debt is better known as the amount a company owes to all its
creditors. These include all current liabilities and all long-term liabilities. The total
equity represents all the investments made by the owners of the company.
As you can see, the debt-to-equity ratio in 2014 is is the highest which is 2.25. This
means that for every rm1.00 invested by the owners of the company, creditors (such
as banks, suppliers of product, vendors, and other entities the company owes) have
invested rm2.25
The IJM Companys debt-to-equity ratio is decreasing from 2.25 to 1.44 which shows
that the lower the debt-to-equity ratio, the more stable a company is considered.
Moreover, if your company owes less debt, in relation to a competitor, for example,
then your financial position is stronger and more stable. On the other hand, the higher
a company's debt-to-equity ratio, the more money it owes, and therefore the less
stable the company appears.
The time interest earned shows 7.28 times in 2014 .This means the ratio indicates that
7.28 times a company could pay the interest before taxes income, so obviously the
larger ratios are considered more favorable than smaller ratios. The time interest
earned increased from 7.28 times in 2014 to 9.43 times in 2015. This means the ratio
indicates that 9.43 times a company could pay the interest before taxes income. The
interest earned continue increased from 9.43 times to 14.0 times in 2016. This means
that IJM Corporation income is 14.0 times greater than his annual interest expense.
Generally, creditors would favor a company with a much higher times interest ratio
because it shows the company can afford to pay its interest payments when they come
due. Higher ratios are less risky while lower ratios indicate credit risk.
Profitability Ratio
The fourth classification of ratios are known as profitability ratios. Profitability Ratios
are great importance to investors since they measure how effectively management is
generating profits from corporate assets and from owner's investments. The most
common profitability ratios include; gross profit margin ratio, net profit margin
ratio, return on total assets ratio, operating profit margin and the return on
equity ratio.
As you can see, two items are required before a company can calculate its gross profit
margin; Sales and Cost of Goods Sold. As indicated earlier, sales represent a
company's total receipts from selling its products or services to customers.
In other words, when a company sells products or services to its customers, the
company is said to be making sales. Cost of Goods Sold, as the name implies,
represents the costs incurred on all products sold. Furthermore, a business can only
recognize, as an expense, the costs of the products it sells. Unsold products are still
owned by a business and considered inventory.
In 2014, the IJM Company's gross profit margin is 0.46 or 46%. This means, RM0.46
is made from every one ringgit (rm1.00) generated in sales. In other words, a cost of
RM0.54 (RM1.00- RM0.46) is incurred by the company for every RM 1.00 it takes in
from sales.
For every one ringgit generated by the company, RM0.54 is used to pay for the
products it sells and the other RM0.46 cents remains in the company to pay for its
operating expenses, income taxes, dividends, etc.
In 2015, the IJM Company's gross profit margin is 0.45 or 45%. This means, RM0.45
is made from every one ringgit (rm1.00) generated in sales. In other words, a cost of
RM0.55 (RM1.00- RM0.45) is incurred by the company for every RM 1.00 it takes in
from sales.
For every one ringgit generated by the company, RM0.55 is used to pay for the
products it sells and the other RM0.45 cents remains in the company to pay for its
operating expenses, income taxes, dividends, etc.
In 2016, the IJM Company's gross profit margin is 0.39 or 39%. This means, RM0.39
is made from every one ringgit (rm1.00) generated in sales. In other words, a cost of
RM0.61 (RM1.00- RM0.61) is incurred by the company for every RM 1.00 it takes in
from sales.
For every one ringgit generated by the company, RM0.61 is used to pay for the
products it sells and the other RM0.39 cents remains in the company to pay for its
operating expenses, income taxes, dividends, etc...
We can see that, the gross profit margin for IJM Companys is decreased year by year.
the higher the gross profit margin, the more stable a company is considered.
Moreover, a higher gross profit margin indicates the company is making more from
each sale. On the other hand, the lower a company's gross profit margin, the less
money it makes from each sale, and therefore the less stable the company appears.
Operating profits
Generally, the higher a companys operating margin is, the better off the company is.
If a company's margin is increasing, it is earning more per ringgit of sales. In 2014,
the operating profit showed 50% and decreased to 34% in year 2015. With an
operating margin of 35% in year 2014, IJM Corporation is earning about RM 0.50
(before interest and taxes) for every Ringgit of sales. Besides that, the operating profit
margin displayed 34% in year 2015. A companys operating margin often determines
how well the company can satisfy creditors and create value for shareholders by
generating operating cash flow. A healthy operating margin is also required for a
company to be able to pay for its fixed costs, such as interest on debt, so a high
margin means that a company has less financial risk than a company with a low
margin.
As you can see, two items are required before a company can calculate its net profit
margin. Sales and Net Income After Taxes. As indicated earlier, sales represent the
company's total receipts from selling its products or services to customers. In other
words, when a company sells products or services to its customers, the company is
said to be generating sales. Net Income After Taxes is calculated by subtracting a
company's cost of goods sold, operating expenses, and tax obligations from its
revenues (Sales).
As you can see, the IJM company's net profit margin in 2014 is 0.30 which is the
highest among 3 years . This means, RM0.30 is made from every one ringgit (rm1.00)
generated in sales. In other words, a cost of RM0.70 (1.00-0.30) is incurred by the
company for every RM1.00 it takes in from sales.
For every one ringgit generated by the company, RM0.70 is used to pay for buying
products, paying operating expenses, and for paying taxes. The other RM0.30 remain
in the company or is distributed to its owners.
The higher the net profit margin, the more stable a company is considered. Moreover,
a higher net profit margin indicates a company is more profitable, after all expenses
and taxes have been paid. On the other hand, the lower a company's net profit margin,
the less money it will have to pay for taxes and expenses, and therefore the less stable
the company appears.
As you can see, the company's Return on Total Assets is decreasing from 0.25 to 0.10
within 3 years . In 2014, return on total assets is the highest which is 0.25. This
means, the company made 0.25 cents on every ringgit it invested into assets. For
every one ringgit invested into assets, the company generated 0.25 cents in after tax
profits.
Remember, a company purchases assets so that it can generate profits. Therefore, the
higher the Return on Total Assets ratio, the more stable a company is considered.
Moreover, a higher Return on Total Assets ratio indicates a company is using its assets
more efficiently to generate profits. On the other hand, the lower a company's Return
on Total Assets ratio, the less they are using their assets to generate profits, and
therefore the less stable the company appears. From the table we can conclude that,
the company are less stable to generate profits.
Return on Equity (ROE)
Return on Equity =
Total Equity
As you can see, two items are required before a company can calculate its return on
equity; namely, Total Equity and Net Income After Taxes. As indicated earlier, Total
Equity represents all the investments made into the company by its owners. Net
Income After Taxes is calculated by subtracting a company's cost of goods sold,
operating expenses and tax obligations from its revenues.
As you can see, the company's return on equity in 2014 is the highest 0.26 . This
means, the company made RM0.26 on every ringgit the owners invested. For every
one ringgit invested by the owners, the company generated RM0.26 in after tax profit.
Owners invest into a company so they can generate profits for themselves and their
company. Therefore, the higher the return on equity ratio, the more stable a company
is considered. Moreover, a higher return on equity indicates a company is using its
owner's funds wisely to generate profits. Through the table above, we can see IJM
Companys return on equity is decreasing. On the other hand, the lower a company's
return on equity ratio, the less efficient the owner's funds are being utilized to
generate profits, and therefore the less stable the company appears.
DuPont System
DuPont System used to dissect the firms financial statements and to assess
its financial condition.It merges the income statement and balance sheet into
two summary measures of profitability.
The modified DuPont Formula relates the firms return on total assets to its
return on common equity. The latter is calculated by multiplying the return
on total assets (ROA) by the financial leverage multiplier (FLM), which is
the ratio of total assets to common stock equity:
ROE = net profit margin total asset turnover FLM ( financial leverage multiplier )
2014 2015 2016
0.53 0.13 0.02
Return on equity ratio that is used to analyze a companys ability to increase its return
on equity. The DuPont analysis look at three components; profit margin ( how much
profit the company gets out of its revenue ) ,total asset turnover (how effectively the
company make use of its assets) and financial leverage multiplier(a measure of how
much the company leveraged).
The ROE of the company can be calculated by multiply the return of asset with
financial leveraged multiplier. The management can use this formula to pinpoint the
problem area whether it is a lower profit margin, asset turnover, or poor financial
leveraging.
Based on the table above, the ROE of the company are decreasing from year 2014 to
2016. Year 2014 record the highest ROE with 0.54% while in 2016 the ROE are
decrease to 0.02%. It is because of the higher value of ROA in year 2014 with 0.25%
compared to other year while the value of ROA in year 2016 is only 0.10%. The
higher value of ROA in year 2014 due to the higher value of total assets turnover
which shows the positive sign for the company as it show they managing themselves
better although the financial leverage are quite high compared to other years.
Meanwhile in year 2016 have the lower total asset turnover which effected the lower
value of ROE.
(Gamuda Berhad)
One of its major projects was the Stormwater Management and Road Tunnel
(SMART Tunnel) project - a 50:50 joint venture collaboration with MMC Corporation
Berhad. Completed in year 2007, this 9.7 km SMART tunnel primary function is to
divert excess flood water from Sungai Klang and Sungai Ampang to be stored in the
storage pond.
This dual purpose tunnel also serves as an alternative route for the motorist to
travel to and from the city centre.In 2008, MMC-Gamuda was awarded the RM12.485
billion worth of Electrified Double Track Project (EDTP) from Ipoh to Padang Besar.
This 329 km Project involves the realignment and construction of the electrified
double railways that span across four northern states of Perak, Penang, Kedah and
Perlis in Peninsula Malaysia.Works are progressing well at 97% overall completion
stage and upon completion in November 2014, EDTP will serve as the backbone for
the future commuters services in northern area which enable the residents to travel
between urban and sub-urban area.As the Government of Malaysia is transforming
Malaysia to become a fully developed nation by year 2020, railway is playing a
pivotal role in the emergence of public transportation system.
Travelling through rail is one of the most efficient travelling methods in avoiding
the traffic and reduces the fuel consumption. Hence, the Klang Valley Mass Rapid
Transit (KVMRT) is made as an Entry Point Project of the Economic Transformation
Programme (ETP) under the Greater Kuala Lumpur / Klang Valley National Key
Economic Area (NKEA).
In January 2011, MMC-Gamuda received the letter of award that they were
appointed as the Project Delivery Partner (PDP) for the KVMRT (Sungai Buloh
Kajang Line) (KVMRT, SBK Line). Being the PDP, MMC-Gamudas role is to
deliver the project within the target cost and completion dates, managing the elevated
works package contractors, as well as dividing elevated works packages, evaluating
tenders, recommending the best elevated works package contractors to MRT
Corporation, the owner of the KVMRT project.At the time of writing, all elevated
packages are gearing towards viaduct construction, which will comprise the bulk of
activities for both the northern and southern elevated sections of the SBK Line for the
next one-and-a-half years.
Besides, in March 2012, MMC Gamuda (T) Sdn Bhd was appointed as the
turnkey contractor for the 9.5 km underground works for KVMRT, SBK Line worth
RM8.28 billion. There are seven underground stations that will be constructed along
the 9.5 km tunnel KL Sentral, Pasar Seni, Merdeka, Bukit Bintang, Pasar Rakyat,
Cochrane and Maluri. This underground works package inclusive of the design,
construction and completion of tunnels, stations and associated structures between the
Semantan Portal and Maluri Portal.
Overall the works for both elevated and underground sections of the SBK Line
are advancing fast with progress on-track and the project is expected to complete by
year 2017.Besides the local projects they are developing, Gamuda has ventured
internationally with various civil engineering construction, infrastructure and property
development located in Taiwan, South East and Far East Asia, Indochina, Middle East
and Vietnam.
Analysis for Statement of Financial Position
2015(restated) 2014(restated)
ASSETS
Non-current assets
Property, plant and equipment 164,400 2.26 176,382 2.81
Investment properties 10,576 0.15 10,728 0.17
Investment in subsidiaries 3,885,179 53.52 3,314,207 52.73
455,364 6.27 300,364 4.78
Interest in associated companies 254,727 3.51 254,476 4.05
Interest in joint arrangements 733 0.01 733 0.01
Other investments 5,581 0.08 2,380 0.04
Deferred tax assets 13,760 0.19 47,328 0.75
Receivables 479,559 6.61 750,886 11.95
Due from subsidiaries
Current assets
Inventories 3 0.0 575 0.0
Receivables 646,359 8.90 910,036 14.48
Due from subsidiaries 1,212,167 16.70 244,242 3.89
Investment securities 51,551 0.71 91,420 1.46
Cash and bank balances 79,234 1.09 21,893 0.35
Non-current liabilities
Payables 34,153 0.47 38,204 0.61
Long term borrowings 1,851,440 25.50 1,493,103 23.75
Current liabilities
Short term borrowings 551,100 7.59 479,295 7.63
Payables 418,751 5.77 415,743 6.61
Due to subsidiaries 44,954 0.62 152,564 2.43
Tax payable 27,268 0.38 36,767 0.58
Derivatives - - 1,903 0.03
ASSETS
Non-current assets
Property, plant and equipment 154,813 2.02 164,400 2.26
Investment properties 10,424 0.14 10,576 0.15
Investment in subsidiaries 3,835,012 49.95 3,885,179 53.52
Interest in associated companies 450,364 5.87 455,364 6.27
Interest in joint arrangements 259,477 3.38 254,727 3.51
Other investments 733 0.01 733 0.01
Deferred tax assets 3,693 0.05 5,581 0.08
Receivables - - 13,760 0.19
Due from subsidiaries 685,816 8.93 479,559 6.61
Current assets
Inventories 80 0.00 30 0.0
Receivables 812,490 10.58 646,359 8.90
Due from subsidiaries 1,208,443 15.74 1,212,167 16.70
Investment securities 111,435 1.45 51,551 0.71
Cash and bank balances 144,413 1.88 79,234 1.09
Non-current liabilities
Payables 29,994 0.39 34,153 0.47
Long term borrowings 1,800,000 23.45 1,851,440 25.50
Current liabilities
Short term borrowings 547,370 7.13 551,100 7.59
Payables 521,270 6.79 418,751 5.77
Due to subsidiaries 20,524 0.27 44,954 0.62
Tax payable 19,307 0.25 27,268 0.38
Derivatives - - - -
Table 2 show the analysis statement of financial statements in 2015 and 2016
Liquidity Ratios
The calculation of a company's available cash and marketable securities against
outstanding debt. The ratio measures the company's ability to pay its short-term debts.
A high ratio indicates a company with a low risk of default. Liquidity ratios measure a
company's ability to pay debt obligations and its margin of safety through the
calculation of metrics including the current ratio, quick ratio and operating cash flow
ratio.
Current Ratio
-Current ratio measures the ability of the firm to meet its short-term obligations.
Current ratio = Current assets
Current liabilities
Current ratio also known as working capital ratio or bankers ratio. The ratio is
computed by dividing current assets and current liabilities. The current ratio is reliable
indicator of solvency rather than the working capital. The current ratio measures a
companys ability to pay off its current liabilities (payable within one year) with its
current assets such as cash, accounts receivable and inventories. The higher the ratio,
the better the companys liquidity position.
In 2014, the current ratio was 1.31 and it was increased to 1.91 in 2015. For
instannce, Gamuda Berhad current ratio on 2014 is 1.31 which shows that with every
RM1 of current liabilities, the company have RM1.31 of current assets that the
company can use to pay it short term obligations. In 2015, the current ratio was
continued increased to 2.06. The main reason caused the increased in current ratio was
the decreased in current liabilities from 2014 to 2016 gave the effect to the current
ratio to increase rapidly from 1.31 to 2.05. It shows the Gamuda Berhad has ability to
pay its current liabilities to continues the business. In all three years, Gamuda Berhad
have an acceptable current ratio between 1.5 to 3.0 which shows a healthy business.
Quick Ratio
-A ratio that measures the instant debt paying ability of a company.
Quick ratio or acid-test ratio is a ratio that measured the instant debt-paying
ability of company. The quick ratio measures a companys ability to meet its short-
term obligations with its most liquid assets, and therefore excludes inventories from
its current assets.
Gamuda Berhad shows increased in quick ratio from 2014 to 2016. The quick
ratio in 2014 is 1.31 which means that every RM1 of its current liability the company
has RM1.31 of quick assets to cover it, in 2015 is 1.91 which means that every RM1
of its current liability the company has RM1.91 of quick assets to cover it, in 2016 is
2.05 which means that every RM1 of its current liability the company has RM2.05 of
quick assets to cover it also shows the ability of Gamuda BHD instant debt-paying
ability. It is the ratio of total quick assets to the total current liabilities. In addition,
quick assets are cash and other currents assets that can be quickly converted to cash
such as receivables.
Activity Ratios
Activity Ratios measure company sales per another asset account, the most common
asset accounts used are accounts receivable, inventory, and total assets. Activity ratios
measure the efficiency of the company in using its resources. Since most companies
invest heavily in accounts receivable or inventory, these accounts are used in the
denominator of the most popular activity ratios.
Inventory Turnover
- measures the activity, or liquidity, of a firms inventory.
The average age of inventory is the average number of days it takes for a firm to
sell off inventory. Also referred to as days' sales in inventory (DSI), the average age
of inventory is a metric that analysts use to determine the efficiency of sales. It tells
the analyst how fast inventory is turning over at one company compared to another.
The faster a company can sell inventory for a profit, the more profitable it is.
The average number of days sales in inventory was fall from 78.83 days in 2014
to 49.53 days in 2015. It shows that have improvement in managing inventory.
However, the average number of days sales in inventory displayed 54.32 days in
2016. This shows that was no improvement in managing inventory in 2016. This is
because the company need 54.32 days takes to sell one unit of a certain product.
Average Collection Period
-Is the average amounts of time needed to collect accounts receivables.
Average payment period is a ratio which tell us the numbers of days for making the
payments of trade payable. The average payment period was decreased from 146.25days
in 2014 to 118.12 days in 2015. For this instance, we can understand that Gamuda
Berhad will take 118 days to pay its creditors and account payable in 2015.
On the other hand, the average payment period was increased to 151.15 days in
2016. This shows that the company will take 151 days to pay its creditors and account
payable in 2016.
The asset turnover ratio is an efficiency ratio that measures a companys ability to
generate sales from its assets by comparing net sales with average total assets. In
other words, this ratio shows how efficiently a company can use its assets to generate
sale. The asset turnover ratio was fall from 0.85 in 2014 to 0.24 in 2015. The total
asset turnover ratio calculates net sales as a percentage of assets to show how many
sales are generated from each ringgit of company assets. For instance, a ratio of 0.26
means that each ringgit of assets generates 26 cents of sales in 2014. This ratio
measures how efficiently a firm uses its assets to generate sales, so a higher ratio is
always more favorable. Higher turnover ratios mean the company is using its assets
more efficiently. The asset turnover was continuous fall to 0.20 in year 2016. This
means that each ringgit of company assets generates 20 cent of sales in 2016. Lower
ratios mean that the company isnt using its assets efficiently and most likely have
management or production problems.
Debt Ratio
A financial ratio that measures the extent of a companys or consumers leverage. The
debt ratio is defined as the ratio of total long-term and short-term debt to total
assets, expressed as a decimal or percentage. It can be interpreted as the proportion of
a companys assets that are financed by debt.
In 2014, the percentage is 42% and decreased to 40% in 2015. In 2016, the debt
ratio continuous decreased to 38%. The different between year 2014 and 2015 is 2%.
However, the different between year 2015 and 2016 is also 2%.
The higher percentage of debt ratio means that the company has more leveraged that
implying the greater financial risk. At the same time, leverage is an important tool that
companies use to grow. On the other hand, the lower the percentage, the less leverage
a company is using and the stronger its equity position. In general, the higher the
ratio, the more risk that company is considered to have taken on.
Debt -To-Equity Ratio
-Measures the relative proportion of total liabilities and common stock equity
Debt To Equity = Total Liabilities
Common Stock Equity
In 2014, the percentage is 73.38% and decreased to 66.50% in 2015. In 2016, the
debt -to-equity ratio continuous decreased to 46.28%. The different between year
2014 and 2015 is 6.88%. However, the different between year 2015 and 2016 is
20.22%. In general, a high debt-to-equity ratio indicates that a company may not be
able to generate enough cash to satisfy its debt obligations. However, low debt-to-
equity ratios may also indicate that a company is not taking advantage of the
increased profits that financial leverage may bring.
Times Interest Earned Ratio = Earnings Before Interest And Taxes ( EBIT)
Taxes
Profitability Ratio
Gross Profit Margin
--measures the percentage of each sales dollar remaining after the firm has paid for its
goods.
Gross profit margin tells you about the profitability of your goods and
services.It measures how efficiently a company uses its materials and labor to produce
and sell products profitably.The gross profit ratio is important because it shows
management and investors how profitable the core business activities are without
taking into consideration the indirect costs. In other words, it shows how efficiently a
company can produce and sell its products.
Based on the tables above, the gross profit margin in year 2014 is 22% and
increasing to 23% in year 2015 but decrease to 17% in 2016. The gross profit margin
increase by 1% from year 2014 to 2015 due to the increase in cost of good sold. The
cost of goods sold for a certain product is the direct costs associated with its
production, including the materials and labor necessary to produce the product.
However, the gross profit margin decreases by 6% in year 2016 which is quite high as
the cost of good sold also decreases. Also, the decline in sales due to falling
prices also cause a decline in gross profit margin.
The company makes RM 0.22 with the ratio of 22% in year 2014 before tax and
interest for every dollar of sales and increase to RM 0.23 with ratio of 23% in year
2015. This shows that the company is making enough money from its ongoing
operations to pay for its variable costs as well as its fixed costs during this year.
Meaning, the company with an operating margin ratio of 23% , for every dollar of
income, only 23 cents remains after the operating expenses have been paid. This also
means that only 23 cents is left over to cover the non-operating expenses.
However, the operating profit margin falls in year 2016 to 17% which is only 17
cents remains after the operating expenses have been paid which also means only 17
cents left over to cover the non-operating expenses for every dollar of income.
Net profit margin is the ratio of net profits to revenues for a company or business
segment . Net profit margin can be calculated by divided the earnings available for
common stockholders which is the profit attribution to owner of the company by the
sales income of the company.Typically expressed as a percentage, net
profit margins show how much of each dollar collected by a company as revenue
translates into profit.It can give a more accurate view of how profitable a business is
than its cash flow, and by tracking increases and decreases in its net profit margin, a
business can assess whether or not current practices are working.
The net profit margin in year 2014 recorded as 30.8% which is 0.308 cents for
each dollar collected by a company. The net profit margin decreases 1.1% in year
2015 with 29.7%. In year 2016, the net profit margin increases by 1.7% due to the
increases in sales.
The ROA of the company in year 2014 is the highest with 8.2% , and the ROA
decreases with 7.3% in year 2015 and recorded the lowest ROA in 2016 with 6.2%.
The falling of the ROA due to the lower earning available for common stockholder
although the total assets of the company keep increase year by year. This shows that
the company is less effectively managing its assets to produce greater amounts of net
income and less efficient for the company to convert the money used to purchase
assets into net income or profits.
The ROE of the company in the year 2014 with 1.4% and falls slightly in year
2015 with 0.2% difference but rises to 7.5% in the year 2016. The increase of ROE in
the year 2016 shows that the company is increasing its ability to
generate profit without needing as much capital. It also indicates how well a
company's management is deploying the shareholders' capital.
Market Ratio
Price/Earning Ratio
- measures the amount that investors are willing to pay for each dollar of a firms
earnings.
Price/ Earning (P/E) Ratio = market price per share of common stock
The price earnings ratio, often called the P/E ratio or price to earnings ratio, is a
market prospect ratio that calculates the market value of a stock relative to its earnings
by comparing the market price per share by the earnings per share. In other words, the
price earnings ratio shows what the market is willing to pay for a stock based on its
current earnings.
The table shows price/earning ratio are increasing from year 2014 until year
2016. In year 2014 the price/ratio is RM15.77 then, increase slightly in 2015 with RM
16.86 and RM 19.56 in year 2016 which is the highest price/ratio among the three
years. The price to earnings ratio indicates the expected price of a share based on its
earnings. As a companys earnings per share being to rise, so does their market value
per share. A company with a high P/E ratio usually indicated positive future
performance and investors are willing to pay more for this companys shares.
Market/Book Ratio
-provides an assessment of how investors view the firms performance.
The price to book ratio, also called the P/B or market to book (M/B) ratio, is
a financial valuation tool used to evaluate whether the stock a company is over or
undervalued by comparing the price of all outstanding shares with the net assets of the
company. In other words, its a calculation that measures the difference between the
book value and the total share price of the company.
Based on the table above, the market/book ratio of the company in the year 2014
record the lowest ratio with RM 6.52 while it increases to RM69.86 in the year 2015
but decrease to RM 61.13 in the year 2016. The ratio in the year 2015 shows the
lowest ratio compared to other year due to the higher book value per share of common
stock while the ratio in the year 2015 have low book value per share of common stock
which lead to higest mrket/book ratio.
The company shows P/B ratio above 1 indicates that the investors are willing to
pay more for the company than its net assets are worth. This could indicate that the
company has healthy future profit projections and the investors are willing to pay a
premium for that possibility.
DuPont System
- used to dissect the firms financial statements and to assess its financial condition.It
merges the income statement and balance sheet into two summary measures of
profitability.
The modified DuPont Formula relates the firms return on total assets to its
return on common equity. The latter is calculated by multiplying the return on total
assets (ROA) by the financial leverage multiplier (FLM), which is the ratio of total
assets to common stock equity:
ROE = net profit margin total asset turnover FLM ( financial leverage
multiplier )
Return on equity ratio that is used to analyze a companys ability to increase its
return on equity. The DuPont analysis look at three components; profit margin ( how
much profit the company gets out of its revenue ) ,total asset turnover (how
effectively the company make use of its assets) and financial leverage multiplier(a
measure of how much the company leveraged).
The ROE of the company can be calculated by multiply the return of asset with
financial leveraged multiplier. The management can use this formula to pinpoint the
problem area whether it is a lower profit margin, asset turnover, or poor financial
leveraging.
Based on the table above, the ROE of the company are decreasing from year 2014
to 2016. Year 2014 record the highest ROE with 27.9% while in 2016 the ROE are
decrease to 19.85%. It is because of the higher value of ROA in year 2014 with
16.32% compared to other year while the value of ROA in year 2016 is only 12.25%.
The higher value of ROA in year 2014 due to the higher value of total assets turnover
which shows the positive sign for the company as it show they managing themselves
better although the financial leverage are quite high compared to other years.
Meanwhile in year 2016 have the lower total asset turnover which effected the lower
value of ROE.
(Johor Corporation)
Johor Corporation is a Malaysian government-linked company, formerly
known as the "Johor State Economic Development Corporation" (JSEDC). Formed in
1968, it is part of the governments affirmative action programs to restructure its
multi-ethnic society by eradicating the economic imbalance between the Malays and
the non-Malays. Malaysian "state economic development corporations" were designed
to break away from the bureaucratic binds of a regular government department and to
become a commercially oriented investment arm of the respective state governments.
The company vehicle number plates are 2692 or 2962. It is the only Malaysian state
economic development corporation to have its business extended to another state.
JCorp has put in place a Corporate Governance structure with clear internal
control systems, reporting and responsibility lines as well as procedures that are easily
understood. Corporate Governance in JCorp is systematically ruled by many specific
committees that cater to the different levels of decision-making processes pertaining
to the operational, financial and strategic issues in business deliverance, consisting of
the Board of Directors, Board of Audit Committee, Board of Tender Committee,
Group Top Management Committee or TERAJU, Teraju Korporat, Executive
Committee (EXCO) and Investment Review Committee (JAWS).
These tenets are essential to the building of an enduring brand and sustained
stakeholder value. JCorp also observes high standards of corporate conduct in line
with the principles and guidelines of the revised Malaysian Code on Corporate
Governance.
The National Audit Department has awarded JCorp with a four-star, the
highest rating, in the Financial Management Accountability Index, which has been
achieved for six consecutive years since 2007. This is a testimony of the high
standards of integrity and transparency in corporate governance and sound financial
management system. In addition, JCorp has been internationally recognised as it took
pride in claiming the ADFIAP Awards 2013 in the Corporate Governance Category,
hence testifying JCorp's commendable Corporate Governance track record.
Analysis For The Non-Current Assets For 2014, 2015 And 2016
Analysis For The Non-Current Liabilities For 2014, 2015 And 2016
Analysis For The Current Liabilities For 2014, 2015 And 2016
Analysis For The Comparative Statement Of Financial Position For 2014, 2015
And 2016
JOHOR CORPORATION
Comparative Statements of Financial Position
31 December 2016, 31 December 2015 and 31 December 2014
2016 2015 2014
(RM Million) (RM Million) (RM Million)
EQUITY AND
LIABILITIES
Current Liabilities
Current tax liabilities 49 40 54
Loans and borrowings 1,285 2,246 1,634
Trade and other payables 2,034 1,960 1,931
Liabilities directly associated - 2,085 -
with disposal group
classified as held for sale
3,368 6,331 3,619
Non-current Liabilities
Other payables - - -
Other long-term liabilities 502 415 400
Deferred tax liabilities 490 343 977
Loans and borrowings 6,732 5,930 6,930
7,724 6,688 8,307
Total liabilities 11,092 13,019 11,926
JOHOR CORPORATION
Comparative Statements of Financial Position
31 December 2016, 31 December 2015 and 31 December 2014
Liquidity Ratios
1. Current Ratio
2. Quick ( Asid Test Ratio)
Liquidity ratios are the ratios that measure the ability of a company to meet its
short term debt obligations. These ratios measure the ability of a company to pay off
its short-term liabilities when they fall due.
The liquidity ratios are a result of dividing cash and other liquid assets by the
short term borrowings and current liabilities. They show the number of times the short
term debt obligations are covered by the cash and liquid assets. If the value is greater
than 1, it means the short term obligations are fully covered.
Generally, the higher the liquidity ratios are, the higher the margin of safety that the
company posses to meet its current liabilities. Liquidity ratios greater than 1 indicate
that the company is in good financial health and it is less likely fall into financial
difficulties. Most common examples of liquidity ratios include current ratio, acid test
ratio (also known as quick ratio), cash ratio and working capital ratio.
Current Ratio
-Current ratio measures the ability of the firm to meet its short-term obligations.
Current ratio also known as working capital ratio or bankers ratio. The ratio is
computed by dividing current assets and current liabilities. The current ratio is reliable
indicator of solvency rather than the working capital. The current ratio measures a
companys ability to pay off its current liabilities (payable within one year) with its
current assets such as cash, accounts receivable and inventories. The higher the ratio,
the better the companys liquidity position.
In 2014, the current ratio was 1.11 and it was increased to 1.28 in 2015. In 2016,
the current ratio was continued increased to 1.62. The main reason caused the
increased in current ratio was the decreased in current liabilities from 2014 to 2016
gave the effect to the current ratio to increase rapidly from 1.11 to 1.62. It shows the
Johor Corporation has ability to pay its current liabilities to continues the business.
Quick Ratio
-A ratio that measures the instant debt paying ability of a company.
Quick ratio or acid-test ratio is a ratio that measured the instant debt-paying
ability of company. The quick ratio measures a companys ability to meet its short-
term obligations with its most liquid assets, and therefore excludes inventories from
its current assets.
The Johor Corporation shows increased in quick ratio from year 2014 to year
2016. The quick ratio rise from 0.89 in 2014 to 1.25 in 2015. The quick ratio
continuous incresed to 1.57 in year 2016. It is the ratio of total quick assets to the total
current liabilities. In addition, quick assets are cash and other currents assets that can
be quickly converted to cash such as receivables.In general, a higher liquidity ratio
indicates that a company is more liquid and has better coverage of outstanding debts.
Activity Ratio:
1. Inventory Turnover
2. Average Collection Period
3. Average Payment Period
4. Total Assets Turnover
Activity ratios measure a firm's ability to convert different accounts within its
balance sheets into cash or sales. Activity ratios measure the relative efficiency of a
firm based on its use of its assets, leverage or other such balance sheet items and are
important in determining whether a company's management is doing a good enough
job of generating revenues and cash from its resources.
Inventory Turnover
- measures the activity, or liquidity, of a firms inventory.
The inventory turnover of Johor Corporation was decreased from 7.05 in 2014
to 6.70 in 2015 indicates the management of inventory is bad in 2015. In 2014, the
goods sold more than 2015 which are 723 for goods and 81 for shops, houses,
buildings, and lands while in 2015, the goods sold 94 and 80 only for shops, houses,
buildings and lands.
During the year, the amounts of inventories recognised as an expense in cost of
sales of the Johor Corporation which are RM 4,315 million in 2014 and RM 3,277
million in 2015. The inventory turnover of Johor Corporation increased in 2016 from
6.70 to 22.27. In this year the sold of the good increased from 94 to 125 but decrease
from 80 to 41 for shops, houses, buildings and lands. At the same time, the amounts of
inventories recognised as an expense in cost of sales of the Johor Corporation which
are RM 3,787 million.
JOHOR CORPORATION
Continuing operations
Discontinued operations
Other comprehensive
(loss)/income, to be reclassified
to profit or loss in subsequent
period:
JOHOR CORPORATION
Comparative Statements of Comprehensive Income
31 December 2015 and 31 December 2014
2015 Percentage 2014 Percentage
(RM Million) (%) (RM Million) (%)
Continuing operations
Revenue 4,587 100 4,735 100
Cost of sales (3,277) (71.44) (3,062) (64.67)
Gross profit 1,310 28.56 1,673 35.33
Other items of income
Other income 853 18.60 1,166 24.63
Other items of expenses
Distribution expenses (43) (0.94) (67) (1.41)
Administrative expenses (889) (19.38) (959) (20.25)
Finance costs (370) (8.07) (401) (8.47)
Other expenses (257) (5.60) (123) (2.60)
Share of results of associates, net 24 0.52 31 0.65
of tax
Share of result of joint ventures, (27) (0.59) 4 0.08
net of tax
Profit before tax continuing 601 13.10 1,324 27.96
operations
Income tax (121) (2.64) (182) (3.84)
Profit from continuing 480 10.46 1,142 24.12
operations, net of tax
Discontinued operations
Profit from discontinued 247 5.38 17 0.36
operations, net of tax
Profit net of tax 727 15.85 1,159 24.48
Other comprehensive
(loss)/income, to be reclassified
to profit or loss in subsequent
period:
Net loss on cash flow hedges (10) (0.22) - -
Net loss on available for sale (1) (0.02) (2) (0.04)
financial assets
Foreign currency translation of 97 2.11 (265) (5.60)
foreign operations
Other comprehensive income,
not to be reclassified to profit or
loss in subsequent period:
Net surplus from revaluation of 28 0.61 - -
property, plant and equipment
Other comprehensive income 114 2.49 (267) (5.64)
for the financial year, net of tax
Total comprehensive income for 841 18.33 892 18.84
the financial year
Profit attributable to:
Owner of the Corporation 401 8.74 808 17.06
Non-controlling interests 326 7.11 351 7.41
727 15.85 1,159 24.48
Total comprehensive income
attributable to:
Owner of the Corporation 423 9.22 738 15.59
Non-controlling interests 418 9.11 154 3.25
841 18.33 892 18.84
The relationship between sales and accounts receivable is the number of days
sales in receivables. This ratio is computed by dividing average accounts receivable
by the average daily sales. Johor Corporation was very inefficient in collecting
receivables in both year 2015 and 2016. In other words, receivables should have been
collected in 30 days or less, but were being collected in 92.98, 81.78 and 89.22 days.
This company should make improvement on average daily sales to achieve the
efficiency in collecting receivables. Furthermore, the other receivables are non-
interest bearing, unsecured and are repayable on demand. This also influenced by
financial risk which are liquidity risk, credit risk and interest rate risk.
Average payment period is a ratio which tell us the numbers of days for making
the payments of trade payable. The average payment period was increased in year
2014 to 2015, which is from 163.37 days in 2014 to 218.51 days in 2015. For this
instance, we can understand that Johor Corporation will take 163.37 days to pay its
creditors and account payable in 2014 and take 218.51 days to pay creditors in year
2015
On the other hand, the average payment period was decreased to 195.96 days in
2016. This shows that the company will take 195.96 days to pay its creditors and
account payable in 2016.
Total assets turnover is a ratio shows how efficiently a company can use its assets
to generate sale. The asset turnover ratio was increases from 0.57 in 2014 to 0.68 in
2015. The total asset turnover ratio calculates net sales as a percentage of assets to
show how many sales are generated from each ringgit of company assets. For
instance, a ratio of 0.57 means that each ringgit of assets generates 57 cents of sales in
2014. This ratio measures how efficiently a firm uses its assets to generate sales, so a
higher ratio is always more favorable. Higher turnover ratios mean the company is
using its assets more efficiently. The asset turnover was fall to 0.42 in year 2016. This
means that each ringgit of company assets generates 42 cent of sales in 2016. Lower
ratios mean that the company isnt using its assets efficiently and most likely have
management or production problems.
Debt Ratio:
1. Debt Ratio
2. Times Interest Earned Ratio
3. Fixed- Payment Coverage Ratio
The debt ratio is a financial ratio that measures the extent of a companys
leverage. 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 companys assets
that are financed by debt.The higher the debt ratio, the more leveraged a company is,
implying greater financial risk. At the same time, leverage is an important tool that
companies use to grow, and many businesses find sustainable uses for debt.
The debt ratio quantifies how leveraged a company is, and a company's degree of
leverage is often a measure of risk. When the debt ratio is high, the company has a lot
of debt relative to its assets. It is thus carrying a bigger burden in the sense that
principal and interest payments take a significant amount of the company's cash
flows, and a hiccup in financial performance or a rise in interest rates could result in
default.
When the debt ratio is low, principal and interest payments don't command such a
large portion of the company's cash flows, and the company is not as sensitive to
changes in business or interest rates from this perspective. However, a low debt ratio
may also indicate that the company has an opportunity to use leverage as a means of
responsibly growing the business that it is not taking advantage of.
Debt Ratio
-Measures the proportion of total assets financed by the firms creditors.
Times Interest Earned Ratio = Earnings Before Interest And Taxes ( EBIT)
Interest
Profitability Ratio:
1. Gross Profit Margin
2. Operating Profit Margin
3. Net Profit Margin
4. Earnings Per Share
5. Return On Total assets
6. Return On Equity
Profitability ratios are a class of financial metrics that are used to assess a
business's ability to generate earnings compared to its expenses and other relevant
costs incurred during a specific period of time. For most of these ratios, having a
higher value relative to a competitor's ratio or relative to the same ratio from a
previous period indicates that the company is doing well.
Net profit margin is the percentage of revenue left after all expenses have
been deducted from sales. The net profit margin in year 2014 displayed 17% and
decreased to 9% in year 2015. The reduce of the net profit margin due to the
declined in earning available for common stockholder. Besides that, the net profit
margin increased from 9% to 21 % in year 2016 This is because the earning
available for common stockholder increased from RM 4587 Million to RM 5318
Million in year 2016. The net profit margin is intended to be a measure of the
overall success of a business. A high net profit margin indicates that a business is
pricing its products correctly and is exercising good cost control. It is useful for
comparing the results of businesses within the same industry, since they are all
subject to the same business environment and customer base, and may have
approximately the same cost structures.Generally, a net profit margin in excess of
10% is considered excellent, though it depends on the industry and the structure
of the business.
Total assets
Percentage 4% 2% 7%
The return on equity ratio or ROE is a profitability ratio that measures the ability
of a firm to generate profits from its shareholders investments in the company. In
other words, the return on equity ratio shows how much profit each dollar of common
stockholders equity generates. This is an important measurement for potential
investors because they want to see how efficiently a company will use their money to
generate net income.
In year 2014 the return on equity ratio displayed 9.6 % and declined to 7.9 % in
year 2015. This is because the decreased in common stock equity from RM 8410
Million to RM 5043 Million in year 2015. Besides that, the ratio increased from 7.9%
to 11.3% percentage in 2016. ROE is also and indicator of how effective management
is at using equity financing to fund operations and grow the company.
DuPont System
- used to dissect the firms financial statements and to assess its financial condition.It
merges the income statement and balance sheet into two summary measures of
profitability.
Total Assets
The return on assets (ROA) shows the percentage of how profitable a company's
assets are in generating revenue. This number tells you what the company can do with
what it has, example, how many dollars of earnings they derive from each dollar of
assets they control. It's a useful number for comparing competing companies in the
same industry. Return on assets gives an indication of the capital intensity of the
company, which will depend on the companies that require large initial investments
will generally have lower return on assets. ROAs over 5% are generally considered
good.
The Johor Corporation displayed 9.7 % in year 2014 . Then , the ROA declined to
5.9% in year 2015 and 1.4% in year 2016. ROA figure gives investors an idea of how
effective the company is in converting the money it invests into net income. The
higher the ROA number, the better, because the company is earning more money on
less investment.
Return on equity ratio that is used to analyze a companys ability to increase its
return on equity. The DuPont analysis look at three components; profit margin ( how
much profit the company gets out of its revenue ) ,total asset turnover (how
effectively the company make use of its assets) and financial leverage multiplier(a
measure of how much the company leveraged).
The ROE of the company can be calculated by multiply the return of asset with
financial leveraged multiplier. The management can use this formula to pinpoint the
problem area whether it is a lower profit margin, asset turnover, or poor financial
leveraging.
Investors are not looking for large or small output numbers from this model.
Instead, they are looking to analyze what is causing the current ROE.The management
can use this formula to pinpoint the problem area whether it is a lower profit margin,
asset turnover, or poor financial leveraging.Based on the table above, the ROE of the
company are decreasing from year 2014 to 2015. Year 2014 record the highest ROE
with 0.93% while in 2015 the ROE are decrease to 0.47% and it increased to 1.58% in
year 2016. The decrease of the ROE of the company due to the decrease in net profit
margin in 2015 and 2016 also shows the lower net profit margin despite having high
leverage which cause the decrease in ROE.
COMPARISON COMPANY
Liquidity Ratio
The financial stability of a company can be tested in many ways. One of the quickest
ways to see just how well a company is performing is to use financial ratios.
Generally, liquidity ratios can be used to gauge a companys ability to pay off its
debts. However, there are a variety of different liquidity ratios that exist and that
measure this in different ways.Liquidity ratios measure a company's ability to pay
debt obligations and its margin of safety through the calculation of metrics including
the current ratio, quick ratio .In general, a higher liquidity ratio indicates that a
company is more liquid and has better coverage of outstanding debts.
Current Ratio
The current ratio indicates a company's ability to pay its current liabilities from its
current assets. This ratio is one used to quickly measure the liquidity of a company. As
such, current ratio can be used to make a rough estimate of a companys financial
health. The current ratio can give a sense of the efficiency of a company's operating
cycle or its ability to turn its product into cash. The formula for the current ratio is:
3.5
2.91 3.01
3
2.5
2.05
2 1.91 Gamuda Berhad
Johor Corporation
1.5 1.4 1.311.26
1.28 IJM corporation Berhad
1.11
1
0.5
0
2014 2015 2016
The bar chart above shows the comparison in current ratio between Gamuda
Berhad, Johor Corporation and IJM Corporation Berhad in three years which is 2014 ,
2015 dan 2016. In year 2014, the IJM Corporation Berhad have the highest current
ratio which is 2.91, while the Johor Corporation have the lowest current ratio which is
1.1. For example, for every RM 1 of current debt, IJM Corporation Berhad has 2.91
available to pay for the debt. Likewise, Johor Corporation has a RM 1.10 in current
assets for each dollar of current debt.But, in the year 2015, Gamuda Berhad have the
highest ratio which is 1.91 while IJM have the lowest ratio which is 1.4. For year
2016, the IJM Corporation Berhad have the highest current ratio, which is rose rapidly
from year 2015 to 2016. Conversely, the Johor Corporation have lowest current ratio
is year 2016.
Based of the comparison between these three company, by the year 2014, 2015
and 2016. The IJM corporation Berhad have the highest current ratio, which is 2.91 in
year 2014 and 3.01 in year 2016. The IJM Corporation Berhad have the highest
current ratio in 2014 and 2016 because the current assets is higher than current
liabilities and the company able to pay off its obligation, as it has a larger proportion
of asset value relative to the value of its obligation. The IJM Corporation Berhad have
securing the financial well. For example, in year 2014, for every RM1 of current debt,
IJM Corporation has RM 2.91 available to pay for the debt. However, if the current
ratio of the company is on the higher side, this may imply that the resources are not
being fully utilized. The IJM Corporation Berhad is keeping more than the required
Margin of Safety and, in turn, hampering its growth. This implies that the resources
may be tied up in the working capital of the company and are not put to use in
profitable ways. In this case, the company needs to stop playing safe and reduce the
current ratio, so as to have optimum liquidity position. Besides that, the IJM
Corporation Berhad have excess cash in year 2016. This excess cash might be
reducing the profits of the company with implied interest cost.
On the other hand, if compare with other companies in three years, Gamuda
berhad is more prefer, This is because Gamuda Berhad is fully owned their assets and
therefore more stable in their financing.
Quick Ratio
2.5
2.05
2 1.91
1.57
1.5 1.31
1.25 Gamuda Berhad
Johor Corporation
1 0.89 IJM Corporation Berhad
0.71
0.51
0.5 0.34
0
2014 2015 2016
Based on the comparison between these three company, by the year 2014,
Gamuda Berhad have the highest quick ratio which is 2.05, while IJM Corporation
Berhad have the lowest quick ratio which is 0.34. Gamuda Berhad has RM2.05 of
very liquid assets available to cover each ringgit of short-term debt, thus, the company
is in a good liquidity position. However, Johor Corporation and IJM Corporation
Berhad may not be able to pay off their current debts using only quick assets since
both companies have a quick ratio below 1. By the year 2015, also Gamuda Berhad
have the highest quick ratio which is 1.91, while IJM Corporation Berhad still have
the lowest quick ratio which is 0.71. Besides that, by the year 2016, Johor corporation
have the highest quick ratio which is 1.37 while IJM Corporation Berhad have the
lowest quick ratio which is 0.51.
Based on the three years, IJM Corporation Berhad have the lowest quick ratio due
to the IJM Corporation Berhad unable to quickly liquidating assets or converting
assets to the cash. For instance, .by the year 2016, IJM Corporation Berhad has
RM0.51 to cover each ringgit of short-term debt, thus, the company is in not a good
liquidity position. IJM Corporation has not well ability to repay its short-term debt.
On the other hand, based on these three years, Johor Corporation has the good
performance because the quick ratio display increased rapidly from year 2014 to
2016. As the ratio increases, it indicates a strengthening liquidity position. Mean that
the company have just enough current assets to cover it existing amount of near-term
debt. A higher ratio is safer than a lower one because the company have excess cash.
Sometimes, company keep cash safety nets when they can't get short-term loans.
All in all, Gamuda Berhad have the best performance among three companies
based on liquidity ratio. Liquidity ratios are based on different portions of the
companys current assets and current liabilities taken from the firms balance sheet.
For example, during hard times for the business, Gamuda Berhad with sufficient
liquidity meet their obligations. Not only that, based on the analysis current ratio and
quick ratio, Gamuda berhad have good performance in manage their assets and
liabilities. This is because Gamuda Berhad is fully owned their assets and therefore
more stable in their financing.
Activity Ratio
Activity ratios measure a firm's ability to convert different accounts within its balance
sheets into cash or sales. Activity ratios measure the relative efficiency of a firm based
on its use of its assets, leverage or other such balance sheet items and are important in
determining whether a company's management is doing a good enough job of
generating revenues and cash from its resources.
Inventory turnover is a ratio showing how many times a company's inventory is sold
and replaced over a period of time. The days in the period can then be divided by the
inventory turnover formula to calculate the days it takes to sell the inventory on hand.
The formula of inventory turnover is:
The bar chart above shows the comparison in inventory turnover ratio between
Gamuda Berhad, Johor Corporation and IJM Corporation Berhad. 2014 is the based
year for the statement of financial statement. The highest total assets turnover is Johor
Corporation which is 7.05, while the lowest inventory turnover is IJM Corporation
Berhad which is 4.22 by the year 2014. By the year 2015, the Gamuda Berhad rank
the highest total assets turnover which is 7.37 and IJM Corporation Berhad once again
ranked at the lowest inventory turnover which is 3.43. By the year 2016, Johor
Corporation have the highest inventory turnover with 22.27, while IJM Corporation
Berhad have the lowest inventory turnover with 3.36.
The inventory turnover ratio of the IJM Corporation Berhad fall from 2014 to
2016. This is because the company is carrying too much inventory, which could
suggest poor inventory management or low sales. The sales of the IJM Corporation
Berhad fall from year to year. This will directly effect the inventory turnover ratio.
The company can improve the inventory turnover ratio is to increase sales. The
company needs to formulate better marketing strategies to create more demand in the
industry and thus, give a push to its sales.
On the other hand, the Johor Corporation has the highest inventory turnover in
year 2014 and 2016. This is because in these year , the product sale is faster, inventory
operation is more efficient. Not only that, the inventory churning would be faster and
thereby inventory turnover ratio would be better. Overall, I would say Johor
Corporation has the best performance out of three company because it has better
production of sales which provide better inventory operation.
The average collection period ratio indicates the average length of time (in days) a
business must wait before it receives payment from customers who buy merchandise
on credit. Below shows how IJM Corporation would calculate its average collection
period ratio.
In the year 2016, Gamuda Berhad collecting the payment slowly as it record the
highest average collecting period which also increase from year 2015 with196.72
days. Followed by IJM Corporation Berhad which takes 107.13 days which decrease
from year 2015 while Johor Corporation maintained its perfomance as it takes the
shortest time period to collect the payment with 89.22 days. Johor Corporation have
the lowest average collecting period in three consecutive years compared to other two
company. The faster a company receives its money from customers, and the stronger a
company appears. On the other end of the continuum, the higher the average
collection period ratio, the longer customers take to pay their bills, and the less stable
a company appears. Overall, Johor Corporation is the better company among the three
company because the company took short time year by year as they may have the
good communication with their customers in getting their payments on merchandise
they bought on credit.
Average payment period is a ratio which tell us the numbers of days for making the
payments of trade payable.
Total assets turnover is an activity ratio measuring the ability of a firm to effectively
use its assets for the generation of sales. It can be calculated by dividing the net sales
by average total assets.
The asset turnover ratio is an efficiency ratio that measures a companys ability to
generate sales from its assets by comparing net sales with average total assets. In
other words, this ratio shows how efficiently a company can use its assets to generate
sale.Based on the figure above, IJM Corporation Berhad has the highest total asset
turnover with 1.1 which means the company generates RM1.10 of sales for each
ringgit in the year 2014. Followed by Johor Corporation as the second highest with
0.57 while Gamuda Berhad has the lowest total asset turnover with only 0.26. This
means that each ringgit of company assets generates 26 cent of sales in 2014. Lower
ratios mean that the company isnt using its assets efficiently and most likely have
management or production problems.
In the year 2015, Johor Corporations generates the highest amount for each
ringgit of company assets which is 68 cents as it increase from year 2014 breaking the
record of IJM which have fall the to 41 cents while Gamuda Berhad remain the lowest
with only 24 cents generates for each ringgit of the company. Johor Corporation have
improved the use of its assets efficiently and may have better management and
production on that year.
In the year 2016, Johor Corporation once again recorded the highest total asset
turnover despite decrease in value from year 2015. The company generates 42 cents in
for each ringgit of the company in that year, followed by IJM Corporation Berhad
with little differences with Johor Corporations which is 41 cents generated by the
company for each ringgit on that year while on the other hand, Gamuda Berhad has
the lowest total assets turnover with only 20 cents despite increase slightly from year
before. Overall, Johor Corporation is the best company among the three company to
have the total asset turnover as they have steady and stable amount of sales generated
for each ringgit of the assets in the company although the total asset turnover fall
slightly in the year 2016 compared to other company.
Debt Ratio
The financial stability of a company can be tested in many ways. One of the quickest
ways to see just how well a company is performing is to use financial ratios.
Generally, the debt ratio is a financial ratio that measures the extent of a companys
leverage. 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 companys assets
that are financed by debt.
The bar chart above shows the comparison in current ratio between Gamuda
Berhad, Johor Corporation and IJM Corporation Berhad in three years which is 2014,
2015 and 2016. In year 2014, IJM Corporation Berhad have the highest debt ratio
which is 110%., while the Gamuda Berhad have the lowest debt ratio which is 38%.
In year 2015, IJM Corporation Berhad still have the highest debt ratio which is 114%.,
while the lowest is Gamuda Berhad which is 40%. The next year is 2016, IJM
Corporation Berhad has drop from 114% to 105% but still have the highest percentage
among the 2 companies.
Based of the comparison between these three company, by the year 2014, 2015
and 2016. The IJM Corporatiion Berhad have the highest debt ratio, which is 110% in
year 2014, 114% in year 2015 and 105% in year 2016. The IJM Corporation Berhad
have the highest debt ratio because the total debt is bigger than total assets. These
show that the company have more leveraged, implying greater financial risk. At the
same time, leverage is an important tool that companies use to grow, and many
businesses find sustainable uses for debt. That mean IJM Corporation Berhad have
high volatile cash flow, in which most it take on little debt.
Based on the comparison between these three company, by the year 2014,
Gamuda Berhad have the highest time interest earned ratio which is 9.11, while Johor
corporation have the lowest time interest earned ratio is 7.27. In year 2015, IJM
Corporation have the highest time interest earned ratio which is 9.43 while Johor
Corporation have the lowest time interest earned ratio which is 4.97. The next year is
2016, IJM Corporation Berhad holds the highest time interest earned ratio which is
14.0 while Johor Corporation still the lowest with 4.4.
Based on three years, IJM Corporation Berhad have the highest time interest
earned ratio due to IJM Corporation Berhad could pay the interest before taxes
income, so obviously the larger ratios are considered more favourable than smaller
ratios.
Profitability Ratio
The fourth classification of ratios are known as profitability ratios. Profitability Ratios
are great importance to investors since they measure how effectively management is
generating profits from corporate assets and from owner's investments. The most
common profitability ratios include; gross profit margin ratio, net profit margin
ratio, return on total assets ratio, operating profit margin and the return on
equity ratio.
The Gross Profit Margin ratio provides an indication of how well a company is
setting its prices and controlling the production costs. Investors like to see a high
gross profit margin since it indicates the company is making higher margins on
each sale.
The bar chart above shows the comparison in Gross Profit Margin between
Gamuda Berhad, Johor Corporation and IJM Corporation Berhad in 3 years
which is 2014, 2015 and 2016.
In year 2014, the IJM Corporation Berhad have the highest Gross Profit Margin
which is 0.46, followed by Johor Corporation 0.35 while the Gamuda Berhad
have the lowest gross profit margin which is 0.17
In year 2015, IJM Corporation Berhad and Johor Corporation still managed to get
the highest gross profit margin ratio which is 0.45 and 0.27 while the Gamuda
Berhad have the lowest gross profit margin which is 0.23
For year 2016, IJM Corporatio have the highest gross profit margin which is 0.39
The higher the gross profit margin, the more stable a company is considered.
Morover, a higher gross profit margin indicates the company is making more
sales.
Based on the comparison between these 3 company by year 2014, 2015 and 2016,
the IJM Corporation Berhad have the highest gross profit margin ratio every year
because the company is setting its prices and controlling the production cost very
well.
REFERENCES