MBA of Wales accounting for managerial decisions

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TABLE OF CONTENT
I. Executive summary…………………………………………… 2
II. Introduction/company background……………………………3
III. Accounting policies……………………………………………..4
IV. Analysis of company performance………………………..5-11
Ratio analysis & interpretation…………………………………….5
Group development…………………………………………….....11
V. Shareprice Performance……………………………………...12
VI. Recommendation & Conclusion…………………………….13

NEW TOYO INTERNATIONAL HOLDINGS LTD

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Nong Thi Hong Nhung 1
MBA of Wales accounting for managerial decisions
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I. EXECUTIVE SUMMARY:
Financial Analysis is an evaluation of the financial performance of a
firm both in the past and its prospect in the future. Hence, it is very important to
firm’s stakeholders as investors, banks, traders, managers, etc... To determine
the firm’s financial position relating to their relative interest. In this paper, with the
investor standpoint, we are going analyze the financial performance of the Group
NEW TOYO INTERNATIONAL HOLDINGS LTD. in order to know how its
business is doing, how it is performing at present and what it future prospect, that
all help us to determine our investment to this group.
In part II, before analyzing the group’s financial performance, we will
go through their accounting policies to know if there are any unusual features
compared to the Singapore standards.
In part III, we will have a short background of New Toyo International
Holdings to know their history, their activities and their key markets.
In part IV, we will compare figures from different categories through
financial ratio analysis. There are many ratios that we can use, but as an investor
standpoint, profitability ratios help us to know whether the Group is making a
profit and enough or not. Liquidity ratios will we know the company’s ability to
meet obligation as and when they fall due. Meanwhile, efficiency ratios help we
know the level of operational efficiency of the company. Finally, investment ratios
will help the investor to expect what we can out of our investment as dividend,
share price, earnings and yield. Besides that, we will consider the group
prospects through its investment and development
In part V, the share price chart in recent years up to present to
know its overall share price performance are reviewed and considering some
responses from the analysis community can help us to know other shareholders’
comments about the group share price.
In part VI, recommendation and conclusion about this paper will be
addressed. From this, the investor can decide to invest in this group or not.

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Nong Thi Hong Nhung 2
MBA of Wales accounting for managerial decisions
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II. INTRODUCTION/ COMPANY BACKGROUND:

It is an investment holding company in Singapore. In April 1997, it
was listed on the Singapore Exchange under its present name of New Toyo
International Holdings Ltd.
The Group It is one of the biggest independent producers of
laminated paper products and packaging products in the Asia.
Its core products included specialized laminated aluminum paper,
cigarette box printing and corrugated carton boxes. The Group has factories in
Singapore, Malaysia, Vietnam, Australia, China and Thailand with more than
1,470 employees. The Group’s customers are mainly the big tobacco, fast–
moving consumer goods (FMCG), manufacturing and electronic industries as
British American Tobacco, Sony, Panasonic, Toshiba, Nike, Pepsi Cola…
Its other activities include investing activities, provision of
management consultancy and administration services, property holding,
investment holding and sale of non carbon papers.

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Nong Thi Hong Nhung 3
MBA of Wales accounting for managerial decisions
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III. ACCOUNTING POLICIES:

After reviewing accounting policies section of the notes to the
financial statements used by New Toyo International Holdings Ltd., we can see
that there is no feature unusual or judged against generally accepted practice as
it is prepared in accordance with Singapore Financial Reporting Standard.
All policies clearly explain and interpret the definitions and usage of
transactions and events in the financial statements.
Moreover, the accounting policies also represent new or revised
standards that are in accordance with its operation.
Besides the financial statements are comply with Financial Reporting
Standard and interpretation of the Financial Reporting Standard. The financial
statements provide information that related and useful for all needs of users as
stakeholders in making respective economic decisions. It represents the results,
the financial position, financial performance and cash flows of the firm.
Referred to Report of Auditors in the Annual Report, there is no
unusual opinion from the Auditors as they believe that the Financial Statement
can give a true and fair view of the affairs of the Group.

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Nong Thi Hong Nhung 4
MBA of Wales accounting for managerial decisions
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IV. ANALYSIS OF COMPANY’S PERFORMANCE:

Below we will analyze the Financial Statements of NEW TOYO
INTERNATIONAL HOLDINGS in 2004 and 2005 to assess their strength and
weaknesses in order for us to decide our investment in this Group.
Ratio Analysis & Interpretation
As a potential investor, we will focus to analysis their profitability ratios
and their market value ratios.
Profitability Ratios
1) Gross Profit Margin (GPM)
2004 2005
GPM 23.2% 18.5%

This will measure how much profit remains out of each sales after
deducting of the cost of the goods sold. The ratio shows there is a decrease from
23.2% in 2004 down to 18.5% in 2005. In 2005, the turnover decreased, but the
decrease rate of COGS is not correlated with the turnovers but it is higher.
2) Net Profit Margin (NPM)
2004 2005
NPM 17.8% 9.6%
The ratio indicates the profit available to shareholders including taxes. The
ratio shows the margin is dropped nearly half dramatically as there is an increase
in the overhead expenditure.
Liquidity Ratios:
1) Current Ratio (CR):
2004 2005
CR 1.31:1 0.879:1
The current ratio shows us how well a company is able to pay off its short-
term debt using its most liquid assets
A ratio of “1” would indicate that the company has exactly enough cash (or
assets that is relatively easy to turn into cash) to pay off its debt. CR of the year

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Nong Thi Hong Nhung 5
MBA of Wales accounting for managerial decisions
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2004 is higher than “1” which means the company can successfully pay off its
debt while at the same time still has cash left over to continue operating.
However, CR of the year 2005 is under “1”, then investors should be weary of the
fact that the company cannot pay off its short-term debt if necessary.
2) Quick ratio (QR):
Let’s start to take a look at the company’s solvency and how well they can
pay off their debt. We’ll be using the more stringent test out of the two ratios
(quick versus current) in this case.
2004 2005
QR 0.753 0.491

The benchmark of quick ratio is 1:1 however both of the years 2004
and 2005 are below the industry average which means the company has
insufficient cash to meet client liabilities or short term debts.
Efficiency ratio
1) Stock turnover ratio (STR):

2004 2005
STR 5 times 4 times
A financial ratio that shows how much a company pays out in
dividends each year relative to its share price. In the absence of any capital
gains, the dividend yield is the return on investment for a stock.
Higher the STR is better which means faster selling of stock. The STR
of New Toyo in 2005 is lesser than 2004 however the difference is trivial.
2) Stock turnover days( STD):
2004 2005
STD 76 days 93 days
 Firstly, the result of this calculation is that the answer is instantly in
terms of the number of days, on average, that the stocks are held in the
business.

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Nong Thi Hong Nhung 6
MBA of Wales accounting for managerial decisions
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 Secondly, we use the cost of sales figure because stocks are bought
and shown in the profit and loss account and the balance sheet at cost; so we
need to compare like with like
This ratio has fallen from 76 days to 93 days over the two years and that
is probably a good thing. If there's less stock to worry about, lower investment in
stocks meaning that the money they used to have tied up in the stock room is
now free to spend somewhere else.
STD of the year 2004 is better than the year 2005 that means New
Toyo keeps goods in store in 2004 is lesser than 2005.
3) Debtors collection period( DCP):
2004 2005
DCP 39 days 41 days

Debtors Collection Period ratio, is the year's sales which were

outstanding at the balance sheet date, expressed in days. A rough measure
of the days of credit that a firm's offers to its suppliers/clients. Lesser the debt
collection period in days better for the company from the calculation, the debt
collection period in 2004 is lesser than 2005 but the different is small in
number.
4) Creditors payment period (CPP)
The Creditor Payment Period is a 'performance ratio', which means
that it indicates the efficiency of a business. Efficiency and performance
are linked, as efficient businesses are usually more profitable.
This ratio gives you one insight into your business. To determine the
full financial performance of your business, you will also need to analyze
your financial statements and calculate the other financial ratios.
2004 2005
CPP 72 days 106 days

CPP of the year 2005 is better than the year 2004 because
Company has more days delay payment to customer.
5) Fixed assets ratio (FAR)
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MBA of Wales accounting for managerial decisions
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This ratio is a rough measure of the productivity of a company's fixed
assets (property, plant and equipment or PP&E) with respect to generating sales.
For most companies, their investment in fixed assets represents the single
largest component of their total assets. This annual turnover ratio is designed to
reflect a company's efficiency in managing these significant assets. Simply put,
the year 2004 is higher than the year 2005, the better.
2004 2005
FAR 2,68% 1,89%

6) Debtors turnover ratio (DTR):

Debtor Turnover Ratio measures the number of times receivables turn
over during the year. The higher is the turnover of receivables, the shorter is
the time between sales and cash collection. Debtor Turnover is a good way to
gauge the effectiveness of your company's payment terms. If this ratio is low,
it may indicate that you are offering lenient payment terms or have trouble
collecting debts. Both circumstances have a negative impact on cash flow.
2004 2005
DTR 9 times 8 times

. In general terms, the greater this ratio is the better. The DTR in the
year 2004 is better than the year 2005 which means more cash collection
leads to effective or the quicker debts are recovered the more cash you will
have at hand. However, longer lines of credit may be a more attractive option
to customers.
7) Creditor turnover ratio (CTR):
In the course of business operations, a firm has to make credit purchase
and incur short-term liabilities. A supplier of goods, i.e., creditors, is naturally
interested in finding out how much time the firm is likely to take in repaying its
trade creditors
2004 2005
DTR 5 times 3 times

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Nong Thi Hong Nhung 8
MBA of Wales accounting for managerial decisions
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The average payment period ratio represents the average number of
days taken by the firm to pay its creditors. Generally, lower the ratio, the
better is the liquidity position of the firm and higher the ratio, less liquid is the
position of the firm. But a higher payment period also implies greater credit
period enjoyed by the firm and consequently larger the benefit reaped from
credit suppliers. But one has to be careful in interpreting this ratio, as a higher
ratio may also imply lesser discount facilities availed or higher prices paid for
the goods purchased on credit. To make correct interpretation of this ratio, a
comparative analysis of different firms in the same industry and the trend may
be found for various years.
Lower the CTR is better for the company, the CTR in the year 2005 is
better than the year 2004 because of less in liabilities.
Investment Ratio:
1) Return on Equity (ROE)
We already know that ROE is calculated as Net Income divided by
Total Equity. However, as a common shareholder, I want to take a look at this
ratio from that specific point of view. Hence, we will be using the calculation
(Net Income – Preferred Dividends)/Total Equity.
2004 2005
ROE 34.6% 14%
It measures the rate of return that the Group earns on its owners’ equity.
This ratio shows a decrease from 2004 to 2005. This ratio is crucial for
investors as we will know to 1 dollar we invest in the Group, in 2005, we only
get 14cents in return. This return is 20.6cents less than in 2004.
2) Earning Per Share (EPS)
2004 2005
EPS $9.87 $4.45

This ratio represents the number of dollars earned on behalf of each

outstanding share of common stock. EPS of 2005 is dramatically reduced.
This indicates that dividend is paid for shareholders are falling nearly half. In

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Nong Thi Hong Nhung 9
MBA of Wales accounting for managerial decisions
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2004, 1 share earns $9.87, but in 2005, 1 share earns $4.45. It is should be
considered negatively by the investor.
All of the Group’s ratio profitability has declined in 2005 relative to
2004. This is a very negative sign for the company’s performance.
3) Price/Earning Ratio
2004 2005
PE 4.86:1 7.07:1

Essentially, this ratio tells us how much investors are willing to pay for
every one dollar of earnings the company pulls in. Investors are willing to pay
more than simply matching dollar for dollar because they expect the company
to appreciate in value, i.e., the stock price to go up
The PE ratio of 4.86 in 2004 shows that the investor had lower
expectations of future growth in the PE ratio of 7.07 in 2005. It represents that
investors has a favorable opinion of the Company.
4) Dividend Yield Ratio & Dividend per share
A financial ratio that shows how much a company pays out in
dividends each year relative to its share price. In the absence of any capital
gains, the dividend yield is the return on investment for a stock.
2004 2005
Div per share $3.03 $3.08
Div Yield 6.3% 9.7%

In 2005, there is an increase in the Dividend yield. This indicates that

the Group is mature and the shareholders can be confident about its growth.

Group Development
However, looking at the development of the Group with lots of
investment in Vietnam and China, this is the Group’s strength as it is
expected to growth next year. Vietnam and China are their two key markets.
Vietnam operations are the largest contributor to the Group,
accounting for 55.2% in 2005, just dropped 1.9% compared to the previous

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Nong Thi Hong Nhung 10
MBA of Wales accounting for managerial decisions
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year. The cigarette paper plant is expected to be operational in 2006. This
can offer good growth prospects for the Group in 2006.
To China, the contribution of this 2005 is dropped due to the de-
consolidation of SAH. However, in the future looks positive for the Group in
China as the Mongolian corrugation in Jan 2006 is expected to contribute
positively to the Group’s revenue and profitability.

V. SHAREPRICE PERFORMANCE:

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Nong Thi Hong Nhung 11
MBA of Wales accounting for managerial decisions
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Looking at the graph of share price performance below of New Toyo
International Holdings, we can see its share prices for 4 years from 2003 to 2006.
The share prices are unstable and fluctuated. From 2003 to 2004, the price
increased and reached it peaks at the early months of 2004. Then the price
continued to fluctuate but the trend was downward. At present as of 26 Dec
2006, the price is rather low compared to prices within 2 recent years. This
performance is not so good. However, it is expected to grow as the Group are
investing more on many key markets in Vietnam and China.

Relating to responses from the analyst community, there is not many

responses as their market share price is rather low. In www.shareinvestor.com,
some shareholders still believe that the price will go up soon but some still feel
unconfident about their future as it dropped dramatically in 2005 and 2006.

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Nong Thi Hong Nhung 12
MBA of Wales accounting for managerial decisions
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VI. RECOMMENDATION & CONCLUSION:
Overall, the group does not appear to be performing well at the moment,
most of the trends reflected in the ratios are unfavorable. The only ratio that has
positive sign is PE. The revenue decreased due to the big drop of printing
revenue in China as the de-consolidation of SAH and its weaker performance.
This turnover of the printing division must be improved in the year 2006, if not; it
will pull down the Group performance.
Besides, COGS increased a bit in the year 2005, the Company should
consider it and need to reduce this cost, as if it remains unchanged in 2006, the
profitability of the Group can not be improved.
However, the year 2004 and 2005 is the year of investment. In 2006,
some plants in the key markets in Vietnam and China will start their operation
that can be a confidence for the Group.
Moreover, we can believe the Group’ business as it is currently holding
major customers such as big corporations. The confidence of the Group is not
only reflected by its operations but also the customers it is serving.
Relating to the market share, though it is decrease currently, it can be
expected to grow in the future. As an investor standpoint, we can invest in this
Group without taking any high risks. At the time of writing this report, the share
prices are at the low price, it is a change for us to invest to buy the shares. Doing
investment is taking risks, but the risks we are taking if we invest in this Group is
a risk with hopeful good returns.

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Nong Thi Hong Nhung 13
MBA of Wales accounting for managerial decisions
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Reference

Gallagher, T.J & Andrew, J.D. (2003), Financial Management, 3rd Edition,
Prentice Hall

New Toyo International Holdings, Annual Report 2005

Soon, L.K. (2006), Introduction to Accounting and Finance

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Nong Thi Hong Nhung 14
MBA of Wales accounting for managerial decisions
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Management development institute of Singapore

And
University of Wales

Name: Nong Thi Hong Nhung

Fin: G0545399U

Hp number: 82628779

Batch: MBWD5_0717A

Lecture: Dr.Desti

Course: Accounting for managerial decisions.

Date: 14-02-2008

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Nong Thi Hong Nhung 15