Trimester 2 Year 2010/2011 Assignment Company Analysis

Subject Subject code Company

: Financial Statement Analysis : BAC 2684 : Golden Pharos Berhad : Kenmark Berhad

Lecturer Name : Nik Mohamad Zaki Bin Nik Salleh Group Member:
Name Kong Dickson Wong San Jian Soo Kwee Lee Student ID 1081108469 1091106362 109110 6069 Major Bachelor of Accounting Bachelor of Accounting Bachelor of Accounting Bachelor of Accounting Bachelor of Accounting

Cynthia Hang Hui Xin 108110 7960 Yap Li Ying 108110 7944

Table of Content
No. Content Page Number

1 2 3 4 5 6 7 8

Introduction Ratio Analysis Kenmark 2009 Ratio Analysis Kenmark 2008 Ratio Analysis Golden Pharos 2009 Ratio Analysis Golden Pharos 2008 Report Analysis Conclusion Reference

2 3, 4, 5 6, 7, 8, 9 10, 11, 12, 13 14, 15, 16, 17 18, 19, 20,21,22 23 24

Introduction

Kenmark Industrial Co. (M) Bhd and Golden Pharos Berhad are Malaysia-based companies which focus on manufacturing activities. The main products that manufactured by Kenmark Industrial Co. (M) Bhd are computer workstations, cabinets, furniture, investment holdings, plastic injections for furniture parts, and assembly and distribution of liquid crystal display (LCD). The products they manufactured will be exported to several countries. The company also owned several subsidiaries including the Kenmark Paper Sdn Bhd, Kenmark (Labuan) Limited, Pheonix International Group Limited and Billion Bynamic Sdn Bhd. Meanwhile, Golden Pharos Bhd engaged in investing holding and provision of management services to the subsidiaries. There are six direct subsidiaries, several indirect subsidiaries and associated companies under the company. The companys operations were carried out in Malaysia and other regions such as United States, United Kingdom, and others. The core business of doors was engineered doors and balance, solid panelled and glazed doors and were manufactured and marketed in United Kingdom, United States, Europe, Australia and South Korea. The main purpose of the report is to analyse and evaluate the financial performance of these two companies in order to get an accurate, clear and full report for the company to make their investment decision.

Calculation

Kenmark 2009 (Group)

Profitability Ratio Net Profit Margin = Net Profit after Tax Net Sales = 3858 259408 = 1.49%

Return on Asset = Net Profit after Tax Total Assets = 3858 550036 = 0.70%

Return on Equity = Net Profit after Tax Shareholders Equity = 3858 341131 =1.13%

Efficiency Ratio Account Receivable Turnover = Net Credit Sales Average Account Receivable = 259408 [(164265+5130+126626+5119)/2 ] =1.72 Fixed Asset Turnover = Net Sales Net Property, Plant and equipment

= 259408 311516 = 0.83

Sales to net working capital = Net Sales (Account Receivable + Inventory Account Payable) = 259408 (164265+5130+39845-41056) = 1.54

Account Payable to Sales = Account Payable Sales Revenue = 41056 259408 = 0.16

Liquidity Ratio Current Ratio = Current Asset Current Liability = 211763 131683 =1.61

Acid- Test Ratio = (Cash and cash equivalents + Marketable Securities +Account Receivable) Current Liabilities = (543+164265+5130) 131683 = 1.29 Collection Period = Average Account Receivable Sales/360

= [(164265+5130+126626+5119) /2] (259408 /360) = 208.96 days

Days to Sell Inventory = Average Inventory Cost of Sales /360 = [(39845+29033) /2] (230498 /360) = 53.79 days Financial Gearing Ratio Debt to Total Asset Ratio = Total Debt Total Asset = (164265+5130) 550036 = 0.31

Equity Ratio = Owners Equity Total Asset = 341131 550036 = 0.62

Debt to Equity = Total Liabilities Shareholders Equity = 208905 341131 = 0.61 Investment Ratio Return on Common Equity

= Net Income Average Shareholders Equity = 3858 [(341131+323804) /2] = 1.16 %

Kenmark 2008 (Group)

Profitability Ratio Net Profit Margin = Net Profit after Tax Net Sales = 10111 308673 = 3.28%

Return on Asset = Net Profit after Tax Total Assets = 10111 538971 = 1.88%

Return on Equity = Net Profit after Tax Shareholders Equity = 10111 323804 =3.12%

Efficiency Ratio Account Receivable Turnover = Net Credit Sales Average Account Receivable = 308673 [(126626+5119+97656+5387)/2] =2.63

Fixed Asset Turnover = Net Sales Net Property, Plant and equipment = 308673 330186 = 0.93

Sales to net working capital = Net Sales (Account Receivable + Inventory Account Payable) = 308673 (126626+5119+29033-49484) = 2.77

Account Payable to Sales = Account Payable Sales Revenue = 49484 308673 = 0.16

Liquidity Ratio Current Ratio = Current Asset Current Liability = 181388 139092 =1.30

Acid- Test Ratio = (Cash and cash equivalents + Marketable Securities +Account Receivable) Current Liabilities = (18892+126626+5119) 139092 = 1.08

Collection Period = Average Account Receivable Sales/360 = [(126626+5119+97656+5387) /2] (308673 /360) = 136.91 days

Days to Sell Inventory = Average Inventory Cost of Sales /360 = [(29033+33655) /2] (273936 /360) = 41.19 days

Financial Gearing Ratio Debt to Total Asset Ratio = Total Debt Total Asset = (126626+5119) 538971 = 0.24

Equity Ratio = Owners Equity Total Asset = 323804 538971 = 0.61

Debt to Equity = Total Liabilities Shareholders Equity = 215167 323804 = 0.66

Investment Ratio Return on Common Equity = Net Income Average Shareholders Equity = 10111 [(323804+328514) /2] = 0.03 %

Golden Pharos 2009 (Group)

Profitability Ratio Net Loss Margin = Net Loss after Tax Net Sales = 13405 83733 = 16.01%

Return on Asset = Net Loss after Tax Total Assets = 13405 550036 = 24.36%

Return on Equity = Net Loss after Tax Shareholders Equity = 13405 70752 =18.95%

Efficiency Ratio Account Receivable Turnover = Net Credit Sales Average Account Receivable = 83733 [(11410+6004+17026+7929)/2] =3.95

Fixed Asset Turnover = Net Sales Net Property, Plant and equipment = 83733 28602 = 2.93

Sales to net working capital = Net Sales (Account Receivable + Inventory Account Payable) = 83733 (11410+6004+21599-13790) = 3.32

Account Payable to Sales = Account Payable Sales Revenue = 13790 83733 = 0.16

Liquidity Ratio Current Ratio = Current Asset Current Liability = 58174 27219 =2.14

Acid- Test Ratio = (Cash and cash equivalents + Marketable Securities +Account Receivable) Current Liabilities = (16228+11410+6004) 27219 = 1.24

Collection Period = Average Account Receivable Sales/360 = [(11410+6004+17026+7929) /2] (83733 /360) = 91.08 days

Days to Sell Inventory = Average Inventory Cost of Sales /360 = [(21599+34108) /2] (77975 /360) = 128.60 days

Financial Gearing Ratio Debt to Total Asset Ratio = Total Debt Total Asset = (11410+6004) 104005 = 0.17

Equity Ratio = Owners Equity Total Asset = 70752 104005 = 0.68

Debt to Equity = Total Liabilities Shareholders Equity = 33253 70752 = 0.47

Investment Ratio Return on Common Equity = Net Income Average Shareholders Equity = 13405 [(70752+84157) /2] = 17.31 %

Golden Pharos 2008 (Group)

Profitability Ratio Net Profit Margin = Net Profit after Tax Net Sales = 5007 114442 = 4.38%

Return on Asset = Net Profit after Tax Total Assets = 5007 121714 = 4.11%

Return on Equity = Net Profit after Tax Shareholders Equity = 5007 84157 =5.95%

Efficiency Ratio Account Receivable Turnover = Net Credit Sales Average Account Receivable = 114442 [(17026+7929+17449+12027)/2] =4.21

Fixed Asset Turnover = Net Sales Net Property, Plant and equipment = 114442 29088 = 3.93

Sales to net working capital = Net Sales (Account Receivable + Inventory Account Payable) = 114442 (17026+7929+34108-17296) = 2.74

Account Payable to Sales = Account Payable Sales Revenue = 17296 114442 = 0.15

Liquidity Ratio Current Ratio = Current Asset Current Liability = 75336 31059 =2.43

Acid- Test Ratio = (Cash and cash equivalents + Marketable Securities +Account Receivable) Current Liabilities = (15844+17026+7929) 31059 = 1.31

Collection Period = Average Account Receivable Sales/360 = [(17026+7929+17449+12027) /2] (114442 /360) = 85.61 days

Days to Sell Inventory = Average Inventory Cost of Sales /360 = [(34108+25483) /2] (91348/360) = 117.42 days

Financial Gearing Ratio Debt to Total Asset Ratio = Total Debt Total Asset = (17026+7929) 121714 = 0.21

Equity Ratio = Owners Equity Total Asset = 84157 121714 = 0.69

Debt to Equity = Total Liabilities Shareholders Equity = 37557 84157 = 0.45

Investment Ratio Return on Common Equity = Net Income Average Shareholders Equity = 5007 [(84157+73619) /2] = 6.35%

Report Analysis
Profitability Ratios Profitability ratios measure the organizations profitability. It includes gross profit margin, operating profit margin, net profit margin, the return on assets (ROA) ratio, and the return on equity (ROE) ratio. The Net Profit Margin determines the portion of profit generates over each dollar of sales. The Net profit margin of Kenmark 2008 and 2009 decreased from 3.28% to 1.49%. Kenmarks profit margin indicates that either the numbers of sales increase but not the profit, or the net profit drops; and in this case, both of them dropped. Meanwhile, the Golden Pharos profit margin had dropped from 4.38% in 2008 to loss margin of 16.01% in 2009. This is because Golden Pharos had incurred a net loss in 2009. The Return on Asset (ROA) ratio determines the amount of income each dollar of assets generates. The Kenmark have the ROA ratio decreased from 1.88% to 0.7%. This indicates that each dollar of Kenmark assets produced income had dropped due to the decrease in net income. In the same time, Golden Pharos had incurred negative return on asset of 24.36% in 2009, which is $0.16 of lost is incurred whenever there is a dollar of asset is produced. In the year of 2008, Golden Pharos has 4.1% of ROA ratio and it is said to be each dollar of Golden Pharos asset produced income almost of $0.04 in the year 2008. The Return on Equity (ROE) is used to determine the amount of income produced for each dollar that common stockholders have invested. An ROE in Kenmark 2009 indicates that the company returned 1.13% for every dollar invested by common stockholders which is 1.99% lower compare in the group of 2008. The Kenmark returned 3.12% in the group 2008. Golden Pharos had incurred 18.85% for every dollar invested by common stockholders in 2009 which a loss is incurred while 5.95% of return in the group of 2008.

Liquidity Ratios Liquidity ratios measure the organizations ability to meet short-term obligations. The Current Ratio is used to determine whether the company has a sufficient amount of current assets to pay off current liabilities. A current ratio of 1.30 in 2008 had increase to 1.61 in 2009 by the Kenmark. This indicates that the company has $1.30 in 2008 and $1.61 in 2009 of current assets for every $1.00 of current liabilities. In Golden Pharos, there is a slight decrease from 2008 to 2009 which is 2.43 to 2.14. This indicates that Golden Pharos has $2.43 in 2008 and $2.14 in 2009 of current asset for every $1.00 of current liabilities. However, Kenmark has longer collecting period of 137days in 2008 compare to 2009 which is 209days while Golden Pharos has shorter collection period of 86days in 2008 and 91days in 2009. 209days is a ridiculous and it indicates that Kenmark is collecting their debt almost once a year. The Acid- Test ratio is used to determine the company's ability to repay current liabilities after the least liquid of its current assets is removed from the equation. Kenmark has an acid- test ratio of 1.29 during 2009 and 1.08 during 2008. This indicates that the company could pay off 129% in 2009 and 108% in 2008 of its current liabilities by liquidating all current assets other than inventory. In 2008, Golden Pharos could pay off 131% more than 124% in 2009 of its current liabilities by liquidating all current assets other than inventory. The days to sell of the inventory in Kenmark is 54 days in 2009 which is longer compare to 2008 which is only 41 days. Golden Pharos have shorter period of 117 days to sell of the inventory in 2008 compare to 2009 which took long period by 128 days. The lesser days the company use to sell off the inventories, the better the company.

Financial Gearing Ratio Financial Gearing Ratio measures the amount of debt an organization is using and the ability of the organization to pay off the debt. The Debt-to-Total Asset Ratio is used to determine the percentage of the company's assets that is financed with debt. The debt to total assets ratio of Kenmark during 2009 to total asset ratio of 0.31 indicate that 31% of company assets are financed with non- owner funds. In 2008, the company have lower debt ratio of 0.24 indicate that 24% of company assets are financed with non- owner funds in 2008. Golden Pharos had 0.21 and 0.17 of debt ratio in 2008 and 2009 respectively. This indicate that 21% and 17% of Golden Pharos asset are financed with nonowner funds. The Equity Ratio is a financial ratio indicating the relative proportion of equity used to finance a company's assets. The two components are often taken from the firm's balance sheet or statement of financial position (so-called book value), but the ratio may also be calculated using market values for both, if the company's equities are publicly traded. The equity ratio of Kenmark is roughly the same between 2008 and 2009 which is 0.60 and 0.62 respectively. There is only a 0.01 difference of equity ratio in Golden Pharos by the year 2008 and 2009, which is 0.69 and 0.68. The Debt-to-Equity Ratio (D/E) is a financial ratio indicating the relative proportion of shareholders' equity and debt used to finance a company's assets. The two components are often taken from the firm's balance sheet or statement of financial position, but the ratio may also be calculated using market values for both, if the company's debt and equity are publicly traded, or using a combination of book value for debt and market value for equity financially. The Kenmark have 0.66 of debt to equity ratio in 2008 which is more compare to 0.61 in 2009. The Golden Pharos has 0.45 in the year 2008 and slightly increases a 0.02 in the year 2009 which is 0.47.

Return on Investment (ROI) Ratio The ROI is perhaps the most important ratio of all. It is the percentage of return on funds invested in the business by its owners. In short, this ratio tells the owner whether or not all the effort put into the business has been worthwhile. If the ROI is less than the rate of return on an alternative, risk-free investment such as a bank savings account, the owner may be wiser to sell the company, put the money in such a savings instrument, and avoid the daily struggles of small business management. From the ROI ratio report, Kenmark incurred a 0.03% of in 2008 while 1.16% in 2009, while Golden Pharos had a drastic increase, from 6.37% in 2008 to 17.31% in 2009. Efficiency Ratio The efficiency ratio, a ratio that is typically applied to banks, in simple terms is defined as expenses as a percentage of revenue (expenses / revenue), with a few variations. A lower percentage is better since that means expenses are low and earnings are high. It is related to operating leverage, which measures the ratio between fixed costs and variable costs. A high Account Receivable Turnover ratio implies either that a company operates on a cash basis or that its extension of credit and collection of accounts receivable is efficient. This can be explained as the frequency of the companies collecting their debts. Kenmark have a 5.11 account receivable turnover in 2008 and 1.33 in 2009. While Golden Pharos have 4.21 account receivable turnover in 2008 and 3.95 in 2009.This indicate that the lower account receivable turnover in 2008 for Kenmark and 2009 for Golden Pharos implies the company should re-asset its credit policies in order to ensure the timely collection of imparted credit that is not earning interest for the firm. Fixed asset turnover is the ratio of sales (on the Profit and loss account) to the value of fixed assets (on the balance sheet). It indicates how well the business is using its fixed assets to generate sales. The fixed asset turnover is higher in 2008 compare to 2009 in Kenmark, which is 0.93 and 0.83 respectively. Golden Pharos has 3.93 and 2.93 in the year 2008 and 2009.

Generally speaking, the higher the ratio, the better, because a high ratio indicates the business has less money tied up in fixed assets for each dollar of sales revenue. This indicates the situation of Golden Pharos have higher fixed asset turnover ratio among the other groups. A declining ratio of Kenmark may indicate that the business is over-invested in plant, equipment, or other fixed assets. Sales to net working Capital is the money used to make goods and attract sales. Working Capital management is about the commercial and financial aspects of Inventory, credit, purchasing, marketing, and royalty and investment policy. The sales to net working capital in Kenmark had increase to 1.54 in 2009 from 1.47 during 2008, while Golden Pharos had decrease from 2.74 in 2008 to 1.59 in 2009. The higher the profit margin, the lower is likely to be the level of Working Capital tied up in creating and selling titles, the faster the company creates and sells the books the higher is likely to be the return on investment. Account Payable to Sales indicates the relationship between unpaid suppliers' bills and the sales revenue in an accounting period is considered high if it approaches 1.0 and, in some industries, may be a sign that the firm is having liquidity problems. The account payable to sales is said to be respectively the same in all groups and all company. It is between 0.16 and 0.15. It is considered low and the industries are free from liquidity problems.

Conclusion
As a conclusion, we decided to choose Golden Pharos. This is because Golden Pharos has a high return of investment. On the other hand, reason that we do not choose Golden Pharos first of all is because Kenmark has been suspended from Bursa Malaysia due to failure to submit its quarterly financial results. Secondly is because Kenmarks landslide drops a total of 61% in net profit which significantly affected the outsiders perception towards Kenmark very badly. Furthermore, Kenmark also faces difficulty in collecting debts in shorter period of time because Kenmarks account receivable turnover ratio is lower than the previous year which from 5.11 during the year 2008 drop till 1.33 during the year 2009. In addition, Kenmarks debt to total asset ratio increases from 24% during the year 2008 to 31% during the year 2009, meaning that its debt are financed more through equity rather than assets which is very bad. The fifth reason is that Kenmarks days of selling off inventory increases from the year 2008 of 41 days to the year 2009 of 54 days, this shows that Kenmark increase a total of 13 days which is more than Golden Pharos increase by 9 days. The lesser days the company use to sell off the inventories, the better the company. Last but not least, Kenmark has more money tied to their fixed asset because the fixed asset turnover lower in 2009 which is 0.83 compare to 2008 which is 0.93. This shows that Kenmarks performance using fixed assets to generate sales worst off.

References
1) http://wrightreports.ecnext.com/coms2/reportdesc_COMPANY_C458D1550 2) http://wrightreports.ecnext.com/comsite5/bin/comsite5.pl? page=report_description&report=COMPANY&cusip=C458G8530