Corporate Finance Management

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ASSIGNMENT COVER|SECTION A: PERSONAL PARTICULARS (PLEASE USE BLOCK LETTERS) |Programme : INTERNATIONAL EXECUTIVE MBA (GENERAL)Name (as per IC/Passport): KWAN LEE SIM Student ID: MAL12073Subject Code: FIN600 Subject Title: CORPORATE FINANCIAL MANAGEMENTName of Lecturer: MR. NGU CHIE KIEN Assignment Submission Date: 27 APRIL 2013Name of Group Members (if applicable)i) __________________________________________________ ii)_______________________________________Explanation for Late Submission (if Applicable)
_____________________________________________________________________________________________ (Accepted (RejectedDeclaration: I declare thata) No part of this assignment has been copied from any other person??™s work except where due acknowledgement is made in the text and;b) No part of this assignment had been written for me by any other person except where such collaboration has been authorized by lecturer concerned.
Signature: ______________________________________ Date: 27 APRIL 2013
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Assignment Title: Assignment 1
Student Number: MAL12073
Marking Tutor: MR. NGU CHIE KIEN
Date of Submission: 27 APRIL 2013
Table of Content
Return On Equity 4
DuPont Ratios 5
Profitability 5
Efficiency 5
Leverage Ratio (Asset/equity Ratio) 5
Gross Profit Margin 5
SG & A Ratio 6
Important Expenses Percentage 6
Account Receivable Turnover Ratio 6
Days Receivables Outstanding 6
Inventory Turnover Ratio 6
Days Inventory Ratio 6
Account Payable Turnover Ratio 7
Days Payables Outstanding 7
Cash Conversion Cycle 7
PPE Turnover Ratio 7
Debt to Equity 8
Times Interest Earned 8
Return on Financial Leverage 8
LT Debt to Total Assets Ratio 8
The Cash Liquidity and Cash Flow Management of KNM Group 8
Working Capital Analysis 9
Current Ratio 9
Quick Ratio 9
Operating Cash Flow over Current Liabilities 9
Operating Cash Flow over Capital Expenditure 9
Free Cash Flow 10
The Growth of KNM Group 10
Reference 11EXECUTIVE SUMMARYThis is a financial analysis report of KNM Group Berhad??™ metrics based on the information provided in the three annual reports of KNM Group Berhad which is from year 2009 to year 2011. The student used the information from the statement of comprehensive income, changes in equity and cash flows for the year then ended and notes of the three financial reports to analyse the assets & liabilities, income & expenditures and various financial ratios that assist in comparative analysis with previous year financials and concluded the financial position of the company.The report covers four major areas:
O SUMMARY AND CONCLUSIONSECTION I ??“ BRIEF INTRODUCTION OF KNM GROUP BERHADKNM Group was established locally in year 1990 and listed on 2nd board of Bursa Malaysia Securities Berhad in year 2003 how do i write my essay in apa format. It is a manufacturer for process plants, modules and O&M equipment, process technologies and engineering, plant services and turnkey systems provider for the industries such as oil, gas, petrochemicals, minerals processing, desalination, renewable energy, chemicals, steam generation, power and environment across 16 countries under multiple brands such as KNM, BORSIG, FBM Hudson, W.E. Smith and KPS.SECTION II ??“ FINANCIAL ANALYSIS OF KNM GROUP BERHAD
Return On EquityThe return on equity ratio of KNM Group from year 2009 to 2011 is shows in the table below:
|Year 2011 |Year 2010 |Year 2009 |
|(6%) |7% |13% |
It is observed that in year 2009, the company has made an impressive earning for the shareholders but the profitability has decreased dramatically in year 2010 and making loss in year 2011.DuPont RatiosLet??™s begin the analysis in more detail by evaluating the profitability, efficiency and leverage ratio that tells the extent of KNM Group in using the borrowed money.Profitability|Year 2011 |Year 2010 |Year 2009 |
|(5%) |8% |14% |
Drastic reduction in the profit margin, it shows that KNM Group has more expenditures than revenues. There is no cushion available to the company in the event of drop of sales price.Efficiency|Year 2011 |Year 2010 |Year 2009 |
|53% |41% |43% |
The trend of asset turnover of KNM Group was improving from 43% to 53% over the years. It is either the company was more efficient in year 2011 as compare to the previous year or adapting lower pricing strategy to boost sales.Leverage Ratio (Asset/equity Ratio)|Year 2011 |Year 2010 |Year 2009 |
|2.24 |2.06 |2.25 |
The trend of asset/equity ratio over the years shows that KNM Group owns more of its assets than financed by the shareholders through equity. To the lender, this may be a good sign for investment because generally a company with no asset and high debt would not be considered by the bank or creditors. However, it can be also indicates the company is very conservative and may be opposed to growth strategies. Hence, further evaluation is needed before we conclude this company is worth for investment.Gross Profit Margin|Year 2011 |Year 2010 |Year 2009 |
|10% |19% |23% |
The figure above show that gross profit margin of KNM Group was decreasing year over year.SG & A Ratio|Year 2011 |Year 2010 |Year 2009 |
|107% |98% |96% |
Overall the SG & A expenses of KNM Group was high which tells that the company is not managing the cash flow efficiently and putting the company at high risk position.Important Expenses Percentage|Year 2011 |Year 2010 |Year 2009 |
|3% |3% |4% |
The finance cost of each year was within 3% to 4% which is not very critical.
Account Receivable Turnover Ratio|Year 2011 |Year 2010 |Year 2009 |
|2.35 |2.10 |1.82 |
The trend of account receivable turnover ratio of KNM Group is increasing year over year which show the efficiency level of the company in collecting outstanding sales was improving.Days Receivables Outstanding|Year 2011 |Year 2010 |Year 2009 |
|155 |174 |201 |
The faster we convert sales into cash, the more we earn from the business. Therefore, lower value of days receivables outstanding is favorable whereas higher value is unfavorable. From the value show in the table above, KNM Group had improvement on the credit sales collection year over year.Inventory Turnover Ratio|Year 2011 |Year 2010 |Year 2009 |
|25.17 |14.41 |13.89 |
The trend of inventory turnover ratio of KNM Group is increasing which show better performance in inventory management year over year.Days Inventory Ratio|Year 2011 |Year 2010 |Year 2009 |
|14.50 |25.32 |26.27 |
Due to inventory incurred investment cost, lower level of inventory will result in lower days inventory on hand ratio. Therefore, lower values of this ratio in year 2011 are better than the higher values in year 2009 and year 2010.
Account Payable Turnover Ratio|Year 2011 |Year 2010 |Year 2009 |
|3.91 |2.69 |2.36 |
The higher value of account payable turnover ratio indicates KNM Group was able to repay its suppliers quickly. Thus higher value of accounts payable turnover is favorable. This ratio can be of great importance to suppliers since they are interested in getting paid early for their supplies. Other things equal, a supplier should prefer to sell to a company with higher accounts payable turnover ratio.
Days Payables Outstanding|Year 2011 |Year 2010 |Year 2009 |
|106.46 |112.34 |127.80 |
According to the figure show in the table above, KNM Group take lesser days to pay back its creditor year over year.Cash Conversion Cycle|Year 2011 |Year 2010 |Year 2009 |
|85.65 |75.77 |52.52 |
Shorter the cash conversion cycle the better the company is off because it has to lock up cash for a relatively smaller period of time. The figures above show that trend of cash conversion cycle of KNM Group is getting longer year over year.
PPE Turnover Ratio|Year 2011 |Year 2010 |Year 2009 |
|2.63 |1.97 |2.34 |
The trend shows that KNM Group has higher fixed assets ratio in year 2011 than the previous years which means the company has lesser money tied up in fixed assets for each unit of sales.Debt to Equity|Year 2011 |Year 2010 |Year 2009 |
|1.44 |1.04 |1.06 |
The trend shows that KNM Group relies more on external lenders and exposing itself to higher risk especially at the higher interest rate.Times Interest Earned|Year 2011 |Year 2010 |Year 2009 |
|(2.05) |1.79 |2.83 |
The trend of times interest earned ratio for KNM Group shows that the company has very low safety for payment of interest.
Return on Financial Leverage|Year 2011 |Year 2010 |Year 2009 |
|(8.5%) |3.6% |6.7% |
KNM Group was having positive financial leverage in year 2009 and year 2010 but negative in year 2011 which means the company is making profit in year 2009 and year 2010 and making loss in year 2011.LT Debt to Total Assets Ratio|Year 2011 |Year 2010 |Year 2009 |
|16% |19% |23% |
The trend over the years showing that KNM Group was less dependent on debts for their business needs.SECTION III ??“ CASH FLOW AND GROWTH ANALYSIS OF KNM GROUP
The Cash Liquidity and Cash Flow Management of KNM GroupThe following ratios tell us in what extent of efficiency that KNM Group using its cash.
Working Capital Analysis|Year 2011 |Year 2010 |Year 2009 |
|(RM198,333) |RM35,762 |RM293,059 |
The cash in hand of KNM Group was deteriorating year over year. It has RM198,333 shortcomings to cover the short term debt in year 2011.Current Ratio|Year 2011 |Year 2010 |Year 2009 |
|0.88 |1.03 |1.25 |
The current ratio of KNM Group in year 2009 and year 2010 was showing the company at healthy level of financial position. However, in year 2011 the current ratio was below 1 which means that total current liabilities exceed total current assets. In other words, the company was in critical liquidity in year 2011.
Quick Ratio|Year 2011 |Year 2010 |Year 2009 |
|0.84 |0.97 |1.16 |
The quick ratio of KNM Group in year 2011 was down as compare to the previous years 2010 and year 2009 which means KNM Group would not be able to repay all its debts by using its most liquid assets.Operating Cash Flow over Current Liabilities|Year 2011 |Year 2010 |Year 2009 |
|11% |5% |37% |
KNM Group was cash rich in year 2009 but drastic deteriorated in year 2010. It??™s has 6% improvement on the OCFCL ratio in year 2011.Operating Cash Flow over Capital Expenditure|Year 2011 |Year 2010 |Year 2009 |
|24% |7% |52% |
The operating cash flow over capital expenditure ratio of KNM Group over the years was fluctuated as the company go through cycles of large and small capital expenditures. The company has the strongest financial ability to invest in itself through capital expenditure in year 2009 and weakest in year 2010.Free Cash Flow|Year 2011 |Year 2010 |Year 2009 |
|(RM563,395) |(RM693,313) |(RM402,038) |
The free cash flow of KNM Group over the years of 2009 to 2011 is not impressive at all. The company has no free cash flow.The Growth of KNM Group| |Year 2011 |Year 2010 |Year 2009 |
|Sales Growth |22% |-2% |-28% |
|NI Growth |-177% |-54% |-23% |
The sales of year 2009 were down by 28% as compare to the sales of 2008 and the net income was down 23% as compare to the net income of year 2008.In year 2010, the sales were down by 2% against the sales of previous year and the net income was down 54% as compare to the net income of year 2009.In year 2011, KNM Group has 22% of sales improvement as compare to the sales of 2010 and the net income was down 177% as compare to the net income of year 2010.SUMMARY AND CONCLUSIONAfter a long and thorough study on the financial performance of KNM Group Berhad from year 2009 to 2011, I am able to make the following summary and conclusion:The liquidity position of the company has been decreasing for the last three years which shows that the company has insufficient liquid assets to pay back its??™ current liabilities. This is due to inefficient of management in managing the valuable cash flow whereby the management spend a lot of money in administrative and operating expenses and caused the profit margin of the company in the past three year slim down drastically.The company has been using pricing strategy to increase sales as we can see the company is making higher sales year over year but its net profit margin was badly reducing year over year until in year 2011, the company was making a loss. Therefore, the asset turnover ratio is high but the profitability is low over the years of 2009 to 2011.The capital structure ratio, which compares a company??™s debt to its asset and equity, has been maintaining at 2 to 2.5 ratios meaning that the company has no improvement in managing debt and will be at higher risk if interest rate increased.After evaluating all these figures, we can conclude that KNM Group Berhad is at high risk and in the unsecured financial position.(Total 1,828 words)
Reference ??? Annual Report 2008 of KNM Group Berhad
??? Annual Report 2009 of KNM Group Berhad
??? Annual Report 2010 of KNM Group Berhad
??? Annual Report 2011 of KNM Group Berhad
??? Richard A. Brealey, Stewart C. Myers, Franklin Allen (2011). ???Principles of Corporate Finance???. Tenth Edition, New York, USA: McGraw-Hill.

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