market ratio, corporate finance

1. CORPORATE FINANCE
(ADM 658)
PREPARED BY:
NUR AMALINA ATIQAH HAMRI
2010154417
NUR IZZAH HAZIRAH AZMAN
2010937655
FARAH AINNA SARDON
2010733719
NUR AQILAH MAHADI
2010967787

2. Background

Scientex berhad was incorporated in malaysia under the companies act, 1965 as
scientific textiles industries Sdn. Bhd. This company incorporated to
manufacture and market polyvinylchloride (PVC) leather cloth and sheeting.
This company’s core businesses are manufacturing and property development.
There are eight companies under manufacturing namely Scientex Packing Film
Sdn Bhd, PT. Scientex Indonesia and for property there are six companies
namely Scientex Quatari Sdn Bhd, Scientex Park (M) Sdn Bhd. While, the
manufacturing division consist of two business units namely packaging and
polymer. One of its property development projects, launched in early 2008 is
Scientex Kulai which comprises of 250 acres of residential and commercial
development. this is in line with Scientex’s strategy to develop strategically
located prime land within the Iskandar Malaysia growth in Johor.

3. FINANCIAL
RATIO

4. 1. Liquidity Ratio
LIQUIDITY RATIO
Current Ratio (CR)
CR =
2012
2011
= 295,809,775
= 281,005,821
213,093,418
182,175,435
Current Asset (CA)
= 1.39 times
= 1.54 times
Current Liabilities (CL)
Quick Ratio (QR)
QR = (C.Asset – Inventory)
Current Liabilities
= (295,809,775 – 60,980,831)
213,093,418
= (281,005,821 –
67,763,202)
182,175,435
= 1.10 times
= 1.17 times
Net Working Capital (NWC)
= 295,809,775 – 213,093,418
= 281,005,821 – 182,175,435
NWC = C.Asset – C.Liabilities
= RM 82,716,357
= RM 98,830,386

5. Comment

Current Ratio
Current Ratio is the firm’s ability to meet its short-term obligations. So we could
say that Scientex has $1.39 in current assets for every $1 in current liabilities, or
we could say that Scientex has its current liabilities covered 1.31 times over.

Quick Ratio
Quick Ratio is more conservative measure of liquidity than the current ratio as it
removes inventory from the current assets used in the ratio's formula. By excluding
inventory, the quick ratio focuses on the more-liquid assets of a company.

Net Working Capital
Net Working Capital (NWC) is frequently viewed as the amount of short-term liquidity
a firm has or the firm’s overall liquidity.

6. 2.Efficiency Ratio
RATIO
Inventory turnover
ITO = Cost of good sale
2012
2011
703 224 494
644 721 905
60 980 831
67 763 202
= 11.53 / 12 times
= 9.5 / 10 times
124 053 653
105 497 383
881 024 778 x 365
804 022 790 x 365
= 51.4 / 51 days
= 47.8 / 48 days
881 024 778
804 022 790
809 042 208
725 075 346
= 1.09 times
=1.11 times
Inventory
Average collection period
ACP = Acc. Receivables
Sales x 365
Total Asser Turnover
TATO =
Sales
Total asset

7. Comment

Inventory turnover

Inventory turnover refers to the measures of the company‘s efficiency in turning its inventory into sales.

The firm turns over its inventory 12 times in year 2012 compare to 10 times in 2011.

Generates more sales per ringgit of inventory than the previous year and we can assume the firm uses
very efficient inventory-ordering and cost-control methods.

Average collection period

Average collection period refers to the average amount of time needed to collect account receivables.

The average collection period in 2012 is 50 days compared to the year 2011 which is 48 days.

Shows the inefficiency of the company to collect its own debt and the weakness of the collecting debt
policy.

Total asset turnover

Refers to the effectiveness with which a firm’s management uses its assets to generate sales.

The total asset turnover for 2011 is 1.11 times compared to 2012 which is 1.09.

Indicate that the company may have unsold inventory and may be finding it difficult to sell its products
fast enough.

8. 3. Debt Ratio
RATIO
Debt Ratio
DR = Total liabilities
2012
X 100
Total Assets
= 249,338,782
809,042,208
X 100
2011
= 218,953,801 X 100
725,075,346
= 30.82 %
Debt to Equity Ratio
DTER = Long term debt
Total equity
= 30.20 %
= 5 000,000
= 10 000,000
559,703,426
506,121,545
= 0.00893
Time Interest Earned
TIE=
EBIT
Annual interest expense
= 0.01976
= 107,612,971
= 97,437,245
19,299,717
16,521,830
= 6 times
= 6 times

9. Comment

Debt Ratio
The debt ratio compares a company's total debt to its total assets, which is used
to gain a general idea as to the amount of leverage being used by a company.
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. The calculation show that debt ratio in
2012 is 30.82 % which slightly more debt compared to 2011 (30.20 %).

Debt Equity Ratio
This ratio is not a pure measurement of a company's debt because it includes
operational liabilities in long term debt. This easy-to-calculate ratio provides a
general indication of a company's equity-liability relationship and is helpful to
investors looking for a quick take on a company's leverage. The debt equity ratio
in table show that the debt to equity ratio in 2011 is better than 2012 which is
0.01976 compared to 0.00893 respectively.

10. 
Times Interest Earned
Times interest earned ratio indicates the number of times that income before
interest and taxes covers the interest obligation. It is a long-term solvency ratio
that measures the ability of a company to pay its interest charges as they
become due. The higher the ratio, the stronger the interest paying ability of the
firm. The calculation show that time interest earned in 2011 (34 times) is higher
than 2012 (27 times).

11. 4. Profitability Ratio
RATIO
2012
2011
Gross Profit Margin
GP = Gross Profit
Operating Profit Margin
OPM = Operating Profit
Sales
Net Profit Margin
NPM =
Net Income
Total Asset
159,300,885
881,024,778
804,022,790
=20.18%
Sales
177,800,284
=19.81%
107,612,971
97,437,245
881,024,778
804,022,790
=12.2%
=12.12%
87,869,016
80,118,419
881,024,778
804,022,790
=9.98%
=9.96%

12. RATIO
2012
2011
Return on Total Asset
ROA = Net income
80,118,419
809,042,208
725,075,346
=10.86%
Total Asset
87,869,016
=11%
87, 869,016
80,118,419
559,703,426
506,121,545
=15.7%
=15.85%
Return on Equity
ROE= Net income
Shareholder Equity

13. Comment

Gross Profit Margin
For Scientex Berhad, in 2012 20.18% of the sales revenue was gross profits. This fell to
19.81% in 20011. A fall in this ratio means that for every RM1 of sales generated by the
firm, less profit will be earned. It certainly does not mean that profits are falling.

Operating profit margin
Operating profit margin for Scientex Berhad in 2012 is 12.2% meanwhile in 2011 is
12.12%.Thus 2012 shows a higher value of operating margin which indicates that
more proportion of revenue is converted to operating income. This means that the
profitability in the company is improving

Net profit margin
For Scientex Berhad, the net profit margins between the two year are similar which
is 9.98% in 2012 and 9.96% in 2011. This mean that, for every RM1 of sales 9.98
and 9.96 net profit was generated.

14. 
Return on total asset
In 2012, Scientex Berhad shows 10.86% of Return on Total Asset while in
2011 is 11.05%. Thus higher values of return on assets which in in 2011
show that business is more profitable.

Return on equity
For Scientex Berhad, the return on equity for 2011 is 15.7% while in 2012 is
15.8% which is a little different between the year. In general, the higher the
percentage, the better, with some exceptions, as it shows that the company
is doing a good job using the investors' money.

15. Recommendation

Implement the tight credit policy and credit terms.

Increasing the promotion and selling of the company product.

Increase sales volume through marketing to achieve economies of scale and
reduce purchase cost, or renegotiate purchase term with existing suppliers.

The company should increase their net income -this can be done by
investing in heavy cost reduction throughout the company and increasing
revenue or sales through marketing efforts.

To achieve the preferable debt ratio, the company must have the maximum
normal value which is 60% - 70%.

When examining the health of a company, it is critical to pay attention to the
debt/equity ratio.

For most companies the maximum acceptable debt-to-equity ratio is 1.5-2 and less.

16. Conclusion

We can conclude that ratio analysis allows the analyst to compare a
company’s performance to that of others in its industry. There are
four main groupings of ratios. Liquidity ratios measure the firm’s
ability to pay of short-term obligations as they come due, and
efficiency ratios tell the analyst how quickly the firm is turning over its
accounts receivables, inventory, and longer-term assets. Debt ratios
indicates the overall position of the firm in like of its assets base and
earning power. While, profitability ratios measure the firm’s ability to
earn and adequate return on sales, assets, and stokeholders’ equity.
Therefore, Scientex Berhad shows ups and downs in their financial
analysis throughout the year.