By reviewing Table 6, we find out the return on invested capital is in increasing trend except for year 1997 and 1998. The highest ratio is in year 1997. A large portion variability of the return on common equity of this company is due to changes in return on assets. Notice that the sustainable equity growth ratio, which relative to the prior year is shrink over the four years period except for year 2001. However, the average of this measurement over the five years period is 0.36%. For the debt ratio, there is a sudden drop between year 1998 and 1999 due to 23.6% increase in long term debts. The total debt to equity ratio record the highest amount in year 1998 due to the economic crisis and the company increase their credit line. In year 2000, there is a sudden drop from RM2 dividends yield to RM1.52. After year 1999, earnings per share are decrease for two consecutive years. This is because reducing in net profit over the years. There is an improvement in PE ratio except the year 2001. Since economic recession in year 1998, the company must sell their stock in higher price, that is RM28.3 in order to get RM1 earnings.
The forecasted sales of this company for year 2003 are RM473, 509,169, which is 1.17% less compare with previous year. However, net income is expected increase 5.97%, which is from RM28, 220,000 raise to RM29, 904,528. In summary, the company will performed better in year 2003 since the forecasted net income is higher.
Kim Hin Industry Berhad
Table 7 shows a common size analysis of capital structure for Kim Hin Industry Berhad. For year 1996, liabilities constitute 16.702% and this percentage decreases to 0.099% in year 2000, which indicates that the obligations of Kim Hin Industry are reducing. However, in year 2001, this amount increases 0.015% to 0.114%. From the table, it shows the shareholders’ equity of Kim Hin industry Berhad is stable over years. The reserve of this company reaches its peak in year 1998. This may be due to the economic crisis that makes the company to increase their reserve in the bank to face the contingency in the future.
From Table 8, we can see that cash and bank balances increase the most in year 2001 (2492.699%) if compared with the other short-term assets. This indicates that Kim Hin Industry Berhad’s liquidity needs is improving over the year. Although long term asset and long term liability show a downturn from year to year, they are still remained above the level of total long term assets based on year 1996. From here we can see that sales growth are faster than the inventory growth. This is a good sign for Kim Hin Industry Berhad. This may be due to the better inventory system in this company. Net income shows a rising trend over these six consecutive years except in year 1998, the net income decreased – 33.954% if compared with year 1996. Besides, account receivables are growing faster than the sales (118.975% versus 110.042%), this is suggestive for a more aggressive credit policy. After doing the time series forecasting of the value of sales and net income in year 2003, we predict that both categories will be in a decreasing trend, which reach an amount of RM 15,561,322.19 for net income and RM 150,277,952 of sales.
From Table 9, the value of cash flow adequacy ratio (CFAR), which is 1.01606, indicates that this company is able to cover these cash without a need for external financing. The debt ratio of this company over five years is decreasing from year to year. This implies that the portion of assets that are being financed by the creditors are keep on dropping. Furthermore, the debt to equity is decreasing from year 1997 (0.352044 times) to 2001 (0.161399 times). The highest ROCE over these five business-operating years is in year 1997 which yield an amount of 27.8%. The growth rate is decreasing, which shows by the SEGR, from 25.03% in year 1997 to –5.827% in year 1998. After year 1998, the growth rate increase steadily from year 1999 (7.116%) to 2001(11.35%).
Although the company’s earning per share decreases from 0.18 in year 1997 to 0.05 in year 2001, the dividend yield increases from 0.53 in year 1997 to 0.98 in year 2001. In year 1998, dividend yield comes to it highest point of 3.23 which designates that the selling price of each share, the company will get RM 3.23 dividend in return. The PE ratios of Kim Hin Industry Berhad fluctuate over time. The highest PE ratio among these five years is in year 2000, which yields that the company should sell its share for RM 27.90 in order to earn RM 1.00.
Kris Components Berhad
Table 10 shows a common-size analysis of capital structure for Kris Components Berhad. For year 2001, liabilities constitute 52.1% and equity 47.9% of Kris’s financing, while long term liabilities equal l2.41%. Total liabilities is increase from 22.44% in year 1997 to 52.1% in year 2001, whereas total equity capital has decreased from 77.56% to 47.9%. This shows that there is a greater likelihood of insolvency in company since the higher the proportion of debt, the larger the interest charges and debt repayment.
Table 11 shows the trend index of selected accounts of Kris Components Berhad. The cash and cash balances was decrease dramatically from 864% in year 2000 to 530.3% in year 2001, whereas inventory is increase substantially from 639.3% to 1049.8%. This shows that the company has more funds invested in inventory in year 2001. However, the inventory growth is less than sales growth from year 1998 to year 2001. Net income is in an increasing trend except from year 1999 to 2000. Therefore, we have forecasted the sales and net income using regression model for year 2003. As the result, estimated sales in 2003 is RM 484,523,776.2 while the estimated net income is RM46,118,828.51.
Refer to Table 12, the total debt to equity ratio shows an increasing trend during the 5 years period. This indicates the proportion of the company’s capital that derived from debt is larger compared to other sources of capital. The total debt to equity ratio in year 2001 (108.475%) shows that the likelihood of insolvency in the company is greater especially during periods of earnings decline. The debt ratio of the company also increases over the 5 years period. It shows the portion of assets that is financed by creditors is increase from year to year.
The return on invested capital ratio is fluctuated over the 5 years period. It shows 12.43% in 1999 indicates the company is able to attract financing compare with previous year. Kris’s higher return on common shareholders’ equity as compared to its return on invested capital reflects the favourable effects of financial leverage. That is, Kris is successfully trading on the equity. Kris’s cash flow adequacy ratio for the five-year period is 0.364, implying that funds generated from operations are insufficient to maintain dividends and current operating growth levels and there is a need for external financing.
Kris sustainable equity growth rate in year 2001 is 12.14% compare with 10.01% in year 2000, markedly improve relative to prior years. This indicates better future growth in sales and earning. The year 2001 net income of RM19.771 million and dividend of RM 3.711 million leave sufficient funds for reinvestment and internally financed growth.
While earnings per share increase from RM0.20 in year 1998 to RM0.42 in year 2001, the PE ratio was fluctuate during that period. Dividend yield was decline. Declining in dividend yield is attributable mainly to increase in PE ratio.
YTL Cement Berhad
Refer to Table 13, the company total liabilities decreased since 1999 with 65.1% compare to 36.36% (2002). Besides that, the overall total shareholders equity fluctuates each year with a moderate high percentage (63.64%) in 2002. The total debt to equity ratio is decreased from year 1999 to 2002. There is a sudden decreased of almost 70% from 186.506% in 1999 to 57.139% in 2002.
Table 14 indicates that the sales and the net income of the company was in good condition for 4 consecutive years with an increment from 79% (1999) to 188% (2002) and net income increased from 21% (1999) to 438% (2002). In addition, we have forecasted the sales and net income using regression model for year 2003. As the result, estimated sales for year 2003 slightly decrease with the amount of RM 382,055,745.50 compare to 2002 with the amount of RM 422,639,071 while there is a rise in estimated net income for 2003 with RM7,454,009.69 (refer to Appendix).
From the short-term liquidity ratio of YTL Cement Berhad, we analyze the company’s inventory turnover. From Table 14, we can see that the company’s inventory turnover increased over 4 consecutive years from year 1999 to 2002. We can also see that there is a sudden increased of almost 50% in 2000 due to an increased in YTL Cement Berhad’s sales from 109% in 2000 to 188% in 2002. This shows that there is effectiveness in managing inventory by YTL Cement Bhd. Besides that, CFAR for YTL Cement Berhad for 5 years period is 2.33 (refer to Table15). This ratio indicates that the company is able to cover cash needs without a need for external financing.
The return on invested capital (ROIC) is increased from year 2000 to 2002. This is cause by the increment in the net income of the company over the past 3 years. Similar to ROIC, return on common equity (ROCE) of the company also increased. This is cause by the rise of the net income of the company over the past 3 years from 113% (2000) to 438% (2002) (refer to Table14). Sustainable equity growth rate (SEGR) recognizes the internal growth for YTL Cement Bhd depends on both earnings retention and return earned on earnings retained. There is an improvement on SEGR for 5 consecutive years from 1998 to 2002 after a sudden drop from 13.52% in 1997 to 1.58% in 1998 due to the occurrence of financial crisis (refer to Table15).
From the view of financial market measures, YTL Cement Berhad EPS increased for 4 consecutive years from 0.03 in 1999 to 0.479 in 2002. This shows that the company earnings had improved over the periods. The company had lower PE ratio during year 2002, 2001, 2000 compare with the previous 3 years. This is good for the company. The company highest DY (5.12) was in 1998 compare to other years (refer to Table 15).
Analysis
Comparison among the Companies
Capital Structure and Solvency
From the common size statement of capital structure of each company, we find out that Kia Lim Berhad recorded the highest proportion of their total liabilities to their total liabilities and equity, which is 72.306% in year 2001.On the other hand, Kim Hin Industry Berhad only constitute 17.121% of their financing, which is the lowest among the five companies. Therefore, the performance of Kim Hin Industry Berhad is better than Kia Lim Berhad because Kia Lim Berhad’s settlement will required the use of current assets or incurrence of another current liabilities. Since, the major contributor of total liabilities is current liabilities, therefore we the amount of current liabilities of each companies will also indicates the same result.
Due to financial crisis during the year 1997, the long term loan of all the countries increase except Kian Joo Can Factory Berhad and Kim Hin Industry Berhad. As for YTL Cement Berhad, the long term loan increase 15.22% which is 11.43% higher than Kia Lim Berhad compare with their previous year record. For year 2000, Kris Component Berhad reported 4.19% of their long term debts which is slightly lower than Kian Joo Can Factory Berhad.
By reviewing all the common size statement, only Kia Lim Berhad’s retained earning in year 2000 and year 2001 in negatives percentage. Hence, this reveals that this company incurred loss over this two years and the proportion of retain earnings in year 2000 is 8.988% and 16.7% in year 2001.By comparing with all the other four companies, they all are well-performed over the five years.
The ordinary share capital for Kim Hin Industry Berhad, Kia Lim Berhad and Kris Components Berhad are almost 35% each year. While for the other two companies is about 15% each year. This indicates that the first three companies are issue more shares in order to generate more funds for the investment purpose compare with other two companies.
Total equity capital is the main sources of funds for each company. By comparing the average of total equity capital proportion to their financing, we find out that YTL Cement Berhad recorded the highest amount that is average 57.7% each year, while Kim Hin Industry Berhad is the second higher company. Higher proportion of total equity of their financings implies that the companies have better financial status because they use all sources of funds that generated to meet the liquidity needs. Kia Lim Berhad is the worst performer among these five companies because their average proportion of total equity of the company’s financing is only 5.5% each year, which is the lowest, recorded.
Forecasting
A five years trend index analysis of five industrial product companies are shown in the table 2,5,8,11,14. Year 1996 is the base year and is set equal to 100 percent.
From the table in the appendix, the result shows that Kris Component Berhad has the most rapid increasing inventory growth (1049.8% in year 2001) from year 1997 to 2001 if compared with other companies. This may be due to poor management of inventory in this company. Among these five companies, only Kim Hin Industry Berhad’s inventory growth is less than sales growth over five years time (110.042% versus 99.362% in year 2001). This is a good sign for a company as this shows increasing revenue for the company. The other four companies are contradicting to this situation. YTL Cement Berhad has the highest sales growth, which yields an amount of 445.31% based on year 1996.
We also see from these tables that account receivable is growing fastest for company Kris Component Berhad. The percentage of account receivable growth that based on year 1996 reaches its peak level for this company is in year 2001, which yields 408.17%. This is a suggestive of more aggressive credit policy. This company may also face with some credit risk as their credit level increasing from year to year. However Kia Lim Berhad ‘s account receivable is worsening from year 1997 to year 2001 but this it is still above the base year account receivable level. This may deteriorate their liquidity ability. Whereas the other three companies has a steady growth of account receivable.
Ratio Analysis
Short-term liquidity
From the table, we can see that Kian Joo Can Factory Berhad has the highest current ratio in 1997. Kian Joo Can Factory Berhad yields an amount of 2.913, whereas YTL Cement Berhad’s current ratio is the lowest among all in 1997. Kim Hin Industry Berhad has the highest point of current ratio, which is 2.821 in year 2001. Take a closer look at the table, we can conclude that Kian Joo Can Factory Industry Berhad remain the highest level of current ratio for two consecutive years and this indicates that this company’s liquidity level is able to cover their obligation steadily over these five years. From the inventory turnover ratios shown in the table, we notice that Kian Joo Can Factory Berhad and Kim Hin Industry Berhad are stable in managing their inventory over the five years. However, Kris Components Bhd’s inventory turnover is decreasing from time to time in five years period. This may be due to the poor production of this company. On the other hand, YTL Cement Berhad’s inventory turnover shows a sign of improvement from 1997 (38.008 times) to 2001 (43.311 times).
Cash Flow Analysis and Forecasting
After analyzing these five companies, it can be seen that YTL Cement Berhad has the highest CFAR, which yields 2.33. This indicates YTL Cement Berhad has enough fund to cover the cash outflow without seeking for the external financial. Besides, Kim Hin Industry Berhad also yields a CFAR above one, which is 1.0161. The rest, which include Kian Joo Can Factory Berhad, Kia Lim Berhad, and Kris Components Bhd have the ratio below one and this indicates that these three companies might need to outsource their fund to cover their net cash flow.
Capital Structure and Solvency
Kia Lim Berhad and YTL Cement Berhad remain the highest debt ratio over five consecutive years and this indicates that these two companies are strongly relying on the creditors to finance their assets. Between these two companies, Kia Lim Berhad’s debt ratios are increasing considerably whereas YTL Cement Berhad’s debt ratios are decreasing over times. Kian Joo has the most stable debt ratios among five companies. In comparison of the total debt to equity ratio, we can see that Kian Joo, Kim Hin Industry Berhad and YTL Cement Berhad are decreasing from year 1997 to 2001. On the other hand, total debt to equity ratio for Kia Lim Berhad and Kris Components Berhad are increasing over time. This indicates that they are more relying on their creditors to survive their equity.
Return on Invested Capital
As overall, the return on invested capital ratio (ROIC) for the 5 companies in 1998 were in a decreasing trend due to the financial crisis. ROIC for Kia Lim Berhad was decreased tremendously from 0.038 in 1997 to –0.029 in year 1998. In year1999, all company’s ROIC were improved except for Kia Lim Berhad which still in a decreasing rate. Although in 2001 Kia Lim Berhad’s ROIC still in a negative trend, all company’s ROIC were in an increasing trend with YTL Cement Berhad contributed the most which is 0.122. This shows that all 5 the companies are able to attract financing after 1997 crisis.
The ROCE trends of the 5 companies are as same as the ROIC. Kia Lim Berhad’s ROCE still decreased drastically in 1998 with –0.092. ROCE for all companies are increased in 2001. YTL Cement Berhad still leading with the largest ROCE compare to others in 2001 with 0.217. This indicates that YTL Cement Berhad is operating quite well compare with the other 4 companies.
Sustainable equity growth rate (SEGR) recognizes the internal growth for the 5 companies depend on both earnings retention and return earned on earnings retained. From the table, we can see that YTL Cement Berhad has a good growth on SEGR with improvement for 5 consecutive years from 1998 to 2002 after a sudden drop from 13.52% in 1997 to 1.58% in 1998 due to the occurrence of financial crisis. The SEGR for Kris Components Berhad and Kim Hin Berhad were in a fluctuating condition over the 5 years. In 2001, Kian Joo Can Factory Berhad has the highest growth in SEGR, which is 0.2898.
Asset Utilization
Total asset turnover for the 5 analysis companies was in an increasing trend for 3 consecutive years from 1999-2001 except for Kim Hin Berhad, which the total asset turnover ratio drop to 0.001 in 1999. This shows that the speed of sales revenue generated as a result of using up the firms net fixed assets to produce goods and services was improved for all the companies except for Kim Hin Berhad. Kris Components Berhad has the highest total asset turnover compare to other companies with the ratio of 1.793 in 2001.
Over the 5 companies, we can see that Kris Components Berhad has the highest account receivable ratio throughout the 5 years with the ratio of 6.4 in 2001. This shows that Kris Components Berhad is more able and more often to get back their money back from their debtors. Meanwhile, YTL Cement Berhad earned the lowest account receivable ratio during the 5 years compared to other analysis companies with the ratio of 2.85 in 2001. This indicates that this company is facing more difficulties in collecting back their money from their debtors.
Operating Performance
By reviewing the financial statement of the five companies, we find that Kia Lim Berhad performed worst than the other four companies because their net profit margin ratio is negative every year except in year 1997. On the other hand, by comparing the average net profit margin among these companies over the five years period, Kim Hin industry Berhad is the best perform company. For YTL Cement Berhad, it is a slightly lower than Kris Components Bhd. Net profit margin different among these companies are due to the factors such as competition and capital investment, control over operating expense of each company. Net profit margin of Kia Lim Berhad can be improved through diversities and restructuring.
Financial Market Measures
All the company’s EPS is decline over the five years period except Kris Components Bhd. In year 2001, Kia Lim Berhad did not issue stocks; therefore the company’s EPS is zero. Kris Components Berhad records the highest EPS among these five companies, which earned RM0.42 for each stock sold. Besides that, EPS for YTL Cement Berhad is 23.5% less than Kian Joo Can Factory Berhad. In summary, Kris Components Berhad’s operating performance is stronger that other companies.
YTL Cement Berhad’s PE ratio is the highest (30.52) whereas Kim Hin industry Berhad’s PE ratio is the lowest (0.064). This means that the stock selling price of YTL Cement Berhad is RM30.52 and Kim Hin industry Berhad is RM0.064 for RM1 earnings. Kia Lim Berhad ‘s PE ratio is slightly lower, 28.83% less than Kian Joo Can Factory Berhad’s PE ratio. In summary, Kim Hin Industry Berhad is inefficient in raising a given amount of equity capital by issuing fewer shares, and the company is unable to use common stock as a means of payment for acquisition.
Dividends yield for each companies is based on the number of stock selling in financial market. Over the five year, the highest DY recorded by Kris Components Berhad, which is RM1.852 per year. Whereas both YTL Cement Berhad’s DY and Kian Joo Can Factory Berhad’s DY is approximately the same, which is RM1.635 dividend yields for each 1 unit of stock selling price. Since Kia Lim Berhad only issues stock in year 1998 and year 1999, the company’s PE ratio was increased over this two year. Thus, the company’s DY is the lowest among these companies.
Conclusion
As a conclusion, we can notice that the company, which has the fastest long-term liability growth over these five years, is Kris Component Berhad. The liability growth rate is increasing drastically from year 1997 (25.38 % based on year 1996) to year 2001 (402.67 % based on year 1996). Although the liability level is high, it can be sustained by the increasing account receivables over these five years. On the other hand, Kim Hin Industry Berhad has a decreasing trend in their long-term liability as they might be able to payback their obligations in a short time period. Nonetheless, the other three companies, which are YTL Cement Berhad, Kian Joo Can Factory Berhad, and Kia Lim Berhad’s long-term obligations, are fluctuated steadily. Kia Lim Berhad faced with an increasing rate of current liabilities over these five years may be due to the need of funds to pay the debts as this company keep on making loss from year 1998 after the effect of economic crisis in year 1997.
We can also notice that Kia Lim Berhad is unable to continue its operation as this company is making loss almost four continues years starting from year 1998 until 2002 and we forecast that this company will continue to make loss as their forecasted sales for year 2003 is RM 32,062,120.43 which is RM 1,054, 879.57 (3.19%) less than the previous year. Nonetheless, the company’s forecasted 2003 sales will increase is the Kris Component Berhad which yield RM 484523776.2 in year 2003 or 6.52% more than the previous year’s sales volume.
