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A REPORT ON ANALYSIS OF FINANCIAL STATEMENTS OF ASHOK LEYLAND SUBMITTED BY: GAURANG PATEL ROLL NO. : 08075 BATCH No.: 2008-10 SUBMITTED TO: PROF. PARAG RIJWANI FACULTY – FINANCE …Full description
Financial ratio analysis for two construction companies, Gamuda Bhd, YTL Corp. based on their 2013 annual reports.
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A REPORT ON ANALYSIS OF FINANCIAL STATEMENTS OF ASHOK LEYLAND SUBMITTED BY: GAURANG PATEL ROLL NO. : 08075 BATCH No.: 2008-10 SUBMITTED TO: PROF. PARAG RIJWANI FACULTY – FINANCE …Full description
1.0 INTRODUCTION
1.1
Telecommunication Industry in Malaysia The int introd roduc uctio tion n of tel teleph ephon one e ser servic vices es in Mal Malays aysia ia sta starte rted d in 189 1891 1 wi with th the fir first st
telephone exchange installed in Kuala Lumpur. There were only 1 telephones in Kuala Lump Lu mpur ur su supp ppor orte ted d !y "# "## # mi mile les s of te tele leph phon one e an and d te tele legr grap aph h li line nes s du duri ring ng th the e in init itia iall develo dev elopme pment nt sta stage. ge. The tel teleco ecommu mmuni nicat cation ions s sys system tem wa was s reg regard arded ed fai fairly rly adv advanc anced ed particularly in $eninsular Malaysia !y 19#8. In 198%& Tele'om Malaysia introduced mo!ile services into Malaysia& since then& the government granted a num!er of license to private sector telecommunication operations in an effort to develop the country(s telecommunication indus in dustry try an and d inf infras rastru tructu cture. re. Mal Malays aysian ian )o )omm mmuni unicat cation ion and Mul Multim timedi edia a )o )ommi mmissi ssion on esta!lished as a regulatory !ody. In the past % years ago& the telecommunication industry in Malaysia has !een led !y only three most popular companies* Maxis& +igi and )elcom. The services that are offered !y the companies have significantly helped people to ma'e t heir daily lives easier. The three companies has !een competing with each other to !e at the top and leading the industry. ,owever& the num!er of telecommunication companies that are operating in fulfilling the needs of people to communicate in Malaysia is increasing. The telecommunication mar'et has !een dominated !y ma-or telecommunication companies such as mo!ile and Tune Tal'. The telecommunication mar'et structure in Malaysia is !ecome oligopoly due to the competiti comp etition on in the tele telecomm communic unication ation mar'et. mar'et. In orde orderr to main maintain tain their posi position tion in the mar'et& they would have to consider the possi!le reaction of rivals to its own pricing& output and advertising decisions.
1.2
)ompany /ac'ground 1.2.1
Maxis /erhad
Maxis /erhad is a communications service provider in Malaysia. Maxis provides a variety of mo!ile communication products and services. They offer prepaid data plans& call plans and 0M0 plans& postpaid data plans& call plans and 0M0 plans& devices& wireless !road!and& fi!re internet& international roaming& MM0& 2$ 3over !oth 40M and 4$506 and residential fixed line services. 7or !usiness customers& Maxis offer cloud computing& data storage& machinetomachine services& fixed high speed internet& 02T services 3satellite !ased communications6& call conferencing and a variety of mo!ile plans. Maxis also provides online games and a music store for its customers to download multimedia content. Maxis: most popular service is its prepaid !rand ,otlin'& which currently serves over 9.% million customers in Malaysia.
1.2.2
)elcom 2xiata
Berhad
2xiata 4roup /hd. is an investment holding company& which engages in the provision of mo!ile communication and networ' transmission related services. The firm operates through the following segments* Malaysia& Indonesia& /angladesh& 0ri Lan'a& and ;thers. It also offers technical and management services on an international scale with investments in su!sidiaries& -oint ventures& and associates. 2xiata has controlling interests in mo!ile operators in Malaysia& Indonesia& 0ri Lan'a& /angladesh and )am!odia with significant strategic sta'es in India and 0ingapore. In addition& the Malaysiangrown holding company has sta'es in nonmo!ile telecommunications operations in $a'istan. The 4roup(s mo!ile su!sidiaries and associates operate under the !rand name <)elcom= in Malaysia& <>L= in Indonesia& <+ialog= in 0ri Lan'a& <5o!i= in /angladesh& <0mart= in )am!odia&
1.3
;!-ective of the 0tudy The main o!-ective of this study is to perform financial statement analysis of Maxis
/erhad and )elcom 2xiata /erhad. This study analysed A consecutive years of annual reports of !oth companies from #1 to #1".The companies was evaluated on its financial conditions& profita!ility& liBuidity and long term credit ris' which is )elcom 2xiata 4roup /erhad and Maxis 4roup /erhad .The company was evaluated on its financial conditions & profita!ility & liBuidity and longterm credit ris' . $arameters that involved in the evaluation are as !elow * •
)ash flow condition
•
$rofit and loss of the company and trend
•
2!ilities of controlling de!t and lia!ilities
7inancial statements are historical documents while financial ratios show relatonships that have existed in the past . 2nalysts & investors and !usiness decision ma'ers are primarily interested in the current condition and future condition rather than the past . $ast financial ratios are useful tool for them to use as a !asis for ma'ing financial condition predictions .
2.0 FINANCIAL STATEMENT ANALYSIS
.1 Tools and 2nalysis 2 financial statement is a formal record of any !usiness& individual& or entity(s financial activities. 2ll the important information of a !usiness enterprise is presented in the financial statements. The main aim of financial statements is providing info a!out the financial position& performance& and variations in the financial position of a !usiness enterprise. 2n understanda!le financial statement helps !usiness entity(s sta'eholders to get reasona!le 'nowledge a!out the !usiness and its economic activities.
5atio is a mathematical expression of the relationship of one item to another. It is important in understanding financial statements !ecause it compares information from one financial statement with information from another financial statement. /y using ratiosCpercentage& creditors or investors a!le to -udge and analyse company performance and financial position throughout the years. . $erformance on $rofita!ility 0ummary Ta!le MAXIS BERHAD
CELCOM AXIATA BERHAD
Item
2014
2013
2012
2014
2013
2012
$ercentage change in net sales
38.A#6
1.A
1.9
1.8
A.9
D.8
5eturn on 2ssets
9.%
1#.
1#.%
".8
D.A
D.A
5eturn on EBuity
AD."
9.%
D."
1#."
1.8
1A.1
4ross $rofit 5ate
DF.F
DD.#
DD.%
1D.F
19.
1.A
..1 $ercentage change in revenue $ercentage changes in revenue G dollar amount change in revenue C financial statement amount in the earlier yearH1##
MAXIS BERHAD Item
CELCOM AXIATA BERHAD
2014
2013
2012
5evenue 35M:###6
8&A88&%#
9"&"%
8&9DD&88
)hange in amount
3 D9%&9%# 6
11F&D"
1DD&9#F
A"#&9AD
F19&"
1&#A&D8#
3 8.A# 6
1.9
1.8D
1.8
A.9
D.8
$ercentage change in revenue
2014
2013
2012
18&F11&FFF 18&AF#&8"1 1F&D%1&D1F
2 percentage change in net sales is the rate at which net sales is increasing or decreasing. It is the
Jet $rofit 35M:###6 Total 2ssets 35M:###6 5eturn on 2ssets 36
5eturn on assets measures efficiency of the !usiness in using its assets to generate net profit. /esides& this ratio could help !oth company management and investors to have a view on how well the company could convert its investments in assets into profits. Maxis /erhad had decreasing trend for 5;2 from year #1 to year #1". The negative percentage of 5;2 is unfavoura!le to investors !ecause it shows that the company is ineffectively managing its assets to produce greater amounts of net income. This is !ecause Maxis invested significantly in modernising their networ'& and expansion plans to provide the !est sales and service experience to customers. The three year average for return on assets of Maxis /erhad was 1#.#F while )elcom 2xiata /erhad was %.F8 . This higher percentage for Maxis /erhad reflects a more efficient use of its assets and higher earnings from products and services sold per company asset . /oth companies have strong return on assets that goes to show the loyal !ase of customers each !rand name of the two companies has . ..A 5eturn on EBuity 5eturn on eBuity G net profit C total eBuityH1## MAXIS BERHAD Item
CELCOM AXIATA BERHAD
2014
2013
2012
Jet $rofit 35M:###6
1&F"&8"
1&FF&%%
1&8D#&%19
&A""&"1A
Total EBuity
"&FAF&FDF
DD&81D
F&#%F&A#%
&%%F&F8F 1&AF9&#F1 &##F&
AD."1
9."D
D.AD
5eturn on EBuity 36
2014
1#.A9
2013
&FA8&%FF
1.81
2012
&8F9&%FF
1A.#8
5eturn on eBuity ratio 35;E6 is a profita!ility ratio from the investor:s point of view. In other words& 5;E is a profita!ility ratio that measures the a!ility of a company to generate profits from its shareholders investments. Maxis /erhad had increasing trend for 5;E from year #1 to year #1". This higher ratio indicated that the company is using its investors: funds effectively. The return on eBuity for Maxis /erhad averaged A#.F" while )elcom 2xiata /erhad averaged 1.#9 . 2n o!servation of this profita!ility measure shows that Maxis /erhad is possi!ly much more attractive for potential investors for its a!ility to effectively manage and use funds generated through shareholders eBuity .
.." 4ross $rofit 5ate 4ross profit rate G gross profit C revenueH1## MAXIS BERHAD Item
CELCOM AXIATA BERHAD
2014
2013
2012
2014
2013
2012
5evenue 35M:###6
8&A88&%#
9"&"%
8&9DD&88
18&F11&FFF 18&AF#&8"1 1F&D%1&D1F
4ross $rofit 35M:###6
%&D81&%AF
%&99%&18"
%&9D#&98F
A&11"&"%D
A&%AA&#A9
A&FD1&F9"
4ross $rofit 5ate 36
DF.FA
D%.99
DD."8
1D.D%
19.A
1.A1
4ross profit rate is a measure of the profita!ility of the company products. 4ross profit rate fall from DD."8 in year #1 to D%.99 in year #1A& a decline of #."9. 4ross profit rate has increased for 1.F" from year #1A to year #1". The gross profit rate of Maxis /erhad is fluctuated from year #1 to year #1"& means the company is operating inefficiency and freBuent changing customer demand of company(s products in the perception of investors. 4ross $rofit increased in year #1" due to Maxis first launching the "4 LTE networ'& now covers 'ey mar'et centres and state capitals& offering four times faster downloads and a !etter video streaming experience. ,owever & gross profit rate for )elcom is slightly fall from #1 until #1" . )elcom 2xiata had a ris'y year in #1A when the rate fell in .#8 which is from 1.A1 to 19.A . It continue for the next year which is drop again in .%8 of 1.A1 . The average of gorss profit rate for Maxis /erhad is DD.FA and )elcom 2xiata 4roup averaged 19.#D . The decline in )elcom 2xiata 4roup gross profit rate was mainly driven !y its IT transformation programme. The company also faced IT system issues& and this has affected its capa!ility to launch new products in a speedy manner . The currency performance in Malaysia and Indonesia 3 which is $T >L 2xiata T!' 6 was so !ad and contri!uted to the profit rate performance .
.A $erformance on LiBuidity 0ummary Ta!le MAXIS BERHAD Item
CELCOM AXIATA BERHAD
2014
2013
2012
2014
2013
2012
A.F
".
%.F
#.8
1.
1.A
11&A"8&A1
11&81D&98A
2ccounts 5eceiva!le turnover rate
8.D
9.D
9.F
D.1
D.9
8."
)ash 7low from operations to current lia!ilities
#.98
#.9%
1."
#.%
#.F
#.9
)urrent 5atio
or'ing )apital 35M:###6
1&991&98" 3 &"&D" 6 1&198&9%#
&D%&1D
.A.1 )urrent 5atio )urrent ratio G )urrent 2ssetsC)urrent Lia!ilities
)urrent ratio is to measure a company a!ility to pay short term o!ligations. 2lthough Maxis /erhad had decreasing trend for current ratio from year #1 to year #1"& !ut according to rule of thum! for the ratio of current assets to current lia!ilities which shows a good financial position of a company is *1& so Maxis not having trou!le getting paid on their receiva!les or having long inventory turnover. 2verage current ratio for Maxis /erhad was ".%" compared to )elcom 2xiata /erhad was 1.#9 . It tells that Maxis /erhad has more current assets to cover its short term lia!ilities and ma'es Maxis /erhad a safer and more financially strong company compared to )elcom 2xiata /erhad .
.A. or'ing )apital or'ing capital G currents asset current lia!ilities MAXIS BERHAD Item
CELCOM AXIATA BERHAD
2014
2013
2012
1%&%A1&"F9
1%&"FF&"F
1%&FD#&1AF
8&A1D&AD9
9&A9&8D1
1#&A9#&%A9
)urrent Lia!ilities 35M:###6
"&18A&"8
A&DD#&"""
&FD8&1%A
1#&%%8&99A
8&#"#&911
F&FA8&"1A
or'ing )apital 35M:###6
11&A"8&A1
11&81D&98A
1&991&98" 3 &"&D" 6
)urrent 2ssets 35M:###6
2014
2013
1&198&9%#
2012
&D%&1D
or'ing capital is to measure of company efficiency and it short term financial health. 2 company(s current assets must exceed it current lia!ilities. 7rom the ta!le a!ove& it shown that Maxis /erhad consistently having positive amount of wor'ing capital& which it a!le to pay !ac' creditor in the short term . Meanwhile & )elcom 2xiata /erhad is !egan to suffering losses .
.A.A 2ccount 5eceiva!le Turnover 5ate and +ay to )ollect 2verage 2ccounts 5eceiva!le 2ccounts receiva!le turnover rate G revenue C accounts receiva!le +ay to )ollect 2verage 2ccounts 5eceiva!le G +ays C 2ccounts 5eceiva!le turnover rate MAXIS BERHAD Item
CELCOM AXIATA BERHAD
2014
2013
2012
8&A88&%#
9"&"%
8&9DD&88
2ccount 5eceiva!les 35M:###6
9F#&"%A
9"D&F#
9&8"
A&#D&A9#
&DF9&9#%
&11b
2ccounts 5eceiva!le turnover rate
8.D"
9.D#
9.F
D.11
D.8D
8.AD
+ays
AD%
AD%
AD%
AD%
AD%
AD%
".%
A8.#
AF.%%
%9.F"
%A.1
"A.DD
5evenue 35M:###6
+ays to collect average account receiva!le 3 days 6
2014
2013
2012
18&F11&FFF 18&AF#&8"1 1F&D%1&D1F
2ccounts receiva!le turnover rate indicates how Buic'ly receiva!les are collected. 4enerally a high value of accounts receiva!le turnover rate is favoura!le and lower figure may indicate inefficiency in collecting outstanding sales. Maxis /erhad had decreasing trend for accounts receiva!le turnover rate from year #1 to year #1". In the accounting policy of Maxis& when the de!t !ecomes uncollecti!le& it is written off against the allowance account. 0u!seBuent recoveries of amount previously written off are recognised in the statement of profit or loss . ,ence & a very high value of account receiva!les turnover rate may !ot !e favour!ale if it was achieved !y extremely strict credit terms since such policies may repel potential !uyers . Even though )elcom 2xiata /erhad showing a good value of account receiva!les turnover rate & a normal level of receiva!les turnover is different for different industries . Maxis /erhad a!le to collect customers payments on account receiva!le is stronger than )elcom 2xiata /erhad & with Maxis /erhad ta'ing A9.F days on average compared to )elcom 2xiata /erhad:s %. days . hile !oth companies collection period was longer than the normal !usiness !enchmar' of A# days & Maxis /erhad was much more successful and efficient in collection from its customers and thus reduced the lia!ility for ris'y accounts receiva!le . .A." ;perating )ash 7low to current Lia!ilities ;perating )ash 7low to current Lia!ilities G )ash 7low from ;peration C )urrent Lia!ilities MAXIS BERHAD Item
CELCOM AXIATA BERHAD
2014
2013
2012
)ash flow fromCused in operating activities
"&1#D&AF
A&"FD&918
A&"#&DA
%&%8A&91"
%&D"8&"A
D&8AD&981
)urrent Lia!ilities 35M:###6
"&18A&"8
A&DD#&"""
&FD8&1%A
1#&%%8&99A
8&#"#&911
F&FA8&"1A
#.98
#.9%
1."
#.%A
)ash 7low from operations to current lia!ilities
2014
2013
#.F
2012
#.88
The ;perating )ash 7low ratio is used to analysis the cash flow of the 4roup. It shows how the cash flow in and out from the company. In flow of cash ena!le the 4roup to pay their !ills and lia!ilities. It measures the 4roup liBuidity in short run as it related to reim!urse their short term o!ligations. 7rom the ta!le& the ratio is constant from year #1A to #1". Maxis /erhad is still a!le to turn sales into cash. Meanwhile & )elcom 2xiata /erhad shows a decreasing movement for the cash flow from operating activities from year #1 until #1" . The poor ratio indicates that the group is facing an uphill tas' to increase their operation cash flow ratio to meet shortterm lia!ilities and to raise its liBuidity for the uses of funding the !usiness:s other operations . Less flexi!ility is given when the cash flow is low to finance the strategies in use for adapting the mar'et changes .
." $erformance on Long Term )redit 5is' 0ummary Ta!le
MAXIS BERHAD Item
Long Term +e!t 5atio
CELCOM AXIATA BERHAD
2014
2013
2012
2014
2013
2012
F"
D%
D#
%"
%1
"D
.".1 Long Term +e!t 5atio +e!t ratio G total lia!ilities C total assetsH1## MAXIS BERHAD Item
+e!t ratio indicates relative si?e of the eBuity position and shows percentage of assets financed !y creditors. +e!t ratio gives general idea of the amount of leverage !eing used !y a company. 2 low percentage means that the company is less dependent on leverage. The lower the percentage& the less leverage a company is using and the stronger its eBuity position. ,owever& the higher the ratio& the more ris' that the company is considered to have ta'en on. Maxis had increasing trend for the long term de!t ratio from year #1 to #1". This is !ecause ma-or lia!ilities of Maxis& example& paya!les and !orrowings had increased& due to wea'ening 5M against 0+ and 04+& thus higher interest rates on the !orrowings. Maxis /erhad:s three years average of long term de!t ratio was DD.AA & compared to )elcom 2xiata /erhad lower average ratio of %#.AA . hile many feel that de!t from creditors is more harmful !ecause of the interest paid on the principle !orrowed & the advantage here is that once the creditor is paid !ac' & they are gone and off the payroll . Maxis /erhad approach to !eing more heavily financed through de!t than eBuity may !e in an attempt to 'eep earnings per share at an increased level .
A.# SUGGESTIONS FOR IMPROVEMENT AND CONCLUSION A.1 0uggestions for improvement /oth Maxis /erhad and )elcom 2xiata /erhad have the financial statistics showing why they are strong competitors in the telecommunication industry . In an industry that attracts potential customers !y offering the latest service at cheapest price & Maxis /erhad needs an increase their amount of research and development to develop a new scheme . Maxis /erhad has to com!ined competitors strenght into new scheme . It would !e wise for Maxis /erhad to focus on precise areas where they have a strong competency and to !e uniBue among the telco consumers . Maxis /erhad can extend their service to rural area especially to police and military Buarters which got more potential consumers !ecause usually the Buarters is near to the rural areas and a Buarters contains at least 8# families and it can reach ## A## families depends on location . These location !asically use )elcom coverage . Maxis /erhad also can use new university or new university hostel as their new location for internet coverage . 2ll these locations is under federal government land and the rental fees is expensive . 2lso & the federal government does not want to !ear any fees if anything happen to the telco coverage material . /ut Maxis can give a try -ust li'e )elcom 2xiata /erhad does !ecause they have to come out with their new !usiness strategy . 2t the moment & the amount of increased funds used on mar'eting & general and administrative has not eBually translated into higher sales revenue . Maxis /erhad:s profita!ility and liBuidity performance are Buite strong & !ut need to improve their operating performance . If they are a!le to increase their profit margins within their operating performance & it will give a higher net income and possi!ly increase asset utili?ation . Maxis also can reduce the de!t if they are consistence in improving their operating performance . )elcom 2xiata /erhad:s area of improvement is with its collection period . )urrently & the collection period is too long and is causing )elcom 2xiata /erhad to use its wor'ing capital funds to clear the account paya!le . )elcom 2xiata /erhad also can reduce the lia!ility which is growth in !ig amaount within a year . )elcom 2xiata /erhad also ma'ing losses in #1" and if the company continues in ma'ing losses for five times in a row & there is high possi!ility that the company would !e classified as $J1F issuer in the future . The company has to loo'ing into formulating a plan to regularise its financial condition .
A. )onclusion and recommendation for investment ;ne of the !etter ways to determine a company:s direction financially is to loo' at the last few years of their performance and see where they physically placed their priorities . /oth companies: are strong and healthy investments for potential investors . 0elling & general and administrative will have a minor increase explained through the increased volume of sales . 5esearch and development will increase as Maxis /erhad wor's to increase their a!ility to compete with other ma-or competitors such as )elcom & +i4i and mo!ile to !ring ahead of the curve innovation to the mar'et for consumers . Jet income will increase with pro-ected sales volume up & largely credited to an improving economy and consumers spending again . 2fter reviewing their company strategies and recent year:s financial statements and ratios & it is !elieved that Maxis /erhad would !e a !etter investment with its larger coverage 4 & A4 and "4 LTE service & !rand name & lower operating expenses & larger net incomes & higher sales volumes and !etter growth potential in the long run .
