Sample Analysis of Financial Ratios Between 3 companies

Comparison of companies financial performance in a same sector of industry. Assignment question required financial ratios of 3 years evaluation from year 2007 to 2009. Food Industry was selected and data information for the ratios were taken from the companies's financial statement 2007 to 2009. 

ANALYSIS OF FINANCIAL RATIO

 Based on calculation of financial ratios, the net working capital of Company QSR Brand Berhad of year 2007 is the lowest (RM58,189,000) compare to RM1,004,000  of year 2008. The net capital is increase tremendously in 2009 amounted of RM71,672,000. The higher the value of the working capital, the better as this show that company is able to settle its short term debts with surplus funds for its daily operating activities.

           For Kian Joo Can Factory, in 2007 the net working capital calculated of RM263,093,000. But in year 2008 the net working capital slightly decreases at RM255,497,000. In 2009 the company is able to increased better performance by showing of net working capital RM271,305,000.

          The net working capital for Kawan Food Berhad of the year 2007 is RM22,897,394. In year 2008 this company net working capital has drop to RM16,891,799. In year 2009 they slowly recovery, Kawan Food Berhad successfully increase his net working capital to RM23,413,440.

2.    Current ratios of 0.60 for company QSR Brand Berhad in 2007 is lower compared to 1.01 in 2008 and 1.16 in year 2009. This shows that for every ringgit of current liability, the company only has RM1.16 current assets for its payment in 2009. For Kian Joo Can Factory, current ratios of 2007 are higher at 2.34 compared to year 2008 of 1.98 and 2.15 for the year of 2009. From this ratio its measures the ability of the company to fulfil its long term loans using its current assets is higher in 2007.  Kawan Food Berhad are also shows the higher current ratios in year 2007 amounted 3.57 but drop dramatically in 2008 at 2.17 and slightly increase at 2.30 in year 2009. However, the current ratios of the company are not too low for concern and satisfactory for this industry.

3.  Quick ratio measures the ability of the company to pay its short-term loans quickly. The ratio of company QSR Brands Berhad is lower at 0.47 times in year 2007, slightly increase to 0.61times in 2008 and increase again to 0.73 times in 2009. This mean for every ringgit of current liability, the company has RM0.73 cash and assets that can be easily converted into cash to pay its short term debts immediately. For Kian Joo Can Factory Berhad, the quick ratio for year 2007 is higher at 1.30 times. But in 2008 the ratio slightly decreases to 0.96 times. The company is managing to recover in year 2009, its ratio increase to 1.18 times. Kawan Food Berhad has strong liquidity level compared to other company, for year 2007 its quick ratio is at 3.22 times. But its ratio is slightly decline at 1.88 times in year 2008 because of world’s economic downturn situation. Year 2009 the ratio is slightly increase to 1.19 times.

4.  Account receivable turnover is important as indication of ability of the company to collect debts from its customer. QSR Brands Berhad has high and stable account receivable turnover, the ratios in year 2007 at 727.58 times. Then year 2008 is the higher ratios at 1,194.51 times collection and drop to 532.36 times in the year 2009. This shows that this company is able to collect debts from its customer quickly and has available fund for other investments. For Kian Joo Can Factory the account receivable turnover at 4.15 times in year 2007, slightly increase at 4.61 times in 2008 and decrease to 4.38 times in year 2009. This shows that this company has high bad debts and this may indicate the inefficiency of the credit department in credit collection. Kawan Food Berhad has account receivable turnover at 5.22 times in year 2007, slightly higher in 2008 at 5.24 times in a year and finally up to 5.34 times in 2009. This is indication that company has put all efforts that drives to better performance of debts collection by the credit department.

5.    Average collection period shows the average days taken by the company to collect the account receivable. The average collection period of company QSR Brands Berhad is very good and satisfactory because the average collection is less a day. In year 2007 the average is 0.50 day, more efficient in year 2008 at average 0.31 day and increase to 0.69 day in year 2008. This is a good indication that company has sufficient fund to run their business because most of the business transactions are cash basis. This company also has very less bad debts. For Kian Joo Can Factory manage to get average collection period of 87.96 days in 2007. This is the higher average compared to year 2008 of 79.14 days and slowly up to 83.31 days in 2009. This is unsatisfactory and indication of poor debts collection practise in the company because normally the company’s credit period is 60 days but they only manage to collect debts after 80 days.

6.  Inventory turnover for company QSR Brands Berhad of 9.76 times is much better compared to 5.68 times in year 2008 and 6.14 times in year 2009. This means that the company can sell its inventory 9.76 times in 2007 which is the highest year of production. This is an indication that the company is able to sell its inventory quickly and reduce chances of obsolete inventory. For Kian Joo Can Factory, the inventory turnover is lower between years. From the ratios, its shows lower turnover at 3.46 times in year 2007, drastically down to 2.83 times inventory turnover in 2008 and manage to increase slightly in 2009 at 3.35 times a year. This is indicates the company holds a high inventory, the fund that could be invested elsewhere would be held by the inventory. Kawan Food Berhad has the highest inventory turnover that can be sold in a year. The inventory turnover at 11.97 times in year 2007, shoot up to 14.25 times in 2008 and slowly down to 8.89 times in year 2009. This is an indication that company does not keep surplus inventory which mean unproductive and not efficient in managing inventory.

7.   Fixed asset turnover shows the efficiency of the company in using its fixed assets to generate sales. The higher ratio is better to indicate the efficiency of assets management. The fixed assets turnover ratio for QSR Brands Berhad is higher compare to the two other companies. In 2007 the ratios is 3.74 times, 2008 ratios is slightly decrease to 3.65 times and drop again to 3.19 times in year 2009.Eventhough the ratios are still the highest between companies but the performance of company assets management are getting less efficient every year, this might be the company has lots of fixed assets. For Kian Joo Can Factory, the fixed asset turnover ratios are lower at 2.00 times in year 2007, slightly decrease to 1.94 times in 2008 and drop again to 1.45 times in year 2009. This indicates that the asset management of the company in generating sales is less efficient. Same goes to Kawan Food Berhad that has lower fixed asset turnover ratios of 1.96 times in 2007, 1.61 times in 2008 and 1.60 times in 2009. This scenario happened because of company has lots of unsatisfactory sales.

8.    Debt ratio of year 2007 for company QSR Brands Berhad is 40.57%, the company manage to lower down their total assets that are financed by debts in 2008 so the debt ratio decrease to 29.76%. In 2009 the ratio slightly increases to 36.29%. Creditors prefer lower debt ratio as the lower debt ratio, the higher protection for their losses upon liquidation. For Kian Joo Can Factory Berhad the debt ratios are lower at 27.83% in 2007, increase to 30.21% in year 2008 and manage to lower down to 24.67% in year 2009. This is because of their concern that creditors and suppliers might be reluctant to provide credit term on purchase as they worry that the company would not be able to settle the debts. Kawan Food Berhad also has lower debt ratio at 18.74% in year 2007, slightly increase to 20.37% in year 2008 and increase again to 23.79% in year 2008. The increasing percentage of debt ratio every year indicates that company has not aware of buying a lot of assets that is financed by debts.

9.    Gross profit margin measures the profit for each ringgit of sales that can be used to pay expenditures and cost of company. QSR Brands Berhad has higher gross profit margin at 70.96% in 2007. The higher margin is better because it shows company has lower costs and expenditures in sales activities. In 2008 the margin a bit decreases to 69.42% and drop again in 2009 at 57.75%. Kian Joo Can Factory Berhad has lower gross profit margin but maintain. In year 2007, the margin is at 12.76% which mean the company is generates only 12.76% profit after deducting all costs of goods for each ringgit of sale. The company is managing to push up their gross profit margin at 16.22% in year 2008 and then slightly decrease to 15.77% in year 2009. Kawan Food Berhad has consistent gross profit margin for these three years, 2007 at 38.05% of margin then slightly drop to 37.56% in 2008 but capable to recover the margin up to 43.45% which is the highest in 2009. This shows that the purchasing management and cost of the company are better in year 2009.

10.   Net profit margin also another alternative to measure the ability of company to generate net profit from each ringgit of sale after deducting all expenditures and costs including interest expenses and tax. QSR Brands Berhad has higher net profit margin of 14.37% in year 2007, then increase to 15.72% in 2008. But in 2009, the margin dramatically drop to 5.74% because of the company has to bear increasing of total expenditures, finance expenses and tax. Kian Joo Can Factory Berhad has lower net profit margin, in year 2007 the margin is at 5.93%. Then slightly increase to 8.61% in year 2008 but drop to 6.17% in year 2009. This shows that the company is lack for control of cost and expenditures. For Kawan Food Berhad, the net profit margin of 2007 is 13.65% and decrease to 12.60% in year 2008. But their consistent performance has successfully pushed up the margin to 15.48% in year 2009. This indicates that the company is capable in controlling their cost and expenses very well. 

GOOD LUCK FOR YOUR ASSIGNMENT!!....