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OSIM BF Assignment Name: Foong Wei Ling (s10049394c), Shui Zihan Karen (s10049300k) LMGT Group 5 Objective 3/Procedure

4-Analyse the financial condition of this company (tb: b,c,d) b) Earnings per Share Year Ended EPS 2002 3.90 2003 5.40 2004 6.84 2005 8.68 2006 6.25

http://www.listedcompany.com/ir/osim/misc/ar2006.pdf (page 38 of 191) Earnings per share represent the dollar amount earned on behalf for common stockholders. It does not represent the amount of earnings actually distributed to shareholders. From 2002 to 2005, the Earnings per share (EPS) have been constantly getting higher and higher, however, it drops at 2006. 2005 has the highest EPS. The EPS is rather high, meaning that it has been making money. Although the EPS drop in 2006, it does not mean that the firm loses money, it is just that, the firm is making less money that year as compared to year 2005. Therefore, in conclusion, the firm is still making money. c) Operating Cash Flow (OCF) = Earnings before interest and taxes (EBIT) – Taxes + Depreciation OPF = $61,000,000-$8,000,000+$226,000,000 OPF = $279,000,000 Free Cash Flow (FCF) = OPF – Net Fixed Asset Investment (NFAI) – Net Current Asset Investment (NCAI) NFAI = Change in Net Fixed Assets + Depreciation NFAI = (88,883-81,278) + 16,000,000 NFAI = 16,007,605

NCAI = Change in Current Assets – Change in Spontaneous Current Liabilities (Accounts Payable + Accruals) NCAI = (173,696,000-203,686,000) – ([41,210,000+85,240,000] – [37,272,000+86,056,000]) NCAI =-29,990,000- (126,450,000-8,693,272) NCAI =-147,746,728 Therefore, FCF = $279,000,000 –$16,007,605 – (-$279,768,000) FCF = $542,760,395 -Operating cash flow is the cash flow a firm generates from its normal operations. Free cash flow is the amount of cash flow available to investors after the firm has met all operating needs and paid for investments in net fixed assets and net current assets. -The firm generated $279,000,000 of cash flow in 2006 operating cash flow. Thus, it means that the firm’s operation is generating positive cash flow. -The firm generated $542,760,395 of free cash flow. So, it can use this amount of money to pay the investors. In conclusion, the firm still has positive amount of money after it pays for its operating costs to the investors. -Therefore, the firm does not have any cash flow difficulties since its operating cash flow and free cash flow are all positive. d)

2005

2006

Liquidity -Current ratio

Industry Average (Given) 0.64

Activity -Inventory turnover

26.65

Debt -Debt ratio

0.76

Profitability -Gross Profit Margin

48.65%

Market Price/Earnings ratio

20.09

By cross-sectional basis in 2006, the current ratio of the firm compared to the industry is 1.02 to 0.64, the Inventory turnover of the firm as compared to the industry average is 2.55 to 26.65, the Debt ratio of the firm compared to the industry average is 0.59 to 0.76, the Gross Profit of the firm compared to the industry average is 62% to 48.65% and the Price/Earnings ratio of the firm compared to the industry is 48.9 to 20.09. By the time series basis, the current ratio of the firm in 2005 compared to 2006 is 1.07 to 1.02, the Inventory turnover of the firm in 2005 compared to 2006 is 2.96 to 2.55, the Debt ratio of the firm in 2005 compared to

2006 is 0.64 to 0.59, the Gross Profit margin of the firm in 2005 compared to 2006 is 58% to 62%, and the Price/Earnings ratio of the firm in 2005 compared to 2006 is 35.9 to 48.9. The firm’s financial conditions are as such: -The firm has more liquid compared to the industry average in 2006 but it shows a decrease from 2005 to 2006. -The speed in which accounts are converted into cash is much slower for the firm compared to the industry average in 2006. However, as compared to its own firm in 2005, the speed in which accounts are converted into cash is slightly better. -As compared to the industry, the firm uses less people’s money to generate profit, but it shows a decrease from 2005 to 2006. -The firm has higher relative cost of merchandise sold compared to the industry average in 2006 but it shows a decrease from 2005 to 2006. The firm has greater investors’ confidence compared to the industry and there is a great improvement from 2005 to 2006. Procedure 5-Perform a cross-sectional analysis with Track. Software Liquidity -Current ratio Activity -Inventory turnover Debt -Debt ratio Profitability -Gross Profit Margin Market -Price/Earnings ratio Track Software (2002) 1.06 10.40 0.78 32.1% 5.2 Osim (2006) 1.02 2.55 0.59 62% 48.9

By cross-sectional basis, the current ratio of Track Software Company compared to the Osim Company is 1.06 to 1.02, the Inventory turnover of Track Software Company as compared to the Osim Company is 10.04 to 2.55, the Debt ratio of Track Software Company compared to the Osim Company is

0.78 to 0.59, the Gross Profit of Track Software Company compared to the Osim Company is 32.1% to 62% and the Price/Earnings ratio of Track Software Company compared to the Osim Company is 5.2 to 48.9. Objective 2-To determine the strength and weakness of the company Liquidity is a firm’s ability to satisfy its short-term obligation when they come due. In 2006, OSIM’s current ratio is 1.02, which is higher than the industry average, 0.64. The higher the ratio, the more liquid the firm is. However, from 2005 to 2006, this ratio drops from 1.07 to 1.02. This means, the firm is more liquid in 2005 compared to 2006. Still, this is the strength of the company, as it is able to meet the short-term obligations. Activity measures the speed with which various accounts are converted into sales or cash-inflows or outflows. In 2006, OSIM’s inventory turnover is 2.55, comparing to the industry’s 26.65, OSIM’s inventory turnover is not good. Thus, this is the weakness of the firm. Furthermore, in 2005, the ratio was 2.96, this meant that the speed is getting slower and slower. Debt position of a firm indicates the amount of other people’s money being used to generate profit. The debt ratio for OSIM in 2006 is 0.59, compared to the industry average, 0.76. Debt ratio measures the proportion of total assets financed by the firm’s creditors. Therefore, OSIM has lower risk and lower potential return compared to the industry average. In this case, it can be the strength of the company, as it does not take risk unnecessary. This can be further proven with the fact that the debt ratio in 2005 is 0.64, which is lower than 2006’s debt ratio. Profitability enables analyst to evaluate the firm’s profits with respect to a given level of sales, a certain level of assets, or the owners’ investment. In 2006, the gross profit margin for OSIM is 62%, comparing to the industry average, 48.65%. OSIM has better sales since gross profit margin measures the percentage of each sales dollar remaining after the firm has paid for its goods. In addition, the ratio for 2005 was 48%. There is an improvement

from 2005 to 2006. So, this is strength, since it is able to make profit and the profit made is higher than the industry average. Market ratios relate a firm’s market value, as measured by its current share price, to certain accounting values. In 2006, OSIM has higher price/earnings ratio than the industry average, 48.9 to 20.09. This is strength, because investors are willing to pay this much of money to invest on the firm, so the firm will have more cash to make more money. Furthermore, the firm’s ratio in 2005 was 35.9, there is an increase.