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1.

INTRODUCTION

Financial analysis (also referred to as financial statement analysis or accounting analysis) refers to an assessment of the viability, stability and profitability of a business, subbusiness or project. It is performed by professionals who prepare reports using ratios that make use of information taken from financial statements and other reports that include balance sheet, income statement, statement of cash flows or (sometimes) the statement of retained earnings. These reports are usually presented to top management as one of their bases in making business decisions. Based on these reports, management may:

Continue or discontinue its main operation or part of its business; Make or purchase certain materials in the manufacture of its product; Acquire or rent/lease certain machineries and equipment in the production of its goods;

Issue stocks or negotiate for a bank loan to increase its working capital; Make decisions regarding investing or lending capital; Other decisions that allow management to make an informed selection on various alternatives in the conduct of its business.

Financial analysts often assess the firm's: Profitability - its ability to earn income and sustain growth in both short-term and long-term. A company's degree of profitability is usually based on the income statement, which reports on the company's results of operations; Solvency - its ability to pay its obligation to creditors and other third parties in the long-term; Liquidity - its ability to maintain positive cash flow, while satisfying immediate obligations; Stability- the firm's ability to remain in business in the long run, without having to sustain significant losses in the conduct of its business. Assessing a company's stability requires the use both of the income statement and the balance sheet, as well as other financial and non-financial indicators.

The other purpose of this project is to analysis the financial performance of a company Sapura Industrial Berhads by using financial statement ratio. These comprise the firm's "accounting statements" or financial statements. The statements' data is based on the accounting method and accounting standards used by the organization. The Financial ratio can uses to firm and outside the firm such as lender, credit-rating agencies, investors and suppliers. Use of financial ratio within the firm is to identify deficiencies in a firms performance and take corrective action to overcome it. The firm also can evaluate employee performance and determine incentive compensation to them. Lenders use the financial ratio to deciding whether or not to make a loan to the company, credit-rating agencies use in determining a firms credit worthiness, investors such as shareholders and bondholders can use financial ratio in deciding whether or not to invest in a company, and the major supplier can use that to deciding whether or not to grant credit terms to a company. 1.1 Background of the Company Sapura Industrial Berhad is established in 1984 and currently operated under six subsidiaries, namely: 1. Sapura Machining Corporation 2. Sapura Automotive Industries 3. Sapura Brake Technologies 4. Asian Automotive Steels 5. Sapura-Schulz Hydroforming 6. Sapura Technical Centre The companys focus is on automotive technology. With the vision of creating indigenous technological platform by strong commitment in technical competence, Sapura Industrial Berhad aims to be distinctive and competitive in the automotive business through provision of excellent technical and business solutions to its customers, which will exceed what the customers bargain for.

A brief account on the companys history shows that Sapura Industrial Berhad identifies its components to success gradually by establishing complementary subsidiaries over the year, for example, the establishment of Sapura Machining Corporation in 1991, Asian Automotive Steels in 1995, and bolstering its research and development task by forming Sapura Technical Centre in 1996. The group was listed in Bursa Malaysia (Second Board) in 1997 and transferred to the main board in 2004. Over the years Sapura Industrial Berhad engages in international businesses, as evidenced in supplying stabilizers bar for General Motors in Thailand and engine equipment for Ford in Philippines.

2.0

METHODOLOGY

Method use for this project is trend analysis. Trend analysis is an aspect of technical analysis that tries to predict the future movement of a stock based on past data. Trend analysis is based on the idea that what has happened in the past gives traders an idea of what will happen in the future. The trend analysis suitable to this project because to compare the current ratio with ration in previous year. It covers some time period so the analyst can see the achievement flow for the company in longer period. The following list consists of the ratios that we will be applying to the data gathered. Each ratio has its own indication towards the performance of the organization. There are five types of analysis that we are going to use which are liquidity ratios, asset management ratios, leverage ratios, profitability ratios, and market value ratios. We will be analyzing and comparing the financial report for the years of 2009, 2010, and 2011.

1. Liquidity ratios Liquidity ratios are used to calculate the liquidity of the companys assets. Liquidity means the ease of assets to be converted into cash. The more liquidity the assets are, the easier the company can turn short-term assets into cash to cover the debts and for other financial leverages. Some financial analysts also use liquidity ratios to determine whether a company is able to continue as a going concern. There are two main liquidity ratios we will be analyzing, which are: a. Current ratio: Current ratio is the ratio that measures current assets over current liabilities. Higher current ratio means the firm has sufficient assets to cover the debts (liabilities).

b. Quick ratio Quick ratio is similar with current ratio in a way that it calculates the liquidity of the firm. However, quick ratio takes into account of highly liquid assets, which excludes the firms inventory. Higher quick ratio means the firm has higher liquidity to fund its liabilities.

2. Asset management ratios Asset management ratios is the comparison between the sales (or revenue) and the firms assets. It is an indication showing if the management is maximizing the assets to generate profit for the company. Other similar terms for asset management ratios are asset turnover ratios and asset efficiency ratios.

Higher ratios mean the firm is efficient at utilizing the assets to generate revenue, and lower ratios subsequently mean that the firm is not using its assets effectively.

The ratios include: a. Average collection period Average collection period means how much time does the firm needs to collect the credit sales. Lower ratio means the company optimizes in collecting the account receivables.

b. Receivable turnover Account receivable turnover ratio means how efficient the firm is at collecting debt. Higher ratio means the firm collects frequently from the account receivables.

c. Inventory turnover Inventory turnover ratio means how soon the inventory is sold and replaced. A higher inventory turnover ratio means the firm is selling its inventories fast and replacing new stocks.

d. Total asset turnover Total asset turnover assesses how much the firm utilizes the assets into generating sales. Higher ratio means the firm is successful in generating sales with the firms assets.

e. Fixed asset turnover Similar with total asset turnover, fixed asset turnover assesses how much the firm utilizes the fixed assets into generating sales. Higher ratio means the firm is successful in generating sales with the firms fixed assets.

3. Leverage ratios Leverage ratios are the ratios used to calculate the financial leverage of a firm to meet financial obligations (to the debtors). It is used to analyze whether the firms assets are financed by the equity or the debts.

a. Debt ratio Debt ratio analyzes whether the firms assets has been financed by debts. Higher ratio means higher parts of the assets are owed to debts.

b. Debt equity ratio The ratio analyzes whether the firms assets are funded more by equity or debt. Higher ratio means the firm has a high portion of assets funded by debts compared to by equity.

c. Time interest earned Time interest earned analyzes whether the firm can cover its interest from debts. EBIT is the Earnings before Interest and Taxes. Higher ratio is preferable as firms can earn sufficiently to cover the cost of interest.

4. Profitability ratios Profitability ratio is arguably the most important ratio as it observes whether the firm is profiting from its business or otherwise. The ratio determines whether the firm is able to generate earnings and manage its expenses carefully. However, this type of ratio is highly sensitive to seasons in some businesses, because normally festive seasons will yield higher profit. Hence it is widely used in competitors analysis.

a. Gross profit margin Gross profit margin is the ratio comparing gross profit earned from sales. Higher margin indicates that the gross profit earned is high and/or the cost of goods sold is low, which is a positive indication to successful business.

b. Net profit margin Similar to gross profit margin, net profit margin calculates whether the firm is making money with the sales. Higher margin means the firm successfully covers its expenses and yields higher net profit.

c. Return on asset Return on asset evaluates whether the firm is successful in managing its assets to generate profit. Higher ratio means the firm utilizes its assets to generate higher profit.

d. Return on equity Return on equity calculates the profit earns for shareholders. It measures how much the shareholders earn from each dollar invested. Higher ratio means the shareholders profit on the shares.

5. Market value ratio Market value ratio concerns the shareholders as it indicates how much profit shareholders can earn from their investment in the firm. It is also a comparison with market price so that the firm can know how well it fares in the market.

a. Earnings per share (EPS) An Earnings per share is the profit each share yields. Higher ratio means the share is valuable since more profit is generated.

3.0 Findings and analysis The following are the analysis and findings we have generated from Sapura Industrial Berhad. We will look into all financial ratios stated earlier individually.

3.1 Liquidity Ratios: 3.1.1 Current Ratio: Current Ratio= Current Assets Current Liabilities 2011 98,403,094 93,646,533 =1.051 times 2010 98,280,225 93,423,852 =1.052 times 2009 107,852,412 103,553,244 =1.042 times

Analysis: Current ratio measures whether the company assets are able to cover up the liabilities in a short period. It indicates the companys ability to meet its short term obligations. Sapura Industrial Berhad has a total current ratio of 1.042 times, 1.052 times, 1.051 times for the year 2009, 2010, and 2011 respectively. As a comparison, current ratio for the company in 2009 is 1.042 times and it increased to 1.052 times. However, in year 2010 the ratio is plummeted a little to 1.051 times. The average of current ratio for the three years is result had been shown that Sapura Industrial Berhad has improved its asset liquidity. The

Chart: Current Ratio

1.052 1.05 1.048 1.046 1.044 1.042 1.04 1.038 1.036 2009 2010 2011 Current Ratio

3.1.2 Quick ratio: Quick Ratio= Current AssetsInventory Current Liabilities 93,646,533 =0.789 times 93,423,852 =0.837 times 103,553,244 =0.740 times 98,403,09424,544,312 98,280,22520,111,427 107,852,41231,270,726 2011 2010 2009

Analysis: Quick ratio (also known as acid test ratio) is a ratio which is used to evaluate the liquidity of a company. This ratio provides a better measure of liquidity where items that are considered to be least liquid are taken out from the current assets (in this sense it is the inventory). The higher the ratio, the more liquid of the asset is. In the calculation, the quick ratio for the year 2009, 2010 and 2011 are 0.740 times, 0.837 times, and 0.789 times. From the table, its shown that the quick ratio increase from the year 2009 to 2010. However, the table shown that the quick ration showed a decline from the year 2010 to 2011. Although the table shown the ratio is increasing from 2009 to 2011, company did not had enough quick asset to pay in

short term debt immediately because the ratio is less than 1.00 times. The average of qucik ratio for the three years is

Chart: Quick ratio


0.86 0.84 0.82 0.8 0.78 0.76 0.74 0.72 0.7 0.68 2009 2010 2011 Quick Ratio

3.2 Asset Management Ratios: 3.2.1 Average Collection Period: Average Collection period= 47,049,765 Account Receivable 284,551,330/365 Annual Credit Sales/365 =60.352 times =97.180 times =75.749 times 232,576,734/365 240,422,149/365 61,922,572 49,895,031 2011 2010 2009

Analysis

From the graph have clearly show that efficiency of the firm to collect debt is declining from 2009 (75.749 days) to 2010 (97.180 days). However, there is major improvement on 2011 where Sapura Industrial Berhad has an average collection period of 60.352 days to collect a debt, this shows that the company has improved in collecting debt. The average of average collection period for the three years is Chart: Average Collection Period
120 100 80 60 40 20 0 2009 2010 2011

Average Collection Period

3.2.2 Account Receivable Turnover: Account receivable turnover= 284,551,330 Sales 47,049,765 Account receivable =6.048 times =3.756 times =4.819 times 61,922,572 49,895,031 232,576,734 240,422,749 2011 2010 2009

Analysis

Higher account receivable turnover is better because it projects that the business can collect the debt immediately and had a lower bad debt, and from the graph it showed that the trend is getting better, in the year 2009 the total was 4.819 times but a year later it dropped to 2.33 times. Then in 2011 the company has improved to 6.048 times. The average account receivable turnover for the three years is Chart: Account Receivable Turnover
7 6 5 4 3 2 1 0 2009 2010 2011 Account Receivable Turnover

3.2.3 Inventory Turnover: Inventory Turnover= 231,923,865 Cost of Goods Sold 24,544,312 Inventory =9.450 times =9.638 times =6.569 times 20,111,427 31,270,746 193,839,892 205,412,836 2011 2010 2009

ANALYSIS The higher turnover means the better position of a company in the market because inventory can be quickly be sold and replaced back immediately. At 2009, Sapura Industrial Berhad has

an inventory turnover of 6.569 times a year while at 2010 the company improves to its highest inventory turnover among the 3 years which is about 9.638 times. However, in 2011 the figure slightly dropped to 9.450 times. The average inventory turnover for the three years is Overall, the inventory turnover indicates that company shows a good position in the market throughout these 3 years. Chart: Inventory Turnover
12 10 8 6 4 2 0 2009 2010 2011

Inventory Turnover

3.2.4 Total Asset Turnover: Total Asset Turnover= 284,551,330 Sales 197,284,615 Total Asset =1.442 times =1.169 times =1.171 times 198,940,961 205,389,235 232,576,734 240,422,749 2011 2010 2009

Analysis The higher of this ratio means better of the firm in managing its assets, because it represent how much sale can be generated from every dollar of the total assets. From the graph it

clearly stated that the efficiency is getting better from the year 2009 to 2011. As shown that in 2009, the total asset turnover was 1.171 times. There was slightly dropped in the year 2010 to 1.169 times. However, in the year 2011 there is an increase to 1.442 times for the company total asset turnover. This improvement means that the company is getting better in terms of managing its asset more efficiently and effectively. The average total asset turnover for the three years is Chart: Total Asset Turnover
1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2009 2010 2011 Total Asset Turnover

3.2.5 Fixed Asset Turnover: Fixed Asset Turnover= 284,551,330 Sales 98,881,566 Net Fixed Asset =2.878 times Analysis The higher of this ratio indicates that the firm utilized every dollar of fixed assets to generate more sales, but from the graph that is shown above, its fixed asset turnover ratio projected a fluctuating trend. In 2009 the fixed asset turnover for the company was 2.465 times while on =2.311 times =2.465 times 100,660,736 97,536,823 232,576,734 240,422,749 2011 2010 2009

2010 it declined to 2.311 times. However, there is an increment in 2011 where the fixed asset turnover rose to 2.878 times. This indicates that the company is utilizing its fixed assets to generate every dollar to gain more profit and reduce its cost and expenses. The average fixed asset turnover for the three years is Chart: Fixed Asset Turnover
3.5 3 2.5 2 1.5 1 0.5 0 2009 2010 2011 Fixed Asset Turnover

3.3 Leverage Ratio: 3.3.1 Debt Ratio: Debt Ratio= 2011 119,859,730 197,284,615 =0.608 times =60.8% Analysis: Debt ratio is measures between total debt and total asset. The lesser the debt means the lesser the financial risk is. Starting from the year 2009, the ratio is 0.684 times or 68.4%, and the number fell in the year 2010 to 0.645times (64.5%). However, in 2011 the organizations debt ratio hit the lowest rate among these 3 years, which is 0.608 times (60.8%). In conclusion, the flow of this 3years debt ratio are getting lower and lower, which mean the 2010 128,229,227 198,940,961 =0.645 times =64.5% 2009 140,587,748 205,389,235 =0.684 times =68.4%

financial risk is getting lesser from year to year, which could help investor and share holder to reduce their worriless in regards of the liabilities. The average debt ratio for the three years is Chart: Debt Ratio

70% 68% 66% 64% 62% 60% 58% 56% 2009 2010 2011 Debt ratio

Debt to Equity Ratio: Debt to Equity Ratio 119,859,730 = 77,424,885 =1.548 times =154.8% Analysis: Debt equity ratio indicates the proportion of equity and debt the company is using to finance its assets. In other word, the lower the rate in debt equity ratio, the less the company uses its debt to finance its assets, or in other words, the company is using more equity to finance its assets. In 2009, the rate is 2.170 times which is 217%, subsequently in 2010, the rate fell to 1.813 times, which is much lower than the previous year. In addition, in 2011, the rate tumbled to 1.548 times, the lowest rate since 2009 to 2011. As a result, the data showed that Debt to Equity ratio is getting lesser, and this signifies good financial performance because 128,229,227 70,711,734 =1.813 times =181.3% 140,587,748 64,801,487 =2.170 times =217.0% 2011 2010 2009

the company uses more equity than debt to financial its assets. The average debt to equity ratio for the three years is

Chart: Debt to Equity ratio

250.00%

200.00%

150.00% Debt to Equity Ratio 100.00%

50.00%

0.00% 2009 2010 2011

Time Interest Earned: Time Interest Earned 29,999,242 = 3,918,203 =7.656 times 14,082,207 3,767,507 =3.738 times 13,543,677 4,518,661 =2.997 times 2011 2010 2009

Analysis Time Interest Earned ratio is to measure how well the firms earning can cover the interest payment. For instance, the higher ratio can get, the better ability company has to solve its debt interest, and vice versa. In 2009, the rate hit on 2.997 times and for the next year was at

3.738 times and in 2011 it got better at 7.656 times. Thus, within these 3 years it showed that the rate is gradually improving. Hence, the rate showed that company is more capable of solving its interest payment for its debt. The average time interest earned for the three years is

Chart: Time Interest Earned

8 7 6 5 4 3 2 1 0 2009 2010 2011 Time Interest Earned

3.4 Profitability Ratio: Gross Profit Margin: Gross Profit Margin= 52,627,747 Gross Profit 284,551,330 Sales =0.185 =0.167 =0.146 232,576,734 240,422,149 38,736,842 35,009,313 2011 2010 2009

=18.5%

=16.7%

=14.6%

Analysis Gross profit margin is a measure of profit after sales deduce Cost of Goods Sold and not yet includes other cost. So the bigger amount or higher rate has on gross profit, the better it will be. Starting from 2009 to 2011, the figure 14.6% increased to 16.7% and rose again to 18.5%. From the statistic above, it showed a trend that rate is growing from year to year. It can be deduced that the company is enjoying a surging gross profit margin. The average gross profit margin for the three years is

Chart: Gross Profit Margin


20.00% 18.00% 16.00% 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 2009 2010 2011 Gross Profit Margin

Net Profit Margin: Net Profit Margin= 20,540,541 Net Income 284,551,330 Sales =0.072 =7.2% =0.035 =3.5% =0.029 =2.9% 232,576,734 240,422,149 8,093,519 6,968,041 2011 2010 2009

Analysis Net profit margin evaluates on the companys net income proportion from sales. A higher profit margin signals the company is efficient in controlling its cost besides those incurred on the costs of product sold. From the table above, the data showed that the company is getting good control on cost, starting from 2009 to 2011. In 2009, the rate is at 2.9%, meanwhile in 2010 it is recorded at 3.5%. Finally in 2011 the ratio skyrocketed to 7.2%. In conclusion, the company is enjoying escalating rate of net profit margin amongst these years. It is also implied that company have a good level of cost control that will lead to competitive advantage. The average net profit margin for the three years is

Chart: Net Profit Margin


8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 2009 2010 2011 Net Profit Margin

Return on Asset: Return on Asset= Net Income Total Asset 2011 20,540,541 197,284,615 =0.104 =10.4% 2010 8,093,519 198,940,961 =0.041 =4.1% 2009 6,968,041 205,389,235 =0.034 =3.4%

Analysis Return on Asset is to gauge how effectively the company generates profit on utilizing the assets that it has. Higher rate means the company is maximizing its assets utilization to

generate revenue and vice versa. In 2009, the rate hit on 3.4%, and a year later the rate is 4.1% and finally in 2011, it up surged to 10.4%. As a result of improving ratio of Return on Asset, the company obtains an excellent performance on which it is maximizing its assets to generate profit. The average return on asset for the three years is

Chart: Return on Asset


12.00%

10.00%

8.00%

6.00%

Return on Asset

4.00%

2.00%

0.00% 2009 2010 2011

Return on Equity: Return on Equity= 20,540,541 Net Income 77,424,885 Total Equity =0.265 =26.5% =0.114 =11.4% =0.108 =10.8% 70,711,734 64,801,487 8,093,519 6,968,041 2011 2010 2009

Analysis Return on Equity is the bottom line to measure the profit earned for each investment that been poured into the firms stock. The higher the ratio, the better it is because the shareholders will enjoy a higher return. From the figure, starting from the year 2009 until 2011, Return on Equitys rate is moving up. In 2009 it is recorded at 10.8%. While in 2010 years it grew to 11.4% and in 2011 it leaped to 26.5%. From the record, it is shown the company provides a good return rate for among its shareholder, and at the same time shareholders investment is enjoying a steady growth, thus lead to greater trust and confidence for investors. The average return on equity for the three years is

Chart: Return on Equity


30.00%

25.00%

20.00%

15.00%

Return on Equity

10.00%

5.00%

0.00% 2009 2010 2011

3.5 Market Value Ratio: Earning per Share: EPS= Net income No of share outstanding 20,540,541 72,761,392 =.2823 =Rm0.2823 8,093,519 72,718,050 =0.1113 =Rm0.1113 6,968,041 72,735,292 =0.0958 =Rm0.0958 2011 2010 2009

Analysis Earning per Share represents the portion of a firms earnings that is allocated to each share of common stock. As the Earning per shares rate getting higher, the share of the firms earning also improves, which allows the share to be more valuable and profitable. From the figure above, the rate is starting to grow from 2009 at RM 0.0958 to RM 0.1113 in 2010, and in 2011 it hit RM 0.2823, which is the highest rate among these 3 years. In conclusion, EPSs rate has dramatically grown since 2009 s and this directly benefits its shareholder. The average earning per share for the three years is

Chart: Earning per Share


0.3

0.25

0.2

0.15

EPS

0.1

0.05

0 2009 2010 2011

4.0 Conclusion: Financial analysis refers to an assessment of liquidity, profitability and stability of a business. The analyses are doing based on 3 years of financial statement group of Hwa Tai Industries Bhd. Methodology using to calculate the ratio is trend analysis because we want to compared the 3 years financial analysis for Hwa Tai Industries Bhd only. So that mean the comparison is among the company between current year and previous year. 5 type of ratio are calculated to complete the financial analysis. That is Liquidity Ratio, Asset Management Ratio, Profitability Ratio, Leverage Ratio and Market Value ratio. From the findings and analyses of ratio above, we can reach to conclusion that Sapura Industrial Berhad is improving its business. The profit margins and return on assets as well as debt ratios are showing good improvements. That is a positive outcome for the organization as well as their stakeholders. For example, the Earning per Share (EPS) shows a great leap from RM 0.1113 to RM 0.2823 in a matter of 3 years. That is a vast advancement and a great news for the shareholders as their share value multiplied by more than 2 times. In short, Sapura Industrial Berhad has had a great financial performance year in 2011, and I expect shareholders would predict the same performance and return in the coming years.

5.0 Recommendation Here are some of the recommendations for Sapura Industrial Berhad in order to expand and increase their revenue in the future:

1. Sapura Industrial Berhad should form a merger and acquisition with complementary companies such as Kencana which had shown interest in clinching into oil and gas industry lately. (article from TheStar - 11.08.2011). A merger and acquisition will provide numerous resources (financial, knowledge, and human power, to name a few) which can bolster the organizations strengths and increase business opportunities.

2. From the analysis of current ratio within Sapura Industrial Berhad, it is not a convincing condition for the organization to be at. Although the ratio went up from the year 2009 to 2010, in the year 2011 the figure has not shown any improvement but a slight plummet. That would mean that the companys liquidity has not been improving. As an advice, Sapura should control the cash flow within it company, due to current ratio referring to how liquid the companys financial status is. It is a concern for shareholders as they would worry if the company faces difficulties in clearing debts.

3. Profit margin, both gross profit margin and net profit margin, indicates how profitable a company is. From the gross profit margin and net profit margin year-to-year comparison, we can see that the company is increasing its profitability at a huge gap on the year 2011. Therefore, some positive actions have been taken to boost such brilliant success. The managers, realizing the aforementioned phenomena, should spend time identifying which management decisions and strategies have proved

fruitful towards the organizations success. Perhaps they have successfully enforced an efficient production process, or the marketing team has focused on the right market segment. Whichever the reasons were, the management should find ways to continue such success.

4. In order to increase the sales, Sapura Industrial Berhad has been taking cautious steps to enter the international market by exporting automotive parts to neighboring countries. As a matter of fact, Sapura Industrial Berhad should not rely on local automotive manufacturers (eg. Proton) but actively engage in exports. Such is one of the many ways to increase revenue besides diversifying the companys products. Due to the fact that after Japan has been hit with nuclear catastrophe, automotive productions are expected to be delayed. Therefore, this may be a golden opportunity for Sapura Industrial Berhad to engage in global export business.

6.0 Appendix:

6.1 Income Statement, Balance Sheet, and Cash Flow Statement for year 2009

6.2 Income Statement, Balance Sheet, and Cash Flow Statement for year 2010

6.3 Income Statement, Balance Sheet, and Cash Flow Statement for year 2011

6.4 Supported Document