You are on page 1of 17

Financial Statements Analysis

Company Name: Petron Malaysia Refining & Marketing Bhd


Year: 2017 and 2016

1. Liquidity Ratios

Current ratio: - Liquidity and efficiency ratio that measures a company can pay off the short term liability
by using the current assets that owns by company.
- Large amount of current assets can easily convert into cash and pay off the liabilites.
- A higher current ratio is better than lower current ratio.

Formula: Current assets


Current liabilites

Solution: 2017 (RM'000) 2016 (RM'000)

1,596,977 1,509,921
1,111,499 1,284,097

1.44 times 1.18 times

Analysis: Year 2017 has greater current ratio compared to year 2016. Therefore, 2017 is more liquid than
year 2016.

Quick ratio: - Measures the company ability to pay off the current liabilities by using quick
current assets, which can be easily convert into cash within 90 days.
- Often called as acid test ratio.
-excluded the inventory because may not easily convert into cash.
- High quick ratio is more favorable to companies compare to lower.

Formula: Current assets - Inventory


Current liabilites

Solution: 2017 (RM'000) 2016 (RM'000)

1,596,977 - 678,138 1,509,921- 710,081


1,111,499 1,284,097

0.83 times 0.62 times

Analysis: The quick ratio also behalf like the current ratio. Year 2017 is more liquid than year 2016.
Cash ratio: - Measure the company ability to pay off the current liabilities by using
the cash and market securities of the company.
- High cash ratio is more favorable to companies compare to lower.

Formula: Cash
Current liabilites

Solution: 2017 (RM'000) 2016 (RM'000)

119,614 171,640
1,111,499 1,284,097

0.11 times 0.13 times

Analysis: Year 2016 has high cash ratio compared to year 2017.

Working Capital: - Determines the company can meet the obiligation with the current assets.
- To determine of how much of deficiency and excess there is.
- When the current assets exceed the current liabilities its means, the company
has enough capital their day to day operations.

Formula: Current assets - current liabilities

Solution: 2017 (RM'000) 2016 (RM'000)

1,596,977 - 1,111,499 1,509,921 - 1,284,097

RM485,478 RM225,824

Analysis: Year 2017 has higher working capital compared to year 2016.

2. Solvency Ratios

Debt ratio: - Measure a company total liabilities as a percentage of its total assets.
- The debt ratio shows the ability of company assets to pay off the liabilities.
- How many assets the company must sell of in order to pay off the liabilities.
- lower ratio is more favorable then higher ratio.

Formula: Total Liabilites


Total Assets
Solution: 2017 (RM'000) 2016 (RM'000)

1,211,237 1,482,370
2.723,214 2,646,267

44% 56%

Analysis: Year 2016 has higher debt portion related to assets compared to year 2017.It seems using
more debt and might put the firm under risk pressure but indicate high leverage.

Debt to equity ratio: - liqudity ratio that compare a company total debt to total equity.
- A higher debt to equity ratio indicates that more creditor financing than investor
financing.
- Higher debt to equity ratio are more risky considered to lower ratio.

Formula: Total Liabilites


Total Equity

Solution: 2017 (RM'000) 2016 (RM'000)

1,211,237 1,482,370
1,511,977 1,163,897

0.80 1.27

Analysis: Year 2016 has higher debt portion compared to year 2017. It might not be normal and might
put the firm under risk but indicate high leverage.

Equity ratio: - Measures amounts of assets that financed by company or owner investments
by comparing total equity with total assets.
To shows how much of the total assets are owned outright by the investors, after
all the liabilities are paid off.
- To shows how leveraged the company is with the debt.
- Higher equity ratios are typically favorable for companies.

Formula: Total Equity


Total Assets

Solution: 2017 (RM'000) 2016 (RM'000)

1,511,977 1,163,897
2,723,214 2,646,267

56% 44%

Analysis: Year 2017 has higher equity ratios compared to year 2016.

Equity multiplier: - Measured the amounts of assets that financed by shareholders by comparing total
assets with total shareholders equity.
- Indication of company risk to creditors.
- lower multiplier ratio are always considered more conservative and favorable than
higher ratio.

Formula: Total Assets


= 1 + Debt to equity ratio
Total Equity

Solution: 2017 (RM'000) 2016 (RM'000)

1 + 0.80 1 + 1.27

1.8 2.27

Analysis: Year 2017 has lower multiplier ratio compared to year 2016.

3. Turnover ratios

Inventory turnover: - Efficiency ratio that shows how efficiency inventory is managed by comparing
cost of good solds.
- This measured how much of turnover or sales of inventory in a year.
- two important components which are purchasing of inventory and sales have to
match the inventory that bought.
- High turnover is better than lower.

Formula: Cost of good solds


Inventory

Solution: 2017 (RM'000) 2016 (RM'000)

9,678,216 7,038,504
678,138 710,081

14.27 times 9.91 times

Analysis: Year 2017 has higher turnover compared to year 2016. The higher turnover indicates the
maximum utilization of inventory efficiently.

- Measure number of days takes in order a company to sell off the inventory.
Days sales in inventory:
- Measure value, liqudity and cash flows.
- Shorter days is better compare longer days.

Formula: 365
Inventory turnover

Solution: 2017 (RM'000) 2016 (RM'000)

365 365
14.27 9.91

26 days 37 days

Analysis: Year 2017 has lower turnover in days compared to year 2016. The lower turnover in days
indicates the maximum utilization of inventory efficiently.

- Efficiency ratio that measures how many times a business can convert receivables
Receivables turnover: into cash.
- Hows fast can collect the debt from receivables.
- High ratio will be favorable.

Formula: Sales
Trade receivables

Solution: 2017 (RM'000) 2016 (RM'000)

10,363,058 7,602,477
238,306 191,407

43.49 times 39.72 times

Analysis: Year 2017 has higher receivable turnover compared to year 2016. The higher the receivable
turnover indicates quicker chance of receivable collection.
Days sales in - Measure number of days takes to collect the receivables.
receivables: - Shorter days is better compare longer days.

Formula: 365
Receivables turnover

Solution: 2017 (RM'000) 2016 (RM'000)

365 365
43.49 39.72

8 days 9 days

Analysis: Year 2017 has shorter days compared to year 2016. The lower the collection period indicates
quicker receivable collection.

4. Profitability ratios

Profit Margin - Called as return on sales ratio or gross profit ratio.


- percentage of sales left over after paid all the expenses that paid by business
- Efficient of a company to convert all the sales into net income.
- Higher ratio is better.

Formula: Net Income


Sales

Solution: 2017 (RM'000) 2016 (RM'000)

684,842 563,973
10,363,058 7,602,477

7% 7%

Analysis: Both year has similar profit margin.

- Efficient of a company can produce profits by manage their assets.


Return on Assets (ROA) - To shows how much profits can produce by the assets own by a company.
- Convert money that used to purchase assets into profits.
- Higher ratio is more favorable.

Formula: Net Income


Total Assets

Solution: 2017 (RM'000) 2016 (RM'000)

684,842 563,973
2.723,214 2,646,267

25% 21%

Analysis: Year 2017 has higher percentage compared to year 2016. The higher the percentage, the better
the firm’s asset utilization to earn, because that means the company is doing a good job using
its assets to generate sales.

- Ability of a firm to generate profits from its shareholders investments in the company.
Return on Equity (ROE) - Important measurement for potential investors because they want to see
how efficiently a company will use their money to generate net income.
- Higher ratio is more favorable.
- Can’t be used to compare companies outside of their industries very effectively.

Formula: Net Income


Total Equity

Solution: 2017 (RM'000) 2016 (RM'000)

684,842 563,973
1,511,977 1,163,897

45% 48%

Analysis: Year 2016 has higher percentage compared to year 2017. In general, the higher the percentage,
the better earning capability against its equity, with some exceptions, as it shows that the
company is doing a good job using the investors' money.

- Efficiency ratio that measures a company’s ability to generate sales from its
Total Asset Turnover: assets by comparing net sales with average total assets.
- Higher ratio is more favorable.

Formula: Sales
Total Assets

Solution: 2017 (RM'000) 2016 (RM'000)

10,363,058 7,602,477
2,723,214 2,646,267

3.81 times 2.87 times


Analysis: Year 2017 has higher ratio on total asset turnover compared to year 2016.

EBITDA Margin: - Compare big companies that either have significant amounts of debt or large
investments in fixed assets because this measurement excludes the accounting effects
of non-operating expenses like interest and paper expenses like depreciation.

Formula: EBITDA
Sales

Solution: 2017 (RM'000) 2016 (RM'000)

588,317 384,698
10,363,058 7,602,477

6% 5%

Du Pont Identity The Dupont analysis also called the Dupont model is a financial ratio
based on the return on equity ratio that is used to analyze a company’s ability
to increase its return on equity.

Formula: ROA X Equity Multiplier

Solution: 2017 (RM'000) 2016 (RM'000)

0.25 x 1.8 0.21 x 2.27

45% 48%
pay off the short term liability

and pay off the liabilites.

Therefore, 2017 is more liquid than

ties by using quick


90 days.

cash.
o lower.

more liquid than year 2016.


es by using

lower.

e current assets.

eans, the company

6.

otal assets.
off the liabilities.
off the liabilities.
ed to year 2017.It seems using
dicate high leverage.

nancing than investor

wer ratio.

t might not be normal and might

owner investments

y the investors, after


ders by comparing total

ative and favorable than

1 + Debt to equity ratio

aged by comparing

in a year.
ory and sales have to
higher turnover indicates the

off the inventory.

6. The lower turnover in days

can convert receivables

2016. The higher the receivable


er the collection period indicates

t paid by business

assets.
by a company.
e higher the percentage, the better
ompany is doing a good job using

vestments in the company.


ey want to see
net income.

stries very effectively.

general, the higher the percentage,


ceptions, as it shows that the

ate sales from its


to year 2016.

ts of debt or large
des the accounting effects
like depreciation.

cial ratio
company’s ability