Abstract

The total purpose of this project is to make an evaluation as well as to make the comparison of the
financial statements of two different companies in the telecom industry to make the rate of their
performances. The actual emphasis was to be able to understand as well as to choose which one between
these two large companies in Malaysia and the best one to invest in. The purpose of this study is to meet
by comparing the last financial statements on 2013, 2014 and 2015, after wise to let the investor to decide
between both of them. As per the case study company’s rate of return, future trends, their strengths and
weaknesses. In the theoretical section of this study we can see that different factors affecting the capital
market and the assets were discussed, with the focus being on the risks of an investment. But the risk
calculations and graphs was not mentioned within this study. While basic financial statements and ratios
were discussed briefly within the chapters of this study. Next cross sectional and time series techniques to
compare the financial statements and ratios had been already revealed. Since most of the information
from the theories was later on used in the empirical part of the study.

In the empirical chapter, we can see that initially all the financial statements of the studied companies
were taken to compute the ratios, risks, average return, as well as to make the trends and to find the
common size statements. Then a quantitative interpretation of the risk and return charts had been
implemented to what already used within the ratios for comparison, common size statements, trend
statements was executed alongside the qualitative discussion of individual figures and tables. Company
used for the purpose are Telekom Malaysia Berhad (TM) and Maxis Broadband Sdn Bhd were in the
same field then the comparison became more clear and indicated positive figures to the investors to
decide. Finally, a clear picture of the performance of these companies from 2013 to 2015 was available
and a very high risk but higher rate of return was found in the Telecom industry at the end. The telecom
industry was found to have an adverse effect caused by the global economic crisis of 2008-2009. As a
result, a higher debt, especially in the Telecommunication companies, was already seen. Finally, this study
was concluded along with the actual finding that “Investment into Telecom industry have medium risk
level in the present situation”, and the investment in a company like Telekom Malaysia Berhad (TM) is
looking better in comparison to the investment in a company like Maxis Broadband Sdn Bhd. But within
different prospective and in comparison of other indicators through this study we can notice that the
behavior of the investor could be another important direction and indicator of choosing Maxis Broadband
Sdn Bhd for some other important indications within this study, and according to the point of view and
risks mitigation behavior of the investors.

1.0 Introduction
One of the most effective ways to compare two businesses is to perform a ratio analysis on each
company’s financial statements. A ratio analysis looks at various numbers in the financial statements such
as net profit or total expenses to arrive at a relationship between each number. To ensure accuracy, it is
usually best if both statements have been audited by a certified public accountant, or CPA. This study will
financially compare The Telecom Malaysia Berhad and the Maxis Berhad by using ratio analysis of the
financial years of 2013, 2014 and 2015 those included in the official annual reports of each company from
Bursa Malaysia. The study will determine each company’s current consolidated and divisional financial
position. In the theoretical section of the comparison different factors affecting the capital market are
discussing, with the focus being on the risks of an investment. Basic financial statements and ratios also
will be discussing briefly. Next cross sectional and time series techniques to compare the financial
statements and ratios were revealed. Most of the information from the theories was later on used in the
empirical part of the comparison.

1.1 Purpose of the study

While the leading communications service provider in Malaysia, enabling both individuals and
businesses, and making an Investment is a very big decision one takes, and nobody enjoys losing value of
their investments. They rather wish to add value to their existing assets. According to Frank (1990:5-6)
investment is the current commitment of one’s asset assigned for a time period to make a growth.
Meanwhile a bad investment decision can end up the investors into the losing side. One should carefully
analyze the rate of return, the risk involved, past performance of the company, competitor’s position, the
overall market situation and many other factors before making any investment decision. After reading this
study the investor would be able to know how to read and analyze a company’s previous year’s
performance. The investor would also be able to understand the risk of the particular company and the
average rate of return the company has achieved in the recent past. The trend the company is going with,
either the performance has been getting better, has stayed the same over the years or getting worse, can be
easily done. Similarly, the reader would also be able to compare a particular company’s performance with
the other companies they are Interested in. In general, this project is a very good practice and guide for
the investors who have very little or no knowledge about stock markets, reading the company’s
performance or calculating the risks and possible gains of an investment.

1.2 Research Methodology

Qualitative and quantitative research methods have been used to bring the best result of the subject.
Initially the financial data of four automotive companies is used as secondary data which is later
calculated with the help of Microsoft Excel. Finally, a comparative study of the performance of different
companies, along with the performance of an individual company over the years is done. The income
statement, balance sheet and the statement of cash flow is used to compute the different financial ratios,
make trend statement, make the common size statement and calculate the risk and gain and to these
different companies.

1.3 Structure of the project

The first section of the project introduces the purpose, structure, research methods and the limitations of
the project. Also, the introduction of the capital market and the factors affecting the capital market are
also argued. Still, different kind of risks and the way to calculate them are discussed under the risk
section. In the third and fourth chapters; the introduction of the basic financial statements and the basic
financial ratios are presented. Next the financial statement and its ratios is briefly discussed. Similarly,
towards the end of the theoretical study case companies are introduced briefly, calculations done in Excel
are explained and the research method used for the purpose of the thesis is discussed. Moreover, in the
empirical part of the study the results are expressed quantitatively followed with a qualitative
analysis. Finally the research and the whole thesis are concluded along with suggestions for further
research.

1.4 Limitation of the study

Investment is a very broad topic so it has not been possible to write all the things that would be handy for
an investor. While the focus of the research has been on reading and analyzing the past financial
statements of the companies for 2013, 2014 and 2015. Since doing so only the annual financial statements
have been analyzed in the study, future prediction has not been done. Annual performances of two
telecommunication companies for the previous three years have been taken into consideration. More data
would have made the comparison more reliable and more fruitful. Similarly, while measuring the risk of
the company only sales volatility has been taken into consideration although there are a lot of other risks
that can be measured. Perhaps computing the financial ratio only few ratios under the liquidity, leverage,
Earnings per share and profitability category have been taken into consideration although hundreds of
ratios exist. On the other hand, the industry average has not been considered while making the
comparative 10 studies because I did not have enough resources and time to calculate the industry
average.

2.0 CASE COMPANIES USED FOR THE RESEARCH

For the purpose of this research, few companies in the same industry with the same end products were
selected. This criterion makes comparison easier and effective as the companies have almost the same
production process. While the age of inventory and most of the other parameters are also in common. In
this research study, two telecom companies are chosen for comparison. Telekom Malaysia (TM) and
Maxis Broadband Sdn Bhd are the two telecommunications companies selected for the comparative study.
These companies are among the major companies in the Telecom industry in Malaysia.

2.1 Telekom Malaysia Berhad (TM)

Telekom Malaysia Berhad DBA (TM) is Malaysia’s leading telecommunications company, with a history
dating back to 1946. Beginning as the national telco for fixed line, radio and television broadcasting
services, it has evolved to become the largest broadband services provider, in addition to offerings in data,
fixed line, pay television and network services. The company sees itself as transforming the way
Malaysians connect, communicate and collaborate, with a strong emphasis on innovation. Most recently
this has seen TM venture into the Long Term Evolution (LTE) space with the launch of TMgo, its first 4G
offering. With a total of 2.23 million broadband subscribers, TM’s UniFi is Malaysia’s first high-speed
broadband service and is one of TM’s recent success stories. Unifi's rollout, in 24months, has been
acknowledged as one of the fastest and lowest cost in the world. Given the rate at which Malaysians are
adopting digital technology, TM represents one of the largest government-linked companies in the
country, with more than 28,000 employees and a market capitalization of more than RM25 billion. In
2010, to strengthen its regional network, it entered into a partnership with NTT Communication
Corporation to develop a private cable, Cahaya Malaysia. This forms part of the Asia Submarine cable
Express (ASE) linking Malaysia with Hong Kong and Japan. TM also invested in the new Batam-Dumai-
Melaka Cable System, connecting the country with Indonesia. To meet the growing capacity needs of
customers, TM also collaborated with Hong Kong-based PCCW Global to open a new Point-of-Presence
(PoP) at its data center in Kuala Lumpur.

2.2 Maxis Broadband Sdn Bhd

Maxis Broadband Sdn Bhd is a communications service provider in Malaysia. Headquartered in Kuala
Lumpur, Malaysia, providing a variety of communication products, applications and value added services
for consumers, large enterprises and small & medium business owners. Maxis uses the dialing prefixes of
"012", "017", "014-2" and "011-2". The majority of the company's stake is owned by billionaire Ananda
Krishnan, and the company has about 11.6 million subscribers as of the fourth quarter of 2015. On
October 19, 1999, Maxis introduced the popular prepaid brand "Hotlink". In 2002, Maxis acquired
TimeCel, a rival mobile service provider, from TimedotCom Berhad. Prior to the purchase, Maxis offered
prefix number beginning with 012, and TimeCel 017. On 27 April 2007, an offer was made to buy out
Maxis and privatize the company in preparation for expansions into
the Indonesian, Indian, Mexican and Ecuadorian markets. The deal was offered by Ananda Krishnan, who
pledged Maxis RM17.46 billion (US$5.1 billion and €4.25 billion) in exchange for all remaining shares
of the company. The offer is to be formally made by Usaha Tegas, a company owned by Krishnan, on 3
May 2007, while the Kuala Lumpur Stock Exchange suspends trading of the company's shares until 3
May. Under the urging of Prime Minister Datuk Seri Najib Tun Razak, Maxis announce that it will re-list
the company in Bursa Malaysia on 11 November 2009. The initial public offering, which constitute 30%
of the company and involve its Malaysian operations, will raise at least MYR 11.7 billion. On September
2013, Maxis prepaid, Hotlink launched its Hotlink plan, which is basically the first telecommunications
company to offer free internet services on cellular networks, Hotlink calling it "Free Basic Internet"
which offers download speeds up to 64kbit/s and which the management says is enough for checking
Facebook, Twitter and Wikipedia on mobile optimized sites and also essentially eliminating data overage
charges which as previously implemented at MYR 0.10/10KB. Majority Stakeholders Maxis
Communications is part of Ananda Krishnan's business empire. In 1996, the company launched
Malaysia's first three satellites; MEASAT 1, 2 and 3.

2.3 Empirical study

In the empirical study, initially the financial statements of different companies were taken to compute the
ratios, risk, average return, to make trends and common size statements. Then a quantitative interpretation
of the risk and return charts, common size statements, trend statements was executed alongside the
qualitative discussion of individual figures and tables. Telecom Malaysia Berhad and Maxis Berhad
companies used for the purpose. In addition; a clear picture of the performance of these companies from
2013 to 2015 was available. Finally, this project was concluded with the finding Investment into the
telecom operators in Malaysia”.

3.0 Calculations

3.1 Computing Ratios

For the ratio calculation, the secondary data available as the company’s financial statements was used.
The formula was used for the calculation of the financial ratios. Each company´s financial ratios over the
year 2013, 2014 and 2015 was calculated in the excel file to make inter and intra company comparison.
Current and quick ratios are the two liquidity ratios calculated for all the studied companies within this
project. The profitability ratios calculated were return on total assets, return on equity and expenses to
revenue.

3.2 Common Size Statement

For the purpose of common size analysis, the financial statements of the two telecommunication
companies are transformed into the percentage of the total value of the particular company’s financial
statement. For instant in the balance sheet of the companies, the total assets are assumed to be 100% and
the rest; assets, liabilities and equity are calculated in the percentage value of total assets. This method
shows how much of assets, liabilities and shareholder´s equity exist in the company. The components of
the income statement have been arranged as the percentage value of the total revenue. And the expenses,
interest paid, taxes, net income along with all the other components of the income statement have been
converted into percentage values of the total revenue. In the empirical analysis the common size data is
analyzed for the two companies together respectively. Likewise, analyzing the financial statement with
time series technique, data of year 2013 is taken as the base year and the rest years 2014 and 2015
performances are computed into the percentage value of the year 2013´s statement. This method makes
sure the comparison is not done by counting the table, instead is done by looking at the percentage change
from the previous years. Although all the financial statements with a previous track record can be
transformed into the common size statement, the annual report of 2013 has been used as the base.

4.0 RESEARCH METHODOLOGY

Principally research refers to collecting and analyzing existing data to draw conclusions, make
suggestions and suggest further research areas. The research problem of this research is how to analyses
company’s financial statement. The solution is to compare the performance of an individual company
with the other companies. The other possible solution is to compare the present financial position with the
previous years´ records. Two research methods commonly used by the researchers are qualitative and
quantitative methods. Quantitative method refers to the mathematical and statistical interpretation of the
result. On the other hand, qualitative research method is not a structured method but a subjective one
explaining the inner thoughts and emotions of the respondent. In the empirical part of this thesis the
qualitative and quantitative research method are used. Initially the secondary data of the different
companies’ performance over the years have been taken as the reference. The secondary data includes the
balance sheet, income statement and the cash flow statement of the four automotive companies for the
year 2013, 2014 and 2015. Annual financial statements of these two companies have been taken as
secondary data. Secondary data is used to compute the financial ratios, make a common size statement.
After the calculation of ratios and statements, they are arranged in a comparative form. Then the
quantitative comparison of intra companies, inter companies along with the combination of both inter and
intra company is done. Furthermore, the quantitative comparison is supported by my qualitative
comments and the information borrowed from the footnotes of the respective company’s financial
statements.