INTERNATIONAL CENTRE FOR EDUCATION IN ISLAMIC FINANCE

School of Professional Studies

ASSIGNMENT FRONTSHEET

Course Code No. MIFP: IB5023

CIFP: IB2001
PC: PC5113
Course Name Structuring Financial Requirements
Mode of Study Face-to-Face & Online
Semester January 2019
Lead Lecturer Abdul Rahman Bin Mohd. Yusoff
Co-Lecturer None
Assessment Type Assignment
Assignment No. 2
Written By Abdul Rahman Bin Mohd. Yusoff
Weighting 25% of total mark
Date of Issue Week commencing 1st. April, 2019
Last Date of Submission 28th. April, 2019 (Sunday) @ 11:55pm
Malaysian Time.
Submission Arrangement One copy of your assignment should to be
submitted through MLMS.

Assignments must be submitted by the due

date. The only circumstance in which
assignments can be submitted late is if an
extension has been given by the lecturer.
Minimum Word Length 1,300 words (about 5 pages)
Maximum Word Length 2,100 words (about 8 pages)
State the number of words used at the end
of the assignment. You may include
diagrams, figures, appendices etc. without
word penalty. A sliding scale of penalties for
excess length will be imposed. The penalties
will be as follows:
1-10% excess no penalty

11-20% excess 10% reduction in the

mark
21-30% excess 20% reduction in the
mark
31%+ excess the work will be capped
at a pass.

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 Please use ‘1.5 lines’ spacing when typing
your assignment and at least 12 point sized
font using Arial font face to facilitate marking.

Additional Attachment None

Programme Learning This assignment will assess the following
Outcome programme learning outcomes:

LO2: Ability to apply financial and

quantitative tools and techniques in problem
solving and decision making.
LO4: Ability to effectively communicate and
articulate concepts and opinions particularly
with regards to Islamic finance.

Course Learning Outcome This assignment will assess the following

course learning outcomes:

CLO2: Analyse the economic and business

environment as well as the associated risks
that may influence the customers’
capabilities to survive and to service the
financing given by applying the qualitative
and quantitative tools and mechanism.

Enquiries If there is any enquiry regarding the

assignment, please contact me via:
Email: abrahmanmy5353@gmail.com
Telephone: +6019-2825312

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 Financial Ratio and Trend Analysis

Taimah Sewing Equipment & Supplies Sdn Bhd

It was in March, 2019 when Mr.Philip Seow, founder and Managing Director of Taimah
Sewing Equipment & Supplies Sdn Bhd (TSES) reviewed his notes in preparing for
the next morning meeting with Overseas Islamic Bank Berhad’s (OIBB) Head of
Commercial Division En. Kamarulzaman who is also his college mate whilst studying in
USA fifteen years ago.

The company, established in 2003, is involved in the supply of industrial sewing

machines, part & supplies. TSES operates in two branches in Batu Pahat, and another
outlet in Pasir Gudang, Johor. For better control, financing and budgetary decisions are
centralized in the store and office complex that operates in Petaling Jaya, Selangor. In
his preparing for the scheduled meeting, Philip was concerned about the types of
information the bank might have for him to make decision on TSES’s application for
bank financing and the company’s performance over the last four years.

TSES outlets had been making profit since their establishment. Originally, TSES was
initiated by Philip and a former university classmate, Syed Aziz, two years after
completing their studies. Syed, however left TSES after only two years to pursue his
political career ever since his student’s life. The whole of Syed’s shares were taken over
by Philip then. TSES had experienced excellent growth in its revenue and earnings and
with the surging local demand from garment & textile manufacturers. The operating
result of the company is given in Table A while its financial position is detailed as per
Table B.

The company’s shareholders have not injected additional capital or obtaining long term
financing over the past few years. In fact, the second outlet was opened in 2017
without any additional long-term financing. As for this new outlet, there was however an
increase in inventory and bank short-term financing. The personnel in the finance
department have no idea whether this is considered normal for a company of this nature
in its expansion stage. TSES had managed to control its credit properly, and the
shareholders were generally satisfied with the firm’s profitability.

The company has performed considerably well due to the strong local economy in
tandem with the rising textile market since early 2008. A local university college
business school has made a study and published its finding on the economic forecast.
Although the GNP at the national level is about 4-5%, the local GNP had been in the
range of 8-10%.

In the mid-2016, there were some developments which did not augur well for the
company’s growth. One of the things that caused anxiety among TSES management
members was the decrease in the demand from textile manufacturers & exporters that
has affected the company’s sales revenue. This has caused headache to the sales
team and they are not sure how to address the situation and this will surely affect

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TSES’s profitability. In addition, TSES clients are concentrated to a few big boys in the
textile industry of which have been with TSES several years due to their long-
established networking relationship and golf buddies. Thus, TSES is faced with serious
concentration risks and find it difficult to diversify its clients-based during the downturn
in the industry.

Being an established supplier of sewing machines, Philip is very concerned about

maintaining a consistent profit & growing its shareholders’ equity. Of late, other similar
businesses in the locality have been doing well too. The local economy is very
competitive so much so that sales growth of individual companies is taking away the
market share of fellow competitors. Nonetheless, TSES still believe that its fully-
integrated operation of selling industrial machines which includes maintenance &
servicing business would have an upper-hand over its small competitors which solely
concetrate in the trading of sewing machines business.

Philip is a bit nervous regarding the company’s financials before his meeting with
Kamarulzaman as the latter is very good at numbers due to his vast experience working
in several banks. Philip’s main concern among others includes the company’s inventory
level which has been increasing at a rate that may warrant further attention. He has to
convince the bank to keep believing in the company’s ability to continue with its past
good performance. He would also have to show evidence that TSES still has the
competitive edge which he believes this economic downturn is just a temporary trend.

TABLE A
Taimah Sewing Equipment & Supplies Sdn Bhd
Income Statement

For the year ended 31st December (In $) 2015 2016 2017 2018

Sales 4,300,000 4,680,000 5,350,000 6,500,000

Less: Cost of goods sold 2,960,000 3,475,000 3,700,000 4,680,000

Gross Profit 1,340,000 1,205,000 1,650,000 1,820,000

Less: Selling , Admin & Depreciation
Expenses 684,000 820,000 898,000 1,015,467

Profit before Interest & Tax 656,000 385,000 752,000 804,533

Less: Interest (finance charges) 30,780 30,780 96,315 97,391

Profit before tax 625,220 354,220 655,685 707,142

Less: Taxes 187,566 106,266 196,705 212,142

Net Income 437,654 247,954 458,980 495,000

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 TABLE B
Taimah Sewing Equipment & Supplies Sdn Bhd
Balance Sheet
As at 31st December (In $) 2015 2016 2017 2018
Assets

Cash 295,800 326,040 358,300 443,000

Account Receivables 11,400 12,540 1,020,700 1,268,000

Inventory 950,000 1,028,595 1,531,007 1,660,207

Total Current Assets 1,256,400 1,367,175 2,910,007 3,371,207

Property, Plant, Equipment
(net) 450,000 501,600 550,000 603,000

Total Assets 1,706,400 1,868,775 3,460,007 3,974,207

Liabilities

Accounts Payables 152,000 167,200 340,000 550,000

Notes Payable-Bank - - 1,119,776 1,123,326

Accrued Wages & Taxes 114,000 115,000 145,500 137,000

Total Current Liabilities 266,000 282,200 1,605,276 1,810,326

Long Term Debt 342,200 352,000 362,000 375,000

Total Liabilities 608,200 634,200 1,976,276 2,185,326

Equity
Paid-up Capital (60,000
shares) 600,000 600,000 600,000 600,000

Retained Earnings 498,200 634,575 892,731 1,188,881

Total Equity 1,098,200 1,234,575 1,492,731 1,788,881

Total Liabilities & Equity 1,706,400 1,868,775 3,360,007 3,974,207

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REQUIRED
Answer all the following questions based on the above information:

1. Calculate the following financial ratios (which are normally used by

bank/financiers to evaluate company’s financial performance and position) for the
company for the latest two (2) years i.e. Y2017 & Y2018 only and briefly explain
what each ratios implies:

Profitability:
 Gross profit margin
 Net profit margin
Liquidity:
 Current ratio
 Quick ratio
Asset Management/Efficiency:
 Average Inventory usage period or Days Inventory
 Average Collection Period or Days TradeDebtors
 Average Payment Period or Days Trade Creditors
Gearing/Debt Management
 Debt to Equity ratio
 Debt to Assets ratio
 Times Interest Earned
Note: Please use the formulas as given in the Lecture Note Week 9.
(8 marks)

2. Briefly comment on the trend of the company’s financial ratios above in Question
1 by benchmarking each ratio with the following industry information:
Financial ratio Industry Norm
Gross profit margin 30%
Net profit margin 5%
Current ratio 1.5
Quick ratio 0.5
Days Inventory 70 days
Debt to Equity 1.3x
Time interest earned (times) 1.5x
Days Debtors (credit terms given) 90 days
Days Creditors (credit term taken) 30 days
(5 marks)

3. For a company such as TSES, comment on the importance of inventory control

and accounts receivable collection policy. (4 marks)

4. Based on your financial analysis, do you think that Overseas Islamic Bank will
provide more short-term funding to TSES or would the bank consider long term
financing? What would be the basis of the bank’s decision? (4 marks)

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5. What would be Kamarulzaman’s advice to Philip in order for the company to
sustain its profitability and improve on its liquidity position for it to survive in the
long term?
(4 marks)

(Total: 25 marks)

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