< BACHELOR ACCOUNTING>

< JAN 2020>

< BBFA 2203>

< INTERMEDIATE FINANCIAL ACCOUNTING 1>

MATRICULATION NO : <960828016204001>

IDENTITY CARD NO. : <960828016204>

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 Content Pages

Assignment 1

1.0​ ​Importance of capital structure ………………………………… 1

2.0 Differences of the capital structure between public company and

private company …………………………………………………………..

3.0 Determinants of capital structure decisions ………………………………….

Assignment 2

1.0 Introduction of the selected companies …………………………….

2.0 Disclosure of capital structure in the financial statements of the companies …………

3.0 Comparison on the strength of the capital structure between both companies ……….
Assignment 1​

1.0 Capital structure refers to the mix of long-term sources of funds such as debenture,long-term

debts,preference share capital and equity share capital including reserves and surplus.Capital structure is the

combination of debt and equity securities that comprise a firm’s financial of its assets.Both debt and equity

can be found on the balance sheet.Company assets also listed on the balance sheet,are purchased with this

debt and equity.Capital structure can be mixture of a company’s long-term debt,short-term debt,common

stock and preferred stock.A company’s proportion of short-term debt versus long-term is considered when

analyzing its capital structure.The importance of capital structure is minimizes the firm’s cost of capital or

cost of financing.By determining a proper mix of fund sources,a firm can keep the overall cost of capital to

the lowest.Capital structure maximizes the company’s market price of share by increasing earnings per share

of the ordinary shareholders.It also increases dividend receipt of the shareholders.Capital structure

maximizes the market value of firm.For example in a firm having a properly designed capital structure then

aggregate value of the claims and ownership interests of the shareholders are maximized.Capital structure

increase the ability of the company to find new wealth-creating investment opportunities.With proper capital

gearing it also increases the confidence of suppliers of debt.Capital structure increases the country’s rate of

investment and growth by increasing the firm’s opportunity to engage in future wealth-creating

investments.Furthermore,it’s effectively an overview of all claims that different players have on the

business.The debt owners hold these claims in the form of a lump sum of cash owed to them and

accompanying interest payments.The equity owners hold these claims in the form of access to a certain

percentage of that firm’s future profit.The capital structure is defined as the careful balance between equity

and debt that a business uses to finance it’s assets,day to day operations and future growth.
2.0 Most companies start out as private,but a public company can also sell out its public shares and go

private if it finds the benefits to be greater.One of the biggest differences in private versus public capital

structure is that private equity investors are generally paid through distributions rather than stock

accumulation.Private equity investors usually receive distributions throughout the life of their

investment.Secondly, public and a private company is that public companies are open to investment by the

public,whereas private or proprietary companies are not.Being open to investment by the public makes it far

easier to raise capital.It attracts a much higher level of regulation and compliance to protect potential

investors and the general public.A public company has a responsibility towards it’s shareholders.It has to

give periodical updates on how it’s performing and disclose their books for the benefit of the public.They

have to hold the shareholders interests utmost and make a profit for them.A private company on the other

hand does not have disclose their books to the general public,and it’s basically run by the managers and have

no obligation to make profit for their shareholders,which gives them the freedom to steer the company as

they see fit.Furthermore,difference between a private and public company is that the shares of a public

company stock exchange,while a private company’s shares are not.Public companies within a specific

industry generally maintain capital structures debt/equity mixes that are fairly similar.That means the

relative price/earning ratios include servicing of debt are comparable.Private companies within the same

industry,however can vary widely in capital structure.The valuation of a privately held business is therefore

frequently based on “enterprise value,” or the pre debt value of a business rather than the value of the stock

of the business,like public companies.This is another reason why private company multiples are generally

based on pre-tax profits and may not be directly comparable to the price/earning ratio of public firms.
3.0 The determinants of capital structure decisions is profitability.The main point in capital structure is

leverage.It can define as the employment of an asset or sources of funds for which the firm has to incur a

fixed cost or pay a fixed sum.Leverage divided by two which is operating and financial.The associated with

investment or acquisition of assets activities is referred to as operating leverage,while leverage associated

with financial activities is called financial leverage.The higher the level of EBIT and the lower the chance of

downward fluctuation the larger the amount of debt that can be employed.Next,the liquidity is one of the

determinants of capital structure decisions.Liquidity is the analysis of the cash flow ability of the company

to service fixed charges is considerable importance to carry out capital structure planning. In assessing the

liquidity position of a company in terms of its cash flow analysis,use a ratio called the coverage ratio.It is the

ratio of fixed charges to net cash inflows.It measures the coverage of fixed financial charges interest plus

repayment of principal to net cash inflows.It indicates the number of times the fixed financial requirements

are covered by the net cash inflows.The higher the coverage ratio the larger the amount debt and other

sources of funds carrying a fixed rate of interest that a company can use.The another factor is determining a

company’s optimal capital structure control.Consideration in planning the types of funds to use is the

attitude of existing management towards control.Lenders have no direct voice in the management of a

company.In most cases,the power to choose the management team rests with the equity

holders.Accordingly,if the main objective of management is to maintain control,they may like to have a

greater weight-age for debt and preference share in additional capital requirements.This is because obtaining

funds through them the management sacrifices little or no control.Another factor determinants of company

structure decisions is the debt-equity ratios of other companies belonging to the same industry and facing a

similar business risk.The rationale here is the debt-equity ratios appropriate for other company’s in a similar

line of business should be appropriate for the company under consideration as well.The use of industry

standards provides a benchmark.If a company is deviating from its capital structure,the market will give a
red signal to the management that there is something wrong in the company’s debt-equity mix.If the

company is out of line,it should identify the causes of such deviation and be satisfied that the reasons are

unquestionable.The fifth determinant of a company’s capital structure is the nature of the industry to which

it belongs.The nature of industry largely determines the degree of financial leverage the firm can carry

safely without any risk of bankruptcy.If an industry’s sales are subject to periodic fluctuations,the company

should have a low degree of financial leverage.Such firms will always have high operating leverage.The

timing of issue is also of considerable importance in determining a company’s capital structure.It is often

possible to make substantial savings through proper timing of security issues.It is in the tightness of things

to make public offering at a time when the state of the economy as well as the capital market is ideal for

providing the required funds.The company cannot go in for debt if its existing capital structure is already

overloaded with debt.Most capital structure theories argue that the type of assets owned by a firm in some

way affects its capital structure choice.The assets include the ratio of intangible assets to total assets and the

ratio of inventory plus gross plant and equipment to total assets.There are positive relationship between

tangibility and leverage and a negative relationship between intangibility and leverage.The trade off theory

predicts a positive relationship between leverage and tangible assets.Tangible assets normally provide high

collateral value relative to intangible assets,which implies that these assets can support more debt.Tangible

assets reduce the cost of financial distress.Finally the nature and characteristics of the company in terms of

its size,capital structure and goodwill also play a very important role in determining the share of old

securities and equity in its capital structure.

Assignment 2

1.0 CIMB Group Holdings Berhad (CIMB) is a financial company listed in the Bursa Malaysia while

Scientex Berhad is an industrial company listed in the Bursa Malaysia. CIMB (MYX: 1023) is a main

KL-headquartered ASEAN bank, one of the biggest speculation banks in Asia and one of the biggest Islamic

banks on the planet. As the fifth biggest financial gathering in ASEAN, they have around 36,000 staff in 16

nations crosswise over ASEAN, Asia and past. CIMB Investment Bank gives ordinary and Islamic money

related guidance for a custom fitted conveyance of banking answers for their customers. They have

organized and executed honor winning arrangements which grandstand their capacity to enhance and enable

their customers to accomplish their objectives. CIMB additionally has a broad retail banking system of

around 800 branches serving more than 14.0 million clients. Past ASEAN, they likewise have branches in

China and Hong Kong, India, Sri Lanka, Korea, the US and the UK. CIMB is positioned among the top

banks in ASEAN, collecting various honors over the years, for example, the Best Islamic Finance House in

Asia 2018 by FinanceAsia Achievement Awards, Best Bank for SMEs in Malaysia 2018 by Asiamoney Best

Bank Awards and Best Private Bank in Malaysia 2018 by Global Private Banking Awards and numerous

others ​(Cimbbank.com.my, n.d.). ​The gathering's business exercises are basically in the regions of

Consumer Banking, Wholesale Banking, involving Investment Banking and Corporate Banking, Treasury

and Markets, and Group Strategy and also Strategic Investments. In 2018, they had a stunning net profit of

4, 475 Million which is shown that it is and increase compared to the net profit of 3, 564 Million in the

financial year of 2016.

Scientex Berhad (MYX :4731) was set up in 1968 as Scientific Textile Industries Sendirian Berhad and

spearheaded the assembling of polyvinyl chloride (PVC) cowhide fabric and sheeting. It is the biggest maker
of stretch movies in Asia. Stretch movies are dainty plastic movies utilized for bundling and are supplanting

container boxes which are bulkier and less adaptable. SIB has differentiated its exercises into different

ventures, for example, assembling and dissemination of car segments, and mechanical bundling items. SIB

has likewise gone into property advancement in Pasir Gudang, Kulai, Skudai and Senai, all in Malaysia. Its

principal and registered place to conduct business is at the address of ​No.9, Persiaran Selangor Seksyen 15,

40200 Shah Alam Selangor Darul Ehsan ​(Scientex, n.d.). For over four decades, Scientex Berhad has

assumed a significant job behind Malaysia's advancement in industrialisation and development as a country.

During that time, Scientex has been a model of development and broadening in turning into a main maker on

a worldwide scale and a head property engineer on the neighborhood front. In the Scientex Bhd, they are

especially partial to the "Win-Win" standard. They look to make a situation in which their workers can

completely build up their aptitudes while effectively adding to the organization's presentation. In the

financial year of 2018, there was a revenue growth of 2, 400 Million and the net profit growth was at an

astounding 255 Million which is also an increase compared to the financial year before.

2.0 CIMB and Scientex, the companies have met several of the capital structure requirements in the financial

statements for the year 2018.​Usually at the end of a financial year,companies are needed to present their

financial status based on a certain standard or requirement so that CIMB capital structure are formulated in

accordance with requirements of BNM’s guidlines on RWCAF (Base II) are stipulated within three board

“Pillars” or sections.Pillar 1 focuses on the minimum capital measurement methodologies and their

respective qualifying criteria to use specified approaches available to calculate the RWA for credit,market

and operational risks.Pillar 2 focuses on how sound risk management practices should be implemented from

the Supervisory Review perspective.It requires financial institutions to make their own assessments of

capital adequacy in light of their risk profile and to have a strategy in place for maintaining their capital

levels.Pillar 3 complements Pillar 3 complements Pillar 1 and Pillar 2 by presenting disclosure requirements

aimed to encourage market discipline in a sense that every market participant can assess key pieces of

information attributed to the capital adequacy framework of financial institutions.​.Firstly is the Statement of
Financial Position which is based on the financial year of 2018. For example CIMB loans,advances and

financing stood at RM 337.1 billion as at 31 December 2018,increasing by RM20.6 billion.As at 31

December 2018 the group’s total liabilities stood at RM 481.5 billion,rising RM 24.8 billion.Total deposits

from customers expanded by RM379.7 billion and the total amount of other liabilities is 45.1 billion.The

higher amount resulted from an increase in repurchase agreements and resources obligation on loans and

financing sold to Cagamas,partially offset by decrease in bills and acceptances payable and non-current

liabilities held for sale.Equity is commonly alluded to as investor equity (otherwise called shareholders'

equity) which speaks to the measure of cash that would be come back to an organization's investors if the

majority of the benefits were exchanged and the majority of the organization's obligation was

satisfied.Scientex Berhad total equity is attributable to owners of the Company is RM1.8 billion in 2018.The

increase was largely due to annual net profit contribution of RM289.8 million offset by total dividend

payments of RM97.3 million.New issue of 5,226,500 ordinary shares pursuant to the Dividend

Reinvestment Plan (‘DRP’) to the entitled shareholders of the Company who had elected to reinvest their

electable portions of cash dividend arising from the single tier final dividend of 10 sen per ordinary share for

2017.New issue of 142,000 ordinary shares pursuant to the Scientex Berhad Share Grant Plan to eligible

employees of the Group.Resultant thereto,total number of issued shares of the Company as at 2018,stood at

488,926,500 ordinary shares,out of which 100 shares were held as treasury shares.The more for

example,,borrowings amounting to RM934,311 and trade payable amounting to 380,734..Furthermore the

total net debt is761,995 and net debt equity ratio is 0.43. All of these elements form the statement of

financial position.

3.0 Cimb and Scientex companies has their own strength on capital structure.Capital management at CIMB

Group remains focused on maintaining a healthy capital position through building an efficient capital

structure.The capital position and structure of the Group are designed to meet the requirements of

shareholders,customers,regulators,external rating agencies and other stakeholders.Capital management

maintain a strong and efficient capital base for the group and its entities to always meet regulatory capital
requirements,realize returns for shareholders through sustainable return on equity and stable dividend payout

and withstand stressed economic and market conditions.Maintain capital at optimal levels to meet the

requirements of other Group stakeholders,including rating agencies and customers.The Group’s regulated

banking entities have always maintained a set of internal capital targets which provide strong buffer above

the minimum regulatory requirements.Furthermore,the total capital ratio increased 2018 compared to 2017

primarily due to increased total capital mainly due to higher retained earning,higher paid up capital and

share premium arising from reinvestment of the cash surplus from CIMB Group’s 11​th and 12​th Dividend

Reinvestment Scheme (“DRS”).Issuance of RM700 million 10 years non-callable 5 years tier 2 subordinated

debt and RM1.2 billion 11 years non-callable 6 years tier 2 subordinated debt to CIMB Group Holding

Berhad and redemption of RM750 million tier 2 subordinated debt RM300 million tier 2 subordinated debt

during the year.The primary objective of the Scientex Berhad’s capital management is to ensure that the

Group maintains healthy capital ratios in order to support its business operation and maximize shareholder

value.The group manages its capital structure and makes adjustment to it,in light of changes in economic

conditions.To maintain or adjust the capital structure,the Group may adjust the dividend payment to

shareholders, return capital to shareholders or issue new shares.For example the dividend paid by Scientex

Berhad increased years by years from RM77.4 million in 2018 to RM97.8 million in 2018.The board has

declared a total dividend in respect of 2018 amounting to 20 sen per ordinary share or RM97.8 million

which comprises of 33.7% net profits of 2018.Scientex Berhad is committed to enhance shareholder value

by delivering satisfactory result in the coming financial year and continue to maintain the dividend payout

policy for at least 30% of its net profit to shareholders annually.The net cash from operating activities has

increase in 2018 amounted RM392.4 million from RM322.8 million in 2017.The increase operating cash

flow indicates that the company healthy and have enough cash used for business expansion.The net cash

from financing activities has increase amounting RM290.8 million compared to the previous year.Scientex

has a current ratio of 1.063 times in 2018 compared to 1.282 times.Even though there is a slight decrease in

this ration,the company is still capable of paying back its liabilities by using current assets such as

inventories,trade receivables,cash and cash equivalents.

 In conclusion,the capital structure for any company,the first major policy decision facing the company is

that determining the appropriate level of debt.For most the company,the decision involves a choice between

the long-term debt and the equity.There are no such standard from of capital structure can be

prescribed,which takes care of all types of company and situations.The financing mix for a particular

company must be tailored made to suit the requirements,situations and the position of the company.The

operating efficiency of the company,the capital market conditions,the expectations of different types of

investors,the liquidity position of the firm,finally the legal and regulatory framework and the constraints

should all be factored in the evaluation of proposed capital structure.