FINANCIAL STATEMENT ANALYSIS

FAR 340

WHITE HORSE BERHAD

FACULTY OF ACCOUNTANCY

DIPLOMA IN ACCOUNTANCY

JAC1105K

NAME STUDENT ID

UMMI SYAIRAH BINTI MOHAMMAD AMIN 2017214676

NOR’AIN MURSYIDAH BINTI MAT RADZI 2017260094

NOOR HANIS ATHIRAH BINTI NOOR HESHAMUDDIN 2017212336

PREPARED FOR:

MISS EMELIN BINTI ABDUL WAHID

SUBMISSION DATE:

14 NOVEMBER 2019
TABLE OF CONTENT

NO. PARTICULAR PAGE

1. INTRODUCTION 3
2. BACKGROUND OF COMPANY 4
3. RATIO ANALYSIS 5
4. COMMENT ON RATIO ANALYSIS 6
5. COMMON SIZE RATIO 7
6. COMMENT ON COMMON SIZE RATIO 8
7. CONCLUSION 9
8. REFERENCES 10
9. APPENDIXES 11-12

2
INTRODUCTION

This assignment is to assess the financial ratio analysis of a chosen company which
is White Horse Berhad. Financial analysis is the assessment of a firm’s past, present and
anticipated future financial performance through the company’s financial statements to allow
current year company’s performance to be compared with previous performance and to be
compared with competitors and industry average. Therefore, in order to do this, we analyse
the financial ratio of White Horse Berhad through its financial statement and compare it to
industry average. The company that we choose are Kim Hin Industry Berhad, Yi-Lai Berhad,
Es Ceramic Technology Bhd, LB Aluminium Bhd and Alcom Group Bhd. The industry
average of liquidity ratio and efficiency ratio are taken from investing.com

In finding the information on ratio of industry average, there are problems and obstacles in
finding information to calculate the ratio:

1. The company’s financial statement does not state the component of revenue whether it
is from credit or cash sales

2. There are only 4 listed manufacturing ceramic tiles company including White Horse Bhd.

3. The information of industry average is obtain from investing.com. However, the

information on industry average is not complete as the information for average collection
period and non-current assets turnover is not provided.

4. There is company that has different financial year end. One of the company chosen, LB
Aluminium Bhd has financial year end of every month of April.

Therefore, the problem above yield assumption below:

1. In computation of average collection period, the revenue information obtain from financial
statement are assumed from credit basis.

2. Due to incomplete information on industry average, the computation is performed by

considering LB Aluminium Bhd and Alcom Group Bhd which are not from ceramic tiles
manufacturers. However, these companies are still under the same sector which is
industrial product and services.

3. The industry average for average collection period and non-current asset turnover is
calculated based on five companies which are Kim Hin Industry Berhad, Yi-Lai Berhad,
Es Ceramic Technology Bhd, LB Aluminium Bhd and Alcom Group Bhd.

4. Every company chosen to calculate industry average is assumed to have same financial
year end.

3
BACKGROUND OF WHITE HORSE BERHAD

White Horse Berhad is a public limited company that was founded in 1992 and is
headquartered in Pasir Gudang, Johor, Malaysia. This company started their business from
a humble beginnings by producing red bricks and roof tiles.

White Horse Berhad is a company that are doing investing and manufacturing but the
main operation of this company is producing high quality ceramic tiles encompassing a full
range of products for every corner in the house. These includes full concept wall and floor
tiles, porcelain and glazed porcelain tiles, high end multi-effect granite tiles, as well as
borders and accessories.

This company geographically operates through the regions of Malaysia, Vietnam and
others. The other segments include distribution of ceramic homogeneous tiles in Indonesia,
Philippines, Singapore and Thailand.

The product portfolio of the group consists of ceramic wall tiles, ceramic floor tiles,
and porcelain tiles. The firm generates the majority revenue from Malaysian segment. White
Horse Berhad has showrooms and branches in multiple locations. They are recognized
locally and globally for their efforts to remain an eco-friendly, and have achieved multiple
awards for their accomplishments in quality, innovation and environmental awareness.

4
RATIO ANALYSIS OF WHITE HORSE BERHAD

RATIO
WHITE HORSE BHD INDUSTRY
(RM’000’) AVERAGE

Liquidity
i. Current Ratio 597,260
Total Current Asset 288,296 5.42 times.
Total Current Liability = 2.07 times.

ii. Acid Test Ratio

Current Asset−Inventory−Prepaid Expenses 597,260−378,644
Current Liability −18,776−8,389
288,296 3.96 times.

= 0.66 times.

Efficiency Ratio
i. Inventory Turnover 511,887
Cost of Good Sold 378,644 3.55 times.
Average /Closing Inventory = 1.35 times.

ii. Average Collection Period

Accounts Receivable 110,303
Annual Credit Sales 612,800
360 days 77 days.
360 days
= 65 days.

iii. Non-Current Asset Turnover

Sales 612,800
Net Non−Current Assets 447,870 2.52 times.
= 1.37 times.

iv. Total Assets Turnover

Sales 612,800
Total Assets 1,045,130 0.78 times.
= 0.59 times.

5
COMMENT ON FINANCIAL STATEMENT ANALYSIS

1. LIQUIDITY

The liquidity ratio of White Horse Berhad is lower than the industry average. Current
ratio for the company is lower but it still has a good performance as compared to the rule of
thumb which is about 2:1. It means that for RM1 current liability, the company is able to pay
with RM2 of current asset. However, the lower performance is contributed by acid-test ratio.
It indicates that the company does not have immediate cash to pay for their obligation. This
may be due to poor cash management and holding too much inventory. To overcome these
weakness, White Horse Berhad should promote more cash sales by selling goods on cash
basis or gives discount to customers and adopt effective inventory control system.

2. EFFICIENCY RATIO

The efficiency ratio for White Horse Berhad is lower than the industry average shown
by lower inventory turnover, non-current asset turnover and total asset turnover.

Lower inventory turnover indicates that the company is less efficient in converting it
inventory into sales. This may be due to the company is holding too much inventory and
improper stock management. To overcome the weaknesses, White Horse Berhad should
adopt effective inventory control system such as Just In Time (JIT) and Economic Order
Quantity (EOQ). Other than that, the company may do inventory clearances sales by selling
these goods at reduced price to cut down the slow-moving and obsolete inventory.

Next, the lower of non-current asset turnover and total asset turnover ratio mean that
the company is less efficient in using its asset to generate sales. This may be due to the
company’s non-current assets are under-utilized and too much investment in non-current
asset. To overcome these weaknesses, the company may increase its production to fully
utilize its non-current asset and the company can also dispose its idle assets which are not
in used for production rather than just maintain without gaining any benefit. The money
obtain from the disposal can be used to reduce other operation expenses.

However, the average collection period of White Horse Berhad is shorter than the
industry average. It indicates that the company has less number of days taken to collect its
accounts receivable. This may be due to the company has a tighter collection period and
appropriate customer screening.

6
COMMON SIZE RATIO

2016 2017 2018

RM ‘000’ % RM ‘000’ % RM ‘000’ %
ASSETS
NON-CURRENT ASSETS
Property, plant and
463,145 38.32 442,880 39.97 433,695 41.50
equipment
Prepaid land lease
16,116 1.33 14,380 1.30 12,700 1.22
payments
Goodwill 677 0.06 677 0.06 677 0.06
Trade and other receivables 939 0.08 793 0.07 798 0.08

NET NON-CURRENT
480,877 39.79 458,730 41.40 447,870 42.85
ASSET

CURRENT ASSETS
Inventories 415,413 34.37 391,581 35.34 378,644 36.23
Right of return assets - - - - 1,804 0.17
Trade and other receivables 141,690 11.72 139,226 12.56 110,303 10.55
Other current assets 17,327 1.43 32,291 2.91 18,776 1.80
Tax recoverable 2,286 0.19 5,639 0.51 8,389 0.80
Investment securities 1,000 0.08 - - - -
Cash and bank balances 150,058 12.42 80,589 7.27 79,344 7.59

TOTAL CURRENT ASSET 727,774 60.21 649,326 58.60 597,260 57.15

TOTAL ASSETS 1,208,651 100 1,108,056 100 1,045,130 100

7
COMMENT ON COMMON SIZE RATIO

Looking at the performance of the current asset, there is a downward trend for the
whole three years with the lowest in 2018 at 57.15%. However, the non-current asset shows
the upward trend for the whole three years with the highest in 2018 at 42.85%. We can
implies here that when the company spent more on non-current asset, they will have less
money for current asset.

The most contributed for the upward trend is the property, plant and equipment. It
shows that the company is purchasing more property, plant and equipment and at the same
time, reducing the lease payment component. Most probably the company is relying less on
leasing agreement. Instead of leasing, they buy more their own asset. For other component
of non-current asset, there are very slightly increase and decrease between 0.01%.

Next, cash and bank balances is the main contributor for the downward trend on
current asset. The percentage is declining from the year 2016 to the year 2017 but a slightly
increase in 2018. The main reason for the declining is due to buying more property plant and
equipment and repayment of borrowings.

Other than that, other current asset slightly increase from 2016 to 2017 and slightly
decrease from 2017 to 2018. The increase in 2017 is caused by the company paid more
advances to suppliers of raw material and property, plant and equipment. The company also
made more prepayment on operating expenses. However, the decrease in 2018 is vice
versa to the increase in 2017.

Next, trade and other receivables also contribute for the downward trend on current
asset. This is due to the effect of the new accounting standard, MFRS 9. Lastly, for the other
component of current asset, there is insignificant increase and decrease from 0.03% to
0.17%.

8
9
CONCLUSION

Based on our findings, the performance of White Horse Berhad for the year 2018 has
declined compared to the year of 2016 and 2017. All of the ratio analysis above yielded to
poor result from the industry average except for the average collection period. In addition,
revenue for the company also has decreased over the past three years until it generates
losses in 2018. As a result, the year of 2018 has put the company in red position due to
lower revenue achieved, high operating expenses, foreign exchange loss and additional
provision of stock obsolescence.

The reasons to the decrease in revenue are mainly due to the slowdown in the
construction industry coupled with the stiff market competition in the tiles industry. Changes
in some accounting policies also has affected the company’s performance.

In our opinion, there is potential growth in the company’s performance. This is

evidenced by the company’s future plan for the year of 2019. Implementation of cost-saving
measures and stringent credit control will be intensified as well as improving product
efficiency and productivity. Besides that, the company is developing new products with
higher margins and introducing them to the market regularly to further enhance the
company’s profitability.

In order for the company to remain competitive in the market, the company focuses
on various range of products and produce high quality products. They maintain their
premium pricing over the other competitors through ongoing research and development
efforts as well as product innovation. Furthermore, to ensure that the product produced by
the company has met the customers’ needs and expectations, White Horse Berhad
appreciates and concerns about their customers’ feedback. By doing this, it may help the
company to improve their production and services provided in the future.

10
REFERENCES

 https://www.investing.com/equities/white-horse-bhd-ratios
 http://www.whitehorse.my/
 http://www.bursamalaysia.com/market/listed-companies/company-
announcements/6141597

11
APPENDIXES

FINANCIAL RATIO ANALYSIS FOR INDUSTRY AVERAGE

RATIO KIM HIN INDUSTRY BHD

(RM’000’)
Efficiency Ratio 78,489
i. Average Collection Period 402,726
360 days
Accounts Receivable
Annual Credit Sales = 70 days.
360 days
ii. Non-Current Asset Turnover 402,726
Sales 257,874
Net Non−Current Assets = 1.56 times.

RATIO LB ALUMINIUM BHD

(RM’000’)
Efficiency Ratio 130,665
i. Average Collection Period 509,790
360 days
Accounts Receivable
Annual Credit Sales = 92 days.
360 days
ii. Non-Current Asset Turnover 509,790
Sales 224,223
Net Non−Current Assets = 2.27 times.

RATIO ALCOM GROUP BHD

(RM’000’)
Efficiency Ratio 41,150
i. Average Collection Period 385,703
360 days
Accounts Receivable
Annual Credit Sales = 38 days.
360 days
ii. Non-Current Asset Turnover 385,703
Sales 69,609
Net Non−Current Assets = 5.54 times.

RATIO ES CERAMIC BHD

12
 (RM)
Efficiency Ratio 6,847,323
i. Average Collection Period 25,185,734
360 days
Accounts Receivable
Annual Credit Sales = 98 days.
360 days
ii. Non-Current Asset Turnover 25,185,734
Sales 19,810,913
Net Non−Current Assets = 1.27 times.

RATIO YI-LAI BHD

(RM)
Efficiency Ratio 28,939,883
i. Average Collection Period 117,736,178
360 days
Accounts Receivable
Annual Credit Sales = 88 days.
360 days
ii. Non-Current Asset Turnover 117,736,178
Sales 59,439,891
Net Non−Current Assets = 1.98 times.

13