Financial Ratio Assignment

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Financial Ratio. Individual Assignment UITM
Financial Management (Universiti Teknologi MARA)
StuDocu is not sponsored or endorsed by any college or university

Downloaded by Minh Huy?n Nguy?n (huyen4085@gmail.com)
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INTRODUCTION
Financial ratios is an accounting data restated in relative terms in order to help

people identify some of the financial strengths and weaknesses of a company.
Financial ratios give us two ways of making meaningful comparisons of a firm’s
financial data which is we can examine the ratios across time to compare a firm’s
current and past performance and compare the firm’s ratios with those of other firm.
Financial analysis is about more than reviewing financial statements, it can be

used both to evaluate historical performance and to serve as the basis for making
projections about and improving future financial performance. The analysis helps to
see critical relationships that might not otherwise be readily identifiable. Ratios are
used to standardize financial information so that it can make comparisons.
Otherwise, it is difficult to compare the financial statements of two firms of different
sizes or even the same firm at different times.
In comparing a firm with other companies, we could select a peer group of

companies or we would use industry norms published. For this individual
assignment; ratio analysis, I choose two company that have same sector which is
consumer goods and services; household good to do trend analysis and cross-
sectional analysis which is Panasonic Manufacturing Malaysia Berhad and Lii Hen
Industries Bhd.
Panasonic Malaysia Sdn Bhd is company engaged in the business of sales,

service and marketing for the Panasonic brand of electrical and electronic consumer
and business solutions. It has a long standing presence for more than 30 years since
it was first established.
Lii Hen Industries Bhd is engaged in the manufacturing and sale of furniture. Its
products include bedroom sets, occasional products, utility products, sofa sets, buffet
and hutch products, dining furniture and others. In addition, the company is also
involved in Plantation and other segments.
From this both companies, I will compare a company’s financial ratios with its
ratios in previous years and company’s financial ratios with those of its industry. I will
choose two ratios under each category which is liquidity ratio, activity ratio, leverage
ratio and profitability ratio.
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TREND ANALYSIS
PANASONIC MANUFACTURING MALAYSIA BERHAD
Liquidity Ratio
Used to measure a firm’s ability to meet its short-term obligations. Whether or not
the company can pay or meet its short term obligation when they come due.
 Current ratio
How many dollars of short-term assets are available for every dollar of short-term
liabilities owed. This ratio indicates a company’s liquidity by comparing its current
assets to its current liabilities.
2016 2017 2018

Current asset 2,893,762 3,204,819 3,485,958
Current liabilities 2,483,340 2,712,063 3,097,935
1.16 times 1.18 times 1.12 times
Based on rule of thumb, this company has the ability to meet its short term
obligations the creditors of the company (>1).
In 2016, Panasonic Manufacturing Malaysia Berhad ratio is 1.16 times, means that
the current asset for 2016 is more than current liabilities. The current asset for 2017
is more than current liabilities which is 1.18 times. Its become decrease for the year
2018 which is 1.12 times because the current asset less than current liabilities and it
show that 2018 is slightly less liquid than 2016 and 2017.
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 Quick ratio
By subtracting inventories and prepaid expenses, this ratio will measure the firm’s
ability to meet its short-term obligations without having to rely on its inventories and
prepaid expenses. This ratio is a more stringent measure of liquidity than the current
ratio because it excludes inventories and other current assets which is those that are
less liquid from current asset.
2016 2017 2018

Current asset - 2,893,762 - 3,204,819 - 3,485,958 -
Inventory 769,650 806,309 988,609
Based on rule of thumb, this company still can meets its short term obligations
without considering its inventory (>1).
Based on the table below, it shows that the quick ratio for 2016 is 0.85 times and
0.88 times for 2017 which is the worse. In 2018, it slightly less liquid because it has
0.8 times after excluded items of inventories in current debt. This company unable to
meets its short term obligation. The longer the time it takes to convert the asset into
cash, the less liquid the asset.
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Activity Ratio
Measure how effective the company is managing its assets to generate a sales.
 Inventory Turnover
How quickly the company is selling its inventory. This ratio measures the number of
times a firm’s inventories are sold and replaced during the year, that is, the relative
liquidity of the inventories.
2016 2017 2018

Cost of Good Sold 5,367,667 5,157,163 5,642,952
Inventory 769,650 806,309 988,609
Based on rule of thumb, this company unable to convert its inventory into salable
product (<1). Higher ratios reflect this firm is rapidly converting its inventory into
sales.
As we can see from 2016 to 2018 this company shows decrease in inventory
turnover. In 2016, this company can sell inventory for 6.97 times. In 2017, this
company can sell inventory for 6.39 times. This is shows that the company rapidly
convert its inventory into sales 5.7 times for 2018
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 Total asset turnover

How efficiently the the company is using its assets to generate sales. This ratio is an
overall measure of asset efficiency based on the relation between a firm’s sale and
the total asset.
2016 2017 2018

Sales 7,626,305 7,343,707 7,982,154
Total Asset 5,488,024 5,982,961 6,291,148
Based on rule of thumb, this company efficient to generate sales from asset (>1).
Higher ratios reflect this firm is efficient in generating sales from assets.
As the table shows, the company asset turnovers decrease from 2016 to 2018. In
2016, total asset turnover for this company is 1.38 times and has ability to generate
sales from assets. In 2017, the company total asset turnover is decrease to 1.22
times which is the lowest if compared between 2016 and 2018 because it assets far
less efficiently. In 2018, it increase to 1.26 times which mean that it has high
operating return on assets.
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Leverage Ratio
Measure the extent to which a firm is using debt financing and the degree of safety
that the firm provides to the creditors.
 Debts Ratio
Tell us what percentages of firm’s assets are financed with borrowing. This ratio
measures the extent to which a firm has been financed with debt.
2016 2017 2018

Total Debts 3,840,791 4,223,026 4,408,863
Total Asset 5,488,024 5,982,961 6,291,148
69.9% 70.5% 70%
Higher ratios reflect the firm’s creditors have supplied for more than half of the firm’s
total financing (≥50%). The higher the debt ratio, the more financial risk the firm is
assuming.
Based on the company, in 2016, the total debt is 69.9% it higher than 2017 which is
70.5%. The total debt for 2018 is 70% of its assets with debt. This means that, this
company more rely on debt financing because it more than 50%.
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 Debt Equity Ratio

How much debt the company is using to support its business compared to how much
stockholders’ equity is using to support its business.
2016 2017 2018

Long Term Debts 1,357,451 1,510,963 1,310,928
Stockholders’ Equity 1,647,233 1,759,935 1,882,285
Based on rule of thumb, this company relies on equity financing (<1), which is good.
In this company, the debt equity ratio is below than 1 from year to year which is good
because the company relies on equity financing. In 2016, the company debt equity
ratio is 0.82 times and increases to 0.85 times in 2017, but it still in a good condition.
In 2018, the company debt equity ratio is 0.69 times which is the lowest if compared
to the financial statement for three year.
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Profitability Ratio
A parameter that is used to assess a business’s ability to generate earnings
compared to its expenses and other relevant costs incurred during a specific period
of time.
 Return on Equity
Amount of profit earned on each dollar invested by stockholders: measures
management’s efficiency in using stockholders’ funds. This ratio is the accounting
rate of return earned on the common stockholders’ investment.
2016 2017 2018

Net Income 191,233 172,442 252,027
11.6% 9.7% 13.3%
In short, the return on equity is driven by the difference between the operating return
on assets and the interest rate and how much debt is used, as measured by the debt
ratio. Higher ratios reflect the firm able to earn return on the money that the
shareholder has invested.
The table shows below, the company return on equity in 2016 is 11.6% and it
decrease to 9.7% in 2017 which is not good because the company unable to earn
return on the money that shareholder has invested. In 2018, the return on equity is
increase to 13.3% which is the higher if compared between 2016 and 2017.
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lOMoARcPSD|10838638
 Return on Asset
Amount of profit earned on each dollar invested in assets measures managements
efficiency in using asset.
2016 2017 2018

Net Income 191,233 172,442 252,027
Total Asset 5,488,024 5,982,961 6,291,148
3.4% 2.8% 4%
The company able to generate of net profit by using its assets. In 2016, the return on
asset is 3.4% and it decrease to the 2.8% at 2017. In 2018, return on asset is
increase to 4%.
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TREND ANALYSIS
LII HEN INDUSTRIES BHD.
Liquidity Ratio
Used to measure a firm’s ability to meet its short-term obligations. Whether or not
the company can pay or meet its short term obligation when they come due.
 Current ratio
2016 2017 2018

Current asset 261,734,387 267,463,871 268,750,621
Based on rule of thumb, this company has the ability to meet its short term
obligations the creditors of the company (>1).
In 2016, Lii Hen Industries Bhd. ratio is 2.4 times, means that the current asset for
2016 is more than current liabilities. The current asset for 2017 is 2.3 times because
the current asset less than current liabilities and it show that 2017 is slightly less
liquid than 2016 and 2018. Its become increase for the year 2018 which is 2.4 times
which is current asset is more than current liabilities.
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 Quick ratio
least liquid from current asset.
2016 2017 2018

Current asset - 261,734,387 - 267,463,871 - 268,750,621 -
Inventory 63,007,035 88,200,407 89,260,567
Based on rule of thumb, this company still can meets its short term obligations
without considering its inventory (>1).
Based on the table below, it shows that the quick ratio for 2016 is 1.8 times and 1.5
times for 2017 which is better because it more than 1. In 2018, it slightly more liquid
because it has 1.6 times after excluded items of inventories in current debt. This
company able to meets its short term obligation. The shorter the time it takes to
convert the asset into cash, the more liquid the asset.
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Activity Ratio
Measure how effective the company is managing its assets to generate sales.
2016 2017 2018

Cost of Good Sold 477,876,508 559,544,567 664,053,703
Inventory 63,007,035 88,200,407 89,260,567
Based on rule of thumb, this company unable to convert its inventory into salable
product (<1). Higher ratios reflect this firm is rapidly converting its inventory into
sales.
As we can see from 2016 to 2017 this company shows decrease in inventory
turnover. In 2016, this company can sell inventory for 7.5 times and 6.3 times for
2017. In 2018, this company can sell inventory for 7.4 times.
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How efficiently the the company is using its assets to generate sales. This ratio is an
the total asset.
2016 2017 2018

Sales 623,459,650 717,534,990 801,218,510
Total Asset 388,229,689 422,737,787 456,218,510
Based on rule of thumb, this company efficient to generate sales from asset (>1).
Higher ratios reflect this firm is efficient in generating sales from assets.
As the table shows, the company asset turnovers increase from 2016 to 2018. In
2016, total asset turnover for this company is 1.6 times which is the lowest if
compared between 2017 and 2018 because it assets far less efficiently. In 2017, the
company total asset turnover is increase to 1.69 times and it increase to 1.75 times in
2018 which has high operating return on assets. However, this company has ability
to generate sales from assets because asset turnover more than 1.
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Leverage Ratio
Measure the extent to which a firm is using debt financing and the degree of safety
that the firm provides to the creditors.
 Debts Ratio
2016 2017 2018

Total Debts 124,098,909 134,677,283 130,150,613
Total Asset 388,229,689 422,737,787 456,121,295
31.9% 31.8% 28.5%
Higher ratios reflect the firm’s creditors have supplied for more than half of the firm’s
total financing (≥50%). The higher the debt ratio, the more financial risk the firm is
assuming.
As we can see, the company debt ratio is decrease from 2016 to 2018. In 2016, the
total debt is 31.9% it highest if compared between 2017 and 2018. The total debt for
2017 is 31.8% of its assets with debt and the debt ratio for 2018 is 28.5%. This
means that, this company not rely on debt financing because it less than 50%.
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2016 2017 2018

Long Term Debts 16,947,874 18,722,058 21,765,653
Based on rule of thumb, this company relies on equity financing (<1), which is good.
In this company, the debt equity ratio is below than 1 from year to year which is good
because the company relies on equity financing. In 2016, 2017 and 2018, the
company debt equity ratio is 0.06 times which is no changes for three years.
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Profitability Ratio
A parameter that is used to assess a business's ability to generate earnings
compared to its expenses and other relevant costs incurred during a specific period
of time.
2016 2017 2018

Net Income 288,060,504 70,729,724 74,810,178
27.6% 24.5% 22.9%
In short, the return on equity is driven by the difference between the operating return
on assets and the interest rate and how much debt is used, as measured by the debt
ratio. Higher ratios reflect the firm able to earn return on the money that the
The table shows below, the company return on equity in 2016 is 27.6% and it highest
if compared between 2017 and 2018 which is it better and has more attractive return.
In 2017, the company return on equity is decrease to 24.5% and 22.9% in 2018
which is not good because the company unable to earn return on the money that
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lOMoARcPSD|10838638
 Return on Asset
Amount of profit earned on each dollar invested in assets measures managements
2016 2017 2018

Sales 73,129,670 70,729,724 74,810,178
Total Asset 388,229,689 422,737,787 456,218,510
18.8% 16.7% 16.4%
The company able to generate of net profit by using its assets. In 2016, the return on
asset is 18.8% and it decrease to the 16.7% at 2017. In 2018, return on asset is
decrease to 16.4%.
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CROSS-SECTIONAL ANALYSIS
Below calculates and compares ratios of Panasonic Manufacturing Malaysia Berhad

to ratios Lii Hen Industries Bhd. within industry.
 Current Asset
Panasonic Manufacturing Lii Hen Industries Bhd.

Malaysia Berhad (2018) (2018)
Current asset
2,893,762 268,750,621
Current liabilities
2,483,340 108,384,960
1.16 times 2.4 times
In 2018, Panasonic Manufacturing Malaysia Berhad current asset is slightly less

liquid than Lii Hen Industries Bhd. Panasonic Manufacturing Malaysia Berhad has
only 1.16 times in current assets in short term debt, compared to Lii Hen Industries
Bhd. current ratio of 2.4 times. But if compared both company, the higher current
ratio shows the stronger company and the current ratio for Lii Hen Industries Bhd. is
higher than Panasonic Manufacturing Malaysia Berhad within the same industry.
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 Quick ratio
least liquid from current asset.

Current asset - Inventory
3,485,958 - 988,609 268,750,621 - 89,260,567
Current liabilities
3,097,935 108,384,960
0.8 times 1.6 times
As shows in a table above, Lii Hen Industries Bhd. has higher quick ratio which is 1.6
times in 2018 and can meet it short term obligation after excluded inventory. If
compared to the company with the same sector which is Panasonic Manufacturing
Malaysia Berhad, the quick ratio is 0.8 times which is it not good and unable to meets
its short term obligation.
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Cost of Good Sold
5,642,952 664,053,703
Inventory
988,609 89,260,567
5.7 times 7.4 times
Here we see that the Panasonic Manufacturing Malaysia Berhad is moving its
inventory much more slowly than Lii Hen Industries Bhd. which is 5.7 times.
Compared to Lii Hen Industries Bhd. which is 7.4 times. This assumes that
Panasonic Manufacturing Malaysia Berhad is barely less liquid than Lii Hen
Industries Bhd. However, if compared to industry average, this company able to
meet it short obligation.
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How efficiently the company is using its assets to generate sales. This ratio is an
the total asset.

Sales
7,982,154 801,218,510
Total Asset
6,291,148 456,218,510
In 2018, as we can see if compared the both company between Lii Hen Industries
Bhd. and Panasonic Manufacturing Malaysia Berhad asset. The Lii Hen Industries
Bhd. turnover is 1.75 times which is more efficiency and using its assets to generate
sales rather than Panasonic Manufacturing Malaysia Berhad that only generate sales
of 1.26 times.
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 Debts Ratio

Total Debts
4,408,863 130,150,613
Total Asset
6,291,148 456,121,295
70% 28.5%
The Lii Hen Industries Bhd. debt ratio is 28.5% of its assets with debt compared with
Panasonic Manufacturing Malaysia Berhad’s 70%. This is show that Panasonic
Manufacturing Malaysia Berhad is the higher debt ratio and more financial risk the
firm is assuming and this make it costly for the firm to borrow additional funds.
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Long Term Debts Malaysia Berhad (2018) (2018)
Stockholders’ Equity 1,310,928 21,765,653

1,882,285 325,970,682
Here we can see that this both company closely have a similar amount. Panasonic
Manufacturing Malaysia Berhad debt equity ratio is 0.69 times. Lii Hen Industries
Bhd. debt equity ratio is 0.06 times. This both company are rely more on debt.
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Net Income
252,027 74,810,178
Stockholders’ Equity
1,882,285 325,970,682
13.3% 22.9%
In 2018, return on equity for Panasonic Manufacturing Malaysia Berhad and Lii Hen
Industries Bhd. are 13.3% and 22.9%. Hence, the Panasonic Manufacturing
Malaysia Berhad is receiving a lower return on their equity investment than the
shareholders of Lii Hen Industries Bhd. Lii Hen Industries Bhd. is higher ratios reflect
the company able to earn return on the money that the shareholders has invested.
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 Return on Asset
Amount of profit earned on each dollar invested in assets measures management’s

Sales Malaysia Berhad (2018) (2018)
Total Asset 252,027 74,810,178

6,291,148 456,218,510
4% 16.4%
As shows in table above, the return on asset for Panasonic Manufacturing Malaysia
Berhad is 4%. If compared to Lii Hen Industries Bhd. is 16.4% which is the both
company able to generate of net profit by using its assets.
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CONCLUSION
Financial ratios are the principal tool of financial analysis, sometimes referred to
simply as benchmarks; ratios standardize the financial information of firms so that
comparisons can be made between firms of varying sizes.
Financial ratios provide a popular way to evaluate a firm’s financial performance.

However, when evaluating a company’s use of its assets to create firm value, a
financial ratio analysis based entirely on the firm’s financial statements may not be
enough.
Panasonic Manufacturing Malaysia Berhad and Lii Hen Industries Bhd. is the
company from consume product and service; household sector that I choose to do a
trend analysis and cross-sectional analysis for this assignment.
Panasonic Manufacturing Malaysia Berhad for quick ratio is shows poor

performance and unable to meet short obligation. For debt ratio, this company more
rely on debt financing because it more than 50%. Total asset turnover for this
company is efficient in generating sales from assets. The current assets for Lii Hen
Industries Bhd show that current asset is more than current liabilities. So, it has
ability to meet it short term obligations. Last but not least, for return on equity, Lii
Hen Industries Bhd. is not good or worse because the company unable to earn return
on the money that shareholder has invested.
My recommendation about both company which is Panasonic Manufacturing

Malaysia Berhad and Lii Hen Industries Bhd. are need to do some improvement in
conducting a business especially in financial statement. This is because both
company are able to gain better and more profit. Next is both company should rely
more on equity. This is because if rely more on debt its have a opportunities to get
more risk and attractive rather than rely more on equity.
So, both company Panasonic Manufacturing Malaysia Berhad and Lii Hen
Industries Bhd. have their own advantages and disadvantages based on their
companies system to conduct the financial statement. Thank you.
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REFERENCES
Annual Report - IR Library - IR Information - About Us. (n.d.). Retrieved from

https://www.panasonic.com/global/corporate/ir/annual.html.
Business Segments. (n.d.). Retrieved from

https://www.panasonic.com/global/corporate/profile/segments.html.
LIIHEN (7089): LII HEN INDUSTRIES BHD - Overview. Retrieved from

https://klse.i3investor.com/servlets/stk/7089.jsp.
LIIHEN Share Price Movement. (n.d.). Retrieved from

https://www.malaysiastock.biz/Corporate-Infomation.aspx?securityCode=7089.
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lOMoARcPSD|10838638

Financial Ratio. Individual Assignment UITM

Financial Management (Universiti Teknologi MARA)

StuDocu is not sponsored or endorsed by any college or university

Financial ratios is an accounting data restated in relative terms in order to help

Financial analysis is about more than reviewing financial statements, it can be

In comparing a firm with other companies, we could select a peer group of

Panasonic Malaysia Sdn Bhd is company engaged in the business of sales,

Downloaded by Minh Huy?n Nguy?n (huyen4085@gmail.com)

2016 2017 2018

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2016 2017 2018

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2016 2017 2018

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 Total asset turnover

2016 2017 2018

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2016 2017 2018

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 Debt Equity Ratio

2016 2017 2018

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2016 2017 2018

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2016 2017 2018

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2016 2017 2018

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2016 2017 2018

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2016 2017 2018

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 Total asset turnover

2016 2017 2018

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2016 2017 2018

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 Debt Equity Ratio

2016 2017 2018

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2016 2017 2018

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2016 2017 2018

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Below calculates and compares ratios of Panasonic Manufacturing Malaysia Berhad

Panasonic Manufacturing Lii Hen Industries Bhd.

In 2018, Panasonic Manufacturing Malaysia Berhad current asset is slightly less

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Panasonic Manufacturing Lii Hen Industries Bhd.

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Panasonic Manufacturing Lii Hen Industries Bhd.

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 Total asset turnover

Panasonic Manufacturing Lii Hen Industries Bhd.

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Panasonic Manufacturing Lii Hen Industries Bhd.

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 Debt Equity Ratio

Panasonic Manufacturing Lii Hen Industries Bhd.

Stockholders’ Equity 1,310,928 21,765,653

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Panasonic Manufacturing Lii Hen Industries Bhd.