Section A

Top Glove Corporation Berhad is the world's largest glove manufacturer and headquartered in Malaysia.
Top Glove was founded in Malaysia in 1991 by Tan Sri Dr Lim Wee Chai. In 1991, Top Glove was
founded with the goal of providing consistently high-quality gloves with high efficiency and low cost. At first it
was just a local company with 1 factory and 1 glove production line, has today commanding 26% of the global
rubber glove market. Besides, the company has manufacturing operations in Malaysia, Thailand, Vietnam, and
China. Over the years, Top Glove Corporation Berhad has grown exponentially. It also exports to more than
2,000 customers across 195 countries worldwide. Top Glove was listed on the Malaysian Bourse in August
2001 and Mainboard of the Singapore Exchange on 28 June 2016. In the past 20 years, Top Glove has shown
steady growth, with a compound annual growth rate (CAGR) of 23.1% and a compound annual growth rate of
after-tax profit of 28.2%. Top gloves provide a wide range of products, now including non-glove parts,
including condoms, masks, dental dams, exercise bands, and household products, which can meet the needs of
healthcare and non-medical healthcare. In accordance with its commitment to sustainable development, Top
Glove will continue to improve its level of practice in the ESG field, especially in labour practices.

Below is an example of Top Glove Corporation Berhad 2019- 2020 consolidated statement of profit or loss.
 This is the performance of the company as compared to previous year. A profit and loss statement, or
income statement is a type of financial report that provides a summary of the company's income, expenses, and
profit or loss during a given period. The company's income statement describes the situation over a period,
usually a month, a quarter, or a fiscal year. The main categories that can be found on the profit and loss include,
Revenue or Sales, Cost of Sales, Selling, General and Administrative Expenses, Marketing and Advertising,
Taxes, and Net Income. Looking at the above example consolidated income statement for Top Glove
Corporation Berhad, we see that Top Glove posted a gross profit of RM 2,850 million in FY2020 and a gross
profit of RM 884 million in FY2019. In addition, the revenue of Top Glove in FY2020 is RM 7,237 million
and RM 4,801 million in FY2019, which has demonstrated growth with a compound annual growth rate
(CAGR) of 51%. Then, its operating expenses consist of cost of sales, distribution and selling costs,
administrative and general expenses, finance costs and others. The cost of sales of RM 4,387 million in
FY2020 and RM 3,917 million in FY2019. Furthermore, the distribution and selling costs was increase 16%
comparing year 2020 over year 2019, RM 155 million in FY2020 and RM133 Million in FY2019. Moreover,
administrative and general expenses increased 87%, Year 2020 expenses RM 551 million and Year 2019
expenses RM 294 million. But the finance costs decrease 57%, finance cost in year 2020 RM 34 million and
RM 80 million in year 2019. Extraordinary strong performance is mainly due to high production utilization rate
improves production cost efficiency, which the profit after tax 386% grow up from 2019 to 2020. Profit net of
tax in FY2020 RM 1,789 million and FY2019 RM 368 million. This is due to the reason that Top Glove large
capacity capitalized on strong demand for gloves arising from the Covid 19 pandemic.

TOP GLOVE FY2020 FY2019 Comparing FY2020

over 2019
Revenue RM 7,237 million RM 4,801 million +51%

Profit before tax RM 2,166 million RM 424 million +411%

Profit net of tax RM 1,789 million RM 368 million +386%

Earnings per share 21.9 Sen 4.6 Sen +376%

(EPS)

Profitability Ratios
Profitability ratios are a set of measurements used to determine the ability of a business to create earnings.
One of the popular metrics used in financial analysis is profitability ratios. They are usually divided into two
categories- margin ratios and return ratios.
 Formula:
Gross profit margin = Gross profit / Sales
Net profit margin = Net Income / revenue
Return on capital employed= EBIT / (total assets – total current liabilities)

Profitability ratios for Top Glove Year 2020

Gross profit margin = (RM 2,850 million / RM 7,237 million) *100 = 39.38%

Net profit margin= (RM 1,789 million / RM 7,237 million) *100 = 25%

Return on capital employed (ROCE)

EBIT = Profit before tax + finance cost
RM 2166 million + RM 34 million= RM 2200 million
Total asset – current liabilities
RM 8706 million – RM 2133 million = RM 6573 million
ROCE for year 2020 = (RM 2200 million / RM 6573 million) * 100 = 33.5%

Profitability ratios for Top Glove Year 2019

Gross profit margin = (RM 884 million / RM 4,801 million) *100 = 18.41%

Net profit margin= (RM 368 million / RM 4,801 million) *100 = 7.66%

Return on capital employed (ROCE)

EBIT = Profit before tax + finance cost
RM 424 million + RM 80 million = RM 504 million
Total asset – current liabilities
RM 5688 million – RM 1592 million = RM 4096 million
ROCE for year 2019 = (RM 504 million / RM 4096 million) * 100 = 12%

We can measure gross profit for every Ringgit of sales by using gross profit margin. Company always
preferred a higher gross profit margin. A decrease in gross profit margin may indicate an increase in the
supplier’s costs or a decision to sell at a lower price. Otherwise, the increase in gross profit margin may reflect
better purchases from suppliers or an increase in selling prices. Gross profit margin for Top Glove in FY2020
was 39.38%, this means that for every ringgit of sales, it earns Gross profit 39 Sen. Gross profit margin
increased significantly by 21% year-on-year, from 18% in fiscal year 2019 to 39% in fiscal year 2020.
 Liquidity Ratios
A liquidity ratio is a type of financial ratio used to determine a company’s ability to pay its short-term debt
obligations. Liquidity ratios are divided into quick ratio and current ratio.

The quick ratio is a more stringent liquidity test than the current ratio. However, the quick ratio only considers
certain current assets.
Formula of quick ratio:
Quick Ratio = (Total Current Assets - Total Inventory) / Total Current Liabilities
Quick ratio for the Top Glove company Year 2020
= (RM 4,288 million – RM 531 million) / RM 2,133 million = 1.76

Quick ratio for the Top Glove company Year 2019

= (RM 1,779 million – RM 630 million) / RM 1,592 million = 0.72

In general, quick ratios between 0.5 and 1 are considered satisfactory, as long as the collection of receivables is
not expected to slow. However, the quick ratio only considers certain current assets. It considers more liquid
assets such as cash, accounts receivables, and marketable securities. Therefore, the quick ratio is more like a
real test of the company's ability to repay short-term debt.

The current ratio is a measure of short-term liquidity. We can find current assets and current liabilities line
items on a Top Glove’s balance sheet.
Formula of current ratio:
Current Ratio = Total current assets / Total current liabilities
Current ratio for the Top Glove company Year 2020
= RM 4,288 million / RM 2,133 million = 2.01

Current ratio for the Top Glove company Year 2019

= RM 1,779 million / RM 1,592 million = 1.12

The tells the owners of the Top Glove that current liabilities are covered by current assets 2.01 times. A
common rule of thumb is that a “good” current ratio is 2 to 1. Also, the current ratio can be improved by
increasing current assets or reducing current liabilities.
 Efficiency Ratios

The efficiency ratio is typically used to analyze how well a company uses its assets and liabilities internally.

The accounts receivable turnover ratio is an accounting metric used to quantify the effectiveness of a company
in collecting its accounts receivable or arrears from customers.
Formula and calculation of the receivable turnover ratio = Net credit sales / average account receivable (AAR)

Account receivable turnover for Top Glove year 2020:

Average account receivable (AAR) = (RM 799 million in year 2020 + RM 833 million in year 2019) / 2
Average account receivable (AAR) = RM 816 million

Top Glove Corporation Berhad has an account receivable turnover of:

RM 7237 million / RM 816 million = 8.87
This means accounts receivable turned over approximately 8.9 times during the year.

The accounts payable turnover ratio is a short-term liquidity measure used to quantify the company's payment
rate to suppliers.
Formula and calculation of the payable’s turnover ratio = Total supply purchases / average account payable

Accounts payable turnover for Top Glove year 2020:

Average account payable (AAP) = (RM 811 million in year 2020 + RM 492 million in year 2019) / 2
Average account payable (AAP) = RM 652 million
Total supply purchase = cost of sales + closing inventory – opening inventory
Total supply purchase = RM 4387 million + RM 531 million - RM 630 million
Total supply purchase = RM 4288 million

Top Glove Corporation Berhad has an account payable turnover of:

RM 4288 million / RM 652 million = 6.58
This means accounts payable turned over approximately 6.6 times during the year.
 Inventory turnover ratio is a financial ratio that shows the number of times a company sells and replaces
inventory in a given period. Besides, the company can then divide the number of days in the period by the
inventory turnover formula to calculate the number of days required to sell existing inventory.
Formula and calculation of the inventory turnover ratio = cost of sales / average value of inventory

Inventory turnover ratio for Top Glove

Cost of sales = RM 4387 million
Average inventory = (opening inventory + closing inventory) / 2
= (RM 531 million inventories in year 2020 + RM 630 million inventories in year 2019) / 2
= RM 580 million

Top Glove has an inventory turnover ratio of:

RM 4387 million / RM 580 million = 7.56

Lastly, Top Glove Corporation Berhad should invest in it because the future for this company will likely
continue to grow. Given the impact of the COVID-19 pandemic, it is not clear whether the industry profit pool
will expand in the next three years. Healthcare participants who develop new and innovative business models
will create disproportionate value in this environment, even if they face long-term challenges. In addition, Top
Glove has experienced steady growth over the past two years. Between 2019 and 2020, the company revenue
growth rate is roughly 51 percent. Hence, in my opinion this company should invest in it because higher ASPs
are in line with strong market demand. Besides, the net current assets have increased 1052% from the year 2019
RM 187 million to the year 2020 RM 2155 million. It will take time for the vaccine to be available globally.
Then, the application of vaccines will require more gloves.