Introduction

Section a of the report analyzes and compares the financial performance of Cocoaland Holdings Bhd and
Nestle, two prominent companies in the consumer goods industry. By examining key financial ratios
such as profitability, efficiency, liquidity, and gearing, we aim to evaluate the financial health and
stability of both companies. The analysis aims to provide insights into each company's ability to generate
profits, manage resources efficiently, meet short-term obligations, and handle debt. By understanding
their financial positions, investors can make informed decisions regarding investment opportunities and
assess the relative safety and potential for growth in these companies. Let us delve into the critical
appraisal and evaluation of the financial performance of Cocoaland Holdings Bhd and Nestle to
determine which company offers a more favorable investment proposition.

Section B will explore and critically appraise the significance of three functions of financial management,
aiming to determine which function holds greater importance in ensuring a company's sustainability. By
understanding the roles and interplay of these functions, organizations can make informed financial
decisions, mitigate risks, and foster long-term growth and stability. This examination will shed light on
the pivotal role of financial management and its functions in the success of companies, enabling
stakeholders to make informed decisions and strategic investments.

1.1 Cocoaland Holdings Bhd and Nestle financial performance

Heineken Malaysia Bhd
Ratios Formula Cocoaland Holdings bhd Nestle
Profitability
Net profit Net income /Net 21,838.9/216,246.2=10.1% 569.8/5,733.8=9.93%
margin Sales
Return on Asset Net income /Total 21,838.9/279,165=7.8/% 569.8/2,984.8=19.1%
assets
Efficiency
Receivable Net sales/net trade 210,299, / 35,868 =5.86 5,733.8/377.05=15.20
turnover receivables
Inventory COS/total inventory 155,715/39,480.7=3.9 3,775.6/745=5.1
turnover
Liquidity
Current ratio Current assets 163,791/ 31,502=5.2 1,139.9/1,928.4=0.59
/Current liabilities
Cash ratio Cash/current 80,615/ 31,502=2.56 6,898/1,928,428=0.003
liabilities
Gearing ratio
Debt to total Total debt / 35,844 /243,321.0=0.15 2,402.1/582.7=4.1
equity Total shareholders’
equity
Debt to total Total debt /Total 35,844 / 279,165.7=0.13 2,402.1/2,984.8=0.8
assets assets
Profitability

Profitability ratios provide insights into a company's ability to generate profits from its
operations.

Net Profit Margin

Cocoaland Holdings Bhd has a net profit margin of 10.1%, this indicates that for every dollar of
sales, Cocoaland Holdings Bhd generates a profit of 10.1 cents of a dollar. On the other hand,
Nestle has a slightly lower net profit margin of 9.93%, this suggests that Cocoaland Holdings
Bhd is more efficient in converting its sales into profits.

Return on Assets (ROA)

ROA measures how efficiently a company utilizes its assets to generate profits. Cocoaland
Holdings Bhd has an ROA of 7.8%, calculated by dividing net income by total assets. This
implies that for every dollar of assets, Cocoaland Holdings Bhd generates a return of 7.8 cents of
dollar. In comparison, Nestle has a higher ROA of 19.1%. This indicates that Nestle is more
efficient in utilizing its assets to generate profits.

Efficiency

Efficiency ratios assess a company's effectiveness in managing its resources.

Receivable Turnover

Cocoaland Holdings Bhd has a receivable turnover of 5.86, this suggests that Cocoaland
Holdings Bhd collects its receivables approximately 5.86 times a year. On the other hand, Nestle
has a higher turnover of 15.20, indicating that Nestle collects its receivables more frequently. A
higher receivable turnover ratio implies better credit collection efficiency for Nestle.

Inventory Turnover

Cocoaland Holdings Bhd has an inventory turnover of 3.9, calculated by dividing the cost of
sales (COS) by total inventory. This implies that Cocoaland Holdings Bhd sells and replenishes
its inventory approximately 3.9 times a year. In comparison, Nestle has a slightly higher
inventory turnover of 5.1. A higher inventory turnover ratio suggests that Nestle manages its
inventory more efficiently.

Liquidity

Liquidity ratios measure a company's ability to meet its short-term obligations.

Current Ratio

Cocoaland Holdings Bhd has a current ratio of 5.2, this indicates that Cocoaland Holdings Bhd
has a strong liquidity position, with 5.2 times more current assets than current liabilities. On the
other hand, Nestle has a lower current ratio of 0.59, suggesting lower short-term liquidity. A
higher current ratio generally signifies better ability to meet short-term obligations.

Cash Ratio

Cocoaland Holdings Bhd has a cash ratio of 2.56, this indicates that Cocoaland Holdings Bhd
has a relatively high level of cash reserves compared to its current liabilities. In contrast, Nestle
has a significantly lower cash ratio of 0.003, implying a lower ability to cover short-term
obligations with cash on hand. Therefore, Cocoaland Holdings Bhd is in a better position to meet
short-term liabilities with its cash reserves.

Gearing Ratio

Gearing ratios assess a company's level of debt and its ability to repay financial obligations.

Debt to Total Equity

Cocoaland Holdings Bhd has a debt-to-total-equity ratio of 0.15, this indicates that Cocoaland
Holdings Bhd has a relatively lower level of debt compared to its equity. Nestle, on the other
hand, has a higher ratio of 4.1, suggesting a higher level of debt in relation to its equity. A lower
debt-to-equity ratio implies a safer financial position with less reliance on borrowed funds.

Debt to Total Assets

Cocoaland Holdings Bhd has a debt-to-total-assets ratio of 0.13 this indicates that Cocoaland
Holdings Bhd has a lower level of debt in relation to its total assets. In contrast, Nestle has a
higher ratio of 0.8, suggesting a relatively higher level of debt. A lower debt-to-assets ratio
implies a lower financial risk and a stronger ability to repay debts.
Based on the analysis of these financial ratios, Cocoaland Holdings Bhd demonstrates strong
profitability, liquidity, and lower levels of debt compared to Nestle. However, Nestle
outperforms Cocoaland Holdings Bhd in terms of return on assets and efficiency in collecting
receivables and managing inventory. Considering the financial health check reports, Cocoaland
Holdings Bhd appears to be the safer investment option due to its stronger liquidity position,
lower debt levels, and higher profitability. However, it is important to consider other factors
beyond financial ratios when making investment decisions, such as industry trends, management
quality, competitive advantages, and future growth prospects. Conducting further research and
analysis on these factors will provide a more comprehensive evaluation before making any
investment decisions.

Part 2

To improve profitability, Nestle should focus on reducing unnecessary expenses, optimizing

supply chain operations, and negotiating better terms with suppliers. By conducting a thorough
expense review and streamlining the supply chain, Nestle can minimize costs without
compromising efficiency. Additionally, negotiating better deals with suppliers can lead to more
favorable pricing and credit terms. To enhance return on assets (ROA), Nestle should assess its
product portfolio and reallocate resources to high-margin products or introduce new products
with growth potential. Evaluating asset utilization and implementing practices like lean
manufacturing can further optimize ROA.

Efficiency can be improved through enhanced receivable turnover and inventory turnover. Nestle
should tighten credit collection processes, implement incentives for early payments, and conduct
regular credit checks to expedite receivable turnover. For inventory turnover, adopting just-in-
time (JIT) inventory management and refining demand forecasting can reduce holding costs and
optimize inventory levels.

To bolster liquidity, Nestle should focus on working capital management and short-term
financing options. Optimizing working capital by improving collection processes, negotiating
favorable payment terms with suppliers, and managing inventory efficiently can enhance
liquidity. Exploring short-term financing options like lines of credit or short-term loans can
provide additional liquidity during periods of cash flow fluctuations.

Regarding the gearing ratio, Nestle can carefully manage its debt levels by reviewing the existing
debt structure and considering refinancing or debt restructuring options. Strengthening the equity
position through strategies such as issuing new shares or retaining earnings can help reduce the
debt-to-equity ratio. Moreover, improving asset utilization and efficiency in asset management
can contribute to a better debt-to-assets ratio.

By implementing these strategies and tailoring them to its specific circumstances, Nestle can
enhance its financial position and improve overall performance. Regular monitoring and
evaluation of financial performance will help ensure the effectiveness of these measures.

The Three Main Functions of Financial Management

Financial Planning

Financial planning is a fundamental function of financial management that involves setting goals and
developing strategies to achieve them. It begins with forecasting future financial needs based on factors
such as market trends, business growth projections, and anticipated expenses. Financial planning also
involves estimating revenues and creating budgets to allocate resources effectively. One of the key
aspects of financial planning is cash flow management. By accurately predicting cash inflows and
outflows, a company can ensure it has enough liquidity to cover operational expenses, repay debts, and
invest in growth opportunities. Financial planning also helps in identifying potential risks and developing
contingency plans to mitigate them. Effective financial planning enables a company to make informed
decisions about resource allocation, expansion, and risk management. It provides a roadmap for
sustainable growth and helps ensure the long-term financial stability of the company.

Financial Control

Financial control focuses on monitoring and managing the financial activities of a company to ensure
compliance, minimize risks, and maintain accurate financial records. It involves establishing internal
controls, implementing accounting systems, and conducting regular audits. Internal controls are
essential for preventing fraud, errors, and mismanagement of funds. They include segregation of duties,
authorization processes, and checks and balances to safeguard assets and ensure the integrity of
financial transactions. Accounting systems play a crucial role in financial control by recording and
organizing financial data. Accurate and timely financial reporting is essential for decision making,
compliance with regulations, and demonstrating transparency to stakeholders. Regular audits, both
internal and external, provide an independent assessment of a company's financial records and
processes. They help identify any weaknesses or discrepancies and suggest corrective actions. Financial
control is vital for maintaining the trust of investors, creditors, and other stakeholders. It ensures that
financial resources are used efficiently, risks are minimized, and the company operates within legal and
ethical boundaries.

Financial Decision Making

Financial decision making involves evaluating investment opportunities, analyzing financial data, and
making strategic choices that impact the financial well-being of a company. It encompasses various
areas, including capital budgeting, capital structure management, and working capital management.
Capital budgeting entails assessing potential investments, estimating their financial returns, and
deciding whether to undertake them. It helps prioritize projects that align with the company's goals and
have the highest potential for profitability and growth. Capital structure management focuses on
determining the optimal mix of debt and equity financing. It involves analyzing the cost of capital,
assessing the company's risk tolerance, and balancing the need for external financing with the cost of
borrowing. Working capital management involves managing the company's short-term assets and
liabilities to ensure smooth operations and adequate liquidity. It includes managing inventory levels,
optimizing accounts receivable and payable, and maintaining an efficient cash conversion cycle. Financial
decision making is essential for allocating resources effectively and maximizing shareholder wealth. It
requires analyzing financial data, considering market conditions, and evaluating potential risks and
rewards.

Most feasible function

In terms of importance for ensuring a company's sustainability, all three functions—financial planning,
financial control, and financial decision making—are interconnected and vital. However, financial
planning can be considered the most crucial. Effective financial planning provides the foundation for
informed decision making and financial control. It helps identify the company's financial needs, allocate
resources appropriately, and adapt to changing market conditions. Without proper financial planning, a
company may face cash flow problems, excessive debt, or inadequate resources, leading to financial
instability and potential business failure. Financial control and decision making rely on accurate and
comprehensive financial planning to guide their processes effectively. By prioritizing financial planning, a
company can establish a solid financial framework, enhance its sustainability, and position itself for long-
term success.

What is finance

Finance is a field that deals with the management of money, investments, and financial resources. It
encompasses the study and practice of various activities, such as budgeting, investing, borrowing,
lending, and financial planning. Finance focuses on how individuals, companies, and institutions allocate
their financial resources, make financial decisions, and manage risks in order to achieve their financial
goals. It involves analyzing financial data, assessing investment opportunities, managing cash flows,
determining the optimal capital structure, and ensuring compliance with financial regulations. Finance
plays a critical role in both the corporate and individual contexts, providing the knowledge and tools
necessary to effectively manage money, make informed financial decisions, and enhance financial well-
being.

Importance of Finance to a Company

Strategic Decision Making

Finance provides companies with the necessary tools and information to make strategic decisions. It
helps assess the viability of potential business opportunities, evaluate market conditions, and determine
the optimal allocation of resources. Financial analysis enables companies to make informed choices
about mergers, acquisitions, diversification, and expansion, which can significantly impact their long-
term success.

Stakeholder Management

Finance plays a crucial role in managing relationships with stakeholders, such as investors,
shareholders, and creditors. It provides transparency and accountability through financial reporting,
allowing stakeholders to assess the company's performance and make informed decisions. Effective
financial management builds trust and confidence, enhancing the company's reputation and attracting
potential investors or partners.

Tax Planning and Compliance

Finance helps companies navigate the complex landscape of taxation. It ensures compliance with tax
regulations and optimizes tax planning strategies to minimize tax liabilities legally. Effective tax
management enables companies to allocate resources efficiently, reduce costs, and maximize profits,
contributing to their financial health and sustainability.

Importance of Finance to Individuals

Education and Career Planning

Finance equips individuals with knowledge and skills related to financial management, accounting, and
investments. It enables individuals to pursue careers in finance or related fields and enhances their
employability. Understanding finance is crucial for personal career planning, allowing individuals to
make informed decisions about educational investments and career paths that align with their financial
goals.

Entrepreneurship and Business Ventures

Finance is vital for individuals aspiring to start their own businesses or engage in entrepreneurial
ventures. It provides the foundation for securing funding, creating business plans, managing cash flow,
and making informed financial decisions. Sound financial management skills increase the likelihood of
success and sustainability for individuals venturing into entrepreneurship.

Economic Well-being and Financial Security

Finance plays a central role in an individual's economic well-being and financial security. It enables
individuals to manage their income, expenses, and savings effectively. Financial literacy and prudent
financial decision-making contribute to stability, resilience, and long-term wealth accumulation for
individuals and their families.

Estate Planning and Wealth Transfer

Finance helps individuals with estate planning, ensuring the smooth transfer of assets to future
generations. It involves the proper management of investments, retirement accounts, and insurance
policies to safeguard wealth and provide for beneficiaries. Through financial planning, individuals can
create strategies for minimizing taxes, preserving wealth, and securing their family's financial future.

Conclusion

The three main functions of financial management are financial planning, financial control, and financial
decision making. Financial planning involves projecting future financial needs, budgeting, and cash flow
management to ensure effective resource allocation and risk management. Financial control focuses on
establishing accounting systems, internal controls, and performing regular audits to maintain regulatory
compliance, minimize risks, and ensure the accuracy and reliability of financial transactions. Financial
decision making involves strategic allocation of funds, capital budgeting, capital structure management,
and working capital management to maximize returns and optimize the company's financial position.
While all three functions are crucial for a company's sustainability, financial planning emerges as the
most important function as it lays the foundation for sound decision making, effective budgetary
management, and adaptation to market realities. It supports prudent decision making, allocation of
resources, and adaptation to changing circumstances, making it indispensable for the long-term health,
stability, and prosperity of a company. Furthermore, finance plays a vital role in strategic decision
making, stakeholder management, tax planning, and compliance for both companies and individuals.
The understanding and application of financial knowledge empower individuals to manage their money
wisely and make informed decisions for their economic well-being and financial security.

Reference

COCOALAND Bhd, 2022. Annual Reports. Available at:

https://disclosure.bursamalaysia.com/FileAccess/apbursaweb/download?
id=216374&name=EA_DS_ATTACHMENTS

Nestle., 2021. CORPORATE GOVERNANCE & FINANCIAL REPORT 2021. Available at:
https://disclosure.bursamalaysia.com/FileAccess/apbursaweb/download?
id=214880&name=EA_DS_ATTACHMENTS