School of Architecture, Building and Design

Foundation in Natural and Built Environment

Basic Accounting (ACC30205)

Assignment: Financial Ratio Analysis

Company Name: LBS Bina Group

Lecturer: Ms Tay Shir Men

Group Members:

Tan Jit Kim (0323854)

Loh Wen Jun (0323551)

Joshua Lim Sie Khai (0323959)

Alfred Loh Kai Xuan (0323581)

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Content

No Title Pages

1. Background study 3-4

2. Recent development 5

3. Profitability ratio 6-7

4. Financial stability ratio 8-9

5. P/E ratio 10-12

6. Investment recommendation 13

7. Appendix 14-23

8. Reference 24

Background Study

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LBS are an investment holding company. LBS build homes that meet the needs of Malaysians. Over 20 years, LBS has carefully gained a reputation for delivering proper-ties with the highest quality that inspire and enrich people from around the world. LBS are engaged in development of residential and commercial properties, Management and Investment, which is engaged in investment holding and provision of management ser-vices. Besides, LBS is also engaged in trading, which is trading in building material, in-surance agent, and selling of membership and covering insurance.

LBS have a high reputation in the construction industry. Not only is their technologies in the construction industry is the best but they are also insisting on continually improving their technologies. LBS is following the latest trend in the architectural world and also following the rising technologies in the world now. LBS have a vision and lives up to it which is they belief that Malaysians deserve homes of the finest workmanship. LBS started in 1960 when one man suddenly realised his dreams in starting a business in the construction industry. This man is Dato’ Seri Lim Bock Seng. Dato’ Seri Lim Bock Seng founded the construction business in Petaling Jaya, Selangor. Within a few years of start-ing their business,

LBS’ reputation in the construction industry began to raise a lot of clients vouched that their service is good. As their reputation rise, the scale of projects that they receive is big-ger. This established LBS as a reputable property developer. Several of its well publi-cised accomplishments were Taman Perindustrian Bukit Serdang Seksyen 14 in Selangor, jointly developed with the 1992 Thomas Cup champions, Taman Pinggiran Putra, Ser-dang and the township project at Bandar Saujana Putra. This trend of growth has seen LBS become a dominant player in Malaysia’s property sector. They have high hopes to spread its wings across the seas to China and hopefully the rest of the world. LBS FOUN-DATION is launched on the 6th of June 2015 as a consolidated corporate social responsi-bilities platform for the Group. It is aimed to strengthen the Group’s corporate social re-

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sponsibilities strategy as to improve the quality of life and to benefit the community at large.

VISION The vision of the LBS Group is to be an internationally recognized developer; building and inspiring delightful spaces that enhance community living. LBS Foundation is aspires to create a strong and harmony society through improving the well being of the community and promoting a sustainable development.

OBJECTIVES improving the quality of life of the community and carrying out the sus-tainable development

EDUCATION Creating a better nation through providing financial assistance and better learning environment to students and schools

COMMUNITY Building strong and harmony society by improving general well-being of the underprivileged group and promoting heritage, sports, arts and cultural

ENVIRONMENT Protecting and preserving environment through education and partner-ing programmes

HEALTH Improving the health and welfare of the needy group

Recent Development

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LBS build homes that meet the needs of Malaysians. For over 20 years, LBS has care-fully nurtured a reputation for delivering properties with unsurpassed quality that inspire and enrich. By insisting on continually improving not only construction technologies but also the very latest in architectural trends, LBS lives up to its belief that Malaysians de-serve homes of the finest workmanship.

Since then, the scenic lakes of Puchong, a habitat born of a vision of exquisite living for the privileged few, surrounded the township of D’ Island Residence. At a glance, D’ Is-land had been launched in 2011. The size of the land is around 175 acres and the land tenure, which is leasehold 99 years. The surrounding area of D’ Island is guarded which has 3 tiers to enhance the security and the safety of the residences living there. Besides that, the most common features and activities of D’ Island is that there is Landscape Lake with aquatic features, parking and jogging tracks and around the area there are also lake-side recreational facilities created for the residences. Last but not least, there are also planned commercial and retailed areas located around there. In addition, the accessibility of D’ Island of the four accessible highways, which are ELITE (Shah Alam to KLIA), SKVE (Klang to Kajang), LDP (Puchong to Damansara) and KESAS (Shah Alam to Am-pang) are also beneficial to the residences as they can have an easy access to the specific location.

There are also primarily education such as schools and university located within the dis-tance of D’ Island. Moreover, there are also renowned shopping mall and entertainment centre such as IOI mall, Tesco and Giant. D’ Island has unbelievably luxury homes amidst lush blooms and natural flora surrounding it. In other words, it is one of the finest quality home developments, further made unique due to its prime location, 15 minutes from the capital of Kuala Lumpur.

Profitability Ratio

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The following table shows the profitability ratio calculation and interpretation for LBS Bina Group Berhad in the year 2012 and 2013.

Profitability Ratios 2012 2013 Interpretation

Return On Equity (ROE)

=7.56%= 56.78%

In the of year 2012 the ROE is 7.65% and 56.78 in 2013.Higher ROE in the year 2013 compared to 2012 shows that the business of LBS Bina Group is earning higher returns of capital in 2013.

Net Profit Margin (NPM)

=7.65%=74.47%

The NPM for year 2012 is 7.65% and 74.47 for year 2013. NPM for LBS Bina Group has in-creased from the year 2012 and this indicates that LBS Bina Group reduces its overall ex-penses are low compared to the year 2012. Thus, this will result in higher net profit and shows that LBS Bina Group controlled their overall expenses better in 2013.A higher NPM is more likely to generate a higher ROE.

Gross Profit Margin Ratio (GPM)

=28.69% = 31.59%

In year 2012 the GPM is 28.69 and 31.59% in year 2013.This had proved that 2013 had better COGS expenses compare to year 2012. A higher gross profit that COGS expense is well managed. A low COGS will results in a higher gross profit, and a higher net profit margin (NPM) as well

General Expenses Ratio (GER)

=13.24%

GER for 2012 is 13.23%and 16.04% for 2013.This indicated that 2013 had a higher GER than 2012. This mean the general ex-penses are higher in 2013 com-pare to 2012.

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Financial Expenses Ratio (FER)

= 3.62%= 2.84%

The GER for the year 2012 is 3.62% and 2.84% for year 2013.In 2012 had a higher FER compare to 2013. This shows a higher amount of financial expenses in 2012.Thus, this mean that financial expenses in 2013 are well managed than 2012 and this will result a higher net profit margin (NPM) in 2013.

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Financial Stability RatioThe following table shows the financial stability ratio calculation and interpretation for LBS Bina Group Berhad in the year 2012 and 2013.

Liquidity Ratio 2012 2013 Interpretation

Working Capital Ratio (WCR)

927,829,389520,720,661

= 1.78: 1

925,492,766609,399,483

= 1.52: 1

For every RM1 of cur-rent liabilities, LBS has 1.78 of current asset to pay it off in 2012 and 1.52:1 in 2013.This shows that 2012 had a higher WCR compare to 2013.The business will facing some difficulties to pay the current liabili-ties because both of the ratio are less than 2:1.

Total Debt Ratio (TDR)

=63.29% = 56.58%

In 2012 63.29% if busi-ness assets is funded by liabilities In 2013, 56.58% of the business assets is funded by liabil-ities. For 2013 the TDR had been decrease by 6.71% from year 2012. Although both of the TDR is slightly above 50% but the business is still safe from bank-ruptcy because the range to face a higher rate of bankruptcy still far away

Inventory Turnover Ratio (ITR)

365÷

= 23 Days

365

= 20 Days

In year 2012 the business inventory turnover is 23 Days. In year 2013 the business inventory turnover is 20 Days. This show that the business can sell its goods at a faster rate by 3 Days compare to 2012.

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Interest Coverage Ratio (ICR)

18,457,247+39,003,43018,457,247

= 3.11 times= 27.2 times

In 2012 the business in-terest coverage ratio is 3.11 times. In 2013 the business interest cover-age ratio is 27.2 times. This means that the busi-ness in 2013 has enough profits to pay its interest expenses by 27.2 times compare to 2012, which had an increase of 24.09.

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Price Earning Ratio (P/E Ratio)

2012Basic earnings per share: 9.7Current share price: 0.86(0.86/0.097) = 8.9 times

2013Basic earnings per share: 96.09Current share price: 1.55(1.55/0.9609) = 1.6 times

The P/E ratio measures how expensive a share is. In the year 2012, the P/E ratio is 8.9 times while in the year 2013 the P/E ratio is 1.6 times. This means that the share in 2013 is less expensive compared to the share in the year 2012. A P/E ratio of 8.9 indicates that an investor will need to wait for 8.9 years to recover his investment.

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LBS Bina Group Bhd (5789.KL)

FTSE Bursa Malaysia KLCI (^KLSE)

Based on the graph above, it shows that the share price for LBS Berhad and index for FTSE Bursa Malaysia KLCI. Before determining whether to invest in either in a com-pany or a overall market share KLCI, which company has a better percentage over the time period from 31 December 2014 to 31 December 2015 must be understood. Hence, 4 different points of time will be viewed to determine the performance of both the graphs.

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First point of time, the share price for LBS Berhad is 1.6800 on 19 May 2015, and the in-dex for FTSE Bursa Malaysia KLCI is 1809.72. At 7 July 2015, the share price decrease to 1.6000 and the index decrease to 1712.30. The decrease of share price is (1.6000-1.6800)/1.6800 = -0.05%, whereas the index changes is (1712.30 – 1809.72)/ 1809.72 = -0.05%. This is to say that the performance of the company is equally balanced.

At 6 August 2015 the share price is 1.4800 and the index for FTSE Bursa Malaysia KLCI is 1694.64. At 1 September 2015, the share price decrease to 1.2800 and the index de-crease to 1609.21. The decrease of share price is (1.2800-1.4800)/1.4800 =-0.14%, whereas the index changes is (1609.21-1694.64)/1694.64 =-0.05%. This is to say that the performance of the company is worse than the index.

At 7 October 2015 the share price is 1.4100 and the index for FTSE Bursa Malaysia KLCI is 1689.25. At 6 November 2015, the share price increase to 1.4400 and the index increase to 1685.70. The increase of share price is (1.4400-1.4100)/1.4100 =0.021%, whereas the index changes is (1685.70-1689.25)/1689.25 =-2.1%. This is to say the per-formance of the company is better than the index.

At 26 November 2015 the share price is 1.3500 and the index for FTSE Bursa Malaysia KLCI is 1683.09. At 30 December 2015, the share price increase to 1.4400 and the index increase 1693.14. The increase of share price is (1.4400-1.3500)/1.3500=0.067%, whereas the index changes is (1693.14-1683.09)/1683.09=5.97%. This is to say the per-formance of the company is worse than the index.

By comparing the LBS Bina Group between with the overall market share for KLCI, LBS Bina Group share most of the time is dropping, while FTSE Bursa Malaysia KLCI there are some times where it dropped but not as bad as LBS Bina Group. Besides that,, the 4 point of time that has been calculated shows that LBS Bina is not recommended for investing in.

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Recommendation

According to our analysis and interpretation, the LBS Bina Group profitability ratio, the return on equity (ROE), net profit margin (NPM) and gross profit margin (GPM) has im-proved and showed positive signs for the business. Even though the general expenses ra-tio (GER) had increase from 13.24% to 16.04% between the year 2012 and 2013, but the overall profit had increased this shows that the business is profitable. Besides that, the Fi-nancial expenses ratio (FER) had decreased from 3.62 to 2.84 in between year 2012 and 2013, this mean that the financial expenses in 2013 are well managed. The ability of LBS Bina Group to pay off its current liabilities had slightly worsen from 1.78:1 to 1:52:1 this shows that the liabilities had increase, although it did not exceed the 2: 1 ratio. Besides that, LBS Bina Group’s total debt ratio (TDR) showed that its total debt has decreased by 6.71%, making it 56.58% in 2013. Although the TDR is slightly above 50% but the busi-ness still be safe from bankruptcy because the range to suffer a higher rate of bankruptcy still far away. For the inventory turnover, in year 2012 the turnover period is 23 days. However, it was faster by 3 days in 2013 to 20 days. This shows a good sign so that the company can pay off more cash to pay off its liabilities. Moreover, LBS Bina Group’s in-terest coverage ratio (ICR) is 3.11 times in 2012 and increase to 27.2 times in 2013, which had shown an improvement in the business’ ability to pay its interest expense.

LBS Bina Group’s profit had increased in 2013 compared to 2012. In other words, the company has demonstrated a decent profitability and financial stability and its shares are available at a cheap price to warrant an investment. In the year 2012, the P/E ratio is 8.9 times and it decreased to 1.6 times in year 2013. This indicated that the share price in 2013 is less expensive compared to 2012. Since the P/E ratio in year 2012 is 8.9 times, this shows that an investor will need to wait for 8.9 years to recover his investment. As for year 2013, the investor will only be waiting for 1.6 years to recover his investment.

Based on our analysis above, LBS Bina Group’s overall financial ratios are actually in-creasing all over the year although there are also some decreasing but it won’t affect much to the company because the profit are increasing all over the year, this show that it is a profitable business. In conclusion, it would be a good choice to invest in the LBS Bina Group due to the P/E ratio because the time taken for investor to recover their in-vestment is pretty short.

From our analysis to the share price of LBS Bina Group Berhad, the share price has de-crease most of the time in the year 2015.Futhermore, our country Malaysia is facing

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economy recession in 2015.Thus, it is not encouraged for investor to invest in LBS Bina Group Berhad in the year 2015 because the share price keep dropping most of the time in year 2015. In conclusion, it not may be a good choice to invest in this company in the year 2015.

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Appendix

Statements of Financial position (2012)

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Statements of Financial position (2012)

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Statements of Financial position (2012)

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Statements of Financial position (2012)

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Statements of Comprehensive Income (2012)

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Statements of Comprehensive Income (2012)

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Statements of Financial Position (2013)

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Statements of Financial Position (2013)

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Statements of Comprehensive Income (2013)

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Statements of Comprehensive Income (2013)

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References

1. http://www.lbs.com.my/about-us/corporate/overview-information/ (His-tory and Recent developments)

2. http://finance.yahoo.com/q?s=LBSB.KL&ql=1 LBS Bina Group Bhd (5789.KL) 3 . http://finance.yahoo.com/q;_ylt=AqyEOHZEmq3hZcMbSO5rh.nxVax_;_ylu=X3oDMTFhcG1zOX-E5BHBvcwMxMgRzZWMDeWZpU3ltYm9sTG9va3VwUmVzd-Wx0cwRzbGsDa2xzZQ--?s=%5EKLSE FTSE Bursa Malaysia KLCI (^KLSE)

4. https://attachment.fbsbx.com/file_download.php?id=974964365922845&eid=ASu3sS0v6_l1RpccSaIQk-YzoRCZhDs3Qx7T-f1Wot_HA4vaiGLg__YtIblXQghfsyvg&inline=1&ext=1454507761&hash=ASsQr-qccM-Hu8bd (LBS Bina Group Berhad Annual Report 2012).

5. https://attachment.fbsbx.com/file_download.php?id=1049066538485986&eid=ASssdrypjWMfmN5VZLLJsoSkbyH-SQtmkNKQEUIBpIJ0dCAJrAQPKDPXwvnJ0e4zWKE0&inline=1&ext=1454507780&hash=ASvW9PrKlEgOcFnJ(LBS Bina Group Berhad Annual Report 2013.)

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