accounting final project - financial ration analysis

Basic Accounting (ACC30205)

Assignment: Financial Ratio Analysis

FNBE MARCH 2015

Group Members: Adele Lu Khai Syn (0323151)

Kenneth Tan Sin Kwang (0322482)

Ng Sheng Zhe (0323830)

Goh Jia Jun (0323302)

Lecturer: Ms. Tay Shir Men

Contents Page

Background Study 3

Recent Development 4

Profitability 5

Liquidity 6

Stability 6

P/E Ratio 7

Report 8-9

Investment Recommendation 10

Appendix 11-19

References 20

BACKGROUND STUDY

LBS Bina Group Bhd. is a management and investment holding company in Malaysia,

which engages in the property development business. It is formerly known as Instangreen

Corporation Berhad and its date of incorporation is on 29 June 2000. It made its debut on

the Main Board of the Kuala Lumpur Stock Exchange (KLSE), known as Bursa Malaysia on 30 January 2002. The company provides management services to its subsidiary companies.

The company is founded by Dato’ Seri Lim Bock Seng on June 29, 2000 and is

headquartered in Petaling Jaya, Malaysia. He is assisted by his 5 children who are Tan Sri Lim

Hock San, Datuk Wira Lim Hock Guan, Dato’ Sri Lim Hock Sing, Datuk Lim Hock Seong and

Ms Lim Mooi Pang to expand his business. Tan Sri Lim Hock San is now currently the

managing director of the company and the other 4 siblings are the executive directors of the

company. LBS Bina Group Bhd’s activities include residential and commercial development, management, trading, insurance, tourism, construction, racing circuit.

The company operates through 5 major segments, namely the Property

Development, Management & Investment, Trading & Others, Construction, and Racing

Circuit. The Property Development segment involves development of residential, industrial

and commercial properties. The Management and Investment segment involves investment

holding and provision of management services. The Trading and Others segment involves

trading in building material, insurance agent, selling of insurance membership cards and

tourism development. The Construction segment involves building, project planning and

implementation contractor. The Racing Circuit segment involves motor racing circuit

development and management. Other business segments include selling of membership cards covering personal insurance and insurance agent.

The company has fully owned subsidiaries and non-fully owned subsidiaries. The

example of fully owned subsidiaries are Intel place Holdings Limited, Linkway Property Co.

Ltd, LBS Landscape Sdn Bhd, LBS Bina Holdings Sdn Bhd, Maju Kepunyaan Sdn Bhd, Saga

Serata Sdn Bhd, SPJ Construction Sdn Bhd and more. The example of non-fully owned

subsidiaries are ML Global Berhad, Zhuhai International Circuit Limited, Sepadan Maju Sdn

Bhd, Johan Anggun Sdn Bhd, Iringan Kejora Sdn Bhd, Pembangunan Primer Sdn Bhd, Prima Utuh Sdn Bhd and more.

RECENT DEVELOPMENT

One of LBS Bina Group Bhd residential projects is the D' Island Residence. It is a township

surrounded by the scenic lakes of Puchong. The concept of D' Island Residence is to build luxury

houses nestled amidst lush blooms and natural flora with complete serenity and security. The

residence is launched at 2011 and it is as huge as 175 acres. It features landscaped lake with aquatic

features, parks and jogging tracks and lakeside recreational facilities. The residence has several types

of houses such as 2 Storey Semi-Detached Home, Bungalow lots, Three-Storey Superlink and Three-

Storey Semi-D. The cheapest houses which are the 2 Storey Semi-Detached Home cost from RM1.5

million onwards with the Three-Storey Semi-D as the most expensive houses which cost for RM2.4

million onwards. Besides, D' Island residence is estimated to have tenure of five to seven years with

total Gross Development Value of RM3 billion. In addition, phases launched in the 2012 are closed

strongly with sale value of RM43.5 million. The residence also gained many awards such as the “Best

Urban Scenic Development” by the Malaysian Reserve and “Highly Commended: Development Marketing Malaysia” during the Asia Pacific Property Awards 2013.

LBS Bina Group Bhd will also be launching a new project called the Telok Gong Industrial Park in the

future. It is one of the master-planned industrial park in Telok Gong, Klang. The project types are 1 ½

Storey Semi Detached Factory, 1 ½ Storey Bungalow Factory and Single Storey Low cost factory. The

size of the project is 60.92 acres and it has a total of 96 units of buildings. The industrial park is

conceptualized as modern industrial zone with systematic layout and practical design of factory.

Furthermore, it will features organised site with proper access, attractive modern façade design

which enhance corporate image, multifunction design for factory, warehouse, showroom and office,

private security guard house, roller shuttle and gate and purpose built for fully function as industrial building.

PROFITABILITY

Profitability Ratios 2012 2013 Interpretation

Return On Equity (ROE)

𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑂/𝐸× 100%

39,003,430

516,690,656.5× 100% = 7.55%

397,323,654

699,735,858× 100%

= 56.78%

During the period of 2012-2013, ROE has increased from 7.55% to 56.78%. This means that LBS is getting more return from the capital in 2013 compared to 2012.

Net Profit Margin Ratio (NPM)

𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡

𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠× 100%

39,003,430

509,644,355× 100%

= 7.65%

397,323,654

533,532,722× 100%

= 74.47%

During the period of 2012-2013, NPM has increased from 7.65% to 74.47%. This means that LBS is better at handling their expenses in 2013 compared to 2012.

Gross Profit Margin Ratio (GPM)

𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡


146,227,906

509,644,355× 100%

= 28.69%

168,577,154

533,532,722× 100%

= 31.6%

During the period of 2012-2013, GPM has increased from 28.69% to 31.6%. This means that LBS is getting better at controlling their cost of goods sold (COGS).

Selling Expenses Ratio (SER) 𝑇𝑜𝑡𝑎𝑙 𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠


General Expenses Ratio (GER) 𝑇𝑜𝑡𝑎𝑙 𝐺𝑒𝑛𝑒𝑟𝑎𝑙 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠


67,470,147

509,644,355× 100%

= 13.24%

85,596,945

533,532,722× 100%

= 16.04%

During the period of 2012-2013, GER has increased slightly from 13.24% to16.04% This means that LBS is not getting better at controlling their general expenses.

Financial Expenses Ratio (FER)

𝑇𝑜𝑡𝑎𝑙 𝐹𝑖𝑛𝑎𝑛𝑐𝑖𝑎𝑙 𝐸𝑥𝑝𝑒𝑛𝑠𝑒


18,457,247

533,532,722× 100%

= 3.62%

15,170,850

509,644,355× 100%

= 2.84%

During the period of 2012-2013, FER has decreased from 3.62% to 2.84%. This means that LBS is getting better in managing the financial expense.

LIQUIDITY

Liquidity Ratio 2012 2013 Interpretation

Working Capital Ratio (WCR)

𝑇𝑜𝑡𝑎𝑙 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡

𝑇𝑜𝑡𝑎𝑙 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

927,829,389

520,720,661= 1.78:1

925,492,766

609,599,485= 1.52:1

During the 2012-2013 period, the WCR has decreased from 1.78:1 to 1.52:1. This means that the business’ ability to pay current liabilities with current assets is not getting better. However, it will experience difficulty in repaying its current liabilities because it does not have minimum of WCR 2:1.

STABILITY

Stability Ratios 2012 2013 Interpretation Total Debt Ratio (TDR)

𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠× 100%

908,176,834

1,435,008,317× 100%

= 63.29%

1,137,172,437

2,009812670× 100%

= 56.58%

During the 2012-2013 period, the TDR has decreased from 63.29% to 56.58%. This means that the business’ total debts has reduced. But it still exceed 50%, it is considered high risk of going bankrupt.

Inventory Turnover Ratio (ITR)

365 ÷𝐶𝑜𝑠𝑡 𝑜𝑓 𝐺𝑜𝑜𝑑𝑠 𝑆𝑜𝑙𝑑

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 365 ÷

363,416,449

15,721,777.5= 15.79 𝐷𝑎𝑦𝑠

365 ÷364,955,568

18,084,313= 18.1 𝐷𝑎𝑦𝑠

During the 2012-2013 period, the ITR has increased from 15.79 days to 18.1 days. This means that the business is selling their goods at a slower rate.

Interest Coverage Ratio (ICR) 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐸𝑥𝑝𝑒𝑛𝑠𝑒 + 𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡

𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐸𝑥𝑝𝑒𝑛𝑠𝑒

18,457,247 + 39,003,430

18,457,247= 3.1 𝑇𝑖𝑚𝑒𝑠

397,323,654 + 15,170,850

15 ,170,850= 27.19 𝑇𝑖𝑚𝑒𝑠

During the year 2012-2013 period, the ICR has increased from 3.1 times to 27.19 times. In 2013, the business has enough profits to pay its interest expenses 27.19 times.

P/E RATIO

LBS Bina Group in 2012 is RM0.84 per share. It’s earning per share is RM 0.097. This means

that the ratio of price-to-earning of this company is RM0.84 divided by RM 0.097

P/E 𝑅𝑎𝑡𝑖𝑜 = 0.84

0.097= 8.66

LBS Bina Group in 2013 is RM1.56 per share. It’s earning per share is RM 0.96. This means

that the ratio of price-to-earning of this company is RM1.56 divided by RM 0.96

P/E 𝑅𝑎𝑡𝑖𝑜 = 1.56

0.96= 1.625

The P/E ratio measures how expensive a share is. In the year 2012, the P/E ratio is 8.66

which mean the inventor needed to wait for 8.66 years to recoup their investment. In the

year 2013, the P/E ratio is 1.625 which means the inventor needed to wait for 1.625 years to

recoup their investment. Therefore the return of LBS Bina Group in 2012 is shorter than

2013. As a conclusion, it’s recommended to invest LBS Bina Group as it is a highly potential

company.

REPORT

Based on the graph above is the stock graph of LBS Bina Bhd and KLCI on 1st Jan 2015 to 31st December 2015 from Yahoo Finance.

The share price of LBS Bina Bhd on 17th April 2015 is RM1.50, it decreased to RM1.68 on

19th May 2015 which decreased by ( 1.68−1.50

1.50 = 0.12%). While the index is RM 1845.86 on

17th April 2015 and increased to RM1809.72 (1809.72 −1845 .86

1845.86 = -0.0196%) on 19th May 2015.

Hence, the performance of LBS Bina Berhad is better than the index.

The share price of LBS Bina Bhd on 5t Jun 2015 is RM 1.64, which increased to RM1.60 on

7th July 2015 (1.60−1.64

1.64= −0.024%) and the index is decreased from 1745.33 to 1712.30

(1712.30 −1745 .33

1745 .33= −0.0189%). Hence, the performance of LBS Bina Berhad is slightly worse

than the index.

The share price of LBS Bina Bhd on 6th August 2015 is RM1.48 while on 1st September 2015

it decreased to RM1.28 (1.28−1.48

1.48= −0.135%). The index on 6th August 2015 is 1694.64

that dropped to 1609.21 on the 1st September 2015 (1609.21−1694.64

1694 .64= -0.05%). Hence, the

performance of LBS Bina Berhad is worse than the index.

The share price of LBS Bina Bhd on 2nd September 2015 is RM1.34, which decreased to

RM1.51 on 23th September 2015 (1.51−1.34

1.34= 0.127%) and the index on 2nd September

2015 is decreased from 1590.19 to 1613.17 on 23th September 2015 (1613.17 −1590 .19

1590 .19=

0.0145%). Hence, the performance of LBS Bina Berhad is better than the index.

The share price of LBS Bina Bhd on 7th October 2015 is RM 1.41, which decreased to

RM1.45 on 11th November 2015 (1.45 −1.41

1.41= 0.028%) and the index on 7th October 2015 is

decreased from 1689.25 to 1665.32 on 11th November 2015 (1665 .32−1689 .25

1689 .25= −0.0141%).

Hence, the performance of LBS Bina Berhad is better than the index.

Based on both of the graphs above, the share price of LBS Bina Bhd and KLCI increases and

decreases simultaneously although there are times where KLCI’s share price will be

fluctuated. However, in the year 2015, the graph is unstable and the decreasing of the share

price is greater than the increasing of the share price. As a conclusion, the 5 points that was

shown above stated the investment in LBS Bina Berhad is not recommended.

INVESTMENT RECOMMENDATION

According to LBS Bina Berhad profitability ratio, the return on equity (ROE), net profit

margin (NPM) and gross profit margin (GPM) has improved and showed positive signs for

the business. Even though the general expenses ratio (GER) increase from the year 2012 to

the year 2013, the overall profit has indicated that the business is doing fairly well. LBS Bina

Berhad ability to pay off its current liabilities had slightly decreased from 1.78:1 to 1.51:1

but it still did not satisfy the 2:1 ratio of staying within the borderline of borrowing. Besides

that, LBS’s total debt ratio (TDR) showed that its total debt has decreased from 63.2% to

56.58% in 2013. Having the TDR in 2013 below 50% ensured that the business will not have

a higher risk of bankruptcy. Their stock turnover has taken a shorter period of time so they

are taking a shorter time to generate more cash quickly, making the business to be able to

pay off its liabilities. Moreover, LBS Bina Berhad interest coverage ratio (ICR) has also shown an improvement in the business’ ability to pay its interest expense.

LBS Bina Berhad earned more profit 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 cheaper price (P/E Ratio <8.7). An investor will need to wait for a period of

time that is 1.625 years (19.5 months) as of 2013 to recoup his investment. The company

has shown good promise in terms of their growth in revenue. As such, LBS Bina Berhad has

proven to be a stable company. So, LBS Bina Berhad’s share is worth to invest back then.

However, the graph of the share price of 2015 shows that LBS Bina Berhad is not making

profit as the economy in Malaysia is not stable and recession. It is not recommended to

invest LBS Bina Berhad.

APPENDIX

Financial Statement of LBS Bina Berhad for the year 2012

Financial Statement of LBS Bina Berhad for the year 2013

Balance Sheet of LBS Bina Berhad of the year 2012

Balance Sheet of LBS Bina Berhad of the year 2013

REFERENCES

- LBS Bina Group Bhd LBS (Malaysia). (n.d.). Retrieved February 01, 2016, from

http://quotes.wsj.com/MY/XKLS/LBS/company-people

- Equities. (n.d.). Retrieved February 01, 2016, from http://markets.ft.com/research/Markets/Tearsheets/Business-profile?s=LBS:KLS

- LBS Bina Group Berhad - Home.com.my. (2014). Retrieved February 01, 2016, from

http://www.home.com.my/article/lbs-bina-group-berhad

-LBS: D' Island Residence. (n.d.). Retrieved February 02, 2016, from

http://www.lbs.com.my/property-collections/residential/klang-valley/landed-property/d-island-residence/

- LBS: Telok Gong Industrial Park. (n.d.). Retrieved February 02, 2016, from

http://www.lbs.com.my/property-collections/commercial/klang-valley/mixed-development/telok-gong-klang/telok-gong-industrial-park/

http://quotes.wsj.com/MY/XKLS/LBS/company-people

http://markets.ft.com/research/Markets/Tearsheets/Business-profile?s=LBS:KLS

http://www.home.com.my/article/lbs-bina-group-berhad





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