CORPORATE FINANCE CORPORATE FINANCE (ADM 658) (ADM 658)

PREPARED BY:

NUR AMALINA ATIQAH HAMRI 2010154417

NUR IZZAH HAZIRAH AZMAN 2010937655

FARAH AINNA SARDON 2010733719

NUR AQILAH MAHADI 2010967787

BackgroundBackground Scientex berhad was incorporated in malaysia under the companies act, 1965 as

scientific textiles industries Sdn. Bhd. This company incorporated to

manufacture and market polyvinylchloride (PVC) leather cloth and sheeting.

This company’s core businesses are manufacturing and property development.

There are eight companies under manufacturing namely Scientex Packing Film

Sdn Bhd, PT. Scientex Indonesia and for property there are six companies

namely Scientex Quatari Sdn Bhd, Scientex Park (M) Sdn Bhd. While, the

manufacturing division consist of two business units namely packaging and

polymer. One of its property development projects, launched in early 2008 is

Scientex Kulai which comprises of 250 acres of residential and commercial

development. this is in line with Scientex’s strategy to develop strategically

located prime land within the Iskandar Malaysia growth in Johor.

FINANCIAL FINANCIAL RATIORATIO

1.1. Liquidity RatioLiquidity RatioLIQUIDITY RATIO 2012 2011

Current Ratio (CR)

CR = Current Asset (CA)

Current Liabilities (CL)

= 295,809,775

213,093,418

= 1.39 times

= 281,005,821

182,175,435

= 1.54 times

Quick Ratio (QR)

QR = (C.Asset – Inventory)

Current Liabilities

= (295,809,775 – 60,980,831)

213,093,418

= 1.10 times

= (281,005,821 – 67,763,202)

182,175,435

= 1.17 times

Net Working Capital (NWC)

NWC = C.Asset – C.Liabilities

= 295,809,775 – 213,093,418

= RM 82,716,357

= 281,005,821 – 182,175,435

= RM 98,830,386

CommentComment Current Ratio

Current Ratio is the firm’s ability to meet its short-term obligations. So we could

say that Scientex has $1.39 in current assets for every $1 in current liabilities, or

we could say that Scientex has its current liabilities covered 1.31 times over.

Quick Ratio

Quick Ratio is more conservative measure of liquidity than the current

ratio as it removes inventory from the current assets used in the ratio's

formula. By excluding inventory, the quick ratio focuses on the more-

liquid assets of a company.

Net Working Capital

Net Working Capital (NWC) is frequently viewed as the amount of short-

term liquidity a firm has or the firm’s overall liquidity.

2.Efficiency Ratio2.Efficiency RatioRATIO 2012 2011

Inventory turnoverITO = Cost of good sale

Inventory

703 224 494

60 980 831

= 11.53 / 12 times

644 721 905

67 763 202

= 9.5 / 10 times

Average collection periodACP = Acc. Receivables Sales x 365

124 053 653

881 024 778 x 365

= 51.4 / 51 days

105 497 383 804 022 790 x 365

= 47.8 / 48 days

Total Asser Turnover TATO = Sales Total asset

881 024 778 809 042 208

= 1.09 times

804 022 790

725 075 346

=1.11 times

CommentComment Inventory turnover

Inventory turnover refers to the measures of the company‘s efficiency in turning its inventory into sales.

The firm turns over its inventory 12 times in year 2012 compare to 10 times in 2011.

Generates more sales per ringgit of inventory than the previous year and we can assume the firm uses

very efficient inventory-ordering and cost-control methods.

Average collection period

Average collection period refers to the average amount of time needed to collect account receivables.

The average collection period in 2012 is 50 days compared to the year 2011 which is 48 days.

Shows the inefficiency of the company to collect its own debt and the weakness of the collecting debt

policy.

Total asset turnover

Refers to the effectiveness with which a firm’s management uses its assets to generate sales.

The total asset turnover for 2011 is 1.11 times compared to 2012 which is 1.09.

Indicate that the company may have unsold inventory and may be finding it difficult to sell its products

fast enough.

3. Debt Ratio3. Debt RatioRATIO 2012 2011

Debt RatioDR = Total liabilities X 100 Total Assets

= 249,338,782 X 100

809,042,208

= 30.82 %

= 218,953,801 X 100

725,075,346

= 30.20 %

Debt to Equity RatioDTER = Long term debt Total equity

= 5 000,000

559,703,426

= 0.00893

= 10 000,000

506,121,545

= 0.01976

Time Interest EarnedTIE= EBIT Annual interest expense

= 107,612,971

19,299,717

= 6 times

= 97,437,245

16,521,830

= 6 times

CommentComment Debt Ratio

The debt ratio compares a company's total debt to its total assets, which is used

to gain a general idea as to the amount of leverage being used by a company.

The lower the percentage, the less leverage a company is using and the

stronger its equity position. In general, the higher the ratio, the more risk that

company is considered to have taken on. The calculation show that debt ratio in

2012 is 30.82 % which slightly more debt compared to 2011 (30.20 %).

Debt Equity Ratio

This ratio is not a pure measurement of a company's debt because it includes

operational liabilities in long term debt. This easy-to-calculate ratio provides a

general indication of a company's equity-liability relationship and is helpful to

investors looking for a quick take on a company's leverage. The debt equity ratio

in table show that the debt to equity ratio in 2011 is better than 2012 which is

0.01976 compared to 0.00893 respectively.

Times Interest Earned

Times interest earned ratio indicates the number of times that income before

interest and taxes covers the interest obligation. It is a long-term solvency ratio

that measures the ability of a company to pay its interest charges as they

become due. The higher the ratio, the stronger the interest paying ability of the

firm. The calculation show that time interest earned in 2011 (34 times) is higher

than 2012 (27 times).

4. Profitability Ratio4. Profitability RatioRATIO 2012 2011

Gross Profit Margin

GP = Gross Profit

Sales

177,800,284

881,024,778

=20.18%

159,300,885

804,022,790

=19.81%

Operating Profit Margin

OPM = Operating Profit

Sales

107,612,971

881,024,778

=12.2%

97,437,245

804,022,790

=12.12%

Net Profit Margin

NPM = Net Income

Total Asset

87,869,016

881,024,778

=9.98%

80,118,419

804,022,790

=9.96%

RATIO 2012 2011

Return on Total Asset

ROA = Net income

Total Asset

87,869,016

809,042,208

=10.86%

80,118,419

725,075,346

=11%

Return on Equity

ROE= Net income

Shareholder Equity

87, 869,016

559,703,426

=15.7%

80,118,419

506,121,545

=15.85%

CommentComment Gross Profit Margin

For Scientex Berhad, in 2012 20.18% of the sales revenue was gross

profits. This fell to 19.81% in 20011. A fall in this ratio means that for

every RM1 of sales generated by the firm, less profit will be earned. It

certainly does not mean that profits are falling.

Operating profit margin

Operating profit margin for Scientex Berhad in 2012 is 12.2% meanwhile in 2011 is

12.12%.Thus 2012 shows a higher value of operating margin which indicates that

more proportion of revenue is converted to operating income. This means that the

profitability in the company is improving

Net profit margin

For Scientex Berhad, the net profit margins between the two year are similar which

is 9.98% in 2012 and 9.96% in 2011. This mean that, for every RM1 of sales 9.98

and 9.96 net profit was generated.

Return on total asset

In 2012, Scientex Berhad shows 10.86% of Return on Total Asset while in

2011 is 11.05%. Thus higher values of return on assets which in in 2011

show that business is more profitable.

Return on equity

For Scientex Berhad, the return on equity for 2011 is 15.7% while in 2012 is

15.8% which is a little different between the year. In general, the higher the

percentage, the better, with some exceptions, as it shows that the company

is doing a good job using the investors' money.

RecommendationRecommendation

Implement the tight credit policy and credit terms.

Increasing the promotion and selling of the company product.

Increase sales volume through marketing to achieve economies of scale and

reduce purchase cost, or renegotiate purchase term with existing suppliers.

The company should increase their net income -this can be done by

investing in heavy cost reduction throughout the company and increasing

revenue or sales through marketing efforts.

To achieve the preferable debt ratio, the company must have the maximum

normal value which is 60% - 70%.

When examining the health of a company, it is critical to pay

attention to the debt/equity ratio.

For most companies the maximum acceptable debt-to-equity ratio

is 1.5-2 and less.

ConclusionConclusion We can conclude that ratio analysis allows the analyst to compare a

company’s performance to that of others in its industry. There are

four main groupings of ratios. Liquidity ratios measure the firm’s

ability to pay of short-term obligations as they come due, and

efficiency ratios tell the analyst how quickly the firm is turning over

its accounts receivables, inventory, and longer-term assets. Debt

ratios indicates the overall position of the firm in like of its assets

base and earning power. While, profitability ratios measure the firm’s

ability to earn and adequate return on sales, assets, and

stokeholders’ equity. Therefore, Scientex Berhad shows ups and

downs in their financial analysis throughout the year.