Summary

FINANCIAL MANAGEMENT II BBPW 3203

FACULTY OF BUSINESS & MANAGEMENT

SEMESTER MAY / 2015BBPW 3203FINANCIAL MANAGEMENT IIMATRICULATION NO: 820822065772001IDENTITY CARD NO.: 820822-06-5772MOBILE PHONE NO.: 016-338 2477E-MAIL

: junegsj2000@yahoo.co.ukLEARNING CENTRE: SHAH ALAM LEARNING CENTERTable of Contents

21Introduction

32Companies Financing Sources

63Comparison of the Companies Financing Sources

64Summary

1 Introduction(i) TH Plantations Berhad TH Plantations Berhad (THP) was established in Malaysia as a private limited company on 28th August 1972. On 26th May 2005, it was converted into a public limited company and assumed its present name of TH Plantations Berhad. THP was listed on the main market of Bursa Malaysia Securities Berhad on 27th April 2006.

The core activities of THP are investment holding, cultivation of oil palm, processing of fresh fruit bunches (FFB), marketing of crude palm oil (CPO), palm kernel (PK) and FFB and provision of management services. THP commenced operations in 1972 with the first plantation, Ladang Kota Bahagia in Pahang. Over the years, THP gradually expanded its land bank and to date, THPs land bank stands close to 110,000 hectares.

THP currently operates 36 oil palm estates in its stable spread throughout Malaysia as well as 3 rubber plantations in Sabah. THP also currently operates 7 palm oil mills with a total milling capacity of 250 metric tonnes per hour.(ii) Chin Teck Plantations BerhadChin Teck Plantations Berhad (Chin Teck)was incorporated as a limited company in Malaysia on 14 August 1958 under the name of Chin Teck Plantations Limited. On 1st October 1968, it was converted to a public limited company and assumed its present name. Chin Teck was listed on the Main Market of Bursa Malaysia Securities Berhad on 10 March 1970.

The core businesses of Chin Teckare cultivation of oil palms, process and sale of fresh fruit bunches, crude palm oil and palm kernel and is predominantly carried out in Malaysia.

The estates of Chin Teck in Malaysia are located at Mukim of Jimah, Daerah of Port Dickson, Negeri Sembilan Darul Khusus, Mukim of Ketil, Daerah of Gua Musang, Kelantan Darul Naim and Mukim of Keratong, Daerah Rompin, Pahang Darul Makmur.Chin Teck also participates in joint ventures on oil palm plantations in Indonesia. Besides that, Chin Teck also participates in joint venture on property development. 2 Companies Financing SourcesOne of the most important issues facing all businesses, whether a business in the start-up phase or well-established, is the obtaining of appropriate levels of financing. Whether it is needed for investing in land, buildings or equipment, hiring new employees, investing in inventory or moving into new markets, obtaining sufficient financing to accomplish these goals is a dilemma nearly all business owners face.Also when a business expands, keeping the cash flow healthy can be challenging, as financial pressures can be constant. There are few options of financing sources can be used by a company to provide financial relief for various business needs there are short, intermediate or long term financing. Short-term financing: Short term financing is business financing that usually obtain for a term of one year or less. It can be divided into four main categories, which are accruals, accounts payable, bank loans and commercial papers. Other sources of short-term financing are such as factoring, accounts receivable, inventory and bank overdraft. Intermediate-term financing: Intermediate term financing referred to borrowings with repayment schedules of between one and ten years with interest, usually by regular periodic payments is called term loan. Long-term financing: Long-term financing generally refers to financing with a maturity of more than five years. Long-term financing is often used to finance long-lives assets, such land or equipment, or construction projects. Long-term financing includes mortgage loans, bond and other.(i) TH Plantations BerhadTo identify the finance sources of TH Plantations, the financial report of year 2013 of TH Plantations was studied. From the equity of Balance Sheet there comprises of capital reserve and retained earnings. Capital reserve is a resource created by the accumulated capital surplus of TH Plantations. It was reserved for long-term capital investment projects or any other large and anticipated expenses that will be incurred in the future. This reserve fund was set aside to ensure that the TH Plantations has adequate funding to at least partially finance the project excluding any unforeseen circumstances. Few capital reserves were found in the balance sheet of TH Plantation, there are share capital, share premium and others reserves.Meanwhile, retained earnings was the sum of the TH Plantations profits that are not distributed to shareholders as dividends but are either reinvested in its core business or kept as a reserve for specific objectives such as to pay off a debt or purchase a capital asset. The figure shown under the heading retained earnings of the balance sheet is the sum of the all profits retained since TH Plantations inception.

TH Plantations use share option reserve as capital reserve method. The share option reserve comprises the cumulative value of employee services received for the issue of share options. When the option is exercised, the amount from the share option reserve is transferred to share premium. When the share option expire, the amount from the share option reserve is transferred to retained earnings. Other reserves are the reserves relates to fair value adjustment on initial recognition of financial instruments and adjustment to the premium of share issued for the acquisition of subsidiaries.Next, we also can find the financing sources of TH Plantation from its Liabilities which was also recorded under its Balance Sheet. Under non-current liabilities, there are loans and borrowings, deferred tax liabilities and trade and other payables. Meanwhile, under current liabilities there are loans and borrowings, trade and other payables, current tax payables and liabilities classified as held for sale.Loans and borrowings are borrowings that TH Plantation obtains from bank as a source of financing in exchange for future repayment of the principal amount along with interest. Two secured loan were taken by the subsidiaries of TH Plantations Group are secured over property plant and equipment (leasehold land). A secure loan is a promise to pay a debt, where the promise is secured by granting the creditor an interest in specific property belongings to the debtor. In the case the debtor defaults on the loan, the creditor can recover the money by seizing and liquidating the specific property used as collateral on the debt. Besides that, TH Plantations also obtained two medium term unsecured loan with Lembaga Tabung Haji in nominal value up to RM1.0 billion. This type of loan is a promise to pay a debt by replying on the creditworthiness and reputation of the borrower to repay the obligation. On the other hand, there was an amount of deferred tax liabilities recorded. Deferred tax liability is a kind of debt that has been accumulated over a period of time, but has not been paid yet due to the deductible temporary differences do not expire under current tax legislation. This deferred tax have not been recognized in respect of these items because it is not probable that future taxable profit will be available against which TH Plantations can utilize the benefits there from for certain companies as at 31st December 2013.In addition, there also an amount recorded under trade and other payables. Accounts payable is a form of finance generated from credit purchases and represents a major sources of unsecured short-term financing. This amount shown in TH Plantations Balance Sheet are the amount due to related companies is unsecured, no profit margin applied and stated at amortised cost. This amount is not expected to be repaid in the next twelve months.(ii) Chin Teck Plantations BerhadSame as TH Plantations, the equity of Chin Teck Plantations consist of share capital, share premium, other reserves and retained profits. Share capital is a type of capital reserves. It funds raised by issuing shares in return for cash other considerations. Share capital is a long-term source of finance. The amount of share capital a company has can change over time because each time a business sells new shares to the public in exchange for cash, the amount of share capital will increase. Meanwhile, share premium is the amount received by a company over and above the face value of its shares. Share premium is a non-distributable reserve. Chin Teck Plantations can use it only for the purposes that are defined in the bylaws of the company. Share premium can usually be used for paying equity related expenses such as underwriters fees. It can also be used to issue bonus shares to the shareholders. The cost and expenses relating to issuance of new shares can also be paid from the share premium. Other reserves comprises of asset revaluation reserve, foreign currency translation reserve and fair value adjustment reserve. Same as TH Plantation, Chin Teck Plantations reported an amount of trade payables and income tax payables under its current liabilities. It can served as a source of short-term financing as these monies will only be paid within 30 to 90 days terms. Chin Teck Plantations can utilise this trade payables amount to improve companys cash position. In additions, we also can find the deferred tax liabilities in Chin Teck Plantations balance sheet. As explained before, thia deferral arises because of timing differences between the accrual of the tax and payment of the tax. With these monies, Chin Teck Plantations use it as short-term fund for its daily operations.3 Comparison of the Companies Financing SourcesFrom the balance sheet, we can found that the amount of share capital of TH Plantations in year 2013 is higher than year 2012, which difference about RM76,073,000. The increase of share capital of TH Plantations may be due to selling of new shares to public is more higher in year 2013 in exchnage of cash. Meanwhile, for Chin Teck Plantation, the share capital are same for year 2013 and year 2012, which was reported an amount of RM91,363,00. If compared between these two companies, the share capital of TH Plantations in year 2013 is obviously higher about RM348,893,000 than Chin Teck Plantations. However, the share premium of TH Plantations has decreased by 13.76% from RM484,206,00 in year 2012 to RM417, 559,000 in year 2013. This decreasing in share premium was due to the TH Plantations used these monies to pay bonus shares to its members. The objectives of the bonus issue are predominantly to reward the shareholders for their continued support and also to enhance the marketability and trading liquidity of TH Plantations. Meanwhile, the share premium of Chin Teck Plantations was reported the same amount in year 2012 and year 2013, which was RM19, 654,000. However, if compared between these two compaines, a huge difference amount was reported in year 2012, which about 146% or RM464, 552,000. If compared with other reserve, TH Plantations has recorded a negative amount of RM82,557,000 in year 2013 while Chin Teck Plantations recorded an amount of RM11,467,000 in year 2013. The negative amount recorded in other reverse account of TH Plantation was due to adjustment on initial recognision of financial instruments and adjustment to the premium of share issued for the acquisition of subsidiaries. The retained profits of Chin Teck Plantations in year 2013 was recorded higher by 21.3% as compared with TH Plantations. Chin Teck Plantations distribute cash divident payments amounting to RM99,060,804 to its ordinary shareholders out of its entire retained profits. The remaining amount of the retained profits of RM349, 767, 055 may be distributed under its tax exampt income of RM11, 914,500 and under the single tier system of RM337,852,555. From the libiliaties record, we can see the payables amount of TH Plantations in year 2013 and year 2012 are very much higher than Chin Teck Plantations. The payables amount of TH Plantations has increased from RM470, 562,000 in year 2012 to RM997,513,000 as compared to year 2013. Meanwhile, the payable amounts of Chin Teck Plantations has also reported an increase of 17.26% if compared from year 2012 to year 2013. The payables amounts shown in TH Plantationss balance sheet could be due to the company invest larger sums of cash into its business as compared to Chin Teck Plantations. On the others hand, TH Plantations also recorded a very big amount of deferred tax liabilities in year 2013 if compared with Chin Teck Plantations. Where TH Plantations reported an amount of RM293,657,000 higher than Chin Teck Plantations. This amount was mainly due to the deferred tax that have not been recognised in respect of these items because it is not probable that future taxable profit will be available against which the TH Plantations can utilise the benefits there from for certain companies as at 31 December 2013. Same as to income tax payable, TH Plantations also recorded higher amount by 167% as compared to Chin Teck Plantations in year 2013. Which mean the amount of tax that need to be paid to government by TH Plantations is higher than Chin Teck Plantations. We can also conclude that TH Plantationss income is much higher than Chin Teck Plantations as the taxes are calculated based the companys net income according to its corporate tax rate. 4 SummaryTo identify the finance source of TH Plantations and Chin Teck Plantations, the financial report of year 2013 were studied. A few financial sources were identified from both companiess balance sheet. Examples are capital reserve, retained earnings, loans and borrownings, accounts paybles, deferred tax liabilities and income tax payables. As compared between these two companies, TH Plantations having more and stronger finance source than Chin Teck Plantations. Total of Words: 2,2807

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