Basic AccountingAssignment: Financial Ratio Analysis

Lecturer: Ms. Tay Shir Men

Group Members: Chloe Sim Tiing Ern (0322932)Ee Hui Teng (0322548)Lew Quo Ming (0322884)Fong Kah Yan (0322815)

Contents Page

Background Study 1

Recent Development 2

Profitability 3

Liquidity 4

Stability 4

Report 5-7

References 8

Background Study

MK Land Holdings Berhad is an investment company, which engages in investment holding and provides management services. The company was founded by Mustapha Kamal bin Abu Bakar and Kasi A/L K.L. Palaniappan on March 1, 1983 and is headquartered in Petaling Jaya Malaysia. MK Land’s activities include residential and commercial development, hotels, resorts, water theme park, education, and property investment. MK Land operates in multiple segments, namely the Property Development and Related Activities, Leisure, Educational, and Investment Holdings. Property Development and Related Activities segment involves in the development of mixed properties and related activities; The Leisure segment operates resorts, hotels, golf courses, and theme parks; The Educational segment provides educational services; The Investment Holding segment invests in subsidiaries and property investment.

Recent Developments

In 2015, MK Land Holdings BHD. will be launching 2 projects this year with a combined Gross Development Value of RM 600 mil and the estimation of launching this project will be in between April and June. The projects comprise serviced-apartments costing RM 450,000 onwards in Damansara Damai and apartments in Damansara Perdana, priced above RM 600,000 per unit. The product sales of the company had experienced a slowdown due to the switching of consumer’s interest from high-end properties to affordable properties. The company would balance its product mix in order to survive in the market where 70-80% of sales came from the Klang Valley and plan other affordable housing projects located at Meru Perdana, Klebang Putra and Lembah Beriah in Perak.

ProfitabilityProfitability Ratios 2012 2013 Interpretation

Return On Equity (ROE)Net Profit

AverageO /E×100 %

24,205,0001,067,759,500

×100 %=2.27 %40,345,0001,091,000,500

×100 %=3.70%During the period of 2012-2013, ROE has increased from 2.27% to 3.70%. This means that MK Land is getting more return from the capital in 2013 compared to 2012.

Net Profit Margin Ratio (NPM)

Net ProfitNet Sales

×100 %

24,205,000428,530,000

×100 %=5.65 %40,345,000468,239,000

×100 %=8.62 %During the period of 2012-2013, NPM has increased from 5.65% to 8.62%. This means that MK Land is better at handling their expenses in 2013 compared to 2012.

Gross Profit Margin Ratio (GPM)

Gross ProfitNet Sales

×100%

153,596,000428,530,000

×100 %=35.84 %176,579,000468,239,000

×100 %=37.71%During the period of 2012-2013, GPM has increased from 35.84% to 37.71%. This means that MK Land is getting better at controlling their cost of goods sold (COGS).

Selling Expenses Ratio (SER)

TotalSelling ExpensesNet Sales

×100 %

10,040,000428,530,000

×100 %=2.34 %11,766,000468,239,000

×100 %=2.51%During the period of 2012-2013, SER has increased from 2.34% to 2.51%. This means that MK is not getting better at controlling their selling expenses.

General Expenses Ratio (GER)TotalGeneral Expenses

Net Sales×100 %

66,052,000428,530,000

×100%=15.41%72,394,000468,239,000

×100 %=15.46 %During the period of 2012-2013, GER has increased slightly from 15.41% to 15.46%. This means that MK Land is not getting better at controlling their general expenses.

Financial Expenses Ratio (FER)Total Financial Expense

Net Sales×100 %

20,502,000428,530,000

×100 %=4.78 %20,269,000468,239,000

×100 %=4.33 %During the period of 2012-2013, FER has decreased from 4.78% to 4.33%. This means that MK Land is getting better in managing the financial expense.

LiquidityLiquidity Ratio 2012 2013 InterpretationWorking Capital Ratio (WCR)

Total Current AssetTotalCurrent Liabilities

1,013,852,000719,017,000

=1.41:1951,446,000639,694,000

=1. 49 :1During the 2012-2013 period, the WCR has increased from 1.41:1 to 1.49:1. This means that the business’ ability to pay current liabilities with current assets is getting better. However, it will experience difficulty in repaying its current liabilities because it does not have minimum of WCR 2:1.

StabilityStability Ratios 2012 2013 InterpretationTotal Debt Ratio (TDR)Total LiabilitiesTotal Assets

×100 %

896,383,0001,976,245 ,000

×100%=45.36 %845,978,0001,948,117,000

×100 %=43.43 %During the 2012-2013 period, the TDR has decreased from 45.36% to 43.43%. This means that the business’ total debts has reduced. Since it does not exceed 50%, it is considered low risk of going bankrupt.

Inventory Turnover Ratio (ITR)

365÷ Cost of Goods SoldAverage Inventory

365÷ 263,260,000119,493,500

=165.7 Days365÷ 291,660,000118,794,000

=148.7 DaysDuring the 2012-2013 period, the ITR has decreased from 165.7 days to 148.7 days. This means that the business is selling their goods at a faster rate.

Interest Coverage Ratio (ICR)Interest Expense+Net Profit

Interest Expense

20,502,000+24,205,00020,502,000

=2.18׿20,269,000+40,345,00020,269,000

=2.99׿During the year 2012-2013 period, the ICR has increased from 2.18 times to 2.99 times. The business’ ICR is below 5 times, which can result in bankruptcy. In 2013, the business has enough profits to pay its interest expenses 2.99 times.

Report

Based on the graph above is the stock graph of MK Land Bhd and KLCI on 30 July 2014 to 30 July 2015 from Yahoo Finance.

The share price of MK Land on 30th Jul 2014 is RM 0.51, it increased to RM 0.54, increased by0.54−0.51

0.51=0.059%. After that, it dropped to RM 0.52, which results in a

0.52−0.540.54

=−0.037 %

change. At the same time, the index from 1878.34 dropped to 1871.36

( 1871.36−1878.341878.34

=−0.0037 %), and then it increased to 1876.69(

1878.34−1876.691876.69

=0.0088 %).

The share price for Mk Land on 2nd Sept 2014 is RM 0.46 and then it dropped to RM 0.41, and the index dropped from 1830 to 1760. The changes in percentage of the share price is 0.41−0.46

0.46=−0.109 % and the changes of the index is

1830−17601760

=0.00398 %. However, at 8th

Sept, the share price increased from RM 0.41 to RM 0.47(0.47−0.41

0.41=0.146 %), and the index

increased from 1760 to 1855(1855−1760

1760=0.054 %). After experiencing a drop in the graph, the

graph rises again to a point higher than before.

From both of the points stated above, both MK Land and KLCI experience a drop simultaneously. Therefore, this is considered a normal occurrence.

The share price of MK Land on 5th Feb 2015 is RM 0.43, it increased to RM 0.47, and then it dropped

to RM 0.45. This shows an increase of 0.093% (0.47−0.43

0.43 ) and then a decrease of -0.0426% (

0.45−0.470.47 ). At the same time, the index 1803.09 increased to 1811.58(

1811.58−1803.091803.09

=0.0047 %), and then it dropped to 1789.07(1789.07−1811.58

1811.58=−0.0124).

Based on the increased and decreased points of the both graph, the share price and KLCI fluctuate frequently.

The share price for MK Land on 15th Dec 2014 is RM 0.30, and the index is 1650. On 22nd Dec 2015, the share price increased to RM0.45 and the index increased to 1850. The increase of share price is 0.45−0.30

0.30=0.5 %, whereas the index changes is

1850−16501650

=0.1212 %. This shows that the

performance of the company is better than the index because the increase in share price is greater than the increase in index.

In conclusion, the investment in MK Land for the year 2014-2015 is not recommended due to the fluctuation in graph. Even though the share price is higher in this period compared to the year 2012-2013, the graph is unstable and the decrease of share price is greater than the increase of it. Therefore, by looking at the graph, it is not recommended to invest in MK Land.

P/E Ratio of MK Land in Year 2012 and 2013

P/E Ratio= Price per shareEarning per share

MK Land`s share price in 2012 is RM 0.30 per share. It`s earning per share based on the year 2012 is RM 0.02. This means the company`s price or earnings ratio is equal to RM 0.30 divided by RM 0.02, which is 15.

P/E Ratio=0.300.02

=15.00

In 2013, the price per share is RM0.35, Its earnings per share in that year is RM 0.033. This means the company`s price or earnings ratio is equal to RM0.35 over RM 0.033, which is 10.61.

P/E Ratio= 0.350.033

=10.61

By interpreting the above share price, those ratio measures how expensive a share is. The higher the P/E ratio, the more expensive a share is. In the example above, a P/E of 15 means that the investor is required to wait for 15 years to recoup their investment. A lower P/E, 10.61, means the investor will have to wait less than 10 and half years to claim back their original principal. A conservative investor will normally pay no more than P/E of 15 for a share that they prefer. From the calculation above, we can see that the return of MK Land is getting shorter year by year. Therefore, MK Land have demonstrated good profitability, strong financial stability and it`s shares are available at a cheap price of P/E of 15 and even lower to warrant an investment. Therefore, MK Land Company is a high potential company to be invested in. The investment in MK Land for the year 2012 and 2013 is recommended.

ReferencesMK Land Holdings Bhd MKLAND (Malaysia). (2015). Retrieved November 16, 2015, from http://quotes.wsj.com/MY/MKLAND/company-people

EMIS - Mk Land Holdings Berhad Company Profile - Emerging markets. (2015). Retrieved November 16, 2015, from http://www.securities.com/php/company-profile/MY/Mk_Land_Holdings_Berhad_en_1662342.html

MK Land to launch 2 projects this year - Business News | The Star Online. (2015, March 5). Retrieved November 16, 2015, from http://www.thestar.com.my/Business/Business-News/2015/03/05/MK-Land-to-launch-2-projects-this-year/?style=biz