Analysing the data from two companies listed in the Kuala Lumpur Stock Exchange

The companies of same industries that I have chosen are London Biscuits Berhad and Apollo Food Holdings Berhad. I would wish to compare both of these companies ‘ public presentation and fiscal place by utilizing accounting ratio analysis. Accounting ratio consists of five types of ratio, which are profitableness ratio, liquidness ratio, plus use ( activity ) ratio, purchase ratio, and market value ratio. An accounting ratio analysis can supply meaningful comparings between two companies in the same industry.

2.0 Body

2.1 Profitability Ratio

Ratio

Formula

Gross Profit Margin

Net Net income Margin

Tax return on Total Assetss

Tax return on Common Equity ( ROCE/ROE )

Ratio

London Biscuits Berhad

Apollo Food Retentions Berhad

Gross Profit Margin

= 24.2 %

= 28.5 %

Net Net income Margin

= 8.1 %

= 15.5 %

Tax return on Total Assetss

= 0.038 = 3.8 %

0.113 = 11.3 %

Tax return on Common Equity ( ROCE/ROE )

= O.O98 = 9.8 %

= 0.126 = 12.6 %

Profitability ratio shows the overall efficiency and public presentation or a company. It determines the ability of a house to gain net income and return on investing. Gross net income border, net net income border, return on entire assets, and return on common equity ( ROCE/ROE ) are the elements that are included in profitableness ratio.

From the tabular array above, the gross net income border of Apollo Food Holdings Berhad, 28.5 % is higher comparison to London Biscuits Berhad, 24.2 % . Net net income border of London Biscuits Berhad, 8.1 % , is lower than Apollo Food Holdings Berhad, 15.5 % . This is because the net net income of London Biscuits Berhad is lesser than Apollo Food Holdings Berhad. Apollo Food Holdings Berhad has a higher return on entire assets of 11.3 % comparison to London Biscuits Berhad that merely has 3.8 % of return on entire assets. Besides that, the return on common equity of Apollo Food Holdings Berhad is besides higher than London Biscuits Berhad where Apollo Food Holdings Berhad is 12.6 % while London Biscuits is 9.8 % .

2.2 Liquidity Ratio

Ratio

Formula

Net Working Capital

Current Assets – Current Liabilitiess

Current Ratio

Acid-Test ( Quick ) Ratio

Ratio

London Biscuits Berhad

Apollo Food Retentions Berhad

Net Working Capital

RM109,188,926 – RM152,378,455

= -RM43,189,529

RM102,345,475 – RM8,009,467

= RM94,336,008

Current Ratio

= 0.717x

= 12.778x

Acid-Test ( Quick ) Ratio

= 0.313x

= 10.729x

Liquidity ratios province the ability of a house to pay off its short-run debts duties. There are some ratios that are contained in liquidness ratio, which are net working capital, current ratio, and acid-test ( speedy ) ratio.

The net working capital of London Biscuits Berhad is presented in negative sums, -RM43, 189,529. This is because the current liabilities of this company are more than current assets. Hence, the net working capital of London Biscuits Berhad is lower than Apollo Food Holdings Berhad, who has RM94, 336,008 of net working capital. Due to the large sum of entire liabilities, London Biscuits Berhad experience a lower current ratio, 0.717x, comparison to Apollo Food Holdings Berhad who experience 12.778x of current ratio. Lapp goes to acid-test ( speedy ) ratio ; Apollo Food Holdings Berhad has a higher acid-test ratio, 10.729x than London Biscuits Berhad, 0.313x.

2.3 Asset Utilization ( Activity ) Ratio

Ratio

Formula

Histories Receivable Employee turnover

Average Collection Period

Inventory Turnover Ratio

Fixed Asset Turnover

Entire Asset Employee turnover

Ratio

London Biscuits Berhad

Apollo Food Retentions Berhad

Histories Receivable Employee turnover

= 9.105x

= 7.639x

Average Collection Period

= 42.973 A» 43days

= 46.841 A» 47 yearss

Inventory Turnover Ratio

= 5.240x

= 8.517x

Fixed Asset Turnover

= 0.56x

= 1.278x

Entire Asset Employee turnover

= 0.446x

= 0.702x

Asset use ( activity ) ratio is used to find the expeditiously of a house in pull offing its assets. Ratios which are histories receivable turnover, mean aggregation period, stock list turnover ratio, fixed plus turnover, and entire plus turnover are considered as plus use ( activity ) ratio.

Due to the higher operating gross of London Biscuits Berhad, they experience a higher histories receivable turnover, 9.105x comparison to Apollo Food Holding Berhad who has 7.639x of histories receivable turnover. Besides that, the mean aggregation period of London Biscuits Berhad that is 43 yearss is faster than Apollo Food Retentions Berhad that is 47 yearss. However, London Biscuits Berhad has a lower stock list turnover ratio, 5.24x than Apollo Food Holdings Berhad, 8.517x. This is because the mean stock list of London Biscuits Berhad is more than Apollo Food Holdings Berhad.

The ratio of Apollo Food Holdings Berhad, 1.278x is higher than London Biscuits Berhad, 0.56x when comparing the fixed plus turnover. Furthermore, entire plus turnover of London Biscuits Berhad is somewhat lower than the entire plus turnover of Apollo Food Holdings Berhad, where London Biscuits Berhad experience 0.446x and Apollo Food Holdings Berhad sing 0.702x.

2.4 Leverage Ratios

Ratio

Formula

Debt Ratio

Debt/Equity Ratio

Timess Interest Earned ( Interest Coverage ) Ratio

Ratio

London Biscuits Berhad

Apollo Food Retentions Berhad

Debt Ratio

= 0.504 = 50.4 %

= 0.106 = 10.6 %

Debt/Equity Ratio

= 1.267x

= 0.118x

Timess Interest Earned ( Interest Coverage ) Ratio

= 2.887x

Leverage ratio is a type of ratio that is used to measure the ability of a house in utilizing its plus expeditiously in order to bring forth gross. Leverage ratio consists of debt ratio, debt/equity ratio, and times involvement earned ( involvement coverage ) ratio.

From the calculation above, we clearly seen than the debt ratio of London Biscuits Berhad is much higher than the debt ratio of Apollo Food Holdings Berhad, where the debt ratio of London Biscuits Berhad is 50.4 % , and the debt ratio of Apollo Food Holdings Berhad is 10.6 % . This is because the entire liabilities of London Biscuits Berhad are really high sums. Besides, London Biscuits Berhad ‘s debt/equity ratio, 1.267x, is higher than Apollo Food Holdings Berhad, 0.188x. Furthermore, the times involvement earned of London Biscuits Berhad are 2.877x, while Apollo Food Holdings Berhad is 0. This is because Apollo Food Retentions Berhad did non hold to pay any involvement due to they are non borrowing.

2.5 Market Value Ratio

Ratio

Formula

Net incomes per Share

Price/Earnings Ratio

Book Value per Share

Dividend Ratios

Dividend Output

Dividend Payout

Ratio

London Biscuits Berhad

Apollo Food Retentions Berhad

Net incomes per Share

= 0.188x

= 0.308x

Price/Earnings Ratio

= 6.064x

= 3.422x

Book Value per Share

= 2.290x

= 2.540x

Dividend Ratios

Dividend Output

Dividend Payout

= 18.98

= 106.38

The last ratio is market value ratio. These ratios are the ratios that relate the market monetary value of the house ‘s common stock to selected fiscal statement points. This ratio contains net incomes per portion, price/earnings ratio, book value per portion, and dividend ratios where dividend ratios divided into dividend output and dividend payout.

Net incomes per portion of Apollo Food Retentions Berhad are somewhat higher than net incomes per portion of London Biscuits Berhad, where the net incomes per portion of Apollo Food Retentions Berhad are 0.308x, and the net incomes per portion of London Biscuits Berhad are 0.188x. The preferable dividend of both companies is 0. However, the price/earnings ratio of London Biscuits Berhad, 6.064x, is higher than Apollo Food Holdings Berhad, 3.422x.

On the other manus, the book value per portion of London Biscuits is somewhat lower than Apollo Food Holdings Berhad, where the ratio of London Biscuits Berhad is 2.290x, while the ratio of Apollo Food Holdings Berhad is 2.540x. Due to the deficiency of dividends per portion of London Biscuits Berhad, I could non cipher the dividend output and dividend payout of London Biscuits Berhad. The dividend output and dividend payout of Apollo Food Holdings Berhad is 18.98 and 106.38 severally.

Restrictions or Problems of Accounting Ratio Analysis

There are some restrictions or jobs when utilizing accounting ratios for public presentation analysis. One of the chief restrictions is the information job. Some of the information such as involvement disbursals of Apollo Food Holdings Berhad, and dividend per portion of London Biscuit Berhad are non provided in their one-year study. Apollo Food Holdings Berhad ne’er list out their involvement disbursals. This is because they have no debt ; they does non borrow loan from the others. They do non see in paying involvement. Therefore, they ne’er provide their involvement disbursals. In add-on, there is a restriction when is some ratios are non measured definitively, and besides out of day of the month information that is listed in the fiscal statements. It is hard for us to do an accurate opinion from that information which is out-dated.

Normally, people will state that ratios are useless if they are non comparing with the ratios from comparable unit. Hence, we must compare both organisations that are in the same industry in order to hold realistic information. But, it is impossible to happen two organisations that are the same in every sense. What ‘s more, it is truly difficult to compare two organisations even both of them are in the same sector. This is because different organisation has different depreciation methods, different dividend policies, and different stock list rating methods. Furthermore, the size and accounting process of the organisations might different although the organisations that we choose are in the same industry. This job shows trickier to compare both organisations. This is one of the slippery ways to compare both London Biscuits Berhad and Apollo Food Holdings Berhad due to their difference.

Besides that, ratios entirely are non plenty. The ratios can non be taken as concluding regarding in warranting whether the fiscal place of the concern is good or bad. This is because the ratios are merely the indexs. Although ratios are helpful in measuring the effectivity of the concern, but it is merely utile when comparing with old consequences of the concern. These comparings merely provide the sight to the past public presentation of the organisation alternatively of the hereafter. Therefore, the anticipation for the organisation ‘s hereafter might non be proved right due to some of the factors that might impact the future operations.

Furthermore, the managers make their ain appraisals based on their past experience every bit good as some premises that are believed to be logical under the state of affairss. The appraisals and premises might impact the reported sums of assets and liabilities. The existent consequences might be different from those opinions and appraisals. What ‘s more, ratios that we used are merely reflects the consequences from the fiscal statements. However, it does non explicate the grounds that influence the concern scenes.

3.0 Decision

In decision, accounting ratio analysis is a utile tool in order to find the public presentation of the company. It can state us which company is stronger and which company is weaker if we compare both companies by utilizing accounting ratio analysis. Although accounting ratio analysis is utile, but it still have some restrictions or jobs. From the calculation that I ‘ve done, we clearly seen that the public presentation of Apollo Food Holdings Berhad in the twelvemonth 2010 is better comparison to the public presentation of London Biscuits Berhad.

4.0 Mentions

Unknown writer, unknown twelvemonth, accounting ratio/financial ratio, unknown patron of resources, viewed 8 March 2011, hypertext transfer protocol: //www.accountingformanagement.com/financial_statement_analysis_accounting_ratios.htm

Dennis, Michael C. 1995, The Limitations of Financial Statement Analysis, unknown patron of beginning, viewed 8 March 2011, hypertext transfer protocol: //www.allbusiness.com/accounting-reporting/reports-statements/490273-1.html

5.0 Bibliography

Lucy Rudnicka. 2009, Limitations of Financial Ratio Analysis, unknown patron of beginning, viewed 9 March 2011, hypertext transfer protocol: //ezinearticles.com/ ? Limitations-of-Financial-Ratio-AnalysisHYPERLINK “ hypertext transfer protocol: //ezinearticles.com/ ? Limitations-of-Financial-Ratio-Analysis & A ; id=3481750 ” & amp ; HYPERLINK “ hypertext transfer protocol: //ezinearticles.com/ ? Limitations-of-Financial-Ratio-Analysis & A ; id=3481750 ” id=3481750

Question 2

Identify and discourse three different ways for reassigning capital or fund from rescuers to borrowers in the fiscal market.

1.0 Introduction

From this web site, hypertext transfer protocol: //finance.mapsofworld.com/financial-institutions/ , we can cognize that fiscal establishments are those establishments that are involved in supplying different types of fiscal services and advices to their clients or clients. Most fiscal establishments are usually extremely regulated by the regulations and ordinances of authorities governments.

There are assorted types of fiscal establishments, such as commercial Bankss, recognition brotherhoods, common nest eggs Bankss or edifice societies that are considered as deposit-taking establishments. The chief maps of this establishment are such as accepting sedimentations, supplying loans, and publishing portion certifications. Besides that, pension financess and investing financess are besides the types of fiscal establishments.

Normally, most of the fiscal establishments are map as the mediators between the capital markets and debt markets. One of the maps of fiscal establishments is to reassign financess from investors to the companies that need it. It besides deals with a assortment of fiscal activities that are related to loans, insurance, bonds, investing and many other types of associated maps.

Different establishments have different maps. Here are some of the illustrations. For investing Bankss, fiscal establishments are map as underwriting securities, supplying securities firm services, and selling securities to investors. For stock exchanges and trade good markets, fiscal establishments are responsible in making and giving ownership for fiscal claims, keeping liquidness in the market and managing monetary value alteration hazards.

There are three different ways to reassign capital or fund from rescuers to borrowers in the fiscal market. The three ways are direct transportations of money and securities, investing banking house, and fiscal mediators.

2.0 Body

2.1 Direct Transportations

In concern country, direct transportations take topographic point when a house sells its stocks or bond straight to rescuers without traveling through any sort of fiscal establishment. Figure 1 shows the direct transportation between concern and rescuers. The houses are presenting its securities to rescuers. In return, houses will have the money or capitals that they need which are given by rescuers.

Figure 1

Besides concern, direct transportations can happen in our day-to-day life excessively. It is take topographic point when an person wants to borrow money from another person. For illustration, if I want to borrow money from you, you will impart me the money that you have saved. In short, this is the easiest manner to reassign the money and securities from one to another.

2.2 Investment Banking House

The 2nd manner to reassign the capital or fund from rescuers to borrowers is through investing banking house. It is a fiscal establishment that helps persons, houses and authoritiess in raising capital and financess. They act as the clients ‘ agent in the issue of securities in order to raise the capital.

Investment bank is different from commercial bank and retail bank as it does non take sedimentation. Besides that, investing bank might affect in some other concern such as planetary dealing banking, investing direction, merchandiser banking, and commercial banking. Investment bankers act as a important function in publishing new security offering. The investing Bankss provide services to both houses and investors or rescuers, where houses publishing securities and investors or rescuers purchasing securities. In this state of affairs, money is transfer from the rescuers to the borrowers.

From the figure above, we can clearly seen that the transferring of financess and capital between borrowers and rescuer. From here, we understand that the house selling its securities to the investing banking houses in order to acquire financess or capital. Then, the peculiar investing banking houses will sell these same securities to the rescuers. Therefore, the financess or capitals that the rescuers used to buy the securities will goes to the investing banking houses because they buy the stocks or bonds from the investing banking house. Overall, we can cognize that the houses ‘ securities and the rescuers ‘ money are merely go throughing through the investing banking house.

But, the investing bank is taking hazard if there do purchase and keep the houses ‘ securities for a period of clip. This is because they might unable to resell the securities to the rescuers for every bit much as they paid. This is due to the new securities are involved and the houses receives the net incomes of the sale. In this state of affairs, it is called a primary market dealing.

Besides that, investing bank are besides occupied in some other concerns, such as planetary dealing banking, investing direction, merchandiser banking, and commercial bank. Transferring of financess occur in planetary dealing banking. This is because it is the sector that offers hard currency direction, loaning, detention services, and securities securities firm services to establishments. The dealing between financess take topographic point when investing bank loaning to establishments.

2.3 Fiscal Mediators

Fiscal mediators are one another manner to reassign fund or capital from rescuers to borrowers. It is a fiscal establishment that plays the function as a “ jobber ” between rescuers and borrowers. There are some types of fiscal mediators, which are depository establishments, contractual economy establishments, and investing companies. Depository establishments contain commercial bank, salvaging and loan associations, common salvaging Bankss, and recognition brotherhoods. Contractual economy establishments consist of life insurance companies, fire and casualty insurance companies, and pension financess ; while investing companies include finance companies and common financess.

For illustration, a bank accepts financess from the people who have extra money and impart it to those with a deficiency of financess who need it. In simple word, fiscal mediators transfer the financess from rescuers to borrowers. This transferring might be in the signifier of loans or mortgages. For case, if there is a sale of a house, a bank frequently act as a fiscal mediator by supplying a mortgage to you if you want to purchase that peculiar house. Besides that, loans can be made straight through fiscal mediators. The ways that they provide in doing loans and traveling financess from a topographic point to another topographic point is much safer.

Due to the cooperation with legion of people and establishments, fiscal mediators are able to diversify their hazards that a individual individual could n’t. In add-on, this increases the safety. For illustration, I ‘m confronting to important hazards if I make a loan to you and you can non pay back to me. Conversely, if bank usage money that investors invested in it to makes loans, the consequence on investors is undistinguished if these loans go bad. This is because the hazards have been diversified. In brief, fiscal hazards can be diminished greatly by utilizing fiscal mediators.

Furthermore, fiscal establishments make the fiscal markets work. In our day-to-day life, many people and houses want to borrow money for their ain intent. Besides offering entree to financess that can be borrowed, these establishments will besides supplying loan service. Financial mediators will offer a unafraid topographic point for investing when people with extra money want to put it.

There are some Torahs and ordinances are designed in order to protect their members. Therefore, fiscal establishments are needed to follow with these designed ordinances. In tonss of state, establishments are needed to transport insurance in order to protect their people. In instance of there is anything happen, people with sedimentation financess will non lose them since the insurance will pay out on their claims. With the being of fiscal mediators, the efficiency of money and capital market is greatly additions.

3.0 Decision

In decision, it is easy to reassign financess or capitals from rescuers or investors to the borrowers by these three ways, which are direct transportation, investing banking house, and fiscal mediators. Besides holding this sort of service, investing banking house and fiscal mediators besides provide tonss of other services to clients, such as the services that related to insurance or investings. From here we can cognize that it ‘s truly easy and convenient for people.

4.0 Mentions

Unknown writer, unknown twelvemonth, Financial Institutions, unknown patron of beginning, viewed 3 March 2011, hypertext transfer protocol: //finance.mapsofworld.com/financial-institutions/

Bill Freehling. 2010, Commercial Bank vs. Investment House, Investor Word: Commercial Bank Definition, viewed 4 March 2011, hypertext transfer protocol: //www.ehow.com/about_6328681_commercial-bank-vs_-investment-house.html