Financial Analysis Of Open University Malaysia Finance Essay

Introduction

In this survey, Open University Malaysia ( OUM ) has been discussed. This was to look into and presume that the projection for net income and loss, balance sheet and hard currency flow for OUM for the following 3 old ages. At the same times, it besides discussed about the capital construction, working capital direction, fiscal instrument and criterion costing and discrepancy analysis for director to fix a fiscal program for Board of Directors to want how to run the concern for following three old ages to accomplish company aim and better company public presentation.

As for the study to the manager, the growing program is suggested to the company to borrow RM6 million from bank and RM 150,000 from household for enlargement intent for OUM because they were non doing much net income in the twelvemonth 2012 and 2013. For both of these old ages it shows that the company was doing net income but it was non important therefore working capital will be affected because OUM does non hold sufficient hard currency flow to pay their debts and working capital will maintain on cut downing.

Financial ratio analysis group the ratio into classs like Leverage ratio, liquidness ratio, operational ratio and profitableness ratio. All the ratios can bespeak the direction about the different fact of the company fundss and operation.

For the growing program, tactics used in marketing direction to spread out the market shared is by cutting monetary values to try into new market incursion, the raising financess from the bank can be invested in merchandise development and selling development.

After analyzing the gross revenues projection of 3 twelvemonth pro-forma income statement, balance sheet and 3 twelvemonth pro-forma hard currency budget to demo whether or non the growing program works. The Net Present Value ( NPV ) computation has shown the positive figures that this program is deserving puting.

Fiscal Plan

Capital Structure

In the spreadsheet, the computation shows that for those 3 old ages, the capital construction ratio is cut downing to 2010 is 0.9876, 2011 is 0.9863 and 2013 is 0.9854. In the ratio, company can dicker monetary value to supply a immense return on investings and they can do determination of investing whether a undertaking can be acceptable.

Working Capital Management

Working direction capital that ensures OUM has sufficient hard currency flow in order to run into its short term debts duty and operating disbursals. It means that the company should hold the sufficient hard currency flow to cover their debts, adoption and others to run their company in hereafter.

Activity

A

2010

2011

2012

A

A

A/R Turn Over

0.504 times

0.581 times

0.535 times

Inventory Turn Over

0

0

0

A/P Payment Period

0.574times

0.588 times

0.604 times

Activity ratio step efficiency with company uses it resources. It is related to the sum of gross revenues generated per RM invested in peculiar assets.

Inventory turnover is one of the hard currency term points for company to change over it to hard currency. Mostly companies try to maintain as low stock list as possible in warehouse because its hard currency value and it can non be turned back to original points. Therefore, OUM does non maintain and stock list because their do non keep any warehouse. OUM uses Just in Times ( JIT ) construction to run their concern.

Trade receivable turnover ratio measures the figure of times receivables payments during a twelvemonth. Based on the consequence shows those OUM receivable footings in twelvemonth 2011 was higher, 212 yearss and 0.571 times. Therefore, OUM have to happen a ways to cut down the footings collected money from their pupils. But in twelvemonth 2012, it was shorted the term aggregation is 195 yearss and 0.535 times hence company should better their aggregation to turnover their hard currency flows to payback their debts.

Trade collectible payment period shows that the company has sufficient times makeup their debt because the period of clip is increased. In twelvemonth 2012, OUM will hold 220 yearss period to pay their debts. After gathered pupils fees in 195 yearss, company still have 25 yearss to covert their hard currency make their payment. For suggestion, OUM can necessitate from the creditor to increase the payment period day of the month and will acquire more adequate clip to set up hard currency flow. This will cut down utilizing bank loan to work out the payment because utilizing bank loan requires to pay high involvement and disbursals will maintain increasing over clip. Therefore, company does n’t hold much hard currency to investing.

Fiscal Instrument

Calculations of ratios are derived from the information in company ‘s fiscal statements for those 3 old ages. The degree and historical tendencies of these ratios can be used to do illations about the company ‘s fiscal status, it ‘s operation and attraction as an investing. These ratios can give company an first-class image of company ‘ state of affairs and the tendencies are developing.

Grouping

A

Ratios

A

2010

2011

2012

A

A

A

A

Liquid

A

Current

A

0.937 times

1.073 times

1.037 times

A

A

A

A

Profitableness

Gross Profit Margin

60.18 %

59.14 %

58.07 %

A

A

Operating Net income Margin

21.33 %

16.37 %

11.04 %

A

A

Net Net income Margin

13.47 %

7.83 %

1.76 %

A

A

Tax return of Assetss

7.46 %

3.73 %

0.75 %

A

A

Tax return on Equity

20.64 %

11.04 %

2.28 %

Liquidity ratio measures the quality and adequateness of current liabilities as it become due. Above tabular array shows that the current ratio has somewhat increased in those 3 old ages harmonizing the pro-forma which company assumed. Harmonizing to the calculation twelvemonth company are in good place because OUM still can run into its short term debts duty with no emphasis for twelvemonth 2011 and 2012 because company borrowed RM6 million loan from Bankss and RM 150,000 from their household and friends. But in twelvemonth 2010 OUM current ratio is less than 1 therefore company would hold a job meeting its measures and disbursals. Last, a higher current ratio is better than lower current ratio with respect to keeping liquidness. Profitability ratio step the direction ‘s effectivity at generating net income. Gross Profit Margin ( GPM ) indicates the profitableness of gross revenues in relation to cost of goods sold. The higher of GPM indicates direction of OUM may hold selected for higher border pricing policy at the disbursals of worsening gross revenues. Harmonizing to the consequence from twelvemonth 2010 until 2012, GPM per centums are cut downing and it can cover basic operating costs and net income. Operating Net income Margin is derived from deducting OUM disbursals from gross net income. Top direction of OUM able to reexamine direction ‘s ability to command costs. Result show that OUM are cut downing their cost to command company disbursals and cut down disbursement of company. This is a good discernible fact for OUM. Net Net income Margin indicated that they have better in commanding the operating cost. However, for that 3 twelvemonth is cut downing until 1.76 % in twelvemonth 2012 but OUM still need to better their operating costs. Return on assets show that company is cut downing their assets earns to derive net income. It means in twelvemonth 2010 company are utilizing their assets to work out their fiscal jobs this is a bad phenomena for company and it should non go on to the company. Therefore, company in twelvemonth 2012 attempts to better consequence shows 0.75 % to salvage company finance public presentation. Return on equity consequence shows that from twelvemonth 2010 until 2012, they are diminishing. Company ‘s ROE are cut downing therefore stockholder ‘s equity in companies that pay stockholders off well, making significant assets for each Ringgit invested. So that, company should better schemes and have extra equity investing to increase ROE.

Growth program

Raising fund possibly is speedy manner to borrow from the bank in twelvemonth 2011 which faster to acquire compared with fund from stockholder or right issue portion which needs Bursa Malaysia blessing. Therefore, OUM intend to borrow RM 6 million from bank and RM 150,000 from their household to put in this enlargement program.

OUM selling program required formulating in the growing program. This is to increase and better service and quality of talk environments ; it besides can construct up new client informations based. There are few different methods to follow to accomplish this end:

Marketing Strategy is OUM can utilize the high engineering ( cyberspace ) and advancing use of e-commerce among the concern and consumers. E- Commerce had aid and increased the consciousness and merchandise debut to client and besides telling baseball mitt from cyberspace.

Pricing Strategy is based on clients particularly sensitive to value. As top direction would want initial monetary value cut compared with chief rival by 5 % utilizing as a market incursion scheme.

Product assortment. OUM can put up a strong R & A ; D squad for new merchandise to increase the merchandise assortment and merchandise development. So that they can provide the more market client demands in order to gaining control for better place in the universe market.

OUM comptrollers should ever follow company objectives to do any major determinations. If assumed that projected gross revenues exceed company aims, accountant must inform the board of managers for farther programs. Because if comptrollers delay let go ofing such sort of of import information drama of import function for stockholders as it affects on market portions. Even company may be accused of “ monetary value repair ” which merely certain people can take advantage alternatively of increasing portion monetary values and dividends paid to stockholders. It has bad influence on company trade name and image over the market and in a consequence, figure of pupils ( local and international ) will dramatically drop which reflects overall fiscal program for future.

3 old ages Projected remarks P/L, Cash flow budget, Growth Project Evaluation and Share monetary value Projection

The fiscal program depends on of import premise. The cardinal underlying the premise are:

In the recommended sale growing plan, it is assumed the gross revenues growing in twelvemonth 2011 is unexpected economic downswing occur. Therefore, company gross revenues are cut downing 8 % , one-year of cost of gross revenues lessening by 8 % and other cost or income will be remain same throughout the following three old ages. By using sensitiveness analysis, company assumes that gross revenues will be dropped by 8 % from 2011 to 2012 Consequently, net income public presentation will be dropped as market portion is calculated by taking the company ‘s gross revenues over the period and spliting it by the entire gross revenues of the industry over the same period. So investor will non fulfill they can take out their portion show that the market monetary value of portion will be cut downing. So that, Open University Malaysia has to endeavor to increase market portion to accomplish economic systems of graduated table in production, distribution, advertisement, and other functional countries, thereby widening net income borders and increasingA net incomes. To increase market portion, OUM should take down monetary values, better merchandises, addition advertisement disbursement, and spread out distribution channels. This is the most dramatic manner of increasing market portion

3 old ages Pro-forma Profit/ Loss ( appendix )

It is projected rapid growing on the gross revenues and net income. As the tabular array show they have decrease the gross revenues from twelvemonth 2010 about RM 153,191,208 to RM 129,661,039 by 2012. The cost of gross revenues has dropped from twelvemonth 2010 about RM 52,990,137 to 47,823,599.The dropped of gross revenues and cost gross revenues resulted the net net income are decreased from RM 20,641,646 in 2010 to RM 47,823,599 by 2012.

3 old ages Pro-forma Cash Flow

The hard currency flow undertaking indicates that commissariats for ongoing disbursals are able to run into APL demands as the concern generates sufficient hard currency flow to back up operation. The short term 6 million loans will be repaid in 2 old ages with 8 % involvement get downing from 2011.

NPV analysis

With the loan sum of RM 6,150,000 from the bank and household as the tabular array show the Net Present Value is positive.The positive RM 3,405,062 figures indicates that they are deserving puting this growing program.

Decision

OUM ‘s direction demand to reconstitute or reconfigure of its organisation, new merchandise development, market development, information engineering, commanding cost or be down and upstream supply concatenation activities. This is the major concern cost of the merchandise in order to prolong and spread out its market shared in the universe market.

From the 3 old ages projection of Pro-forma P/L, hard currency flow and NPV analysis with the extra investing of RM 6 million from bank and RM 150,000 from household will assist company to establish their concern with no emphasis because company will hold sufficient hard currency flow to better their concern farther.