Ratio Analysis Trend Analysis And Cross Sectional Finance Essay

Ratio analysis is used to compare the relationship of the companys fiscal statement at one point in clip no affair there are internal or external to the concern. It besides helps to set the concern running consequently. Besides that, it besides can name as tendency analysis.

Trend analysis is used to analysis and compares the fiscal place of the concern difference between a month, one-fourth twelvemonth or a twelvemonth one time clip as day of the month scope and shutting day of the month of the concern activity in the signifier or per centum. It besides helps to find whether the alterations in the period of clip are holding any balances that are unusual alteration.

Cross-sectional ratio analysis is used to analyze the fiscal ratio of a company that has the same analysis ratio with other companies in the same industry to develop the of import determination.

Distinguish the public company from private company.

In a private company, the minimal figure of members is two individuals and the maximal figure of members non more than 50 members and non includes yesteryear and present employees. The Numberss of managers in private company, there are no bound members but must hold at least three managers in the company. Besides that, the portions can non be sold to the foreigner. Before upgrade to public company, the buttocks name of the company is with the word “ private limited ” .

When in a public company, the minimal figure of members is seven and the maximal figure of members is no bound. Besides that, in the figure of managers, at least must hold three managers and the place is being rotated by retired. In public company, the portions can be sold to the public market and assist the company raise the fund. When alteration the company from private company to public company, behind the name of the company is mandatory to alter the word to “ limited ” .

Select THREE ( 3 ) populace listed companies in Malaysia from the same industry. Explain in item about the concern industry, concern operation, types of merchandises manufactured or services provided, etc. Students have to register the companies that they selected with the lector before terminal of WEEK 3. The choice of companies would be on a rush footing, as there should NOT be a repetitive of the same companies with the other groups.

KHIND Holdings Berhad is a Malaysia prima electrical and electronics contraptions company founded by Cheng King Fa. Khind has been spread outing its concern in Malaysia, Singapore and Hong Kong in recent old ages. Driven by his clear vision, the concern flourished and in the late 1970ss, developed to include the industry of electrical accoutrements and lamps. The following decennary witnessed Khind ‘s increasing venture into the addition export market. It was around this clip that Khind besides brought in a set of professional directors into the household concern. In 1996, the company took the large measure of puting in Material Resource Planning ( MRP ) package and their accounting package could non maintain up with the company ‘s rapid growing. In 1992 Khind ‘s fabrication expanded to include fans and other family contraptions and by the bend of the millenary, the Group was administering audio-visual merchandises and white goods.Khind had a more than 200 “ innovatively-designed ” merchandises for the consumers. Khind exports its merchandises to well over 50 states around the Earth in 2010. Its largest export market is the Middle East part. The Company besides exports its merchandises to the Association of South East Asiatic Nations ( ASEAN ) .Khind is an original equipment maker ( OEM ) to Nipponese and European clients. Company are provided in the signifier of text, in writing, audio, downloads, links, or beginning codifications ( jointly ‘Services and Materials ‘ ) . KHIND retains all rights to such Servicess and Materials. The Services and Materials are intended merely for KHIND ‘s clients and are provided merely for your mention.

For Panasonic Corporation, Panasonic Industrial provides the concern and retail sector with a assortment of point-of-sale merchandise solutions for applications across assorted types of formats. Retail shops can bask little and lightweight constituents for saloon codification readers and security tickets ; casinos can anticipate accurate equipment with our secure input devices, and fuel Stationss can trust upon our outstanding merchandises for card readers. Panasonic Systems delivers complete endeavor solutions for all industries, guaranting “ best in the trade ” one-stop solutions and systems solutions integrating. Panasonic operations in North America include R & A ; D Centers, fabrication bases, the extremely rated Panasonic Customer Call Center in Chesapeake, VA, business-to-business and industrial solutions companies and consumer merchandises, gross revenues and service webs throughout the U.S. , Canada and Mexico. Merchandises manufactured by Panasonic are Televisions, Professional Displays, DLP projector & A ; LCD projector, digital cameras, audio merchandises, picture cameras and others electric constituents. Panasonic provide several of non-periodical information on Panasonic merchandise to users through the web service system and direct non-periodical PANASONIC merchandise gross revenues, price reduction or other related commercial service information to users through web service system in East Asia.

For Milux Corporation Berhad ( Milux ) , it is a Malaysia-based investing keeping company. The Company besides provides direction services through its subordinates and engaged in trader in gas cookers, electrical family contraptions and their related merchandises, fabrication of gas cookers, electrical family contraptions and their related merchandises, and fabrication of enamel merchandises. The Company operates in two concern sections: place contraptions, which include fabrication and dealing in family contraptions and their related merchandises, and others, which is engaged in investing retention and proviso of direction services. Principle Activities Milux Corporation Berhad is through its subordinates, industries and markets gas cookers, enamel merchandises, electrical family contraptions, and related merchandises in Malaysia and Indonesia. It offers table-top gas cookers, cast-iron burners, constitutional goblin, oven wassailers, gas ignition valves, and regulators, every bit good as electrical family contraptions consisting slow cookers, staff of life wassailers, manus sociables, liquidizers, air pots, chainss, and hair driers. The company besides engages in fabrication and retailing ice pick, creameries, and bite bars, every bit good as in belongings development. It exports its merchandises to Asia, South America, the Middle East, and Africa. The company was once known as T.H. Hin Corporation Berhad and changed its name to Milux Corporation Berhad in 2006. Milux Corporation is based in Petaling Jaya, Malaysia. ince its origin in 1977, Milux has ever sought to supply top quality and advanced merchandises which are in line with the company ‘s doctrines stressing “ Quality, Safety and Reliability ” . As one of the top distributers of family contraptions, Milux are committed to non merely to presenting top quality merchandises, but besides to go on presenting first-class client service to better function our clients.

Fix a agenda of SIX ( 6 ) accounting ratios or step of resource use for the three companies. You are required to:

Define each ratio used

Ratio

Definition

I. Current ratio

It is besides called ‘working capital ratio ‘ . Current ratio shows that the ability of a company utilizing its current assets to pay current liabilities. The higher the current ratio, the more capable the company to pay off its duty.

two. Profit border ratio

It is known as ‘operating public presentation ratio ‘ . It measures how much out of every dollar of gross revenues a company really keeps in net incomes. It is usually used to compare with other companies in similar industries. The higher the net income border, the more profitable the company is.

three. Debt to entire assets ratio

This ratio is an index of fiscal purchase. It is used to mensurate a company ‘s fiscal hazard by finding how much of company ‘s assets have been financed by current and long-run liabilities.

four. Payout ratio

Payout ratio shows that the per centum of net income paid to stockholders in the signifier of hard currency dividends. Investors may utilize this ratio to find what companies are making with their net incomes. The lower the ratio, the more unafraid the dividend as smaller dividends are easier to pay out than larger dividends.

Ratio

Definition

v. Acid-test ratio

It is known as ‘quick ratio ‘ . It shows how good the current liabilities are covered by hard currency and by points with a ready hard currency value.

six. Times involvement earned ratio

It indicates how many times the company can cover its involvement charges. And besides shows the company ‘s ability to pay involvement disbursals.

B ) Show the ratio expression

I. Current Ratio=

Ii. Net income Margin Ratio=

three. Debt to Total Assets Ratio= ,

Which entire liabilities= short-run liabilities + long-run liabilities

Iv. Payout Ratio=

V. Acid-test Ratio=

Vi. Times Interest Earned Ratio=

C ) Show the figures used clearly

Milux Corporation Berhad

Panasonic Manufacturing Malaysia Berhad

KHIND Retentions Berhad

Current ratio

= 2.4792

= 4.4284

= 4.2392

Net income border ratio

= 0.0617

= 0.1268

= 0.1135

Debt to entire assets ratio

= 0.4186

= 0.2033

= 0.2664

Pay-out ratio

= 0

= 0.0019

= 0

Acid-test ratio

= 1.2946

= 4.2744

= 4.1313

Timess involvement earned ratio

= 3.4477

= 4.8465

= 2.6330

D ) Interpret the ratio

( I ) Current Ratio

Current ratio is a fiscal ratio measuring that step whether the company has plenty or non resource to pay off its debt. If this ratio is bellow 1, so the company may hold job in paying its liabilities in a period of clip. The higher this ratio is, mean that company has more capable in paying its duties. A lessening in current ratio mean that company may holding a diminishing power in expeditiously use of current assets.

( two ) Net income Margin Ratio

Net income border ratio is measurement that step how much net income that company earned had been translated into net incomes. If this ratio is lower mean that a diminution in gross revenues will hold a extremely hazard that it will ensue in a net loss. The higher this ratio is intending the company is effectual in meeting gross revenues gross into net income.

( three ) Debt to Total Assets Ratio

Debt to entire plus ratio scope is from 0.00 to 1.00. A lower value of this ratio is favourable for company. It mean that a lower part of company ‘s assets claimed by its creditor. Company will happen that it is easy to obtain loans for new investing or undertaking. Otherwise, company will hold a higher hazard in operation due to a higher debt to entire assets ratio.

( four ) Payout Ratio

Payout ratio indicates that how well net incomes net income screen its dividend payment. A low payout ratio will do investor loss assurance on company and seek for other dividend stock. Otherwise, a high payout ratio will pull new investor to purchase company ‘s dividend stock. Mature company will be given to hold a higher payout ratio.

( V ) Acid-test Ratio

Acid-test ratio has a conservative expression at a company ‘s liquidness. It consider merely on the most liquid assets. It measures the ability of a company to utilize its speedy plus to pay its current liabilities. The higher the ratio is, the better the place of the company. If a company has a low quick ratio, it may turn out that company has trouble in convert their stock list into hard currency.

( six ) Times Interest Earned Ratio

Timess involvement earned ratio is a measuring of how a company ‘s ability meets its debt duty. If the ratio is bellow 1, intending company is bring forthing non plenty hard currency from its operations to cover its involvement. Then, company would hold to utilize hard currency to pay off its borrow financess.

6i?ZCompare and remark on the public presentation of the three companies utilizing the ratios calculated in portion ( 5 ) above.

Current ratio

The current ratio of Panasonic Manufacturing Malaysia Berhad is higher than other two companies. It is because the sum of current assets ( RM574,346,000 ) is higher than other two companies and the sum of current liabilities ( RM129,695,000 ) is lower than Milux Corporation Berhad so the current ratio will higher. That means Milux Corporation Berhad has adequate money to pay their liabilities such as debt.

But if the companies is unable to pay their liabilities, their company will non confront the job of insolvent because there are many ways to entree funding nevertheless this decidedly is non a good mark.

The current ratio can give the efficiency of a company ‘s operating rhythm. Besides that, if the current ratio is lower than 1, the company should increase their current assets otherwise the company will confront the job of hard currency flow. The current ratio of other two companies is higher than 1, so they besides have ability to paid their liabilities.

Net income Margin Ratio

The higher net income border ratio is Panasonic Manufacturing Malaysia Berhad ( 0.1268 ) and the lower net income border ratio is Milux Corporation Berhad ( 0.0617 ) .

The lower net income border ratio shows that the company is incapable to command their production costs and their earning low sum from gross revenues but besides want to pay the fixed costs from the gross. For illustration, the company has addition at a greater rate than gross revenues but do non command their cost, it will take the company to a lower net income border. So the company should increase their gross and command their costs at the same clip.

Panasonic Manufacturing Malaysia Berhad is a more profitable company. It is because they have a better control their costs compare to other company.

Debt to entire assets ratio

The higher debt to entire assets ratio is Milux Corporation Berhad and the lower debt to entire assets is Panasonic Manufacturing Malaysia Berhad.

The mean of the lower debt to entire assets is the company is less dependent on purchase and the stronger its equity place, so Panasonic Manufacturing Malaysia Berhad can borrow money from bank to pay their liabilities.

When the ratio is higher, the company is measured to take on more hazard. When the ratio is greater than one that means the half of assets of company are financed through debt.

Pay-out ratio

Panasonic Manufacturing Malaysia Berhad is the higher ratio of Pay-out ratio. That means this company is a willingness to portion the earning of company with discoverers. It will pull more discoverers to investing the company.

Acid-test ratio

Panasonic Manufacturing Malaysia Berhad is the higher ratio of Acid -test ratio and the lower Acid-test ratio is Milux Corporation Berhad.

The acid-test ratio is lower than the on the job capital is means the current assets are extremely dependent on the stock list. The higher of the ratio, the more financially procure a company is in the short term. The ratio of these three companies is greater than one, so at that place will non confront the job of unable to pay their short-run liabilities.

On other manus, increasing the acid-test ratio by and large indicates that company is quickly altering receivables into hard currency, and merely able to cover its fiscal duties.

Timess involvement earned ratio

The higher ratio of times involvement earned is Panasonic Manufacturing Malaysia Berhad and the lower times involvement earned ratio is KHIND Holdings Berhad.

However, the high ratio is means that the companies have a disagreeable deficiency of debt or pay down excessively much with gaining that could be used for other undertakings. And the ratio is below 2.5, the company will see a warning mark of fiscal hurt.

If the company can non gain more income to cover their involvement payments, the company will finally owing the involvement payment.

Discuss the restrictions of ratio analysis.

Defination

Ratio analysis is a tool that persons use to transport out a quantitative survey of information in a company ‘s fiscal statements. It was one of the important techniques of fiscal analysis that measures are changed into ratios for comparings with earlier period ratios and ratios of other houses in the same or different industries. It shows the tendencies and besides the strengths or failings of a house.

Restriction

Although it was a usefull tool to calculate the public presentation of a company, but some restriction exists to it, which is:

Distorted by Inflation

Inflation is a perplexing factor in usage of ratio analysis, if did non exert some attention on it, it may non oly distort ratios and possibly the whole reading of ascertained tendencies. As we all known, fiscal statements are prepared harmonizing the Generally Accepted Accounting Principle ( GAAP ) and it was chiefly oriented towards historical cost information.Due to this, assets value show in balance sheets will be in cost, as opposed to some step of their current value. It may misdirecting the fianancial statement, and yet, to demo their assets in marketvalue would necessitate assessment because valuator can non precisely agree an an plus ‘s value. Typically, comptroller will enter the assets at it cost value until they are sold or diposed.

Therefore, rising prices affects stock list values and depreciation, net incomes are affected, such as additions in income and net net income may bespeak improved of public presentation, but in fact, additions may hold resulted from rising prices non improved gross revenues.

Different accounting praticle lead to misaccurate in comparing

There are many different accounting praticle can be applied to the companies. It mean that different companies will utilize different method to value their stock list, such as LIFO or FIFO method, if the companies compute the ratio and compared by used different stock list rating method, the comparing would non be accurate. Another issue is deprecation, different companies used different depreciation method, such as consecutive line method, worsening balance method, and sum-of-the-years’-digits method. The different of the method will take to different fiscal statement and it wo n’t take to a valid comparing.

Misleading if based on false or window-dressed accounting information

It was normal that the ratio will be misdirecting if based on the false accounting information ; this is because the ratio is drawn from accounting records, if the false information occurs, illustration like absence of some of import info, it will impact the figure of ratio, and lead to the disaccurate of comparing.

The ratio besides will be misdirecting if the fiscal statement was utilizing window-dressing. Window dressing is a scheme used by directors when near the twelvemonth terminal intentionally to better the quality of the fund public presentation before showing it to stockholders or clients. This is wholly against the construct of fiscal and concern moralss and flies in the face of corporate administration. Some informations possibly changed and diferrent to the original after window dressed, and this will do the acurracy of the ratio that calculated lessening.

In decision, ratio analysis is really utile tools to judge the public presentation of the companies, but must really careful about the restriction that mentioned above and do accommodation as necessary.