Question

You are an intern working in Invest Hub Sdn. Bhd. (IHSB). Currently IHSB is interested to invest RM500,000 in the stock market. Your manager has asked you to interpret the financial statement of a company of your choice (you may choose any public listed company from Bursa Malaysia) for the financial year 2017. Your team is required to produce an analysis report, which focuses on specific aspects of financial performance and financial position of the chosen company. Your report should contain the following:

Prepare the following ratio calculations (choose 9 ratios) based on the 2017 financial statements (use company figures rather than group figures). Please DO NOT select companies that has mutual funds / trust funds / REITs or whatever funds as their main type of business. Funds companies are NOT able to provide enough information needed for our ratio calculations. Try not to choose fully service oriented company with no products to sell, instead try to choose companies that sell products (for the purpose of obtaining closing inventory). The financial statements namely SOCI, SOE, SOFP of the company should be attached in the assignment submission.

Profitability – net profit margin, return on capital employed, capital turnover.

Liquidity – current ratio, quick ratio

Working capital – trade receivables collection period, trade payables payment period, inventory turnover.

Long-term solvency – debt to assets ratio, gearing ratio, interest coverage.

Analyze and interpret the financial statements of the company that you have chosen based on the ratios calculated in part (a) above. Identify any important business transaction of the company for the past year which had contributed/resulted to the big change in a particular ratio(s).       

Recommend to the manager whether or not to invest in the chosen company AND explain the limitations to your ratio analysis in part (b).                                                                    

Please use the following format to present your calculations (You are required to state the formula used clearly):

	Ratio	2016	2017
1.	Net profit margin: Net profit/ Revenue x 100	2,000/50,000 x 100 = x%	5,000/15,000 x 100 = y%
		There is an increase/decrease from x% to y% from 2016. The stronger/weaker position may be due to: Increase/drop in sales or perhaps the selling price Increase/Reduction in expenses Increase/drop in other income Arguments should be supported by the figures in SOCI & SOFP

Tip: A good analysis should explain why a company has done better/ worse than by using information from the annual report, the company website, newspaper or other reliable sources. You are required to NOT only state that the ratio is higher/lower than the other company as this not considered analysis/interpretation of the ratios.

Answer 1