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Introduction Goodway Integrated Industries is a Malaysian public listed company that runs its business in the Malaysian rubber industry, their main activity is based on tires and tire retreading. The reason why I have chosen this company is because of the fact that one of my good friend's mother works in this company and I believe that if I run into any difficulties pertaining to the company I may be able to contact her and get help. My lecturer, to the whole class, gave the topic of this project because it took the fundamental parts of my current subject Corporate Financial Management and put it into a real life context where we have to analyze real companies rather than just doing analyses for made up ones. I believe that in turn this project will help us further understand and help us put into use our knowledge gained from this class. In this research work, I will be looking at the financial ratios of Goodway Berhad for the 3 years 2009, 2010 and 2011. There will be calculations for Liquidity, Profitability, Asset Utilization and Debt Utilization and they will be compared amongst the three years. 2011 ratios will also be analyzed against a competitor, in this case it will be Rubberex which conducts its business in the rubber industry also.

2009 Financial Ratios

Liquidity Current Ratio:

Quick ratio:

Asset Utilization Receivable turnover:

Average collection period:

Inventory turnover :

Fixed asset turnover:

Total asset turnover:

Debt Utilization Debt to total assets:

Times Interest earned:

Profitability Profit margin:

Return on assets:

Return on equity:

Financial Ratios 2010

Liquidity Current Ratio:

Quick ratio:

Asset Utilization Receivable turnover:

Average collection period:

Inventory turnover:

Fixed asset turnover:

Total asset turnover:

Debt Utilization Debt to total assets:

Times Interest earned:

Profitability Profit margin:

Return on assets:

Return on equity:

Financial Ratios 2011

Liquidity Current Ratio:

Quick ratio:

Asset Utilization Receivable turnover:

Average collection period:

Inventory turnover:

Fixed asset turnover:

Total asset turnover:

Debt Utilization Debt to total assets:

Times Interest earned:

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Profitability Profit margin:

Return on assets:

Return on equity:

Rubberex Corporation Bhd. 2011 Financial Ratios

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Liquidity Current Ratio:

Quick ratio:

Asset Utilization Receivable turnover:

Average collection period:

Inventory turnover:

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Fixed asset turnover:

Total asset turnover:

Debt Utilization Debt to total assets:

Times Interest earned:

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Table 1

Goodway Berhad

Rubberex

Profitability Profit margin:

Return on assets:

Return on equity:

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2009 Liquidity: Current Ratio Quick Ratio Asset Utilization: Receivable Turnover Average Collection Period Inventory Turnover Fixed Asset Turnover Total Asset Turnover Debt Utilization: Debt to Total Assets Times Interest Earned Profitability: Profit Margin Return on Assets Return on Equity 1.53X 0.95X

2010 1.43X 0.89X

2011 1.32X 0.82X

2011 1.33X 0.73X

5.28X 69.16 Days 5.22X 1.72X 0.93X

4.99X 73.12 Days 5.03X 2.23X 1.03X

4.61X 79.12 Days 5.25X 2.54X 1.12X

9.48X 0.04 Days 4.81X 2.34X 1.13X

67.49% 1.87X

65.21% 1.84X

64.69% 2.00X

49.40% 2.20X

1.29% 1.19% 3.71%

2.28% 2.36% 6.82%

1.44% 1.62% 4.68%

2.27% 2.56% 5.07%

Analysis Report

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Current Ratio: The current ratio shows the ability of a company to pay their liabilities. Based on the numbers on the table above we can see clearly that the current ratio drops from 1.53X in 2009 to 1.43X in 2010 and then a further drop to 1.32X in 2011. Therefore, this shows us that Goodway is not doing well in terms of their ability and that they are not able to pay back as efficiently as before. The reason of this is because their liabilities are increasing faster than their assets from 2009 to 2010. 2010 to 2011 it seems that their assets dropped instead of increased and so did their liabilities, but their assets dropped by RM4,000,000 and liabilities dropped only RM2,000,000 therefore dropping their current ratio as well. One of their factories in China had also relocated and therefore perhaps a few debts came out of the relocating and also that they had to pay for the relocating costs and also because of the relocating, they have not been conducting proper business and therefore not making much money. (see appendix for graph) Quick Ratio: The quick ratio shows the ability to be able to pay off all their debts if ever current asset would be liquidated. Goodways current ratios have also dropped in the 2 years from 0.95X to 0.89X and then dropping down by 0.07X to 0.82X. These ratios show that if Goodway were to use all their short term assets to pay off their liabilities without selling their inventories would not help because the ratios show that 1 asset is only able to pay off 0.82X of a short term liability and therefore they may go into bankruptcy pretty quickly. It seems as though their inventory is very big. The views on retreaded tires in Malaysia is a very negative one and therefore maybe they have not been able to turnover their inventory as quick. (see appendix for graph) Receivable turnover:

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This measures how effective a company is in collecting their money from its debtors. Here we can see that their receivables turnover rate also drops from 5.28X in 2009 to 4.99X in 2010 and then to 4.61X in 2011. This shows that their efficiency to collect their debts is bad. It seems that rubber prices had increased up above RM10,600 per ton. (Adnan, 2010) Since their business mainly deals in rubber, the debts may have increased due to the fact that the other companies that Goodway supplies to couldn't pay too much in one go. Therefore, they bought on credit and so Goodway's debtors grew which continued growing in 2011 because the prices of rubber have been going up due to bad weather.(Adnan, 2011) (see appendix for graph) Average collection period: This is the time it take for the company to collect their money made from sales. Here also the trend seems to be negative slowly increasing from 69.16 days in 2009 to 79,12 days in 2011. This also perhaps has to do with the fact that many companies may be buying the compounded rubber all in credit as it can be seen from the receivables that it has been increasing and so has their revenue therefore showing that due to the rubber prices hiking constantly they are unable to collect as quickly. (see appendix for graph) Inventory Turnover: This ratio shows the amount of times that inventory is sold and replaced, it helps us see the efficiency of the company in selling its products. In 2009 inventory turnover was 5.22X but in 2010 it decreased to 5.03X and then in 2011 it increased back to 5.25X. I believe that because of the sales of rubber in 2010 when the prices were sky rocketing that people did not buy much of the inventory. Revenue was higher but I believe it was only due to the higher rubber prices. (see appendix for graph)

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Fixed Asset Turnover: This ratio shows the ability of the company to gain revenue from the amount of money they invest into their fixed assets. This will helps us see that if their investments in their fixed assets help them to make money and that the investments are good investments. Here we see that the fixed asset turnover for 2009 is 1.72X 2010 grows to 2.23X and then it grows to a further 2.54X. There was a rise in revenue but there also was a drop in Fixed assets in 2010 could be because of the fact that they de-registered one of their subsidiaries in Hong Kong . In 2011 the fixed assets increased but it was still below the 2009 amount. (see appendix for graph) Total Asset Turnover: This ratio allows us to analyze how much revenue is generated per asset of Goodway. The table shows that in 2009 it was 0.93X, 2010 1.03X and 2011 is 1.12X. In 2009 1 asset did not create even 1 revenue, but now in 2011 1 asset creates 1.12X revenue which is good but it is not much. Assets have increased and so has revenue. Compared to 2009 the company is doing better. (see appendix for graph) Debt to total Assets: This is to see how much of risk the company is in by looking at how much of the company's assets have been covered by debt. Usually 50% and above is a company that is drowning in risk and here Goodway's debt to total assets are 67.49% for 2009, 65.21% for 2010 and 64.69% for 2011. Although more than half of Goodway's assets are financed by debt, they are slowly decreasing the percentage down which is a good thing compared to 2009's 67.49% 2011 now is a 64.69%.(see appendix for graph)

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Times Interest Earned: This helps us analyze whether Goodway has the ability to pay off their debt obligations. Here we see that even though Goodways Assets are mostly financed by debt, They still have the ability to pay off their debts. 2009 is 1.87X, 2010 is 1.84X and 2011 is 2.00X. In 2010 the reason why the times interest earned is lower than 2009 is due to the fact that their expenses and cost of goods sold lowered their earnings before interest and tax. Because rubber's price hiked up and therefore their cost of goods sold was also high. (see appendix for graph) Profit margin: This allows us to see the amount of profit the company makes above their operating cost. In 2009 a mere 1.29% of profit was made where as in 2010 a slightly more profit of 2.36% was made in 2011 profits dropped to 1.44%. Due to the interest expenses and the income tax expenses being particularly high during that year pulled down the years profits to a mere RM4,016,000 compared to the year which was RM5,285,000. (see appendix for graph) Return on Assets(ROA): This ratio helps determine if the company is good at obtaining a proper net income with its assets, to see if it is efficient. 2009 ROA was 1.19% which then increased by more than 1 whole percent to 2.36% in 2011 and then dropped down to 1.62% again. The reason why this happened again is due to the big interest expenses along with the tax expenses in 2011. (see appendix for graph) Return on Equity(ROE):

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This will help us figure out how much money Goodway generates with the money invested by the shareholders in the company. In 2009 ROE was 3.71% increased to 6.82% and then decreased to 4.68% all due to the interest and tax prices for the year of 2011 being big. (see appendix for graph)

Financial analysis between the two companies: Goodway vs. Rubberex.

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Current Ratio: Goodway has a current ratio of 1.32 and compared to Rubberex their competition it is almost similar and therefore in this Goodway and Rubberex are doing almost the same. (see appendix for graph) Quick Ratio: Goodway has a bigger quick ration compared to Rubberex which means that Rubberex is in a bigger risk than Goodway. (see appendix for graph) Receivable Turnover: In this ratio it can be seen that Rubberex is doing so much better than Goodway. Rubberex turns 9.48X whereas Goodway only does so 4.61X. This shows that Goodways ability to collect their receivables is weak. (see appendix for graph) Average Collection Period: In this we can see that Rubberex collects every 0.04days whereas Goodway collects only every 79.12 days it is a very big difference. (see appendix for graph) Inventory Turnover: Here, Goodway has a higher turnover ratio of 5.25X compared to Rubberex 4.81X showing that goodway is more efficient in selling their inventory.(see appendix for graph) Fixed Asset Turnover:

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Again Goodway has a higher Fixed asset turnover of 2.54X compared to 2.34X this shows that Goodway generates more revenue for each fixed asset. (see appendix for graph) Total Asset Turnover: Rubberex has the higher total asset turnover rate but only by 0.01X at 1.13X and Goodway is at 1.12X. (see appendix for graph) Debt to total Assets: Here also Rubberex take the win because their Debt to assets is 49.40% though it is quite high aswell it is not as bad or risky as Goodway's 64.69%.(see appendix for graph) Times Interest Earned: Rubberex earns more interest than Goodway as Rubberex earns 2.20X and Goodway is only 2.00 this shows that Rubberex can pay their obligations more easily compared to Goodway. (see appendix for graph) Profit Margin: Goodway's profit margin is a mere 1.44% compared to Rubberex's 2.27% which shows that they make a larger profit between the two companies. Return on Assets: Goodway's returns on assets are only 1.62 and Rubberex almost 1% higher than Goodway.

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Return on Equity: Here Rubberex also has a higher ROE compared to Goodway at 5.07%. Goodway is only at 4.68%

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Conclusion: Overall we can see that Goodway started off poorly, and if we go further back to 2008 we can see that in 2008 Goodway had actually made a massive loss of 12.8million. I believe that is why they are not doing as well as expected of the only public listed rubber compounding and tire retreading company in Malaysia. It is clear to us from analyzing the ratios that Goodway is on its way to recovery from their loss in 2008. (Singh,2009) My recommendation to the Goodway board members would be to continue what they are doing right now and to try to have a higher Inventory turnover rate. Also, I would recommend them to pay off their loans as quick as possible in order to get on track. i believe by doing this project I have met my objectives very well and that i have also answered the research questions. Limitations: The limitations of this project are that Malaysia's only public listed Rubber compounder and Tire retreader is Goodway. They are a major player in the tire retreading business in Malaysia and therefore getting a suitable competitor was difficult. Rubberex was chosen as it was in the same industry as Goodway, which is the rubber industry. I chose Rubberex because it was around the same size as Goodway and they dealt in rubber as well.

References

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Adnan, H. (2011, August 8). Natural rubber price hike continues. The Star. Adnan, H. (2010, April 26). Rubber prices reach new highs. The Star. Singh, R. (2009, June 24). Goodway expects to be back in the black this year. New Straits Times.

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APPENDIX I (GRAPHS)

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Goodway Liquidity Ratios


1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2009 2010 2011

Times

Current Ratio Quick Ratio

Goodway Receivable Turnover


5.4 5.2 5 Times 4.8 4.6 4.4 4.2 2009 2010 2011 Receivable Turnover

Goodway Average Collection Period


80 78 76 74 72 70 68 66 64 2009 2010 2011

Days

Average Collection Period

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Goodway Inventory Turnover


5.3 5.25 5.2 Times 5.15 5.1 5.05 5 4.95 4.9 2009 2010 2011 Inventory Turnover

Goodway Fixed Asset Turnover


3 2.5 2 Times 1.5 1 0.5 0 2009 2010 2011 Fixed Asset Turnover

Goodway Total Asset Turnover


1.2 1 0.8 Times 0.6 0.4 0.2 0 2009 2010 2011 Total Asset Turnover

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Goodway Debt to Total Assets


68.00% 67.00% Percent 66.00% 65.00% 64.00% 63.00% 2009 2010 2011 Debt to Total Assets

Goodway Times Interest Earned


2.05 2 1.95 Times 1.9 1.85 1.8 1.75 2009 2010 2011 Times Interest Earned

Goodway Profit Margin


2.50% 2.00% Percent 1.50% 1.00% 0.50% 0.00% 2009 2010 2011 Profit Margin

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Goodway Return on Assets


2.50% 2.00% Percent 1.50% 1.00% 0.50% 0.00% 2009 2010 2011 Return on Assets

Goodway Return on Equity


8.00% 6.00% Percent 4.00% 2.00% 0.00% 2009 2010 2011 Return on Equity

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Goodway Vs. Rubberex Liquidity Ratios


1.4 1.2 1 0.8 0.6 0.4 0.2 0 Goodway Berhad Rubberex

Times

Current Ratio 1.32 1.33

Quick Ratio 0.82 0.73

Goodway Vs. Rubberex Asset Utilization


10 9 8 7 6 5 4 3 2 1 0

Times

Receivable Turnover 4.61 9.48

Inventory Turnover 5.25 4.81

Fixed Asset Turnover 2.54 2.34

Total Asset Turnover 1.12 1.13

Goodway Berhad Rubberex

*Note: Average Collection period of Rubberex is too short and therefore unable to be graphed.*

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Goodway Vs. Rubberex Debt to Total Asset


70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% Goodway Berhad Rubberex

Percent

Debt to Total Assets 64.69% 49.40%

Goodway Vs. Rubberex Times Interest Earned


2.25 2.2 2.15 2.1 2.05 2 1.95 1.9 Goodway Berhad Rubberex

Times

Times Interest Earned 2 2.2

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Goodway Vs. Rubberex Profitability Ratios


6.00% 5.00% Percent 4.00% 3.00% 2.00% 1.00% 0.00% Profit Margin 1.44% 2.27% Return on Assets 1.62% 2.56% Return on Equity 4.68% 5.07%

Goodway Berhad Rubberex

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APPENDIX II FINANCIAL STATEMENTS