Cooperate Finance

CORPORATE FINANCE FICB213
Table of Contents
EXECUTIVE SUMMARY .................................................................................................................................. 2
Introduction of the assignment ............................................................................................................... 2
Objectives ................................................................................................................................................. 2
COMPANY BACKGROUND ............................................................................................................................. 3
BOARD OF DIRECTOR .................................................................................................................................... 5
COMPANY BACKGROUND ............................................................................................................................. 6
Oriental Foods Industries Sdn. Bhd ......................................................................................................... 6
BOARD OF DIRECTOR .................................................................................................................................... 8
LITERATURE REVIEW ..................................................................................................................................... 9
FINDING 1: COMPARISON ON THE CAPITAL STRUCTURE ......................................................................... 14
HOW TO DETERMINE COST OF CAPITAL STRUCTURE ........................................................................... 14
THE STEPS TO DETERMINING CAPITAL STRUCTURES ARE AS FOLLOWS .......................................... 14
Finding 2: comparison on dividend policy ................................................................................................. 26
Dividend policy ....................................................................................................................................... 26
FINDING 3: THE EFFECT OF GEARING LEVEL /DECISIONS OF LEVERAGE AND PERFOMANCE AND PROFIT
ABALITY RATIOS ......................................................................................................................................... 30
CONCLUSION............................................................................................................................................... 40
BIBLIOGRAPHY............................................................................................................................................ 41
APPENDIX ................................................................................................................................................... 42
COCALAND HOLDING VS ORINTAL FOOD pg. 1
EXECUTIVE SUMMARY
Introduction of the assignment
This assignment is to access learners ability in applying the concepts and theories of Corporate
Finance as well as analyzing financial performance and issues in companies.
Objectives
To relate the theory of capital structure and cost of capital, MM theory I and II and Miler
To evaluate the company capital structure and firm performance to generate profit as well
as sales to the company
To analysis and compare the capital structure between two firm in the same industry
To evaluate the effect of dividend policy on profitability ratios
COMPANY BACKGROUND
Cocoaland Holding Berhad
Company logo
Cocoaland Industry Sdn. Bhd. Was incorporated in Malaysia on 22nd August 1990 under the Act
as a private limited company. CISB commenced business on 2 March 1991 and is principally
engaged in the manufacturing trading of processed and preserved foods and fruits of all kinds.
LB Food Sdn Bhd. was incorporated in Malaysia on 23 January 1984 under the Act as a private
limited company. LBFSB is principally involved in the wholesale and retail of processed and
preserved foods.
B Plus Q Sdn. Bhd. was incorporated in Malaysia on 29 August 1985 under the Act as a private
limited company. The company is principally engaged in the business of manufacturing fruit
juice and foodstuffs.
Mite Food Enterprise Sdn. Bhd. was incorporated on 10 September 1980 in Malaysia under Act
as private limited company. The companys principal activities are that of the trading and
distribution of foodstuffs. MFESB acts mainly as the marketing and distribution arm of BPQSB.
Before CISB was formed, MFESB was the manufacture and distributor for LBFSB in 1980.
MFESB was absorbed by BPQSB concern on the manufacturing aspect. MFESB distributes to
the northem region of Malaysia.
Example of Cocoaland products.
BOARD OF DIRECTOR
DATO AZMAN BIN MAHMOOD
(Chairman/Independent Non-Executive Director)
DATO SRI KOH KIN LIP
(Independent Non-Executive Director)
LIEW FOOK MENG
(Executive Director)
LAU KEE VON
LAU PAK LAM
LIEW YOON KEE
TAI CHUN WAH
CHOW KEE KAN @ CHOW TUCK KWAN
DATO NG JUI SIA
(Non-Independent Non-Executive Director)
COMPANY BACKGROUND
Oriental Foods Industries Sdn. Bhd
Company logo
Overview
Oriental Food Industries Sdn Bhd was established and incorporated in 1978. From our modest
beginnings, we have made our mark in the food manufacturing industry today holding the
leading position in the snack food and confectionery industry in Malaysia.
In a crowded marketplace, we remain focused on placing the needs and interests of our customer
first by manufacturing products that focuses on quality.
We believe that the key focus for success in this business depends on product quality, product
range, research and development, a highly quality workforce right from top management to the
operator level, sound marketing strategy, effective sales and advertising policies , competitive
pricing, good domestic and international distribution network and most importantly the
commitment to excellence in all aspects of the company business, all of which are being
implemented and practiced in our organization.
Example of Oriental Food Industries Products
BOARD OF DIRECTOR
Choon Yin Cheong
(Joint Company Secretary)
Mei Ying Chong
Siew Yeen Wong
Chen Chuan Son
(Managing Director,Executive Director)
Beng Lee Hoo
Tong Eng Son
Tong Leong Son
Azizan Bin Husain
(Independent Non-Executive Chairman)
Keat Sear Lim
(Non-Executive Director)
Hwa Yu Lim
LITERATURE REVIEW
This project paper stressed on three main issues namely the theory of capital structure, the theory
of cost of capital and the Modigliani-Miller Theory. Therefore, before we go further it is a good
idea to get a clear picture of these terms.
In finance, capital structure refers to the way a corporation finances its assets through some
combination of equity, debt, or hybrid securities. A firm capital structure is then the composition
or structure of its liabilities.
A companys cost of capital is simply the cost of money the company uses for financing.
If a company only uses current liabilities and long-term debt to finance its operations, then it
uses debt and the cost of capital is usually the interest rate on that debt.
The Modigliani-Miller theory, proposed by Fraco Modigliani and Merton Miller, forms the
basis for modern thinking on capital structure, though it is generally viewed as a purely
theoretical result since it disregards many important factors in the capital structure decision. The
theorem states that, in a perfect market, how a firm is financed is irrelevant to its value.
Consider two firms which are identical except for their financial structures. The first (firm U) is
unlevered: that is, it is financed by equity only. The other (firm L) is levered: it is financed partly
by equity, and partly by debt. The Modigliani-Miler theory states that the value of the two firms
is the same.
Without taxes
VU=VL where VU is the value of an unlevered firm=price of buying a firm composed only of
equity, and VL is the value of a levered firm= price of buying a firm that is composed of some
mix of debt and equity. Another word for levered is geared, which has the same meaning.
MM theory that in a tax free environment, with perfect information and no costs for financial distress,
capital structure is irrelevant and changing a firms capital structure will not impact the firms
valuation.
MM assumes that the cost of equity is a linear function of the companys debt to equity ratio.
WACC = rA=(E/V)RE+(D/V)RD
rE=rA=(rA-rD)(D/E)
A higher debt-to-equity ratio leads to a higher required return on equity, because of the higher risk
involved for equity-holders in a company with debt. The formula is derived from the theory of
weighted average cost of capital (WACC).
These propositions are true assuming the following assumptions:
No transaction costs exist, and
Individual and corporation borrow at the same rates.

In return for their increased risk, equity holders receive a larger proportion of profit.
However, increased equity returns are offset by an increased required return on equity (this is reflected
by the cost of equity being a linear function of a companys debt to equity ratio). Therefore the
leveraged firm is valued the same as the unleveraged firm.
With taxes
Proposition I:VL=VU+TcD
Value
Of
VL
Firm
Vu
Debt
VL is the value of a levered firm
Vu is the value of an unlevered firm
TcD is the tax rate (Tc) x the value of debt (D)
This means that there are advantages for firm to be levered, since corporation can deducts
interest payments. Therefore leverage lower tax payments. Dividend payments are nondeductible.
rE is the require rate of return on equity, or cost of levered equity=unlevered

equity+financing premium.
rA is the company cost of equity capital with no leverage(unlevered cost of equity, or

return on assets with D/E=0)
rD is the required rate of return on borrowings, or costs of debt.
D/E is the debt-to-equity ratio
Tc is the taxe rate.
The same relationship as earlier described stating that the cost of equity rises with leverage,
because the risk to equity rises, still holds. The formula however has implication for the
difference with the WACC. Their second attempt on capital structure included taxes has
identified that as the level of gearing increases by replacing equity with cheap debt the level of
the WACC drops and an optimal capital structure does indeed exist at a point where debt is
100%.
The following assumptions are made in the proposition with taxes:
Corporation are taxed at the rate Tc on earning after interest
No transaction costs exist and
Individuals and corporation borrow at the same rate.
FINDING 1: COMPARISON ON THE CAPITAL STRUCTURE

HOW TO DETERMINE COST OF CAPITAL STRUCTURE
Determining capital structure is done by calculating the percentage of the total funding that each
component represents. By analyzing a corporations financial statements, we are able to compile
a list of all the capital components on the book. Taking into account all capital components that
contribute to the overall capital structure, we are able to calculate the percentage of the
capitalization represented by each capital component. Understanding a corporations capital
structure is necessary to determine which of the many available options is the most fiscally
responsible to pursue. Financing with equity versus debt has different capital costs and will have
significantly different long-term effects on the health of a corporations finances.
THE STEPS TO DETERMINING CAPITAL STRUCTURES ARE AS FOLLOWS
1. Identify all of the corporations capital components by examining the most recent
financial statements. Compile a list of all debt and equity, including retained earnings,
common shares, debt financing and contributions.
2. Calculate the sum total of all debt and equity you have identified. The figure should equal
the sum total of all the corporations assets.
3. Take each component of the corporate structure and divide it by the sum total of all
components, as calculated in step 2. These calculated figures represents what each source
of capitals percentage is relative to the sum total of the corporate structure
4. These percentages, if calculated on a regular base, can be used to monitor what mix of
debt versus equity a corporation currently holds on its books. Debt financing is the most
costly source of capital versus equity. By monitoring a corporate structure over time and
incorporating mezzanine debt into the structure, an effective and fiscally responsible
capital structure can be planned and achieve.
We define the value of the firm to be this sum. Hence the value of the firm, V is:
V=B+S
where B is the market value of the debt and S is the market value of the equity. B+S should be
equal to 100%. For examples:
Value of firm
stock
40%
bond
60%
bond
40%
stock
60%
Cost of Capital Structure: we use to calculate debt (B) is B or liabilities B+S total asset
: The balance of debt (B) is the amount if equity (S)
: B+S should be 100%
Leverage (Book Value)

Total Debts
Total Assets
In year 2008, Cocoaland Holdings Berhad has a higher debt (B) compare to Oriental Food
Industries which amounted to 22.21%, 9% respectively. While for equity (S) Cocoaland Holding
Berhad has a lower equity which is 77.79% and 91% for Oriental Food Industries.
Cocoaland Holdings Berhad
Oriental Food Industries
Year
Debt
2008
25,191,366/
10,473,764/
113,428,072
121,226,916
Equity
= 22.21%
77.79%
Total
100%
Debt
Equity
=9%
91%
Total
100%
In year 2009,Cocoaland Holdings Berhad has a higher debt (B) compare to Oriental Food
Industries which amounted to 20.06%, 10% respectively. While for equity (S) Cocoaland
Holding Berhad has a lower equity which is 79.94% and 90% for Oriental Food Industries.
Year
Debt
2009
25,378,153/
12,884,306/
126,537,172
130,723,679
= 20.06%
Equity
79.94%
Total
100%
Debt
=10%
Equity
90%
Total
100%
Year
Debt
Equity
Total

Debt
Equity
Year
Debt
2011
30,380,760/
7,213,907/
219,050,224
145,099,665
Equity
= 13.87%
2010
86.13%
Total
100%
Debt
Equity
=5%
95%
26,152,977/
9,249,323/
202,365,716
136,676616
= 12.92%
87.08%
100%
Total
=7%
93%
Total
100%
100%
In year 2012, Oriental Food Industries has a higher debt (B) compare to Cocoaland Holdings
Berhad which amounted to 21%, 17.34% respectively. While for equity (S) Oriental Food
Industries has a lower equity which is 79% and 82.66% for Cocoaland Holdings Berhad.
Year
Debt
2012
41,161,128/
33,906,347/
237,320,735
159,266,086
= 17.34%
Equity
82.66%
Total
Debt
100%
=21%
Equity
79%
Total
100%
Leverage (Market Value)

Total Debts
Total Debt +Common Equity
Year
2008

25,191,366/

26,455,615/
88,236,706+25,191,366
94,771,303+26,455,615
= 22.21%
=21.82%
In year 2008,Cocoaland Holding Berhad is higher debt which is amount 22.21% than Oriental
Food Industries which amount 21.82%
Year
2009

25,378,153/

24,330,467/
101,159,019+25,378,153
106,393,212+24,330,467
= 20.06%
=18.61%
In year 2009,Cocoaland Holding Berhad is higher debt which is amount 20.06% than Oriental
Food Industries which amount 18.61%
Year
2010

26,152,977/

22,814,631/
176,212,739+26,152,977
113,861,985+22,814,631
= 12.92%
=16.69%
In year 2010, Oriental Food Industries is higher debt which is amount 16.69% than Cocoaland
Holding Berhad which amount 12.92%
Year
2011

30,380,760/

28,297,497/
188,669,464+30,380,760
116,802,168+28,297,497
= 13.87%
=19.50%
Year
2012

41,161,128/

33,906,347/
196,159,607+41,161,128/
125,359,739+33,906,347
= 17.34%
=21.27%
Short Term Debts

Total Assets
Year
2008

812,697/
113,428,072/

15,981,851/
130,723,679
=12.23%
= 0.72%
In year 2008, Oriental Food Industries have a percentage is 12.23% compare to Cocoaland
Holdings Berhad the percentage is lower by 0.72%
Year
2009

14,920/
126,537,172

11,446,161/
130,723,679
=8.76%
=0.012%
Year
2010

NONE

13,565,308/
64,911,602
=20.09%
In year 2010, Oriental Food Industries have percentage is 20.09% but Cocoaland Holdings
Berhad have none value for the year because the Short Term Debt is Zero.
Year
2011

NONE

21,083,590/
145,099,665
=14.53%
In year 2011, Oriental Food Industries have percentage is 14.53% but Cocoaland Holdings
Berhad have none value for the year because the Short Term Debt is Zero
Year
2012

38,108,128/
237,320,735

27,710,842/
159,266,086
=17.40%
=16.06%
Long Term Debts

Total Assets
Year
2008

1,202,892/
113,428,072/

10,473,764/
121,226,918
=8.64%
= 1.06%
In year 2008, Oriental Food Industries higher amount which is 8.64% then Cocoaland Holding
Berhad are lowest which amount 1.06%
Year
2009

10,764/
126,537,172

12,884,306/
130,723,679
=9.86%
=0.0086%
In year 2009, Oriental Food Industries higher amount which is 9.86% then Cocoaland Holding
Berhad are lowest which amount 0.0086%
Year
2010

NONE

9,249,323/
64,911,602
=14.25%
In year 2010, Oriental Food Industries higher amount which is 9.86% but for Cocoaland no value
for long debt.
Year
2011

NONE

7,213,907/
145,099,655
=4.97%
In year 2011,Oriental Food Industries higher amount which is 4.97% but for Cocoaland no value
for long debt.
.
Year
2012

3,053,000/
237,320,735
=12.86%

6,195,505/
159,266,086
=3.89%
In year 2012, Cocoaland Holdings Berhad have a percentage is 12.86% compare to Oriental
Food Industries the percentage is lower by 3.89%
Total Debts
Total Equity
Year
2008

25,191,366/

26,455,615/
88,236,706
94,771,303
= 28.55%
=27.92%
In year 2008,Oriental Food Industries is higher amount which is 27.92%, Cocoaland Holdings
Berhad is amount 28.55%
Year
2009

25,378,153/

24,330,467/
101,159,019
106,393,212
= 25.09%
=22.87%
In year 2009,Cocoaland Holdings Berhad is higher amount which is 25.09%, Oriental Food
Industries is amount 22.87%
Year
2010

26,152,977/

22,814,631/
176,212,739
113,861,985
= 14.84%
=20.04%
In year 2010 Oriental Food Industries is higher amount which is 20.04%, Cocoaland Holdings
Berhad is amount 14.84%
Year
2011

30,380,760/

28,297,497/
188,669,464
116,802,168
= 16.10%
=24.23%
In year 2011, Oriental Food Industries is higher amount which is 24.23%, Cocoaland Holdings
Berhad is 16.10%.
Year
2012

41,161,128/

33,906,347/
196,159,607
125,359,739
= 20.98%
=27.05%
In year 2012, , Oriental Food Industries is higher amount which is 27.05%, %, Cocoaland
Holdings Berhad 20.98%
Finding 2: comparison on dividend policy

Dividend policy
Once a company makes a profit, management must decide on what to do with those profit. They
could continue to retain the profit within the company, or they could pay out the profit to the
owners of the firm in the form of dividends.
Once the company decides on whether to pay dividends they may establish a somewhat
permanent divided policy, which may in turn impact on investors and perception of the company
in the financial markets. What they decide depends on the situation of the company now and in
the future. It also depends on the preferences of investors and potential investors
For this project paper, we need to analyse 3 type of dividend which is dividend per share,
dividend yield and dividend payout for Cocoland Holding and Oriental Food Industries for five
years
Dividends per share =
Year
dividends
No. of share
Cocoland holding Berhad (cents)
Oriental Food Industries (cents)
2008
3.5
2009
10
3.5
2010
4.4
2011
5.5
2012
6.25
In year 2008, Oriental Food Industries lowest amount 3.5 cents compared to Cocoaland
Holding Berhad which amount 4 cents. In years 2009, dividends per share for Oriental Food
Industries still maintain amount 3.5 cents but Cocoland Holding Berhads dividend increase 10
cents because share that company offer have a large amount. In year 2010 Oriental Food
Industries decrease 2 cents same years 2011, but Cocoland Holding berhad have decrease 4.4
cents in year 2010 then 2011 the amount is increase 5.5 cents. In year 2012, Oriental Food
Industries increase 3 cents, for Cocoland Holding Berhad also increase which amount 6.25 cents
Dividend Yield =
Annual Dividends Per Share

Share Price
yeas
Cocoland Holdings Berhad
Oriental Foods Industries
2008
3,552,000/0.04
4,200,000/0.035
0.52
0.07
= 170,769,230.31
= 171,428,571.40
2009
6750,000/0.10
1.31
=51,526,717.56
1,574,998/0.035
1.43
=31,468,491.51
2010
4,725,000/0.044
2.24
=44,010,804.77
5,174,998/0.02
1.62
=159,722,160.50
2011
6,735,295/0.055
2.18
=56,174,270.23
5,700,000/0.02
1.50
=190,000,000.00
2012
13,727,996/0.0625
2.31
=95,085,686.58
4,800,000/0.03
1.67
=95,808,383.23
In year 2008, Oriental Food have higher dividend than Cocoland Holding Berhads this is because
their profit are lowest. In 2009, Cocoland Holding Berhad highest than Oriental Food Industries.
In year 2010 until 2012 dividend for Oriental Foods Industries highest than Cocoland Holding
Berhad
Dividend Payout Ratio = Dividends

Net Income
Year
Cocoland Holdings Berhad
2008
004 cents
7.24
0.035 cents
7.7
= 0.55
2009
0.10 cents
16.41
=0.61
2010
0.044 cents
7.39
=0.60
2011
0.055 cents
11.18
=0.50
2012
0.0625 cents
12.36
=0.51
=0.0045
0.035 cents
16.30
=0.0021
0.02 cents
20.06
=0.0097
0.02 cents
14.50
=0.0014
0.03 cents
21.81
=0.0014
In year 2008, Cocoland highest amount is 0.55 than Oriental is 0.0045. In year 2009,
Cocoland maintain the highest dividend is 0.61 compared to Oriental which is 0.0021. In year
2010, Cocoland still have highest dividend payout ratio which is 0.60 but for Oriental still have
lowest amount 0.0097. In year 2011, Cocoland which amount 0.50 for Oriental amount 0.0014. It
also same situation happened for Oriental are dividend is 0.51 compared to Cocoland only have
0.0014 dividend payout ratio in 2012.
FINDING 3: THE EFFECT OF GEARING LEVEL /DECISIONS OF

LEVERAGE AND PERFOMANCE AND PROFIT ABALITY RATIOS
1. Net Profit Margin
A ratio of probability calculated as net income divided by revenues, or net profits divide
by sales. it measures how much out of every dollar of sales company actually keeps in
earnings
Profit margin is very useful when comparing company in similar industries. A higher
profit margin indicates a more profitable company that has better control over its cost
compares to its competitors
Net Income
Total Operating Revenue
1.4
1.2
1.15
1.08
1
0.8
0.84
0.72
0.83
0.73
0.7
0.86
0.76
0.6

Cocoland Holdings
0.52
0.4
0.2
0
2008
2009
2010
2011
2012
Based on the graph above net profit margin for Cocoland Holding Berhad is higher than Oriental
Food Industries. In year 2008 the net profit for Cocoland and Oriental Food is 0.72 and 0.84
respectively. Cocoland Holdings starts to increase from 2009 until 2010 are 0.73 to 1.15 and
Oriental Food increase from 0.52 to 1.08. For years 2011 both company decrease to 0.7 and
0.83 and increase back in the year of 2012 to 0.76 and 0.86 respectively.
2. Gross Profit Margin
Gross Profit Margin shows how well the firm management control it expenses to
generate profits
The higher the gross profits margin becomes, the more funds are available for
expenditures and profits.
EBIT
Total Operating Revenue
1.8
1.62
1.6
1.4
1.2
1
1.16
1.06
0.96
0.9
0.95
1.08
1
0.8

Cocoland Holdings
0.72
0.6
0.4
0.38
0.2
0
2008
2009
2010
2011
2012
Based on the graph, Cocoland Holdings is higher than Oriental Food in the year of 2010 which is
1.62 and 1.16 respectively. From year 2008 to 2009, Cocoland Holdings and Oriental Food gross
profit margin decrease to 0.38 and 0.95. The gross profit margin increase to 1.00 for Cocoland
Holdings and 1.08 for Oriental Food.
3. Net return on Asset

A financial ratio that shows the percentage of profit a company earns in relation to its
overall resources
it is commonly defined as net income divided by total assets
Net Income
Average Total Assets
0.7
0.62
0.6
0.5
0.4

0.3
Cocoland Holdings
0.2
0.1
0.08
0.04
0.16
0.11
0.1
0.09
0.06
0.09
0
2008
2009
2010
2011
2012
Based on graph above, for year 2008 Cocoland Holdings is higher than oriental food which is
0.08 and 0.04 respectively. In the year of 2009 both company Net Return of Assets increase to
0.16 and 0.11. In 2011 there are decrease for Cocoland Holdings and Oriental Food to 0.06 and
0.09 respectively. On 2011 there are dramatically increase of Net Return On Assets for
Cocoland Holdings and Oriental Food which is 0.10 and 0.62 respectively. In year 2012,
Cocoland Holdings and Oriental food net return on assets is equal which 0.09 is.
4. Gross Return on Assets

An indicator of how profitable a company is relative to its total assets.
ROA gives an idea as to how efficient management is at using its assets to generate
earnings.
EBIT
Average Total Assets
0.9
0.8
0.79
0.7
0.6
0.5
0.4
Cocoland Holdings
0.3
0.2
0.1
0.18
0.1
0.05
0.08
0.1
0.08
0.1
0.11
0
2008
2009
2010
2011
2012
Based on the graph, Oriental Food Industries has the higher gross return on asset in 2011 which
is 0.79 compare to Cocoland which is 0.10. In 2008, Oriental Food Industries has 0.05 compare
to Cocoland which is 0.10. In 2009, oriental food industries gross return on asset increase to
0.08 and remain constant until 2010. For Cocoland Holdings, only increase to 0.11 and for 2010
and 2011 its remain constant 0.10 for 2 years. For the year of 2012, there are dramatically
decrease for Oriental Food Industries which is 0.11 and Cocoland Holdings Increase to 0.18.
5. Net Return on Assets (ROA)
Net return of asset is a percentage of profit a company earns in relation to its overall
resources.
Net Profit Margin x Assets Turnover
1.2
1.05
1
0.86
0.83
0.8
0.97
0.8
0.85
0.81
0.71
0.79
0.6
Cocoland Holdings
0.4
0.2
0.09
0
2008
2009
2010
2011
2012
Based on the graph above, Oriental Food industries net return on assets is higher than cocoland
holdings berhad for 5 year. In 2008, cocoland only has 0.81 compare to oriental food industries
which is 0.86. In 2009 oriental food industries and cocoland has 0.83 and 0.79 respectively.
Both company net return on assets increase to 1.05 and Cocoland increase dramatically to 0.71.
6. Return on equity (ROE)

The amount of net income returned as the percentage of shareholders equity. Return
on equity measures a corporation's profitability by recalling how much profit a company
generates with the money shareholders have invested.
Net Income
Average Stockholder Equity
0.25
0.21
0.2
0.15
0.1
0.1
0.1
0.11
0.07
0.05
0.1
0.11
Cocoland Holdings
0.08
0.05
0
2008
2009
2010
2011
2012
Based on the graph above return for Cocoland Holdings Berhad is higher than Oriental Food
Industries in year 2009. In year 2008 for Cocoaland and Oriental Food is 0.10 and 0.05
respectively. Cocoland Holdings starts to increase in 2009 to 0.21 and oriental food increase to
0.10. For year 2010, cocoland holdings start to decrease dramatically to 0.07 while for oriental
food it increase to 0.11. In 2012, both company has same return on equity which is 0.11

CALCULATION ON FIRM PERFORMANCE
I.
Leverage
Formula
2008
2009
2010
2011
2012
=0.84
=0.92
=1.06
=0.83
=0.86
=0.96
=0.95
=1.16
=1.06
=1.08
=0.04
=0.11
=0.09
=0.62
=0.09
=0.05
=0.11
=0.10
=0.79
=0.11
Net
Profit
Margin
Gross
Profit
Margin
Net
Return
On Asset
Gross
Return
On Asset
Return
On Asset
(ROA)
=0.86
=0.83
=0.97
=0.85
=1.05
=0.05
=0.10
=0.11
=0.08
=0.11
2008
2009
2010
2011
2012
Return
On
Equity
(ROE)
II.
Leverage
Formula

Net Profit
Margin
=0.71
=0.75
=1.15
=0.70
=0.76
=0.90
=0.38
=1.62
=0.72
=1.00
=0.08
=0.16
=0.06
=0.10
=0.09
=0.10
=0.08
=0.08
=0.10
=0.18
Gross
Profit
Margin
Net
Return
On Asset
Gross
Return
On Asset
Return
On Asset
(ROA)
0.71

=0.81
=0.79
=0.80
=0.06
=0.71
=0.10
=0.21
=0.07
=0.10
=0.11
Return
On Equity
(ROE)
CONCLUSION
Based on our observation between two consumer companies which is Oriental Food Industries and
Cocoaland Holdings Berhad, the most profitability company is Cocoaland Holdings Berhad in year 2010
compared to Oriental Food Industries. However, they achieved their profitability at the same year. Then,
net return on asset for both company are increase in year 2011 but for the year 2012 both company are
equal in percentage. Oriental Food Industries have higher percentage on return on asset than Cocoaland
Holdings Berhad for 5 years but both of the companies have decrease in percentage in year 2011.
For return on equity, Cocoaland Holdings Berhad has higher percentage than Oriental Food Industries.
From the overall performance shows that Oriental Food Industries is better than the Cocoaland Holdings
Berhad because their WACC represent lower than the Cocoaland Holdings Berhad. In WACC, the lower

the amount the company made represent the best performance. Furthermore, the increase and the
decrease of the company itself are depending on the market response immediately to all available
information.
Based on the dividend policy, as the company generates more profit, there will be more dividend payout
for the shareholders.
BIBLIOGRAPHY
I.
BOOK
BookModigliani, F; Miller, M. (1958). The Cost of Capital, Corporation Finance
and the Theory of Investment. American economic review (American economic
association)
Brealy, Richard A; Myers, Stewart C. (2008) [1981]. Principles of Corporate
Finance (9th edition). Boston : McGraw-Hill/Irwin
Corporate Finance Module Sem 1 2013/2014
II.
INTERNET
http://financetrain.com/modigliani-miller-and-capital-structure-theory
http://www.studyfinance.com/lessons/dividends/
http://investinpassiveincome.com/how-to-pick-a-top-dividend-company-fordividend-income-part-1/
APPENDIX

Cooperate Finance

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CORPORATE FINANCE FICB213

COCALAND HOLDING VS ORINTAL FOOD pg. 1

CORPORATE FINANCE FICB213

To evaluate the effect of dividend policy on profitability ratios

COCALAND HOLDING VS ORINTAL FOOD pg. 2

CORPORATE FINANCE FICB213

COCALAND HOLDING VS ORINTAL FOOD pg. 3

CORPORATE FINANCE FICB213

Example of Cocoaland products.

COCALAND HOLDING VS ORINTAL FOOD pg. 4

CORPORATE FINANCE FICB213

COCALAND HOLDING VS ORINTAL FOOD pg. 5

CORPORATE FINANCE FICB213

COCALAND HOLDING VS ORINTAL FOOD pg. 6

CORPORATE FINANCE FICB213

Example of Oriental Food Industries Products

COCALAND HOLDING VS ORINTAL FOOD pg. 7

CORPORATE FINANCE FICB213

COCALAND HOLDING VS ORINTAL FOOD pg. 8

CORPORATE FINANCE FICB213

COCALAND HOLDING VS ORINTAL FOOD pg. 9

CORPORATE FINANCE FICB213

COCALAND HOLDING VS ORINTAL FOOD pg. 10

CORPORATE FINANCE FICB213

No transaction costs exist, and

Individual and corporation borrow at the same rates.

CORPORATE FINANCE FICB213

VL is the value of a levered firm

Vu is the value of an unlevered firm

TcD is the tax rate (Tc) x the value of debt (D)

rE is the require rate of return on equity, or cost of levered equity=unlevered

rA is the company cost of equity capital with no leverage(unlevered cost of equity, or

rD is the required rate of return on borrowings, or costs of debt.

D/E is the debt-to-equity ratio

Tc is the taxe rate.

COCALAND HOLDING VS ORINTAL FOOD pg. 12

CORPORATE FINANCE FICB213

Corporation are taxed at the rate Tc on earning after interest

No transaction costs exist and

Individuals and corporation borrow at the same rate.

COCALAND HOLDING VS ORINTAL FOOD pg. 13

CORPORATE FINANCE FICB213

FINDING 1: COMPARISON ON THE CAPITAL STRUCTURE

COCALAND HOLDING VS ORINTAL FOOD pg. 14

CORPORATE FINANCE FICB213

COCALAND HOLDING VS ORINTAL FOOD pg. 15

CORPORATE FINANCE FICB213

Leverage (Book Value)

Oriental Food Industries

Oriental Food Industries

COCALAND HOLDING VS ORINTAL FOOD pg. 16

CORPORATE FINANCE FICB213

Oriental Food Industries

Cocoaland Holdings Berhad

Oriental Food Industries

COCALAND HOLDING VS ORINTAL FOOD pg. 17

Oriental Food Industries

CORPORATE FINANCE FICB213

Leverage (Market Value)

Cocoaland Holdings Berhad

Oriental Food Industries

Cocoaland Holdings Berhad

Oriental Food Industries