Excellent March Berhad (March) plans to approach Plasma Bank for an increase in its

overdraft facility.
The company provided the ratios below for the year ended 31 December 2011 and 2012 in
order to process the application.
Financial Ratio
Net Profit Margin
Net Asset Turnover
Current Ratio
Quick Ratio
Inventory Turnover Period
Debtors Turnover Period
Creditors Turnover Period

2011
4.50%
5.50%
1.50 x
0.80 x
20 days
21 days
20 days

2012
3.25%
7.60%
0.62 x
0.62 x
22 days
24 days
30 days

a. Given the current financial condition of March, would you as the Credit Committee
Chairman in Plasma Bank increase the limit on their existing facility? Why?
The current financial condition of March is in bad condition than compared to
their previous year. For their net profit margin is reduced from 4.50% in year 2011 to
3.25% in year 2012 that means they are not making much profit for year 2012. It is seems
like they not making profit from their sales. It needs to high profit margin because higher
profit margin is better for the company, but there may be strategic decisions made to
lower the profit margin or to even have it be negative.
For this company it is not good because their net asset turnover 7.60% in year
2012 high than 5.50% in year 2011 and also there are big difference. As company with
low profit margins tend to have high asset turnover, while those with high profit margins
have low asset turnover. Company needs to have a positive profit margin in order to earn
income, although having a negative profit margin may be advantageous in some
instances. However, company with low net profit margin indicates a low margin of safety.
There is a higher risk that a decline in sales will erase profits and result in a net loss or a
negative margin.

Based on their liquidity ratios such as current ratio and also quick ratio, for both
of them, they are slow than their previous year which means their ability to pay its
current liabilities using its current assets to meet its maturing short-term obligations are
0.62 times slow than in year 2011. This also shows that they having problem to liquid
their asset to cash when needed.
As for their activity ratios such as inventory turnover period, debtors turnover
period and also creditor turnover period are take more time to turnover. They are 22 days
more than 20 days for inventory turnover period, 24 days more than 21 days for debtors
turnover period and also 30 days more than 20 days more for creditors turnover period
from year 2012 to year 2011. This means that their level of efficiency for their business is
bad or not good. They take more time to turnover their business activity which means no
good for the business because the business turnover not particularly need to in fast
turnover but its need in just comfortable which means just enough for the company to get
their turnover in time.
It is difficult to accurately compare the net profit ratio for different entities.
Individual businesses' operating and financing arrangements vary so much that different
entities are bound to have different levels of expenditure. Comparing one business'
arrangements with another has little meaning. In the case of March, their current financial
conditions are in a bad condition even not the worst. It is hard to tell if they really can
survive or can make comeback.