Vous êtes sur la page 1sur 73

SBEQ 3822 FINANCIAL

MANAGEMENT
RATIO ANALYSIS ON
IREKA CORPORATION BERHAD
(YEAR 2005 2014)
GROUP MEMBERS:
1.

M R FARITH BIN ERWANDY

A13BE0050

2. MAH SIN YIN

A13BE0051

3. MOHAMMAD HAZIQ BIN KAMARUDDIN

A13BE0067

4. NOR MAHFUZAH BINTI ABDUL MALIK

A13BE0098

5. SITI MAHIRAH CHE HUSIN

B14BE0050

LECTURER: DR. SURESH RAMAKRISHNAM


DEPARTMENT OF QUANTITY SURVEYING
FACULTY OF BUILT ENVIRONMENT
UNIVERSITI TEKNOLOGI MALAYS

Acknowledgement
We would like to deliver our gratitude to our beloved financial managements lecturer,
Dr. Suresh Ramakrishnam for giving us the great opportunity to complete our assignment. By
doing this assignment, we really learn and more understanding about construction industry
from financial analysis.
Special thanks also for giving us the details of Financial Management during the class
which is easier for us to do this assignment. All of your advices make us more confident to
complete this assignment.
To all group members, much appreciation is given for giving full commitment and being
co-operative on finishing this assignment. Everyone take a responsible to finish their parts on
time so that the process for complete this assignment are easy and finish on time.
Last but not least, we would like to thank all our course mates for guide and help us for
finding the source information and more support us to complete this assignment. Thank you.

Table of Contents
1.0

Introduction .................................................................................................................................. i

2.0

Company Profile ......................................................................................................................... 2

3.0

Calculation .................................................................................................................................. 3

4.0

Ratio Analysis of Ireka Corporation Berhad (Year 2005-2014) ............................................... 23

4.1

Liquidity Ratio ...................................................................................................................... 23

4.1.1

Current Ratio ................................................................................................................. 23

4.1.2

Quick Ratio ................................................................................................................... 25

4.2

Assets Management Ratio..................................................................................................... 27

4.2.1

Inventory Turnover ....................................................................................................... 27

4.2.2

Days Sales Outstanding (DSO) ..................................................................................... 30

4.3

Fixed Asset & Total Asset Turnover Ratio ........................................................................... 33

4.3.1

Fixed Asset (FA) Turnover ........................................................................................... 33

4.3.2

Total Asset (TA) Turnover ........................................................................................... 35

4.4

Debt Management Ratio ....................................................................................................... 37

4.4.1

Debt Ratio ..................................................................................................................... 37

4.4.2

Time Interest Earn (TIE) ............................................................................................... 39

4.5

Profitability Ratio.................................................................................................................. 42

4.5.1

Gross Profit Margin ...................................................................................................... 42

4.5.2

Operating Profit Margin ................................................................................................ 44

4.5.3

Net Profit Margin .......................................................................................................... 47

4.5.4

Return on Asset (ROA) ................................................................................................. 49

4.5.5

Return on Equity (ROE) ............................................................................................... 52

5.0

Comparison between Ireka Corporation Berhad and YTL Corporation Berhad (2005-2014).. 55

5.1

Liquidity Ratio ...................................................................................................................... 55

5.1.1

Current Ratio ................................................................................................................. 55

5.1.2

Quick Ratio ................................................................................................................... 56

5.2

Assets Management .............................................................................................................. 57

5.2.1

Inventory Turnover ....................................................................................................... 57


ii

5.2.2
5.3

Days Sales Outstanding (DSO) ..................................................................................... 58

Fixed Asset & Total Asset Turnover .................................................................................... 59

5.3.1

Fixed Asset (FA) Turnover ........................................................................................... 59

5.3.2

Total Asset (TA) Turnover ........................................................................................... 60

5.4

Debt Management Ratio ....................................................................................................... 61

5.4.1

Debt Ratio ..................................................................................................................... 61

5.4.2

Time Interest Earn (TIE) ............................................................................................... 62

5.5

Profitability Ratio.................................................................................................................. 63

5.5.1

Gross Profit Margin ...................................................................................................... 63

5.5.2

Operating Profit Margin ................................................................................................ 64

5.5.3

Net Profit Margin .......................................................................................................... 65

5.5.4

Return on Asset (ROA) ................................................................................................. 66

5.5.5

Return on Equity (ROE) ............................................................................................... 67

6.0

Conclusion ................................................................................................................................ 68

7.0

Reference .................................................................................................................................. 69

8.0

Appendix ................................................................................................................................... 69

iii

1.0 Introduction
Financial statement is a report showing the financial position of a company. It is usually
part of the companys annual report, showing the firms condition and cash flow. Financial
statement of the organization allows shareholders and stakeholders to study about the
companys ability to generate cash and the capability to pay back debt. Content of financial
statements include balance sheet (statement of financial position), income statement,
statement of cash flow and statement of retained earnings.
There are the standard contents of a set of financial statements are:

Balance sheet - Shows the entity's assets, liabilities, and stockholders' equity as of the
report date.

Income statement - Shows the results of the entity's operations and financial activities
for the reporting period.

Statement of cash flows - Shows changes in the entity's cash flows during the
reporting period.

Supplementary notes - Includes explanations of various activities, additional detail on


some accounts, and other items as mandated by the applicable accounting framework.

Ratio analysis is a form of Financial Statement Analysis used to identify the financial
performance of companies. Ratios standardize numbers and facilitate in making comparison
between companies which has similar business. By studying the ratios, we are able to
highlight weaknesses and strengths of firms. The ratios are categorized as Short-term
Solvency Ratios, Debt Management Ratios, Asset Management Ratios, Profitability Ratios,
and Market Value Ratios.
Ratio analysis also a tool brought into play by individuals to carry out an evaluative
analysis of information in the financial statements of a company. These ratios are calculated
from current year figures and then compared to past years, other companies, the industry, and
also the company to assess the performance of the company. Besides, ratio analysis is used
predominantly by proponents of financial analysis.
The report is carried to analysis the financial statement of Ireka Corporation Berhad from
year 2005 to 2014. In this report, we will analysis financial statement of Ireka Corporation
1

Berhad includes liquidity ratio, asset management ratio, debt management ratio and
profitability ratio based on the annual report of Ireka Corporation Berhad. These ratios are
counted from the information of the group because of the lack of information of the company
in income statement. Besides, we also do the graph for each ratio to show the change and
trend for 10 years. Based on the graph, we comment on the trend of the company. This report
also includes the problem faced by the company Ireka Corporation Berhad. We also suggest
some solution to solve the problem faced by the company.

2.0 Company Profile


Ireka Corporation Berhad (Ireka) started its business as Syarikat Lai Siew Wah, a sole
proprietor undertaking general earthworks such as site-clearings and road works construction
throughout Malaysia, as a subcontractor initially and later as a sole contractor.
Ireka Corporation Berhad was listed on the Second Board of Bursa Malaysia on 12 July
1993, and transferred to the Main Board on 13 June 2002. Today, the Groups current
activities are divided into three core businesses; Infrastructure, Real Estate and Technologies.
The Group's Infrastructure business is represented by Ireka Engineering & Construction
Sdn Bhd in Malaysia and Ireka Engineering And Construction Vietnam Company Limited in
Vietnam. As a one-stop contractor with design-and-build capabilities, Irekas areas of
expertise consist of civil engineering works (expressways, bridges, large scale earthworks,
etc) and building works (landed and high-rise luxury residential developments, hotels,
offices, as well as planning and procurement of all operating equipment).
Ireka began acquiring landmark in Mont Kiara since 1990s, which enable the Group to
undertake property development activities throughout that decade and beyond. In 2007, Ireka
successfully pioneered the listing of Aseana Properties Limited on the London Stock
Exchange, to undertake property development activities in Malaysia and Vietnam. Ireka also
takes pride in the creation of i-Zen and zenZ, brand of luxury properties which generates new
modern designs to influence how people live and practical touches without compromising on
style.

3.0 Calculation
Year 2005
Liquidity Ratio
1. Current Ratio =

Current ssets
Current Liabilities

=
= 0.77
2. Quick Ratio =

Current ssets Inventory


Current Liabilities

=
= 0.75
Asset Management Ratios
3. Inventories Turnover =

Cost of Goods old


Inventories

=
= 40.15
4. Day Sales Outstanding (DSO) =

Current Trade eceivables


verage evenue per Day

=
= 88 days
evenue

5. Fixed Assets Turnover = Net Fixed

ssets

=
= 0.74
evenue

6. Total Assets Turnover = Total

ssets

=
= 0.49

Debt Management Ratios


Total Debt

7. Debt Ratio = Total

ssets

100%

= 83.56%
8. Time Interest Earned (TIE) = Interest Expense
=
= 0.81
Profitability Ratio
9. Gross Profit margin =

Gross Profit
evenue

100%

= 18.48%
10. Operating Profit Margin =

Operating Profit
evenue

100%

= 4.25%
11. Net Profit Margin =

Profit of the year


evenue

100%

= -2.85%
12. Return On Assets (ROA) =

Profit of the year


Total ssets

100%

= -1.38%
13. Return On Equity (ROE) =

Profit of the year


Total Equity

100%

= -8.41%
4

Year 2006
Liquidity Ratio
1. Current Ratio =

Current ssets
Current Liabilities

=
= 0.82
2. Quick Ratio =

Current ssets Inventory


Current Liabilities

=
= 0.80
Asset Management Ratios
3. Inventories Turnover =

Cost of Goods old


Inventories

=
= 38.88
4. Day Sales Outstanding (DSO) =

Current Trade eceivables


verage evenue per Day

=
= 86 days
evenue

5. Fixed Assets Turnover = Net Fixed

ssets

=
= 0.68
evenue

6. Total Assets Turnover = Total

ssets

=
= 0.44

Debt Management Ratios


Total Debt

7. Debt Ratio = Total

ssets

100%

= 84.57%
8. Time Interest Earned (TIE) = Interest Expemse
=
= 1.06
Profitability Ratio
9. Gross Profit margin =

Gross Profit
evenue

100%

= 20.10%
10. Operating Profit Margin =

Operating Profit
evenue

100%

= 5.80%
11. Net Profit Margin =

Profit of the year


evenue

100%

= -1.13%
12. Return On Assets (ROA) =

Profit of the year


Total ssets

100%

= -0.49%
13. Return On Equity (ROE) =

Profit of the year


Total Equity

100%

= -3.21%
6

YEAR 2007
Liquidity Ratio
1. Current Ratio =

Current ssets
Current Liabilities

=
= 1.10
2. Quick Ratio =

Current ssets Inventory


Current Liabilities

=
= 1.06
Asset Management Ratios
3. Inventories Turnover =

Cost of Goods old


Inventories

=
= 22.19
4. Day Sales Outstanding (DSO) =

Current Trade eceivables


verage evenue per Day

=
= 146 days
evenue

5. Fixed Assets Turnover = Net Fixed

ssets

=
= 4.50
evenue

6. Total Assets Turnover = Total

ssets

=
= 0.33

Debt Management Ratios


Total Debt

7. Debt Ratio = Total

ssets

100%

= 83.07%
8. Time Interest Earned (TIE) = Interest Expemse
=
= -1.55
Profitability Ratio
9. Gross Profit margin =

Gross Profit
evenue

100%

= -11.13%
10. Operating Profit Margin =

Operating Profit
evenue

100%

= -11.79%
11. Net Profit Margin =

Profit of the year


evenue

100%

= -17.84%
12. Return On Assets (ROA) =

Profit of the year


Total ssets

100%

= -5.88%
13. Return On Equity (ROE) =

Profit of the year


Total Equity

100%

= -34.72%
8

Year 2008
Liquidity Ratio
1. Current Ratio =

Current ssets
Current Liabilities

=
= 1.22
2. Quick Ratio =

Current ssets Inventory


Current Liabilities

=
= 1.16
Asset Management Ratios
3. Inventories Turnover =

Cost of Goods old


Inventories

=
= 23.19
4. Day Sales Outstanding (DSO) =

Current Trade eceivables


verage evenue per Day

=
= 170 days
evenue

5. Fixed Assets Turnover = Net Fixed

ssets

=
= 1.38
evenue

6. Total Assets Turnover = Total

ssets

=
= 0.47

Debt Management Ratios


Total Debt

7. Debt Ratio = Total

ssets

100%

= 62.79%
8. Time Interest Earned (TIE) = Interest Expemse
=
= 28.47
Profitability Ratio
9. Gross Profit margin =

Gross Profit
evenue

100%

= -4.67%
10. Operating Profit Margin =

Operating Profit
evenue

100%

= 54.77%
11. Net Profit Margin =

Profit of the year


evenue

100%

= 51.00%
12. Return On Assets (ROA) =

Profit of the year


Total ssets

100%

= 24.04%
13. Return On Equity (ROE) =

Profit of the year


Total Equity

100%

= 64.63%
10

Year 2009
Liquidity Ratio
1. Current Ratio =

Current ssets
Current Liabilities

=
= 1.04
2. Quick Ratio =

Current ssets Inventory


Current Liabilities

=
= 0.98
Asset Management Ratios
3. Inventories Turnover =

Cost of ale
Inventories

=
= 19.93
4. Day Sales Outstanding (DSO) =

Current Trade eceivables


verage evenue per Day

=
= 148 days
evenue

5. Fixed Assets Turnover = Non-Current

ssets

=
= 1.22
evenue

6. Total Assets Turnover = Total

ssets

=
= 0.65

11

Debt Management Ratios


7. Debt Ratio =

Total Liability
Total ssets

100%

= 52.98%
8. Time Interest Earned (TIE) =
=
= 2.12
Profitability Ratio
9. Gross Profit margin =

Gross Profit
evenue

100%

= 11.21%
10. Operating Profit Margin =

Operating Profit
evenue

100%

= 4.12%
11. Net Profit Margin =

evenue

100%

= 1.86%
12. Return On Assets (ROA) =

Total ssets

100%

= 1.21%
13. Return On Equity (ROE) =

Total Equity

100%

= 2.58%
12

Year 2010
Liquidity Ratio
1. Current Ratio =

Current ssets
Current Liabilities

=
= 1.04
2. Quick Ratio =

Current ssets Inventory


Current Liabilities

=
= 0.98
Asset Management Ratios
3. Inventories Turnover =

Cost of ale
Inventories

=
= 20.70
4. Day Sales Outstanding (DSO) =

Current Trade eceivables


verage evenue per Day

=
= 165 days
evenue

5. Fixed Assets Turnover = Non-Current

ssets

=
= 1.50
evenue

6. Total Assets Turnover = Total

ssets

=
= 0.72

13

Debt Management Ratios


7. Debt Ratio =

Total Liability
Total ssets

100%

= 56.39%
8. Time Interest Earned (TIE) =

Finance Cost

=
= 2.58
Profitability Ratio
9. Gross Profit margin =

Gross Profit
evenue

100%

= 11.24%
10. Operating Profit Margin =

Operating Profit
evenue

100%

= 5.18%
11. Net Profit Margin =

Profit of the ear


evenue

100%

= 2.21%
12. Return On Assets (ROA) =

Profit of the ear


Total ssets

100%

= 1.59%
13. Return On Equity (ROE) =

Profit of the ear


Total Equity

100%

= 3.65%
14

Year 2011
Liquidity Ratio
1. Current Ratio =

Current ssets
Current Liabilities

=
= 0.99
2. Quick Ratio =

Current ssets Inventory


Current Liabilities

=
= 0.94
Asset Management Ratios
3. Inventories Turnover =

Cost of Goods old


Inventories

=
= 23.70
4. Day Sales Outstanding (DSO) =

Current Trade eceivables


verage evenue per Day

=
= 136 days
evenue

5. Fixed Assets Turnover = Net Fixed

ssets

=
= 1.74
evenue

6. Total Assets Turnover = Total

ssets

=
= 0.78

15

Debt Management Ratios


Total Debt

7. Debt Ratio = Total

ssets

100%

= 61.48%
8. Time Interest Earned (TIE) = Interest Expemse
=
= 0.84
Profitability Ratio
9. Gross Profit margin =

Gross Profit
evenue

100%

= 8.33%
10. Operating Profit Margin =

Operating Profit
evenue

100%

= 2.18%
11. Net Profit Margin =

Profit of the year


evenue

100%

= -2.64%
12. Return On Assets (ROA) =

Profit of the year


Total ssets

100%

= -2.05%
13. Return On Equity (ROE) =

Profit of the year


Total Equity

100%

= -5.33%
16

Year 2012
Liquidity Ratio
1. Current Ratio =

Current ssets
Current Liabilities

=
= 0.93
2. Quick Ratio =

Current ssets Inventory


Current Liabilities

=
= 0.90
Asset Management Ratios
3. Inventories Turnover =

Cost of Goods old


Inventories

=
= 34.31
4. Day Sales Outstanding (DSO) =

Current Trade eceivables


verage evenue per Day

=
= 154 days
evenue

5. Fixed Assets Turnover = Net Fixed

ssets

=
= 1.49
evenue

6. Total Assets Turnover = Total

ssets

=
= 0.72

17

Debt Management Ratios


Total Debt

7. Debt Ratio = Total

ssets

100%

= 62.13%
8. Time Interest Earned (TIE) = Interest Expemse
=
= 1.20
Profitability Ratio
9. Gross Profit margin =

Gross Profit
evenue

100%

= 11.86%
10. Operating Profit Margin =

Operating Profit
evenue

100%

= 3.40%
11. Net Profit Margin =

Profit of the year


evenue

100%

= 2.42%
12. Return On Assets (ROA) =

Profit of the year


Total ssets

100%

= 1.75%
13. Return On Equity (ROE) =

Profit of the year


Total Equity

100%

= 4.63%
18

Year 2013
Liquidity Ratio
1. Current Ratio =

Current ssets
Current Liabilities

=
= 0.85
2. Quick Ratio =

Current ssets Inventory


Current Liabilities

=
= 0.82
Asset Management Ratios
3. Inventories Turnover =

Cost of Goods old


Inventories

=
= 27.32
4. Day Sales Outstanding (DSO) =

Current Trade eceivables


verage evenue per Day

=
= 129 days
evenue

5. Fixed Assets Turnover = Net Fixed

ssets

=
= 1.21
evenue

6. Total Assets Turnover = Total

ssets

=
= 0.64

19

Debt Management Ratios


Total Debt

7. Debt Ratio = Total

ssets

100%

= 65.07%
8. Time Interest Earned (TIE) = Interest Expemse
=
= -1.23
Profitability Ratio
9. Gross Profit margin =

Gross Profit
evenue

100%

= 8.44%
10. Operating Profit Margin =

Operating Profit
evenue

100%

= -3.13%
11. Net Profit Margin =

Profit of the year


evenue

100%

= -12.19%
12. Return On Assets (ROA) =

Profit of the year


Total ssets

100%

= -7.85%
13. Return On Equity (ROE) =

Profit of the year


Total Equity

100%

= -22.49%
20

Year 2014
Liquidity Ratio
1. Current Ratio =

Current ssets
Current Liabilities

=
= 0.84
2. Quick Ratio =

Current ssets Inventory


Current Liabilities

=
= 0.79
Asset Management Ratios
3. Inventories Turnover =

Cost of Goods old


Inventories

=
= 15.73
4. Day Sales Outstanding (DSO) =

Current Trade eceivables


verage evenue per Day

=
= 157 days
evenue

5. Fixed Assets Turnover = Net Fixed

ssets

=
= 1.13
evenue

6. Total Assets Turnover = Total

ssets

=
= 0.53

21

Debt Management Ratios


Total Debt

7. Debt Ratio = Total

ssets

100%

= 72.09%
8. Time Interest Earned (TIE) = Interest Expemse
=
= -0.22
Profitability Ratio
9. Gross Profit margin =

Gross Profit
evenue

100%

= 10.79%
10. Operating Profit Margin =

Operating Profit
evenue

100%

= -0.65%
11. Net Profit Margin =

Profit of the year


evenue

100%

= -9.43%
12. Return On Assets (ROA) =

Profit of the year


Total ssets

100%

= -5.02%
13. Return On Equity (ROE) =

Profit of the year


Total Equity

100%

= -18.00%
22

4.0 Ratio Analysis of Ireka Corporation Berhad (Year 2005-2014)


4.1 Liquidity Ratio
4.1.1 Current Ratio
Definition
The current ratio is a financial ratio that measures whether or not a firm has enough resources
to pay its debts over the next 12 months. It compares a firm's current assets to its current liabilities. It
is expressed as follows:

The current ratio is an indication of a firm's market liquidity and ability to meet creditor's
demands. Acceptable current ratios vary from industry to industry and are generally between 1.5 and
3 for healthy businesses. If a company's current ratio is in this range, then it generally indicates good
short-term financial strength.
If current liabilities exceed current assets (the current ratio is below 1), then the company may
have problems meeting its short-term obligations. If the current ratio is too high, then the company
may not be efficiently using its current assets or its short-term financing facilities. This may also
indicate problems in working capital management.
Low values for the current or quick ratios (values less than 1) indicate that a firm may have
difficulty meeting current obligations. Low values, however, do not indicate a critical problem. If an
organization has good long-term prospects, it may be able to borrow against those prospects to meet
current obligations. Some types of businesses usually operate with a current ratio less than one. For
example, if inventory turns over much more rapidly than the accounts payable become due, then the
current ratio will be less than one. This can allow a firm to operate with a low current ratio.
If all other things were equal, a creditor, who is expecting to be paid in the next 12 months,
would consider a high current ratio to be better than a low current ratio, because a high current ratio
means that the company is more likely to meet its liabilities which fall due in the next 12 months. You
should view the relation between the operation cycle period and the current ratio

Years

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Current Ratio (x) 0.77

0.82

1.10

1.22

1.04

1.04

0.99

0.93

0.85

0.84

23

Current Ratio (x)


1.4
1.22

1.2

1.10

1
0.8

0.77

1.04

1.04

0.99

0.93

0.82

0.85

0.84

0.6
0.4
0.2
0
2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Years

Analysis
Based on the graph for current ratio for IREKA COOPERATION BERHAD, the graph
increase slightly from year 2005 until year 2008, and the current ratio for years 2005 and 2006 the
current ratio are less than 1 meanwhile for years 2007 and 2008 the current ratio are more than 1. At
year 2009, the graph drop suddenly to 1.04 but company still able to pay back the liabilities but not so
much as the year before until 2010. From year 2010 until year 2014, current ratio is continuing
decreasing. In year 2011, the current ratio for company Ireka Cooperation Berhad is 0.99, it decreases
to 0.93, 0.85 and 0.84 in year 2012, 2013 and 2014 respectively. The highest current ratio of
company is 1.22 in year 2008.
Problem
Ireka Corporation Berhad has a weak liquidity in the range of year 2005 to 2014. The firm has
weak liquidity in almost every year except from the period of 2007 to 2010. It can be show as the
current ratio for year 2005, 2006, 2011 to 2014 is lower than 1. This means that except for year 2007,
2008, 2009 and 2010, the firm have is not performing well. Low liquidity if Ireka may due to low
current assets, high current liabilities or high inventory level of the company. If the company is
facing low current assets and high current liabilities, this situation will lead the company to burst as
the company is not capable to return all obligation even after converting all its current assets into cash
immediately with a fair price..
From year 2005 to 2008, the firm current ratio of company show uptrend but starting from
2009, the firm shows a decrease in firms liquidity. It is say that the firm is growing during year 2005
to 2008, unfortunately the performance of firm decline after 2008. Therefore, the company may face
problem if they are to fulfil their liability immediately. The company may also face difficulties in
24

getting loan from creditors or will be imposed to higher interest rates as creditors will prefer to give
loan to company with higher current ratio.
Solution
Ireka Corporation Berhad will have to improve companys liquidity and well control the
company inventory level. Account receivable of the company is required to be monitored effectively
to ensure the company billing its clients properly and ensure the company receiving the prompt
payments. The company may choose to borrow long term loan to pay back short term liabilities.

4.1.2 Quick Ratio


Definition
In finance, quick ratio (or acid test or liquid ratio) measures the ability of a company
to use its near cash or quick assets to extinguish or retire its current liabilities immediately.
Quick assets include those current assets that presumably can be quickly converted to cash at
close to their book values. Among current assets, inventories are least liquid compared to
others and therefore is being excluded from current assets when calculating quick ratio.

Since inventories are excluded from quick ratio calculation but included in current ratio
calculation,
A company with a quick ratio of less than 1 cannot currently fully pay back its current
liabilities. Quick ratio should be 1:1 or higher than 1 to indicate the ability of firm to pay
back all its liability immediately. Although ratios may varied widely by industry, generally,
the higher the ratio, the greater the company's liquidity.
However, ratios are tests of viability for business entities but do not give a complete
picture of the business' health. For example, if a business has large amounts in accounts
receivable which are due for payment after a long period (say 120 days) while business
expenses and accounts payable due for immediate payment, the quick ratio may look healthy
when the business is actually about to run out of cash. In contrast, if the business gets its
payment from customers in short term while having a long term payment to the suppliers, it
may have a very low quick ratio and yet be very healthy.

25

Years

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Quick Ratio (x) 0.75

0.80

1.06

1.16

0.98

0.98

0.94

0.90

0.82

0.79

Quick Ratio (x)


1.4

1.2
1.06

1
0.8

0.75

1.16
0.98

0.98

0.94

0.80

0.90

0.82

0.79

0.6
0.4
0.2
0
2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Years

Analysis
Based on the graph, quick ratio of Ireka Corporation Berhad from 2005 until 2008 has
increase slightly. In year 2005, the quick ratio of company Ireka is 0.75. It increases to 0.80
in year 2006, 1.06 in year 2007 and 1.16 in 2008. The current ratio from 2005 to 2006 is
more than less than 1. Meanwhile from year 2007 until 2008, the quick ratio is more than 1.
So, the firm has ability to pay back its short term liabilities. At 2009, the graph drop to 0.98
and the quick ratio is maintained until year 2010. In 2010 until 2014, current ratio decrease
slightly. In year 2011, the quick ratio for company Ireka is 0.94. It continue drop to 0.82 and
0.79 in year 2012 and year 2013. In year 2014, the quick ratio for company is 0.79. The
highest quick ratio is at year 2008 which is 1.16.
Problem
One of the probabilities of Ireka Corporation Berhad having low current ratio is due to
high inventory level. By comparing quick ratio with current ratio, it is clear that the
companys liquidity does not rely much on inventory. This can be determine since ratio of the
company differ the maximum 0.06 after excluding inventory in measuring the companys
liquidity.

26

Similarly with current ratio, quick ratio is consider not preferable if it is lower than 1.
Quick ratio lower than 1 reflects that the company will be facing difficulties in fulfilling its
obligation in short term.
Solution
The company may find out way to increase its current assets and decrease its current
liabilities. In the same time, the inventory level should also be control so that the quick ratio
is maintained not to differ much with quick ratio.

4.2 Assets Management Ratio


4.2.1 Inventory Turnover
Inventory turnover measure the number of times inventory is sold or used in a time
period such as a year. Inventory turnover is also known as inventory turns, merchandise
turnover, stockturn, stock turns, turns and stock turnover.
The formula for inventory turnover:

A low turnover rate may point to overstocking, obsolescence, or deficiencies in the


product line or marketing effort. However, in some instances a low rate may be appropriate,
such as where higher inventory levels occur in anticipation of rapidly rising prices or
expected market shortages.
Conversely a high turnover rate may indicate inadequate inventory levels, which may
lead to a loss in business as the inventory is too low. This often can result in stock shortages.
Some compilers of industry data use sales as the numerator instead of cost of sales. Cost of
sales yields a more realistic turnover ratio, but it is often necessary to use sales for purposes
of comparative analysis. Cost of sales is considered to be more realistic because of the
difference in which sales and the cost of sales are recorded. Sales are generally recorded at
market value, i.e. the value at which the marketplace paid for the good or service provided by
the firm. In the event that the firm had an exceptional year and the market paid a premium for
the firm's goods and services then the numerator may be an inaccurate measure. However,
cost of sales is recorded by the firm at what the firm actually paid for the materials available

27

for sale. Additionally, firms may reduce prices to generate sales in an effort to cycle
inventory. In this article, the terms "cost of sales" and "cost of goods sold" are synonymous.
An item whose inventory is sold (turns over) once a year has higher holding cost than one
that turns over twice, or three times, or more in that time. Stock turnover also indicates the
briskness of the business. The purpose of increasing inventory turns is to reduce inventory for
three reasons.

Increasing inventory turns reduces holding cost. The organization spends less money on
rent, utilities, insurance, theft and other costs of maintaining a stock of good to be sold.

Reducing holding cost increases net income and profitability as long as the revenue from
selling the item remains constant.

Items that turn over more quickly increase responsiveness to changes in customer
requirements while allowing the replacement of obsolete items. This is a major concern in
fashion industries.

When making comparison between firms, it's important to take note of the industry, or the
comparison will be distorted. Making comparison between a supermarket and a car dealer,
will not be appropriate, as supermarket sells fast moving goods such as sweets, chocolates,
soft drinks so the stock turnover will be higher. However, a car dealer will have a low
turnover due to the item being a slow moving item. As such only intra-industry
comparison will be appropriate.

Years

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Inventories Turnover (x) 40.15 38.88 22.19 23.19 19.93 20.70 23.70 34.31 27.32 15.73

28

Inventories Turnover (x)


45
40
35
30
25
20
15
10
5
0

40.15 38.88
34.31
27.32
22.19 23.19

19.93 20.70

23.70
15.73

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Years

Analysis
Based on the graph of inventory turnover for IREKA COOPERATION BERHAD,
from the year 2005 until year 2006, the graph is decrease slightly which are from 40.15 to
38.88. The inventory turnover drops suddenly at year 2007 to 22.19. The inventory turnover
is increase slightly at year 2008 which is 23.19 and drop at year 2009 which is 19.93. The
inventory turnover increases from year 2010 until 2012 which are 20.70 for year 2010, 23.70
for year 2011 and 34.31 at year 2012. The inventory turnover drop suddenly at year 2013 to
27.32 and keep dropping until year 2014 which is 15.73. The highest inventory turnover for
Ireka is 40.15 at year 2005. Meanwhile the lowest is 15.73 at year 2014.
Problem
A lowest inventory turnover for Ireka Cooperation Berhad is 15.73 occur at year 2014.
This is a signal of inefficiency, since inventory usually has a rate of return of zero. It also
implies either poor sales or excess inventory. A low turnover rate can indicate poor liquidity,
possible overstocking, and obsolescence. But it may also reflect a planned inventory buildup
in the case of material shortages or in anticipation of rapidly rising prices.
Meanwhile a highest inventory turnover for Ireka Cooperation Berhad is 40.15 occur
at year 2005. The high inventory turnover ratio implies either strong sales or ineffective
buying which is the company buys too often in small quantities, therefore the buying price is
higher. A high inventory turnover can indicate better liquidity, but it can also indicate a
shortage or inadequate inventory levels, which may lead to a loss in business.
29

Solution
There are many ways to overcome this problem. One of the ways is to reduce lead
time from vendors and suppliers. Although sometimes more difficult because of
organizational alignment, lack of technology or other factors, is to increase forecast accuracy.
A technique to increase sales revenue as well is to reconcile safety stock policies with
management priorities across the product line. Besides that, reduce purchase transaction costs
(distributors) and set-up/changeover costs (manufacturers).
Furthermore, company also has to work off overstock at the distribution centers (any
firm) and at stores (retailers) by transferring slow-moving inventory to facilities where the
demand exists in lieu of purchasing additional quantities.
In addition, the company can purchase or manufacture to-order instead of to-inventory,
when lead time and capacity allow, or use postponement techniques. Company needs to
incorporate forecasting and inventory performance into the firms continuous improvement
program, and measure, report, and review results against goals.
4.2.2 Days Sales Outstanding (DSO)
Definition
Days sales outstanding (D O), also called the verage Collection Period ( CP), is
used to measure the average number of days a business takes to collect its trade receivable
after they have been created. Thus, the DSO represents the average length of time a company
must wait after making a sale before receiving cash. The D O also reveals how many days
worth of sales are outstanding and unpaid within specific period
The DSO is calculated by dividing current trade receivable by average revenue per
day (revenue divided by 365 days).

Days sales outstanding (DSO) is important to determine the effectiveness of a


companys credit and collection efforts in allowing credit to reputable customers, as well as
its ability to collect from them.

30

The DSO will be compared with industrial average. When the DSO ratio is lower than
industrial average, which shows the company collect cash earlier from customers and can use
the cash for other activities. The faster a company receives cash, the faster the company can
reinvest the cash to make more sales. When the DSO ratio is higher, that indicates the
customers are unable or unwilling to pay for their purchases. Therefore, the company must
have good policy in collecting cash from customers.
Years

2005

DSO (Days) 88

2006

2007

2008

2009

2010

2011

2012

2013

2014

86

146

170

148

165

136

154

129

157

Days

Days Sales Outstanding (DSO)


180
160
140
120
100
80
60
40
20
0

170
146

88

165
148

157

154
136

129

86

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Years

Analysis
The graph above shows the Days Sales Outstanding for IREKA Corporation Berhad
from year 2005 until 2014. The ratio is fluctuated from year to year. For the year of 2005, day
sales outstanding ratio shows that the payment received by IREKA Corporation Berhad is 88
days. From the year 2006, day sales outstanding ratios slightly decrease to 86 days but it
increase again in 2007 to 2008. The ratio continues to fluctuate starting from year 2008 until
2013. In 2009, the ratio is decrease to 146 days but increase again in 2010, 165 days. The
ratio decline again in 2011, but continue growth in 2012. The patterns continue in 2013 and
2014. For the last year 2014, it was slightly increase to 157 days. The highest DSO is in 2008,
170 days. It shows that the Group is selling its product to customers on credit and takes times
to collect accounts receivable. The lowest DSO stated in 2006 which is 86 days. A low

31

number means that it takes a group fewer days to collect its accounts receivable. Days
growth for DSO will cause accounts receivable group returns in long time.
Problem
The IREKA Corporation Berhad in the year 2008 have shown highest days sales
outstanding as it have a higher number in account receivables, and lower number in sales. It
shows that the debtor who refuses to pay the debt at the time appointed. A higher ratio
indicates a group with poor collection procedures and customers who are unable or unwilling
to pay for their purchases. Companies with high Days sales ratios are unable to convert sales
into cash as quickly as firms with lower ratios. The numbers of days for IREKA Corporation
Berhad to receive its operating revenue has risen since year 2007; it recorded that the highest
in the past 10 years, approximately 170 days. This will deprives IREKA Corporation Berhad
of fund that the group could use to invest in productive assets. This may lead to IREKA
Corporation Berhad to have hard times to recover its receivables.
Factors that influenced causes of delayed and incomplete receipt of payment are:
i.

Internal processes cause invoices and statements to go out later than they
could have

ii.

Product/service performance gives customers plausible excuses or good reason


to delay, deduct or deny.

iii.

Incomplete understanding of; and compliance with customers procurement


formalities.

iv.

Customers are becoming even more demanding of their suppliers as they seek
to lower their cost of doing business.

Solution
IREKA Corporation Berhad must improve results of their groups Days

ales

Outstanding. Analytically-driven pricing and commercial process improvements can set up


better outcomes:
1. Expedite the collection of account receivables and if it was not taken seriously into
consideration, it may give a hard time recover its receivable in the future as it may
lead to a trend in the future.
32

2. Get paid more by the customer. Such as, fewer deductions/denials, better price yields.
3. Get paid faster by the customer. Such as, billing/receivable cycle.
4. Increase customer satisfaction and productivity.
5. Collect outstanding receivables quickly from the customer.

4.3 Fixed Asset & Total Asset Turnover Ratio


4.3.1 Fixed Asset (FA) Turnover
Definition
Fixed asset turnover measures how effectively a company uses its fixed assets in
generating revenue. It calculates the dollars of revenue earn per one dollar investment in
fixed assets.
The fixed asset turnover is calculated by dividing revenue by total of non-current
assets. Non-current assets are including property, plant, equipment, investments and land held
for property development.

The fixed asset turnover ratio measures how efficient a company uses its assets to
generate revenue, so a higher ratio compared to industry average is always more favorable.
Higher turnover ratios indicate that the company is using its asset efficiently. Lower turnover
ratios mean that the company isnt using its assets efficiently and most likely have
management or production problem.
Years

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

FA Turnover (x) 0.74

0.68

4.50

1.38

1.22

1.50

1.74

1.49

1.21

1.13

33

Fixed Assets Turnover (x)


5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0

4.50

1.38
0.74
2005

1.22

1.50

1.74

1.49

1.21

1.13

0.68

2006

2007

2008

2009

2010

2011

2012

2013

2014

Years

Analysis
The graph above shows the fixed asset turnover ratio of the IREKA Corporation
Berhad from the year 2005 until 2014. The fixed asset turnover ratio measures how
effectively the firms uses its plant and equipment. For I EK

Corporation Berhad, in year

2005, it shows that the fixed asset turnover is 0.74 times is slightly higher than foxed asset
turnover on 2006 which is 0.68. This shows that the Group fixed assets are being
underutilized or there are more assets that can be effectively used. On 2007, the fixed asset
turnover increase drastically to 4.50 times. This shows that the Groups is ding effective job
of generating sales with a relatively small amount of fixed assets. After that, in year 2008, the
fixed asset turnover decrease drastically to 1.38 times and 1.22 times in year 2009.
Meanwhile in year 2010 and 2011, the fixed asset turnover is slightly increase; 1.50 times
and 1.74 respectively. However the fixed asset turnover continues declining in year 2012 to
2014. In the last year recorded, the ratio decrease to 1.13 times. This shows that in year 2012
to 2014, the Group is having more net fixed asset and receives lower sales in the respective
years.
Problem
The problem that IREKA Corporation Berhad suffers from year 2007 until 2009 and 2011
until 2014 is low fixed asset ratio. Higher ratios indicate that the Groups quick initiatives in
replacing obsolete or worn out fixed assets with new fixed assets or that the Group is growing
at such a fast rate that the group readily purchases additional fixed assets to keep pace with

34

sales levels. By using fixed assets that allow the most productive fabrication of products or
delivery of services, you can minimize production costs.
i.

Rapidly changing industries, this typically means the regular updating of fixed assets.

ii.

The total of net fixed assets is higher and the sales of respective year are not high
enough.

iii.

The use of fixed assets those are not efficient, for examples there are fixed assets that
are not used during the production process.

Solution
1. Increase its operating revenues in order to comply with its increasing assets.
2. Increasing its fixed assets, its operating revenues are not increasing accordingly to its
fixed assets.
3. Producing enough products and find ways to move those products more quickly,
including discounting bulk purchases, holding sales on old products and initiating
promotional campaigns.
4. Sell any fixed assets that do not improve the bottom line on regular basis.
4.3.2 Total Asset (TA) Turnover
Definition
Total asset turnover measure how efficiently a company can use its total assets to
generate revenue. This gives investors and creditors an idea of how the company is managed
and uses its assets to produce product and revenue. The total asset turnover ratio show how
many revenue are generated from each dollar of company assets.
The total asset turnover is calculated by dividing revenue by total assets. The total
assets are including all assets, current and non-current assets.

The total asset turnover ratio measures how efficiently a company can uses its total
assets to generate revenue, therefore the higher ratios imply that the company is generating
more revenue per dollar of its assets which mean the company is performing well. The higher
35

the ratio of turnover compared to industry average, that mean the company is fully utilizing
all its assets to generate sales. Lower total asset turnover ratios mean that the company is not
generating a sufficient volume of business given its total assets, the business problem can be
either the company holding obsolete inventory or late in collecting trade receivable or not
fully utilizing fixed assets.
The fixed asset turnover is based on industry standards. Therefore, to know how well
a companys assets are being used, it must be compared to other companies in same industry.
Years

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

TA Turnover (x) 0.49

0.44

0.33

0.47

0.65

0.72

0.78

0.72

0.64

0.53

Total Assets Turnover (x)


0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0

0.65
0.49

0.72

0.78

0.72
0.64
0.53

0.47

0.44
0.33

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Years

Analysis
The graph above shows the total asset turnover ratio of the IREKA Corporation
Berhad from the year 2005 until 2014. From year 2005 to year 2007, the total asset turnover
ratio for IREKA Corporation Berhad has decrease for the consecutive three years. In year
2005, the total asset turnover ratio is 0.49. The ratio is decreasing from 0.49 to 0.44 in 2006
then 0.33 in year 2007. In year 2008 until 2011, the total asset turnover is increasing from
0.47 in 2008 to 0.78 in 2011. This increasing is due to the revenue in the respective years are
increasing and the current asset also increasing steadily. However, in year 2012 to 2014, the
total asset turnover decline from 0.72 to 0.53. The total asset turnover calculates net sales as a
percentage of assets to show how many sales are generated from each dollar of group assets.
36

Thus the ratio in the last year 2014 is 0.53 means that each RM 1.00 of assets generates RM
0.53 of sales.
Problem
i.

Unsatisfactory level of sales and some of the assets might be obsolete, damaged or
unusable

ii.

Excess production capacity and poor inventory management or lax collection methods
of the group also can decrease the ratio

iii.

Ratio that not generating a sufficient volume of sales for the size of its total asset
investment

iv.

Not selling inventory fast enough.

v.

Collection period could be too long and credit accounts may be on the books too long.

vi.

The assets are not used to its fully potential in order to help maximizing firm value

Solution
1. IREKA Corporation Berhad should increase sales through promotion or having a
sales discount for bulk purchases or holding sales on old products.
2. Review and reduce cost of production or services where applicable and sell off fixed
assets that are no longer being used in production.
3. The group also should take action on damages or spoilt inventories. If non-repairable
and obsolete assets (including inventories) should be sold as scraps.
4. Sell assets that are unproductive since it not generate lot income for company.

4.4 Debt Management Ratio


4.4.1 Debt Ratio
Definition
Debt ratio is a financial ratio that measures the extent of a companys or consumers
leverage. The debt ratio is defined as the ratio of total long-term and short-term debt to total

37

assets, expressed as a decimal or percentage. It can be interpreted as the proportion of a


companys capitals that are financed by debt.

The higher this ratio, the more leveraged the company is, implying greater financial
risk. Leverage is the amount of debt used to finance a firm's assets. A firm with significantly
more debt than equity is considered to be highly leveraged. At the same time, leverage is an
important tool that companies use to grow, and many businesses find sustainable uses for
debt. Companies are encourages to have lower debt ratio to decrease risk in debt financing.
Years

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Debt Ratio

83.56 84.57 83.07 62.79 52.98 56.39 61.48 62.13 65.07 72.09

(%)

Debt Ratio (%)


90.00%
80.00%
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%

83.56% 84.57% 83.07%


62.79%

2005

2006

2007

2008

52.98% 56.39%

2009

2010

61.48%

2011

72.09%
65.07%
62.13%

2012

2013

2014

Years

Analysis
From the graph, we can conclude the percentage of debt ratio produced by IREKA
Corporation berhad is higher for the first 3 year commencing from 2005 to 2007. The initial
trend showing us that the company has higher leverage due to the development of company.
The year after until 2009, the graph dropped dramatically from 83.07% to 52.98% shows the
company is comfortable with the position with achievement of 30% off for the leverage. The

38

debt ratio increase gradually from 52.98% (2010) to 56.39% (2011). It continued to increase
to 61.48% in 2012, 65.07% in 2013 and 72.09% in 2014.
Problem
Debt ratio can be determined by dividing the total debt over the total asset of the
company to show the amount of funds owe and need to be settle. The graph from 2005 to
2007 shows the company has higher debt over the 3 years. The importance of debt ratio to the
company is to maintain at the lowest possible value for its own safety. But, for some situation,
higher debt level can benefit company such as can provide a suitable source of capital to start
or expand the business and the returns on equity can be higher. But in a common situation,
higher debt usually brings a bad result in the end. The scenario can be like insufficient cash
flow, effect pressure on business, susceptibility to interest rate increase and may starve
expenditure for the development.
The high ratios also indicate great risk for the company to hold. Thus, it may influence
qualifying amounts of mortgage loans and automobile loans and others relative to its asset. A
company with a high debt ratio relative to its peers would probably find it expensive to
borrow and could find itself in a crunch if circumstances change.
Solution
In order to maintaining the debt ratio to its lowest value, IREKA Corporation Berhad
has to decrease the debt gradually through repayment and minimise the need to hold large
asset. This can help in preventing the company from becoming higher debt holder.
Furthermore, make sure to minimise the need to borrow beyond 50% sold and increase
profitable sales. IREKA Corporation Berhad can also sell the asset and lease them back or
increasing the number of investor to reduce the company debt.
4.4.2 Time Interest Earn (TIE)
Definition
A metric used to measure a company's ability to meet its debt obligations. It is
calculated by taking a company's earnings before interest and taxes (EBIT) and dividing it by
the total interest payable on bonds and other contractual debt. It is usually quoted as a ratio
and indicates how many times a company can cover its interest charges on a pre-tax basis.
Failing to meet these obligations could force a company into bankruptcy.
39

Ensuring interest payments to debt holders and preventing bankruptcy depends mainly
on a company's ability to sustain earnings. However, a high ratio can indicate that a company
has an undesirable lack of debt or is paying down too much debt with earnings that could be
used for other projects. The rationale is that a company would yield greater returns by
investing its earnings into other projects and borrowing at a lower cost of capital than what it
is currently paying to meet its debt obligations.
Years

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

TIE (x 0.81

1.06

-1.55

28.47

2.12

2.58

0.84

1.20

-1.23

-0.22

Time Interst Earn (TIE) (x)


30

28.47

25
20
15
10
5
0
-5

0.81
2005

1.06

2006

-1.55
2007 2008

2.12
2009

2.58

2010

0.84

2011

1.20

2012

-1.23 -0.22
2013 2014

Years

Analysis
As we can see, the overview of the graph for the Time Interest Earn by the IREKA
Corporation Berhad is steadily maintained which cover -5 to 5. But in 2008, the graph
drastically rises to reach its peak at 28.7 before dropped rapidly in 2009 with total of 26.35
lost. The drastic fluctuation indicates that a company has an undesirable lack of debt or is
paying down too much debt with earnings that could be used for other projects. Then, the
graph continues to slightly increase and decrease from 2009 to 2014.

40

Problem
The times interest earned ratio of IREKA Corporation Berhad is steadily maintain
except for year 2008 which is reach the peak at 28.47. A high times interest earned ratio
means that the companys earnings significantly exceed its interest obligations, so it
continues to be able to meet these obligations. Furthermore, a high ratio can indicate that a
company has an undesirable lack of debt or is paying down too much debt with earnings that
could be used for other projects. The rationale is that a company would yield greater returns
by investing its earnings into other projects and borrowing at a lower cost of capital than what
it is currently paying to meet its debt obligation
The increasing the value of times interest earned ratio of a company means that the
company is able to meet its interest obligations because earnings are significantly greater than
annual interest obligations. In year 2008, IREKA Corporation Berhad has an undesirably low
level of leverage or pays down too much debt with earnings that could be used for other
investment opportunities to get higher rate of return.
However, it's also not necessarily a good thing if a company has an excessively high
times interest earned. This is may mean that IREKA Corporation Berhad has spent too much
of its capital paying down its debt rather than making other more worthwhile investments to
grow the company.
For the year within 2009 to 2014, IREKA Corporation Berhad shows a slight decline
which result in low times interest ratio. This can effect in failing to meet obligation to meet
interest payment that could force into bankruptcy.
Solution
To prevent the ratio from continuously decline, the company would have to sell off its
assets, or raise more equity in order to repay some of the debt so that it can reduce its interest
expense. The company also must increase its profits more than its expenses by receiving
more profitable site projects. Besides, if there are too many debts from the company, it needs
to settle down the debt with earnings that could be used for other projects in order to improve
TIE ratio.

41

4.5 Profitability Ratio


4.5.1 Gross Profit Margin
Definition
A financial metric used to assess a firm's financial health by revealing the proportion
of money left over from revenues after accounting for the cost of goods sold. Gross profit
margin serves as the source for paying additional expenses and future savings.

The gross margin is not an exact estimate of the company's pricing strategy but it does
give a good indication of financial health. Without an adequate gross margin, a company will
be unable to pay its operating and other expenses and build for the future. In general, a
company's gross profit margin should be stable. It should not fluctuate much from one period
to another, unless the industry it is in has been undergoing drastic changes which will affect
the costs of goods sold or pricing policies.
Years

2005

2006

2007

2008 2009

2010

2011 2012

Gross Profit Margin (%) 18.48 20.10 -11.13 -4.66 11.21 11.24 8.33

2013 2014

11.86 8.44

10.79

Gross Profit Margin (%)


25.00%
20.00%

18.48%

20.10%

15.00%
11.86%

11.21% 11.24%

10.00%

8.33%

10.79%
8.44%

5.00%
0.00%
-5.00%
-10.00%
-15.00%

2005

2006

2007

2008-4.66%
2009

2010

2011

2012

2013

2014

-11.13%
Years

42

Analysis
The graph indicates the Gross Profit Margin earned by IREKA Corporation Berhad
within 10 years. The overview shows the fluctuation from year 2005 to 2014 which cover the
Gross Profit Margin from -11% to 20%. In year 2006, the graph decline dramatically from 20%
to -11% which means the company Gross profit margin serves as the source for paying
additional expenses and future savings is in weak condition. Then, the graph starts to rise
again with total of 22.52% addition to achieve 11.21% in year 2009. The fluctuation
continues until 2014 with Gross Profit Margin of 10.79%.
Problem
From the graph, I EK

corporation berhads gross profit margin shows a quite

massive fluctuation in a period of 10 years. The calculation of gross profit margin is to know
the ratio between gross profits over revenue. If the gross profit margin is lower than before,
its mean the gross profit is decrease or the revenue is increase.
The gross margin is not an exact estimate of the company's pricing strategy but it does
give a good indication of financial health. Without an adequate gross margin, a company will
be unable to pay its operating and other expenses and build for the future. In general, a
company's gross profit margin should be stable. It should not fluctuate much from one period
to another, unless the industry it is in has been undergoing drastic changes which will affect
the costs of goods sold or pricing policies.
As we can see in year 2006 to 2007, a rapid dropped of gross profit margin occur after
a sudden rising. A low gross profit margin ratio means that the business generates a low level
of revenue to pay for operating expenses and net profit. It indicates that either the business is
unable to control production or that prices are set too low
Solution
The aim for the company is to gain high gross profit margin which can be done by the
management. The management of the company should focus more on sale team, staff training
on sale skill will able to boost up the revenue of the companies. The sale must be impressive
enough to collect revenue for the companies savings to stay on the business.

promotion is

needed to attract the customers attention where a suitable price must be offered.

43

The advantages of higher gross profit margin can affect overall company sales. For
example, the higher the percentage, the more money is left over for other operating expenses
and net profit. Besides, a higher gross profit margin indicates that a company can make a
reasonable profit on sales, as long as it keeps over-head costs in control. Investors tend to pay
more for a company with higher gross profit. Companies with high gross margins will have a
lot of money left over to spend on other business operations and Such as research and
development or marketing, so be on the lookout for downward trends in the gross margin rate
over time
Besides, the company should avoid wasting money by having unneeded and
unnecessary purchases and try to keep the cost of goods sold at minimum. The company
should engage internal or external training to improve on the ability of the management for
more sale volume and understand the market needs and wants. A good standard of procedure
must be in place and to make sure that, all purchase of the companies should comply with the
standards of the procedure.
4.5.2 Operating Profit Margin
Definition
Operating profit margin is a margin that used to measure company operating
efficiency. It demonstrates how much sales or revenue is generated by the companys
operation after deducting all operation expenses. The ratio shows how strong and profitable is
the companys operation for both investors and creditors. Operating profit margin is
illustrated in percentage. The formula of operating profit margin is shown below.

Generally, high operating profit margin is preferable. High operating profit margin
indicates that the company has a smooth operation process and is able to generate income to
cover company operating expenses. In contrast, it the company has low operating margin
gives a signal that the company may has problem in their operation process.
Years

2005 2006 2007

Operating Profit Margin (%) 4.25

5.80

2008

2009 2010 2011 2012 2013 2014

-11.79 54.77 4.12

5.18

2.18

3.40

-3.13 -0.65

44

Operating Profit Margin (%)


60.00%
54.77%

50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
-10.00%

4.25% 5.80%
2005

2006

-20.00%

4.12% 5.18% 2.18% 3.40%

2007 2008 2009


-11.79%

2010

2011

2012

-0.65%
-3.13%
2013 2014

Years

Analysis
From the graph of operating profit margin, the ratio increase from 4.25% in year 2005
to 5.80% in 2006. The ratio met a sudden decrease in 2007 to -11.79% but increase
dramatically to 54.77% in 2008. However, in 2009, operating profit margin drop to 4.12%
and fluctuate slightly between 5% and 2% in the following few years. In 2013, the ratio
decrease below 0 to -3.13% but in 2014, there is a slight increase to -0.65%.
Problem
As we know, the operating profit margin is the operating profit divided by the sales. If
there is a decrement for the operating profit margin, there might be because of the decrement
in the operating profit or increment for the sales. There is a huge decrement of operating
profit margin from the year 2008 until the year 2009 which are from 54.77% to 4.12%. In the
year 2007, the operating profit margin also decrease a lot until it reach negative operating
profit margin which is -11.79%.
This entire decrement can happened because of a few reasons. During these ten years,
there might be a decreasing in the sales of the company which lead to decrease in operating
profit margin. Furthermore, decrement also can be caused by the increasing in the
management of the expenses during these ten years. There might be slightly increment in the
sales or revenue of the company but it is less efficient to generate profit due to the higher
operating costs.

45

Besides, in the year 2009, the global economy is meltdown. It made the company
experienced weaker performance because of the challenging economys condition.
Solution
Some of the solutions that can be taken are the management of expenses. During the
course of doing business, a company will incur numerous operating expenses and deducts
these from the money it takes in to arrive at net income. Operating expenses include salaries,
rent, utilities, depreciation and other expenses necessary to run the business. High expense
levels means less money for the company. For this reason, managing expenses receives a lot
of attention from business owners and is another way to improve profit margin. Every
company approaches the issue of managing operating expenses differently. Cutting back on
work hours is a common practice or downsizing staff. The ultimate goal is to make the
organization as lean as possible without sacrificing productivity and performance.
Before getting to profit margin, a company should look at its gross margin, which is
the amount of money make per each sold item. Gross margin is a function of sales, calculated
as sales minus cost of goods sold divided by sales. Cost of goods sold refers to the direct
costs associated with the production of goods sold by the company and usually the largest
cost component on the income statement. If the company sells a product for $10, which costs
$3 to make, it's gross profit is $7, which means its gross profit margin is 70 percent. If the
same company increased the price from $10 to $12, it improves its gross profit margin to 75
percent, assuming that it can keep its cost of goods sold at $3 per unit. Therefore, managing
company's cost of goods sold is another way to improve profit margin. Some companies
manage cost of goods sold by finding cheap sources of raw material or negotiating the cost of
production.
Besides that, increasing the sale is also one of the solutions that can be considered.
Increasing sales is of paramount importance when it comes to improving profit margin. How
a company goes about increasing sales depends on its business model. For instance, a retailer
can raise the price of its merchandise, focusing on items that sell the most. If the company
increases the price of an item from $10 to $12 and sells 10,000 units, sales increase by
$20,000. A retailer can also focus its attention on selling higher-priced items, while reducing
low margin products in its store. A company can also focus on lowering costs or providing
incentives to increase demand, thereby it will boost sales.

46

4.5.3 Net Profit Margin


Definition
Net profit margin is the percentage of revenue left after all expenses have been
deducted from sales. The measurement reveals the amount of profit that a business can
extract from its total sales. The net sales part of the equation is gross sales minus all sales
deductions, such as sales allowances. The net sales part of the equation is gross sales minus
all sales deductions, such as sales allowances. The formula is:

The net profit margin is intended to be a measure of the overall success of a business.
A high net profit margin indicates that a business is pricing its products correctly and is
exercising good cost control. It is useful for comparing the results of businesses within the
same industry, since they are all subject to the same business environment and customer base,
and may have approximately the same cost structures.

Years

2005 2006 2007

2008

2009 2010 2011 2012 2013

Net Profit Margin (%) -2.85 -1.13 -17.84 51.00 1.86

2.12

-2.64 2.42

2014

-12.19 -9.43

Net Profit Margin (%)


60.00%
51.00%

50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
-10.00%
-20.00%

-30.00%

-2.85% -1.13%
2005 2006 2007

2.42%
-2.64%
2011 2012 2013 2014
-9.43%
-12.19%

1.86% 2.12%
2008

2009

2010

-17.84%
Years

47

Analysis
The line graph shows the net profit margin for Ireka coorperation Berhad from 2005
to 2014. As the starting year of 2005 to 2006, the percentage of net profit margin was
increased as much as -1.72%. This shows profit of company is positive. The value of ratio
suddenly dropped sharply by -16.71% from 2006 to 2007. This percentage of net profit
margin dropped caused costs are too high due to inefficient operation, high use of debt.
During year of 2008, it increased rapidly by 68.84% become 51.00%. Percentage of net profit
margin among 2008 to 2009 was decreased sharply to 1.86% before it increased to 2.12%
during 2010. The percentage once again dropped by 4.76% during 2011. The amount of
profit was increase significantly to 2.42% during 2012. The percentage was dropped sharply
to -12.19% and -9.43% during 2013 and 2014.
Problem
Based on the graph, we can see that net profit margin decreased seriously in year 2007
compared to previous years. By study on the income statement of the company, this scenario
is due to the decreased in the sales of the company. This was occurred mainly attributable to a
lower contribution from construction division.
Besides, from the graph, we can clearly see that the operating profit margin in year
2009 is declined dramatically. By study on the income statement of the company, this
scenario is due to the increase on the operating expenses such as raw materials, contract
expenses, transportation. There was slightly increased in the revenue of company but is less
efficiency to generate profit due to higher operating costs.
The company experienced weaker performance as a result of the challenging
economic condition. Global economic was meltdown in year 2009. The prices of key
construction raw materials continued to rise to unprecedented levels, driven by the unabated
surges in oil and commodity prices. This caused the operating cost increased faster than
revenue, thus higher operating cost. As the time passed, this problem will lead to a low net
profit and it definitely will make the shareholders begin to invest in other companies. Lack of
funding will occur and then make the company hard to get a huge improvement.

48

Solution
In order to maintain or improve the trend, Ireka cooperation berhad should take steps
to reduce costs and increase sales. The lower prices of the construction project to attract the
clients. Besides that, Ireka cooperation can reduce the cost of production or services or
advertisement to increase its profit margin. Furthermore, the company can reduce the usage
of debt because higher usage of debt causes the higher interest expenses as well. Cost-cutting
measures such as producing goods more inexpensively, laying off workers and shutting down
nonperforming projects can help boost net profit margin. A software program, hiring more
skilled and experienced inventory managers and eliminating unnecessary jobs in inventory
can cut the cost-wasting.
4.5.4 Return on Asset (ROA)
Definition
Return on assets (ROA) is 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 is derived from the income statement of the company and
is the profit after taxes. The formula for return on assets is:

The return on assets figure can be used to compare the efficiency of asset usage
within an industry, since each of these businesses should require roughly the same
proportions of assets to sales in order to provide goods and services to customers. However,
the asset base of a business could vary substantially across industries, so the measure should
not be used to compare entities located in different industries. For example, the return on
assets of an asset-intensive production facility would not be comparable to the return on
assets of an asset-light consulting business.
Years

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

ROA (%) -1.38

-0.49

-5.88

20.04

1.21

1.59

-2.05

1.75

-7.85

-5.02

49

Return on Assets (%)


25.00%
20.00%

20.04%

15.00%
10.00%
5.00%
0.00%
-5.00%
-10.00%

1.75%
1.21% 1.59%
-0.49%
-1.38%
2005 2006 2007 2008 2009 2010 2011-2.05%
2012 2013 2014
-5.02%
-5.88%
-7.85%
Years

Analysis
Based on our calculation, the graph of Return on Total Assets was plotted as shown
above. The trend shown for ROA of Ireka Cooperation Berhad begins from year 2005 to
2014. From year 2005, for each dollar of invested asset the company earned about -1.38% of
profit. The number then increased slightly on year 2006 to -0.46% and on the next year it
decreases gradually to -5.88%. On 2008, the number increased dramatically to 20.4% but on
the year after that it decreases rapidly to 1.21%. By year 2010, the number increased to 1.59%
and it decreased by year 2011 with -2.05%. On 2012, the number increase suddenly to 1.75% .
On 2013, the ROA of Ireka cooperation berhad reached itslowest value with -7.85%.
However it increased slightly on year 2014 with the amount of 5.02%.
Problem
The graph depicted that the ROA of the company has been decreased sharply in year
2007, 2009 and 2013. This means that the company is generated less profit by using assets
that the company have. The total assets are increasing when comparing with previous years.
However, the company was not utilized the assets efficiently to generate profit in that
particular year. The net profit for year 2007, 2009 and year 2013 were decreased.
The net profit of 2013 is lesser than previous years is because the sales for that particular year
was decreased significantly. When looking into the note of the financial statement in year
2013, we can see that value of engineering and construction contract is far lesser than year

50

2007. That is why the net income generated is not healthy although the company bought
many assets.
Solution
Since the Return on Assets in year 2007 decreased significantly mainly due to the
economic crisis which relatively affected the net income in that year. According to Marxian
theory, the very significant decline in the rate of profit was the main cause of both higher
unemployment and higher inflation.
Due to this, the main focus on recovering the loss is by reducing the unemployment
and inflation rate. The primary reason for inflation in a nation is the excessive demand for
goods and services. In order to reduce inflation starting with the economic policy on
governmental level should find out the causes for the unnecessary rise and undertake
measures to decreases the overall level of collective demand.
Other several remedies that could help the company to maintain a consistent value of
ROA percentage is by efficiently planning the purchasing and allocation of both the current
and non-current assets. By reducing purchase of assets that could not be converted into profit,
not only the companys

will increase but it will also prevent any wastage from total

assets. Furthermore, a close monitor on purchases of inventory can also be one because
excessive amount of inventory in the company could raise the cost of assets without
producing more income. Other than that, the contractors can reduce the cost of plant and
machineries by renting or leasing the plant and machineries. By doing so, the contractor does
not need to include other expenses such as the cost of maintenance.
Besides, when looking into the note to the financial statement in year 2008, although
the overall sales of company were increased, the trading of construction materials is
decreased sharply. This cause the revenue is increased slightly only in year 2008 when
compare to year 2006, 2010 and 201.The economic condition in year 2013 was poor, which
lead to higher operating cost especially the contract expenses. That is why the net income
generated is not healthy although the company bought many assets. The decreased of ROA
will lead to loss of faith of the investor towards this company. As a result, the company will
lose many common shareholders and feel difficult to find a proper financing to improve their
company.

51

Thus, based on the remedies, it is possible for the company to cover their loss and
increase the ROA percentage for next year.
4.5.5 Return on Equity (ROE)
Definition
The return on equity ratio or ROE is a profitability ratio that measures the ability of a
firm to generate profits from its shareholders investments in the company. In other words, the
return on equity ratio shows how much profit each dollar of common stockholders' equity
generates.
So a return on 1 means that every dollar of common stockholders' equity generates 1
dollar of net income. This is an important measurement for potential investors because they
want to see how efficiently a company will use their money to generate net income.
ROE is also indicator of how effective management is at using equity financing to
fund operations and grow the company. The formula for return on equity is:

Years

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

ROE (%) -8.41

-3.21

-34.72 64.63

2.58

3.65

-5.33

4.63

-22.49 -18.00

Return on Equity (%)


80.00%
60.00%

64.63%

40.00%
20.00%
0.00%
-20.00%
-40.00%

4.63%
2.58% 3.65%
-8.41% -3.21%
-5.33%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
-18.00%
-22.49%
-34.72%
Years

52

Analysis
The graph of Return on Common Equity is plotted in accordance with the calculation
we have carried out. Based on the graph shown, it shows that from year 2005 the amount of
Return on Equity earned from every dollar the shareholders invested, the company managed
to convert about -8.41% of profit. On 2006, the amount increased slightly to -3.21% and
decreases dramatically to -34.72% in year 2007. The number then managed to increase
rapidly by 64.63% on the year 2008. However on the year 2009, it decreases rapidly to 2.58%,
it then increased to 3.65% on the next year and decreased again by -5.33% on 2011. By 2012,
the number then continued to increase rapidly to 4.63% before it decreased sharply to -22.49%
on the year 2013. However, the amount increased slightly by 2014 to -18.00%.
Problem
The graph above illustrated the trend of return on equity from year 2005 to year 2014.
In general, from the graph, we can see that the return on equity of Ireka cooperation berhad
was not very stable.
The problem occurred in this trend of ROE on the year 2007. On 2007 and 2009, the
ROE percentage dramatically dropped from -3.12 to -34.72% and 64.63% for each dollar
invested by the shareholders. The possibility for this situation to occur is due to either the net
income available for shareholders decreased significantly or due to poor management in
utilizing its equity base. Although, there are other possibilities such as global economic crisis,
customers behaviour often changes in terms of their choices of need. The main problem is
how this could significantly affect the shareholders faith to keep investing in the company.
The ROE is decreased continuously from year 2010 to 2011 and year 2012 to 2013.
This is due to the total common equity is increased faster than the net income. The total
common equity is increased significantly every year however the net income is increased
slightly only for every year and decreased significantly in year 2009. This is due to the sales
is increased slightly only for every year while decreased dramatically in year 2006 as the
engineering and construction contract was reduced sharply.
As can be seen in graph above, the ROE in year 2009 is dropped tremendously. By
looking at the balance sheet of year 2009, the total common equity is increased slightly and
the liabilities are decreased slightly when compared to year 2007. This means that the reason
of declined of ROE is due to decrease of net income. From income statement of year 2009, it
53

can be viewed that the finance cost is increased when compared to year 2007. This means
that the interest rate is increased in that year. Furthermore, a severe recession and raw
materials price inflation occurred in year 2009. This caused the operating cost in year 2009 is
higher than year 2007 significantly. Thus, the net income is decrease sharply in year 2009.
Low percent of ROE can lead to the common shareholder lost faith on the company.
Solution
ince this ratio is widely used by investors, it is important to measure of a companys
earnings performance. In this case, the solutions for this issue mainly involve efficient
apportion of shareholders investment. For starters, the financial manager of the company has
to have a proper plan of cash flow and estimation of the companys finance in order to ensure
there would be no wastage.
Furthermore, high taxes can affect the businesss return on equity in a negative way.
In any circumstances, if the business takes on appropriate measures to reduce its taxes that
will definitely increase their return.
Besides that, the company can increase their operating profit without a corresponding
increase in their capital employed such as they can raise their product prices or reduce the
cost of development. Then, increase the net profit by contributing more capital if
undercapitalized. Meanwhile, they can maintain the earnings but reduce the value of capital
employed such as they can cut off their borrowing and interest cost accordingly. Meanwhile,
they can reduce building up unnecessary stock increase their profit or decrease owners
investment if it is considered to be overcapitalized as it can decline the average owners
equity.

54

5.0 Comparison between Ireka Corporation Berhad and YTL


Corporation Berhad (2005-2014)
5.1 Liquidity Ratio
5.1.1 Current Ratio

Current Ratio
3
2.5
2
1.5
1

0.5
0

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Ireka

0.77

0.82

1.10

1.22

1.04

1.04

0.99

0.93

0.85

0.84

YTL

0.76

1.33

2.20

1.78

1.97

2.02

1.31

1.30

2.55

2.14

Years

Comment
By comparing both Ireka Corporation Berhad and YTL Corporation Berhad, the
current ratio of Ireka shows a more consistent trend. Current ratio for YTL is more fluctuated
within 10 years period (2005-2014). Although Ireka has a more consistent performance, the
company can be said to be not growing when compare to YTL. We can see from the graph
that both companies in year 2005 are starting from the same point. In the following year,
YTL has its current ratio increased greatly while Ireka does not increase much. The following
few years also show the same trend although YTL current ratios had decreased in year 2008,
2011 and 2014 compare to the previous years. In average, YTL has a higher current ratio.
This shows the result that YTL is performing better comparing with Ireka in these 10 year
time.

55

5.1.2 Quick Ratio

Quick Ratio
3
2.5
2
1.5
1
0.5
0

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Ireka

0.75

0.80

1.06

1.16

0.98

0.98

0.94

0.90

0.82

0.79

YTL

0.70

1.25

2.13

1.74

1.83

1.93

1.26

1.25

2.44

2.06

Years

Comment
Quick ratios for both companies show a similar trend with their current ratio. The
quick ratio for YTL Company at year 2005 is lower than quick ratio from Ireka Cooperation
Berhad which is for YTL Company is 0.70 meanwhile for Ireka Cooperation Berhad is 0.75.
The quick ratio for YTL Company is increase dramatically from year 2005 until year 2007
which are 1.25 at year 2006 and 2.13 at year 2007. For quick ratio at Ireka Cooperation
Berhad, it increase slowly from year 2005 until 2008 which are 0.80 at year 2006, 1.06 at
year 2007 and 1.16 at year 2008. But at year 2008 for YTL Company, the quick ratio drop
from 2.13 to 1.74. For Ireka Cooperation Berhad, the quick ratio started to drop slowly at
year 2009 until year 2014 which are 0.98 at year 2009, 0.94 at year 2010, 0.90 at year 2011,
0.82 at year 2010 and at year 2014 is 0.79. The quick ratio at year 2009 until 2010 for YTL
Company is opposite with Ireka Cooperation Berhad because the graph is increasing slowly
from 1.83 at year 2009 to 1.93 at year 2010. The quick ratio for YTL Company is drop
suddenly at year 2011 which is 1.26 and continuously drop for the next year which is to 1.25
at year 2012. The quick ratio for YTL Company is not continuously drop likes Ireka
Cooperation Berhad because at year 2013, the YTL Company suddenly increased to 2.44 and
drop again at year 2014 with the quick ratio is 2.06.

56

As overall view, the Ireka Cooperation Berhad most of the years having a low quick
ratio because it less than 1 and may result in facing difficulties in fulfilling its obligation in
short term. So, the Ireka Cooperation should take some actions to solve this difficulty such as
control the inventory level, increase its current assets and decrease its current liabilities.
Meanwhile for YTL Company, most of the years the company have more than 1 for the quick
ratio which means it can fulfill its obligation in short term.

5.2 Assets Management


5.2.1 Inventory Turnover

Inventories Turnover
45
40
35
30
25
20
15

10
5
0

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Ireka 40.15

38.88

22.19

23.19

19.93

20.70

23.70

34.31

27.32

15.73

YTL

16.48

16.99

17.47

8.42

20.36

21.96

21.75

22.38

24.90

17.38

Years

Comment
The inventory turnover in Ireka Cooperation Berhad is more times compared to YTL
Company from year 2005 until year 2013. The Ireka Cooperation Berhad has the highest
inventory turnover at year 2005 which is 40.15. The inventory turnover for Ireka Cooperation
Berhad has the lowest inventory turnover at year 2014 which is 15.73 meanwhile for YTL
Company has the highest inventory at this year which is 24.90 inventory turnover. But the
lowest inventory turnover for YTL Company is at year 2009 which is 8.42.
As overall view, the Ireka Cooperation Berhad most of the years has better performance for
inventory turnover compared with YTL Company as shown in the graph. The low inventory
turnover happen might cause by a few problem such as either poor sales or excess inventory.
57

To solve this problem, company can use several solutions likes reconcile safety stock policies
with management priorities across the product line, reduce purchase transaction costs and setup/changeover costs.
5.2.2 Days Sales Outstanding (DSO)

Days Sales Outstanding (DSO)


180
160
140

Days

120
100
80
60

40
20
0

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Ireka

88

86

146

170

148

165

136

154

129

157

YTL

85

87

67

123

149

89

72

70

65

56

Years

Comment
In year 2005 and 2006, Ireka and YTL both have the similar day sales outstanding
(DSO) about 85 days. However, starting at 2007, both companies start to have large
difference in DSO. Ireka start to give more time for customers to pay their credit while YTL
reversely reduce the period of customer payment. In the following years except for 2009,
YTL constantly has its DSO shorter than Ireka. It can be said that YTL has a better credit
policies, less problematic customers and has more fund for other company investment. While
for Ireka, the company may face difficulties in collecting credits from customers. Ireka
should revise their credit policies in order to have more cash for other investment projects.

58

5.3 Fixed Asset & Total Asset Turnover


5.3.1 Fixed Asset (FA) Turnover

Fixed Assets Turnover


5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Ireka

0.74

0.68

4.50

1.38

1.22

1.50

1.74

1.49

1.21

1.13

YTL

0.24

0.27

0.27

0.28

0.29

0.57

0.63

0.65

0.61

0.47

Years

Comment
The graph shows the comparison of fixed asset turnover ratio of IREKA Corporation
Berhad and YTL Corporation from year 2005 to 2014. From the graph, it can be viewed that
IREKA Corporation Berhad encounters slight dropping from 2005 to 2006 which is from
0.74 to 0.68 and increase back in year 2007 to 4.50. However it dropped again from year
2007 to 2009. The fixed asset turnover ratio for IREKA Corporation Berhad increase again
from 1.22 (2009) to 1.74 (2011) before it continue to decline for the next three consequence
years. Meanwhile,

TL Corporations graph shows that fixed asset turnover ratio of the

company continue to inclined from 0.24in year 2005 to 0.65 in year 2012 before it decline to
0.47 in the last year 2014. The highest fixed asset turnover ratio for both company are 4.50 in
2007 for IREKA Corporation Berhad and 0.65 in 2012 for YTL Corporation. Problems occur
for both company can be explain by the flow of graph for IREKA Corporation Berhad shows
that the time of fixed asset turnover is higher than YTL Corporation.
Therefore, IREKA Corporation Berhad has stable fixed asset turnover ratio compared
to YTL Corporation as it shows that IREKA Corporation Berhad had sustained their
company effectively and efficiently by using its fixed assets to generate revenues but as for

59

YTL Corporation, the lower fixed asset turnover mean that the company is over investing in
the property, plant and equipment. Fixed assets are important because they usually represent
the largest component of total assets.
5.3.2 Total Asset (TA) Turnover

Total Asset Turnover


0.9
0.8
0.7
0.6
0.5
0.4
0.3

0.2
0.1
0

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Ireka

0.49

0.44

0.33

0.47

0.65

0.72

0.78

0.72

0.64

0.53

YTL

0.20

0.21

0.18

0.17

0.20

0.36

0.38

0.39

0.37

0.32

Years

Comment
The graph shows the comparison of fixed asset turnover ratio of IREKA Corporation
Berhad and YTL Corporation from year 2005 to 2014. For I EK

Corporation Berhads

graph, it seems that the first three year from 2005 to 2007, the total asset turnover ratio
decrease from 0.49 to 0.33. The ratios start to increase from year 2007 to 2011 where the
ratios increase from 0.33 to 0.78. However, the ratio decline again in year 2011 to 2014
which is from 0.78 to 0.53. As for YTL Corporation graph, the total asset turnover ratio are
slightly increase from 0.20 (2005) to 0.21 (2006). Then the ratio drop from 0.21 (2006) to
0.17 (2008) before it start to rise again for the next four upcoming years, which are from 0.17
in year 2008 to 0.39 in year 2012. In the year 2013 and 2014, the ratio drop to 0.32.
From this, we can see that IREKA Corporation Berhad did good job in maintaining
their revenue although starting with total asset turnover ratio, 0.49 in 2005 but the ratio
increase to 0.53 in year 2014. As for YTL Corporation, even though they start with lower
total asset turnover ratio, 0.20 in 2004 compared to IREKA Corporation Berhad, the company

60

is doing well in generating their revenue toward year 2014 where the total asset turnover ratio
is increase to 0.32 in 2014.
In conclusion, over the 10 years of comparison, both IREKA Corporation Berhad and
YTL Corporation have becoming more efficient in generating revenues even though both
companys total asset turnover ratio are decreasing from year 2012 to 2014. The decreasing
in total asset turnover means that both companies are purchasing more assets than it can use
effectively. However, it still proves that both company had utilized all its assets and
efficiently to generate sales within the ten years and that is a very good thing.

5.4 Debt Management Ratio


5.4.1 Debt Ratio

Debt Ratio (%)


90%
80%
70%
60%
50%

40%
30%
20%
10%
0%

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Ireka 83.56% 84.57% 83.07% 62.79% 52.98% 56.39% 61.48% 62.13% 65.07% 72.09%
YTL

66.30% 77.84% 67.90% 69.72% 77.10% 75.25% 74.03% 72.15% 70.98% 67.60%
Years

Comment
The graph shows the proportion of debt financing in the total investment of Ireka
Corporation Berhad and YTL Corporation Berhad. It is said that both company has relatively
high debt financing in their total investment. From the period of 2005 to 2007 and in year
2014, Ireka has a higher debt ratio compare to YTL while from 2008 to 2013, YTL form its
capital structure with more debt financing compare to Ireka. Debt ratios for both Ireka and
YTL are encouraged to be lower in order to decrease their risks to pay back the debts.

61

5.4.2 Time Interest Earn (TIE)

Time Interest Earn (TIE)


30
25
20
15
10

5
0
-5

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Ireka

0.81

1.06

-1.55

28.47

2.12

2.58

0.84

1.20

-1.23

-0.22

YTL

4.60

7.91

12.81

4.04

2.58

3.46

4.56

5.15

4.95

13.60

Years

Comment
As we can see, the comparison of TIE for company IREKA Corporation Berhad between
YTL is slightly low. The overview graph of YTL Company shows a positive result compared
to the IREKA Corporation Berhad which unstable fluctuate within period of 10 years. Result
in low TIE indicates that the company had fewer earning to meet interest payment or even
worse it can force the company to bankruptcy. In year 2008, IREKA Corporation rose sharply
leaving behind YTL at 28.47. It means that this company is able to meet its interest
obligations because earnings are significantly greater than annual interest obligations.
However, it's also not necessarily a good thing if a company has an excessively high times
interest earned. This is may mean that IREKA corporation Berhad has spent too much of its
capital paying down its debt rather than making other more worthwhile investments to grow
the company.

62

5.5 Profitability Ratio


5.5.1 Gross Profit Margin

Gross Profit Margin (%)


60%
50%
40%
30%
20%
10%
0%
-10%
-20%

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Ireka 18.48% 20.10% -11.13% -4.66% 11.21% 11.24% 8.33% 11.86% 8.44% 10.79%
YTL

45.43% 46.21% 47.34% 46.31% 35.81% 22.79% 22.29% 20.95% 20.81% 25.14%
Years

Comment
From the graph of gross profit margin, it is clear that YTL has a higher gross profit when
compare to Ireka. We can know IREKA Corporation Berhad generated a low level of
revenue to pay for operating expenses and net profit.

Whereas, YTL was effectively

controlling the cost of its inventory and manufacturing of its products and subsequently
passes on the costs to its customers. In year 2007 and 2008, IREKA Corporation Berhad
indicates a negative gross profit margin. We can conclude that the company is unable to
control its production cost and not operating efficiently. A low margin compared to your
competitors would suggest you are under-pricing.

63

5.5.2 Operating Profit Margin

Operating Profit Margin (%)


60%
50%
40%
30%
20%
10%
0%
-10%
-20%

2005

Ireka 4.25%
YTL

2006

2007

2008

2009

2010

2011

2012

2013

2014

5.80% -11.79% 54.77% 4.12%

5.18%

2.18%

3.40% -3.13% -0.65%

25.45% 40.22% 25.86% 27.94% 25.73% 13.84% 12.81% 12.13% 11.58% 14.59%
Years

Comment
Towards the 10 year period from 2005, the operating profit margin of YTL is always
higher compare to Ireka except in 2008. This means that YTL is generating more profit from
its operation in the average. YTL will steadily have its profit enough to cover its operating
expenses. Meanwhile, Ireka does not sound as good as YTL since the company has face loss
from its operation in 2007, 2013 and 2014. Ireka may take YTL as a guide to improve its
operating management as a steady profit form operation is more preferable by shareholders
and creditors.

64

5.5.3 Net Profit Margin

Net Profit Margin (%)


60%
50%
40%
30%

20%
10%
0%
-10%
-20%
-30%

2005

2006

2007

2008

2009

Ireka -2.85% -1.13% -17.84% 51.00% 1.86%


YTL

2010

2011

2012

2013

2014

2.12% -2.64% 2.42% -12.19% -9.43%

19.92% 35.14% 23.84% 21.02% 15.76% 9.84% 10.00% 9.77%

9.24% 13.52%

Years

Comment
From the graph, we can know that during year 2005 to 2014 YTL cooperation Berhad
was under good condition than Ireka cooperation Berhad except in year 2008. YTL Berhad
had high ability to control costs and create profits. Graph above showing Ireka Corporation
Berhad was had fluctuations trend during the years. For the YTL cooperation Berhad, thats
company net profit margin began decreased in year 2007 to 2013. The highest net profit
margin was recorded in year 2008 by Ireka Corporation Berhad. This percentage of net profit
margin increased caused costs are too low due to efficient operation and low used of debt. A
high net profit margin indicates that a business is pricing its products correctly and exercising
good cost control. The recommendation to both corporations to increase their net profit
margin is reduce the cost of production without sacrificing quality and the best option for
many businesses is expansion.

65

5.5.4 Return on Asset (ROA)

Return on Assets (%)


25%
20%
15%
10%
5%

0%
-5%
-10%

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Ireka -1.38% -0.49% -5.88% 20.04% 1.21%

1.59% -2.05% 1.75% -7.85% -5.02%

YTL

3.52%

4.08%

7.46%

4.23%

3.58%

3.09%

3.80%

3.82%

3.44%

4.27%

Years

Comment
From the graph above, IREKA corporation Berhad had a fluctuations trend of graph
and YTL Corporation Berhad had maintain trend of graph. By looking on the graph, IREKA
Corporation Berhad has a weak condition. This is because the graph shows that the trend is
more likely to decrease and the have a negative ratio value. The company will lose many
common shareholders and feel difficult to find a proper financing to improve their company.
YTL Corporation Berhad was in a good condition. This is because its ratio was higher and
this was better for investors and firm. This firm was earning more money by using a small
amount of investments. But a decreasing trend between year 2006 and 2009 will lead to loss
of faith of the investor towards this company. Based on the graph, the highest return on asset
was recorded by both corporation in 2008(Ireka) and 2006(YTL). This caused the companies
is earning more money on less investment. Besides that, the lowest return on asset was
recorded in 2013(Ireka) and 2009(YTL). This might due the economic growth of construction
industry fell to the lowest level in a year. Costs were also pushed up by the ingoing skills
shortage in the sector and subcontractor charges rose at the fastest pace. The recommendation
to both firms to increase their return on assets are increase Net Income without acquiring new
assets or improve the effectiveness of existing assets.

66

5.5.5 Return on Equity (ROE)

Return on Equity (%)


80%
60%
40%
20%
0%
-20%
-40%

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Ireka -8.41% -3.21% -34.72% 64.63% 2.58% 3.65% -5.33% 4.63% -22.49% -18.00%
YTL

12.10% 18.88% 13.18% 11.82% 13.48% 14.22% 14.64% 13.73% 11.86% 13.17%

Years

Comment
Based on the graph, YTL Corporation Berhad has a smooth percentage of return on
equity while the return on equity of Ireka Corporation Berhad is inconsistent throughout the
period. YTL has its return on equity maintained steadily between 11% and 19%. This
situation is preferable by common stock holders of the company as they can predict to get a
steady amount of return from their investment in the following years. However, Ireka does
not seem to generate much from common stock holders investment. The return on equity of
Ireka is lower than YTL except in 2008 and is fluctuating in a large range. Furthermore, the
return on equity reaches negative value in year 2005, 2006, 2007, 2013 and 2014. This means
that in those years, the common stock holders of the company experience loss in their
investment in Ireka.

67

6.0 Conclusion
In conclusion, the ratio analysis of a company is very important to find out the exact
position of the company. By knowing this information, the manager of company can perform
further action to resolve any problem that arises. In addition, data obtained in ratio analysis
can be used to make the right and the best decision at a critical time. It also help investors,
creditors, and the company internal management to understand how the performance of a
business and areas requiring improvement. Management can assess their income to check if
their productivity is good or not. Therefore, the probability ratio is assisting company in their
evaluation of its performance based on current income. Ratio analysis is also useful for
recluses, in addition to shareholders and creditors. In addition, banks can also find company
profit to see if they are able to pay dividends and interest under a certain period. At this time,
many company use ratio analysis to reveal trends in spending. This gives them the
opportunity to estimate future trends and with it the basis for budget planning for defining
actions for growth and business development.

68

7.0 Reference
1. Bursa Malaysia Berhad. (2014). Company Announcement. Available:
http://www.bursamalaysia.com/market/listed-companies/companyannouncements/#/?category=AR&sub_category=all&alphabetical=All&company=85
83. Last accessed 6 Oct 2014.
2. The World Bank Group. (2008). MALAYSIA ECONOMIC UPDATE (April
2007).Available:
http://siteresources.worldbank.org/INTEAPHALFYEARLYUPDATE/Resources/550
192-1175629375615/Malaysia_Update_April2007.pdf. Last accessed 5 Nov 2014.
3. Lonpac Insurance Berhad . (2007). LPI CAPITAL BHD ANNUAL REPORT
2006. Available: http://www.lonpac.com/html/lonpac-css/pdf/AR/2006/LPI06_9.pdf.
Last accessed 187-191.
4. Mindstorm. (2009). The Impact of the Global Economic Slowdown on
Malaysia. Available: http://jjjjournal.wordpress.com/2009/03/23/the-impact-of-theglobal-economic-slowdown-on-malaysia/. Last accessed 22 Oct 2014.

8.0 Appendix

Balance sheet of Ireka Corporation Berhad

Income Statement of Ireka Corporation Berhad

69

Vous aimerez peut-être aussi