UNIVERSITY TENAGA NASIONAL

SULTAN HAJI AHMAD SHAH CAMPUS BANDAR MUADZAM SHAH

I-POWER BERHAD

FICB223

FINANCIAL STATEMENT ANALYSIS

SEM 1 2010/2011

SUBMITTED TO: MADAM.SUZAIDA BTE BAKAR

DOH SIEW FONG BF 083978 1AM

KHAIRULBARIAH BINTI RAMLI BF 083205 1BM

NAZLYN STELLA ANAK SA-EK BF 083220 1BM

SITI AISYA AZYANI BT MOHD ZAHARI BF 083242 2BM

CONTENT

A. Executive summary

B. Background of the company

C. Ratio Calculation

• Short-term liquidity

 Current ratio

 Acid test (quick) ratio

 Account receivable turnover

 Cash flow ratio

• Capital structure and solvency

 Total debt ratio

 Total debt to equity capital

 Long term to equity capital

 Altman Z-score

 Smith Z-score

• Profitability analysis

 Net profit margin

 Total asset turnover

 Return on equity

 Net operating profit margin

 • Equity analysis

 Earning yield

 Price/ earnings ratio

 Percentage of earning retained

D. Graphical analysis

E. Conclusion and recommendation

F. References

G. Appendix

EXCECUTIVE SUMMARY

The main aim for this research paper is to measure the performance of the
organization which we have chosen, the I-POWER BHD based on several areas
which determine the financial strength of the organization. The task of this study is to
finalize whether or not it is a good company to invest in, by using the elements
provided by the financial statements.

We begin with our collection of financial statements from the annual reports
of the organization for five consecutive years, 2005 until 2009. From which, we have
chosen 4 different areas which are; Short-term liquidity, solvency, profitability and
the equity analyses. Each of these areas we are required to gather at least three ratios
in order to be more precise on our findings and the ratios which we have chosen
cannot be any more detailed. As for the equity analysis, we had to look for the market
prices of the organization through the websites listed in the references, in search for
historic prices.

Graphical analyses were constructed for the convenience of illustrating,

together with the definitions and contributions of the ratios would be to the
organization. With our findings and fundamental analyses of calculations of the
ratios, we also provided relevant announcements, news and events accordingly to the
ratios, which can be referred to as technical analysis, to extricate any financial doubts
and to encourage a better understanding of the financial data. Also, important and
essential financial data were collected from the financial statements for five years,
relevant only to the ratios we selected, for a much better observation rather than
viewing the annual reports. As for the detailed calculations, they are attached in the
appendices at the end of this research paper, together with only relevant financial
statements.

Lastly, we provide suggestions whether or not this organization should invest

more in other business-related opportunities and if the financial performance of this
organization is increasing at a rapid pace. Based on the results of the ratios, we
provide promising and guaranteed views to investors based on the fundamental and
technical analyses, if the organization is worth investing in.

A. BACKGROUND OF COMPANY

I-POWER BERHAD

I-Power is a system integrator and e-Business solution provider with a passion

to deliver first class e-business solutions to your total satisfaction.

I-Power is a MSC status company and an IBM Premier Business Partner. Our
e-Store, eHR, eCRM, and ePOS solutions are also certified by SAP as powered by
NetWeaver. We are also the first company in Malaysia to be certified as an IBM
eBusiness Certified Business Partner.

I-Power being a niche player in system integration and e-business solutions

development, takes great pride in providing world class Internet solutions and system
integration services to the corporate world.
 The company has established a solid reputation for building solutions that are
user friendly, quick to deploy, and customizable to meet your specific business needs.
At I-Power, we guarantee all our solutions, and walk the extra mile to deliver at all
times customer and service excellence.

We are committed to support the global industry by:

 Developing professional and value added services in response to the changing

needs of the business industry.
 Setting the standard for computer-assisted data analysis by incorporating
continuous research & customer feedback.
 Working closely with customers, professional organizations and partnering
with industry leaders.
We endeavour to develop lasting relationships with our customers by
providing application and consulting services of the highest quality. We strive to
demonstrate integrity in all facets of our operation and believe that what is best for
the client is best for us.

Our goal is to provide our customers with services appropriate to their needs
with a high level of expertise and dedication. With our combined years of practical
experience, we will assist our customers in the selection of software and hardware
that best suits their requirements and budgets.

THE BUSINESS MODEL:

 Sound management fundamentals.

 Strategic alliances with its business partners
 Solid business track record
VISSION
To become Malaysia leading e-Business Solution Specialist and be well-recognized
internationally with I-Power on demand E-Solution that are completely priced with
world class standards, competing with the best in the global arena.
MISSION

Our mission is to empower business enterprises to access online information anytime,

anywhere, and to connect critical business systems directly to customers, employees
and trading partners via the Web with the aim of achieving the following business
objectives:

• Improve time to market.

• Reduce cost of reaching and serving customers and trading partners.
• Extend and reach new global market.
• Enhance business processes.
• Improve business efficiency.
• Increase competitive edge through enhanced customer service and support

At I-Power Bhd, we supply enterprises with the best business solutions that
integrate your business environment. You can improve and streamline your business
with the help of I-Power as we use IBM’s and I-Power’s technology to provide the
core engine of our solutions. I-Power is a forefront business solution provider in
Malaysia that specializes in e-Business Solutions, Turnkey Applications, Workflow
Management, Knowledge Management, Business Intelligence, Systems Integration,
Consultancy and Services

CONTENTS

Every organization in the world today depends on their financial statements

and according to their analysis based on those financial statements, these
organizations take the opportunities to make any financial changes due to certain
restricted or non-restricted obligations. Financial statement analysis, which is an
integral and important part of the broader field of business analysis, includes
analyzing a company’s business environment, its strategies and its financial standing
and performance. It is useful to make business decisions such as whether to invest in
equity or in debt securities, whether to extend credit through short or long term loans,
how to value a business in an initial public offering, and how to evaluate
restructurings including mergers, acquisitions and divestitures.
 Financial statement analysis is known as an application of analytical tools and
techniques to general purpose financial statements and relevant data to derive and
determine estimates useful in business analysis. Usually, with the aid of financial
statement analyses, the process helps the organization to reduce much on guessing
and gambling on business decisions based on hunches. In fact, it provides a
systematic and effective basis for business analysis.

Financial analysis is basically the use of financial statements to analyze a

company’s financial position and performance, and to determine future financial
standing and strengths. The most important statements of financial reports are the
balance sheets, income statements, statement of shareholder’s equity and the
statement of cash flows.

The balance sheets consist of assets, liabilities and equities. Assets are the
resources which are investments that are expected by the organizations to generate
future earnings through operating activities. The liabilities are funding from creditors
and represent obligations of a company and as for equity; it is the total of funding
invested or contributed by owners and accumulated earnings in excess of distributions
to owners since the beginning of the company. The income statement measures a
company’s financial performance between balance sheet dates which is a
representation of the operating activities of a company. It also provides details of
revenues, expenses, gains and losses of a company for a period of time.

Thirdly, the statements of shareholders’ equity report changes in the accounts

that make up equity. It is useful in identifying reasons for changes in equity holders’
claims on the assets of a company. Lastly, we have the statement of cash flows, which
are important in business decisions, because of the reports on cash inflows and
outflows.

Apart from the importance of the financial statement analyses, we are required
to determine and conduct a research on 4 areas; short-term liquidity, capital
structure and solvency, profitability analysis and equity analysis, each of which
must have at least three ratios. As we have already chosen our organization which is
the I-POWER BHD, we gathered the annual reports consisting financial reports and
announcements from the year 2005 until year 2009.
  SHORT TERM LIQUIDITY

B. RATIO CALCULATION
 Ratio 2009 2008 2007 2006
Current Ratio
85,802,040 92,074,455 61,753,099 13,504,118
Current Asset 2,020,347 929,277 18,353,896 481,317
= 42.47 = 99.08 = 3.36 = 28.06
Current Liability
Quick Ratio
(8,663,721 (26,572,142 (32,009,70 (4,291,614
Cash & Cash + + 3+ +
Equivalent + 15,470,732 21,494,985 28,317,988 9,212,504
Marketable + 756,343) + + + 143,981)
2,020,347 1,068,633) 1,425,408) 481,317
Security +
929,27 18,353,896
Account
= 7 =
Receivable = 3,648,099
24,890,796
Current Liability 2,020,347 = 61,753,099 481,317
= 12.32 49,135,760 18,353,896 =28.36
929,277 = 3.36
= 52.88
Account
Receivable 25,847,000 83,320,097 57,840,393 18,297,815
Turnover (15,470,732 (21,494,985 (28,317,988 (9,212,504
+ 756,343) + + + 143,981)
Net Sales = 1.59 1,068,633) 1,425,408) = 1.96
= 3.69 = 1.94
Average
Receivable
Cash Flow
Ratio 9,418,972 37,686,661 10,128,461 2,878,232
2,020,347 929,277 18,353,896 481,317
Operating Cash = 4.66 = 40.55 = 0.55 = 5.98
Flow
Current Liability

 CAPITAL STRUCTURE AND SOLVENCY

Ratio Year
2009 2008 2007 2006
Total debt
ratio 2020347 929277 18353896 481317
122886284 124428078 67829680 20581697
Total debt / =0.016 =0.0074 =0.27 =0.023
total capital

Total debt to
equity capital 2020347 929277 18353896 481317
120865937 123498801 49475784 20100380
Total debt/ =0.017 =0.0075 =0.371 =0.024
total equity to
capital
Long term
debt to equity 141124 126521 68500 69500
capital 120865937 123498801 49475784 20100380
=0.0011 =0.0010 =0.0014 =0.0025
Long term
debt/ total
equity capital
Altman’s Z-score

Z= 0.717X1 + 0.847X2 + 3.107X3 + 0.420X4 + 0.998X5

X1 = working capital / total assets
X2 = retained earnings / total assets
X3 = earnings before interest and taxes/ total assets
X4 = shareholders’ equity / total liabilities
X5 = sales/ total assets

X1
81761346 90215901 25045307 125414884
122886284 124428078 67829680 20581697
=0.67 =0.73 =0.37 =0.61

X2
29611960 29553083 17086517 49475784
122886284 124428078 67829680 20581697
=0.24 =0.24 =0.25 =2.40

X3
82123 12514339 10233675 7197032
122886284 124428078 67829680 20581697
=0.0006 =0.10 =0.15 =0.35

X4
120865937 123498801 49475784 20100380
122886284 124428078 67829680 20581697
=0.983 =0.992 =0.729 =0.976

X5
25847000 83320097 57840393 155,866
122886284 124428078 67829680 20581697
=0.21 =0.67 =0.85 =0.89

Altma
n’s Z- 0.9428 1.7246 1.8958 4.5227
score
Z<1.20 implies a high probability of bankruptcy

Z>2.90 implies a low probability of bankruptcy

1.20<Z<2.90 implies ambiguous area

Smith’s Z-score

Z = -0.018 + 1.829X1 + 0.114 X2 – 0.080X3

Z = Value of the discriminant score

X1 = PBT (Profit before Tax) / Current Liabilities (profitability)

X2 = Current Assets / Current Liabilities (Liquidity)

X3 = Total Liabilities/ Total Assets (Gearing)

Ratio Year
2009 2008 2007 2006
Smith’s Z- 4.78 35.79 1.25 30.41
X1
score
82123 12514339 10233675 7197032
2020347 929277 18353896 481317
=0.041 =13.467 =0.558 =14.953

X2
83781693 91145178 43399203 13022801
2020347 929277 18353896 481317
=41.469 =98.082 =2.365 =27.057

X3
2020347 929277 18353896 481317
12886284 124428078 67829680 20581697
=0.016 =0.0075 =0.270 =0.0234

Z < 0 = distressed condition

Z > 0 = healthy condition

 PROFITABILITY ANALYSIS

Ratio 2009 2008 2007 2006

Net Profit 58,877 12,466,566 10,233,675 7,197,032

Margin 25,847,000 83,320,097 57,840,393 18,297,815

Net Income = 0.00227 = 0.149 = 0.177 = 0.393

Sales

Total Asset 25,847,000 83,320,097 57,840,393 18,297,815

[(132,022,000 [(124,428,0 [(67,829,68 [(20,581,697
Turnover
+ 78 + 0+ +
124,428,078)/ 67,829,680)/ 20,581,697) 13,268,397)/2
Sales 2] 2] /2] ]
Average
25,847,000 83,320,097 57,840,393 18,297,815
Total Asset
123,725,039 96,128,879 44,205,688. 16,925,047
50
= 0.2089 = 0.8667 = 1.0810
= 1.3084

Return On 58,877 12,466,566 10,233,675 7,197,032

43,819,600 43,819,600 21,279,800 6,300,000
Total
Equity = 0.00134 = 0.284 = 0.481 = 1.142

Net Income
Total
Common
Equity
 EQUITY ANALYSIS

Ratio Years

2009 2008 2007 2006

Earning yield
0.01 3.68 5.8 11.42
Earnings per
0.10 0.10 0.10 0.10
share/ market =0.1 =36.8 =58 =114.2
price per share

Price /earnings
ratio 0.10 0.10 0.10 0.10
0.01 3.68 5.8 11.42
Market price of =10 =0.027 =0.0172 =0.0008
the share/earnings
per share

Percentage of
earning retained 58877-0 12466566-0 10233675- 7197032-0
(%) 58877 12466566 0 7197032
= 1 = 1 10233675 = 1
Net income-all = 1
dividend/ net
income
 C. GRAPHICAL ANALYSIS

Short-term liquidity

Liquidity is the ability to convert assets into cash or to obtain cash to meet
short-term obligations. Short-term is conventionally viewed as a period up to one
year, though it is identified with the normal operating cycle of a company (the time
period encompassing the buying-producing-selling-colleting cycle). The importance
of liquidity is best seen by considering repercussion stemming from a company’s
inability to meet short-term obligations. It compares all the current assets of a
company to all the current liabilities.

CURRENT RATIO ANALYSIS

150

100
im
e
sT

50
current ratio
0
2006 2007 2008 2009

Years

Current ratio is current asset divide by current liabilities. The purpose is to

measures the liquid assets that provide a safety cushion to creditors and the liquid
reserve available to meet contingencies and the uncertainties surrounding a
company’s balance of cash flow.

Current ratio for I-POWER BHD for year 2006 is 28.06:1, 2007 is 3.36:1,
2008 is 99.08:1,and 2009 is 42.47:. In the year of 2008, I-POWER BHD has 99.08:1
of current assets for every single RM of current liabilities.

We can conclude that current assets is easy to convert into cash and available
to cover current liabilities. Company can decrease their current ratio by making
payoff of current liabilities. In the rules of thumb showed that the four year is an
inefficient use of resources reduced rate of return which it is >2:1.

ACID TEST RATIO ANALYSIS

60
40
tim
e

20
s

0 Acid test ratio

2006 2007 2008 2009

year

A more stringent test of liquidity uses the acid-test (quick) ratio. There are
28.36:1 in year 2006, 3.36 in year 2007, 52.88 in year 2008 and 12.32:1 in year 2009.
This shows that, provided creditors and debtors are paid at approximately the
different time, a view might be made as to whether the business has sufficient liquid
resources to meet its current liabilities.

ACCOUNT RECEIVABLE TURNOVER

2
tim
e
s

account
1 receivable
turnover
0
2006 2007 2008 2009

year

Account receivable turnover is measures the number of times account

receivables were collected during the year. It also measure of how well the company
collects sales on credit from its customers, just as average collection period measures
this in days. A high or increasing in accounts receivables turnover is usually a
positive sign and showing that company is successfully executing its credit policies
and quickly turning its account receivable into cash. So we can see that the account
receivable turnover ratio in year 2006 is 1.96:1, 2007 is 1.94:1, year 2008 is 3.69:1,
and year 2009 is 3.19:1. The high in account receivable turnover for year 2008 and
2009 has given the positive impact to the I-POWER BERHAD.

CAPITAL STRUCTURE AND SOLVENCY ANALYSIS

0.4
0.35
0.3
0.25 total debt ratio
0.2
0.15 total debt to equity
(%

capital
)gn
tap
e
rc

0.1
longterm debt to equity
0.05
capital
0
2006 2007 2008 2009

year

Capital structure refers to the sources of financing for a company. Financing

can range from relatively permanent equity capital to more risky or temporary short-
term financing sources. Once a company obtains financing, it subsequently invests it
in various assets. Assets represent secondary sources of security for lenders and range
from loans secured by specific assets to assets available as general security for
unsecured creditors. These and other factors yield different risks associated with
different assets and financing sources.

It is showed that positions of company are very well in 2006, which is 0.023,
0.0074 in 2008 and 0.016 in 2009. While in 2007, it showed a quite high the total
debt than total capital. The lowest the total debt ratio is the better, liabilities less,
asset more.

It also compared the company’s amount owed to creditor (total liabilities) to

the amount supplied by investors of the company (total shareholders’ equity), total
debt to equity capital. As we can see from the calculation is for the year 2006 to
2009 is 0.024:1, 0.371:1, 0.0075:1, 0.017:1, and 0.88:1 respectively. Total debt less
than shareholder showed that the company is solvency.

The long-term debt to equity capital is measures the relation of long-term

debt (usually defined as all non-current liabilities) to equity capital. A ratio in excess
of 1:1 indicates greater long-term debt financing compared to equity capital. This
ratio is commonly referred to as the debt to equity ratio and it is computed as long-
term debt / shareholders’ equity. For the year 2006, long term debt to shareholder
equity is 0.25 %, 0.14% in 2007, 0.1% in 2008 and 0.11% in 2009. We can conclude
that equity for the four years is higher than long term debt.

SMITH Z-SCORE

40
35
30
25
20
15 Smith Z-score
10
5
0
2006 2007 2008 2009

Smith Z-score is use to measure whether a company is a healthy or distressed

condition. From the graph above showed that I-POWER BERHAD is in a healthy
condition but in year 2007 it in verge of distress condition which Z is 1.25
 ALTMAN’S Z-SCORE

5
4
3
tim
e

2
s

1
0
2006 2007 2008 2009

year

Altman's Z score is the tried and tested formula for bankruptcy prediction. It has
been demonstrated to be quite reliable in a variety of contexts and countries. It is not
designed to be used in every situation. Before using a Z score to make predictions,
one must ensure the firm being examined is comparable to the database.

It is a fact that if the Z-Score of less than 1.20, it shows that the company is
most likely to witness a high probability of bankruptcy, and if the Z-Score shows a
value of more than 2.90, it implies a low probability of bankruptcy for the
organization. As for values between 1.20 and 2.90, they represent ambiguous area.

As we can see, in the year 2006, the organization implies a low probability of
bankruptcy, while in year 2007 and 2008, its show that organization is between the
range of zone of ignorance of bankrupt and non-bankrupt probability. In the year
2009 for the I-POWER BHD, the organization was on the verge of bankruptcy due to
the values for the years which show less than 1.20.

We can finalize that the organization has tried its best to maintain a financial
standing which impose situations where they avoid such risks of loss in year 2007 and
2008, but it cannot maintain in a long run until 2009.
PROFITABILITY ANALYSIS

Profitability refers to a company’s earnings relative to both the level and

source of financing and it is a measure of a company’s success in using financing to
generate profits. In the world of finance, the performance measures which are always
in common use are revenue, net income and asset growth. It is an important indicator
of a company’s long-term financial strength.

Return on invested capital can also be known as profitability. It allows

comparisons with alternative investment opportunities and it impacts a company’s
ability to succeed, attract financing, repay creditors and reward owners. Profitability
conveys return on invested capital from different financing perspectives and it allows
managers to conduct proper financing plans, budgets, activities co ordinations and
control.

I-POWER BHD studies on profitability area were finalized mainly using three
ratios and they are net profit margin, total asset turnover, and return on total
equity Those ratios would aid many parties especially the investors, to properly
analyze the organization’s financial performance, based on the observations of the
annual reports from the years 2005 to 2009.

PROFITABILITY ANALYSIS
 We can conclude that even I-POWER BHD is a company in healthy condition
but it showed the company has an inefficient in management because the percentage
earned by shareholder for their investment are decrease from 2006 until 2009. Total
turnover increased from 2006 1.0810 to 1.3084 in 2007, but it decrease in the
following two years, that is 0.8667 and 0.2089 in 2008 and 2009 respectively.

EQUITY ANALYSIS

Equity analysis extends the analyses of financial statements to consider

earnings persistence, valuation and forecasting. Earnings persistence is defined to
include the stability, predictability, variability, and trend in earnings. The equity
valuation analysis emphasizes earnings and other accounting measures for computing
company value. The earnings forecasting considers earning power, estimation
techniques, and monitoring mechanisms. Equity basically refers to shareholders
financing and the analysis of this area involves analyzing equity characteristics which
include classifying and distinguishing different equity sources, examining rights for
equity classes and priorities in liquidation, evaluation legal restrictions for equity
distribution, reviewing restrictions on retained earnings distribution and lastly,
assessing terms and provisions of potential equity issuances.

PRICE / EARNING RATIO ANALYSIS

15
10
10

5 price / earning ratio

0.0008 0.0172
0.027
0
2006 2007 2008 2009

Price / earnings ratio is to expresses the relationship between the market

price of a share of common stock and that stock’s current earnings per share. High
price / earnings ratio means that the more market is willing to pay for the company’s
earnings or overpriced stock, as a gauge of future earning power of the firm.
Normally high growth opportunities showed by high price / earnings ratio. In year
2006 to 2009, it is showed lower growth opportunities, which is 0.0008 times in
2006, 0.0172 times in year 2007 and 0.027 times in 2008 than 10 times of growth
opportunities in 2009.

EARNING YIELD

120 114.2
100
80 58
60
36.8
40
20 0.1
0
2006 2007 2008 2009

earningyield

Earning yield expresses the relationship between earnings and market price
per share. It is the inverse of the price-earnings ratio. Basically, it is the earning
amount you buy for every dollar worth of stock.

In 2006, it is worth to buy for stock which you will earn 114.2% with every
ringgit. While, it shows a decreasing from 2007 onward, which in 2009, earn only 0.1
% with every ringgit.
 D. CONCLUSION AND RECOMMENDATION

I-POWER BHD are being analysed in term of its capital structure, short term
liquidity, profitability analysis and equity analysis. We can conclude that the
company was not efficiently operated based on their performance. Current asset of
the company is easy to convert into cash quick and fast to create a new business
opportunity and it is a clear signal that a company pay its debts that are coming due in
the near future and still fund its ongoing operations. It also showed that the company
available to cover liabilities, while it is an inefficient use of resource reduced rate of
return.

I-POWER BHD was in healthy condition which showed by Smith Z-score in

every year is above zero. From Altman Z-score, it showed that the company is in low
probability for bankruptcy in 2006 but the company is in high probability for
bankruptcy in 2009, it is mean the creditors are not in well protected. The company
has an inefficient management and an inefficient in utilized all their assets to generate
a profit. It is showed an increasing in growth opportunity from 2006 to 2009. But in
the other hands, it is show a decreasing in worth value that can be gain with every
ringgit year by year.

Corporate social responsibility is a concept whereby I-Power holds with

utmost importance in taking responsibilities for the impact of activities on customers,
employees, shareholders, communities and the environment in all aspect of
organizations operations. I-Power is fully aware that the obligation extends beyond in
statutory obligation to comply with legislation and therefore voluntarily taking further
steps to improve the quality of life for employees and their families as well as for the
local community and society at large.
 Various activities were planned and implemented to fulfil its CSR obligations,
which is the workforce, community, and environment. The company organizes
gatherings and recreational events on regular intervals for its staff and family
members to foster and cultivate a happy and productive workforce with a strong sense
belonging. I-Power team make donations annually to various welfare bodies and
NGOs for welfare purposes. In the other hands, the company also has adopted eco-
friendly practices in its day-to-day work in order to minimize the impact on the
environment, such as paperless environment, recycling and energy savings.

a. From a point of view of a banker, does the company deserve additional

working capital loan? Justify your answer.

I-POWER BERHAD raise their fund from borrow loans from bank or issue
share or debentures to public. Either banker or investor, they will analysis company’s
performance from financial ratios to decide whether company worth to invest or not.
But the ratios that banker and investors used to decide whether they should invest in
that company are different.

For bankers, they will more consent on company future performance and ability
to pay back the loans. Ratios which show the company liquidity, profitability, capital
structure and solvency are more important for banker. They will use these ratios to
decide they should approve a loan to that company. I-POWER BERHAD liquidity is
favourable to bankers.

I-POWER BERHAD acid test ratio is considered in good condition because it

has a ratio of more than 1 for each year in the rule of thumb. Company’s solvency
ratios had make bankers reassurance about company ability to pay back the loan.
Total debts to equity capital ratios are not more than 1 for past 5 years, which mean
company do not have heavily rely on debt.

The profitability for the company is decreased. Net profit margin is decreased
from 2006 to 2009. Nevertheless, this show that the company performance in
management has to improve in their operating activities which will reduce their
operating costs. The profitability for I-POWER BHD is showing a bad sign in
company capital structure and solvency. The banker will facing a long term period in
collected the loan and the loan borrowed to the company have the higher risk will
become bad debt to the banker.

b. From a point of view of an investor, is this company considered as a good

investment? Justify your answer.

Investors will use profitability and equity analysis to decide they should invest
in that company or sell the company shares. Net profit margin for the company is
constant for this few years. One of the important ratios for investor is return on
common equity. This ratio will boost investor’s confidence to invest in this company.
The company had changed their operating activities to more efficient which will
reduce the operating costs. A good operating company will attract more investors. In
the other hand, the highest of the P/E ratio indicates the highest growth opportunities.
Since the I-POWER BERHAD P/E ratio is keep decreasing from the year of 2006 till
2009, it has made the investor dare not to invest in that company.

c. From a point of view as a citizen, do you think that the organization has been
contributing to the welfare and social development of our country? Justify your
recommendation.

I-POWER BERHAD has been contributing to the welfare and social development for
our country. The company holds with utmost importance in taking responsibilities for
the impact of activities on customers, employees, shareholders, communities and the
environment in all aspect of organizations operations. I-Power is fully aware that the
obligation extends beyond in statutory obligation to comply with legislation and
therefore voluntarily taking further steps to improve the quality of life for employees
and their families as well as for the local community and society at large.

As a socially responsible corporation, I-POWER BERHAD has always

shown care for the environment, care for employees, fostering strong relationships
with business associates and supporting many community welfare causes as part of its
business ethics and responsibilities.
 I-POWER BERHAD is a caring and responsible corporation and has various
activities were planned and implemented by the company to fulfil its CSR obligations
in the workforce, the community, and the environment. I-POWER team make
donations every year, organizes gatherings and recreational events on a regular
intervals for staff and family members, and also adopted eco-friendly practices in its
day-to-day work in order to minimizes the impact on the environment such as
recycling, energy savings and paperless environment.

REFERENCES

 Financial Statement Analysis Book, 10th Edition, --- K.R Subramanyam .

John J. Wild

 http://cpaclass.com/fsa/ratio-01a.thm

 http://tippie.viowa.edu

 http://announcements.bursamalaysia.com

 http://yahoofinance.com

 http://www.klse.com.my/

 http://www.ipowerbiz.com.my

E. APPENDIX (FORMULA)

Short- term liquidity Capital structure and solvency:

Current ratio Total debt ratio

Current assets/Current liabilities Total debt / total capital

Acid test ratio (quick ratio) Total debt to equity capital

(Current assets – inventory) /current Total debt/ total equity to capital

liabilities
Account receivable turnover Long term debt to equity capital

Net sales/Average gross receivable Long term debt/ total equity capital
Cash flow ratio Altman’s Z-score

Operating cash flow/current liabilities Z= 0.717X1 + 0.847X2 + 3.107X3 +

0.420X4 + 0.998X5

Smith’s Z-score

Z = -0.018 + 1.829X1 + 0.114 X2 –

0.080X3

Profitability analysis Equity Analysis:

Net profit margin Earning yield

Net income/sales Earnings per share/ market price per

share
Total assets turnover Price / earnings ratio

Sales / average total assets Market price of the share/earnings per

share
Return on total equity Percentage of earning retained (%)

Net income/average common equity Net income-all dividend/ net income

Net operating profit margin

Net operating profit after tax/sales