Bkal 1013 Chapter 7 Financial Statement Analysis

Topic 7

Financial Statement Analysis

Learning Objectives 1. 2. 3. 4. 5. 6. 7.

Users of Financial Statement Importance of Financial Statement Analysis Basic Analytical Procedures Solvency Analysis Profitability Analysis Efficiency Analysis Summary of Analytical Measures

C6 C6- 1

USERS OF FINANCIAL STATEMENT Employees and Managers Stockholders and Creditors Suppliers and Customers

Business Entity

Regulatory Bodies

Internal Stakeholders Government Taxation

C6- 2

DIFFERENT USERS NEED OF INFORMATION

MANAGER

Planning and organizing business

Banks

To approve loan application

vendors

Determine credit term and credit limit

Shareholders

Predict investment return & Future risk C6- 3

IMPORTANCE OF FINANCIAL STATEMENT ANALYSIS

Analysis helps user to…..

generate more meaningful information for making decision. analyse relationship between financial statement components and the trend. measure company’s performance & to predict potential risk in the future C6- 4

BASIS OF COMPARISONS Intra company to compare one company’s performance for several years (3 to 5 years) Inter company (competitor) Compare company’s performance with other company (similar industries) Industrial average to compare company’s performance with industrial average performance (average performance of the companies in similar industries) C6- 5

BASIC ANALYTICAL PROCEDURES

PERCENTAGE ANALYSIS

HORIZONTAL

VERTICAL

COMMON-SIZE

C6- 6

PERCENTAGE ANALYSIS C6- 7

HORIZONTAL ANALYSIS

Analysing performance change by percentage in related items in comparative financial statements.

C6- 8

Tanjak Holding Sdn Bhd Comparative Balance Sheet December 31, 2008 and 2007 Increase (Decrease) 2008 2007 Amount Assets Current assets RM 550,000RM 533,000 RM 17,000 Long-term investments 95,000 177,500 (82,500) Fixed assets (net) 444,500 470,000 (25,500) Intangible assets 50,000 50,000 — RM1,139,500RM1,230,500RM (91,000) Liabilities Current liabilities RM 210,000 RM 243,000RM (33,000) Long-term liabilities 100,000 200,000 (100,000) RM 310,000 RM 443,000RM(133,000) Stockholders’ Equity Preferred 6% stock,RM100RM150,000 RM 150,000 — Common stock, RM10 par 500,000 500,000 — Retained earnings 179,500 137,500 RM42,000 Total stockholders’ equity RM829,500RM 787,500 RM42,000 Total liabilities and Stockholders’ equity RM1,139,500RM1,230,500 RM(91,000)

Percent 3.2% (46.5%) (5.4%) (7.4%) (13.6%) (50.0%) (30.0%)

30.5% 5.3% C6- 9

(7.4%)

Tanjak Holding Sdn Bhd Comparative Balance Sheet Increase December 31, 2008 and 2007 (Decrease) 2008 2007 Amount Percent Assets Current assets RM 550,000RM 533,000 RM 17,000 3.2% Long-term investments 95,000 177,500 (82,500) (46.5%) Horizontal Fixed assets (net) 444,500 Analysis: 470,000 (25,500) (5.4%) Intangible assets 50,000 50,000RM550,000 — Current year (2008) = 103.2% RM1,139,500RM1,230,500RM (91,000) (7.4%) Base year (2007) RM533,000 Liabilities Increase amount RM17,000 Current liabilities RM 210,000 RM 243,000RM (33,000) (13.6%) = 3.2% Base year (2007) RM533,000 Long-term liabilities 100,000 200,000 (100,000) (50.0%) RM 310,000 RM 443,000RM(133,000) (30.0%) Stockholders’ Equity Preferred stock,RM100 parRM150,000RM 150,000 — Common stock, RM10 par 500,000 500,000 — Retained earnings 179,500 137,500 RM42,000 30.5% RM 829,500 RM 787,500 RM42,000 5.3% RM1,139,500RM1230,500 RM(91,000) (7.4%) C6- 10

Tanjak Holding Sdn Bhd Comparative Income Statement Increase For the Years Ended December 31, 2008 and 2007 (Decrease) 2008 2007 Amount Percent Sales RM1,530,500RM1,234,000RM296,500 24.0% Sales returns 32,500 34,000 (1,500) (4.4%) Net sales 1,498,000 1,200,000 298,000) 24.8% Cost of goods sold 1,043,000 820,000 223,000 27.2% Gross profit 455,000 380,000 75,000 19.7% Selling expenses 191,000 147,000 44,000 29.9% Administrative expenses 104,000 97,400 6,600 6.8% Total operating expenses 295,000 244,400 50,600 20.7% Operating income 160,000 135,600 24,400 18.0% Other income 8,500 11,000 (2,500) (22.7%) 168,500 146,600 21,900 14.9% Other expense 6,000 12,000 (6,000) (50.0%) Income before income tax 162,500 134,600 27,900 20.7% Income tax 71,500 58,100 13,400 23.1% Net income 91,000 76,500 14,500 19.0% C6- 11

Tanjak Holding Sdn Bhd Comparative Income Statement For the Years EndedDecember 31, 2008 andIncrease 2007 (Decrease) 2008 2007 Amount Percent Sales RM1,530,500RM1,234,000RM296,500 24.0% Sales returns 32,500 34,000 (1,500) (4.4%) Net sales 1,498,000 1,200,000 298,000) 24.8% Cost of goods sold 1,043,000 820,000 223,000 27.2% Horizontal Gross profit 455,000 Analysis: 380,000 75,000 19.7% Selling expenses 191,000 147,000 44,000 29.9% Current year (2008) RM1,498,000 = 124.8% Administrative expenses Base 104,000 6,600 6.8% year (2007)97,400 RM1,200,000 Total operating expenses 295,000 244,400 50,600 20.7% Increase amount RM298,000 Operating income 160,000 135,600 24,400 18.0% = 24.8% Base8,500 year (2007)RM1,200,000 Other income 11,000 (2,500) (22.7%) 168,500 146,600 21,900 14.9% Other expense 6,000 12,000 (6,000) (50.0%) Income before income tax 162,500 134,600 27,900 20.7% Income tax 71,500 58,100 13,400 23.1% Net income 91,000 76,500 14,500 19.0% C6- 12

VERTICAL ANALYSIS Analysing performance change by percentage of each component to the total within a single statements

C6- 13

Tanjak Holding Sdn Bhd Comparative Balance Sheet December 31, 2008 and 2007 2008 Amount Percent

2007 Amount Percent

Assets Current assets RM 550,000 48.3% RM 533,000 Long-term investments 95,000 8.3 177,500 Fixed assets (net) 444,500 39.0 470,000 Intangible assets 50,000 4.4 50,000 RM1,139,500 100.0% RM1,230,500 Liabilities Current liabilities RM 210,000 18.4% RM 243,000 Long-term liabilities 100,000 8.8 200,000 RM 310,000 27.2% RM 443,000 Stockholders’ Equity Preferred stock, RM100 parRM150,000 13.2% RM 150,000 Common stock, RM10 par 500,000 43.9 500,000 Retained earnings 179,500 15.7 137,500 RM 829,500 72.8% RM 787,500 RM1,139,500 100.0% RM1230,500

43.3% 14.4 38.2 4.1 100.0% 19.7% 16.3 36.0% 12.2% 40.6 11.2 64.0% 100.0%

C6- 14

Tanjak Holding Sdn Bhd Comparative Balance Sheets December 31, 2008 and 2007 2008 Amount Percent

2007 Amount Percent

Assets Current assets RM 550,000 48.3% RM 533,000 Long-term investments 95,000 8.3 177,500 Fixed assets (net) 444,500 39.0 470,000 Intangible assets 50,000 4.4 50,000 RM1,139,500 100.0% RM1,230,500 Liabilities Current liabilities RM 210,000 18.4% RM 243,000 Vertical Analysis: Asset items Long-term liabilities 100,000 8.8 200,000 2008 RM310,000 27.2% RM 443,000 Current assetsEquity RM550,000 = 48.26% Stockholders’ Total assets RM1,139,500 Preferred stock, RM100 parRM150,000 13.2% RM 150,000 Common stock, RM10 par 500,000 43.9 500,000 2007 Retained earnings 179,500 15.7 137,500 = 43.32% Current assets RM533,000 RM829,500 72.8% RM787,500 Total assets RM1,230,500 RM1,139,500 100.0% RM1230,500

43.3% 14.4 38.2 4.1 100.0% 19.7% 16.3 36.0% 12.2% 40.6 11.2 64.0% 100.0% C6- 15

Tanjak Holding Sdn Bhd Comparative Balance Sheets December 31, 2008 and 2007 2008 2007 Amount Percent Amount Percent Assets Vertical Analysis: liability items Current assets RM 550,000 48.3% RM 533,000 43.3% 2008 : investments Long-term 95,000 8.3 177,500 14.4 Current liabilities Fixed assets (net) RM210,000444,500 470,000 38.2 = 18.4%39.0 Liability assets & equity RM1,139,500 Intangible 50,000 4.4 50,000 4.1 RM1,139,500 100.0% RM1,230,500 100.0% Liabilities Current liabilities RM 210,000 18.4% RM 243,000 19.7% Long-term liabilities 100,000 8.8 200,000 16.3 RM310,000 27.2% RM 443,000 36.0% Stockholders’ Equity Preferred stock, RM100 parRM 150,000 13.2% RM 150,000 12.2% Common stock, RM10 par 500,000 43.9 500,000 40.6 Retained earnings 179,500 15.7 137,500 11.2 RM829,500 72.8% RM787,500 64.0% RM1,139,500 100.0% RM1230,500 100.0% C6- 16

Tanjak Holding Sdn Bhd Comparative Balance Sheets December 31, 2008 and 2007 2008 2007 Amount Percent Amount Percent Assets Vertical Analysis: liability Current assets RM items 550,000 48.3% RM 533,000 43.3% Long-term 95,000 8.3 177,500 14.4 2007 : investments = 19.75% Fixed assets (net) RM243,000 444,500 39.0 470,000 38.2 Current liabilities Intangible 50,000 4.4 50,000 4.1 Liabilityassets & equityRM1,230,500 RM1,139,500 100.0% RM1,230,500 100.0% Liabilities Current liabilities RM 210,000 18.4% RM 243,000 19.7% Long-term liabilities 100,000 8.8 200,000 16.3 RM310,000 27.2% RM 443,000 36.0% Stockholders’ Equity Preferred stock, RM100 parRM 150,000 13.2% RM 150,000 12.2% Common stock, RM10 par 500,000 43.9 500,000 40.6 Retained earnings 179,500 15.7 137,500 11.2 RM829,500 72.8% RM787,500 64.0% RM1,139,500 100.0% RM1230,500 100.0% C6- 17

Tanjak Holding Sdn Bhd Comparative Balance Sheets December 31, 2008 and 2007 2008 2007 Amount Percent Amount Percent Assets Vertical Analysis: Owner’s equity items Current assets RM 550,000 48.3% RM 533,000 43.3% Long-term 95,000 8.3 177,500 14.4 2008: investments = 15.75% Fixed assets earning (net) RM179,500 444,500 39.0 470,000 38.2 Retained Intangible 50,000 4.4 50,000 4.1 Liabilityassets & equity RM1,139,500 RM1,139,500 100.0% RM1,230,500 100.0% Liabilities 2008: = 11.17% Current liabilities RM 210,000 18.4% RM 243,000 19.7% Retained earning RM137,500 Long-term 100,000 8.8 200,000 16.3 Liabilityliabilities & equity RM1,230,500 RM310,000 27.2% RM 443,000 36.0% Stockholders’ Equity Preferred stock, RM100 parRM 150,000 13.2% RM 150,000 12.2% Common stock, RM10 par 500,000 43.9 500,000 40.6 Retained earnings 179,500 15.7 137,500 11.2 RM829,500 72.8% RM787,500 64.0% RM1,139,500 100.0% RM1230,500 100.0% C6- 18

Tanjak Holding Sdn Bhd Comparative Income Statement Increase For the Years Neded December 31, 2008 and 2007 (Decrease) 2008 2007 Amount Percent Sales RM1,530,500RM1,234,000 Sales returns 32,500 34,000 Net sales 1,498,000 1,200,000 Cost of goods sold 1,043,000 820,000 Gross profit 455,000 vertical analysis:380,000 income statement items Selling expenses 191,000 147,000 Administrative expenses 104,000 97,400 Net income (2008) RM 91,000 Total operating expenses 295,000 244,400 = 6.07% Net sales (2008) RM1,498,000 Operating income 160,000 135,600 Other income 8,500 (2007) 11,000 Net income RM 76,500 = 6.4% Net 168,500 sales (2007)146,600 RM1,200,000 Other expense 6,000 12,000 Income before income tax 162,500 134,600 Income tax 71,500 58,100 Net income 91,000 76,500 C6- 19

COMMON-SIZE STATEMENTS

Useful to compare the current with prior periods, individual businesses, or one business with industry percentages. All items are normally expressed in percentages.

C6- 20

Tanjak Holding Sdn Bhd Comparative Balance Sheets December 31, 2008 and 2007 2008 2007 Amount Percent Amount Percent Common-Size Statements

Assets Current assets RM 550,000 48.3% RM 533,000 Long-term investments 95,000 8.3 177,500 Fixed assets (net) 444,500 39.0 470,000 Intangible assets 50,000 4.4 50,000 RM1,139,500 100.0% RM1,230,500 Liabilities Current liabilities RM 210,000 18.4% RM 243,000 Long-term liabilities 100,000 8.8 200,000 RM310,000 27.2% RM 443,000 Stockholders’ Equity Preferred stock, RM100 parRM150,000 13.2% RM 150,000 Common stock, RM10 par 500,000 43.9 500,000 Retained earnings 179,500 15.7 137,500 RM829,500 72.8% RM787,500 RM1,139,500 100.0% RM1230,500

43.3% 14.4 38.2 4.1 100.0% 19.7% 16.3 36.0% 12.2% 40.6 11.2 64.0% 100.0% C6- 21

BUILDING BLOCKS OF FINANCIAL STATEMENT ANALYSIS

RATIO ANALYSIS

SOLVENCY

PROFITABILITY

EFFICIENCY

C6- 22

Ratio Analysis

C6- 23

Solvency Analysis Solvency is the ability of a business to meet its financial obligations (debts) as they are due. Solvency analysis focuses on the ability of a business to pay or otherwise satisfy its current and noncurrent liabilities. This ability is normally assessed by examining balance sheet relationships.

C6- 24

Solvency Ratios Solvency (short term/ liquidity) • Working capital • Current ratio • Acid-test ratio Solvency (long-term) • Fixed assets to long term liabilities • Ratio of liabilities to shareholder’s equity • Times interest charges • Debt ratio • Equity ratio

C6- 25

Solvency Measures — The Short-Term Creditor (liquidity) Working Working Capital Capital and andCurrent Current Ratio Ratio 2008 2007 Current assets RM550,000 RM533,000 Current liabilities 210,000 243,000

C6- 26

Solvency Measures — The Short-Term Creditor Working Working Capital Capital and and Current CurrentRatio Ratio 2008 2007 Current assets RM550,000 RM533,000 Current liabilities 210,000 243,000 Working capital RM340,000 RM290,000 Use: Use: To To indicate indicatethe the ability ability to to meet meet currently currentlymaturing maturing obligations. obligations.

C6- 27

Solvency Measures — The Short-Term Creditor Working Working Capital Capital and and Current CurrentRatio Ratio 2008 2007 Current assets RM550,000 RM533,000 Divide Current liabilities 210,000 243,000 Divide Working capital RM340,000 RM290,000 current current assets assetsby by Current ratio 2.6 2.2 current current liabilities Use: liabilities Use: To To indicate indicatethe the ability ability to to meet meet currently currentlymaturing maturing obligations. obligations.

C6- 28

Solvency Measures — The Short-Term Creditor Acid-Test Acid-TestRatio Ratio 2008

2007

Quick assets: Cash RM 90,500 RM64,700 Marketable securities 75,000 60,000 Accounts receivable (net) 115,000 120,000 Total RM280,500 RM244,700 Current liabilities RM210,000 RM243,000

C6- 29

Solvency Measures — The Short-Term Creditor Acid-Test Acid-TestRatio Ratio 2008

2007

Quick assets: Cash RM 90,500RM 64,700 Marketable securities 75,000 60,000 Accounts receivable (net) 115,000 120,000 Total RM280,500RM244,700 Current liabilities RM210,000RM243,000 Acid-test ratio 1.3 1.0 Use: Use: To Toindicate indicateinstant instantdebt-paying debt-payingability. ability.

C6- 30

Solvency Measures — The Long-Term Creditor Ratio Ratio of of Fixed Fixed Assets Assets to to Long-Term Long-Term Liabilities Liabilities Fixed assets (net) Long-term liabilities

2008 2007 RM444,500 RM470,000 RM100,000 RM200,000

C6- 31

Solvency Measures — The Long-Term Creditor Ratio Ratio of of Fixed Fixed Assets Assets to to Long-Term Long-Term Liabilities Liabilities Fixed assets (net) Long-term liabilities Ratio of fixed assets to long-term liabilities

2008 2007 RM444,500 RM470,000 RM100,000 RM200,000 4.4

2.4

Use: Use: To Toindicate indicatethe themargin marginof ofsafety safety to tolong-term long-term creditors. creditors.

C6- 32

Solvency Measures — The Long-Term Creditor Ratio Ratio of of Liabilities Liabilitiesto to Stockholders’ Stockholders’ Equity Equity 2008 2007 Total liabilities RM310,000 RM443,000 Total stockholders’ equityRM829,500RM787,500

C6- 33

Solvency Measures — The Long-Term Creditor Ratio Ratio of of Liabilities Liabilitiesto to Stockholders’ Stockholders’ Equity Equity 2008 2007 Total liabilities RM310,000 RM443,000 Total stockholders’ equityRM829,500RM787,500 Ratio of liabilities to stockholders’ equity 0.37 0.56 Use: Use: To Toindicate indicatethe themargin marginof of safety safetyto tocreditors. creditors.

C6- 34

Solvency Measures — The Long-Term Creditor Number Number of ofTimes TimesInterest Interest Charges ChargesEarned Earned 2008 2007 Income before income tax RM 900,000 RM 800,000 Add interest expense 300,000 250,000 Amount available for interest 1,200,000 1,050,000

C6- 35

Solvency Measures — The Long-Term Creditor Number Number of ofTimes TimesInterest Interest Charges ChargesEarned Earned 2008 2007 Income before income tax RM 900,000 RM 800,000 Add interest expense 300,000 250,000 Amount available for interest 1,200,000 1,050,000 Number of times earned

4.0

4.2

Use: Use: To To assess assessthe the risk riskto to debtholders debtholdersin in terms terms of of number number of of times times interest interestcharges charges were were earned. earned.

C6- 36

Solvency Measures — The Long-Term Creditor Debt Debt Ratio Ratio Total liabilities 443,000 Total assets

2008 2007 RM 310,000 RM RM1,139,500 RM1,230,500

C6- 37

Solvency Measures — The Long-Term Creditor Debt Debt Ratio Ratio Total liabilities Total assets Debt Ratio

2008 2007 RM 310,000 RM 443,000 RM1,139,500 RM1,230,500 0.27 0.36

Use: Use: To Tomeasure measurethe theextent extent of of credit credit used used to to finance financethe theassets. assets.

C6- 38

Solvency Measures — The Long-Term Creditor Equity EquityRatio Ratio 2008 2007 Stockholders’ equity RM 829,500 RM 787,500 Total assets RM1,139,500 RM1,230,500

C6- 39

Solvency Measures — The Long-Term Creditor Equity EquityRatio Ratio 2008 2007 Stockholders’ equity RM 829,500 RM 787,500 Total assets RM1,139,500 RM1,230,500 Equity Ratio 0.73 0.64 Use: Use: To Tomeasure measurethe theextent extent of of owners’ owners’ equity equity used usedto tofinance finance the the assets. assets.

C6- 40

Profitability Analysis Profitability is the ability of an entity to earn profits. This ability to earn profits depends on the effectiveness and efficiency of operations as well as resources available. Profitability analysis focuses primarily on the relationship between operating results reported in the income statement and resources reported in the balance sheet.

C6- 41

Profitability Ratios • • • • • • • • •

Profit margin Gross profit margin Rate earned on total assets (ROA) Rate earned on stockholders’s equity (ROE) Rate earned on common stockholder’s equity Earning per share Price earning ratio Dividends per share Dividend yield

C6- 42

Profitability Measures — Operating Profit ProfitMargin Margin Net profit Net sales Profit margin

2008 RM 91,000 1,498,000 0.06

2007 RM 76,500 1,200,000 0.06

Use: Use: To To assess assessthe theefficiency efficiencyof of the thebusiness businessin incontrolling controlling all all costs costsrelating relating to to sales. sales.

C6- 43

Profitability Measures — Operating Gross GrossProfit Profit Margin Margin Gross profit Net sales Gross profit margin

2008 RM 455,000 1,498,000 0.3

2007 RM 380,000 1,200,000 0.32

Use: Use: To To assess assessthe the efficiency efficiencyof of the the business businessin indealing dealingwith with purchases purchases and andits itsrelated related costs. costs.

C6- 44

Profitability Measures — The Common Stockholder Rate Rate Earned Earnedon onTotal Total Assets Assets Net income Plus interest expense Total Total assets: Beginning of year End of year Total Average

2008 2007 RM 91,000 RM 76,500 6,000 12,000 97,000 88,500 1,230,500 1,139,500 2,370,000 1,185,000

1,187,500 1,230,500 2,418,000 1,209,000

C6- 45

Profitability Measures — The Common Stockholder Rate Rate Earned Earnedon onTotal Total Assets Assets 2008 2007 RM 91,000 RM 76,500 6,000 12,000 97,000 88,500

Net income Plus interest expense Total Total assets: Beginning of year End of year Total Average Rate earned on total assets

1,230,500 1,139,500 2,370,000 1,185,000 8.2%

1,187,500 1,230,500 2,418,000 1,209,000 7.3%

Use: Use: To To assess assessthe the profitability profitability of of the theassets. assets. C6- 46

Profitability Measures — The Common Stockholder Rate Rate Earned Earnedon onStockholders’ Stockholders’ Equity Equity Net income Stockholders’ equity: Beginning of year End of year Total Average

2008 2007 RM 91,000 RM 76,500 787,500 829,500 1,617,000 808,500

750,000 787,500 1,537,500 768,750

C6- 47

Profitability Measures — The Common Stockholder Rate Rate Earned Earnedon onStockholders’ Stockholders’ Equity Equity Net income Stockholders’ equity: Beginning of year End of year Total Average Rate earned on equity

2008 2007 RM 91,000 RM 76,500 787,500 829,500 1,617,000 808,500 11.3%

750,000 787,500 1,537,500 768,750 10.0%

Use: Use: To To assess assessthe the profitability profitabilityof ofthe the investment investmentby bystockholders. stockholders. C6- 48

Profitability Measures — The Common Stockholder Rate RateEarned Earnedon onCommon Common Stockholders’ Stockholders’ Equity Equity 2008 2007 Net income RM 91,000 RM 76,500 Less preferred dividends 9,000 9,000 Remainder—common stock 82,000 67,500 Common stockholders’ equity: Beginning of year 637,500 600,000 End of year 679,500 637,500 Total 1,317,000 1,237,500 Average 658,500 618,750

C6- 49

Profitability Measures — The Common Stockholder Rate RateEarned Earnedon onCommon Common Stockholders’ Stockholders’ Equity Equity 2008 2007 Net income RM 91,000 RM 76,500 Less preferred dividends 9,000 9,000 Remainder—common stock 82,000 67,500 Common stockholders’ equity: Beginning of year 637,500 600,000 End of year 679,500 637,500 Total 1,317,000 1,237,500 Average 658,500 618,750 Rate earned on common equity 12.5% 10.9% Use: Use: To To assess assessthe theprofitability profitabilityof ofthe the investment investment by bycommon commonstockholders. stockholders. C6- 50

Profitability Measures — The Common Stockholder Earnings EarningsPer Per Share Share on on Common CommonStock Stock 2008 2007 Net income RM 91,000 RM 76,500 Less preferred dividends 9,000 9,000 Remainder—common stock 82,000 67,500 Shares of common stock 50,000 50,000

C6- 51

Profitability Measures — The Common Stockholder Earnings EarningsPer Per Share Share on on Common CommonStock Stock 2008 2007 Net income RM 91,000 RM 76,500 Less preferred dividends 9,000 9,000 Remainder—common stock 82,000 67,500 Shares of common stock 50,000 50,000 Earnings per share on common RM1.64 RM1.35 Use: Use: To To assess assessthe theprofitability profitabilityof ofthe the investment investment by bycommon commonstockholders. stockholders.

C6- 52

Profitability Measures — The Common Stockholder Price-Earnings Price-EarningsRatio Ratio 2008 2007 Market price per share of common RM20.50 RM13.50 Earnings per share on common RM 1.64 RM 1.35

C6- 53

Profitability Measures — The Common Stockholder Price-Earnings Price-EarningsRatio Ratio 2008 2007 Market price per share of commonRM41.00 RM27.00 Earnings per share on common RM 1.64 RM 1.35 Price-earnings ratio on common 25 20 Use: Use: To Toindicate indicatefuture futureearnings earningsprospects, prospects, based based on on the therelationship relationshipbetween between market market value valueof ofcommon commonstock stock and and earnings. earnings.

C6- 54

Profitability Measures — The Common Stockholder Dividends Dividendsper per Share Share Dividends on common stock Common stock outstanding Dividends per share

2008 2007 RM40,000 RM30,000 50,000 50,000 RM0.80 RM0.60

Use: Use: To Toindicate indicatethe therate rateof ofreturn returnto tocommon common stockholders stockholdersin interms termsof of dividends. dividends.

C6- 55

Profitability Measures — The Common Stockholder Dividend Dividend Yield Yield 2008 2007 Dividends per share of common RM 0.80 RM 0.60 Market price per share of common RM41.00 RM27.00

C6- 56

Profitability Measures — The Common Stockholder Dividend Dividend Yield Yield 2008 2007 Dividends per share of common RM 0.80 RM 0.60 Market price per share of commonRM41.00 RM27.00 Dividend yield on common stock 1.95% 2.22% Use: Use: To Toindicate indicatethe therate rateof ofreturn returnto tocommon common stockholders stockholdersin interms termsof of dividends. dividends.

C6- 57

Efficiency Analysis Efficiency is the ability of a business to manage the resources available in an effective way. Efficiency analysis focuses on the ability of a business to manage its receivables and inventories. This ability is normally assessed by examining balance sheet relationships.

C6- 58

Efficiency Ratios •

Account receivable turnover

•

Number of days sales in receivables

•

Inventory turnover

•

Number of days sales in inventory

•

Ratio of net sales to assets

C6- 59

Efficiency Measures — Receivable Analysis Accounts AccountsReceivable Receivable Turnover Turnover 2008 2007 Net sales on account RM1,498,000RM1,200,000 Accounts receivable (net): Beginning of year 120,000 140,000 End of year 115,000 120,000 Total 235,000 260,000 Average 117,500 130,000

C6- 60

Efficiency Measures — Receivable Analysis Accounts AccountsReceivable Receivable Turnover Turnover 2008 2007 Net sales on account RM1,498,000RM1,200,000 Accounts receivable (net): Beginning of year 120,000 140,000 End of year 115,500 120,000 Total 235,000 260,000 Average 117,500 130,000 Accts. receivable turnover 12.7 9.2 Use: Use: To Toassess assessthe theefficiency efficiency in in collecting collecting receivables receivablesand and in inthe the management managementof of credit. credit. C6- 61

Efficiency Measures — Receivables Analysis Number Number of ofDays’ Days’ Sales Sales in inReceivables Receivables 2008

2007

Accounts receivable (net) end of year RM 115,000 RM 120,000 Net sales on account 1,498,000 1,200,000 Average daily sales on on account (sales ÷ 365) 4,104 3,288 Number of days’ sales in receivables

28

36.5

Use: Use: To To assess assessthe the efficiency efficiencyin incollecting collecting receivables receivables and andin in the themanagement management of of credit. credit. C6- 62

Efficiency Measures — Inventory Analysis Inventory InventoryTurnover Turnover Cost of goods sold Inventories: Beginning of year End of year Total Average

2008 2007 RM1,043,000RM 820,000 283,000 264,000 547,000 273,500

311,000 283,000 594,000 297,000

C6- 63

Efficiency Measures — Inventory Analysis Inventory InventoryTurnover Turnover Cost of goods sold Inventories: Beginning of year End of year Total Average Inventory turnover

2008 2007 RM1,043,000RM 820,000 283,000 264,000 547,000 273,500 3.8

311,000 283,000 594,000 297,000 2.8

Use: Use: To To assess assessthe the efficiency efficiencyin inthe the management management of of inventory. inventory. C6- 64

Efficiency Measures — Inventory Analysis Number Number of ofDays’ Days’ Sales Sales in inInventory Inventory 2008 2007 Inventories, end of year RM 264,000 RM 283,000 Cost of goods sold 1,043,000 820,000 Average daily cost of goods sold (COGS ÷ 365) 2,858 2,247 Number of days’ sales in inventory 92.4 125.9 Use: Use: To To assess assessthe the efficiency efficiencyin inthe the management management of of inventory. inventory. C6- 65

Efficiency Measures — The Common Stockholder Ratio Ratio of of Net NetSales Salesto toAssets Assets 2008 2007 RM1,498,000RM1,200,000

Net sales Total assets: Beginning of year 1,053,000 1,010,000 End of year 1,044,500 1,053,000 Total 2,097,500 2,063,000 Average 1,048,750 1,031,500 Excludes Excludes long-term long-terminvestments investments

C6- 66

Efficiency Measures — The Common Stockholder Ratio Ratio of of Net NetSales Salesto toAssets Assets 2008 2007 RM1,498,000RM1,200,000

Net sales on account Total assets: Beginning of year End of year Total Average Ratio of net sales to assets

1,053,000 1,044,500 2,097,500 1,048,750 1.4

1,010,000 1,053,000 2,063,000 1,031,500 1.2

Use: Use: To To assess assessthe the effectiveness effectiveness of of the theuse useof ofassets. assets. C6- 67