1.0 Introduction on two selected companies

Transcription

1 1.0 Introduction on two selected companies In this subject of Financial Management 2, I will go to choose two companies which are from difference industries. The consumer product company will be selected is Fraser & Neave Holding Berhad (F&N), meanwhile the construction company will be selected is IJM Corporation. Company Background: F&N Holdings Berhad F&N is amongst the regions and Malaysia s oldest companies and its brand enjoys the rare distinction of being a market leader and household name in many categories. From purveyors of carbonated soft drinks, the F&N Group is one of Malaysia s diversified blue chip companies with leadership of the nation s beverages and dairy products. The Group has grown from strength to strength with an annual turnover in access of RM4 billion. F&N hold 38% from the total market food and beverage, and the market was dominated by Nestle with 41% and the rest by other brands. F&N segmented three products under their business categories, which are soft drinks, dairy product, and property. F&N stable of brands have come to epitomise the virtues of quality, fair pricing, universal availability, and, above all, the celebration of life. The F&N soft drinks product has been market are F&N Fun Flavours, 100 Plus, Seasons, Fruit Tree, Ice Mountain, Seasons Tea, Zesta and Clearly Citrus. F&N's dairy business grew out with the product of the sweetened condensed milk, evaporated milk, pasteurised milk, UHT milk, juice or ice cream. The popularize brand are Sunkist, Fruit Tree fresh brand, Magnolia and so forth. F&N has won many awards during these recent years. They have won The Reader s Digest Trusted Brand in 2007 and 2008 and Superbrands Asia At the same time, 100 Plus brand has won Malaysia Brand Equity Awards Gold In 1 August 2010, F&N has appointed Dato Ng Jui Sia as Chief Executive Officer. He joined F&N Group in 1995 and led a management team in F&N Coca-Cola Singapore in in brand marketing, manufacturing, sales and distribution. Dato' Ng was responsible for a massive restructuring of the Malaysian soft drinks business over a 6-year period from P a g e

2 Company Background: IJM Corporation IJM Corporation which are stand for IGB Construction, Jurutama Sdn Bhd and Mudajaya Construction Sdn Bhd. IJM turned to public on IJM core businesses in construction where IJM is one of Malaysia s largest and most diversified construction group in terms of projects undertaken and geographical spread. IJM has built the world class Mid Valley Megamall in Kuala Lumpur, impressive hotels, resorts and clubs such as Reinassance and the New World Hotels in Kuala Lumpur, Pan Pacific in Pulau Pangkor, Berjaya Hotel, Beach Resort in Mauritius and Riviera Bay Resort in Melaka. IJM hold 27% from the total market of construction industry, and the market was dominated by Sime Darby with 34%, 23% by Sunway and the rest by other companies. Behind the success, IJM managed by Dato Teh Kiat Ming, was appointed Chief Executive Officer and Managing Director on 1 January He was Deputy Chief Executive Officer and Deputy Managing Director from 1 July 2008 to 31 December P a g e

3 2.0 Identification of the company s financing sources (F&N Holdings Berhad) Balance Sheet F&N Holdings (RM) Share capital 356, ,493 Non-current liabilities Debt Loan 359, ,402 Total Non-Current Liabilities 359, ,402 Current liabilities Bank Credit 89, ,367 Term Loan 24,394 31,427 Total Current Liabilities 114, ,794 Total equity and liabilities 829, ,689 a. Long term Financing Sources i. Second is long-term debt loan. Long-term loans are debt instruments which are arranged when the scheduled repayment of the loan and the estimated purchased are expected to exceed one year. First by the new asset purchased and then by other unencumbered physical assets of the business and it has secured. The amount can be found in balance sheet, the borrowings shows up in the section on long-term liabilities. The loan applied in 2008 is RM359,411 and the year of 2009 indicates the amount of the loan is about RM360,402. ii. As we known F&N Holdings Berhad is Public Listed Companies (PLC) in Bursa Malaysia. F&N can issue more shares if they want to expand to the public. It means that anyone could buy the shares in F&N. Once the shares are sold, F&N share owners can buy and sell their shares through the stock exchange. Such buying and selling does not affect the business concerned directly and is one of the main advantages of the stock exchange. Shares hold by F&N in 2008 is RM356, 493 and shares in 2009 are RM356, P a g e

4 b. Short-term financing sources For the short term financial sources, most of the company are using the bank credit. When bank credit is granted, F&N gets a right to draw the amount of credit at one time or in installments as and when needed. Overdraft facility happens when a bank allows F&N to withdraw money in excess of the balance in their account up to a specified limit. In this system, F&N has showed a positive balance in their account every month. Rate of interest in case of overdraft is less than the rate charged under cash credit. The total of amount bank credit in year of 2008 indicate about RM89,636, and year of 2009 is amounted RM203,367. c. Intermediate financing sources By using intermediate financial sources, F&N Holdings get a lot of benefits because this kind of financial sources have three types. Term loan as general is defined as any debt obligation having initial maturity between 1 to 10 years. F&N banks tend to give out term loans in 3 to 5 years maturity period. Term loans are repayable in periodic terms which are quarterly, semi-annually and even yearly. F&N are considered afford to service the debt by the payment schedule of loan. Payment schedule called as equal periodic installments, but it may specify irregular amounts or repayment in lump sums at final maturity. The term loan applied during 2008 was RM24,394, and in 2009 term loan applied was RM31, P a g e

5 3.0 Identification of the company s financing sources (IJM Corporation). Balance Sheet IJM Corporation (RM) Capital and reserves attributable to equity holders of the Company Share capital 59, ,952 Non-current liabilities Medium term notes 274, ,380 Term loans 990,633 1,073,621 Total Non-current liabilities 1,265,017 1,307,001 Current liabilities Trade Credit 1,816,802 2,015,357 Borrowings -Bank overdrafts 67, ,801 -Short Term 779,260 1,365,410 Total Current Liabilities 2,663,994 3,504,568 Total Equity and Liabilities 3,988,145 5,753,521 a. Long Term Finance Sources i. Same as F&N Holdings, IJM Corporation pass through all the three criteria of financing resources. In the long term financing resources, IJM Corporation were using shares that has been obtained by trading stock a shareholder for cash or an equivalent items of capital value. IJM Corporation members cannot issue any more shares to friends or family and need more funds to continue expanding. In 2008, IJM Corporation shares is about RM859,134. Meanwhile, the amount is increased to RM941,952 in ii. In the meantime, IJM Corporation also relying on the long term loan and founded under non-current liabilities, which amounted RM990,633 in 2008 and RM1,073,621. Long term finance may be needed to fund expansion projects such as them considering setting up new offices in Sabah which they want to start up new business plantation premises in another part of Sabah, where they have been stable to market new segment in their business. This financing of projects will generally be quite 5 P a g e

6 complex and can involve billion of ringgit. This is because, they are not involving the accounting cost based in the head office, but they need to standardize the accounting format in Sabah office accounting. b. Short Term Finance Sources i. Short term loan finances a source was in IJM after establishment of IJM Corporation business, funds are required to meet its day today expenses. For example raw materials must be purchased at regular intervals, workers must be paid wages regularly, water and power charges have to be paid regularly. Thus there is a continuous necessity of liquid cash to be available for meeting these expenses. Requirements short-term funds are the tool needed for financing. Inadequacy of shortterm funds may even lead to closure of business. In 2008 the amount is about RM779,260 and 2009 is RM1,365,410. ii. The finance sources happen to trade credit when credit granted to manufactures and traders by the suppliers of raw material, finished goods and components of IJM Corporation construction services. Payments are not made until the expiry of period of credit when goods delivered if IJM Corporation buys supplies on a 30 to 90 days credit. This type of credit does not make the funds available in cash but it facilitates purchases without making immediate payment. The amount of trade credit in 2008 is RM1,816,802 and RM2,015,357 in iii. In other way of financing sources, when a certain amount is advanced by a bank repayable after a specified period, it is known as bank overdrafts. IJM Corporation has to pay interest on the whole amount of loan irrespective actually drawn when such advance is credited to a separate loan account. Usually loans are granted against security of assets. The bank loan amount in 2008 is RM67,932 and loans in 2009 is RM123, P a g e

7 c. Intermediate Finance Sources In other terms, Medium Term Notes (MTN) is sold to investors through an investment bank. One of the important features of medium term notes is that the instrument may be offered continuously. Investors have an idea of what its maturity will be when they compare its price to that of other fixed-income securities by knowing that note is medium term. IJM Corporation can have constant cash flows coming in from its debt issuance. It allows IJM to tailor its debt issuance to meet its financing needs. The value of MTN in 2008 is RM274,384 and RM233,380 is P a g e

8 4.0 Comparison of financing sources between the two companies. F&N Holdings and IJM Corporation are indifferent between the ratios. In 2008, F&N liquidity ratio, management ratio and debt equity ratio is higher than Instead decrease in 2009, equity multiplier and degree of operating leverage is increasing in F&N Holdings 2008 a) Liquidity ratio Current Ratio = 3.26 Quick Ratio = 2.70 b) Management ratio Account Receivable Turnover = 5.82 Fixed Asset Turnover = 3.13 c) Leverage ratio Equity Multiplier = 1.91 Debt Equity Ratio = 0.36 F&N Holdings 2009 a) Liquidity ratio Current Ratio = 2.96 Quick Ratio = 2.45 b) Management ratio Account Receivable Turnover = 2.04 Fixed Asset Turnover = 0.81 c) Leverage ratio Equity Multiplier = 1.95 Debt Equity Ratio = 0.32 Meanwhile, for IJM Corporation, the flow ratio is same as F&N Holdings. The liquidity ratio, management ratio and debt equity ratio in 2008 is much higher than in But the result for equity multiplier and degree of operating leverage is higher in The results are shown below. IJM Corporation 2008 a) Liquidity ratio Current Ratio = 4.13 Quick Ratio = 4.00 b) Management ratio Account Receivable Turnover = 2.12 Fixed Asset Turnover = P a g e

9 c) Leverage ratio Equity Multiplier = 2.00 Debt Equity Ratio = 0.61 IJM Corporation 2009 a) Liquidity ratio Current Ratio = 3.37 Quick Ratio = 3.26 b) Management ratio Account Receivable Turnover = 2.18 Fixed Asset Turnover = 0.69 c) Leverage ratio Equity Multiplier = 2.12 Debt Equity Ratio = 0.56 Permanent Current Asset Approach Both F&N Holdings and IJM Corporation as general are different approaches. a. F&N Holdings Approach As refer to the balance sheet, IJM indicates for conservative approach for 2008 which the amount of Non-current liabilities and current liabilities is about RM359,411 and RM114,030. The application was continuing in year 2009 which total about RM360,402 and 234,794. Borrowing long term is considered less risky than borrowing short term. This is because F&N has a longer time to use the loan proceeds before repayment is due. This indicates F&N uses long term funds to finance its long term assets, all permanent current assets, and also some temporary current assets. b. IJM Corporation Approach As refer to the balance sheet of F&N Holdings in year 2008, they were applying aggressive approach where their financing sources used more current liabilities and less non-current liabilities, which the amount is RM2,663,994 than RM1,265,017. It was continuous in 2009 which is RM3,504,568 and RM1,307,001. IJM uses short-term financing for all temporary current assets and for some of its permanent current assets. If compare the current assets and current liabilities, we can see all the F&N temporary current assets and most of its permanent current assets are being financed with current liabilities. 9 P a g e

10 Common Size Balance Sheet Percentage a. F&N Holdings F&N Holdings percentage in 2008 for each liabilities account for Share Capital is 42.98%. The percentage for debt loan is 43.33%. While bank credit is 10.81%, the term loan is about 2.94%. At the same time, the percentage for 2009 for share capital is remain the same and was decreased in debt loan for 37.37% and well increase in bank credit and term loan which are 21.37% and 3.30%. b. IJM Corporation IJM percentage in 2008 for each liabilities account for Share Capital is 1.48%. The percentage for medium term notes and term loan are 6.88% and 24.84%. While trade credit is 45.56%, the bank overdrafts and short term loan are 1.70% and 19.54%. At the same time, the percentage for 2009 for share capital was increased for 16.37% and was decreased in medium term notes, term loan and trade credit for 4.06%, 18.66% and 35.03%. In the end well increase in bank overdraft and short term loan which are 2.15% and 23.73%. Gross Domestic Product Gross Domestic Product for F&N Holdings and IJM Corporation has a different of value. The monetary value of all the finished goods and services produced within a country's borders in a specific time period, though GDP is usually calculated on an annual basis. F&N Holdings were produces an account different private and public consumption, government outlays, investments and exports less exports that occur within a defined territory. As we know F&N have region branches which they are consumer product. And even it same goes to IJM Corporation account, but IJM are more targeted to high professional and very minor quantity potential client. Interest Rate As we know interest rate will be occur when the loan has made by any of the company. Either investors from F&N or IJM may receive a better rate in the future if they hold of investing from the bank. However, interest rates can fall just as they can rise. There were happened into F&N and IJM as we can see the rise and fall to the loans application. For 10 P a g e

11 example long term debt loan in F&N from RM359,411 in 2008 and increased in 2009 for RM360,402. It same goes happened to IJM which RM990,633 in 2008 and was increased in 2009 for RM1,073,621. Another explanation is that longer maturities entail greater risks for the investor. The increase in the risk premium can influence the spread and can cause an increasing yield, if the market expects more fluctuation in the future, even if interest rates are anticipated to decline. Exchange rate The price of Malaysia currency expressed in another country's currency. Either F&N or IJM would not much affect on the exchange rate. But for IJM Corporation they would have more different rate in exchange rate because some of their projects are based on overseas project. The cost would be incurred surely for the labor and also the architect expertise. In other words, the rate at which one currency can be exchanged for another. For example, the project are based on Europe country, it s higher the exchange rate for one euro in terms of one ringgit, the lower the relative value of the ringgit. Financial reporting The financial reporting for F&N Holdings and IJM Construction are much difference because they come out with difference template of Balance Sheet in 2008 and F&N financial reporting format shows that the total non-current assets and current assets are come at the first through the Balance Sheet, and then following by total equity, non-current liabilities and current liabilities. Both years format are the same. Meanwhile, IJM Corporation show in different format which total equity comes at the first then it s following by non-current liabilities, non-current assets, current assets and current liabilities. 11 P a g e

12 5.0 Summary As a conclusion, both F&N Holdings and IJM Corporation has difference mode of financial resources. Although the amount of financial also different for consumer and construction industry. We can look how strong both companies control the market share in their industry. F&N hold 38% from the total market food and beverage, and the market was dominated by Nestle with 41% and the rest by other brands. IJM hold 27% from the total market of construction industry, and the market was dominated by Sime Darby with 34%, 23% by Sunway and the rest by other companies. Both companies were look for short term, long term and intermediate financing resources. For F&N, they took for leasing, long term debt loan, shares, selling of assets, term loan, bank credit and equipment financing. Meanwhile, IJM are more and less take the same method of financial resources such as shares, long term loan, leasehold land, short term, trade credit, bank loan, equipment financing and medium term notes. The both companies goal in securing financing should be to identify the appropriate mix of funds with the least cost to the business and the fewest restrictions on business operations. A host of alternative financing sources and strategies are available to any industries of companies. Not limited to public listed company but also can be apply by entrepreneur. Recycling, reuse and composting companies must be innovative in selling their products or services. Similarly, they must be creative in marketing the company and its capital demands to equity and debt partners. 12 P a g e

13 References Internet Books Harold Kent Baker & Gary E. Powell, Understanding Financial Management: A Practical Guide Gallagher and Andrew, Financial Management; Principles and Practice 13 P a g e