bwff2013_exp of assg

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BWFF2013 FINANCIAL MANAGEMENT I

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INTRODUCTION

After having discussion with group members, we have decided to select Top Glove

Corporation Berhad as our reference company. We will use the companys annual report to make

financial analysis in order to complete this group project.

Top Glove Corporation Berhad is the worlds largest rubber glove manufacturer. In 2008,

Top Glove Corporation Berhad exports to more than 180 countries worldwide where there are

countries from North America, Latin America, Europe, Africa, Middle East, Asia and Oceania.

This company has been awarded ISO 9001.

Top Glove Corporation Berhad is strive to be worlds leading manufacturer with

excellent quality glove products and services that enrich and protect human lives. Besides that, it

is also strive to be world class glove manufacturer providing top quality products with excellent

services through continuous improvement and innovation. The chairman, Dato Sri Dr. Lim Wee

Chai said that the company business philosophies are work for customers, take care of the

interest of shareholders, ensure that employees continue to contribute positively to the company

and take good care of the well-being of employees and work closer with bankers, suppliers,

business associates and friends. The company corporate values are global customer satisfaction,

do it right first time and every time, integrity and commitment, excellence in quality and

competitiveness, environmental friendly and social responsibilities. This company has the quality

policy too. The quality policy are quality and productivity, continuous improvement and

innovation and towards zero defect.

The company financial year ended is 31st

of August in every year. The company has

achieved remarkable revenue growth of 55% to RM992.6 million for the financial year ended 31

August 2006, 24% to RM1,228.9 million for the financial year ended 31 August 2007 and 12%

to RM1,377.9 million for the financial year ended 31 August 2008. The company forge ahead

and it has further strengthened its position by adding more new and highly efficient glove

production lines for the financial year ended 31 August 2006. Besides that, the company has a

total of 250 advanced glove production lines from 12 factories located in Malaysia, Thailand and

China with a production capacity of more than 22 billion pieces of gloves per annum.With this

capacity, the company is always looking at growing the business internationally and at the


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moment companys products are exported to more than 175 countries worldwide with a strong

customer base of 750 customers. However, in 2007, the company was supported by 16 glove

factories that are strategically located in Malaysia, Thailand and China with an immense strong

production capacity of about 28 billion pieces of gloves per year, from our 322 advance and

highly efficient production lines. Finally, in 2008, the company exporting to more than 180

countries with a strong customer base of 850 customers, constituting 24% of the global market

share.

In line with the favorable results, the Board of Directors is pleased to recommend a final

dividend for the financial year ended 31st

August in every year.


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RATIO COMPUTATION

Short term solvency / Liquidity Measures

1)Current ratio =

Current assets

Current liabilities

2006 2007 2008

=320,291,000

=466,045,000

=507,885,000

302,030,000 257,214,000 306,084,000

= 1.06 times = 1.81 times = 1.66 times

The short term debt paying ability of Top Glove Corporation Berhad is increasing from the year

2006 to 2007 but decreasing from the year 2007 to 2008.

2)Quick ratio =

Current assets - Inventory

Current liabilities

2006 2007 2008

=

320,291,000

102,232,000 =

466,045,000

121,256,000 =

507,885,000

157,766,000

302,030,000 257,214,000 306,084,000


The immediate short term debt paying ability of Top Glove Corporation Berhad is increasing

from the year 2006 to 2007 but decreasing from year the 2007 to 2008.

3)Cash ratio =

Cash

Current liabilities

2006 2007 2008

=59,211,000

=165,584,000

=121,545,000

302,030,000 257,214,000 306,084,000


The short term debt paying ability by cash of Top Glove Corporation Berhad is increasing

from the year 2006 to 2007 but decreasing from the year 2007 to 2008.


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4) Net working capital

to total assets=

Net working capital

Total assets

2006 2007 2008

=18,261,000

=208,831,000

=201,801,000

762,116,000 1,053,628,000 1,109,545,000

= 2.40% = 19.82% = 18.19%

The short term liquidity from total assets of Top Glove Corporation Berhad is increasing from

the year 2006 to 2007 but decreasing from the year 2007 to 2008.

5) Interval

measure=

Current assets

Average daily operating costs

2006 2007 2008

=320,291,000

=466,045,000

=507,885,000

2,255,000 2,779,000 3,152,000

= 142 days = 168 days = 161 days

The number of days that Top Glove Corporation Berhad can operate until it needs another round

of financing is increasing from the year 2006 to 2007 but decreasing from the year 2007 to 2008.Long Term Solvency / Measures

1)Total debt ratio =

Total Assets - Total Equity

Total Assets

2006 2007 2008

=

762,116,000 -

284,109,000 =

1,053,628,000 -

640,979,000 =

1,109,545,000 -

686,789,000762,116,000 1,053,628,000 1,109,545,000


The creditor financing and leverage in Top Glove Corporation Berhad is decreasing from the

year 2006 to 2008.


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2)Debt-equity ratio =

Total debt

Total equity

2006 2007 2008

=0.63

=0.39

=0.38

0.37 0.61 0.62


The creditor financing that can be covered by Top Glove Corporation Berhad is decreasing from

the year 2006 to 2008.

3) Equity multiplier = 1 + Debt-equity ratio

2006 2007 2008

= 1 + 1.70 = 1 + 0.64 = 1 + 0.61


The total assets that financed by Top Glove Corporation Berhad is decreasing from the year 2006

to 2008.

4) Long-term

debt ratio

=Long-term debt

Long-term debt + Total equity

2006 2007 2008

=

175,977,000

=

155,435,000

=

116,672,000

175,977,000 +

284,109,000

155,435,000 +

640,979,000

116,672,000 +

686,789,000


The portion of long term debt on Top Glove Corporation Berhads total capitalization is

decreasing from the year 2006 to 2008.

5) Times interest

earned ratio=

EBIT

Interest


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2006 2007 2008

=365 days

=365 days

=366 days

8.05 8.37 7.29

= 45 days = 44 days = 50 days

The efficiency of the day sales for Top Glove Corporation Berhads inventory is decreased from

the year 2006 to 2007 but increased from the year 2007 to 2008.

3)Receivables Turnover =

Sales

Accounts Receivable

2006 2007 2008

=

992,611,000

=

1,228,778,000

=

1,377,931,000

158,803,000 179,205,000 228,574,000

=6.25 times = 6.86 times = 6.03 times

The efficiency of collection of Top Glove Corporation Berhads accounts receivable is increased

from the year 2006 to 2007 but decreased from the year 2007 to 2008.

4)Days' sales in receivable =

365 days

Receivables Turnover

2006 2007 2008

=365 days

=365 days

=366 days

6.25 6.86 6.03

= 58 days = 53 days = 61 days

The efficiency of the day collection for Top Glove Corporation Berhads accounts receivable is

decreased in year 2007 but increased in year 2008.


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5) Net Working

Capital turnover=

Sales

Net Working Capital

2006 2007 2008

=992,611,000

=1,228,778,000

=1,377,931,000

18,261,000 208,831,000 201,801,000


The efficiency of handling of net working capital for Top Glove Corporation Berhad is

decreasing from the year 2006 to 2007 but increasing from the year 2007 to 2008.

6)Fixed Asset Turnover =

Sales

Net fixed assets

2006 2007 2008

=992,611,000

=1,228,778,000

=1,377,931,000

441,825,000 587,583,000 601,660,000


The sales generated in each RM of fixed assets for Top Glove Corporation Berhad has decreased

from the year 2006 to 2007 but increased from the year 2007 to 2008.

7)Total Asset Turnover =

Sales

Total Assets

2006 2007 2008

=992,611,000

=1,228,778,000

=1,377,931,000

762,116,000 1,053,628,000 1,109,545,000


The efficiency of assets in producing sales for Top Glove Corporation Berhad has decreased

from the year 2006 to 2007 but increase from the year 2007 to 2008.


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Profitability Measures

1)Profit Margin =

Net Income

Sales

2006 2007 2008

=79,061,000

=88,652,000

=108,103,000

992,611,000 1,228,778,000 1,377,931,000

= 7.96% = 7.21% = 7.85%

The companys profit margin has decreased 0.75% from the year 2006 to 2007 and increased

0.64% from the year 2007 to 2008.

2)Return on assets = Net Income

Total assets

2006 2007 2008

=

79,061,000=

88,652,000=

108,103,000

762,116,000 1,053,628,000 1,109,545,000

= 10.37% = 8.41% = 9.74%

Return on assets for the year 2006 was 10.37% and it has decreased 1.96% to 8.41% in 2007.However, return on assets has increased 1.33% to 9.74% in 2008.

3)Return on equity =

Net Income

Total Equity

2006 2007 2008

=79,061,000

=88,652,000

=108,103,000

284,109,000 640,979,000 686,789,000

= 27.83% = 13.83% = 15.74%

The company return on equity for the year 2006 was 27.83% and it has decreased 14% to 13.83%

in 2007. In 2008, return on equity was 15.74% and it has increased 1.91% from the year 2007.


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Trend Analysis

TOP GLOVE CORPORATION BERHAD

Summary of Standardized Balance Sheets

Assets Common-Sizeassets

Common-

Base

Combine

Common-S

and

(RM'000) Year Assets Base-Year A

2006 2007 2006(%) 2007(%) 2007 2007

ASSETS

urrent assets

nventories 102,232 121,256 13.41% 11.51% 1.19 0.86

rade receivables 149,761 168,764 19.65% 16.02% 1.13 0.82

ther receivables 9,042 10,441 1.19% 0.99% 1.15 0.83

ax recovarable 45 - 0.60% - 0.00 0.00

ash and bank balances 59,211 165,584 7.77% 15.72% 2.80 2.02

320,291 466,045 42.03% 44.23% 1.46 1.05

on-current assets

roperty, plant and equipment 420,391 557,623 55.16% 52.92% 1.33 0.96

nvestments in associate - 8,737 - 0.83% - -

ther investment 356 145 0.05% 0.01% 0.41 0.20

oodwill 21,078 21,078 2.77% 2.00% 1.00 0.72

441,825 587,583 57.97% 55.77% 1.33 0.96OTAL ASSETS 762,116 1,053,628 100% 100% 1.38 1.00

EQUITY AND LIABILTIES

quity and Liabilities

urrent liabilities

orrowings 126,229 63,726 16.56% 6.05% 0.50 0.37

rade payables 100,407 104,092 13.17% 9.88% 1.04 0.75

ther payables 68,650 76,764 9.01% 7.29% 1.12 0.81

ax payable - 619 - 0.06% - -

ividends payable 6,744 12,013 0.88% 1.14% 1.78 1.30

302,030 257,214 39.63% 24.41% 0.85 0.62

on-current liabilities

orrowings 146,439 128,467 19.21% 12.19% 0.88 0.63

eferred taxation 29,538 30,809 3.88% 2.92% 1.04 0.75


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175,977 159,276 23.09% 15.12% 0.91 0.65

OTAL LIABILITIES 478,007 416,490 62.72% 39.53% 0.87 0.63

quity attributable to equity

olders of the company

hare capital 96,143 150,238 12.62% 14.26% 1.56 1.13

eserves 185,963 465,453 24.40% 44.18% 2.50 1.81

hareholders' equity 282,106 615,691 37.02% 58.44% 2.18 1.58

Minority interests 2,003 21,447 0.26% 2.04% 10.71 7.85

OTAL EQUITY 284,109 637,138 37.28% 60.47% 2.24 1.62

OTAL EQUITY AND LIABILITIES 762,116 1,053,628 100% 100% 1.38 1.00


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TOP GLOVE CORPORATION BERHAD

Summary of Standardize Balance Sheet

AssetsCommon-Size

assets

Common-

Base Year

Assets

Combined

Common-Si

and

(RM'000)Base-Year

Assets

2007 2008 2007(%) 2008(%) 2008 2008

ASSETS

urrent assets

ventories 121,256 157,766 11.51% 14.22% 1.30 1.24

ade receivables 168,764 214,196 16.02% 19.30% 1.27 1.20

her receivables 10,441 14,378 0.99% 1.30% 1.38 1.31

sh and bank balances 165,584 121,545 15.72% 10.95% 0.73 0.70

466,045 507,885 44.23% 45.77% 1.09 1.03

n-current assets

operty, plant and equipment 547,588 559,437 51.97% 50.42% 1.02 0.97

epaid land leased payment 10,035 11,928 0.95% 1.08% 1.19 1.14

vestments in associate 8,737 10,037 0.83% 0.90% 1.15 1.08

her investment 145 145 0.01% 0.01% 1.00 1.00

odwill 21,078 20,113 2.00% 1.81% 0.95 0.91

587,583 601,660 55.77% 54.23% 1.02 0.97

OTAL ASSETS 1,053,628 1,109,545 100% 100% 1.05 1.00


quity and Liabilities

urrent liabilities

rrowings 63,726 100,362 6.05% 9.05% 1.57 1.50

ade payables 104,092 113,209 9.88% 10.20% 1.09 1.03

her payables 76,764 74,775 7.29% 6.74% 0.97 0.92

x payable 619 3,016 0.06% 0.27% 4.87 4.50

vidends payable 12,013 14,722 1.14% 1.33% 1.23 1.17

257,214 306,084 24.41% 27.59% 1.19 1.13

n-current liabilitiesrrowings 128,467 86,625 12.19% 7.81% 0.67 0.64

ferred tax liabilities 26,968 30,047 2.56% 2.71% 1.11 1.06

155,435 116,672 14.75% 10.52% 0.75 0.72

OTAL LIABILITIES 412,649 422,756 39.16% 38.10% 1.02 0.97

uity attributable to equity

lders of the company


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are capital 150,238 150,532 14.26% 13.57% 1.00 0.95

are premium 228,811 230,193 21.72% 20.75% 1.01 0.96

easury shares - -38,427 - -3.46% - -

her reserves 4,671 7,650 0.44% 0.69% 1.64 1.57

tained earnings 235,812 317,100 22.38% 28.58% 1.34 1.28

areholders' equity 619,532 667,048 58.80% 60.12% 1.08 1.02

nority interests 21,447 19,741 2.04% 1.78% 0.92 0.87

OTAL EQUITY 640,979 686,789 60.84% 61.90% 1.07 1.02

OTAL EQUITY AND

ABILITIES 1,053,628 1,109,545 100% 100% 1.05 1.00


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Common Size Analysis

Top Glove Corporation Berhad

Common-Size Balance Sheets 2006 and 2007

2006 2007 Change

ASSETS

Non-current assets % % %

Property, plant and equipment 55.16 52.92 -2.24

Investments in associate - 0.83 0.83

Other investment 0.05 0.01 -0.03

Goodwill 2.77 2.00 -0.77

57.97 55.77 -2.21

Current assets

Inventories 13.41 11.51 -1.91

Trade receivables 19.65 16.02 -3.63

Other receivables 1.19 0.99 -0.20

Tax recoverable 0.01 - -0.01

Cash and bank balances 7.77 15.72 7.95

42.03 44.23 2.21

TOTAL ASSETS 100.00 100.00 0.00


Equity attributable to equity holders of the Company

Share capital 12.62 14.26 1.64

Reserves 24.40 44.18 19.78

Shareholders equity 37.02 58.44 21.42

Minority interests 0.26 2.04 1.77

Total equity 37.28 60.47 23.19

Non-current liabilities

Borrowings 19.21 12.19 -7.02

Deferred taxation 3.88 2.92 -0.95

Non-current liabilities 23.09 15.12 -7.97

Current liabilities

Borrowings 16.56 6.05 -10.51

Trade payables 13.17 9.88 -3.30

Other payables 9.01 7.29 -1.72

Tax payable - 0.06 0.06


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Dividends payable 0.88 1.14 0.26

39.63 24.41 -15.22

Total liabilities 62.72 39.53 -23.19

TOTAL EQUITY AND LIABILITIES 100.00 100.00 0.00


Common-Size Income Statements 2007

%

Revenue 100.00

Cost of sales -82.55

Gross profit 17.45

Other operating income 0.72

Distribution and selling costs -3.56

Administrative and general expenses -3.84

Operating profit 10.77

Finance costs -1.10

Share of loss of associate -0.01

Profit before tax 9.66

Income tax expense -1.28

Profit for the year 8.37

Attributable to:Equity holders of the Company 8.45

Minority interests -0.07

8.37


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Common-Size Balance Sheets 2007 and 2008

2,007.00 2,008.00 Change

ASSETS

Non-current assets % % %Property, plant and equipment 51.97 50.42 -1.55

Prepaid land leased payment 0.95 1.08 0.12

Investments in associate 0.83 0.90 0.08

Other investment 0.01 0.01 0.00

Goodwill 2.00 1.81 -0.19

55.77 54.23 -1.54

Current assets

Inventories 11.51 14.22 2.71

Trade receivables 16.02 19.30 3.29

Other receivables 0.99 1.30 0.30

Cash and bank balances 15.72 10.95 -4.76

44.23 45.77 1.54

TOTAL ASSETS 100.00 100.00 0.00


Equity attributable to equity holders of the Company

Share capital 14.26 13.57 -0.69

Share premium 21.72 20.75 -0.97Treasury shares - -3.46 -3.46

Other reserves 0.44 0.69 0.25

Retained earnings 22.38 28.58 6.20

Shareholders equity 58.80 60.12 1.32

Minority interests 2.04 1.78 -0.26

Total equity 60.84 61.90 1.06

Non-current liabilities

Borrowings 12.19 7.81 -4.39

Deferred tax liabilities 2.56 2.71 0.15

Non-current liabilities 14.75 10.52 -4.24

Current liabilities

Borrowings 6.05 9.05 3.00

Trade payables 9.88 10.20 0.32

Other payables 7.29 6.74 -0.55


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Tax payable 0.06 0.27 0.21

Dividends payable 1.14 1.33 0.19

24.41 27.59 3.17

Total liabilities 39.16 38.10 -1.06

TOTAL EQUITY AND LIABILITIES 100.00 100.00 0.00


Common-Size Income Statements 2008

%

Revenue 100.00

Cost of sales -83.48

Gross profit 16.52

Other operating income 0.65

Distribution and selling costs -3.38

Administrative and general expenses -3.35

Operating profit 10.44

Finance costs -0.74

Share of loss of associate 0.07

Profit before tax 9.77

Income tax expense -1.92

Profit for the year 7.85

Attributable to:

Equity holders of the Company 7.99

Minority interests -0.14

7.85


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Du Pont Analysis

In choosing what assets to include in a portfolio, more often than not an in-depth analysis of the

investment alternatives is made. If one of the alternatives is an ownership share in a corporation,

then it is likely that the Du Pont ratio will be one of the tools used to analyze that investment.

Return on equity (ROE) can be defined as:

Return on equity =Net Income

Total Equity

We can multiply Assets/Assets without changing anything in this ratio.

Return On Equity =Net Income

Total Equity

=Net Income

Assets

Total Equity Assets

=Net Income

Assets

Assets Total Equity

=108,103,000

1,109,545,000

1,109,545,000 686,789,000

= 15.74%

Further more, we can express ROE as the product of two other ratios ROA and the equity

multiplier:

ROE = ROA Equity multiplier

= ROA ( 1 + Debt-equity Ratio )

=Net Income

( 1 +Total Debt

)Total Asset Total Equity

= 108,103,000 ( 1 + 0.38 )1,109,545,000 0.62

= 9.74% ( 1 + 0.61 )

= 9.74% 1.61

= 15%


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The difference between ROE and ROA can be substantial.

Apart from that, we can also further expand ROE by adding total sales to the top and the bottom:

And when we rearrange the position, ROE will be:

Return on assets

= Profit margin Total asset turnover Equity multiplier

= 7.85% 1.24 1.61

= 15%

This ROE is affecting by three things:

1. Operating efficiency (as measured by profit margin)2. Asset use efficiency (as measured by total asset turnover)3. Financial leverage (as measured by the equity multiplier)

Weakness in either operating or asset use efficiency (or both) will show up in adiminished return on assets, which will translate into a lower ROE.

Considering the Du Pont identity, it appears that the ROE could be leveraged up by

increasing the amount of debt in the firm. However, notice that increasing debt also increases

interest expense, which reduces profit margins, which acts to reduce ROE. So, ROE could go up

or down, depending. More important, the use of debt financing has a number of other effects,

and, the amount of leverage a firm uses is governed by its capital structure policy.

In fact, the Du Pont Analysis should not be used as the sole, investment analysis tool in

deciding on what stock to include in a portfolio. Other tools such as the ROI and cash flows as a

percentage of sales, or any other income statement item, are just few of numerous financial

tools that an investor can easily use in investment analysis.

ROE =Sales

Net Income

Assets

Sales Assets Total equity

ROE =Net Income

Sales

Assets

Sales Assets Total equity


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CONCLUSION

In conclusion, the glove industry has been blessed with the exponential growth in demand

for gloves globally particularly due to the high demand from the traditional medical markets

driven by stringent regulatory standards, aging population and emergence of health threats. For

the examples, bioterrorism threats, SARS, bird flu, anthrax as well as from the increasing use of

gloves in non medical sectors due to the increasing hygiene awareness particularly within the

food and services industries.

Top Glove Corporation Berhad operates in a recession-proof market, taking into

consideration the products are basic necessities, particularly in the healthcare and food services

industry. As such, demand is anticipated to stay resilient in times when major consuming

economies slow down. The company maintains a positive outlook towards continuous growth

and securing better performance for the coming years in terms of sales revenue and profitability

through the continuous effort of aggressive marketing strategies, increase in production capacity

to capitalize on economies of scale coupled with further improvement in product quality, cost

control and management efficiency. Moving forward in tandem with the above mentioned

initiatives, the company has adopted a two-prong growth strategies namely vertical growth

strategy by moving downstream to get closer to the customers via setting up of more overseas

marketing offices as well as horizontal growth strategy in product range expansion by increasing

sales in value added products such as the enhanced and much improved version of powder free

latex examination, soft nitrile, vinyl, clean room and surgical gloves to capture bigger market

share. The presence in China will also enable the company to tap for opportunities that synergize

with the distribution channel.


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REFERENCES

Stephen A. Ross. (2007). Financial Management Fundamentals in Malaysia. Mc Graw Hill.

Top Glove Corporation Berhad. (n.d). Annual report 2006. Retrieved at 04 August, 2009 from

http://topglove.listedcompany.com/misc/AR2006.pdf




http://topglove.listedcompany.com/misc/AR2006.pdfhttp://topglove.listedcompany.com/misc/AR2006.pdfhttp://topglove.listedcompany.com/misc/AR2007.pdfhttp://topglove.listedcompany.com/misc/AR2007.pdfhttp://topglove.listedcompany.com/misc/AR2008.pdfhttp://topglove.listedcompany.com/misc/AR2008.pdfhttp://topglove.listedcompany.com/misc/AR2008.pdfhttp://topglove.listedcompany.com/misc/AR2007.pdfhttp://topglove.listedcompany.com/misc/AR2006.pdf


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Attachment

bwff2013_exp of assg

Documents