(GROUP4)PACT 002 ACCOUNTING PROCESSES & REPORT

Assignment Corrections SUNWAY UNIVERSITY COLLEGE FOUNDATION IN ARTS JULY 2013 TOPIC: PERFORMANCE ASSESTMENT MEMBERS:

a) Introduction to the listed companies: PADINI and BONIA

PADINI Co.PADINI Holdings Berhad is an investment holding company which is based in Malaysia. The company mainly sells various types of shoes and accessories, ancillary products as well as garments for both men and women. Besides childrens garments, maternity wear as well as accessories through various subsidiaries are also available in PADINI. The famous brands in the company are VINCCI and PADINI. Most of the goods are sent around the world especially to Asian countries like Indonesia, Singapore, Thailand, Vietnam and many more.Most of its goods are available in concept stores around the world and also flagship stores. Its tremendous concept which all the PADINI Holdings brands merge under one roof or are well known as a one stop shopping. In the mid 2000s the very first outlet was opened in 1Utama Malaysia. New products were available online within weeks as PADINI Holdings Berhad focuses mainly on fast retailing.

PADINI Holdings Berhad was associated in manufacturing of garments and wholesaling. Hwayo Garments Manufacturers Company is where PADINI started their operations in 1971. In 1975 the company entered the retail industry with the main flagship brand which is PADINI. In 1986 VINCCI was then entered and vested to the market ladies shoes, belts, bags and other accessories. Other brands were then launched such as SEED, ROPE, P&CO, MIKI and PADINI AUTHENTICS.

When Home Stores Sdn Bhd was launched in 1991 it holds companies which were in the retailing business. It was then named as PADINI Holdings one year later. Soon after that in 1995 PADINI Holdings Sdn Bhd undergoes some changes which become a public company with limited shares. Finally in 2005 PADINI Holdings entered to the Main Board of KLCI Bursa Malaysia.

PADINI Holdings has various types of sub- prominent brands. The most famous one would be VINCCI which sells footwear, watches, handbags and accessories. Whereas SEED focuses more on office wear for working adults. PADINI AUTHENTICS sells mostly casual wear like jackets, denims, khakis and many more which suits most teenagers.

The chairman of PADINI Holdings is Haji Sahid bin Mohamed Yasin who is also a member of the audit committee as well as an independent non- executive director. He is 63 and holds a Malaysian nationality. He obtains his Bachelor of Arts degree in Economics from University Malaya in 1973. Besides he also managed to secure a position as an Assistant Secretary in the Prime Ministers Department upon his graduation in 1973. Before starting off his private business he was a Manager of Corporate Services in Hicom Holdings in 1983. Lastly he is not a director in any public companies but holds a directorship in PADINI Holdings.

Yong Pang Chaun serves as a Managing Director in PADINI Holdings who is a successful entrepreneur experienced in textiles industry. He joined the textile merchant in Singapore after finishing his secondary education and has gained experience in the textile industry. A few years later he returns to Malaysia to set up a subsidiary company which manufactures ladies fashion. He is able to analyse fashion trends and make changes based on the consumers preference. He even comes up with great plans and strategies for PADINI Holdings.

The directors of PADINI Holdings comprise of Yong Lai Wah, Chong Chin Lin, Chan Kwai Heng, Fong Kee Fatt and Yeap Tien Ching. The company secretaries are Ho Mun Yee and Tam Fong Ying. Whereas the Auditor is Peter Chong & Co. and the Chartered Accountants in charge are the Principal Bankers OCBC Al-Amin Bank Berhad as well as The Bank of Nova Scotia Berhad.

As for the financial results of PADINI Holdings, the company has achieved consolidated revenues of RM 723.4 million with a growth of 27.2%. The gross profits increase to 19.9% in the same period and achieved RM 568.5 million in the previous years. However the profit of the company before taxation rose up to 24.4% which is from RM 105.1 million in the previous years to RM 130.6 million the current year.Yong Pang Chaun, Yong Lai Wah and Chong Chin Lin are interested in the shares of the company based on the direct or indirect interests of PADINI Holdings. The authorised share capital of PADINI Holdings is RM 100,000,000,00 and there are a total of 3458 shareholders in the company.

BONIA Co.Bonia Group is a very prominent fashion retailer which is based in Malaysia. In the entire Asia, it has enormous number of shops which has greater than 700 sales outlets and about 70 boutiques. It sells sought-after clothes include extravagant leatherwear, leather shoes and some flashy accessories. Moreover, this group also takes part in manufacturing and producing affairs. The company was established in 1974 by the Groups Executive Chairman, Mr .S.S.Chiang who commenced the business in designing, producing, marketing and selling the leather products in whole Malaysia. Bonia also successfully get themselves a chance to enlarge their business activities to Hong Kong ,Brunei, Indonesia and even Taiwan. For the fiscal year ending June 2011,Bonia had made net sales of 461.38 million Malaysian Ringgit. For the fiscal year ending June 2012,Bonia made another net sales of 579.81 million Ringgit, which is 25.75% more than 2011.Bonia get a place in Malaysian Market in 1978.In 1980,Bonia has become a giant in fashion in Malaysia and Singapore with immense advertising and promoting strategy.in 1981,they opened the first boutique in Singapore.The board of director is leaded by Chiang Fong Yee who is the alternate director to Mr Chiang Sans Sam. The audit committee is Datuk Ng Peng Hong, and Chong Sai Sin(member) and the remuneration committee is Dato Shahbudin Bin Imam Mohammad(chaiman) and Lim Foong Boon(member)

The board charter of Bonia plays its part to manage the business performance and activities of Bonia Corporation Berhad. The board maintains a high level of organization by disposing its trust between a trustee and beneficiary to ensure the healthy operation of the business. The duties and responsibilities of the board are to plan new strategies for Bonia. It needs to come out with some refreshing ideas on how to make the business success plans and creates a communication system for the shareholders. It also needs to set the rules for everyone to practice some moral principles of the management and manages the internal controls system.There are some shareholders in the Bonia Group. The first one is Freeway team Sdn.Bhd, no of holdings is 33860300,second is Bonia Holding Sdn bhd,no of holding is 31351992,third is Amsec Nominee, no of holdings is 18645000,fourth is Maybank Nominee, no of holdings is 11550600,fifth is HSBC Nominees, no of holdings is 8814060,sixth is Permodalan Nasional Berhad, no of holdings is 8428198,seventh is Maybank Nominees(tempatan)Sdn.Bhd.no of holdings is 8425740,eighth is HSBC (Nominee)(Asing)Sdn.Bhd, no of holdings is 7206400,ninth is Maybank Nominees (Asing)Sdn.Bhd, no of holdings is 6000000,tenth is Kotrak Kosmomaz Sdn.Bhd, no of holdings is 5583434.

b) 1.Calculation for profitability ratios for both companies.1.1 Briefly on profitability ratios : Why it is implemented and how to calculate.

1.1.1Profitability Ratios: Returns on Capital Employed (ROCE) - Limited Company Satisfactory in returns on capital employed (ROCE) is the main reason why people invest in certain businesses. Therefore, ROCE is one of the most important profitability ratios as it covers all other ratios. There are two type of business that we had learned until now which are sole proprietors and limited companies. For this assignment, we are doing limited company profitability ratios. Below is the formula to calculate ROCE:

Formula for ROCEROCE = 100

However, fixed definition for companies ROCE is not yet worldly agreed but capital employed that mainly used are sourced from ordinary shareholders and sourced from all long-term suppliers of capital.

1.1.1.1In limited company, ROCE that sourced from ordinary shareholders is called Returns on Owners Equity (ROOE) or more famous known as Returns on Shareholders Funds (ROSF). Net profit for the accounting period is the return. Shareholders Funds term means all value that describes the owners capital and revenues. Ordinary share capital is held by owners. Therefore, Shareholders Fund = Ordinary share capital + Reserves + Retained Profit.

1.1.1.2For ROCE sourced from all-term suppliers of capital, it is simply called ROCE also. Returns means net profit + any preference share dividends + loan note and long-term long interest. Capital means Ordinary Share Capital + Reserves + Retained Profits + Preference Share + Loan notes and long-term Loans.

1.1.2 Profitability Ratios: Gross Profit as Percentage of Sales / Gross Profit Margin (GPM)Gross Profit as Percentage of Sales or Gross Profit Margin (GPM) is used to compare current period result with last period. Gross profit percentage is not always increasing, sometime it decreases and when it decreased, there can be many reasons for that, including:1. Maybe the selling price stills the same when the cost of goods is already increasing.2. There have a lot of things been stole or wasted.3. Perhaps the selling price of goods reduces in idea to increase the sales.4. It could be sales mix where there are different between previous year selling price and present year selling price and differences of goods sold each year.

GPM is calculated as below:Formula for GPM GPM = 100

1.1.3 Profitability Ratios : Net Profit as Percentage of Sales / Net Profit Margin (NPM)Formula for NPM NPM = 100

1.2 Representation Details : Companies Statement of Financial Position (Extract) and the calculation Statement of Financial Position (Extract) as at 30th June PADINI BONIA 2011 2012 20112012 RM000 RM000 RM000 RM000Non-current Assets 94,585 102,039 154,842 176,261Current Assets 349,754 380,266 218,408 247,078Current Liabilities (137,947) (120,393) (79,775) (91,079) 306,392 361,912 293,475 332,260Non-current Liabilities ( 23,715) (21,803) (46,488) (48,001) 282,677 340,109 246,987 284,259

Share Capital 65,791 65,791 100,786 100,786Reserve 216,886 274,318 131,276 168,612Non-controlling Interest - - 14,925 14,861 282,677 340,109 246,987 284,259

Income Statement (Extract) as at 30th June 2011 & 30th June 2012 PADINI BONIA 2011 2012 20112012 RM000 RM000 RM000 RM000Revenues 568,476 723,411 461,381 579,821Cost of Sales (277,672) (374,821) (194,232) (238,330)Gross Profit 290,804 348,590 267,149 341,482Net Profit (Before Tax) 105,057130,649 56,546 66,882Profit for the Financial Year(After Tax) 75,694 96,001 42,604 45,557 Other Comprehensive Income ( 1,033) 9052,323 278Owners of the Parent 74,661 96,906 44,927 45,835

Calculation:Returns on Capital EmployedROSF for Padini = 100 = 30.8%ROSF for Bonia = 100 = 17.2%ROCE for Padini = 100 = 39.1%ROCE for Bonia = 100 = 21.4%Gross Profit Margin2011 GPM for Padini = 100 = 51.2%2012 GPM for Padini = 100 = 48.2%2011 GPM for Bonia = 100 = 57.9%2012 GPM for Bonia = 100 = 58.9%Net Profit Margin2011 NPM for Padini = 100 = 13.3%2012 NPM for Padini = 100 = 13.3%2011 NPM for Bonia = 100 = 9.2%2012 NPM for Bonia = 100 = 7.9%

1.3 Critically assess results, reasons and suggestion: Profitability Ratio Based on the result, ROSF for Padini is much more higher than Bonia simply because Padini has use its capital far better than Bonia, gained RM30.80 for every RM100 invested while Bonia just RM17.20 per RM100 invested. However, ROCE for Bonia is lower than Padini which is 21.4% compared to Padini 39.1% indicates that Bonia loan note interest much more low than Padini or maybe Bonia borrowed less money. Suggestion for Bonia, increase net profit so that ROSF also increase and shows that capital is being use efficiently.

CompaniesReturns On Capital Employed (%)Gross Profit Margin (%)Net Profit Margin (%)

ROSFROCE2011201220112012

Padini30.839.151.248.213.313.3

Bonia17.221.457.958.99.27.9

PADINI AND BONIA RETURNS ON CAPITAL EMPLOYED GRAF

PADINI AND BONIA GROSS PROFIT MARGIN GRAF

PADINI AND BONIA NET PROFIT MARGIN

b) 2.Calculation for liquidity for both companies2.1 Briefly on liquidity : Why it is implemented and how to calculate.Liquidity is defined as a short period of the amount due that payment is needed. Usually this is very crucial for a business as most of their customers may not be able to pay their debts on time and this might put the business at risk. Liquidity of business often begins by looking at the two main factors that influence the ratio analysis which is the current ratio and acid test ratio.

2.1.1Liquidity : Current RatioCurrent ratio by means is the Statement of Financial Position measure of the liquidity of the company. Amount due with short period which the company able to make the payment is known as the current ratio. The function of the current ratio indicates if the company has sufficient assets and be able to cover or pay its amount due for the next 12 months.The Current Ratio formula is:Current Ratio =

As the ratio increases the liquidity of the company will increase as well for the current ratio. It is often acceptable for the balance sheet if the ratio is at least 1. It is common that for most company the current ratio is 2 as it changes from industry to industry. However the most acceptable current ratio for industrial company is 1.5.

If the current ratio is less than 1, the company may find it difficult to pay their current amount due. This may not indicate that the company is having a crucial financial problem or even become impoverished. Besides to get a better liquidity an investor should emphasize the operation of cash flow in the company. However low current ratio is usually influenced by a strong operation of cash flow.

The company may not be able to use its current assets effectively if the current ratio is too high, more than 2. Problems may also occurred which is the working capital management. High current ratio is often better than a low current ratio as the company is able to pay their current liabilities.

How effective the operating cycle of the company or either its capability to change its product into cash depends mainly on the current ratio. Most company will have liquidity problems if their debtors did not pay the amount due on time or have a long inventory turnover. It is always more productive by comparing companies within the same industry as operation of the business is often different in each industry.

2.1.2Liquidity : Acid Test RatioAcid test ratio is defined as a quick ratio. It also means that it is a short period ofliquidity. Accountants often analyze the current assets against the current liabilities which eventually show the liquidity of the company through the ratio.The formula for the acid-test ratio is:Quick ratio =

As for the acid term ratio if it is less than 1, a company may have financial problem and not being able to pay their amount due on time. As a result they have to sell of their assets to cover up the current liabilities. This will cause the position of the company to be affected as it owns only a small number of assets.

Acid test ratio helps the company to understand the final result accurately. The biggest problem with the acid test ratio is it depends fully on the trade receivable and current liabilities which often bring huge trouble to the company. The whole process will be unequal if there is a termination of the contract with the creditors or debtors. Bad outcomes would occur if there is just a small mistake in the calculations.

2.2 Representation Details : Calculation of liquidity for both companies

PADINIStatement of Financial Position(Extract) as at 30th June

20112012

RM'000RM'000

Non-current asset94,585102,039

Current asset

Inventories170,955192,285

Receivables39,43347,787

Tax assets402196

Other investment

Financial assets at fair value through profit or loss3422,386

Deposits, cash and bank balances138,622137,612

Total current asset349,754380,266

Current liabilities137,947120,393

Non-current liabilities23,71521,803

282,677340,109

Share Capital65,79165,791

Reserves216,886274,318

282,677340,109

Current ratioAcid test ratio

3.16 or 1 : 3.16

or 1 : 1.56

BONIAStatement of Financial Position(Extract) as at 30th June

20112012

RM'000RM'000

Non-current asset154,842176,261

Current asset

Inventories81,46483,958

Trade and other receivables76,68089,546

Current tax assets4,2272,404

Cash and cash equivalents56,03771,170

Total current asset218,408247,078

Current liabilities79,77591,079

Non-current liabilities46,48848,001

246,987284,259

Share Capital100,786100,786

Reserves131,276168,612

Non-controlling interest14,92514,861

246,987284,259

Current ratioAcid test ratio

or 1 : 2.71

or 1 : 1.79

2.3 Critically assess results, reasons and suggestion: Liquidity RatioBased on this ratio, current ratio shows that Bonia may be in trouble as the company will probably find a difficulty to pay its current liability on time. Nevertheless, although Padini has much more inventory held by the company, it seems like that resources are being wasted as the company will not get interest by keeping that inventory. Suggestion for Padini, try to sell as maximum as the company can because resources or inventory will being wasted when the company keeps a lot and for a long time. PADINIBONIA

Current Ratio1 : 3.161 : 2.71

Acid Test Ratio1 : 1.561 : 1.79

b) 3.Calculation for efficiency ratios for both companies3.1 Briefly on efficiency ratios: Why it is implemented and how to calculate.

3.1.1Efficiency Ratios: Inventory TurnoverBusiness maintains its efficiency at an appropriate level of inventory and measured by using this ratio. This also can indicate the control over inventory levels when it is not being efficient as before or less than its competitors. A decreasing in inventory turnover can mean that your business run slowly and inventory piled up yet not being sold.

It could lead to a liquidity crisis where money from bank is simply taken out to increase inventory but being sold quickly. It also perhaps that ones company has too many inventories because of difficulty to sell them or ones company have low inventory because of insufficient inventory. Below is the formula for inventory turnover:

3.1.2Efficiency Ratios: Accounts Receivable/Sales RatioExcessive money in account receivable shows that it is unproductive money and resources tied up in that account is important ratio subject. Result for this ratio interpreted into time taken for a debtor to pay back. If the time is too long, there are two possibilities. They are either the goods are too hard to sell that make the company gives a long credit terms to customers or the company does not has a proper credit control system.3.1.3Efficiency Ratios: Accounts Payable/Purchases RatioThis ratio is the opposite to Accounts Receivable/Sales ratio. This ratio indicates time taken for the company to pay its creditors.

3.2 Representation Details: Calculation of companies efficiency ratios

Calculation:Inventory TurnoverPadini : = 2 timesBonia : = 3 times

Accounts Receivable/SalesPadini : 47,787,000/723,411,000= 1 : 15 365 = 24.33 or 24 daysBonia : 89,546,000/579,821,000 = 1 : 6 365 = 60.83 or 61 days

Accounts Payable/PurchasesPadini: 78,900,000/(374,821,000-170,955,000+192,285,000) = 1 : 5 365 = 73 daysBonia: 65,070,000/(238,330,000-81,464,000+83,958,000) = 1 : 4 365 = 91.25 or 91 days

3.3 Critically assess results,reasons and suggestion: Efficiency RatioPadinis inventory is higher than Bonia that might be Bonia has a problem to obtain enough inventories. Furthermore, Bonia needs to give more time to their customers on long credit terms shows that it is harder to sell their goods compared to Padini or maybe Bonia lack of credit control systems efficiency compared to Padini. Lastly, Bonia also needs much more time to pay their creditor indicates that their business runs slowly. Suggestion to Bonia, gets more supply and try to obtain cheaper inventory in idea to make their goods easier to sell by selling them much more cheaper. Besides that, Bonia also needs to increase their efficiency in term of credit control.

CompaniesInventory TurnoverAccounts Receivable/SalesAccounts Payable/Purchases

(Times)1 :151 : 6

Padini21 : 5

Bonia31 : 6

c) SummaryLastly, we recommend that PADINI Holdings Berhad is the best to invest. This is because the Returns on Capital Employed and Net Profit Margin of Padini for both 2011 and 2012 is much higher than that of Bonia. Besides that, Padinis current ratio is also higher than Bonias shows that Padini is more able to pay their current liabilities than Bonia. In addition, Padinis efficiency ratio is even higher than Bonias so we suggested that Padini is the best to invest to earn more profit.

d) ReferenceFrank, W. Alan, S 2012, Frank Wood's Business Accounting Volume 1 with Myaccountinglab Access Card [Paperback] Twelfth Edition , Pearson Publishing, Harlow, UK pg. Chapter 31 & 47

e) Presentation Linkhttp://prezi.com/_sj0bsithlbg/pact002-accounting-assignment-presentation/

f) CD Attachment

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