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Assignment BBPW3203 Financial Management II
Assignment BBPW3203 Financial Management II
BBPW3203
FINANCIAL MANAGEMENT II
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CONTENTS PAGES
INTRODUCTION 2
3. COMPARISON 5
4. CONCLUSION 8
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INTRODUCTION
The key factor in ensuring business’s long term success is the management of its
working capital. As such, in order for a business to continue, a company must be able to
generate enough cash to meet its short term needs. Often, a company will resort to short-
term loan or any other various short-term financing sources available in order to meet
their needs. Short term financing is defined as any liability for a company that needs to be
paid in a period of one year or less. Therefore, according to Aliahmed (2014), it is used
primarily as a tool to finance accounts receivable or for building up inventories. Some of
the sources of short-term financing ranges from spontaneous and non-spontaneous
financing to many other alternative sources for instance factoring, account receivable,
and inventory financing. In order to qualify for a short term financing, it is important for
a business unit to have a positive cash flow and ability to cover their short term liabilities.
The interest rate incur is determined by economic situation and prime rate and some
premium determined by the lender based on what risk is the company to them (Peavler,
2016). In studying the sources of short-term financing and its relationship with nature of
business and financial market condition, this assignment will focus on two public listed
companies from the trading and service sector namely Shin Yang Shipping Corporation
Berhad and 7-Eleven Malaysia Holdings Berhad. Both of these public listed companies,
to certain extent, resorted to short term financing in order to meet their short term needs
in 2014 and 2015.
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1. SHIN YANG SHIPPING CORPORATION BERHAD
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2. 7-ELEVEN MALAYSIA HOLDINGS BERHAD
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3. COMPARISON
In both 2014 and 2015, Shin Yang Shipping Corporation Berhad based on their
financial reports, sourced their short term financing from trade credits (2014:
RM36,387,906, 2015: RM32,092,200), bank overdraft (2014: RM 9,136,499, 2015: RM
7,464,568), banker’s acceptance (2014: RM 59,589,000, 2015: RM 22,061,000),
revolving credits (2014 & 2015: RM 42,000,000),as well as customer’s advance (2014:
RM 14,629,620, 2015: RM 795,121)which is from the contract for shipbuilding. Trade
payables (2014: RM 1,112,783,816, 2015: RM 917,950,294) which are normally settled
on 30 to 90 day (2013: 30 to 90 days) terms are payable to subsidiaries and related
companies for the purchase of goods and services. Bank overdrafts, revolving credits, as
well as banker’s acceptance are secured by charges over leasehold land and buildings of
the Group. Bank overdraft is a type of financing provided when the company makes
payments from their business current account exceeding the available cash balance
(Investopedia, 2017). Meanwhile, banker’s acceptance is a short-term debt instrument
issued by a company that is guaranteed by a commercial bank. Banker's acceptances are
issued as part of a commercial transaction that is frequently used in money market funds.
They are traded at a discount from face value on the secondary market, which can be an
advantage because the banker's acceptance does not need to be held until it matures
(Investopedia, 2017). Revolving credit is a formal line of credit whereby bank guarantees
the availability of funds up to a maximum amount during the specified period. For this
service, the bank is receiving a commitment fee from the company although they are
required to reduce the loan amount to zero for at least once a year (Ali Ahmed, 2014).
However, in 2015 the company is spending more in the same borrowing (except for
advanced from customers) as compared to 2014 due to weaken economic condition. In
2014, the fluctuations in the fuel prices and unexpected political tensions arising in the
Middle East regions and the US economy towards the second half of the year has put the
shipping industry in a very challenging situation though they are in initial recovery to the
economic cycle. Therefore, the short term financing is mostly useful in their operation
pertaining to strengthening the shipping route. The shipbuilding activities on the other
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hand, showed signs of recovery with a slight positive margin with the steady growth for
new book orders of shipbuilding contracts mainly from the oil and gas sector and
resource based sectors, apart from international players in Middle East region, European
Countries and South East region, which will occupy the shipyards for the next two years.
Meanwhile, in 2015 the international shipping market is facing a severe situation in dry
bulk shipping due to plunging rates for carrying commodity products. Furthermore,
shipbuilding for the oil and gas sector was at its lower path due to downsizing or
minimization of their capital expenditures toward the oil and gas industry players
(Annual Report, 2015). These are resulted from the economic uncertainties, especially
with the crude oil price having plunged by more than half due to the global crude oil
supply issue, deepened by economic uncertainties in the US and European countries and
political tensions arising in the Middle East regions.
Contrary to situation in Shin Yang Shipping Corporation Berhad, for the financial
year 2014, 7-Eleven Malaysia Holdings Berhad recorded increment in growth through
both expansions of the new stores and same stores sales. The same stores sales growth
was 4.7% compared to -0.1% in 2013. According to their 2014 Annual Report, 7-Eleven
Malaysia Holdings Berhad Group generally has been financing its operations through
internally generated funds. Their operating expenses are more on display and marketing
activities. During the year, they embarked on many innovative and creative promotional
campaigns as a reward for existing customers and to attract new customers to the stores.
These activities include monthly themed promotions across entire network. Examples of
these in 2014 were events such as Hari Raya, Valentine’s Day, Chinese New Year, Drink
Dairy,7-Eleven Slurpee Day and a highly successful Bolario Football redemption
promotion. With such growth, 7-Eleven was able to retire its short term borrowings on
bankers’ acceptance and revolving credit from the year 2013. However, they still have
other short term borrowing sourced from secured term loan (RM 819, 000), hire purchase
and finance lease liabilities (RM 4, 876, 000), and trade credits to suppliers ranged from 7
to 60 days and upon request could be extended up to 90 days. Term loan is a loan from a
bank for a specific amount that has a specified repayment schedule and a fixed or floating
interest rate (Investopedia, 2017) and in 7-Eleven Malaysia Holdings Berhad, their term
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loan is on floating rate basis while hire purchase is on a fixed interest rate. Due to the
cash flow interest risk these financing activity is putting the company into, 7-Eleven
decided to maintain a mixed of fixed and floating rate borrowing.
Meanwhile, 2015 has been a year of strong headwinds in the retail operating
environment and 7-Eleven is not exempted from its effects. The introduction of the Good
& Services Tax (GST) on the 1 st of April 2015 has made a major impact in the retail
industry in Malaysia as a whole. However, in response to this, 7-Eleven Malaysia
Holdings Berhad continues to deliver values to their up to 900, 000 customer they are
serving. Their commitment in providing great shopping experience to consumers is
strengthen through the product mix, good management, new and improved merchandise,
expansion of fresh food and beverage offerings, increased store outlet numbers and
further additions to in-store services. As a result, their cash flows remain robust at that
time enabling the Board to approve an interim dividend that was paid on 31st March
2016 representing an almost full pay-out of their profits in the year. However, same store
sales showed a marginal decline of 3.6% as a result of the GST impact on sales values
(Annual Report, 2015). Thus, in 2015, the only short term financing they were bearing is
from hire purchase and finance lease (RM2, 053, 000) and trade credits payable to
merchandise and phone reload coupon suppliers ranged from 7 to 60 days term.
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CONCLUSION
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APENDIKS
RUJUKAN / REFERENSI
Annual Report (2014), Shin Yang Shipping Corporation Berhad, retrieved from
www.bursamalaysia.com
Annual Report (2015), Shin Yang Shipping Corporation Berhad, retrieved from
www.bursamalaysia.com
Peavler, Rosemary (2016). Short-Term Business Loans and Debt Financing: Debt
Financing for Your Business for Short Term Working Capital Needs. Retrieved
from www.thebalance.com
www.investopedia.com