Marks:

GB20003/GD20203 INTERNATIONAL FINANCIAL STATEMENT ANALYSIS

UNIVERSITI MALAYSIA SABAH

LABUAN INTERNATIONALCAMPUS

GB20003/GD20203
INTERNATIONAL FINANCIAL STATEMENT ANALYSIS

Semester 2,
2018/2019

CASE STUDY
PBA HOLDINGS
BERHAD
Prepared by:
Name Matric No. Programme Tel No.
VISHNUPRRIYA BG17110163 HE20 018-9174043
D/O KALIAPPAN

HELEN THIEN SHY NI BG17110166 HE20 010-228 8369

KOSSHINI D/O BG17110222 HE22 019-529 5056

SREEDHARAN

ONG YU XU BG17110127 HE22 019-2787860

SANTHANA BG17110156 HE20 016-638 4472

KALIMUTHU

TAN YEN LI BG17110208 HE22 010-381 4428

YASHWINI D/O BG17110059 HE20 010-254 9290

SUBRAMANIAM

YOGESSWAREE D/O BG17110198 HE20

GOVINDAN 012-942 6709

Submitted to:
MDM NURJEEHAN BINTI AYUB
 Date of Submission:
19thAPRIL 2019

TABLE OF CONTENTS

SECTION 1: OVERVIEW ..................................................................................................................... 3

1.1 Introduction ................................................................................................................................... 3
1.2 Objectives ..................................................................................................................................... 3
1.3 Methodology ................................................................................................................................. 3
SECTION 2: EXECUTIVE SUMMARY............................................................................................... 4
2.1 Background ................................................................................................................................... 4
2.2 Product and Service ...................................................................................................................... 5
SECTION 3: CONSOLIDATED (GROUP) FINANCIAL STATEMENTS ......................................... 8
3.1 Statements of Financial Position ................................................................................................... 8
3.2 Statements of Income Statement ................................................................................................. 11
3.3 Statements of Cash Flow ............................................................................................................ 14
SECTION 4: ANALYSIS ..................................................................................................................... 17
4.0 Financial Ratio ............................................................................................................................ 17
4.1 Short-term liquidity ................................................................................................................. 17
4.2 Capital structure and solvency ................................................................................................ 20
4.3 Return on invested capital and profitability ............................................................................ 21
SECTION 5: SUMMARY OF ANALYSIS ......................................................................................... 30
5.1 Strengths and Weakness ............................................................................................................. 30
5.1.1 Strengths .............................................................................................................................. 30
5.1.2 Weakness ............................................................................................................................. 30
5.2 Analysis of bankruptcy (Z-score) ............................................................................................... 32
5.2.1 Analysis of 2017 .................................................................................................................. 32
5.2.2 Analysis of 2016 .................................................................................................................. 33
5.2.3 Analysis of 2015 .................................................................................................................. 34
CONCLUSION ..................................................................................................................................... 35
REFERENCES ..................................................................................................................................... 36

2
SECTION 1: OVERVIEW
1.1 Introduction
PBA Holding Berhad is a public limited company that providing water supply to the
citizen in Pulau Pinang. The headquarter of company is place at Georgetown, Malaysia. Main
activity of this company is to conduct commercial activities involving water suppliers of raw
water, treatment of water, supply and sale treated water to the public or consumer. Vision of
PBA Holding Berhad is meeting all your water supply and mission is PerbadananBekalan Air
Pulau Pinang Sdn Bhd (PBAPP) will be the leading organisation in water supply(Berhad,
2017). The reason why we choose this company is because we understand that water is very
important for our daily life and we tried to understand how a water supply company can
become as bigger as PBA Holding Berhad.

1.2 Objectives
The objective of this research is to analysis the PBA Holding Berhad’s future through
their annual financial report. Other than that, the objective is to learn and get something
interesting through this research and have more knowledge on how to predict a company’s
future.This can help us to analysis the sustainable of a company while invest.

1.3 Methodology
The method we use to analyse the company is to calculate the statement of financial
position, income statement, cash flow and financial ratio to understand the performance of
the company in 3 years from 2015 to 2017. Moreover, we also refer to some official websites
to learn the financial performance and about the company background to ease our analysis.

3
SECTION 2: EXECUTIVE SUMMARY
2.1 Background

PBA Holdings Bhd (PBAHB) is located in Penang, Malaysia. The company was
founded on May 25, 2000 and listed on the Main Board of the Malaysian Bourse (Bursa
Malaysia) in 2002. PBA Holdings Bhd (PBAHB) is a business concern on water supply.
PBAHB's essential 100% owned subsidiary is PerbadananBekalan Air Pulau Pinang Sdn Bhd
(PBAPP), the licensed water supplier and operator for Penang. Besides, other 100% owned
subsidiary is PBA Resources Sdn Bhd (PBAR), a management company that deals and
manages with the Penang Water Services Academy (PWSA).

DATO' Ir.JASENI
BIN MAIDINSA
Group Chief Executive
Officer

MOHAMMAD ZULKIFLI DR. MARY ANN

BIN ABDUL HAMID JOYCE LEE SUAN
IMM HARRIS
Head of Human Resource Group Chief Financial
Head of Corporate
Division Officier Head of
Affairs Division
Finance Division

Diagram 1.0 shows an organizational Structure of PBA Holdings Bhd (PBAHB)

4
2.2 Product and Service
There are 3 subsidiaries of PBA Holdings Bhd which arePerbadananBekalan Air
Pulau Pinang Sdn Bhd (PBAPP), PBA Resources Sdn Bhd (PBAR)andPinang Water Ltd. Its
principal activities include abstraction of raw water, treatment of water, supply, and sale of
treated water to customers.

a) PerbadananBekalan Air Pulau Pinang Sdn Bhd (PBAPP)

PerbadananBekalan Air Pulau Pinang Sdn Bhd (PBAPP) is a licensed water supplier
and 100% operator for Penang. In 2011, PBAPP collaborated with PDAM TirtaMusi to
improve water supply in Palembang, Indonesia under WaterLinks. These WaterLinks
represents the International Water Association (IWA), the Asian Development Bank (ADB)
and the United States Agency for International Development (USAID).

b) PBA Resources Sdn Bhd (PBAR)

PBA Resources Sdn Bhd (PBAR), the second subsidiary that manages with the
Penang Water Services Academy (PWSA) and the Air Itam Teambuilding Center (AITC).
Therefore, PBAR is 100% of a management company. PWSA is the first Malaysian institute
to offer water industrial training to the work force of all water providers in Malaysian and
overseas. Besides, PWSA's goal is to encourage and give "real world" technical education
and training programmes to the water supply workforce. Therefore, the AITC is a completely
prepared teambuilding centre that is situated on the grounds of the Air Itam Dam in Penang.
An eco- friendly centre, it is outfitted with both indoor and outdoor training facilities and
there is 24 training components, just as convenience and facilities which can fit more than
100 person.

c) Pinang Water Ltd (Associate Company)

Pinang Water Limited (PWL) is a joint-venture of PBAHB (26%), Ranhill Water

(Hong Kong – 37%) and YLI Holding Bhd (37%). PWL built the Yuan He (Yuan River)
Water Treatment Plant in Yichun City, China. Hence, this plant is now managed by PWL’s
China subsidiary – Yichun Pinang Water Co. Ltd. In 2010, the company supplied 10 million
litres of water per day (MLD) to Yichun City.

5
Diagram 2.0 illustrate corporate structure of PBA

6
7
SECTION 3: CONSOLIDATED (GROUP) FINANCIAL STATEMENTS
3.1 Statements of Financial Position
3.1.1 Horizontal Analysis
PBA HOLDINGS BHD
COMPANY NO.515119-U PBA Holdings Bhd
(Incorporated in Malaysia)
Company NO 515119-U
Incorporated
STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER 2017 in Malaysia
HORIZONTAL ANALYSIS Statement of Financial Position at 31 December 2017
GROUP
2017 2016 2015
RM'000 Change ( RM'000) Change ( % ) RM'000 Change ( RM'000) Change ( % ) RM'000
ASSETS
Non - current assets
Property, plant and equipment 1014995 90485 9.79 971193 46683 5.05 924510
Investment in a joint venture 55 -4954 -98.90 1386 -3623 -72.33 5009
Investment in a subsidiaries - - - - - - -
Other investments 2736 297 12.18 2409 -30 -1.23 2439
1017786 85828 9.21 974988 43030 4.62 931958
Current assets
Inventories 7423 -267 -3.47 8770 1080 14.04 7690
Receivable, deposits and prepayments 46805 -14687 -23.88 46562 -14930 -24.28 61492
Current tax assets 5235 3092 144.28 3857 1714 79.98 2143
Cash and cash equivalents 141391 89651 173.27 95028 43288 83.66 51740
200854 77789 63.21 154217 31152 25.31 123065
TOTAL ASSETS 1218640 163617 15.51 1129205 74182 7.03 1055023

EQUITY AND LIABILITIES

Share capital 327579 161944 97.77 165635 0 0.00 165635
Reserves 496798 -91330 -15.53 634538 46410 7.89 588128
Total equity 824377 70614 9.37 800173 46410 6.16 753763

Non - current liabilities

Loans and borrowings 60121 35286 142.08 40632 15797 63.61 24835
Deferred income 100206 41211 69.86 75681 16686 28.28 58995
Deferred liabilities 59958 -3190 -5.05 61553 -1595 -2.53 63148
Deferred tax liabilities 3000 -2490 -45.36 - - - 5490
223285 70817 46.45 177866 25398 16.66 152468
Current liabilities
Deferred liabilities 1595 0 0.00 1595 0 0.00 1595
Payables and accurals 167780 20590 13.99 148571 1381 0.94 147190
Current tax liabilities 3 -4 -57.14 - - - 7
Loans and borrowings 1600 - - 1000 - - -
170978 22186 14.91 151166 2374 1.60 148792
Total liabilities 394263 93003 30.87 329032 27772 9.22 301260

TOTAL EQUITY AND LIABILITIES 1218640 163617 15.51 1129205 74182 7.03 1055023

8
3.1.2 – Number Trend
IndexBHD
PBA HOLDINGS
COMPANY NO.515119-U
(Incorporated in Malaysia) PBA Holdings Bhd
Company NO 515119-U
STATEMENTS OF FINANCIAL POSITION AS AT 31Incorporated
DECEMBER 2017 in Malaysia
INDEX - NUMBER TREND Statement of Financial Position at 31 December 2017

2017 2016 2015

RM'000 Percentage ( % ) RM'000 Percentage ( % ) RM'000 Percentage ( % )
ASSETS
Non - current assets
Property, plant and equipment 1014995 109.79 971193 105.05 924510 100
Investment in a joint venture 55 1.10 1386 27.67 5009 100
Investment in a subsidiaries - - - - - 100
Other investments 2736 112.18 2409 98.77 2439 100
1017786 109.21 974988 104.62 931958 100
Current assets
Inventories 7423 96.53 8770 114.04 7690 100
Receivable, deposits and prepayments 46805 76.12 46562 75.72 61492 100
Current tax assets 5235 244.28 3857 179.98 2143 100
Cash and cash equivalents 141391 273.27 95028 183.66 51740 100
200854 163.21 154217 125.31 123065 100
TOTAL ASSETS 1218640 115.51 1129205 107.03 1055023 100

EQUITY AND LIABILITIES

Share capital 327579 197.77 165635 100.00 165635 100
Reserves 496798 84.47 634538 107.89 588128 100
Total equity 824377 109.37 800173 106.16 753763 100

Non - current liabilities

Loans and borrowings 60121 242.08 40632 163.61 24835 100
Deferred income 100206 169.86 75681 128.28 58995 100
Deferred liabilities 59958 94.95 61553 97.47 63148 100
Deferred tax liabilities 3000 54.64 - - 5490 100
223285 146.45 177866 116.66 152468 100
Current liabilities
Deferred liabilities 1595 100.00 1595 100.00 1595 100
Payables and accurals 167780 113.99 148571 100.94 147190 100
Current tax liabilities 3 42.86 - - 7 100
Loans and borrowings 1600 - 1000 - - 100
170978 114.91 151166 101.60 148792 100
Total liabilities 394263 130.87 329032 109.22 301260 100

TOTAL EQUITY AND LIABILITIES 1218640 115.51 1129205 107.03 1055023 100

9
 PBA HOLDINGS
3.1.3 VerticalBHDAnalysis
COMPANY NO.515119-U
(Incorporated in Malaysia) PBA Holdings Bhd
Company NO 515119-U
STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER 2017
Incorporated in Malaysia
VERTICAL ANALYSIS
Statement of Financial Position at 31 December 2017
2017 2016 2015
RM'000 Percentage ( % ) RM'000 Percentage ( % ) RM'000 Percentage ( % )
ASSETS
Non - current assets
Property, plant and equipment 1014995 83.29 971193 86.01 924510 87.63
Investment in a joint venture 55 0.00 1386 0.12 5009 0.47
Investment in a subsidiaries - - - - - -
Other investments 2736 0.22 2409 0.21 2439 0.23
1017786 83.52 974988 86.34 931958 88.34
Current assets
Inventories 7423 0.61 8770 0.78 7690 0.73
Receivable, deposits and prepayments 46805 3.84 46562 4.12 61492 5.83
Current tax assets 5235 0.43 3857 0.34 2143 0.20
Cash and cash equivalents 141391 11.60 95028 8.42 51740 4.90
200854 16.48 154217 13.66 123065 11.66
TOTAL ASSETS 1218640 100 1129205 100 1055023 100

EQUITY AND LIABILITIES

Share capital 327579 26.88 165635 14.67 165635 15.70
Reserves 496798 40.77 634538 56.19 588128 55.75
Total equity 824377 67.65 800173 70.86 753763 71.45

Non - current liabilities

Loans and borrowings 60121 4.93 40632 3.60 24835 2.35
Deferred income 100206 8.22 75681 6.70 58995 5.59
Deferred liabilities 59958 4.92 61553 5.45 63148 5.99
Deferred tax liabilities 3000 0.25 - - 5490 0.52
223285 18.32 177866 15.75 152468 14.45
Current liabilities
Deferred liabilities 1595 0.13 1595 0.14 1595 0.15
Payables and accurals 167780 13.77 148571 13.16 147190 13.95
Current tax liabilities 3 0.00 - - 7 0.00
Loans and borrowings 1600 0.13 1000 0.09 - -
170978 14.03 151166 13.39 148792 14.10
Total liabilities 394263 32.35 329032 29.14 301260 28.55

TOTAL EQUITY AND LIABILITIES 1218640 100 1129205 100 1055023 100

10
3.2 Statements of Income Statement
3.2.1 Horizontal Analysis

PBA Holdings Bhd

Company NO 515119-U
Incorporated in Malaysia
Statement of Income Statement at 31 December 2017

2017 2016 2015

RM'000 Change( RM'000) Change ( % ) RM'000 Change ( RM'000) Change ( % ) RM'000
Revenue 312,353 12028 4 326,698 26373 8.78 300325
(-) Cost of sales -225,754 -18635 9 -226,291 -19172 9.26 -207119
Gross profit 86,599 -6607 -7.10 100,407 7201 7.73 93206

Other operating income 25,136 13,149 109.70 21,616 9629 80.33 11987
Administrative expenses -70,763 -10,131 16.71 -72166 -11534 19.00 -60632
Operating profit 40,972 -3,589 8.05 49,857 5296 11.88 44561
Share of (loss)/ profit of equity -36 -245 -117.22 4791 4582 2192.30 209
Profit before tax 40936 -3834 -8.56 54648 9878 22.06 44770
Tax (expense)/income -3656 3114 46.00 7116 13886 -208.19 -6770
Profit for the financial year 37280 -720 1.90 61764 23764 62.54 38000

Other comprehensive income/(loss):

Foreign currency translation differences for foreign operation 73 -1677 95.83 -2757 -4507 -57.54 1750
Fair value of available-for-sale financial assets 94 1217 -108.37 -182 941 -83.79 -1123
Total other comprehensive income/(loss) 167 -460 -73.37 -2939 -3566 -568.74 627

Total comprehensive income for the financial year 37447 -1180 -3.05 58825 20198 52.29 38627

Profit for the financial year attributable to owners of the

Company 37280 -720 -1.89 61764 23764 62.54 38000

Total comprehensive income for the financial year

attributable to owners of the Company 37447 -1180 -3.05 58825 20198 52.29 38627

Earning per share(sen) :

Basic 11.26 -0.22 -1.92 18.66 7.18 62.54 11.48
Diluted 0 0 0.00 0 0 0.00 0

11
3.2.2Index-Number Trend
PBA Holdings Bhd
Company NO 515119-U
Incorporated in Malaysia
Statement of Income Statement at 31 December 2017

2017 2016 2015

RM'000 Percentage ( % ) RM'000 Percentage ( % ) RM'000 Percentage ( % )
Revenue 312,353 104 326,698 108.78 300325 100
(-) Cost of sales -225,754 109 -226,291 109.26 -207119 100
Gross profit 86,599 92.91 100,407 107.73 93206 100

Other operating income 25,136 209.70 21,616 180.33 11987 100

Administrative expenses -70,763 116.71 -72166 119.02 -60632 100
Operating profit 40,972 92.00 49,857 111.88 44561 100
Share of (loss)/ profit of equity -36 -17.22 4791 2292.34 209 100
Profit before tax 40936 91.44 54648 122.06 44770 100
Tax (expense)/income -3656 54.00 7116 -105.85 -6770 100
Profit for the financial year 37280 98.11 61764 162.54 38000 100

Other comprehensive income/(loss):

Foreign currency translation differences for foreign operation 73 4.17 -2757 -157.54 1750 100
Fair value of available-for-sale financial assets 94 -8.37 -182 16.21 -1123 100
Total other comprehensive income/(loss) 167 26.63 -2939 468.74 627 100

Total comprehensive income for the financial year 37447 96.95 58825 152.29 38627 100

Profit for the financial year attributable to owners of the

Company 37280 98.11 61764 162.54 38000 100

Total comprehensive income for the financial year

attributable to owners of the Company 37447 96.95 58825 152.29 38627 100

Earning per share(sen) :

Basic 11.26 98.08 18.66 162.54 11.48 100
Diluted 0 0.00 0 0.00 0 100

12
3.2.3 Vertical Analysis

PBA Holdings Bhd

Company NO 515119-U
Incorporated in Malaysia
Statement of Income Statement at 31 December 2017

2017 2016 2015

RM'000 Percentage ( % ) RM'000 Percentage ( % ) RM'000 Percentage ( % )
Revenue 312,353 100 326,698 100 300325 100
(-) Cost of sales -225,754 -72.28 -226,291 -69.27 -207119 -69
Gross profit 86,599 27.72 100,407 30.73 93206 31

other operating income 25,136 8.05 21,616 6.62 11987 4

Administrative expenses -70,763 -22.65 -72166 -22.09 -60632 -20.19
Operating profit 40,972 13.12 49,857 15.26 44561 14.84
Share of (loss)/ profit of equity -36 -0.01 4791 1.47 209 0.07
Profit before tax 40936 13.11 54648 16.73 44770 15
Tax (expense)/income -3656 -1.17 7116 2.18 -6770 -2.25
Profit for the financial year 37280 11.94 61764 18.91 38000 12.65

Other comprehensive income/(loss):

Foreign currency translation differences for foreign operation 73 0.02 -2757 -0.84 1750 0.58
Fair value of available-for-sale financial assets 94 0.03 -182 -0.06 -1123 -0.37
Total other comprehensive income/(loss) 167 0.05 -2939 -0.90 627 0.21

Total comprehensive income for the financial year 37447 12.00 58825 18.00 38627 12.86

Profit for the financial year attributable to owners of the

Company 37280 11.94 61764 19.00 38000 12.65

Total comprehensive income for the financial year

attributable to owners of the Company 37447 12.00 58825 18.00 38627 12.86

Earning per share(sen) :

Basic 11.26 0.00 18.66 0.01 11.48 0.003
Diluted 0 0.00 0 0.00 0 0

13
3.3 Statements of Cash Flow
3.3.1 Horizontal Analysis

PBA Holdings Bhd

Company NO 515119-U
Incorporated in Malaysia
Statement of Cash Flow at 31 December 2017
Notes 2017 2017 2016 2016 2015 2015
RM’000 % RM’000 % RM’000 %
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax 40,936 91.44 54,648 122 44,770 100
Adjustments for:
Amortisation of deferred income -2,753 -364.15 -4,677 -618.65 -756 -100
Amortisation of deferred liabilities -1,595 -100 -1,595 -100 -1,595 -100
Deemed loss on deconsolidation of a subsidiary - - 113 100 - 100
Depreciation of property, plant and equipment 56,267 99.96 53,586 95.2 56,288 100
Dividend income -55 -39.57 -45 -32.37 -139 100
Gain on disposal of other investments -159 -9.74 -78 -4.78 -1,633 -100
Gain on disposal of property, plant and equipment -95 -100 - - - 100
Impairment loss on property, plant and equipment - - 646 10.29 6277 100
Impairment loss on receivables 1,482 95.12 1,850 118.74 1,558 100
Interest income -1,710 -167.48 (13,68) -133.99 -1,021 -100
Property, plant and equipment written off 278 18.9 834 56.7 1471 100
Reversal of impairment loss on other investments - - - - -236 -100
Share of results of joint venture 36 17.22 -4,791 -2292.3 -209 -100
Operating profit/(loss) before working capital changes 92,632 88.41 99,123 94.61 104,775 100
Inventories 1,347 105.15 -1,080 -84.31 1,281 100
Receivables -1,725 -9.26 11986 64.37 -18,620 -100
Payables 19,209 157.24 1,384 11.33 12,216 100
Cash generated from/ (used in) operations 111,463 111.85 111,413 111.8 99,652 100
Income tax paid -2,072 -98.43 -2,104 -99.95 -2,105 -100
Income tax refunded 41 1,025 2,009 50,225 4 100
Net cash from/ (used in) operating activities 109,432 112.18 111,318 114.11 97,551 100
CASH FLOWS FROM INVESTING ACTIVITIES
Cash flows from deconsolidation of a subsidiary A - - -115 - - 100
Dividends received 1,423 1,023.74 6,795 4,888.49 139 100
Interest received 1,710 167.48 1,368 133.99 1,021 100
Proceeds from disposal of other investments 1,601 11.28 2,575 18.15 14,188 100
Proceeds from disposal of property, plant and equipment 95 100 - - - 100
Purchase of other investments -1,675 -31.13 -2,649 -49.24 -5,380 -100
Purchase of property, plant and equipment B -81,980 -74.15 -92,589 -83.74 -110,564 -100
Net cash (used in)/from investing activities -78,826 -78.36 -84,615 -84.11 -100,596 -100
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid -13,240 -106.67 -12,413 -100 -12,413 -100
Government loans received 30,000 214.29 30,000 214.29 14,000 100
Repayment of government loan -1,000 - -1,000 - - -
Purchase of treasury shares -3 -150 -2 -100 -2 -100
Net cash from/ (used in) financing activities 15,757 994.13 16,585 1,046.37 1,585 100
NET INCREASE IN CASH AND CASH
46,363 3175.55 43,288 2964.93 -1,460 -100
EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING 95,028 178.62 51,740 97.26 53,200 100

CASH AND CASH EQUIVALENTS AT END C 141,391 273.27 95,028 183.66 51,740 100

14
3.3.2 Index-Number Trend
PBA Holdings Bhd
Company NO 515119-U
Incorporated in Malaysia
Statement of Cash Flow at 31 December 2017

Notes 2017 2016 2015

RM’000 % RM’000 % RM’000 %
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax 40,936 91.44 54,648 122 44,770 100
Adjustments for:
Amortisation of deferred income -2,753 -364.15 -4,677 -618.65 -756 -100
Amortisation of deferred liabilities -1,595 -100 -1,595 -100 -1,595 -100
Deemed loss on deconsolidation of a subsidiary - - 113 100 - 100
Depreciation of property, plant and equipment 56,267 99.96 53,586 95.2 56,288 100
Dividend income -55 -39.57 -45 -32.37 -139 100
Gain on disposal of other investments -159 -9.74 -78 -4.78 -1,633 -100
Gain on disposal of property, plant and equipment -95 -100 - - - 100
Impairment loss on property, plant and equipment - - 646 10.29 6277 100
Impairment loss on receivables 1,482 95.12 1,850 118.74 1,558 100
Interest income -1,710 -167.48 -1,368 -133.99 -1,021 -100
Property, plant and equipment written off 278 18.9 834 56.7 1471 100
Reversal of impairment loss on other investments - - - - -236 -100
Share of results of joint venture 36 17.22 -4,791 -2292.3 -209 -100
Operating profit/(loss) before working capital changes 92,632 88.41 99,123 94.61 104,775 100
Inventories 1,347 105.15 -1,080 -84.31 1,281 100
Receivables -1,725 -9.26 11986 64.37 -18,620 -100
Payables 19,209 157.24 1,384 11.33 12,216 100
Cash generated from/ (used in) operations 111,463 111.85 111,413 111.8 99,652 100
Income tax paid -2,072 -98.43 -2,104 -99.95 -2,105 -100
Income tax refunded 41 1,025 2,009 50,225 4 100
Net cash from/ (used in) operating activities 109,432 112.18 111,318 114.11 97,551 100
CASH FLOWS FROM INVESTING ACTIVITIES
Cash flows from deconsolidation of a subsidiary A - - -115 - - 100
Dividends received 1,423 1,023.74 6,795 4,888.49 139 100
Interest received 1,710 167.48 1,368 133.99 1,021 100
Proceeds from disposal of other investments 1,601 11.28 2,575 18.15 14,188 100
Proceeds from disposal of property, plant and equipment 95 100 - - - 100
Purchase of other investments -1,675 -31.13 -2,649 -49.24 -5,380 -100
Purchase of property, plant and equipment B -81,980 -74.15 -92,589 -83.74 -110,564 -100
Net cash (used in)/from investing activities -78,826 -78.36 -84,615 -84.11 -100,596 -100
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid -13,240 -106.67 -12,413 -100 -12,413 -100
Government loans received 30,000 214.29 30,000 214.29 14,000 100
Repayment of government loan -1,000 - -1,000 - - -
Purchase of treasury shares -3 -150 -2 -100 -2 -100
Net cash from/ (used in) financing activities 15,757 994.13 16,585 1,046.37 1,585 100
NET INCREASE IN CASH AND CASH EQUIVALENTS 46,363 3175.55 43,288 2964.93 -1,460 -100
CASH AND CASH EQUIVALENTS AT BEGINNING 95,028 178.62 51,740 97.26 53,200 100
CASH AND CASH EQUIVALENTS AT END C 141,391 273.27 95,028 183.66 51,740 100

15
 3.3.3Vertical Analysis
PBA Holdings Bhd
Company NO 515119-U
Incorporated in Malaysia
Statement of Cash Flow at 31 December 2017
Notes RM’000 % RM’000 % RM’000 %
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax 40,936 37.41 54,648 49.09 44,770 45.89
Amortisation of deferred income -2,753 -2.52 -4,677 -4.2 -756 -0.77
Amortisation of deferred liabilities -1,595 -1.46 -1,595 -1.43 -1,595 -1.64
Deemed loss on deconsolidation of a subsidiary - - 113 0.1 - -
Depreciation of property, plant and equipment 56,267 -51.42 53,586 48.14 56,288 57.7
Dividend income -55 -0.05 -45 -0.04 -139 -0.14
Gain on disposal of other investments -159 -0.15 -78 -0.07 -1,633 -1.67
Gain on disposal of property, plant and equipment -95 -0.09 - - - -
Impairment loss on property, plant and equipment - - 646 0.58 6,277 6.43
Impairment loss on receivables 1,482 1.35 1,850 1.66 1,558 1.6
Interest income -1,710 -1.56 -1,368 -1.23 -1,021 -1.05
Property, plant and equipment written off 278 0.25 834 0.75 1,471 1.51
Reversal of impairment loss on other investments - - - - -236 -0.24
Share of results of joint venture 36 0.03 -4,791 -4.3 -209 -0.21
Operating profit/(loss) before working capital changes 92,632 84.65 99,123 89.04 104,775 107.41
Inventories 1,347 1.23 -1,080 -0.97 1,281 1.31
Receivables -1,725 -1.58 11,986 10.77 -18,620 -19.09
Payables 19,209 17.55 1,384 1.24 12,216 12.52
Cash generated from/ (used in) operations 111,463 101.86 111,413 100.09 99,652 102.15
Income tax paid -2,072 -1.89 -2,104 -1.89 -2,105 -2.16
Income tax refunded 41 0.04 2,009 1.8 4 0.004
Net cash from/ (used in) operating activities 109,432 100 111,318 100 97,551 100
CASH FLOWS FROM INVESTING ACTIVITIES
Cash flows from deconsolidation of a subsidiary A - - -115 -0.14 - -
Dividends received 1,423 1.81 6,795 8.03 139 0.14
Interest received 1,710 2.17 1,368 1.61 1,021 1.01
Proceeds from disposal of other investments 1,601 2.03 2,575 3.04 14,188 14.1
Proceeds from disposal of property, plant and equipment 95 0.12 - - - -
Purchase of other investments -1,675 -2.12 -2,649 3.13 -5,380 -5.35
Purchase of property, plant and equipment B -81,980 -104 -92,589 -109.42 -110,564 -109.91
Net cash (used in)/from investing activities -78,826 -100 -84,615 -100 -100,596 -100
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid -13,240 84.03 -12,413 -74.84 -12,413 -783.15
Government loans received 30,000 190.39 30,000 180.89 14,000 883.28
Repayment of government loan -1,000 6.35 -1,000 -6.03 - -
Purchase of treasury shares -3 0.02 -2 -0.01 -2 -0.13
Net cash from/ (used in) financing activities 15,757 100 16,585 100 1,585 100
NET INCREASE IN CASH AND CASH EQUIVALENTS 46,363 32.79 43,288 45.55 -1,460 -2.82
CASH AND CASH EQUIVALENTS AT BEGINNING 95,028 67.21 51,740 54.45 53,200 102.82
CASH AND CASH EQUIVALENTS AT END C 141,391 100 95,028 100 51,740 100

16
SECTION 4: ANALYSIS
4.0 Financial Ratio
4.1 Short-term liquidity

Year Current Assets Current Liabilities Current Ratio

(RM ‘000) (RM ‘000)
2017 200,854 170,978 1.175
2016 154,217 151,166 1.020
2015 123,065 148,792 0.827
4.1.1 Current Ratio

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑅𝑎𝑡𝑖𝑜:
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

𝑅𝑀 200,854
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑅𝑎𝑡𝑖𝑜:
𝑅𝑀 170, 978

= 1.175

Current Ratio measures the ability of a company to meet its current debts as they fall
due(McGraw.Hil, 2009). The PBA Holdings Bhd current ratio increases from 0.827 in 2015
to 1.175 in 2017(Phipps, 2017). The more current assets the company have, the better the
chances the company will be able to pay current liabilities.This indicates that the company’s
current ratio has good short-term financial strength and encouraging for a business.

4.1.2 Quick (Acid Test Ratio)

Year Current Assets Inventories Current Quick Ratio

(RM ‘000) (RM ‘000) Liabilities
(RM ‘000)
2017 200,854 7,423 170,978 1.131
2016 154,217 8,770 151,166 0.962
2015 123,065 7,690 148,792 0.775

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 − 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑖𝑒𝑠

𝑄𝑢𝑖𝑐𝑘 𝑅𝑎𝑡𝑖𝑜 ∶
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
17
 𝑅𝑀 200,854 − 𝑅𝑀7,423
𝑄𝑢𝑖𝑐𝑘 𝑅𝑎𝑡𝑖𝑜 ∶
𝑅𝑀 170,978

= 1.131

A more stringent test of short-term liquidity, based on the acid-test ratio, measure
how well the company can pay off its liabilities using its most liquid assets(McGraw.Hil,
2009). The quick ratio increases from 0.775 in 2015 to 1.131 in 2017. This shows that the
company has enough short-term assets (increasing) to cover its immediate liabilities without
selling inventory. The greater the company’s liquidity and this will better able to meet current
obligations using liquid assets.

4.1.3 Collection Period

Year Accounts Average Accounts Sales Collection

Receivable Receivable (RM ‘000) Period (days)
(RM ‘000) (RM ‘000)
2017 46,805 46,805 + 46,562/2 312,353 55
= 46,683.5
2016 46,562 46,562 + 61,492/2 3 26,698 60
= 54,027
2015 61,492 61,492 + 44,430/2 3 00,325 64
= 52,961
2014 44,430 - - -

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑎𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑟𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒

𝐶𝑜𝑙𝑙𝑒𝑐𝑡𝑖𝑜𝑛 𝑃𝑒𝑟𝑖𝑜𝑑: 𝑆𝑎𝑙𝑒𝑠
365

𝑅𝑀 46,683.5
𝐶𝑜𝑙𝑙𝑒𝑐𝑡𝑖𝑜𝑛 𝑃𝑒𝑟𝑖𝑜𝑑: 312353
365

= 55 𝑑𝑎𝑦𝑠

Collection period is average number of days required to convert receivables into cash
(McGraw.Hil, 2009).The average number of days required for conversion of receivable to
cash also provides useful information regarding liquidity(McGraw.Hil, 2009). PBA’s

18
collection period for receivable is approximately 55 days in 2017 which took lesser days to
convert into cash comparing to two previous years 60 days in 2016 and 64 days in 2015
respectively(Phipps, 2017). This average collection period can be used as a benchmark
against another company's performance(Kenton, 2018).

4.1.4 Days to sell inventory

Year Inventories (RM ‘000) Average Cost of Sales Days to sell

Inventories (RM ‘000) inventory
(RM ‘000) (RM ‘000)
2017 7,423 8,770 225,754 13
+ 7,423/2
= 8,096.5
2016 8,770 8,770 226,291 13
+ 7,690/2
= 8,230
2015 7,690 7,690 207,119 15
+ 8,971/2
= 8,330.5
2014 8,971 - - -

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑖𝑒𝑠
𝐷𝑎𝑦𝑠 𝑡𝑜 𝑠𝑒𝑙𝑙 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 = 𝐶𝑜𝑠𝑡 𝑜𝑓 𝑠𝑎𝑙𝑒𝑠
365

𝑅𝑀 8,096.5
𝐷𝑎𝑦𝑠 𝑡𝑜 𝑠𝑒𝑙𝑙 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 = 225,754
365

= 13 𝑑𝑎𝑦𝑠

Days to sell inventory is an average numbers of days required to sell inventory to

customers(McGraw.Hil, 2009).The PBA able to convert inventories into cash sooner and the
company is moving its inventory fast in 2017 comparing to two previous years. Thus more
liquid inventory means the company’s cash flows will be better.(Average Days to Sell
Inventory , 2010)

19
4.2 Capital structure and solvency

4.2.1 Total debt to equity

Year Total Liabilities Shareholder’s equity Total Liabilities/

(RM ‘000) (RM ‘000) Shareholder’s equity
(RM ‘000)
2017 394,263 824,377 2.0909
2016 329,032 800,173 0.4112
2015 3 01,260 753,763 0.3997

𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
𝑇𝑜𝑡𝑎𝑙 𝑑𝑒𝑏𝑡 𝑡𝑜 𝑒𝑞𝑢𝑖𝑡𝑦 =
𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟 ′ 𝑠 𝐸𝑞𝑢𝑖𝑡𝑦

𝑅𝑀 394,263
=
𝑅𝑀 824,377

= 2.0909

Total debt to equity is measures the riskiness of the firm’s capital structure in term of
the relationship between the funds supplied by creditors (debt) and invest
(equity)(McGraw.Hil, 2009).PBA’s total debt to equity ratio of 2.09 in 2017 higher compared
to 0.4112 in 2016 and 0.3997 in 2015. However, for the large companies like PBA, the
maximum acceptable debt-to-equity can be more than 2.0(Hayes, 2010).

4.2.2 Long-term debt to equity

Year Long-Term Shareholder’s equity Long-Term

Liabilities (RM ‘000) Liabilities/
(RM ‘000) Shareholder’s equity
(RM ‘000)
2017 223,285 824,377 0.271
2016 177,866 800,173 0.222
2015 152,468 753,763 0.202

𝐿𝑜𝑛𝑔 − 𝑇𝑒𝑟𝑚 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

𝐿𝑜𝑛𝑔 − 𝑡𝑒𝑟𝑚 𝑑𝑒𝑏𝑡 𝑡𝑜 𝑒𝑞𝑢𝑖𝑡𝑦 =
𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟 ′ 𝑠 𝐸𝑞𝑢𝑖𝑡𝑦

20
 𝑅𝑀 223,285
=
𝑅𝑀 824,377

= 0.271

Long-term debt to equity is to know how much debt of the company has to
pay(McGraw.Hil, 2009).The PBA slightly has less liabilities and more equity when
comparing the previous two years(McGraw.Hil, 2009). According to the data, the company is
stable since the company has the ability to service its debt obligation through cash flow and
expected will remain solvent in long-run.

4.3 Return on invested capital and profitability

4.3.1 Return on Investment (ROI)

Return on Investment (ROI) is the income earned on the invested capital(McGraw.Hil, 2009).

4.3.2 Return on Equity (ROE)

Year Net income Shareholder’s Average ROE

(RM ‘000) equity (RM shareholder’s equity (RM ‘000)
‘000) (RM ‘000)
2017 37,280 824,377 (824,377+800,173)/2 0.046
= 812,275
2016 61,764 800,173 (800,173+753,763)/2 0.079
= 776,968
2015 38,000 753,763 (753,763+727,551)/2 0.051
= 740,657
2014 24,759 7 27,551 - -

𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒
𝑅𝑂𝐸 =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑠ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟 ′ 𝑠 𝑒𝑞𝑢𝑖𝑡𝑦

𝑅𝑀 37280
𝑅𝑂𝐸 =
𝑅𝑀 812, 275

𝑅𝑂𝐸 = 0.046

Return on equity is a measure how much both common and preferred shareholders
earned for their investment in the company(McGraw.Hil, 2009).PBA’s return in equity

21
shows the fluctuation as it increases from 0.051 in 2015 to 0.079 in 2016 whereas it decline
to 0.046 in 2017. This means that PBA requires more capital to generate profits.

4.3.4 Gross Profit Margin

Year Revenue (RM ‘000) Cost of sales Gross Profit Margin
(RM ‘000) (RM ‘000)
2017 312,353 225,754 0.277
2016 3 26,698 226,291 0.307
2015 3 00,325 207,119 0.310

𝑅𝑒𝑣𝑒𝑛𝑢𝑒 − 𝐶𝑜𝑠𝑡 𝑜𝑓 𝑠𝑎𝑙𝑒𝑠

𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡 𝑀𝑎𝑟𝑔𝑖𝑛 =
𝑅𝑒𝑣𝑒𝑛𝑢𝑒

𝑅𝑀 312,353 − 𝑅𝑀 225,754
𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡 𝑀𝑎𝑟𝑔𝑖𝑛 =
𝑅𝑀 312,353

= 0.277 𝑥 100%

= 27.7%

Gross Profit Margin is represents firm’s ability to translate sales into

profits(McGraw.Hil, 2009).The gross profit decreases from (0.310 𝑥100) = 31%in 2015 to
(0.277 𝑥 100%) = 27.7 % in 2017. The slight decrease in revenue causes the minimal
decrease in gross profit. This shows the company should manage the revenue effectively
every year in order to maintain the gross profit margin.

4.3.5 Operating Profit Margin (pre-tax)

Year Income from Sales (RM ‘000) Operating Profit

operation (RM ‘000) Margin (pre-tax)
(RM ‘000)
2017 40,936 312,353 0.131
2016 54,648 326,698 0.167
2015 44,770 300,325 0.149

𝐼𝑛𝑐𝑜𝑚𝑒 𝑓𝑟𝑜𝑚 𝑜𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛

Operating Profit Margin (pre − tax) =
𝑆𝑎𝑙𝑒𝑠

22
 𝑅𝑀 40,936
Operating Profit Margin (pre − tax) =
𝑅𝑀 312,353

= 0.131 𝑥 100

= 13.1 %

Operating Profit Margin (pre-tax) is to understand the financial health of the company
in terms of knowing whether or not company’s profit is enough to pay off its other
expenses(McGraw.Hil, 2009). The company’s pre-tax increases from (0.149 𝑥 100) =
14.9% in 2015 to (0.167 𝑥 100) = 16.7% in 2016, however it declines to
(0.131 𝑥100) = 13.1% in 2017. The decrease in the income from the operation and sales
from year 2016 to 2017 causes the operating profit margin (pre-tax) to decrease also. Thus,
the company should increase in that particular items.

4.3.6 Net Profit Margin

Year Net income Sales (RM ‘000) Net Profit

(RM ‘000) Margin(RM ‘000)
2017 37,280 312,353 0.119
2016 61,764 326,698 0.189
2015 38,000 300,325 0.127

𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒
Net Profit Margin =
𝑆𝑎𝑙𝑒𝑠

𝑅𝑀 37,280
𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 𝑀𝑎𝑟𝑔𝑖𝑛 =
𝑅𝑀 312,353

= 0.119 𝑥 100%

= 11.9 %

Net Profit Margin is measures profitability after consideration of all revenue and
expense, including interest, taxes and operating expenses items(McGraw.Hil, 2009).Net
profit margin increase (0.127 𝑥100) = 12.7% in 2015 to(0.189 𝑥 100) = 18.9% in 2016,
however it decreases (0.119 𝑥 100) = 11.9%in 2017. The drastic decrease in net income
and slight decrease in sales in from 2016 to 2017 causes the net profit margin reduces.

23
4.4Asset turnover (Utilization)

Year 2017 (RM) 2016 (RM) 2015 (RM) 2014

(RM)
Sales 312,353 326,698 300,325 261,017
Assets 1,218,640 1,129,205 1,055,023 993,3379
Average (1,129,205+1,218,640)/2 (1,129,205+1,055,023)/2 (993,379+1,055,023)/2 -
Asset = 1,173,922.5 = 1,092,114 = 549,201
Asset 312,353/1,173,922.5 326,698/1,092,114 300,325/549,201 -
Turnover = 0.2661 = 0.2991 = 0.5468

𝑆𝑎𝑙𝑒𝑠
𝐴𝑠𝑠𝑒𝑡 𝑡𝑢𝑟𝑛𝑜𝑣𝑒𝑟 =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐴𝑠𝑠𝑒𝑡𝑠

According to the result, the asset turnover in 2015 was the highest compare to year
2016 and 2017. The asset turnover had been decreased to 0.2991 in 2016. It continues to
decrease from 2016 to 2017 which is from 0.2991 to 0.2661. The company has high asset
turnover because the company generate low profit margins which is 11.9% (refer to net profit
margin).

4.5 Market performance

2017 2016 2015

Earnings per share 11.26 18.66 11.48
(cent)

The market performance of a listed company can be evaluated by its earnings per
share(Fun, 2014). As shown in table above, the earnings per share show that the basic per
share is about 11.48 cent in 2015. The drastic increase in EPSabout 18.66 cent in 2016,
however it decline again about 11.26 cent in 2017. This meaning that the company had
difficulties in buying back their stocks. Thus the market performance of the company
decreases.

24
4.2 Cash flow

The statement of cash flow is a presentation of the inflows and outflows during a
period of an individual asset or liability, and cash, or cash and cash equivalents. The focus of
the statement is on cash inflows and outflows(Klammer, 2017). There are two methods of
calculating cash flow which is direct method and indirect method(B.Murphy, 2019). The
statement of cash flow classifies cash flow into three major cash activity groups which is
operating, investing and financing activities (Klammer, 2017). Those are inflows and
outflows that affect each category.

4.2.1 Methods

4.2.1.1 Direct method

The direct method adds up all the various types of cash payments and receipts,
including cash paid to suppliers, cash receipts from customers and cash paid out in salaries
(B.Murphy, 2019). These figures are calculated by using the beginning and end balances of a
variety of a business accounts and examining the net decrease or increase in the accounts.

4.2.1.2 Indirect method

Indirect method starts the operating section with net income (Klammer, 2017). Items
that do not require cash are added and those requiring additional cash are subtracted from net
income to determine cash provided by operations. The vast majority of firms utilize the
indirect method of cash flow reconciliation. In accordance with the statement of cash flows of
PBA Holdings Bhd, they used indirect method in preparing their statement of cash flows
annually.

4.2.2 Cash activities and case analysis of Statement of cash flows from 2015 to 2017

4.2.2.1 Operating activities

Operating activities are the earning-related activities of a company

(K.R.Subramanyam & J.Wild, 2009). Beyond revenue and expense activities represented in
an income statement, they include the net inflows and outflows of cash resulting from related
operating activities like extending credit to customers, investing in inventories, and obtaining
credit from suppliers. Operating activities relate to income statement items with minor
exceptions and to balance sheet items relating to operations which is usually working capital

25
accounts like receivables, inventories, prepayments, payables and accrued expenses
(K.R.Subramanyam & J.Wild, 2009).

If net cash from operating activities is negative means it implies that the organization
is spending more cash than it is creating or generating in producing and selling its goods and
services. If it is positive, the organization is generating more money than it is spending on
day-to-day operations. In term of operating activities, the net cash from operating activities
presents that there was an increase in the year 2015 to 2016 which was from RM 97,551,000
to RM 111,318,000 and slightly dropped to RM 109,432,000 in the year 2017 respectively.
The trade receivables in 2015 was (RM 18,620,000) and was RM 11,986,000 in the year
2016. A positive amount in cash flow for trade receivables shows there was a significant
decrease in the value for the account receivables in comparative balance sheet for the year
2016. In 2017 the trade receivables was (RM 1,725,000). To be more precise, an increase in
accounts receivable hurts cash flow and a decrease in accounts receivable helps cash flow.

The cash generated from operations shows constant rise from 2015 to 2017 which was
RM 99,652,00 in 2015 to RM 111,463,000 in 2017. But the slight decrease in net cash from
operating activities from 2016 to 2017 was mainly influenced by the income tax refunded.
The income tax refunded in the year 2016 has the highest refund which was RM 2,009,000
compare to the year 2015 and 2017. A positive operating cash flow is very importantfor a
business.

4.2.2.2 Investing activities

Investing activities are means of acquiring and disposing of noncash

assets(K.R.Subramanyam & J.Wild, 2009). These activities involve assets expected to
generate income for a company, such as purchases and sales of PPE and investment in
securities. They also include funds and collecting the principal on these loans. Typically,
investing transactions generate cash outflows, such as purchase of other investments,
purchase of property, plant and equipment and many more.

As reported by the statement of cash flows of PBA Holdings Bhd the net cash (used
in)/from investing activities declined significantly from (RM 110,596,000) in the year 2015
to (RM 84,615,000) in the year 2016 and to (RM 78,826,000) in the year 2017. As per the
statement of cash flows in 2015 the PBA Holdings Bhd invest heavily on the purchase of
property, plant and equipment which was approximately (RM 110,564,000) and on the
purchase of other investment with (RM 5,380,000). The investment that made on the

26
purchases of assets and on the investment in the year 2015 was the highest compare to the
year 2016 and 2017.An increase in capital expenditures means the company is investing in
future operations. However, it also points to a reduction in cash flow. Companies with high
capital expenditures indicates that generally the company is in a state of growth. Interest
received and dividend received also greatly contribute to the net cash (used in)/from investing
activities.

4.2.2.3 Financing activities

Financing activities are means of contributing, withdrawing, servicing funds to

support business activities. They include borrowing and repaying funds with bonds and other
loans. They also include contribution and withdrawals by owners and their return (dividen)
on investment (K.R.Subramanyam & J.Wild, 2009).

The cash flows from financing activities of PBA Holdings Bhd indicates that the net
cash from/(used in) financing activities for the group increased positively from the year 2015
(RM 1,585,000)to (RM 16,585,000) in 2016 and there was a slight decrease in the amount in
the year 2017 (RM 15,757,000) compare to the amount in 2016 respectively. The total value
of net cash from/(used in) financing activities consists of dividends paid, government loans
received, purchase of treasury shares and repayment of government loan. However,
government loans received played a major role in maintaining the net cash from/(used in)
financing activities to be positive thorough out the years of business operation.A positive
number for cash flow from financing activities means more money is flowing into the
company than flowing out, which increases the company’s assets. Apart from that, the
negative cash flow from financing activities can mean the company is servicing debt, but can
also mean the company is making dividend payments or retiring debt and stock repurchases.

4.2.3 Analysis Viewpoint

In accordance with the statement of cash flows of PBA Holdings Bhd, they used
indirect method in preparing their statement of cash flows annually. Based on the statement
of cash flows the total cash and cash equivalents at the end of the year from the year 2015 till
the year 2017 shows that the value has been steadily increasing over the years from RM
51,740,000 in the year 2015 to RM 141,391,000 in the year 2017.

27
 In term of operating activities, the net cash from operating activities presents that
there was an increase in the year 2015 to 2016 which was from RM 97,551,000 to RM
111,318,000 and slightly dropped to RM 109,432,000 in the year 2017.

Apart from that, as reported by the statement of cash flows of PBA Holdings Bhd the
net cash (used in)/from investing activities declined significantly from (RM 110,596,000) in
the year 2015 to (RM 84,615,000) in the year 2016 and to (RM 78,826,000) in the year 2017.

As for financing activities, PBA Holdings Bhd cash flow indicates that the net cash
from/(used in) financing activities for the group increased positively from the year 2015 (RM
1,585,000) to (RM 16,585,000) in 2016 and there was a slight decrease in the amount in the
year 2017 (RM 15,757,000) compare to the amount in 2016 respectively.

In conclusion, there is a ratio, which is expressed as a percentage of a company's net

operating cash flow to its net sales, or revenue from the income statement, displays the
dollars earned and the cash earned for every dollar of sales (Analyze Cash Flow The Easy
Way, 2012). The higher the percentage the better company’s performance is.

Year Net Operating cash flow Net Revenue Quality of earnings (%)
2015 RM97,551,000.00 RM300,325,000.00 32.48
2016 RM95,028,000.00 RM326,698,000.00 29.09
2017 RM141,391,000.00 RM312,353,000.00 45.27

𝑁𝑒𝑡 𝑜𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑐𝑎𝑠ℎ 𝑓𝑙𝑜𝑤

𝑄𝑢𝑎𝑙𝑖𝑡𝑦 𝑜𝑓 𝑒𝑎𝑟𝑛𝑖𝑛𝑔𝑠 (𝑔𝑟𝑜𝑢𝑝 2015) = × 100
𝑁𝑒𝑡 𝑠𝑎𝑙𝑒𝑠/𝑟𝑒𝑣𝑒𝑛𝑢𝑒

RM 97,551,000
= × 100 = 32.48 %
RM 300,325,000

𝑁𝑒𝑡 𝑜𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑐𝑎𝑠ℎ 𝑓𝑙𝑜𝑤

𝑄𝑢𝑎𝑙𝑖𝑡𝑦 𝑜𝑓 𝑒𝑎𝑟𝑛𝑖𝑛𝑔𝑠 (𝑔𝑟𝑜𝑢𝑝 2016) = × 100
𝑁𝑒𝑡 𝑠𝑎𝑙𝑒𝑠/𝑟𝑒𝑣𝑒𝑛𝑢𝑒

RM 95,028,000
= × 100 = 29.09 %
RM 326,698,000

28
 𝑁𝑒𝑡 𝑜𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑐𝑎𝑠ℎ 𝑓𝑙𝑜𝑤
𝑄𝑢𝑎𝑙𝑖𝑡𝑦 𝑜𝑓 𝑒𝑎𝑟𝑛𝑖𝑛𝑔𝑠 (𝑔𝑟𝑜𝑢𝑝 2017) = × 100
𝑁𝑒𝑡 𝑠𝑎𝑙𝑒𝑠/𝑟𝑒𝑣𝑒𝑛𝑢𝑒

RM 141,391,000
= × 100 = 45.27 %
RM 312,353,000

According the calculation of quality of earnings from the year 2015 to 2017, there was a
slight decrease in the year 2015 (32.48 %) to 2016 (29.09 %) but recovered quickly again in
the year 2017 with 45.27 %. It shows that the cash flow from operations and revenue or net
sales of PBA Holdings Bhd almost move at a similar rate over time which is actually very
beneficial for the growth of the company.

29
SECTION 5: SUMMARY OF ANALYSIS
5.1 Strengths and Weakness

5.1.1 Strengths

1. Good performance in percentage of the quality of earnings

According the calculation of quality of earnings from the year 2015 to 2017, there
was a slight decrease in the year 2015 (32.48 %) to 2016 (29.09 %) but recovered quickly
again in the year 2017 with 45.27 %. It shows that the cash flow from operations and revenue
or net sales of PBA Holdings Bhd almost move at a similar rate over time which is actually
very beneficial for the growth of the company.

2. High income refunded in net cash from operating activities

According to the statement of cash flows that reported by PBA Holdings Bhd, the
cash generated from operations shows constant rise from 2015 to 2017 which was RM 99,
652, 00 in 2015 to RM 111,463,000 in 2017. But the slight decrease in net cash from
operating activities from 2016 to 2017 was mainly influenced by the income tax refunded the
income tax refunded in the year 2016 has the highest refund which was RM 2,009,000
compare to the year 2015 and 2017. The more the net cash from/ (used in) operating activities,
the higher the value of net cash and cash equivalents at the end.

3. Able to transform inventories into cash in shorter time

As presented in the analysis results, the average number of days to sell inventories is
13 days compared to previous two years about 15 days in 2016 and 2015. In other words,the
PBA able to convert inventories into cash nearer and the company is moving its inventory
fast in 2017 comparing to two previous years. It is very important to improve the cash flow of
the company especially in short-term.

5.1.2 Weakness
1. Involved in much of the investment activities.

As reported by the statement of cash flows of PBA Holdings Bhd the net cash (used
in)/from investing activities declined significantly from (RM 110,596,000) in the year 2015
to (RM 84,615,000) in the year 2016 and to (RM 78,826,000) in the year 2017. As per the
statement of cash flows in 2015 the PBA Holdings Bhd invest heavily on the purchase of

30
property, plant and equipment which was approximately (RM 110,564,000) and on the
purchase of other investment with (RM 5,380,000). The investment that made on the
purchases of assets and on the investment in the year 2015 was the highest compare to the
year 2016 and 2017.

2.xxxx

3.xxxx

31
4. Government loans in financing activities.

According to the statement of cash flow that reported by PBA Holdings Bhd indicates
that the net cash from/ (used in) financing activities for the group increased positively from
the year 2015 (RM 1,585,000) to (RM 16,585,000) in 2016 and there was a slight decrease in
the amount in the year 2017 (RM 15,757,000) compare to the amount in 2016 respectively.
The total value of net cash from/ (used in) financing activities consists of dividends paid,
government loans received, purchase of treasury shares and repayment of government loan.
This shows that PBA Holdings Bhd still depend on government loans in maintaining the net
cash from/ (used in) financing activities to be positive thorough out the years of business
operation.

5.2 Analysis of bankruptcy (Z-score)

5.2.1 Analysis of 2017

𝑥 Formula Calculation (RM) Value (RM)

𝑥1 𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 = 0.0245

= 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡 = 200,853 − 170,978
− 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 = 𝑅𝑀 29,876
𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 29,876
= =
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡 (𝐿𝑖𝑞𝑢𝑖𝑑𝑖𝑡𝑦) 1,218,640

𝑥2 𝑅𝑒𝑡𝑎𝑖𝑛𝑛𝑒𝑑 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 496,702 = 0.408

=
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 (𝑎𝑔𝑒 𝑜𝑓 𝑓𝑖𝑟𝑚 ) 1,218,640

𝑥3 Earnings Before Interest Rate (EBIT) 40,936 = 0.0336

=
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡 (𝑃𝑟𝑜𝑓𝑖𝑡𝑎𝑏𝑖𝑙𝑖𝑡𝑦) 1,218,640
𝑥4 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟 ′ 𝑠 𝐸𝑞𝑢𝑖𝑡𝑦 824,377 = 2.091
=
𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 394,263
𝑥5 𝑆𝑎𝑙𝑒𝑠 312,353 = 0.256
=
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 (𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑅𝑎𝑡𝑒) 1,128,640
𝑍 − 𝑠𝑐𝑜𝑟𝑒 = 0.717𝑥1 + 0.847𝑥2 + 3.107𝑥3 +0.420𝑥4 + 0.998𝑥5
= 0.717(0.0245) + 0.847( 0.408) + 3.107( 0.0336) + 0.420 (2.091) + 0.998( 0.256)
= 1.60 (𝐺𝑟𝑎𝑦 𝑍𝑜𝑛𝑒; 𝐴𝑚𝑏𝑖𝑔𝑢𝑜𝑢𝑠)
The Altman’s Z-score shows that the company has low risk to go bankrupt in next 5 years.

32
5.2.2 Analysis of 2016

Zscore 1.817

33
5.2.3 Analysis of 2015

1.788 gray zone

34
CONCLUSION

35
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