BKAR1013 FINANCIAL ACCOUNTING AND REPORTING 1

FIRST SEMESTER SESSION 2019/2020

FINANCIAL STATEMENTS ANALYSIS
COMPANY: Khind Holding Berhad
Submitted to:
DR. MOHD FARID ASRAF BIN MD HASHIM
GROUP: H

Prepared by:
MATRIC NO NAME
1 246458 NURLIYANA HAZWANI BINTI RAHIM
2 270967 NOR FATHIAH BINTI MOHAMAD
3 273460 NUR ALIAH ZAHIDAH BINTI MD ZAHAR
4 273781 NURIZZAH BINTI SABRI
5 273153 PRETEEBA NAVALAN

SUBMISSION DATE: 17th DECEMBER 2019

TUNKU INTAN SYAFINAZ SCHOOL OF ACCOUNTANCY

UUM COLLEGE OF BUSSINESS
UNIVERSITI UTARA MALAYSIA
LIQUIDITY RATIO
1. Current Ratio

The current ratio is a financial ratio that shows the proportion of a company's current

assets to its current liabilities. The current ratio is often classified as a liquidity ratio and a

larger current ratio is better than a smaller one. However, a company's liquidity is

dependent on converting the current assets to cash in time to pay its obligations.

LIQUIDITY YEAR CALCULATION INTERPRETATION

2017 RM189,146,000 The current ratio for this
RM 97,789,000
= year is 1.9:1 which is

greater than 1. This

indicates that the company

CURRENT RATIO = 1.9:1 at a desirable situation to be

in. It means that the

company has enough liquid

Current Assets
Current Liabilities assets in order to pay for the

short term’s obligations.

2018 RM 192,470,000 The current ratio for this
RM 106,755,000
= year is 1.8:1. When the

current ratio is greater than

1 this mean that the

= 1.8:1 company is in solvent

because the total current

assets is greater than total

current liabilities. This

 shows that company

manage to cover all the

short-terms liabilities.

2. Receivable Turnover

Receivable turnover ratio is an accounting measure used to measure how effective a

company is in extending credit as well as collecting debts. The receivable turnover ratio

is an activity ratio, measuring how efficiently a firm uses its assets. The ratio shows how

well a company uses and manages the credit it extends to customers and how quickly that

short-term debt is collected or is paid. The receivables turnover ratio is also called the

accounts receivable turnover ratio.

LIQUIDITY YEAR CALCULATION INTERPRETATION

2017 RM331,080,000 The receivable turnover
RM71,835,000 +
ratio for this year is 4.79.
RM66,321,000/2
= This indicates that the

company having a poor

RECEIVABLE collection process, bad

TURNOVER credit policies, or customers

= 4.79 that are not financially

viable or creditworthy.
Net Receivable 2018 RM348,698,000 The receivable turnover
RM 66,321,000
Sales ratio for this year is 5.13.
Average Net +
The ratio in 2018 is high
Receivables
 RM69,640,000/2 because a company’s
=
collection of accounts

receivable is efficient and

that the company has a high

proportion of quality

customers that pay their

= 5.13
debts quickly.

PROFITABILITY RATIO
1. Asset Turnover

The asset turnover ratio is an efficiency ratio that measures a company’s ability to

generate sales from its assets by comparing net sales with average total assets. In other

words, this ratio shows how efficiently a company can use its assets to generate sales.
PROFITABILITY YEAR CALCULATION INTERPRETATION
2017 RM331,080,000 Therefore, for every RM in
RM261,762,000
total assets, Khind Holdings
+
generated RM1.2488 in
RM268,467,000/2
= sales.

ASSET

TURNOVER

Net Sales
Average Assets = RM1.2488
2018 RM348,698,000 Therefore, for every RM in
RM272,527,000
total assets, Khind Holdings
+
generated RM1.3052 in
RM261,762,000/2
= sales.

= RM1.3052
 2. Return on Asset

The return on assets ratio, often called the return on total assets, is a profitability ratio that

measures the net income produced by total assets during a period by comparing net

income to the average total assets. In other words, the return on assets ratio or ROA

measures how efficiently a company can manage its assets to produce profits during a

period.

PROFITABILITY YEAR CALCULATION INTERPRETATION

2017 RM1,593,000 Khind’s ratio is 0.6 percent.
RM261,762,000
In other words, every
+
Ringgit Malaysia that Khind
RM268,467,000/2
= invested in assets during the

RETURN ON year produced RM0.6 of net

ASSETS income. Depending on the

economy, this can be a

healthy return rate no matter

Net Income
Average Total = 0.6% what the investment is.
2018 RM1,578,000 Khind’s ratio is 0.6 percent.
Assets RM272,527,000
In other words, every
+
Ringgit Malaysia that Khind
RM261,762,000/2
= invested in assets during the

year produced RM0.6 of net

income. Depending on the

economy, this can be a

healthy return rate no matter

 = 0.6% what the investment is.

SOLVENCY RATIO
1. Debt to Total Assets

The debt to total assets ratio is an indicator of a company's financial leverage. It tells you

the percentage of a company's total assets that were financed by creditors. In other words,

it is the total amount of a company's liabilities divided by the total amount of the

company's assets.

LIQUIDITY YEAR CALCULATION INTERPRETATION

2017 RM97,789,000 + The company has a total debt

RM33,098,000 to total assets ratio for this

RM261,762,000
= year is 0.50 or 50% it lower

than 0.5. This shows that this

DEBT TO TOTAL company is considered lower

ASSET RATIO leveraged. Lower debt to

= 0.50 @ 50% total asset ratio is also

considered better as a sign of

Total Debt
Total Asset financial stability or the

company.
2018 RM106,755,000 The total debt to total assets

+ RM32,962,000 ratio for year 2018 is 0.51

RM272,527,000
= which means that 51.27% of

the company assets are

purchased with debt. As a

 result, 48.73% of the

= 0.51 @ 51.27% company assets are financed

with equity or investor funds.

The ratio still lower, the

lower the debt to asset ratio

the less risky the company.

Provide your overall opinion/assessment on the liquidity, profitability and solvency of the

company.

In 2018 the current ratio for Khind Bhd goes down from 1.9 in 2017 to 1.8 in 2018. Even the

company still manage to pay its short term liabilities in this year but this indicates that the ability

for the company to pay is decline because based on the current ratio concept when the greater

current ratio, the greater the ability of the company to pay its short term liabilities. However, the

difference between this two year (2017 and 2018) is just about 0.1 which is not a huge

difference. This shows a little bit declining in liquidity and efficiency of Khind Bhd.

It presents that performances of receivable turnover in 2018 has a high ratio than performances

in 2017 which the ratio in 2018 of Khind Holdings Berhad is 5.13 than ratio in 2017 is 4.79. A

high receivable turnover ratio might also indicate that a company operates on a cash basis. A

high ratio can also suggest that a company is conservative when it comes to extending credit to

its customers. Conservative credit policy can be beneficial since it could help the company avoid

extending credit to customers who may not be able to pay on time. A low receivable turnover

ratio in 2017 implies that the company should reassess its credit policies to ensure the timely
collection of its receivables. However, if a company with a low ratio improves its collection

process, it might lead to an influx of cash from collecting on old credit or receivables.

The asset turnover for the year 2017 and 2018 are RM 1.24882 and RM 1.30528. It shows

increase of 4.521% in asset turnover, which shows that Khind Holdings using its assets more

efficiently than previous year (2017).

It only makes sense that a higher ratio is more favorable to investors because it shows that the

company is more effectively managing its assets to produce greater amounts of net income. A

positive ROA ratio usually indicates an upward profit trend as well. ROA is most useful for

comparing companies in the same industry as different industries use assets differently. Based on

the table, the ROA Khind company for 2017 and 2018 are same.

In 2018, the ratio goes up to 0.51 which increase 0.01 compared to year 2017 that the ratio is

0.50. This means that the company has increases their liabilities. The ratio shows the company’s

ability to cover its debt through its total assets. The ratio was 50% in 2017 then goes up in 2018.

The ratio has to be low so we can interpret that in the year 2018, the risk of the firm is getting

higher as ratio goes up. Company still healthy but this shows that management is unwilling to

take risk.

Two ways to improve current condition of the company.

i. Liquidity
Two ways that Khind Bhd can do in order to improve its liquidity the company should
change some of the short term’s debts to a long-term debt. By doing this way the
company can lower the interest rates and help the company to save its liquidity in the
short term and for a better use. Secondly, Khind Bhd can also improve its liquidity by
early submission invoice to the customers. This will affect the increasing in accounts
 receivable of Khind Bhd so that the total current assets would increase to and will result
for a better current ratio and the company will have more cash.

ii. Profitability
In order to improve the current profitability of Khind Bhd, the company can remove the
unprofitable products. The company should analyze which is the unprofitable product so
that the company can decide whether the products needs an improvement or being
removed completely. This is because the unprofitable products cannot help the company
to increase the profitability. Other than that, Khind Bhd can also improve its profitability
by reducing all the direct costs. This direct cost can be reduced negotiate for a better
prices or discounts for everything that the company buy with the suppliers.

iii. Solvency
Current solvency of the Khind Bhd can also be improved by increasing the sales of the
company. The company plan a new marketing strategy in order to increase its sales. By
doing this, it can increase cash of the company and it will be able for the company to
settle down the excessive debt load. The other ways to improve company solvency is the
company can increase the equity by increasing the capital so that the company will have
more to spend on growth or the company can pay its debts.