Faculty of Business, Accountancy & Management (FOBAM)

JAN-DEC 2020

(Academic Year 2020)

ASSIGNMENT COVER PAGE

Course Details

Unit Code/Unit Title: FIN3233 FINANCIAL MANAGEMENT 1

Course of Study: BAF/BBM

Lecturer’s Name: GOPAL PERUMAL

Assignment Details

Title of Assignment: Zhulian corporation

Due Date: 30 April 2020

Submission Date: 30 April 2020

Student’s Details

Name:

Student ID

Assignment overall marks:

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Table of content:

1. Introduction ………………………………………………………………3
Capital management …………………………………………….………..5
1.1 Approach (risk/return tradeoff) ………………………………..……..5
1.2 Heading strategy……………………………………………………….6
1.3 Conservative strategy ………………………………………………….6
1.4 Aggressive strategy ……………………………………………………7
1.5 Inventory and procurement management strategy………..……………7
2. Performance compression methods ……………………….………………7
2.1 Key operational variables………………………………………………8
2.2 Customer satisfaction …………………………………………………..8
3. References…………………………………………………………………..9

Zhulian Corporation

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1.0 | Introduction

Started off in 1989 by Mr. Teoh Beng Seng, the corporation was simply a small one where
the owner himself would deal in professionally made and creatively designed gold-plated
Jewelry. After years of hard work Zhulian Corporation has spread through Malaysia,
Myanmar, Indonesia, and Thailand with a solid portfolio of products that fall under its own
name “Zhulian”. Zhulian works through a Multi-level marketing (MLM) system and
specializes in producing and distributing products and spreading them through their MLM
system (Zhulian, 2020). They are registered in the Malaysian Stock Exchange (Bursa) and in
2018 the company recorded a revenue of RM 183.41 Million with a profit of RM 52.35
Million (Annual Report, 2018).

3.0 | Capital Management Strategies

Being the Senior Financial Officer of Zhulian, it is evidently clear that the company is
running in a competitive environment, considering that there was a decline of sales from RM
205.69 Million in 2017 to RM 183.41 Million in 2018, it is imperative that Zhulian stays in a
competitive environment (Annual Report, 2018). Therefore, the four capital management
strategies listed below are to ensure that Zhulian does in fact stay competitive in the Market.

3.1 | Approach (Risk/Return Tradeoff)

Broadly speaking, there are three very famous and unique capital management strategies that
companies have been using for many years, all three are perfectly applicable to Zhulian, the
difference between the three strategies are their trade-offs in risk and reward (Rind, 1981).

 Profitability: When it comes to short term investing, the reward is profitability due
to the lower interest rates that do not build up over time. Long term investing offers a
higher interest cost and lower overall profitability.
 Risk: Short term financing has higher profitability but also higher risk of refinancing
and the high risk of a fluctuating interest rate that may follow along with the
refinancing. Long term financing shows a lesser risk-standpoint.

Therefore, between a mix of the spectrum of the high risk and reward system, three strategies
can be formulated:

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 1. Hedging: Medium Risk and Profitability
2. Conservative: Low Risk and Profitability
3. Aggressive: High Risk and Profitability

More about these strategies will be applied to Zhulian.

3.2 | Hedging Strategy

Known as the Maturity Matching strategy, this strategy matches debts with assets, this means
that each asset will be financed by an instrument of debt with the same maturity rate. For
instance, if an asset is maturing in 45 days then its debt instrument will also be maturing in
nearly the same amount of days. This strategy has medium risk because it only puts the asset
on risk. Long term assets require long term financing, and short-term assets require short term
(Kieschnick & Rotenberg, 2016). For example, if Zhulian wanted a new short-term asset,
such as an extra shipment of raw materials to produce more goods, they will finance a short-
term goal long enough for the raw materials to be made and sold. A long-term example
would be a new branch that needs to be built and a long-term loan is took out for it for 5
years which is the expected time for the building to be finished and turn profitable again. This
strategy of matching assets with financing puts the company at medium risk. The summary of
this strategy is:

 Short Term Financing – Will provide temporary working capital

 Long Term Financing – Will provide permanent working capital + Fixed Assets

3.3 | Conservative Strategy

This is a very low risk strategy and should only be used by Zhulian when all-around risks are
high for the company. This strategy uses fixed assets and permanent current assets to fund the
business as temporary working capital, the rate of liquidity risk is quite low and so is the
profitability (Awais, 2017). This is if Zhulian using its own ROA and profits to slowly fund
temporary projects and slowly but securely increase the business. The summary is:

 Short Term Financing – Will provide partial temporary working capital

 Long Term Financing – Will provide Fixed assets and remaining temporary working
capital and all of permanent working capital.

3.4 | Aggressive Strategy

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This is by far the most aggressive strategy; its entire focus is on high profitability which gives
it high risk. This strategy uses short term financing not just for temporary working capital but
also for a part of long-term working capital. This puts the company at a higher risk but the
rewards and growth are accelerated as well. This helps save money on interest rates as well in
the long run (Awais, 2017). For instance, Zhulian takes a short-term loan and runs long
projects with it, the loan may be due but the projects may not be profitable yet. In the end if
the project is successful then Zhulian has saved a lot of money and boosted their fixed assets
and long-term capital, if it does not workout then Zhulian will suffer major losses. In The
summary of this is:

 Short Term Financing – Will provide temporary working capital and partial
permanent working capital.
 Long Term Financing – Will provide Fixed assets and partial permanent working
capital.

3.5 | Inventory & Procurement Management Strategy

This method is standalone and has no relation with the other methods listed above. Since
Zhulian handles a lot of inventory and vendors through MLM, if they streamline their
procurement, supply-chain, and inventory management, then this will build a lot of
confidence between their clients and vendors. If they also start paying their vendors and
clients on time then this will surely boost morale and increase purchasing, leading to a better
capital management system overall (Yadav, et al. 2017).

4.0 | Performance Comparison Methods

This section will propose two methods to compare performance other than ratio analyses.

4.1 | Key Operational Variables

Measuring firm performance by comparing sales goal vs. actual sales achievements for a
given year and how increase/decline in sales compare with competitors. Similarly, measuring
profit for the year compared to last year and vs. other competition shows per RM how much
% of it was profit (Bert, 2019).

4.2 | Customer Satisfaction

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This is a long-term comparison method; customer retention and customer recruitment play a
big role here. Measuring the rate of how many customers are retained and how rapidly new
customers come to the business then comparing them to last year and other companies (Bert,
2019).

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References

Annual Report, 2018. Zhulian Corporation Berhad - Annual Report 2018. [online] Zhulian.
Available at: <http://www.zhulian.com/report/annual%20report%202018.pdf>
[Accessed 22 March 2020].

Awais, M., 2017. The Influence of Working Capital Management on Firm’s Profitability: A
Review of Conservative and Aggressive Strategy. International Journal of
Engineering and Information Systems, 1, pp.186-193.

Kieschnick, R. and Rotenberg, W., 2016. Working Capital Management, the Credit Crisis,
and Hedging Strategies: Canadian Evidence. Journal of international financial
management & accounting, 27(2), pp.208-232.

Markgraf, B., 2019. How To Evaluate A Company's Performance. [online]

Smallbusiness.chron.com. Available at: <https://smallbusiness.chron.com/evaluate-
companys-performance-67095.html> [Accessed 22 March 2020].

Rind, K.W., 1981. The role of venture capital in corporate development. Strategic

Management Journal, 2(2), pp.169-180.

Yadav, A.S., Tyagi, B., Sharma, S. and Swami, A., 2017. Effect of inflation on a two-
warehouse inventory model for deteriorating items with time varying demand and
shortages. International Journal of Procurement Management, 10(6), pp.761-775.

Zhulian, 2020. Corporate Info. [online] Zhulian. Available at: <http://www.zhulian.com/>

[Accessed 22 March 2020].

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Appendix 2: Marking Criteria for Assignments (Individual) (100%)

SUBJECT : FINANCIAL MANAGEMENT 1

SUBJECT CODE : FIN 3233
PROGRAMME : _BBM marketing____________
STUDENT NAME : Omer fathi mohamedrefat blkasem.

Evaluation Criteria Marks

a) Introduction / 20
b) Ratio calculation / 20
c) Working capital management strategies / 48
d) Alternative performance measurement / 12
TOTAL / 100
Weightage for Individual Presentation / 15

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