ASIA METROOLITAN UNIVERSITY

TAMAN KEMACHAYA, BATU 9,

43200 CHERAS
SELANGOR

MBA IN BUSINESS ADMINISTRATION (MBA)

ASSIGNMENT

COURSE TITL : CORPORATE FINANCE

COURSE CODE : MBA6023
STUDENT NAME : EMRAN HOSSAIN
STUDENT ID : MBAF2018100047
SUBMISSION DATE : 5TH JULY 2019
LECTURER NAME : Dr. BATUMALAY KALIANNAN
Financial ratios are relationships determined from a company's financial information
and used for comparison purposes. Examples include such often referred to measures
as return on investment (ROI), return on assets (ROA), and debt-to-equity, to name
just three. These ratios are the result of dividing one account balance or financial
measurement with another. Usually these measurements or account balances are
found on one of the company's financial statements—balance sheet, income
statement, cashflow statement, and/or statement of changes in owner's equity.
Financial ratios can provide small business owners and managers with a valuable tool
with which to measure their progress against predetermined internal goals, a certain
competitor, or the overall industry. In addition, tracking various ratios over time is a
powerful means of identifying trends in their early stages. Ratios are also used by
bankers, investors, and business analysts to assess a company's financial status.

Ratios are calculated by dividing one number by another, total sales divided by
number of employees, for example. Ratios enable business owners to examine the
relationships between items and measure that relationship. They are simple to
calculate, easy to use, and provide business owners with insight into what is
happening within their business, insights that are not always apparent upon review of
the financial statements alone. Ratios are aids to judgment and cannot take the place
of experience. But experience with reading ratios and tracking them over time will
make any manager a better manager. Ratios can help to pinpoint areas that need
attention before the looming problem within the area is easily visible.

Virtually any financial statistics can be compared using a ratio. In reality, however,
small business owners and managers only need to be concerned with a small set of
ratios in order to identify where improvements are needed.

It is important to keep in mind that financial ratios are time sensitive; they can only
present a picture of the business at the time that the underlying figures were prepared.
For example, a retailer calculating ratios before and after the Christmas season would
get very different results. In addition, ratios can be misleading when taken singly,
though they can be quite valuable when a small business tracks them over time or
uses them as a basis for comparison against company goals or industry standards.

PROFITABILITY RATIOS

Profitability ratios provide information about management's performance in using the

resources of the small business. Many entrepreneurs decide to start their own
businesses in order to earn a better return on their money than would be available
through a bank or other low-risk investments. If profitability ratios demonstrate that
this is not occurring—particularly once a small business has moved beyond the start-
up phase—then entrepreneurs for whom a return on their money is the foremost
concern may wish to sell the business and reinvest their money elsewhere. However,
it is important to note that many factors can influence profitability ratios, including
changes in price, volume, or expenses, as well as the purchase of assets or the
borrowing of money. Some specific profitability ratios follow, along with the means
of calculating them and their meaning to a small business owner or manager.

Gross profitability: Gross Profits/Net Sales—measures the margin on sales the

company is achieving. It can be an indication of manufacturing efficiency, or
marketing effectiveness.

Net profitability: Net Income/Net Sales—measures the overall profitability of the

company, or how much is being brought to the bottom line. Strong gross profitability
combined with weak net profitability may indicate a problem with indirect operating
expenses or non-operating items, such as interest expense. In general terms, net
profitability shows the effectiveness of management. Though the optimal level
depends on the type of business, the ratios can be compared for firms in the same
industry.

Return on assets: Net Income/Total Assets—indicates how effectively the company

is deploying its assets. A very low return on asset, or ROA, usually indicates
inefficient management, whereas a high ROA means efficient management. However,
this ratio can be distorted by depreciation or any unusual expenses.

LIQUIDITY RATIOS

Liquidity ratios demonstrate a company's ability to pay its current obligations. In

other words, they relate to the availability of cash and other assets to cover accounts
payable, short-term debt, and other liabilities. All small businesses require a certain
degree of liquidity in order to pay their bills on time, though start-up and very young
companies are often not very liquid. In mature companies, low levels of liquidity can
indicate poor management or a need for additional capital. Any company's liquidity
may vary due to seasonality, the timing of sales, and the state of the economy. But
liquidity ratios can provide small business owners with useful limits to help them
regulate borrowing and spending. Some of the best-known measures of a company's
liquidity include:

Current ratio: Current Assets/Current Liabilities—measures the ability of an entity

to pay its near-term obligations. "Current" usually is defined as within one year.
Though the ideal current ratio depends to some extent on the type of business, a
general rule of thumb is that it should be at least 2:1. A lower current ratio means that
the company may not be able to pay its bills on time, while a higher ratio means that
the company has money in cash or safe investments that could be put to better use in
the business.

Quick ratio (or "acid test"): Quick Assets (cash, marketable securities, and
receivables)/Current Liabilities—provides a stricter definition of the company's
ability to make payments on current obligations. Ideally, this ratio should be 1:1. If it
is higher, the company may keep too much cash on hand or have a poor collection
program for accounts receivable. If it is lower, it may indicate that the company relies
too heavily on inventory to meet its obligations.

Asset management (turnover) ratios

Asset management (turnover) ratios compare the assets of a company to its sales

revenue. Asset management ratios indicate how successfully a company is utilizing its
assets to generate revenues. Analysis of asset management ratios tells how efficiently
and effectively a company is using its assets in the generation of revenues. They
indicate the ability of a company to translate its assets into the sales.
Asset management ratios are also known as asset turnover ratios and asset efficiency
ratios.

 Accounts Payable Turnover Ratio

 Asset Turnover
 Capacity Utilization Rate
 Cash Conversion Cycle (Operating Cycle)
 Days Inventory Outstanding (DIO)
 Days Payable Outstanding (DPO)
 Days Sales Outstanding (DIO)
 Defensive Interval Ratio (DIR)
 Fixed Asset Turnover
 Inventory Turnover
 Receivable Turnover Ratio

Debt management ratio 

Debt Management Ratios attempt to measure the firm's use of Financial Leverage and
ability to avoid financial distress in the long run. These ratios are also known as Long-
Term Solvency ratios. Debt is also called financial leverage, because the use of debt
can improve returns to stockholders in good years and increase their losses in bad
years. Debt management ratios indicate how risky the firm is and how much of its
operating income must be paid to bondholders rather than stockholders. Ratios tend to
focus on short-term and long-term solvency respectively, i.e. the more financial
management side of an undertaking relating to assets and liabilities, represented by
the balance sheet.

Here are types of debt management ratios:

Debt-to-assets Ratio - shows how much of asset base is financed with debt. Total
debt includes all current liabilities and long-term debts. Creditors prefer low debt
ratios because the lower the ratio, the greater the cushion against creditors' losses in
the event of liquidation. Main thing to remember is that if 100% of company's asset
base is financed with debt, company is bankrupt.

Debt to assets ratio=Debt ratio=Total debt/ Total assets

Debt to equity ratio - shows how much company has of debt for every dollar of
equity, this ratio is widely used.

Debt to equity ratio=Total debt/Total common equity

Market debt ratio - reflects a source of risk that is not captured by the

conventional debt ratio

Market debt ratio=Total debt/Total debt + Market value of equity

Liabilities-to-assets ratio - shows the extent to which a firm's assets are not
finances by equity

Liabilities to assets ratio=Total liabilities/Total assets

Times-interest-ratio - called the interest coverage ratio is determined by dividing

earnings before interest and taxes by the interest expense

Times interest ratio=EBIT/Interest expense

Market Value Ratios

Market value ratios are used to evaluate the current share price of a publicly-held
company's stock. These ratios are employed by current and potential investors to
determine whether a company's shares are over-priced or under-priced. The most
common market value ratios are as follows:
Book value per share: Calculated as the aggregate amount of stockholders'
equity, divided by the number of shares outstanding. This measure is used as a
benchmark to see if the market value per share is higher or lower, which can be
used as the basis for decisions to buy or sell shares.

Dividend yield: Calculated as the total dividends paid per year, divided by the
market price of the stock. This is the return on investment to investors if they were
to buy the shares at the current market price.
Earnings per share: Calculated as the reported earnings of the business, divided
by the total number of shares outstanding (there are several variations on this
calculation). This measurement does not reflect the market price of a company's
shares in any way, but can be used by investors to derive the price they think the
shares are worth.
Market value per share: Calculated as the total market value of the business,
divided by the total number of shares outstanding. This reveals the value that the
market currently assigns to each share of a company's stock.
Price/earnings ratio: Calculated as the current market price of a share, divided by
the reported earnings per share. The resulting multiple is used to evaluate whether
the shares are over-priced or under-priced in comparison to the same ratio results
for competing companies.

These ratios are not closely watched by the managers of a business, since these
individuals are more concerned with operational issues. The main exception is the
investor relations officer, who must be able to see the company's performance
from the perspective of investors, and so is much more likely to track these
measurements closely.

As per assignment requirement below I am doing financial ratios of 2 manufacturing

companies listed on Bursa Malaysia.
This 2 companies are:

1- KKB ENGINEERING BERHAD

2- FIMA CORPORATION BHD

This part I am doing by hand writing and submit separately via mobile what apps
pictures.

Raferences

Brigham E.F., Joel F. Houston J.F., (2012), Fundamentals of Financial Management,

Cengage Learning, South-Western.

Casteuble, Tracy. "Using Financial Ratios to Assess Performance." Association

Management. July 1997.

Clark, Scott. "Financial Ratios Hold the Key to Smart Business." Birmingham

Business Journal. 11 February 2000.

Hey-Cunningham, David. Financial Statements Demystified. Allen & Unwin, 2002.

Taulli, Tom.  The Edgar Online Guide to Decoding Financial Statements. J. Ross

Publishing, 2004.