TUTORIAL GROUP: 3 RFI 11

Name of students Index No

1. Ong Jen Son 18WBR09442

2. Ong Ming Jiang 18WBR09444

3. Tan Jia Lun 18WBR09464

4. Tan Chun Wei 18WBR01196

5. Tan Wei Hong 18WBR09472

FACULTY OF ACCOUNTANCY, FINANCE AND BUSINESS

BACHELOR OF FINANCE AND INVESTMENT (HONOURS)

BBMF3063 FINANCIAL STATEMENT ANALYSIS

LECTURER: Mr Wang Ah Yong

TUTOR: Mr Lee Chan Yip

SUBMISSION DATE:

0
FACULTY OF ACCOUNTANCY, FINANCE AND BUSINESS
COURSEWORK FEEDBACK FORM FOR WRITTEN REPORT
COURSE CODE/ COURSE TITLE:BBMF3063 FINANCIAL STATEMENT ANALYSIS
NAME OF STUDENT(s): ID No:
1) Ong Jen Son 18WBR09442
2) Ong Ming Jiang 18WBR09444
3) Tan Jia Lun 18WBR09464
4) Tan Chun Wei 18WBR01196
5) Tan Wei Hong 18WBR09472
PROGRAMME: Bachelor of Finance and Investment
YEAR OF STUDY:3SEMESTER:2 ACADEMIC YEAR:2019/2020
GROUP NO: 11
COURSEWORK NO: NATURE OF MARKS ALLOCATED:
1/2/3 COURSEWORK: (e.g.
presentation, Q&A, /100
individual/group
assignment etc)

COMMENTS:

Student’s Date: Lecturer/Tutor’s Date:

Acknowledgement: Signature:

Note: This form must be submitted together with the assessment grid/grading
criteria and SafeAssign report for the coursework

1
 Group Member Appraisal Form

The basis of this evaluation is your group member’s commitment to completing the
assignment and to their regard for other members of the group. It should be based on
the contribution given by each member and his or her involvement in this assignment.

Group members should be appraised using the following basis:

100%  Group member attended all group meetings or if unable to attend,

contacted the group in advance and came to an alternative arrangement
that the majority of group members were happy with.
 Group member contributed to group discussion.
 Group member always offered to help or volunteered for tasks.
 Group member had assigned tasks completed on time.
50%  Group member missed group meetings without making alternative
arrangements with other group members.
 Group member assigned tasks were only partly completed or poorly
completed.
 Group member did not contribute to the group effort or volunteer for
tasks.
0%  Group member attended few meetings and made no contribution to the
assignment.

Name of student:ONG JEN SON

Instructions:

Place the name of each of the members in your group in the space provided below.
Appraise each of the members in your group by circling one of the totals shown
below (i.e. 100%, 50% or 0%)

Group Member
1.ONG MING JIANG 100% 50% 0%
2.TAN JIA LUN 100% 50% 0%
3.TAN CHUN WEI 100% 50% 0%
4.TAN WEI HONG 100% 50% 0%

Note:

Failure to submit a Group member appraisal Form will result in a zero appraisal being
recorded against your name.

2
 Group Member Appraisal Form

The basis of this evaluation is your group member’s commitment to completing the
assignment and to their regard for other members of the group. It should be based on
the contribution given by each member and his or her involvement in this assignment.

Group members should be appraised using the following basis:

100%  Group member attended all group meetings or if unable to attend,

contacted the group in advance and came to an alternative arrangement
that the majority of group members were happy with.
 Group member contributed to group discussion.
 Group member always offered to help or volunteered for tasks.
 Group member had assigned tasks completed on time.
50%  Group member missed group meetings without making alternative
arrangements with other group members.
 Group member assigned tasks were only partly completed or poorly
completed.
 Group member did not contribute to the group effort or volunteer for
tasks.
0%  Group member attended few meetings and made no contribution to the
assignment.

Name of student: ONG MING JIANG

Instructions:

Place the name of each of the members in your group in the space provided below.
Appraise each of the members in your group by circling one of the totals shown
below (i.e. 100%, 50% or 0%)

Group Member
1.ONG JEN SON 100% 50% 0%
2.TAN JIA LUN 100% 50% 0%
3.TAN CHUN WEI 100% 50% 0%
4.TAN WEI HONG 100% 50% 0%

Note:

Failure to submit a Group member appraisal Form will result in a zero appraisal being
recorded against your name.

3
 Group Member Appraisal Form

The basis of this evaluation is your group member’s commitment to completing the
assignment and to their regard for other members of the group. It should be based on
the contribution given by each member and his or her involvement in this assignment.

Group members should be appraised using the following basis:

100%  Group member attended all group meetings or if unable to attend,

contacted the group in advance and came to an alternative arrangement
that the majority of group members were happy with.
 Group member contributed to group discussion.
 Group member always offered to help or volunteered for tasks.
 Group member had assigned tasks completed on time.
50%  Group member missed group meetings without making alternative
arrangements with other group members.
 Group member assigned tasks were only partly completed or poorly
completed.
 Group member did not contribute to the group effort or volunteer for
tasks.
0%  Group member attended few meetings and made no contribution to the
assignment.

Name of student: TAN JIA LUN

Instructions:

Place the name of each of the members in your group in the space provided below.
Appraise each of the members in your group by circling one of the totals shown
below (i.e. 100%, 50% or 0%)

Group Member
1.ONG JEN SON 100% 50% 0%
2.ONG MING JIANG 100% 50% 0%
3.TAN CHUN WEI 100% 50% 0%
4.TAN WEI HONG 100% 50% 0%

Note:

Failure to submit a Group member appraisal Form will result in a zero appraisal being
recorded against your name.

4
 Group Member Appraisal Form

The basis of this evaluation is your group member’s commitment to completing the
assignment and to their regard for other members of the group. It should be based on
the contribution given by each member and his or her involvement in this assignment.

Group members should be appraised using the following basis:

100%  Group member attended all group meetings or if unable to attend,

contacted the group in advance and came to an alternative arrangement
that the majority of group members were happy with.
 Group member contributed to group discussion.
 Group member always offered to help or volunteered for tasks.
 Group member had assigned tasks completed on time.
50%  Group member missed group meetings without making alternative
arrangements with other group members.
 Group member assigned tasks were only partly completed or poorly
completed.
 Group member did not contribute to the group effort or volunteer for
tasks.
0%  Group member attended few meetings and made no contribution to the
assignment.

Name of student: TAN CHUN WEI

Instructions:

Place the name of each of the members in your group in the space provided below.
Appraise each of the members in your group by circling one of the totals shown
below (i.e. 100%, 50% or 0%)

Group Member
1.ONG JEN SON 100% 50% 0%
2.ONG MING JIANG 100% 50% 0%
3.TAN JIA LUN 100% 50% 0%
4.TAN WEI HONG 100% 50% 0%

Note:

Failure to submit a Group member appraisal Form will result in a zero appraisal being
recorded against your name.

5
 Group Member Appraisal Form

The basis of this evaluation is your group member’s commitment to completing the
assignment and to their regard for other members of the group. It should be based on
the contribution given by each member and his or her involvement in this assignment.

Group members should be appraised using the following basis:

100%  Group member attended all group meetings or if unable to attend,

contacted the group in advance and came to an alternative arrangement
that the majority of group members were happy with.
 Group member contributed to group discussion.
 Group member always offered to help or volunteered for tasks.
 Group member had assigned tasks completed on time.
50%  Group member missed group meetings without making alternative
arrangements with other group members.
 Group member assigned tasks were only partly completed or poorly
completed.
 Group member did not contribute to the group effort or volunteer for
tasks.
0%  Group member attended few meetings and made no contribution to the
assignment.

Name of student: TAN WEI HONG

Instructions:

Place the name of each of the members in your group in the space provided below.
Appraise each of the members in your group by circling one of the totals shown
below (i.e. 100%, 50% or 0%)

Group Member
1.ONG JEN SON 100% 50% 0%
2.ONG MING JIANG 100% 50% 0%
3.TAN JIA LUN 100% 50% 0%
4.TAN CHUN WEI 100% 50% 0%

Note:

Failure to submit a Group member appraisal Form will result in a zero appraisal being
recorded against your name.

6
 Faculty of Accountancy, Finance & Business

Plagiarism Statement

Read, complete and sign this statement to be submitted with your written work.

We confirm that the submitted work are all our own work and are in our own
words.

Name (Block Capitals) Regn. No. Signature

1. ……………………………… …………………………… ……...

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Tutorial Group ………………………………………………

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7
8
9
Contents
Part A Group coursework.............................................................................................11
Introduction..............................................................................................................11
Financial Ratio.........................................................................................................15
Industry and Sector Analysis...................................................................................24
Management’s strategies, vision and policies..........................................................26
Conclusion................................................................................................................31
References................................................................................................................33
Appendix..................................................................................................................34
Part B Individual Coursework......................................................................................41
Ong Jen Son 18WBR09442.....................................................................................41
Ong Ming Jiang 18WBR09444................................................................................46
Tan Jia Lun 18WBR09464.......................................................................................49
Tan Chun Wei 18WBR01196..................................................................................50
Tan Wei Hong 18WBR09472..................................................................................54

10
Part A Group coursework
Introduction

Oriental Holdings Berhad (OHB) was established as a private limited company on December 24,
1963 under the Companies Act 1965 and was converted to a public company on February 22,
1964 under the current name. Since March 10, 1964, OHB has been listed on the main markets in
the Bursa Malaysia. The business segments of OHB Group, comprising the Company and its
subsidiaries, comprise from: automotive and related products, plastic products, hotels and resorts
plantation investment holding, investment properties & trading of building material products and
healthcare.These businesses are mainly located in the Asia Pacific region such as Malaysia,
Singapore, Indonesia, Brunei, Australia, New Zealand, United Kingdom, Mauritius, Thailand,
People's Republic of China and Vietnam. The total assets of the OHB Group are RM10 billion
and the total equity attributable to the company's shareholders is RM6.6 billion. As of December
31, 2018, its cash and cash equivalents amounted to RM4.4 billion. (OHB 2018)

In order to observe the performance of Oriental Holding Berhad (OHB), it can be checked by
comparing the financial statements for these two years (2017 and 2018). By comparison,
investors can determine the company's performance in recent years and how the company
generates cash and income. The main aspects of the report will be financial ratio analysis,
industry analysis, industry analysis, management strategies, visions and policies for competitors
and economic indicators. All relevant data and information are obtained from Bursa Malaysia's
financial statements to ensure a reliable and reliable comparison. A fair and equitable
comparison will give investors a good confidence and make better investment decisions. The
recommendations in this report are also a key factor in providing the company with future
improvements.

11
COMPARATIVE FINANCIAL STATEMENT ANALYSIS FOR YEAR 2017 AND 2018

ORIENTAL Year
2017 (RM’000) 2018 (RM’000)
Revenue 6,298,003 6,380,947
Cost of sales (5,246,257) (5,152,432)
Gross profit 1,051,746 1,228,515
Interest expenses (20,706) (21,135)
Profit before tax 492,492 596,663
Profit after tax 401,997 474,174
Assets
Non-Current Asset 4,744,077 4,757,312
Current Assets 4,806,058 5,262,619
Total Assets 9,550,135 10,019,931
Equity and liabilities
Non-Current Liabilities 208,717 211,371
Current Liabilities 2,026,095 2,372,295
Total Liabilities 2,234,812 2,583,666
Equity 7,315,323 7,436,265
Total Equity and liabilities 9,550,135 10,019,931

12
Common Size Analysis of Companies in 2017 and 2018

ORIENTAL 2017 2018

Revenue 100% 100%
Cost of sales (83.30%) (80.75%)
Gross profit 16.70% 19.25%
Interest expenses (0.33%) (0.33%)

Profit before tax 7.82% 9.35%

Profit after tax 6.38% 7.43%

ORIENTAL 2017 2018

Assets
Non-Current Asset 49.68% 47.48%
Current Assets 50.32% 52.52%
Total Assets 100% 100%
Equity and liabilities
Non-Current Liabilities 2.19% 2.11%
Current Liabilities 21.22% 23.68%
Total Liabilities 23.40% 25.79%
Equity 76.60% 74.21%
Total Equity and Liabilities 100% 100%

Interpretation

 ORIENTAL revenue 2018 has increase 82.94 million compared to previous year.
Company also decreases the cost of sale by increase the gross profit grow 16.81%.

13
  The profit after tax in 2018 is growing 72.18 million compare to 2017 year. The grow
rate is 17.95%

 ORIENTAL non-current asset it had increased 2.8% and the current asset increased 9.5%
respectively.

 ORIENTAL non-current liabilities increased 1.2% compare to 2017 and the current
liabilities has increase 17.09% which is (Appendix 1)

 Equity of the ORIENTAL has inclined the rate to 1.65%.

 From the perspective of ORIENTAL, although the company did not show an outstanding
result but the overall performance is the most stable among the companies. So, we
conclude that ORIENTAL overall financial performance is growing. (Appendix 2)

Financial Ratio

i. Profitability ratio

14
 Net Profit
1. Net Profit Margin =
Revenue

2017 (RM’000) 2018 (RM’000)

401,997 474,174
×100=6.38 % ×100=7.43 %
6,298,003 6,380,947

Comment:

Net profit margin is the measurement to determine how much of each dollar of the total sales
can be extracted into profit. Oriental Holding Berhad shown that in 2017 is performance
6.38% and in 2018 is 7.43%. From the calculation on above, we can know that the company
have more earnings in 2018 compare to the last year. There is an increasing of 16.45% of net
profit margin between 2 years performance which means the overall profitability of the
company in year 2018 is more than 2017. So, in year 2018 the net profit and the revenue of the
company is higher than 2017.

Net Income
2. Return on Assets =
Total Assets

2017 (RM’000) 2018 (RM’000)

371,000 381,343
×100=3.88 % ×100=3.81%
9,550,135 10,019,931

Comment:

Return on assets is an indicator of how well a company able to gain profit by utilizing their
assets. In 2017, Oriental Holding Berhad (OHB) is performance 3.88% and in 2018 is 3.81%.
There is a decreasing in 1% of the return on asset ratio. A ratio of 1 means the company’s net
sales is equal to the total assets for the year. From the results, OHB is having below 1 ratio
which means the company is not fully utilise its assets and most likely there is a production or
management problems. As the results show each ringgit of the assets can generate RM 0.31 to
RM 0.38. This mean the company is not utilizing their assets to generate income and profit
well for the company in 2018 compared to previous year.

15
 Net Income
3. Return on Equity =
Shareholde r ' s Equity

2017 (RM’000) 2018 (RM’000)

RM 371,000 RM 381,343
×100=5.82 % ×100=5.81 %
RM 6,379,746 RM 6,568,009

Comment:

Return on equity is used to determine how much profits can a company to generate with
shareholder’s equity. A high ROE is good for their investors as the company is well-organized
in using shareholder’s equity. We can see that in 2017, the R/E ratio is 5.82% but in 2018, the
ratio slightly drops until 5.81%. It means that the company have not getting enough income to
generate shareholder’s equity, it also means the shareholder of the company having a loss on
it.

Current Share Price

4. Price-Earnings Ratio =
Earning per share

2017 (RM’000) 2018 (RM’000)

6.64 6.23
=0.107 =0.076
62.02 82.18

Comment:

P/E ratio is used to value a company and shows that how much investor must pay in order to
earn one dollar of the company’s earnings. It also means that what is the current investor
demand for a company share. In the year 2017, the P/E ratio of Oriental Holding Berhad is
0.107 and the ratio drop until 0.076 in the year 2018. Change in percentage is about 40.79% in
year 2018. This mean the investor of the company must pay more to earn, because low P/E
ratio cause the investor to earn lesser.

ii. Debt or Gearing Ratio

16
 Total Liabilities
1. Debt-to-Equity ratio=
Shareholde r ' s equity

2017 (RM’000) 2018 (RM’000)

RM 2,234,812 RM 2,583,666
RM 6,379,746 RM 6,568,009

= 0.35 = 0.39

Comment:

The debt-to-equity ratio is one of the Gearing Ratio which makes comparison between the
company’s total liabilities and the shareholder’s equity. It shows the ability whether the
shareholder’s equity able to cover the debt of the company in the event of liquidation. In these
two years, we can observe that the debt to equity ratio is increasing, from 0.35 to 0.39. It
means that the company debt is increasing but the equity of the company keeps in the same
position. If a company is having equity ratio of 1 means the investors and creditors have an
equal stake in the business assets. However, the results show the equity ratio is lesser than 1
which indicate the company is using more investor financing instead of credit financing.
Besides, a lower debt to equity ratio implies the company is having a stable financial. Even
there is slightly increase in year 2018, but the company is still able to remain its equity ratio
lower 1.

Total Debts
2. Debt-to-Assets ratio=
Total Assets

2017 (RM’000) 2018 (RM’000)

RM 2,234,812 RM 2,583,666
RM 9,550,135 RM 10,019,931

17
 = 0.23 = 0.26

Comment:

The debt-to-assets ratio are indicating the proportion of the company’s assets which being
financed by the debts of the company. A ratio greater than one indicates that most of the assets
are being financed by the debts, while a ratio lesser than one show that the assets are financed
by equity. Between the years 2017 and 2018, we can know that the risk of the company is
increasing, because the debt to assets ratio in increasing. Higher debt to assets ratio, higher the
company facing the risk.

iii. Liquidity Ratio

Current Assets
1. Current Ratio=
Current Liabilities

2017 (RM’000) 2018 (RM’000)

RM 4,806,058 RM 5,262,619
RM 2,026,095 RM 2,372,295

= 2.37 = 2.22

Comment:

Current ratios are normally used to calculate the ability of the company to pay its short-term
debts with their current assets. It is important in measuring liquidity of a company as the short-
term debts are due in within one year. In year 2017, the current ratio is 2.37 but in 2018 the
ratio drops until 2.22. It means the company less ability to use the assets to cover the liabilities
of the company compared to previous year. This is not a good performance for a company. It
still in the good condition because the current assets still greater than current liabilities.

Current Assets−Inventory
2. Quick Ratio=
Current Liabilities

18
 2017 (RM’000) 2018 (RM’000)
RM 4,806,058−RM 314,811 RM 5,262,619−RM 329,253
RM 2,026,095 RM 2,372,295

= 2.22 = 2.08

Comment:

The Quick Ratio is also known as the Acid Test Ratio, it is used to measure the ability of the
company to pay their current liabilities by using their liquid assets. The liquid assets are those
assets which can be easily convert into cash within a short period of time without losing its
value. In the year 2017, the quick ratio is 2.22 and in 2017 is 2.08. It has a drop of 0.14. This
mean the company a cash or liquid asset is reducing compare to the debts. It also means the
company lesser ability on current or liquid assets to cover the debts. OHB still maintaining in a
good financial position in both year 2017 and 2018 as both years has achieved above 2:1 for its
quick ratio. The results can define as the company has twice as many quick assets than current
liabilities. Therefore, this shown the company is able to meet its short-term liabilities without
any sell off its long-term assets

Average Accounts Receivable

3. Receivable collection period= x 360
Sales

2017 (RM’000) 2018 (RM’000)

RM 508,092+ RM 586,896 RM 474,689+ RM 508,092

2 2
×360 × 360
RM 6,298,003 RM 6,380,947

= 31 days = 27 days
Comment:

The receivable collection period is day’s sales in receivable measure the number of days it
takes, on average to collect account receivable based on the year-end balance in account
receivable. Between the years 2017 and 2018, the ratio is reducing. There is a decrease of
12.9% which it shows a healthy sign on the collection period as it indicates an improvement

19
 collect fund from the debtors of the company. Which means that the company can collect back
its sales outstanding with a shorter period compare with year 2017. It means the company need
lesser time to collect the debts.

Average Inventory
4. Days to sell inventory= x360
Cost of Sales

2017 (RM’000) 2018 (RM’000)

RM 304,247+ RM 490,772 RM 329,253+ RM 304,247
2 2
×360 × 360
RM 5,246,257 RM 5,152,432

= 27 days = 22 days

Comment:

This ratio is telling investor the number of days required to sell ending inventory. In these two
years, this ratio has been decreased 5 days. From 27 days in year 2017 to 22 days in year 2018,
change in percentage is about 18.51%. It means the company take lesser time to make the sales
compare to 2017. Which mean that every single inventory buy in will sale faster than 2017
about 5 days in 2018. This is a good performance of a company.

iv. Assets utilization ratio

Sales
1. Cash turnover ratio=
Average cash∧equivalents

2017 (RM’000) 2018 (RM’000)

RM 6,298,003 RM 6,380,947
RM 1,185,144+ RM 969,280 RM 1,257,890+ RM 1,185,144
2 2
= 5.85 = 5.22

20
 Comment:
Cash turnover ratio indicates the efficiency in utilizing cash balance. It means how the
company utilizing the on the profit to cash term. From the ratio on the above, in 2017 that is
5.85 times and 5.22 times in year 2018, decreasing about 10.77% compare to 2018. We can
know that the company is doing slightly bad in utilizing the profit on the cash term compared
to previous year. And the ratio may also show that the company having too much cash on
hand. Yet, decrease of cash turnover ratio also indicate the company is having the more cash
available for the company.

Sales
2. Accounts receivable turnover=
Average accounts receivable

2017 (RM’000) 2018 (RM’000)

RM 6,298,003 RM 6,380,947
RM 508,092+ RM 586,896 RM 474,689+ RM 508,092
2 2
= 11.5 = 12.99

Comment:
The accounts receivable turnover ratio measures the speed of receivable collection. In other
words, it means how efficient the company collect funds from customers when company issues
credits. We can observe that the ratio is increasing. From 11.5 times in 2017 and increase to
12.99 times, increase about 12.96%. It means the speed of collect back the debts of the
company is increasing. It shows that the company working well and efficient in collecting
receivables. As a higher ratio means the company can collect fund from its creditors more
often throughout the year.

Cost of sales
3. Inventory turnover=
Average inventory

2017 (RM’000) 2018 (RM’000)

21
 RM 5,246,257 RM 5,152,432
RM 304,247+ RM 490,772 RM 329,253+ RM 304,247
2 2
= 13.20 = 16.27

Comment:
The inventory turnover ratio is measuring the average rates of speed at which inventories move
through and out of a company. It means how fast that the company can make the inventory
become profit. In the years 2017 is 13.2 times and in year 2018 is 16.27%. There is an
increasing of 23.25% of inventory turnover where it is also indicated there is an improvement
on the moving inventories of OHB. It means the speed of the company making profit is faster
compare to the years before.

22
Information beneficial to an investor

 At the 57th AGM of the Company held on 12 June 2019, the Directors had obtained
stockholders’ approval to undertake the Proposed Stock Buy-Back of up to 10% by using
the internally generated funds in the company of the total number of issued stocks of
Oriental Holdings Berhad (Appendix 3)

 The net tangible assets per share of the Group increased from RM10.28 to RM10.59,
primarily due to the strengthening of stockholders’ funds. (Appendix 4)

 The Dividend pay-out ratio is 48.67%, which means the retaining fund is 51.33% for
future using without borrow too much debt.

 Depositor shall qualify for entitlement to the Final Single Tier Dividend of 8 sen per
ordinary stock and a Special Final Single Tier Dividend of 20 sen per ordinary stock only
(Appendix 5)

23
Industry and Sector Analysis (Based on competitors, geographic spread and market share)

As we know that, industry analysis is one of the essential responsibilities forequities research
analysis. It could be used for analyze, demand and supply of particular company, competitors,
geographic spread, market share, past trends and so on.

The industry analysis report could analyze health of the company, it could assist the stakeholders
to take advantage of investing or provide recommendations and corrective actions to take in case
of any untoward developments in the company.[ CITATION Ava19 \l 1033 ]

The business segment of Oriental Holding Berhad (OHB) separated many segments of their
business which comprising from automotive and related products, plastic products, hotel and
resorts, plantation, health care and so on. As we know that, OHB was invested in many
difference sectors. [ CITATION Abo19 \l 1033 ]

From competitive scenario, this is one of the most important step of industry analysis which the
analysis could show that how well or what actually the competitor performing. There is one of
the famous strategists for competitive which is Michael Porter. Normally, it will show that
barriers to entry of the business, supplier power, threat of substitutes and so on. [ CITATION
Ava19 \l 1033 ].

The three main competitors for OHB are Sime Darby Berhad and IOI Group. Those companies
are same types of work. Which are plastics products, hotel, plantation, health care and so on. For
competitive analysis, the most important is to know how your competitors manage or promoting
their products. In other words, the organization should always study their competitors so that it
could improve their own perspective and quality.

24
Oriental Holding Berhad has two main competitors in the market, as mentioned above which are
IOI Group and Sime Darby Berhad. The information is based on annual report 2018 of each
companies following:

Oriental Holding IOI Group Sime Darby Berhad

Berhad
Revenue 6,380,947 2,792,610 33,828,000
Net Income 474,174 3,068,300,000 618,000,000
Capital Spending 99,962 450,900,000 48,000,000
Cash Flow 2,375,587 2,764,600,000 163,000,000
(From Apeendix1,2,3,4,5,6,7,8,9,10,11 and 12)

From year 2018, based on the information of Oriental Holding Berhad, IOI Group and Sime
Darby’s annual report 2018. It shows Oriental Holding Berhad have higher revenue compare to
IOI Group but lower than Sime Darby Berhad. Therefore, based on overall comparison among
competitors, IOI Group and Sime Darby Berhad. OHB still have to make some improvement in
those industry and to be more competitive in the market.

Oriental Holding has engaged the business with many countries such as, Malaysia, Singapore,
Indonesia, Brunei, Australia, New Zealand and othersThey have a strong customers’ base in
different part of the world. Thus, even if the government intervention of a country that limits the
sales of OHB in that particular country, they will still maintain the strong performance. As they
have multiple regions’ customer base that will diversify the politic risk and currency risk. Thus,
the customer base of OHB is expanding and OHB will explore new markets to enhance the
company’s sales.[ CITATION Abo19 \l 1033 ].

The current market capitalization of OHB is RM 4,013,946,837 in the year of 2019, 28 th
November. Year of 2018 was RM 3,722,361,828 that is lower than current year. In the past 5
years, the highest market capitalization is in year 2015, 15 th May, RM 4,932,129,422. Based on
latest 5 years chart, the share price of OHB was depreciating from 15 th May 2015 to 9th
November 2018. It hits the lowest price which is RM5.92 during year 2018 and slowly
appreciate to above RM6. Hence, it indicates that this company has average performance and
giving consistent growth to satisfy shareholders expectation.

25
Management’s strategies, vision and policies in responding to competitors and economic
indicators.
The business segment of Oriental Holdings Berhad Group, comprising the company and its
subsidiaries, comprise from Automotive and Related Products, Plastic Products, Hotels and
Resorts, Plantation, Investment Holding, Investment Properties & Trading of Building Material
Products and Healthcare. Below are the management’s strategies, vision and policies in
responding to competitors and economic indicators of each segment.

Automotive Segment

In this segment, they expect that future market conditions will not be encouraging, and the
automotive industry may face fierce market competition due to external factors such as rising
cost of living and fluctuations in the ringgit exchange rate. Despite this, they will strive to
maintain their market position. In the past few years, they have been expanding and upgrading
their showrooms and service centers. They also stepped up their efforts to expand their presence
in East Malaysia. In addition, it is planned to upgrade the outlets of Puchong, Selayang, Ipoh and
Sabah from the current 3S centers to the 4S centers by providing body and painting services.

Looking ahead, 2019 will be equally challenging due to the bleak economic outlook and re-
energized car makers. However, the launch of new models may bring some excitement to the
market. The revised National Automotive Policy (“NAP”) is expected to announce a new
automotive policy that will cover the entire automotive ecosystem, development of the electric
vehicles, autonomous vehicles, and include new technological elements. New elements include
next generation cars, mobile as a service, Industrial Revolution 4.0 and artificial intelligence.
Honda Malaysia remains optimistic and will introduce pro-active measures, including product
improvements, aggressive marketing campaigns, providing excellent sales and after sales
services, and finally focus on other business opportunities offered through Honda Insurance Plus,
Body and Paint, and Honda accessories.

While Mitsubishi's focus is on the Southeast Asian market, and because there are no branches,
they are working to build their networks, brands and sales through a strong dealer network.
Although it has only 2 outlets, KCA has become the second largest distributor in sales and has
become a major player in Mitsubishi. They expect the Singapore market to remain challenging

26
due to the small size of the market and the ability of competitors to significantly reduce prices.
Competition in parallel importers is increasingly fierce, as a large number of hybrid vehicles
from the Japanese domestic market offer customers a lower price range. The COE quota is
expected to shrink from 2019. To further enhance their market positioning and portfolio’s
attractiveness to their customers, management will also focus on expanding the coverage of its
sales and after-sales service network and improving the overall quality of service provided to
support growing demand. Looking to the future, they will continue to pursue key privilege of
customer satisfaction. This will be an indispensable step towards achieving their vision of
building long-term partnerships with customers through effective and efficient operations.

Plantation Segment

In FY 2018, the average CPO and PK extraction rates were 19.33% and 4.97% respectively,
down 2.0% and 3.3% from 19.73% and 5.14% in FY2017. The lower extraction rate is attributed
to the aging profile of the planted hectarage. A total of 239 hectares of oil palm was replanted in
FY 2018, compared to 444 hectares in Malaysian plantations in FY2017. Looking ahead, our
2019 strategy is to replant 318 hectares. As for the new planting activities in Indonesia, we have
planted 10,600 hectares so far and plan to plant about 1,000 to 2,000 hectares per year for the
next two years. All replanting activities will be carried out in a sustainable manner and in line
with an environmentally friendly, zero-burning policy.

The Group continuously evaluates its investment portfolio to ensure competitiveness and unlock
its investment value when opportunities arise. Therefore, for their Indonesian business, they
strive to further strengthen the plantation business by conducting a rigorous review of its existing
land bank. The marginal land will be removed from development. Efforts will be focused on
developing existing land bank into premium quality plantations and expanding planted hectares
by acquiring planted areas and plantation companies that meet their technical specifications and
affordability requirements. Consistent with the expansion plan, the Group is also committed to
improving and enhancing the technical skills and capabilities of their employees through
training, while ensuring that there is sufficient pool of talent to meet current and future needs.

The fiscal year 2018 is a year of sustained economic challenges due to economic and business
uncertainty and consequent fluctuations and declines in commodity prices and foreign currency

27
fluctuations. Nonetheless, they remain optimistic on the operational performance of the
plantation business and will continue to increase productivity through harnessing fitting
technologies and enhanced estate management practices. They believe that by building a strong
foundation and emphasizing deliverables results, the Group will be able to remain resilient and
weather these challenges.

Hotels & Resorts Segment

The department implements strategies and participates in the meetings, rewarding travel,
conferences and events (MICE) portals to ensure more bookings for company functions, social
events and wedding banquets. Bayview International's booking channels have been well adapted
through early enhancements and upgrades to take advantage of the internet-savvy market.
Registered members can enjoy preferential prices and exclusive offers each time they stay at
these hotels. Management will oversee and ensure that the renovation work is carried out as
scheduled to return the renovated room to inventory for sale. In order to minimize disruption to
these tasks, management also ensures that ongoing work is subject to strict guidelines by
restricting internal guests from entering the renovation area and managing guest concerns in
general.

The department focuses its efforts on effectively controlling operating costs, especially during
the off-season, and effectively manages room availability for higher returns. The department also
spent a total of RM8.4 million on capital expenditures in FY2018, compared to RM71.6 million
last year. Capital expenditures were mainly due to the soft renovation and reconstruction of the
main building of Bayview Geography Resort and the comprehensive upgrade of furniture, fitting
and equipment in Australia to enhance their competitiveness in the industry.

In response to the increase in new entrants and price pressures in Melaka, Bayview Hotel Melaka
has implemented aggressive marketing strategies, including the introduction of value-added
products and dynamic pricing to help increase revenue. For Somerset Park Suanplu and Thistle
Holborn The Kingsley Hotel, the division will continue to ensure that managing agents improve
service quality in their day-to-day operations and maintain these properties well while generating
decent returns. To ease the dilemma of the shortage of manpower, the department has been
actively working to improve employee recognition and motivation by providing employee

28
incentive programs, benefits and training opportunities, while creating a good working
environment. In addition, the management of part-time and temporary employees is also crucial
given the shortage of skilled workers, especially during peak seasons.

Looking ahead, our goal is to increase revenue by investing in a more user-friendly website to
attract customers and explore other sources of income, including ways to increase consumer
spending on food and beverages. We also aim to improve operational efficiency by
implementing cost-effective measures, reduce waste and improve employee productivity and
achieve maximum profitability in all areas. In addition to the major refurbishment projects
planned, approximately 3-4% of the annual revenue will be used for capital expenditures on the
replacement and maintenance of furniture, fittings and equipment to ensure that the property
remains at its best and thus creates a good customer experience.

Healthcare Segment

With four years of offering quality-based healthcare, Oriental Melaka Straits Medical Centre
(“OMSMC”) is undergoing a transformational expansion to become the leading tertiary hospital
in Melaka and southern Malaysia. When conducting business and developing future strategies,
management will carefully review relevant trends to identify opportunities and challenges and
prepare for future growth.

The key profit drivers affecting the segment are both Micro and Macro opportunities and
challenge. In the micro side, there is an increase in competition which public and private
healthcare providers will continue to improve to meet growing healthcare needs. While OMSMC
will strengthen its position by increasing brand awareness and creating brand differences, and
also will continue to develop brand loyalty through a positive experience in providing the highest
quality products in clinical, process and service areas.

29
In the macro side, one of the challenges are digitally connected health that the demand for value
and an increasingly competitive environment are prompting healthcare organizations to find new
and more effective ways to improve care delivery. To overcome this challenge, OMSMC strives
to keep up with technological advances in the healthcare industry, and changes in the healthcare
industry may require the purchase and investment of new medical equipment and technologies.
OMSMC also will continue to adopt or increase advanced medical technologies or systems to
further improve the quality of care for patients to achieve high operational efficiency with a
superior customer experience.

The competition between patients and the retention of skilled and qualified healthcare
professional and support staff continue to be intense for healthcare service providers. As a result,
the division will continue to build a core teams that focus on talent management, active
employee recruitment or retention programs with attractive compensation packages and
marketing to expand the OMSMC brand. Currently, there are four private hospitals in Melaka
with no planned to establish new private hospitals in the near future.

The Group’s strategic focus for the segment in 2019 include continue to expand its services to
other medical travellers by opening new representative offices in neighbouring areas such as
Indonesia; establish community pharmacy stores with rehabilitation services in a wholesome
community-based setting as a recruitment and maintenance of contact points in the proposed
OMSMC healthcare ecosystem; and set up aged care facilities to provide professional care for
patients who require medium to long-term medical or rehabilitation services.

30
31
Conclusion

In the financial ratio analysis of OHB, the company have decrease compared to year 2017.
Decreasing in the liquidity ratio indicates that the company have a bad management in
controlling the amount of cash in hand and short-term debts. The company still in the good
condition because of the quick ratio still achieved 2:1. Moreover, the company took lesser days
in collecting the outstanding debts and selling off the finished goods. This indicates that the
company’s inventory turnover is higher and faster repayment of debts by creditors will reduce
the occurrence of bad debts. Besides, the gearing ratio increase in compared to 2017, generally
increase in gearing ratio indicates the company having higher leverage. In fact, increase in debts
enhance the sales of OHB as it is used for the company’s growth. OHB could generate more
profits than it would have with the financing. Thus, it is a positive sign since the cost of the
financing is covered by the earnings.
Also have a sign of increase in net profit margin, but the P/E ratio have decrease this mean the
investor of the company must pay more to earn, because low P/E ratio cause the investor to earn
lesser. Return on asset and return on equity have slightly decrease in year 2018, OHB increase
the asset amount thus it is usual to have slight decline in ROA, while the ROE decrease indicates
OHB have more shareholder equity in year 2018. In the operation performance, OHB have more
revenue and profit after tax compare to 2017. The liabilities of OHB have increasing compare to
2017 this showing OHB have bear more debt in year 2018.

As for the industry and sector analysis is an assessment of economic, financial condition and
future prospect of OHB in the automotive and related products, plastic products, hotel and
resorts, plantation, health care and so on. As we know that, OHB was invested in many
difference sectors. At the competitive part we find have two main competitors there are Sime
Darby Berhad and IOI Group. Those companies have same type of work in different sector. It
shows Oriental Holding Berhad have higher revenue compare to IOI Group but lower than Sime
Darby Berhad. Therefore, based on overall comparison among competitors, IOI Group and Sime
Darby Berhad. OHB still must make some improvement in those industry and to be more
competitive in the market. They have a strong customers’ base in different part of the world.
Thus, even if the government intervention of a country that limits the sales of OHB in that
country, they will still maintain the strong performance. As they have multiple regions’ customer
32
base that will diversify the politic risk and currency risk. Thus, the customer base of OHB is
expanding and OHB will explore new markets to enhance the company’s sales.

The management strategic is a crucial activity that a company need to keep their consistency on
planning, monitoring, analysis and assessment in order to achieve goals and objective. Different
segments have different strategy, for automotive segment, they expand and upgrading their
showrooms and service centre. OHB also wanted to launch some new model that may bring
some excitement to market. For plantation segment, OHB committed to improving and
enhancing the technical skills and capabilities of their employees through training, while
ensuring that there is enough pool of talent to meet current and future needs. Beside that in Hotel
and resort segment, OHBimplements strategies and participates in the meetings, rewarding
travel, conferences and events (MICE) portals to ensure more bookings for company functions,
social events and wedding banquets. Lastly for the healthcare segment management will
carefully review relevant trends to identify opportunities and challenges and prepare for future
growth.

In a nutshell, OHB seems will perform better in the future. OHB overall performance is up on
track and keep growing. OHB is expanding their business framework in the advancement of the
segment that OHB involve, as they are not only providing the services but solutions to their
customers. OHB is expected to have a stable growth in the future.

33
References

Avadhut, 2019. How to do industry analysis. Viewed on 18 November 2019.

<https://www.financewalk.com/industry-analysis/>

Oriental Holding Berhad. Corporate overview, about us. Viewed on 18 November 2019.
<https://ohb.com.my/about_page/about-corporate>

Sime Darby Berhad 2019. Annual Report 2018. Viewed on 20 November 2019.
<http://www.simedarby.com/sites/default/files/annualreport-
pdf/website_sime_darby_berhad_ar18_w_bookmark_051118-web.pdf>

IOI Group 2019. Annual Report 2018. Viewed on 20 November 2019.

<https://www.ioigroup.com/Content/IR/PDF/AR/2018_AR.pdf>

Oriental Holding Berhad 2019. Annual report 2018. Viewed on 20 November 2019.
<https://ohb.com.my/storage/157/OHB-AR2018.pdf>

OHB 2018. Overview of OHB. Viewedin 19th November

2019.https://ohb.com.my/about_page/about-corporate

OHB Annual Report, 2018. Oriental Holdings Berhad. Viewed at 18 November 2019.
https://ohb.com.my/

34
Appendix

Appendix 1

35
Appendix 2

36
Appendix 3

Appendix 4

Appendix 5

37
Oriental Holding Berhad:

Appendix 6

Appendix 7

Appendix 8

38
Appendix 9

Appendix of IOI Group:

Appendix 10

Appendix 11

Appendix 12

Appendix 13

39
Appendix of Sime Darby Berhad:

Appendix 14

Appendix 15

Appendix 16

Appendix 17

40
Appendix 18

Appendix 20

41
Part B Individual Coursework
Ong Jen Son 18WBR09442

Limitation of financial statement analysis and give suggestions what other information are
needed to make financial statement analysis more objective.

The first limitation of financial statement analysis is that it depends on historical costs
(Accounting Tools, 2019). This is because the financial statements record the company's past and
historical data. Transactions are initially recorded at their cost. However, in the balance sheet, the
value of assets and liabilities may change over time when transaction volumes are different. For
example, the value of a vehicle will depreciate over time. However, the balance sheet is recorded
quarterly and is filed after the end of the quarter. So, when investors get financial statements, the
data is the company's past performance.

Second, the limitation of financial statement analysis is that it does not take into account the
effects of inflation (Accounting Tools, 2019). If there is inflation is high in an accounting
period,the value of the asset will be significantly reduced and liabilities will be higher cost for
the company. Therefore, investors cannot be only relying on company financial statement to
decide the investment decision. Majority it occurs and applies to the company long term assets,
due to the long-term assets are not adjusted for inflation.

Third, one of the limitations of financial statement is the financial statements within a specific
time frame. This can lead investors to misunderstand financial results (Accounting Tools, 2019).
The probability of making the wrong investment decision since then is high if they rely on only
one financial report. A company performance could be different every quarter due to the
seasonal factor. When there are many festivals this quarter, especially for the consumer goods
retail may surge. When seasonal factors adapt, the company's cash flow and revenue may
increase significantly while working capital hardly increases. Hence, the income statement will
be positively benefitting to the company.

Fourth, the management team may accidentally provide false information at financial statements
or fraud in financial statement (Accounting Tools, 2019). Management teams can

42
purposelychange the perspective of financial statements by changing accounting methods to
make it the financial statement looks better. For example, during periods of high inflation, they
switched their cargo accounting method from last-in, first-out to first-in, first-out. This will
increase the company's profits. Because the FIFO method will consider lower stock prices
because stock prices are based on old prices and are not affected by current inflation rates. This
will indirectly improve the company's performance and thus greatly exceed the industry average.

Also, financial statement analysis did not explain the company's non-financial issues
(Accounting Tools, 2019). Examples of qualitative information include the company's
reputation, attention to the business environment, or industry structure. The main problem when
analyzing in terms of quality is that quality factors will fundamentally and permanently affect the
company. For example, changes in industry legislation may lead to more tax costs and directly
reduce the company's profitability and performance.

Additionally, there is no predictive value takes into account in the financial statement analysis
(Accounting Tools, 2019). This is because the financial statements only provide historical data
and financial conditions for a specific date. The statement does not necessarily involve predictive
value. Therefore, the company is not allowed provide the predictive value which may cause
misleading.

To make financial analysis more objective, investors should always research multiple sets of
financial statements (Accounting Tools, 2019). Due to one financial statement cannot provide the
overall perspective of the company financial condition. Thus, the investors should analyses more
financial statement to avoid erroneous and false information in the financial statements.

In addition, investors should analyses the qualitative factors of the company. This is to gain a
deeper understanding of the company's future prospects. To allow investors to make the
investment decision more wisely, there is no doubt by combining qualitative and quantitative
analysis methods. This is because a company is not only considered a good financial statement
but also skills, reputation, management capabilities and future prospects.

43
Third, investors must understand their investment goals and stick to their principal. This is to
more effectively adapt to their risk tolerance and return expectations. For example, adverse
investors can seek for low risk companies to analyses. This will help investors filter out
investments that exceed their investment goals. As a result, investors can invest in the right
companies for analysis. Indirectly, it also can help the investors to save time consuming to
perform unnecessary analysis.

(713 words)

44
Reference

Accounting Tools, 2019, ‘Limitation of Financial Statement’, viewed on 1 Dec 2019,

https://www.accountingtools.com/articles/limitations-of-financial-statements.html

Accounting Tools, 2019, ‘Financial statement analysis’, viewed on 1 Dec 2019,

https://www.accountingtools.com/articles/2017/5/14/financial-statement-analysis

45
46
Ong Ming Jiang 18WBR09444

Financial statement analysis (FSA) is a method of analyzing company’s financial statement. The
main purpose of FSA is understanding the condition of company before making the decision.
However, there are a few numbers of limitation that investor should be aware of.

First of all, FSA is based on historical cost. The value of assets will keep on decrease as the
current price fluctuations are not written into an account, which mean that the financial
statements is not based on the current economic condition. By compiled with investors to
analysis the company's balance sheet, liabilities and the value of assets will change as time goes
on, it became a problem in the profitability of the income statement. Sometime the profitability
from income statement does not mean efficient, because the increase in profit may due to
increase in selling prices, or some other reasons. Thus, investor might lose the best chance to
investment the company, as the company may have a potential growth due to the environmental
change in the future.

Furthermore, financial statement is depending on specific time period. Investors have incorrect
views on financial statements or cash flows because they only focus in one reporting period.
Since seasonal influences can affect some external factors of sales, different periods will be
different from normal operating results. If the financial results are only viewed in one reporting
period, investors will not clearly demonstrate the current trend of company growth. In order for
investors to better understanding the company, investors are better able to view more continuous
financial statements for better forecasting ongoing performance.

Thirdly, commit fraud that mostly be happened in many companies. Deliberate manipulation of
financial statements is intended to achieved a predetermined of frequently. Company do tracery
on its financial statements, to attract more investors to invest their companies to become more
healthy financial statement. If most of the shareholders are part of the board of directors and
management team, there will be a possibility of financial statement manipulation. The
shareholders will use the tracery to make higher profit in their financial statements and maximize
the company’s share price when they tend to withdraw their investment. So, allow them to obtain
a higher investment value.

In order to make the analysis of financial statements more objective, investors should pay more
attention to the analysis of FSA and the trend. As sales will change over time, investors need to
47
check the financial statements for successive years and use the trend analysis to identify the
information. Trend analysis will allow investors to average and determine percentage changes in
specific projects over the years, including income statements and balance sheets such as income,
debt, and inventory. As incomes change over time, investors may want to get better information
about their income over the past year. If companies have drawn their revenues over the past few
years and found a sharp surge in the month of the chart, investors can focus on a period and
analyze it. Trend analysis allows companies and investors to better understand the company's
progress. If the chart as a whole shows a downward trend, it indicates that the company is not
operating well. Therefore, trend analysis will provide better information about the company's
strengths and weaknesses, which will help them make better investment decisions.

Moreover, investors should pay attention to financial and non-financial accounts when
evaluating companies. They can use tools to assess a company’s financial performance,
including leadership, labor, branding, patents, technology and human resources. Investors must
be wary of human error in concealing suspicious activity, as these concealments and mistakes
can compromise the integrity of financial analysis and financial decisions. Ensuring the
company's management team and its strategy is important because investors may miss out on
opportunities to invest in undervalued companies. As investors, they should not only focus on
financial account but also analyses and evaluate the non-financial accounts to ensure that
company management and strategy are effective.

As we have noticed, commercial transactions move at the speed of light in one day, and the value
of stocks and currencies fluctuates every minute. Updating financial statements manually will
lagging in keep the statements up to date. Therefore, in the era of technology advances,
companies should invest in advanced accounting tools that can manage data efficiently and able
to display financial information and data in real time. As a result, the company is able to generate
more monthly reports instead of quarterly reports. Increasing the number of reports to the public
will increase public transparency and increase investor confidence as financial statements are
updated.

In conclusion, investor would have to more focus on horizontal and trend analysis of company,
non-financing account views and the company accounting tools before they make their
investment decision.

48
 (786 words)

References

Accounting-simplified.com. 2019. Limitations of Accounting & Financial Reporting. Viewed on

15 November 2019. Available from: <https://accounting-
simplified.com/financial/introduction/limitations-of-accounting-and-financial-reporting.html>

Bragg, S. and Bragg, S. 2018. Limitations of financial statements. Viewed on 15 November

2019. Available from: <https://www.accountingtools.com/articles/limitations-of-financial-
statements.html>

DeLago, A. 2018. 3 Great Techniques for Your Financial Statement Analysis. Viewed on 15
November 2019. Available from: <https://www.botkeeper.com/blog/financial-statement-
analysis-techniques>

Digitalistmag.com. 2019. Beyond The Numbers: Overcoming Challenges In Business Financial

Analysis. Viewed on 15 November 2019. Available from:
<https://www.digitalistmag.com/finance/2017/05/04/overcoming-challenges-in-business-
financial-analysis-05059985>

eFinanceManagement.com. 2019. 14 Limitations of Financial Statements Viewed on 15

November 2019. Available from: <https://efinancemanagement.com/financial-
accounting/limitations-of-financial-statements>

Free Essays - PhDessay.com. 2019. How can we overcome the limitations of financial
statements?. Viewed on 15 November 2019. Available from: <https://phdessay.com/how-can-
we-overcome-the-limitations-of-financial-statements/>

49
50
51
Tan Jia Lun 18WBR09464
Limitation of financial statement analysis and give suggestions what other information are
needed to make financial statement analysis more objective.

Financial statement analysis is the fundamental approach that using to evaluate the intrinsic
value of the firm. It is one of the methods for investors to analysis and access the overall health
of the company. Most of the investors will look through the previous financial statements to
make comparison and analyse the trend of the company. Besides that, financial statement
involved balance sheet, income statement and cash flow statement. Each Statement has multiple
years of past information or data which allow investors to access the performance of the
company. Therefore, investors also allow forecasting coming year performance of the company.
However, there are some limitations in the financial statement analysis that will distract and
mislead the investors’ investment decisions.

The limitations of financial statement is that the firm can easily window dress the financial
statement value. It is a very common for every firm to window dressing the figures in the end of
every year. They window dress through the late payment to the suppliers in order to have a huge
amount of cash in hand. Therefore, when the investors are using the provided figures in the
financial statement, it will have a good ratio that indicates good liquidity of the firm, but in fact,
the firm doesn’t has such high liquidate amount. In order to avoid the misleading information
that is window dressed by the firm, investors should always keep track on the quarterly report
from the firm and the cash flow movement of the firm. It is crucial to overcome the camouflage
figures to avoid misinterpretation of the firm’s value (Bayt, 2019).

52
The second limitation is financial statement exclude the impact of non-monetary factors (Cliff
Notes, 2019). As it is an accounting principle, they mainly focus on monetary factors, as other
non-monetary factors are unable to be measure in money term. Such as reputation of the
company, as the reputation is unable to be quantify in monetary term, thus even if the firm have
bad reputations, the financial statement will not show the impact of bad reputations. Moreover,
the credit worthiness will not appear in the financial statement as well. It is because the ability to
meet the obligations is not quantifiable, the current liabilities of the firm might be low, but the
investors are difficult to access the repayment ability of the firm in the short term liabilities.
(Career ride.com, 2019).

The third limitations of the financial statement are different accounting methods. Different firms
use different accounting methods, it is very hard to compare by using different accounting
methods such as Last In, First Out (LIFO), First In First Out (FIFO) and depreciation method
(Accounting Tools). Various methods causes the interpret result of ratio different, as they are not
comparing in the same circumstances and formulas. For example, the depreciation has two
methods, straight line method and reducing balance method. The value of the asset after
depreciation will be different although the book value of the asset is the same. It is difficult for
investors to compare the value of the firm and the performance with different accounting
methods. In order to avoid such problems, the investors are advice to find out the accounting
methods used by the firms before comparing the firm’s performance. Moreover, another
solutions is that the investors apply the same method and recalculate the firm’s ratio in order to
match the comparisons (Accounting Notes).

1.2 Suggestions on what other information are needed to make financial statement analysis
more objective.

53
For my suggestion, there is some of the information in financial statement to make the financial
statement more reliability. Since we know that by analysing financial statement is based on
historical data and we could not produce the information accurately in the future. The investors
could find out where the sources really come from. For example, amount of trade receivable
increased could state as positive status, which is asset to company. In others prospective is the
ability of collect debt is low.

Besides financial statement, investors could also follow latest news of market. Because latest
news could help investors to get accurate information of company, what is the next step they
should do and how the performance of the company. Therefore, investors could also using ratio
to calculate the intrinsic value of the company and compare with the current company’s value.
By doing these so, investors could have clearer understanding and accurate information to make
secure investment.

In conclusion, investors could not only use one method to analyse a company. They should using
multiple method to analyse a company and make the best portfolio to investors.

54
Reference:

Accounting Coach, 2018. Window dressing. Viewed at 9 November 2019. Available from:
<https://www.accountingcoach.com/blog/window-dressing>

Accounting Notes, 2018. Financial statement. Viewed at 9 November 2019. Available from:
<http://www.accountingnotes.net/financial-statement/financial-statement-meaning-objectives-
and-limitations/4280>

Accounting Tools, 2018. FIFO vs LIFO. Viewed at 10 November 2019. Available from:
<https://www.accountingtools.com/articles/2017/5/13/fifo-vs-lifo-accounting>

Accounting Tools, 2018. Financial statement analysis. Viewed at 10 November 2019. Available
from: <https://www.accountingtools.com/articles/2017/5/14/financial-statement-analysis>

Bayt, 2018. What is financial window dressing. Viewed at 10 November 2019. Available from:
<https://www.bayt.com/en/specialties/q/346226/what-is-financial-statement-window-dressing-
what-are-the-likely-areas-where-management-can-window-dress-in-a-financial-statement/>

Career Ride.com, 2018. What are the limitations of financial statement. Viewed at 10 November
2019. Available from: <https://www.careerride.com/fa-financial-statments-limitations.aspx>

Cliff Notes, 2018. Financial statement limitations. Viewed at 10 November 2019. Available
from: <https://www.cliffsnotes.com/study-guides/accounting/accounting-principles-ii/financial-
statement-analysis/financial-statement-analysis-limitations>

Market Business News, 2018. Window dressing definition and meaning. Viewed at 10 November
2018. Available from: <https://marketbusinessnews.com/financial-glossary/window-dressing-
definition-meaning/>

55
56
57
Tan Chun Wei 18WBR01196

Limitation of financial statement analysis.

Financial statement analysis is a valuable report for both the public and investors because it
shows the overall performance of the company over the years, but it also has some limitations.
First, the limitation of financial statement analysis is the comparability of financial information
between the two companies. Investors can compare the financial statements between the two
companies as it will provide valuable clues to the company's financial situation. However, if
companies use different accounting methods, it will be difficult to compare the company's
financial data. For example, if one company uses the average cost method and another company
uses the LIFO method to record its inventory value, it can lead to misleading the public or
investors. This is because direct comparisons between two different financial data methods will
lead to wrong guidance to investors. Even some footnotes have been written in the financial
statements to restate the data for comparison purposes, but investors should always remember
that the financial statements lack comparability before making any decisions based on the
company’s financial statements. (AccountingDetails 2018).

In addition, financial statements are only recorded based on past data. If the investor analyses the
financial statements, it is only checking the company's past performance. Even investors are
using financial statements to predict the company's future performance, but this is a risk for
investors, because any event or press release will directly affect the company's performance. In
addition, if the company's past financial statements are not good, it does not mean that the
company's performance in that year was not good. But it may be due to the financial crisis in a
particular year that affected the entire industry. On the contrary, if a company's financial
statements are good, it does not mean that the company performs well because the market
performed well that year. Therefore, analysis through financial statements cannot provide a basis
for future projections, estimates, plans and budgets. (AllManagementArticles 2018).

The third limitation of the financial statements is that non-monetary factors are ignored. Because
of certain factors, it will directly affect the business performance and financial status of the
business. However, because these factors cannot be measured in currency, they are not recorded
in the financial statements. These factors may come from the credibility of the organization, the

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reputation of the management, the commitment of the employees, and the source of the sale.
These factors are ignored if investors and the public make decisions or judgments with reference
to the financial statements. Information about the company because the financial statements are
only exposed to financial accounting positions and are not exposed to the company's financial
position. (Masson2018)

In addition, the financial statements only record the historical cost of the company. Because
financial statements are only based on historical or original costs. Without considering the
current price changes, the value of the company's assets will decline over time. This means that
the value of the assets reported in the financial statements is only a reference to past assets.
Moreover, these statements are not prepared to review the current economic situation. In
addition, the balance sheet loses its importance as an indicator of current economic realities.
Similarly, a profit and loss statement that shows profitability may not represent the company's
profitability. The increase in profits may be due to price increases or due to some abnormal
reasons or may not be due to increased company efficiency. Therefore, the financial statements
may not be able to describe the problem fairly. (Masson 2018).

Suggestions on what other information are needed to make financial statement analysis
more objective.

I think that the financial statements can contain some information to make the analysis of
financial statements more accurate and trustworthy. First, companies can determine the
economic characteristics of the industry in their financial statements. Companies can determine
the value chain analysis of the industry and the chain of activities involved in the creation,
manufacture and distribution of company products and/or services. In addition, companies can
use certain techniques in their financial statements, such as Porter's five-power or economic
attribute analysis. Because investors can determine the company's performance, even if the
market conditions are not good or how the company is in poor market conditions, the company
can achieve good results.

In addition, companies can prepare forests in their financial statements. Since only the past data
of the financial statements are recorded, investors can view the financial statements to check the
company's past performance, but investors cannot use the financial statements to predict the

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value of the company to predict the future performance of the financial statements of the
company. In this case, the company can prepare reasonable assumptions about the company's
future and determine how these assumptions will affect cash flow and funding. As a result,
investors can not only obtain past data, but also predict the company's future performance, so
they can have a clearer understanding of the company's financial situation.

(815 words)

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Reference

AccountingDetails 2018, ‘Limitations of Financial Statement Analysis’, viewed 19th Nov 2019,
https://www.accountingdetails.com/limitations_of_financial_statement_analysis.htm

AllManagementArticles 2018, ‘Limitations of financial Statement Analysis’, viewed 19th Nov

2019, https://accountlearning.com/limitations-of-financial-statement-analysis/

Masson, D, J 2018, ‘6SSteps to an Effective Financial Statement Analysis’, viewed 19 th Nov

2019, https://www.afponline.org/trends-topics/topics/articles/Details/6-steps-to-an-effective-
financial-statement-analysis

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Tan Wei Hong 18WBR09472

Limitation of Financial Statement Analysis.

Financial statement analysis uses analytical or financial tools to examine and compare financial
statements to make business decisions. In other words, financial statement analysis is a way for
investors and creditors to check financial statements and see if the business is healthy enough to
invest or borrow. Financial statement analysis obtains raw financial information from financial
statements and converts it into usable information for decision making. The three types of
analysis are horizontal analysis, vertical analysis, and ratio analysis. Each of these tools gives
decision makers a better understanding of the company's performance. However, financial
statement analysis has its own limitations.

The first limitation of financial statements analysis is that companies can easily adjust the value
of financial statements, also called window dressing. For every company, it is common to have
window dressing of numbers at the end of each year. They adjust through the late payment to the
supplier in order to master a lot of cash. Therefore, when investors use the figures provided in
the financial statements, the ratio will show good liquidity of the firm. But in fact, the company
does not have such a high liquidation amount. Moreover, in order to present high cash flow in
the company, the company can borrow short-term loans from banks to increase the amount of
cash in the company. They can increase the year-end sales through promotions and discounts to
manipulate the company's revenue.

The second limitation is that the financial statements exclude the effects of non-monetary factors.
Since this is an accounting principle, they are primarily concerned with monetary factors because
other non-monetary factors cannot be measured in monetary terms. For example, the reputation
of a company, because reputation cannot be quantified in monetary terms, so even if the
company's reputation is not good, the financial statements will not show the impact of bad
reputation. In addition, credit value does not appear in the financial statements. This is because
the ability to fulfill obligations cannot be quantified, and the company's current liabilities may be
low, but it is difficult for investors to obtain the repayment ability of enterprises in short-term
liabilities.

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The third limitation of the financial statements analysis is the different accounting methods.
Different companies use different accounting methods, so it is difficult to compare them by using
different accounting methods, such as Last in First Out (LIFO), First in First Out (FIFO) and
depreciation method. Some company are preferring to use FIFO rather than LIFO. It is because
FIFO have lower cost of goods sold compare to LIFO, which will cause the net income of the
company be higher. Various methods result in different interpretations of the ratios because they
are not compared under the same conditions and formulas. For example, there are two methods
of depreciation, the straight-line method and the reducing balance method. Although the book
value of the assets is the same, the value of the assets after depreciation will be different. It is
difficult for investors to compare the value and performance of a company with different
accounting methods.

Suggestions what other information are needed to make financial statement analysis more
objective.

The first suggestion is to enhance the comprehensive capabilities and quality of financial
statement analysts. Strengthen the training of financial statement analysts, improve the overall
quality of analysts, and improve their ability to interpret and judge reporting indicators, so that
they have an understanding of accounting, finance, marketing, strategic management and
business management. Mastering modern analytical methods and analytical tools, establishing
correct financial analysis concepts in practice, and gradually cultivating and improving the
ability to judge problems analyzed can greatly reduce and control problems in financial
statement analysis.

The next recommendation is to strengthen the weight of the indicator throughout the financial
analysis. Modern financial analysis is no longer just about analyzing balance sheets, but moving
in the direction of the analysis of the profit and loss statement. Therefore, we can increase the
weight of the periodic indicator in the financial analysis to avoid some artificial factors making
the financial analysis results wrong.

The final suggestion is to use a variety of analytical methods to conduct a comprehensive

assessment of the company's financial situation and operating results. Which is quantitative
analysis combined with qualitative analysis. At the same time of quantitative analysis, it is

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necessary to make qualitative judgments, and further quantitative analysis and judgment based
on qualitative judgment. Dynamic analysis is combined with static analysis. It is important to pay
attention to dynamic analysis. Based on the past, analyzing the possible outcomes of the current
situation will help to correctly predict the future of the business. Individual analysis combined
with comprehensive analysis. The financial indicator values are relative. The same indicator
values reflect different problems in different situations and even lead to the opposite conclusion.
For example, the higher the receivables turnover rate indicator in the asset management ratio, the
higher the efficiency and quality of the enterprise collection. On the other hand, the credit policy
of the enterprise may be too strict, which will also have a negative impact on the enterprise and
loss of part of the opportunity cost. Therefore, in financial analysis and evaluation, a single
indicator cannot explain the problem, and a comprehensive analysis based on the possible
influence of the indicator on other aspects can be used to draw a correct conclusion.

(893 words)

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Reference

My accounting course, 2019, What is financial statement analysis. Viewed on 16 November

2019. Available from https://www.myaccountingcourse.com/accounting-dictionary/financial-
statement-analysis

Accounting tools, 2018, Limitation of financial statement, Viewed on 16 November 2019.

Available from <https://www.accountingtools.com/articles/limitations-of-financial-
statements.html>

Accounting Tools, 2018, FIFO vs LIFO. Viewed on 16 November 2019. Available from
<https://www.accountingtools.com/articles/2017/5/13/fifo-vs-lifo-accounting>

Masson, D, J, 2018, 6 Steps to an Effective Financial Statement Analysis. Viewed on 16

November 2019. Available from https://www.afponline.org/trends-
topics/topics/articles/Details/6-steps-to-an-effective-financial-statement-analysis

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