TABLE OF CONTENT

Page

1.0 Introduction 3

2.0 Company Background 4

3.0 3.1 - Prolexus Berhad Statement of Comprehensive Income 2019 5

3.2 - Prolexus Berhad Statement of Financial Position 2019 6

3.3 - Prolexus Berhad Statement of Comprehensive Income 2018 7

4.0 Ratio Analysis 8-16

5.0 Common Size Ratio 17-18

6.0 Conclusion 19

7.0 References 20

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1.0 Introduction

This project is about financial statement analysis where we calculate the ratio analysis for Year
2019 and the common size ratio for Year 2018 and Year 2019 of Prolexus Berhad company. The
industry average is we just pick from the company data to be compared with the com
analysis.

anticipated future financial performance. It looks at historical performance and estimate the future
performance and allows comparison of compa
relative to its competitors in the industry. The main objective of financial analysis is to identify the

remedial and corrective actions to improve its weaknesses.

Financial ratios. Financial ratios is the principal tools of financial analysis. It is a mathematical aid
for evaluation and comparison of financial performance. Financial ratios is used to summarize the
information in a statement in assessing its financial health. These ratios look
at the relationship between individual values and relate them to the performance of the
companies.

There are few types of ratios that will be calculated in this assignment. One of it is liquidity ratios.
Liquidity ratios consist of current ratio and acid-test ratio. Liquidity ratios are an important class of
g
external capital. to meet its short-term obligation.

Leverage ratios. The term leverage or gearing refers to the use of borrowed capital or loans.
Leverage ratios measure the level of debt or borrowings in a firm. They tell us whether the
company uses more debt financing to finance its assets and operations as compared to equity
financing. In addition, they highlight the ability of the firm to honour its medium and long-term debt
commitments in terms of repayment of the principal as well as the interest charges.

Profitability ratios. Profitability ratios measure how effectively the firm uses its assets to make
profits. They show the profits earned for every dollar of sale made or the profits earned per dollar
its
pricing policy.

However,
is by using common size ratios. This method is also known as vertical analysis. This analysis

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allows companies to compare their performance from period to period as well as from company
to company regardless of the size of the company.

2.0 Company Background

Headquartered in Malaysia, Prolexus Berhad is a listed company in the Malaysia Stock

Exchange. Prolexus Berhad is an investment holding company. Through its subsidiaries, Prolexus
Apparel Manufacturing with over 40 years of leadership in the
industry in manufactures and markets the children's apparels. Prolexus Berhad also provides
advertising services on multimedia boards. Today, Prolexus Berhad have more than 3000
employees across 3 facilities in Malaysia and China; and producing more than 15 million pieces
eir latest fabric mill in Kluang, Malaysia,
-stop integrated provider of material to
apparel. Other business units include Retail and Outdoor Advertising.

The goal of Prolexus Berhad is very simple which

seeking the next big breakthrough re-engineering processes, re-thinking resources and business
expansion to cope with the ever-changing global manufacturing landscape. The mission of

The partners of Prolexus Berhad company is their customer. It is because Prolexus

Berhad are in close collaboration with their customer to manufacture and export the apparel to
around the world, across North America, Europe Asia and the Emerging markets. Prolexus
Berhad also have worked with top sports and fashion brands, such as Nike, Converse, Under
Armour, Disney and GAP.

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3.1 Prolexus Berhad Statement of Comprehensive Income 2019

5
3.2 Prolexus Berhad Statement of Financial Position 2019

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3.3 Prolexus Berhad Statement of Comprehensive Income 2018

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4.0 Ratio Analysis

RATIO ANALYSIS ON THE BUSINESS ANNUAL REPORT FOR 2019

RATIO ANALYSIS INDUSRTY AVERAGE

LIQUIDITY RATIOS

a) CURRENT RATIO = Current Assets 2.86 times

Current Liabilities

= 188,307,000
83,778,000

= 2.248 times
b) ACID TEST RATIO = Current Assets Inventory 2.05 times
Prepayments
Current Liabilities

= (188,307,000 39,670,000
- 12,200,000)
83,778,000

= 1.63 times

LEVERAGE RATIOS

c) DEBT RATIO = Total Debt

Total Assets

= (Current Liabilities + Non-Current

Liabilities)
(Current Assets + Non-Current Assets)

= (83,778,000 + 68,629,000)
(188,307,000 + 218,780,000)

= 37.43%

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d) DEBT-TO-EQUITY = Total Debt 22.14%
RATIO Total Equity

= (83,778,000 + 68,629,000)
254,680,000

= 59.84%
e) TIME INTEREST = EBIT
EARNED Interest Expenses

= 3,560,000
1,191,000

= 2,989 times

PROFITABILITY RATIOS

f) GROSS PROFIT = Gross Profit 22.92%

MARGIN Sales

= 14,206,000
98,113,000

=
14.48%

4.09%
g) OPERATING = Earnings Before Interest and Tax (EBIT)
PROFIT MARGIN Sales

4,751,000
= 98,113,000
= 4.84%

Net Income Available to Common 1.1%

h) NET PROFIT = Stockholder
MARGIN Sales

3,114,000
= 98,113,000

= 3.17%

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 = Net Income 9.2%
i) RETURN ON Total Assets
ASSETS
= 3,114,000
407,087,000

= 0.76%
= Net Income 11.97%
j) RETURN ON Common Equity
EQUITY
= 3,114,000
254,680,000

= 1.22%

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Explanation on ratio analysis:

Liquidity Ratios Explanation

- lower than
industry average by 0.61 times. So, its liquidity position is lower than
average. Having a ratio of 2.25 times means for every RM1 of current
liability, the company only has RM 2.25 of current assets as backup
Current ratio compared to industry average of RM 2.86.

- poor because current ratio lower than

industry average may indicated that management may not using their
asset efficiently.

-Discount can be given to encourage asset used efficiently. The

company may need to study and improve more of its management
system.
- This ratio used the most liquid current asset instead of current asset.
In industry average, the acid-test ratio is 2.05 times. Meanwhile the
acid-test ratio in Prolexus Berhad is 1.63 times. This means that the
company has RM 1.63 of such liquid assets to cover each of RM 1 of
current liabilities.

- poor because the

Acid-test ratio lower the ratio, the less financially secure a company is in the short
term.

-Acid test ratios that are much lower than the current ratio means that
current assets are highly dependent on inventory. The possible cause
for the low ratio may be due to the company is slowly converting
receivables into cash.

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-To improve the ability of the company to meets the short-term
obligations, the company should reduce the length time needed to
convert inventories into receivables and inventories by improving the
collection policies.

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 Leverage Ratios Explanation
-The debt ratio for Prolexus Berhad is 37.43% and it is considered
lower since the investor prefer the debt ratio to be below 60%.

-
financial institutions will prefer a company with a lower debt ratio
as it will reduce the potential losses that may occur in the event of
Debt Ratio liquidation.

-
average, it would make experience difficulty in raising additional
borrowings. Thus, the lenders will be reluctant to grant more loans,
as the risk that the company may not be able to pay them back on
time is higher.

- higher than the

industry average which is 22.14%.
Debt to equity ratio
-The Prolexus poor because the it will
be a higher risk since the debt is more than the available equity.
This means that, the company uses less equity and more
borrowings as the source of financing and using more borrowings
compared with its competitors in the industry.
-
times interest earned for industry average is not provided, so the
ratio of the company will not be compared.
Times Interest earned
-The Prolexus the higher
times interest earned means that the company will presents less of
a risk to investors and creditors in terms of solvency.

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 Profitability Ratios Explanation
-Prolexus Berhad has a ratio of 14.48% means that the
company is making RM0.1448 gross profit for every RM1 of
sale made.

-
because the gross-profit margin is lower than the industry.
The higher the ratio, the better it is. This shows the efficiency
of the company in controlling its costs of goods sold is less
profitable than the industry average.
Gross-profit margin
-A low gross profit margins may be due to insufficient sale
volume or higher cost of goods sold. Cost of goods sold may
be high due to expensive sources of goods. It could also be
due to high labor costs, high production wastage and low
selling price.

-A firm need to review its pricing policy, reduce costs of sales

by changing the supplier, reducing labor costs and production
wastage.

-Prolexus Berhad is making higher operating profits than the

industry which is 4.84%. It is because the gross profit margin
of the company is lower than the industry, thus, the company
Operating profit margin incurring lower operating expenses. Operating expenses
basically refer to administrative and selling expenses.
Therefore, its operating profit margin becomes higher.

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 -
higher the operating profit margin, the higher is the profitability
of the company.

- profit margin is lower than the

industry average, the company should reduce the operating

situation. The firm may also need to review the selling price.
-Prolexus Berhad has higher net profit margin, 3.17% than
the industry average which is 1.1%, due to lower operating
expenses.
Net profit margin
-

profit will also be higher. Thus, the company has to pay lower
interest charges, resulting in a higher net profit.
-Prolexus Berhad has lower return on asset, 0.76% than the
industry average, 9.2%. The fact that the net profit margin for
Return on asset Pr
that the lower return on assets is due to inefficiency
management in asset utilization.

-Prolexus Berhad has lower return on equity, 1.22% than

industry which is 11.97%. This is because the company has
lower number of shareholders than the industry does. Return
Return on equity on equity measures the profit earned by the common
stockholders from their investments in the company. The
higher the return on equity, the better the return for the
shareholders. Generally, high growth firm will have higher
Return on equity.

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 5.0 Common Size Ratio

Common Size Ratios for Prolexus Berhad

of Statement of Financial Position for The Year Ended 2018 and 2019

2018 (%) 2019 (%)

Non-current Asset:
Plant, Property and Equipment 92.77 92.67
Land Use Rights 5.38 4.94
Intangible Assets 0.01 0.02
Investment in a Joint Venture 0.23 0.21
Other Investment 0.27 0.92
Goodwill on Consolidation 1.34 1.24
Total Non-current Assets 100 100

Non-current Liabilities:
Borrowings 91.69 97.56
Deferred Tax Liabilities 8.31 1.89
Finance Lease Payables 0 0.55
Total Non-current Liabilities 100 100

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The composition of Prolexus Berhad statement of financial position remained relatively consistent
from 2018 to 2019. For the Plant, Property and equipment (PPE), it is a decreased from 92.77%
in 2018 to 92.67% in 2019. It may because of depreciation of the PPE that reduces the value of
PPE on the balance sheet as the value of assets is lowered over time due to wear and tear and
the reduction of their useful life. There is a decreased in land use rights from 5.38% in 2018 to
4.94% in 2019, may because of depreciation of the land which reduces the value of the land or
the changes in other economic factors.

For intangible assets, there is a small change from 0.01% in 2018 increase to 0.02% in 2019,

favorable market which cause the business to increase the value of intangible assets. Same goes
to investment in a joint venture. It is a decrease from 0.23% in 2018 to 0.21% in 2019. There is a
reduced of percentage from 1.34% to 1.24% for goodwill on consolidation. In addition, there is an
increase from 0.27% in 2018 to 0.92% for other investment.

Other than that, there is a most notable change occurred with the borrowings and deferred tax
liabilities. For borrowings, there is increased from 91.69% in 2018 to 97.56% in 2019, this is

decreased from 8.31% in 2018 to 1.89% in 2019. This is because, the company use an
accelerated depreciation method to depreciate certain assets for tax and more depreciation
reduces income, which subsequently reduces taxes.

Lastly, there is an increase from 0% in 2018 to 0.55% in 2019 for finance lease payments. This
may be because of there is an increase in the lessee or an increase in the use of an asset for the
lease.

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6.0 Conclusion

To conclude, these financial ratios analysis project is a project to study on financial performance
of a company and to experience on how to analyse the financial performance of the company. It
is important for a company in making evaluation of financial performance in order to identify
strengths and weaknesses which enable them to improve it. The evaluation is prepared by
calculating t
profitability ratios and market ratios. These ratios must be interpreted correctly so that it can assist
the decision making.

In this project, we are only focus on three financial ratios which are liquidity ratios, leverage ratios
and profitability ratios. Common size ratio also used in analysing Prolexus Berhad performance.
Prolexus Berhad need to ensure all the ratios are analysed properly to maintain their performance.
All financial ratios have different objective which is liquidity ratios measure the company ability to
pay short term obligations as they come due and efficiency ratios tell the analyst how effectively
the firm managing its assets in generating sales.

From all of those calculated ratios, therefore we can conclude that Prolexrus Berhad is performing
well in Year 2019. Prolexus Berhad has gained higher profit than the previous year 2018, shows
that the company manage to use low debt financing, they have lower operating expenses, even
they have a lower ratio of gross profit margin which cause by the high cost of good sold. However,
the higher net profit margin, lead the company to get higher profit. Prolexus Berhad also has a
low debt ratio shows that the company can reduce the potential losses. Thus, the investors or
creditors can choose this company to be invested or to lend some cash as shows a lot of the
characteristics needed by the investors and the creditors.

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7.0 References

1. https://www.bursamalaysia.com/market_information/announcements/company_announc
ement/announcement_details?ann_id=3009286
2. https://www.bursamalaysia.com/market_information/announcements/company_announc
ement/announcement_details?ann_id=2913729
3. https://ng.investing.com/equities/prolexus-bhd-ratios
4. K. R. Subramanyam, Financial Statement Analysis, 11th edition : Mc Graw Hill
Education

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