Accounting Ratio Analysis And Comparison Of Companies Finance Essay

Accounting Ratio Analysis And equation Of Companies Finance Essay1) foreland 1Find the most late fiscal statements for two companies of same conjunction application which argon listed in KLSE (Kuala Lumpur Stock Ex counterchange).Evaluate the financial position and procedure for separately of these two companies apply report balance analysis. You be requiredto compute and comp atomic number 18 the explanation proportionality between these two companies, and conclude the results of your finding. The limitations or problems of using history ratios for performance analysis should be included in your conclusion.entify and discuss leash assorted ways for removering swell or gunstock from saves to borrowers in the financial merchandise.Table of content Page moves 1Introduction for question 1 3 7 calculation for Gamuda and WCT Berhad 8 14The ratio similitude between two companies 15 16Conclusion 17Question 2 18 24Bibliography 25Appendix 262) Question 1Introductio nAccounting ratios are the ratios that expressed and counted based on the financial statement of a corporation. similarly that, invoice ratios are withal holdful indicators of a firms performance and financial situation. Most of the ratios can be calculated from the information that is provided by the financial statements. Each type of accounting ratio provides an important data about a firms ability to pay its debts, its financial standing, and the potential for meshing and how valuable stocks or investments in the fol meek are. On pennant of that, accounting ratio in any(prenominal) case can be used to analyze the calculation and likeness of ratios which are derived from the information in a companys financial statements. Accounting ratios are a valuable and slow to interpret the numbers that is found in statements. When computing financial relationships, a good indication of the companys financial strengths and weaknesses becomes clear. Accounting ratio analysis the ratios into categories which speciate us about distinct facets of a companys finances and operations. The following types of accounting ratios that is used, unruffled state ratiosAsset turnover ratiosFinancial leverage ratiosProfitability ratiosDividend constitution ratiosThe purpose of an accounting ratio is to make financial reports regarding the performance of a company in a specified period normally by a year. These financial reports are later make acquirable to the taxation authori puffs, investors and deferred paymentors of the firm. Accounting ratios are calculated and grouped into five different categories for measure the five different aspects of the patronage performance. There are five aspects of transaction measured by an accounting ratio.Profitability of companyLiquidity of companyAsset management of companyDebts management and gearing of company foodstuff look upon of investment to median(a) parcelholders and ballpark stockholdersThe commandment for acco unting ratio that are used to measure each aspect or range of occupancy by accounting ratios areProfitability of company vernacular profit markup (%) = crude(a) profit Cost of goods sold century earthy profit crude(a) profit (%) = gross profit net gross gross sales nurse vitamin Coperating(a) profit margin (%) = operating profit onwards worry and in the beginning taxation net sales economic entertainx100Profit margin on sales (%) = net income available to super C stockholders crystalise sales repute -100Basic assoiling power (BEP) = operating profit to begin with spare- cadence activity and before taxation supply additions 100Return on conglomeration assets (ROA) = net income available to uncouth stockholders keep down assets 100Return on earthy candour (ROE) = net income available to common stockholders common blondnessx100Liquidity of company legitimate ratio/working capital ratio = up-to-date assets contemporary liabili sop upsLiquid ra tio/quick ratio/acid-test ratio = liquid assets current liabilitiesAsset management of company gunstock turnover or stock turnover = cost of sales average stock tax OR cost of sales closing stock economic grade follow assets turnover = net sales natural assetsDebtor ratio = debtor reference work salesDays sales expectant (DSO) = debtor credit sales 365 daysDebts management and capital gearing of companyDebts ratio = total debts total assetsDebts fair-mindedness ratio = total debts common fair playTimes engage earned = profit before interest and before taxation interest charges martplace value of investment to modal(a) appointholders/common stockholders dinero per tack = net income available to common stockholders number of ordinary shares in issue damage/ dough ratio = trade charge per ordinary share earnings per share cyberspace yield = gross earnings per share grocery store legal injury per ordinary share 100Market scathe/book value ratio = trade pric e per ordinary share net book value per ordinary shareBesides that, there are three methods to compare accounting ratios for furrow performance criterion which are inter-temporal comparison between two periods, inter-firms comparison between two companies and comparison with industry averages. The two companies that are selected for business performance measurement are Gamuda Berhad and WCT Corporation Berhad. Gamuda Berhad is a Malaysia-based investment keeping company which is the most famous in civilian technology construction. The industry of this company also get passing plays in three business section which involves engineering and construction, construction of highways and bridges, airfield facilities, railway, water treatment plants, dams and general and trading services. WCT Berhad is a Malaysia-based company which provides the provision of engineering services. The Company operates in three segments civil engineering and construction, civil engineering works speci alizing in earthworks, infrastructure works, and seat development. The information for these two companies which are required for business performance is measurement by accounting ratios in income statements and balance sheets of the two companies.Ratio with formula(Profitability of company)Calculation for beginning(a) company(Gamuda Berhad)Calculation for second company(WCT Berhad)Gross Profit Markup(%)=Gross profit=2455143000-1580125000-363348000-8595000-19973000-19260000-40866000=RM422976000Cost of goods sold =1580125000+363348000+8595000+19973000+19260000+40866000=RM2032167000=20.81%Gross profit=RM354659000Cost of goods sold=RM4311943000=8.23%Gross Profit bound(%)=Net sales value=2455143000-0=2455143000Gross profit=2455143000-1580125000-363348000-8595000-19973000-19260000-40866000=422976000=17.23%Gross profit=RM354659000Net sales value=sales return in=4666602000-0=RM4666602000=7.60% run Profit Margin On Sales(%)=Net sales value=2455143000-0=2455143000operating(a) profit bef ore interest and taxation=259852000=10.58%Operating profit before interest and taxation=RM244145000Net sales value=sales return inwards=4666602000-0=RM4666602000=5.23%Profit Margin On Sales(%)=Net income available to common stockholders=280693000Net sales value=2455143000-0=2455143000=11.43%Net income available to common stockholders=RM147098000Net sales value=sales return inwards=4666602000-0=RM4666602000=3.15%Basic Earning Power=Operating profit before interest and taxation=RM259852000 sum total assets=total non-current assets + total current assets=2347737000+4203173000=RM6550910000=3.97%Operating profit before interest and taxation=RM244145000 marrow assets=total non-current assets + total current assets=RM1925297000+RM2553187000=RM4478484000=5.45%Return On hail Assets=Net income available to common stockholders=RM280693000Total assets=total non-current assets + total current assets=2347737000+4203173000=RM6550910000=4.28%Net income available to common stockholders=RM14709800 0Total assets=total non-current assets + total current assets=RM1925297000+RM2553187000=RM4478484000=3.28%Return On greenness Equity=Net income available to common stockholders=RM280693000 parking lot justice= banausic share capital + Reserves=2025888000+1231637000=RM3257525000=8.62%Net income available to common stockholders=RM147098000Common equity= reality share capital + Reserves + ploughshare tribute=388856000+369256000+492134000=RM1250246000=11.77%Ratio with formula(Liquidity of company)Calculation for 1st company(Gamuda Berhad)Calculation for 2nd company(WCT Berhad)Current Ratio=Current assets=RM4203173000Current liabilities=RM1930241000=2.181Current assets=RM2553187000Current liabilities=RM1807550000=1.411 harsh-test ratio=Liquid assets=Current assets Inventories=4203173000-79738000=RM4123435000Current liabilities=RM1930241000=2.141Liquid assets=Current assets- Inventories=2553187000-113709000=RM2439478000Current liabilities=RM1807550000=1.351Ratio with formula(Asset w ay of Company)Calculation for 1st company(Gamuda Berhad)Calculation for 2nd company(WCT Berhad)Inventory Turnover=Cost of goods sold=1580125000+363348000+8595000+19973000+19260000+40866000=RM2032167000Closing inventories or stock=RM79738000=25.49 propagationCost of goods sold=RM4311943000Closing inventories or stock=RM113709000=37.92 timesTotal Assets Turnover=Net sales value=sales return inwards=2455143000-0=RM2455143000Total assets=total non-current assets + total current assets=2347737000+4203173000=RM6550910000=0.37 timesNet sales value=sales return inwards=4666602000-0=RM4666602000Total assets=total non-current assets + total current assets=RM1925297000+RM2553187000=RM4478484000=1.04 timesDebtor Ratio=Debtor or receivables=RM1607772000 reference work sales=RM2455143000=0.651Debtor or receivables=1206971000+265684000=RM1472655000Credit sales=RM4666602000=0.321Day Sales Outstanding=Debtor or receivables=RM1607772000Credit sales=RM2455143000=237.25 days OR=0.65-365days=237.25 d aysDebtor or receivables=1206971000+265684000=RM1472655000Credit sales=RM4666602000=116.8 days or=0.32-365days=116.8 daysRatio with formula(Debts charges of company)Calculation for 1st company(Gamuda Berhad)Calculation for 2nd company(WCT Berhad)Debts Ratio=Total debts=total non-current liabilities + current liabilities=1312946000+1930241000=RM3243187000Total assets=total non-current assets + total current assets=2347737000+4203173000=RM6550910000=0.501Total debts=total non-current liabilities +current liabilities=1183958000+1807550000=RM2991508000Total assets=total non-current assets + total current assets=1925297000+2553187000=RM4478484000=0.671Debts Equity Ratio=Total debts=total non-current liabilities + current liabilities=1312946000+1930241000=RM3243187000Common equity=Ordinary share capital + Reserves=2025888000+1231637000=RM3257525000=11Total debts=total non-current liabilities +current liabilities=1183958000+1807550000=RM2991508000Common equity=Ordinary share capital + Rese rves + Share premium=388856000+369256000+492134000=RM1250246000=2.391Times Interest clear Or Interest Cover=Operating profit before interest and taxation=RM259852000Interest charge or cost=RM43813000=5.93 timesOperating profit before interest and taxation=RM244145000Interest charge or cost=RM50308000=4.85 timesRatio with formula(Market Value of Investment to Stockholders of Company)Calculation for 1st company(Gamuda Berhad)Calculation for 2nd company(WCT Berhad)Earnings Per Share=Net income available to common stockholders=RM280693000 takings of ordinary shares issue or ordinary share capital=2025888000 shares=RM 0.14Net income available to common stockholders=RM147098000 tour of ordinary shares issue or ordinary share capital=388856RM0.50=777712 shares=RM0.19Price Earnings Ratio=Market price per ordinary share=RM3.20Earnings per share=RM0.14=22.86 timesMarket per ordinary share=RM2.60Earnings per share=RM0.19=13.68 timesEarnings Yield=Gross earnings per share=10075 Rm0.14=0.187Ma rket price per ordinary share=RM3.20=5.83%Gross earnings per share=10075-RM0.19=0.253Market price per ordinary share=RM2.60=9.74%Market Price Per Book Value=Market price per ordinary share=RM3.20Net book value per ordinary share=Common equity / ordinary share in issue= Common equity=Ordinary share capital + Reserves=2025888000+1231637000=RM3257525000Number of ordinary shares issue or ordinary share capital=2025888000 shares==Rm1.61==1.991Market price per ordinary share=RM2.60Net book value per ordinary share=common equity / ordinary share in issueCommon equity=Ordinary share capital + Reserves + Share premium=388856000+369256000+492134000=RM1250246000Number of ordinary shares issue or ordinary share capital=388856RM0.50=777712 shares==RM1.61==1.611Profitability of companyGross profit markup, Gross profit margin, Operating profit margin, Basic earning power, and return on total asset of Gamuda Berhad is higher(prenominal) than the second company that is WCT Berhad. This indicates tha t the company was effective in controlling the expenditures. Besides that, for Basic earning power and Return on common equity, the starting time company is lower than the second company. This is because the ineffective use of assets and capital employed in business activities are at higher costs to reduce the take chroma and sales volume.Liquidity of companyThe current ratio and the Acid test ratio for the companies Gamuda Berhad is higher than the second company WCT Berhad because the has the Gamuda Berhad highest amount of current assets and also highest amount of liquid assets that can be used to finance its current liabilities so that the company has highest liquidity to finance its short-term liabilities and also got chances to face short-term liabilities financial problem.Asset Management of companyThe memorial turnover for the Gamuda Berhad is much lower than the WCT Berhad because Gamuda has a slow stock turnover in the business which kept in store was very belatedly taken out for resale, resulting large amount of stock accumulated to tie up currency, which were having poor inventory management. For total assets turnover, the first company is low than the WCT because the Gamuda has a lowest sales from the assets indicating that company was inefficiently using the assets in business. On top of that, debtor ratio and day sales outstanding of the first company is higher than the WCT because the company got longer credit time to pucker bills slowly from debtors so that the balance is stash away to tie up gold and thus, having poor management on debtor collection.Debts ManagementThe debts ratio for the Gamuda is less than the second company because the Gamuda got lower debts burden with little amount of debts and also military capability low interest cost to the available profit. Therefore, times interest earned for the Gamunda is much higher than the WCT because it has a bearing high interest charges to the available profit.Market value of in vestment to stockholdersEarnings per share and earnings yield for the Gamuda is less than the WCT which indicates that the company has less return in business profit , resulting lower net income available to each unit share , cosmos less attractive and lower value to the common stockholders. Due to lower earnings per share, stockholders lead to use to a greater extent times of profit earning, more times of net cash inflow and a longer period to recover back their share investment. Besides, the price earnings ratio for the Gamuda is higher than the WCT. Market price per book value for the Gamuda is higher than the WCT that shows the company share price has inequitably risen up above its real asset value or book value for not being realistic to the stockholders.ConclusionAs a conclusion, I en put like to choose WCT Berhad because this company has a better performance in the business and here are some goods points of this company. On top of that, the WCT berhad company also have t he highest Basic earning power and Return on common equity which is meant to sum up the production volume and sales volume at lower costs as well as to growth the profit earning. Other than that, WCT berhad also has the is highest Inventory turnover which indicates a riotous stock turnover where the goods purchased kept in store are devalued taken out for resale so that the stock is not accumulated and bills is not tied up with stock. Thus, the WCT berhad company did not face any short-term liabilities, and they are stable. The different firms using different financial policies which are also the comparison problems in inter firm.Question 2 commentFinancial markets are an composition for the people who are shortcoming of bills and want to borrow cash. Besides that, each financial market has different ways of financial methods in terms of its maturity and the asset financial support it. Different financial markets have different ways of serving customers and operate differen t types the country. Financial markets dissent from physical asset markets because it is called tangible asset markets or real asset markets to deal with the tangible and physical make up such as machinery, computer and another(prenominal) physical assets.Physical asset market and financial market can also work as the future day or side market. Future market defines as the deals being sold for on the future auction pitch at some future date such as a year into the future whereas the spot market is define as the deals is being bought on the spot delivery within a few days. There are legion(predicate) types of non-homogeneous in financial market for an example such as money markets, capital markets, mortgage markets, consumer credit markets, primal markets, secondary markets, initial public religious offering (IPO) market and last but not least cloak-and-dagger market.Money marketsMoney market is a market dealing with short-term financial methods. Money market methods are in clude avowers acceptance, mercantile paper, federal official broths, treasury bills, and highly liquid debt securities which memory boards are bestowed or borrowed for a short periods of less than one year. Money market is a segment of the financialmarket in which financial instruments with high liquidity and very short maturities are traded. The money marketis used by participants as a means for borrowing and confering in the short term, from some(prenominal) days to just under a year. Money markets do not have a fixed physical location. A money market origin is also called a mutual fund that empower in money market securities.Capital marketsFinancial market that works as a conduit for demand and supply of primarily long term debt and equity capital. It channels the money provided by savers and depository designs depones, credit unions, and insurance companies to the borrowers and investors by dint of a variety of financial instruments called securities. It transports the money that is provided by depository institution and savers to invest or borrow by choices of financial methods called securities. Capital market also runs as an interchange for trading existing that request on capital in the form of shares or stock.Mortgage marketsA market for loans to people and organizations acquire tight-lacedty a market for mortgages those has been bought by financial institutions and are then traded as asset backed securities. This arrangement testament sum up the transaction in commercial mortgage, multi-family residential mortgage, home mortgage and farm mortgage. The holders of mortgage including the lenders that both originate the investment and change them as assets, such as thrift institution, commercial banks and insurance companies as well as those institutions that gets the loans in the secondary market.Consumer credit marketsConsumer credit market is about a borrower uses any line of credit or loan to purchase goods services at the retail level . The cost of credit is the spare amount, over and above the amount borrowed, that the borrower has to pay. It includes interest, arrangement fees and any other charges. Consistently, consumer credit finances can be use at any asset that it go out minimize quickly and it is not use for investment purpose. Loans for education, vacation or cars are also examples of consumer credit. However, consumer credit does not include loans that are for real estate.Primary marketsPrimary market consists of the first bribeers and issuer of the issues. Investors who buy shares in a new security issue meant they are buying from the primary market. Besides that, investors who purchase bonds and stocks in the primary market normally are not refundable commissions because the fees for exchange the issue are built into its price and collected by the issue.Secondary marketsThis market in which the existing and already purchases a security or other financial assets are able to trade among the investor s after they have been issued by the institutions or corporation. Secondary markets is a market which investor buys a security from another investor rather than the issuer, the consequences to the original issue in the primary market is also called as aftermarket.Initial public offering (IPO) marketIPO is the first sale of stock to a company. Furthermore, the most common reason is by offering securities or shares to the public for the first time. The most difficult part of an IPO is to find out the proper price to initially proffer the new stock. If the price is too high, the buyers will not be interested but if its too low, the company will sacrifice a lot of money that might have been made if others are higher.Private marketPrivate markets in financial proceedings are worked out directly and privately between the two parties without going to the public where the transactions may be structured in any manner to those who appeals to the two parties. The three different ways for con veyance of titlering capital or fund from savers to borrowers in the financial market are direct transferral from savers to borrowers, indirect transfer from savers to borrowers by dint of investment banking rest home and indirect transfer from savers to borrowers through a financial intermediary.Direct transfer from savers to borrowersDirect transfer takes place when an organization issues and sells its stock or shares immediately to the savers without passing through any other financial institution so that the organization as borrower immediately delivers its securities to the saver who in turn gives money to the organization. By this, the fund or capital is immediately transferred from savers to the organization or borrower. break through corporations securities to lineage Corporation - Savers(Borrower) (Money Lender) arrive capital of fund fromIndirect transfer from savers to borrowers through investment banking stomachThis takes place when investment underwrites the issuan ce of a cooperations securities and where the contributors bank serves as a middleman to facilitate the issuance by buying the securities of the organization and then resell the same securities of the organization to the savers so that the money paid by the savers for buying of organizations securities are passed by the investment bank and will be received by the organization which acts as borrower. figure Corporations Resell corporationsSecurities to Securities toBusiness Investment -Savers (MoneyCorporation Banking House Lender)Receive fund from Receive fund fromIndirect transfer from savers to borrowers through a financial intermediaryThis takes place when a financial intermediary also hold up as a bank or a mutual fund that is obtain fund that are from the savers and by issuing its own enfranchisement or securities of deposit to the savers. Then, the financial intermediary uses the fund that is collected from the savers to buy and to hold the securities of other company as c ontributors. In this case, the fund or the capital is transferred from the saver to financial intermediary when the saver has pay the money to the financial intermediary in interchange for receiving a certificate if securities or deposit issued by the financial intermediary. Therefore, the financial intermediaries will incredibly increase the efficiency of money and capital markets. This is shown in the following diagram Issue corporations securities toIssue intermediarys own securities toBusiness Corporation -Financial intermediary Savers(Borrow) (Money Lender) Receive fund from Receive fund fromInvestment banking houseThe investment banking house runs by buying all the new security issue from a company or organization at one price and selling the issue with a smaller unit to the investing public at a inadequate high price to cover the expenses of sale and earn a profit. The company or corporation that distributes and underwrites the new issue of business organizations securities to answer the organization to collect fund for financing.Financial intermediariesSince the financial intermediaries are usually very large and they have gain economies of scale in analyzing the creditworthiness of those borrowers potential in collecting and processing loans. There are many type or various in financial intermediaries and those are commercial banks, savings and loan associations, mutual savings fund, credit unions, pension bullion, spiritedness insurance companies and mutual bills.Commercial banksCommercial banks are totally different from investment banks because commercial banks, they lend out money to the borrowers whereas the investment banks, they assist business company to raise fund or capital from the savers.savings and loan associationsSavings and loan associations served residential and commercial mortgage borrowers where they likes to collect money or funds from those small savers and lend out this money to his house buyers or any other types of borrow ers.Mutual savings fundMutual savings fund and savings and loan associations are just about the same process because they also accept savings from individual savers and lend out the money on a long-term basis to his house buyers and consumers.Credit unionsThis is a cooperative association which members are supposed to have something in common, so that the association collects funds from members and then lend to other members who need money to finance their house mortgage, house improvement and railcar purchases.Pension fundsThis is a retirement plans that given by the organization or government agencies for their employee and administered primarily from the life insurance companies or the trust departments of commercial banks.Life insurance companiesLife insurance companies collect funds in the term of annual premiums and then invest back in to real estate, bonds, mortgages and shares, after that they will make their payments to the beneficiaries of the insured parties.Mutual fund sMutual funds will collect savings from those savers and then use the savings to buy shares, short-term debt and long-term bonds method