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Financial Statement Analysis
 

Financial Statement Analysis

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    Financial Statement Analysis Financial Statement Analysis Document Transcript

    • TABLE OF CONTENTS NO ITEMS PAGE 1 1.0 INTRODUCTION 2 – 3 2 2.0 BACKGROUND OF THE COMPANIES 2.1 Gopeng Berhad 2.2 Harnlen Corporation Bhd 3 – 4 3 3.0 PROFITABILITY RATIOS 3.1 Gross Profit Margin 3.2 Operating Profit Margin 3.3 Net Profit Margin 3.4 Analysis Of Profitability Ratios 5 – 7 4 4.0 LIQUIDITY RATIOS 4.1 Current Ratio 4.2 Acid Test Ratio (Quick Ratio) 4.3 Stock Turnover Ratio 4.4 Stock Turnover Days 4.5 Debtors Turnover Ratio 4.6 Debtors Turnover Days 4.7 Creditors Turnover Ratio 4.8 Creditors Turnover Days 4.9 Analysis Of Liquidity Ratios 7 – 10 5 5.0 LEVERAGE RATIOS 5.1 Debt Ratio 5.2 Debt to Equity Ratio 5.3 Interest Cover ratio 5.4 Analysis Of Leverage Ratios 11 – 12 6 6.0 EFFICIENCY RATIOS 6.1 Earnings Per Share 6.2 Return On Capital Employed 6.3 Return On Assets 6.4 Return On Equity 6.5 Return On Ordinary Equity 6.6 Analysis Of Efficiency Ratios 13 – 16 7 7.0 MARKET RATIOS 7.1 Price Earnings Ratio 7.2 Market to Book Ratio 7.3 Analysis Of market Ratios 16 – 17 8 8.0 DUPONT MODEL 8.1 Return On Equity 17 – 18 9 9.0 CONCLUSION 19
    • 1 1.0 INTRODUCTION Financial management users need to analyze the financial position of a company for decision-making. Decision-making process is an important process for the purpose of investments, financing or loans. The problem in real life is that whilst financial information may be available in the financial statements, the relevant information may not always be obvious at first glance. Some form of restatement, re-computation and analysis may be required before information may be gleaned from the financial statements. Assessing a firm’s financial statement is of interest to shareholders, creditors, and the firm’s own management. A firm often wants to compare its financial condition to that of similar firms, but doing so can be very tricky. The point here is that the amounts of sales, profits, and other items that appear on a firm’s financial statements are difficult to interpret unless we have some way to put the numbers in perspective. To analyze financial statement, we need relative measures that, in effect, normalize size differences. Ratio analysis involves calculating and interpreting financial ratios to assess a firm’s performance and status. Financial ratios analysis is the most common form of financial statements analysis. Financial ratios illustrate relationships between different aspects of a company's operations and provide relative measures of the firm's conditions and performance. Financial ratios may provide clues and symptoms of the financial condition and indications of potential problem areas. Financial ratios generally hold no meaning unless they are compared against something else, like past performance, another competitor or industry average. Thus, the ratios of firms in different industries, which face different conditions are usually hard to compare. Financial ratios can be an important tool for small business owners and managers to measure their progress toward reaching company goals, as well as toward competing with larger companies within an industry. In addition, tracking various ratios over time is a powerful way to identify trends. Ratio analysis, when performed regularly over time, can also give help small businesses recognize and adapt to trends affecting their operations. Financial ratios are also used by bankers, investors, and business analysts to assess various attributes of a company's financial strength or operating results. This is another reason why business owners need to understand financial ratios because, very often, a business's ability to obtain financing or equity financing will depend on the company's financial ratios. Financial ratios are categorized according to the financial aspect of the business which the ratio measures. Liquidity ratios examine the availability of company's cash to pay debt. Profitability ratios measure the company's use of its assets and control of its
    • 2 expenses to generate an acceptable rate of return. Leverage ratios examine the company's methods of financing and measure its ability to meet financial obligations. Efficiency ratios measure how quickly a firm converts non-cash assets to cash assets. Market ratios measure investor response to owning a company's stock and also the cost of issuing stock. Despite all the positive uses of financial ratios, however, business managers and owners are still encouraged to know the limitations of ratios and approach financial ratio analysis with a degree of caution. 2.0 BACKGROUND OF THE COMPANIES The company has interested on investment into plantation sectors, thus two companies have been identified and require a clear financial analysis reports for investment purposes. For the long term investment purposes, oil palm plantation stocks were chosen to analyze on their operation performance. As palm oil shares have potential in increasing its value due to it can be created to biodiesel which able to substitute gasoline and diesel by reducing green house gases. The two companies selected for evaluation and analyze of their financial performance are Gopeng Berhad and Harn Len Corporation Bhd which their plantation covers all over Malaysia. Financial analysis will be carried out on analyzing of both company’s year 2011 financial statements including of the company annual report, profit & loss statement, balance sheet and cash flow statement. To evaluate the competencies of both companies, following financial ratios are used, which are profitability ratios for calculating the utilized of company assets with its expenses in generate return for the company, liquidity ratios for measuring the ability of company’s cash to pay debts, leverage ratios for evaluating the company ability to pay for long-term debt, efficiency ratios or Activity ratios for evaluating how fast the company can pay its debts, market ratios for evaluating the response of investors in buying the company stock and cost of the company shares. For each financial ratio, we will evaluate both companies’ performances in comparing their performances. The evaluation statement will finalized both companies’ capabilities in generating profit for investment either in long term investment or short term investment.
    • 3 2.1 Company Background and Nature of Business (Gopeng Berhad) Gopeng Berhad is engaged in the business of oil palm, investment holding and deriving income there from and property development. The Company operates in four segments: property development, which is engaged in the development of residential and commercial properties; plantation, which is engaged in the cultivation of oil palm; manufacturing, which is engaged in the manufacturing of cement, clinker and investment holding, and others, which is engaged in maintenance and management of water treatment plants and dormant companies. The Company's subsidiaries include Gopeng Granite And Marble Sdn Bhd, Gopeng Land & Properties Sdn Bhd, Gopeng Precision And Engineering Sdn Bhd, Gopeng Resources Sdn Bhd, Gopeng Technologies Systems Sdn Bhd, Grooved Secretaries Limited and Mambang Di-Awan Sendirian Berhad. 2.2 Company Background and Nature of Business (Harn Len Corporation Bhd) Harn Len Corporation Bhd is engaged in the cultivation of oil palm, operation of palm oil mill, property investment and investment holding. The Company operates in two segments: plantation, and property and hotel. Plantation segment includes the cultivation of oils palm and palm oil milling. Property and hotel segment includes property investment and hotel business. As of May 31, 2012, the Company had 14,636 hectares of oil palm plantations, situated mainly in Pahang and East Malaysia. 78% of the palms are mature while 22% of the trees are immature. It owns a 40 metric tons fresh fruit bunches (FFB) per hour oil mill, known as Lian Hup Oil Mill situated at Lian Hup Estate in Pahang. It owns a 25-storey office cum hotel (Tropical Inn) building known as Johor Tower. The Company also has six units shop-houses located in the commercial business district of Johor Bahru City, Johor which are within the Iskandar Development Region.
    • 4 3.0 PROFITABILITY RATIOS Profitability ratios measure a company’s ability to generate earnings relative to sales, assets and equity. These ratios assess the ability of a company to generate earnings, profits and cash flows relative to relative to some metric, often the amount of money invested. They highlight how effectively the profitability of a company is being managed. Common examples of profitability ratios include gross profit margin, operating profit margin and net profit margin (before and after tax). All of these ratios indicate how well a company is performing at generating profits or revenues relative to a certain metric. Different profitability ratios provide different useful insights into the financial health and performance of a company. For example, gross profit and net profit ratios tell how well the company is managing its expenses. GOPENG BERHAD HARNLEN CORPORATION BHD Gross profit margin = × 100% = × 100% = 60.82 % Gross profit margin = × 100% = × 100% = 33.41 % Operating profit margin = × 100% = × 100% = 65.07 % Operating profit margin = × 100% = × 100% = 18.98 % Net profit margin = × 100% = × 100% = 65.07 % Net profit margin = × 100% = × 100% = 18.03 %
    • 5 Net profit margin = × 100% = × 100% = 62.74 % Net profit margin = × 100% = × 100% = 16.71 % This is an analysis of Gopeng Berhad and Harnlen Corporation Bhd. Gopeng Berhad and Harnlen Corporation Bhd, are competitors in the same sectors which is in plantation. Aside from the obvious similarities inherent to the principal activities of the company consist of those relating to the operations of oil palm estate, palm oil mill, property investment and investment holding and the principal activities of the subsidiaries are cultivation of oil palm and investment holding, these two companies are very different when viewed through a financial perspective. In order to evaluate these two companies, we have prepared common- sized financial statements and computed key ratios that will be used to show and further analyze these fundamental differences. Regarding their respective 2011 income statements, Gopeng Berhad had the higher gross profit margin (60.82% compared to the 33.41% reported by Harn Len Corporation Bhd). Gopeng Berhad’s higher gross margin reflects the greater efficiency with which it is able to turn investors’ money into income for the company. This efficiency is also shown in the higher operating profit margin for Gopeng Berhad (65.07% compared to the 18.98% by Harn Len Corporation Bhd). The higher operating profit margin also signifies that Gopeng Berhad has comparatively lower fixed costs, thereby giving its’ management more flexibility in determining prices. This pricing flexibility provides an added measure of safety for the company during tough economic times for Gopeng Berhad. The net profit margin measures how much each dollar of sales contributes to profit and how much is used to pay expenses. Gopeng Berhad had the vastly higher net profit margin of the two companies which is 65.07% compared to 18.03% from Harn Len Corporation Bhd. For most of these ratios, a higher value is desirable. A higher value means that the company is doing well and it is good at generating profits, revenues and cash flows. The lower profitability
    • 6 margin shown by Harn Len Corporation Bhd during this year was likely almost entirely due to its’ substantial losses from discontinued operations. Profitability ratios are of little value in isolation. They give meaningful information only when they are analyzed in comparison to competitors or compared to the ratios in previous periods. Therefore, trend analysis and industry analysis is required to draw meaningful conclusions about the profitability of a company. Some background knowledge of the nature of business of a company is necessary when analyzing profitability ratios. For example sales of some businesses are seasonal and they experience seasonality in their operations. 4.0 LIQUIDITY RATIOS Liquidity Ratios is a class of financial metrics that is used to determine a company's ability to pay off its short-terms debts obligations. Generally, the higher the value of the ratio, the larger the margin of safety that the company possesses to cover short-term debts. GOPENG BERHAD HARNLEN CORPORATION BHD Current ratio = = = 40.12 times Current ratio = = = 0.13 times Acid test ratio (Quick Ratio) = = = = 40.06 times Acid test ratio (Quick Ratio) = = = = 0.11 times
    • 7 Stock Turnover Ratio = = = 33.05 times Stock Turnover Ratio = = = 85.93 times Stock Turnover Days = days = days = 10.89 days Stock Turnover Days = days = days = 4.25 days Debtors Turnover Ratio = = = 4.88 times Debtors Turnover Ratio = = = 26.76 times Debtors Turnover Days = days = days = 74.74 days Debtors Turnover Days = days = days = 13.64 days Creditors Turnover Ratio = = = 1.80 times Creditors Turnover Ratio = = = 3.85 times
    • 8 Creditors Turnover Days = days = days = 202.99 days Creditors Turnover Days = days = days = 94.79 days Current ratio is a financial ratio that measures whether or not a company has enough resources to pay its debt over the next business cycle (usually 12 months) by comparing firm's current assets to its current liabilities. Acceptable current ratio values vary from industry to industry. The tables above shows the liquidity ratios for 2011 are listed for Gopeng Berhad and one of its main competitors, Harn Len Corporation Bhd. Gopeng Berhad looks like an easy winner in a liquidity contest. It has an ample margin of current assets over current liabilities, a seemingly good current ratio which is 40.12 times compared to the Harn Len Corporation Bhd which is 0.13 times because of higher current liabilities more than current assets. The higher the current ratio is, the more capable the company is to pay its obligations. Current ratio is also affected by seasonality. Harn Len Corporation Bhd may have problems paying its bills on time. However, low values do not indicate a critical problem but should concern the management. This is because the business of oil exploration and development has notoriously unpredictable annual cash flows. In general, Gopeng Berhad has the greater coverage of liquid assets to short-term liabilities which is 40.06 times than the Harn Len Corporation Bhd which is 0.11 times. This shows Gopeng Berhad is a clear signal that a company can pay its debts that are coming due in the near future and still fund its ongoing operations. On the other hand, Harn Len Corporation Bhd with a low coverage rate should raise a red flag for investors as it may be a sign that the company will have difficulty meeting running its operations, as well as meeting its obligations. The biggest difference between each ratio is the type of assets used in the calculation. While each ratio includes current assets, the more conservative ratios will exclude some current assets as they are not as easily converted to cash. Gopeng Berhad implies an inventory turnover ratio of about 33.05 times and an average age of inventory of about 10.89 days. With the rapid pace of oil exploration and development, Gopeng
    • 9 Berhad cannot afford to hold inventory too long. In contrast, Harn Len Corporation Bhd’s inventory turnover ratio is thus 85.93 times, and its average age of inventory is about 4.25 days. Clearly, the differences in these inventory ratios reflect differences in the economic circumstances of the industries. Harn Len Corporation can indicate better liquidity, but it can also indicate a shortage or inadequate inventory levels, which may lead to a loss in business. High inventory levels are usual unhealthy because they represent an investment with a rate of return of zero. It also opens the company up to trouble if the prices begin to fall. Receivables turnover ratio or Debtors turnover ratio measures company's efficiency in collecting its sales on credit and collection policies. Accounts receivable represents the indirect interest free loans that the company is providing to its clients. Therefore, it is very important to know how "costly" these loans are for the company. Harn Len Corporation Bhd has a high debtors turnover ratio which is 26.76 times implies either that the company operates on a cash basis or that its extension of credit and collection of accounts receivable are efficient. Also, Harn Len Corporation Bhd reflects a short lapse of time between sales and the collection of cash which is 13.64 days, which means collection takes shorter. Gopeng Berhad has a lower debtors turnover ratio which is 4.88 times and it has the longer receivables which is 74.74 days are being held and the risk to not be collected increases. A low receivables turnover ratio implies that the company should re-assess its credit policies in order to ensure the timely collection of credit sales that is not earning interest for the firm. Accounts payable turnover ratio or Creditors turnover ratio is an accounting liquidity metric that evaluates how fast a company pays off its creditors (suppliers). Harn Len Corporation Bhd has a high ratio which is 3.85 times means there is a relatively short time between purchase of goods and services and payment for them which is 94.79 days. Conversely, Gopeng Berhad has a lower accounts payable turnover ratio which is 1.80 times usually signifies that a company is slow in paying its suppliers which is 202.99 days. But Harn Len Corporation Bhd is not always in the best interest of a company. Many companies extend the period of credit turnover getting extra liquidity. Overall, Gopeng Berhad is more liquidity indicates that the company is in good financial health and it is less likely fall into financial difficulties compared to the Harn Len Corporation Bhd.
    • 10 5.0 LEVERAGE RATIOS Leverage Ratio is any ratio used to calculate the financial leverage of a company to get an idea of the company's methods of financing or to measure its ability to meet financial obligations. There are several different ratios, but the main factors looked at include debt, equity, assets and interest expenses. Leverage Ratios analyses how a firm is being financed and whether a firm is able to meet its interest expenses. Leverage ratios include debt ratio and interest cover ratio. GOPENG BERHAD HARNLEN CORPORATION BHD Debt Ratio = = = 0.06 times Debt Ratio = = = 0.30 times Debt to Equity Ratio (Debt Ratio) = = = 0.00021 times Debt to Equity Ratio (Debt Ratio) = = = 0.18 times Interest Cover ratio = = = 13.07 times Interest Cover ratio = = = 0.74 times Debt Ratio determines the ratio of liabilities and the assets of a firm. Based on the figures in table above, the debt ratios for Gopeng Berhad is 0.06 or 6.0 % while, the debt ratio for Harn Len Corporation BHD is 0.3 or 30 %. This indicates that the Gopeng Berhad and Harn Len
    • 11 Corporation BHD concerned have more assets than debt. There are many variants of debt ratios; one of them is the one that mention above. Another variant of debt ratio is also known as Debt to Equity Ratio = (Total long term Borrowings)/ (Total equity). Using this variant, the debt ratio for Gopeng Berhad is 0.00021 or 0.021 %. This indicates that the total long term borrowing is about 0.021 % of the firm’s total equity, while the debt ratio for Harn Len Corporation BHD is 0.18 or 18 %. This indicates that the total long term borrowing is about 18 % of the firm’s total equity. From the comparison, we can see, Harn Len Corporation BHD has a higher value of debt ratio than Gopeng Berhad. A high debt ratio can put Harn Len Corporation BHD at risk for a serious financial crisis, including bankruptcy or property foreclosure. The two basic ways to lower debt ratio proportions are to increase income or decrease expenses. Interest Cover Ratio measures the extent to which the firm’s earnings before interest and tax (EBIT) can meet interest expenses. Based on the table, interest cover ratio for Gopeng Berhad is 13.07 times. While, interest cover ratio for Harn Len Corporation BHD is 0.74 times. This indicates that the Gopeng Berhad has earnings before interest and tax that currently covers up to 13.07 times of its existing interest expense and Harn Len Corporation BHD has earnings before interest and tax that currently covers up to 0.74 times of its existing interest expense. Hence, Gopeng Berhad has a higher interest cover ratio. This means that Gopeng Berhad should be able to services its interest expense without any difficulty. In fact, it also indicates the level of interest rate risk faced by a firm; whether a firm can still service interest if interest rate was to say, increase by 0.5% points. Alternatively, it could also advise what could happen if the firm’s earnings before interest and tax were to drop, say by 5%, would the firm still be able to services its interest expenses. Harn Len Corporation BHD has an interest cover ratio below 1.0. An interest coverage ratio below 1.0 indicates the business is having difficulties generating the cash necessary to pay its interest obligations. The history and consistency of earnings is tremendously important. The more consistent a company’s earnings, the lower the interest coverage ratio can be. The lower the interest coverage ratio, the higher the company's debt burden and the greater the possibility of bankruptcy or default. Overall, Gopeng Berhad has a good Leverage Ratio and has a good financial health in the sector of plantation than Harn Len Corporation BHD.
    • 12 6.0 EFFICIENCY RATIOS Efficiency ratios measure the extent to which a firm is able to earn sufficient earnings and returns to its investors. Efficiency ratios include earnings per share, return on capital employed, return on assets and return on equity. GOPENG BERHAD HARNLEN CORPORATION BHD Earnings Per Share = × 100sen = not stated Earnings Per Share = × 100sen = not stated Return On Capital Employed = × 100% = × 100% =1.07 % Return On Capital Employed = × 100 = x 100% =0.98 % Net profit margin = × 100% = × 100% = 65.07 % Net profit margin = × 100% = × 100% = 18.03 % Return On Assets = x 100% = X 100% = 3.36 % Return On Assets = x 100% = X 100% = 5.14 %
    • 13 Return On Equity = x 100% = x 100 % = 3.57 % Return On Equity = x 100% = X 100% = 7.31 % Return On Ordinary Equity = x 100% = = 0.04 % Return On Ordinary Equity = x100% = = 0.07 % The earnings per share ratio (EPS ratio) measure the amount of a company's net income that is theoretically available for payment to the holders of its common stock. A company with a high earnings per share ratio is capable of generating a significant dividend for investors, or it may plow the funds back into its business for more growth; in either case, a high ratio indicates a potentially worthwhile investment, depending on the market price of the stock. From the table, Gopeng Berhad and Harn Len Corporation BHD have no EPS because the number of ordinary shares in issue has not stated. This is because both companies’ failure and refusal to declare or reveal some information that is required to be declared or revealed. Return on capital employed (ROCE) attempts to provide more information on the extent of efficiency of the management of the firm in using funds. It relates the earnings of the firm to the total funds used by the firm and is an important measure for providers of finance. Based on table, the Gopeng Berhad’s return on capital employed is 1.07% and the Harn Len Corporation BHD is 0.98%. Investors which are debt holders and equity holders can conclude that for every RM1 of funding provided to the management both of firm, the Gopeng Berhad is able to earn a return of RM0.01O7 annually on average and Harn Len Corporation BHD is able to earn a return of RM0.0098 annually on average. And we can see that, Gopeng Berhad has a higher return on capital employed than Harn Len Corporation BHD. It can be concluded that Gopeng
    • 14 Berhad is favorable indicating that the company generates more earnings per dollar of capital employed. A lower value of ROCE indicates lower profitability. Gopeng Berhad having less assets but same profit as its competitors will have higher value of return on capital employed and thus higher profitability. The return on capital employed (ROCE) of Gopeng Berhad and Harn Len Corporation BHD can then be benchmarked against the performance to identify the relative efficiency of the management. An alternative measure of profitability is return on assets (ROA). Return on assets is a ratio that measures a company's earnings before interest and taxes (EBIT) against its total net assets. The ratio is considered an indicator of how effectively a company is using its assets to generate earnings before contractual obligations must be paid. Based on table, Gopeng Berhad’s return on assets is 3.36% and the Harn Len Corporation BHD is 5.14%. It indicates that for every RM1 of assets that is made available to the firm or that the firm invests in, the management of Gopeng Berhad is able to generate a return after tax of RM0.0336 and the management of Harn Len Corporation BHD is able to generate a return after tax of RM0.0514 and we can see that, Harn Len Corporation BHD has a higher return on assets than Gopeng Berhad. It can be conclude that the greater a company's earnings in proportion to its assets (and the greater the coefficient from this calculation), the more effectively that company is said to be using its assets. Shareholders may also seek to identify the level of returns they are getting for every RM1 of funds that they have invested in the firm. If the rate of return from the shareholders’ point of view is unsatisfactory, they might then consider investing in other more profitable firms. There are several measures of return on equity. If seen from the point of view of all shareholders (preference and ordinary shareholders), then Return on Equity= (Profit after tax)/ (total shareholders' equity) x100%. Based on the table, return on equity of Gopeng Berhad is 3.57% and Harn Len Corporation BHD is 7.31%. Thus, Harn Len Corporation BHD has a higher Return on Equity. It means that Harn Len Corporation BHD has been successful in using shareholder’s equity to invest in growth projects that yield high returns. Also, it allows Harn Len Corporation BHD to invest less money to hit growth targets than it would have to if its return on equity was lower. This is because the return is higher.
    • 15 A closely related measure of profitability is the return on ordinary equity, which captures the return earned on the common stockholders’ (owners’) investment in the firm. Return on ordinary equity is a variation of the return on equity formula which subtracts preferred dividens from net income and preferred equity from shareholder’s equity. This variation shows the effect of common shares on profitability. Its formula is .For a firm that use only common stock to finance operations, the ROE and ROA figures will be identical. With debt or preferred stock on the balance sheet, these ratios will usually differ. When the firm earns a profit, even after making interest payments to creditors and paying dividends to preferred stockholders, the firm’s ROE will exceed its ROA. For Gopeng Berhad, the return on ordinary equity is 0.04 % and for Harn Len Corporation is 0.07 %. Its mean that Gopeng Berhad has a lower return on ordinary equity means growth is expensive to finance. 7.0 MARKET RATIOS Market ratios measure investor response to owning a company's stock and also the cost of issuing stock. These are concerned with the return on investment for shareholders, and with the relationship between return and the value of an investment in company’s shares. GOPENG BERHAD HARNLEN CORPORATION BHD Price Earnings Ratio (P/E) Ratio = = not stated Price Earnings Ratio (P/E) Ratio = = not stated Market to book ratio = = not stated Market to book ratio = = not stated
    • 16 Book value per share = – = not stated Book value per share = – = not stated For the price earnings ratio (P/E) ratio, the latest price per share for Harn Len Corporation Berhad and Gopeng Berhad is 0.78. From the table, both company, Harn Len Corporation Berhad and Gopeng Berhad did not state the earnings per share for a company, just state only for a group. This is because both companies’ failure and refusal to declare or reveal some information that is required to be declared or revealed. For market to book ratio and book value per share also cannot be calculated because both companies did not state the preference and ordinary shares. Both companies just state the share capital which is did not state the amount of ordinary and preference shares. This is because some information should not be disclosed to any person or any company. 8.0 DUPONT MODEL The Dupont equation defines relationships between profit margin, total asset turnover and change in financial leverage and is able to tie these factors together. The Dupont equation is another way of calculating return on equity (ROE) using three ratios, allowing management to monitor the performance of these three different areas and their impact on the company’s return on equity. This ratio is also a good tool to use for a comparison of the company’s performance against other organizations in the same industry and/or a comparison of the company’s performance against the industry. GOPENG BERHAD HARNLEN CORPORATION BHD Return on equity = = = 3.57 % Return on equity = = = 7.31 %
    • 17 Gopeng Berhad and Harn Len Corporation Berhad are in the same industry which is plantation. By comparing the Dupont analysis of Harn Len Corporation Berhad has a higher ROE than Gopeng Berhad which are 7.31 % and 3.57 %. Gopeng Berhad has a higher profit margin 62.74% than Harn Len Coprporation Berhad is 16.71%. Gopeng Berhad has a better expense control, better pricing, or more units sold and better asset utilization. Harn Len Corporation Berhad has compensated for lower profit margin and lower asset utilization with higher leverage, but with higher leverage comes more risk. But looking at total assets turnover, Harn Len Corporation Berhad has a higher than Gopeng Berhad which are 30.74 % and 5.36 %. The asset turnover ratio tends to be inversely related to the net profit margin. The higher the profit margin, the lower the assets turnover. The asset turnover ratio is a measure of how effectively a company converts its assets into sales. So, Harn Len Corporation Berhad is more effective converts’ assets into sales rather than Gopeng Berhad. It is possible for a company with terrible sales and margins to take on excessive debt and artificially increase its return on equity. The equity multiplier, a measure of financial leverage, allows the investor to see what portion of the return on equity is the result of debt. Harn Len Corporation Berhad 142.26% is higher equity multiplier than Gopeng Berhad 106.15%. Many other industries would see high levels of leverage as unacceptably risky. DuPont analysis enables the third party (relying primarily on the financial statements) to compare leverage with other financial elements that determine ROE among similar companies. It can conclude that, Harn Len Corporation Berhad has a higher ROE than Gopeng Berhad which is 62.74 % and 16.71 % even though Harn Len has a lower profit margin.
    • 18 CONCLUSION The four key for financial statements are the balance sheet, the income statement, the statement of retained earnings, and the statement of cash flow. To summarize, financial analysis is the use of financial statements to analyse a firm’s financial position and its performance. It is concerned with analysing the balance sheet and the income statement of a business to interpret the business and financial ratios of a business for financial representations, business evaluation, in addition to financial forecasting. In order to make financial information that is sourced from financial statements be more useful, financial ratios that restate the financial figures in relative terms are used to identify the financial strengths and weaknesses of a firm. In the end, financial ratios can be an important tool for small business owners and managers to measure their progress towards reaching company goals, as well as towards competing with larger companies within an industry. In conclusion, Gopeng Berhad has achieved better sales growth, gross and net profit margins and profit growth. Gopeng Berhad also has ability to generate earnings, profits and cash flows relative to relative to some metric, often the amount of money invested than Harn Len Corporation Berhad. Besides, Gopeng Berhad has better capital structure and more liquidity indicates that the company is in good financial health and it is less likely fall into financial difficulties compared to the Harn Len Corporation Bhd. In addition, in a climate of economic recession, Gopeng Berhad appears better poised to ride out the recession than Harn Len Corporation Berhad. In the other hand, Harn Len Corporation Berhad appears to be more efficient in terms of generating returns for its providers of capital.