Accounting report ratio analysis

1. School Of Architecture, Building & Design
Foundation In Natural & Built Environment
Assignment Title : FinancialRatio Analysis
Group Members :
NAME STUDENT ID
SEET TIONG HONG 0320438
WONG DE-VIN 0319814
BRYAN TEH QING DA 0318590
Basic Accounting [ACC30205 / FNBE0145]
Lecturer : Chang JauHo
Submission Date : 4th June 2015
Background History Of MASTEEL
Malaysia Steel Works (KL) Berhad was founded in 1971 at Petaling Jaya, Selangor
as a steel manufacturer producing commercial grade mild steel round bars and steel
billets at their rolling mill.
To further improve their competitiveness, they had upgraded their mill to become a
entirely continuous mill with the addition of a new reheating furnace which was

2. able to utilise one ton of steel billets. Besides, the company had further increased
the mill capacity to 450,000 metric tonne every year.
Due to ever rising demand of their customers, they installed a thermal quenching
line that could producegrade 500 deformed bars. Notably, the mill obtained the
ISO 9002 certification recognizing the company commitment and dedication to
quality management system.
A new milestone in the history of Malaysia Steel Works (KL) Berhad was realised
when their meltshop in Bukit Raja entered into commercial productionin 1998.
Their Danieli supplied billet production plant became one of the most advanced
meltshop in the region as the electric arc furnace was featured with several
advanced components such as ultra-high power transformers (UHP), eccentric
bottom tapping configuration (EBT) and fully automated furnace process control
and alloy additive plant. In order to increase the output and quality of their
products suchas steel bars and steel billets, the company added a refining ladle
furnace.
As the company is growing stronger with strong balance sheet, they plan to go
even further to increase their capacity of the meltshop to 700,000 metric tonne of
billets per year by installing a multi-stand large curvature continuous casting
machine which could cast high-grade billets up to 160mm x 160mm by end of
2014.
Furthermore, the domestic steel usage is going to increase due to several key
projects under Malaysia’s Economic Transformation Programme such as Sungai
Buloh-Kajang MRT and Klang Valley LRT extension. This would boostthe
company’s revenue of 2015.
The company is one of the premier steel manufacturer in Malaysia thanks to their
high consistency of the quality products producedbythe meltshop.

3. Steel Billets Rolling Steel Mill
Financial Ration Of MASTEEL
Return Of Equity (ROE)
𝑅𝑅𝑅𝑅𝑅𝑅 𝑅𝑅 𝑅𝑅𝑅𝑅𝑅𝑅
= (
𝑅𝑅𝑅 𝑅𝑅𝑅𝑅𝑅𝑅
𝑅𝑅𝑅𝑅𝑅𝑅𝑅 𝑅𝑅𝑅𝑅𝑅𝑅 𝑅𝑅𝑅𝑅𝑅𝑅
)
× 100%
ROE for 2013 =(
27,014,000
540,501,500
)×100%

4. = 5%
ROE for 2012 = (
24,346,000
540,501,500
) ×100%
= 4.5%
Over the period of year 2012 and 2013, the ROE of the business has
increased from 4.5% to 5% . The owner is getting more return from his
capital.
Net Profit Margin (NPM)
𝑅𝑅𝑅 𝑅𝑅𝑅𝑅𝑅𝑅 𝑅𝑅𝑅𝑅𝑅𝑅
= (
𝑅𝑅𝑅 𝑅𝑅𝑅𝑅𝑅𝑅
𝑅𝑅𝑅 𝑅𝑅𝑅𝑅𝑅
) × 100%
NPM for 2013 = (
27,014,000
1,375,441,000
)×100%
= 1.96%
NPM for 2012 = (
24,346,000
1,312,189,000
) ×100%
= 1.86%

5. During the period, the NPM has a minor increase from 1.86% to 1.96%.
This means that the ability of the business to control its overall expenses
is slightly better compared to the previous year.
Gross Profit Margin (GPM)
𝑅𝑅𝑅𝑅𝑅 𝑅𝑅𝑅𝑅𝑅𝑅 𝑅𝑅𝑅𝑅𝑅𝑅
= (
𝑅𝑅𝑅𝑅𝑅 𝑅𝑅𝑅𝑅𝑅𝑅
𝑅𝑅𝑅 𝑅𝑅𝑅𝑅𝑅
) × 100%
GPM for 2013 = (
86,791,000
1,375,441,000
)×100%
= 6.31%
GPM for 2012 = (
75,153,000
1,312,189,000
)×100%
= 5.73%
Over the period of year 2012 to 2013, the GPM has increased from
5.73% to 6.31%. The business is getting better in terms of their ability to
control its cost of goods sold expenses for year 2013 than 2012.

6. Selling Expenses Ration (SER)
𝑅𝑅𝑅𝑅𝑅𝑅𝑅 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 𝑅𝑅𝑅𝑅𝑅
= (
𝑅𝑅𝑅𝑅𝑅𝑅𝑅 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅
𝑅𝑅𝑅 𝑅𝑅𝑅𝑅𝑅
) × 100%
SER for 2013 = (
17,828,000
1,375,441,000
)×100%
= 1.3%
SER for 2012 =(
19,544,000
1,312,189,000
) ×100%
= 1.49%
The SER of the business has slightly decreased from 1.49% to 1.3%
throughout the year. It means that the business’s ability to control its
selling expenses is getting better.
General Expenses Ratio (GER)
𝑅𝑅𝑅𝑅𝑅𝑅𝑅 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 𝑅𝑅𝑅𝑅𝑅
= (
𝑅𝑅𝑅𝑅𝑅𝑅𝑅 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅
𝑅𝑅𝑅 𝑅𝑅𝑅𝑅𝑅
) × 100%

7. GER for 2013 = (
27,199,000
1,375,441,000
) ×100%
= 1.98%
GER for 2012 = (
19,352,000
1,312,189,000
) ×100%
= 1.47%
The GER has increased from 1.47% to 1.98% over the period of year
2012 and 2013. The business’s ability of controlling its general expenses
is worse in year 2012 than 2013.
Financial Expenses Ratio (FER)
𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 𝑅𝑅𝑅𝑅𝑅
= (
𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅
𝑅𝑅𝑅 𝑅𝑅𝑅𝑅𝑅
) × 100%
FER for 2013 = (
15,140,000
1,375,441,000
)×100%
= 1.1%
FER for 2012 = (
15,261,000
1,312,189,000
)×100%
= 1.16%

8. Over the period of year 2012 and 2013, the FER has decreased by
0.05%, from 1.16% to 1.1%. In other words, the financial expenses in
year 2013 is slightly lower than 2012.
Working Capital
𝑅𝑅𝑅𝑅𝑅𝑅𝑅 𝑅𝑅𝑅𝑅𝑅𝑅𝑅
= (
𝑅𝑅𝑅𝑅𝑅 𝑅𝑅𝑅𝑅𝑅𝑅𝑅 𝑅𝑅𝑅𝑅𝑅𝑅
𝑅𝑅𝑅𝑅𝑅 𝑅𝑅𝑅𝑅𝑅𝑅𝑅 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅
)
Working capital for 2013 = (
523,506,000
435,500,000
)
= 1.2 : 1
Working capital for 2012 = (
462,280,000
368,580,000
)
= 1.25 : 1
Over the period of 2012 to 2013 the working capital of the business has
dropped from 1.25:1 to 1.2:1. The business’s ability to pay of its current
liabilities is not as good as the previous year. In addition, it does not
meet the criteria of a ratio 2:1.

9. Total Debt
𝑅𝑅𝑅𝑅𝑅 𝑅𝑅𝑅𝑅
= (
𝑅𝑅𝑅𝑅𝑅 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅
𝑅𝑅𝑅𝑅𝑅 𝑅𝑅𝑅𝑅𝑅𝑅
) × 100%
Total Debt for 2013 =(
460,755,000
1,015,001,000
) ×100%
= 45.4%
Total Debt for 2012 =(
404,028,000
930,785,000
) ×100%
= 43.4%
From the year 2012 to 2013, the total debt has increased from 43.4% to
45.4%. The total debt of this business has increased. In addition, it still
satisfies the requirement of a maximum of 50% debt.
Stock Turnover
𝑅𝑅𝑅𝑅𝑅 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅
= 365 ÷ (
𝑅𝑅𝑅𝑅 𝑅𝑅 𝑅𝑅𝑅𝑅𝑅 𝑅𝑅𝑅𝑅
𝑅𝑅𝑅𝑅𝑅𝑅𝑅 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅
)

10. Stock Turnover for 2013 = 365 ÷ (
1,288,650,000
200,838,000
)
= 57 days
Stock Turnover for 2012 =365 ÷ (
1,237,036,000
200,838,000
)
= 60 days
During the period of year 2012 and 2013, The stock turnover has
decreased from 60 days to 57 days. The business sold its goods faster in
2013 compared to 2012.
Debtor Turnover
𝑅𝑅𝑅𝑅𝑅𝑅 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅
= 365 ÷ (
𝑅𝑅𝑅𝑅𝑅𝑅 𝑅𝑅𝑅𝑅𝑅
𝑅𝑅𝑅𝑅𝑅𝑅𝑅 𝑅𝑅𝑅𝑅𝑅𝑅𝑅
)
Debtor Turnover 2013 =
365 ÷ (
687,720,500
[(239,952,000 + 222,703,000) / 2]
) = 123 days
Debtor Turnover 2012 =

11. 365 ÷ (
656,094,500
[(239,952,000 + 222,703,000) / 2]
) = 129 days
Over the period of year 2012 to 2013, the debtor turnover of the business
has decreased from 129 days to 123 days. It means that the business
received their money faster than the previous year.
*(Due to the absence of credit sales figure in the annual report, we have
taken the revenues of both years and divided by 50%)
Interest Coverage
𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅
= (
𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 + 𝑅𝑅𝑅 𝑅𝑅𝑅𝑅𝑅𝑅
𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅
)
Interest coverage for 2013 = (
15,140,000 + 27,014,000
15,140,000
)
= 2.78 times
Interest coverage for 2012 = (
15,261,000 + 24,346,000
15,261,000
)
= 2.6 times
During the period of year 2012 to 2013, the interest coverage of the
business increased from 2.6 times to 2.78 times. It also means the

12. business ability to pay off its interest expenses is better. However a
business should never fall below 5 times.
P/E Ratio
P/E Ratio = (
𝑅𝑅𝑅𝑅𝑅𝑅𝑅 𝑅𝑅𝑅𝑅𝑅 𝑅𝑅𝑅𝑅𝑅
𝑅𝑅𝑅𝑅𝑅𝑅𝑅 𝑅𝑅𝑅 𝑅𝑅𝑅𝑅𝑅
)
= (
0.62
0.1238
)
= 5.008
Based on the information we acquired from the webpage of Bursa
Malaysia dated 3rd June 2015, the share price of MASTEEL is RM 0.62
and its earning per share is RM 0.1238. This means the P/E ratio of
Malaysia Steel Works Berhad is 5.008 (0.62/0.1238).
CONCLUSION

13. Based on the information we had acquired through few sources, the profitability of
the business is pretty satisfying. It has clearly shown that the owner is getting more
return from his capital invested. The return of equity shows a positive increased by
0.5% from 4.5% to 5% over the period of year 2012 and 2013. Secondly, this
business has also improved in terms of controlling its overall expenses over the
year from the year 2012, Net Profit Margin shows a clear figure of a minor
increase from 1.86% to 1.96%. Other than that, based on the increased numbers in
the Gross Profit Margin (GPM), the business is getting better in terms of their
ability to controlits costof goods sold expenses. Selling expenses are also being
well controlled by the company as the Selling Expenses Ratio of the business had a
slight decrease over the year 2012 and 2013. It has also shown a lower figure for
the financial expenses of the business from year 2012 to the year 2013.
Furthermore, the total debt of this business over the year 2012 and 2013 has
increased from 43.4% to 45.4%. Although the total debt incurred has increased
slightly, but it still remains below the maximum debtlimit of 50%. The business
has fulfilled the maximum total debt of 50%. Moreover, the business’s stock
turnover has decreases from 60 days to 57 days which shows a significantly good
result as the business managed to sell its goods at a faster rate at the year 2013
compared to year 2012. Not only that, the debtor turnover for the company has also
decreased from 129 days to 123 days. It also means that the business received their
money faster than the previous year. During the period of year 2012 to 2013, the
business’s interest coverage has also increased from 2.6 times to 2.78 times which
means that the business ability to pay off its interest expense has improved too.
However, on the down side, based on the figure of the working capital of the
business, the business has dropped fromthe ratio of 1.25:1 to 1.2:1. It also means
that the business’s ability to pay of its current liabilities is not as good as the
previous year.
Finally, the P/E ratio of MASTEEL is as low as 5.008. It lies below the reasonable
P/E ratio which is 15. Although there are few lacklustre results acquired by
calculating the financial ratios, this company is still worth investing as most of the

14. results are positive and improving. Investors are encouraged to consider this steel
manufacturing company into their investment portfolios. Our team would
RECOMMEND this company to the canny investors. Investors are required to
invest at own risks. Happy investing.
Appendix
Balance Sheet For The Year Ended On 31st December 2013
1) TotalAssets

15. 2) TotalOwner’s Equity & Total Liabilities

16. 3) P&L Statement For The Year Ended On 31st December 2013

17. 4) Star Business, 11thMarch 2015

18. 5) The MalaysianReserve, 27 June 2014

19. REFERENCE
1) Company History. (n.d.). Retrieved June 1, 2015, from
http://www.masteel.com.my/about-2/brief-history-milestone/
2) Malaysia Steel Works (KL) Berhad - Information. (n.d.). Retrieved June 1,
2015, from http://www.bursamalaysia.com/market/listed-companies/list-of-
companies/plc-profile.html?stock_code=5098

20. 3) Liz, L. (2014, August 30). Masteel's will of steel - Business News | The Star
Online. Retrieved June 1, 2015, from
http://www.thestar.com.my/Business/Business-News/2014/08/30/Masteels-
will-of-steel-Steel-producer-keen-for-rail-project-to-run-alongside-its-core-
business/?style=biz