final assignment accouting

1. SCHOOL OF ARCHITECTURE, BUILDING AND DESIGN
FOUNDATION IN NATURAL BUILD ENVIRONMENT
MODULE: BASIC ACCOUNTING [ACC30205/FNBE0145]
ASSIGNMENT: FINANCIAL RATIO ANALYSIS
COMPANY: AMWAY (MALAYSIA) HOLDINGS BERHAD
LECTURER: CHANG JAU HO
SUBMISSION DATE: 4 JUNE 2015
GROUP MEMBERS:
NAMES STUDENT ID
PANG KAI YUN 0319802
SAM WEI YIN 0320364
TAN YONG CHIEN 0320200

2. 1
Content
No. Title Page
1. Company Background 2
2. Recent Development 3
3. Ratio Analysis 4
4. Interpretation 6
5. Investment Recommendation 8
6. Appendices 11
7. Reference 16

3. 2
Company Background
AMWAY is one of the world's largest and oldest multilevel marketing companies
(MLM). Rich DeVos and Jay Van Andel founded AMWAY in 1959, in Ada, Michigan. In
1959, AMWAY launched a business model fuelled through the power of relationships. The
original product offered in this model, was Liquid Organic Cleaner (L.O.C.). It was the first
concentrated, bio-degradable, and environmentally friendly cleaning product. Since then,
AMWAY has expanded from home products to a global leader in the categories of health
and beauty.
AMWAY Malaysia is founded in 1976, beginning with just five employees, in a small
office and warehouse facility in Jalan Ipoh. Amway Malaysia operates as a direct selling
company, which engages in the distribution of consumer products. Its products include
nutrition and wellness products, skin care and cosmetics, personal care products, home care
products, personal accessories, food and beverages, garments, and household appliances.
Since its humble inception in 1976, AMWAY Malaysia has expanded to support the
business of its Distributors with an extensive network of AMWAY Retail Shops and
Regional Distribution Centres throughout Malaysia and Brunei. AMWAY Malaysia stands
tall within the AMWAY worldwide group as one of the top 10 performing affiliates backed
by impressive indicators, such as sales turnover, profitability, and an ever-expanding
Distributor force. In 1996, AMWAY Malaysia became the first-ever direct selling company
to be listed on the Main Board of the Kuala Lumpur Stock Exchange. AMWAY is also the
first direct selling company to be awarded a 10-year Direct Selling License by the Ministry of
Domestic Trade Cooperatives and Consumerism (MDTCC) in 2010.

4. 3
Recent Development
In May 2009, Amway opened the pick and pay concept Amway Shop in Bintulu as
part of company’s strategy to enhance Amway’s physical presence and Distributors’ and
customers’ accessibility to Amway products.
In 2010, AMWAY Malaysia has built a new headquarter at the new address 28, Jalan
223, 46100 Petaling Jaya, Selangor Darul Ehsan. This new Amway Malaysia headquarters
was built at a cost of approximately RM100 million, which included land acquisition,
construction and interior design. The new headquarters with its built up of 202,500 square
feet, in addition to its warehouse and office blocks, it includes many enhanced facilities such
as the R&J Café, the Van Andel & DeVos Training Centre, a flagship AMWAY Shop as well
as an exclusive AMWAY Brand Experience Centre.
As you step into AMWAY Malaysia's Corporate Headquarters, the first thing that
catches your eye would be the ceiling pieces. Stand at a precise angle, you will see these
pieces merging into an image of faces - the faces of the AMWAY Opportunity - which is for
everyone, everywhere. Reflecting AMWAY’s desire for greener and eco-friendly
surroundings, it is dotted with a large number of trees and shrubs and is designed with floor
to ceiling windows to allow for natural lighting. Another sustainable feature is the energy-
efficient air conditioning. The building incorporates facilities for the disabled including a
ramp, special toilets, reserved parking lots as well as tactile flooring for the visually impaired.

5. 4
Ratio Analysis
Profitability Ratios
Profitability
Ratios
2013
(RM ’000)
2014
(RM ’000)
Return on Equity
(ROE)
𝑛𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡
𝑎𝑣𝑔. 𝑜𝑤𝑛𝑒𝑟′ 𝑠 𝑒𝑛𝑞𝑢𝑖𝑡𝑦
𝑋100
=
109.0
234.311 + 227.971 ÷ 2
𝑋100
= 47.2%
𝑛𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡
𝑎𝑣𝑔. 𝑜𝑤𝑛𝑒𝑟′ 𝑠 𝑒𝑛𝑞𝑢𝑖𝑡𝑦
𝑋100
=
99.8
231.520 + 234.311 ÷ 2
𝑋100
= 42.8%
Net Profit Margin
(NPM)
𝑛𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡
𝑛𝑒𝑡 𝑠𝑎𝑙𝑒𝑠
𝑋100
=
109.0
834.0
𝑋100
= 13.1%
𝑛𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡
𝑛𝑒𝑡 𝑠𝑎𝑙𝑒𝑠
𝑋100
=
99.8
855.80
𝑋100
=11.7%
Gross Profit
Margin (GPM)
𝑔𝑟𝑜𝑠𝑠 𝑝𝑟𝑜𝑓𝑖𝑡
𝑛𝑒𝑡 𝑠𝑎𝑙𝑒𝑠
𝑋100
=
266.037
834.20
𝑋100
= 31.9%
𝑔𝑟𝑜𝑠𝑠 𝑝𝑟𝑜𝑓𝑖𝑡
𝑛𝑒𝑡 𝑠𝑎𝑙𝑒𝑠
𝑋100
=
258.463
855.8
𝑋100
= 30.1%
Selling Expense
Ratio (SER)
𝑡𝑜𝑡𝑎𝑙 𝑠𝑒𝑙𝑙𝑖𝑛𝑔 𝑒𝑥𝑝𝑒𝑛𝑠𝑒
𝑛𝑒𝑡 𝑠𝑎𝑙𝑒𝑠
𝑋100
=
83.961 ÷ 2
834.2
𝑋100
= 5.0%
𝑡𝑜𝑡𝑎𝑙 𝑠𝑒𝑙𝑙𝑖𝑛𝑔 𝑒𝑥𝑝𝑒𝑛𝑠𝑒
𝑛𝑒𝑡 𝑠𝑎𝑙𝑒𝑠
𝑋100
=
90.655 ÷ 2
855.8
𝑋100
= 5.3%
General Expense
Ratio (GER)
𝑡𝑜𝑡𝑎𝑙 𝑔𝑒𝑛𝑒𝑟𝑎𝑙 𝑒𝑥𝑝𝑒𝑛𝑠𝑒
𝑛𝑒𝑡 𝑠𝑎𝑙𝑒𝑠
𝑋100
=
83.961 ÷ 2
834.2
𝑋100
= 5.0%
𝑡𝑜𝑡𝑎𝑙 𝑔𝑒𝑛𝑒𝑟𝑎𝑙 𝑒𝑥𝑝𝑒𝑛𝑠𝑒
𝑛𝑒𝑡 𝑠𝑎𝑙𝑒𝑠
𝑋100
=
90.655 ÷ 2
855.8
𝑋100
= 5.3%
Financial
Expense Ratio
(FER)
𝑡𝑜𝑡𝑎𝑙 𝑓𝑖𝑛𝑎𝑛𝑐𝑖𝑎𝑙 𝑒𝑥𝑝𝑒𝑛𝑠𝑒
𝑛𝑒𝑡 𝑠𝑎𝑙𝑒𝑠
𝑋100
=
110.677
834.2
× 100
= 13.2%
𝑡𝑜𝑡𝑎𝑙 𝑓𝑖𝑛𝑎𝑛𝑐𝑖𝑎𝑙 𝑒𝑥𝑝𝑒𝑛𝑠𝑒
𝑛𝑒𝑡 𝑠𝑎𝑙𝑒𝑠
𝑋100
=
78.010
855.8
× 100
= 9.1%

6. 5
Stability Ratios
Stability Ratios 2013
(RM ’000)
2014
(RM ’000)
Working
Capital(WCR)
𝑡𝑜𝑡𝑎𝑙 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡
𝑡𝑜𝑡𝑎𝑙 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑏𝑎𝑖𝑙𝑖𝑡𝑖𝑒𝑠
=
247.743
94.629
= 2.62 : 1
𝑡𝑜𝑡𝑎𝑙 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡
𝑡𝑜𝑡𝑎𝑙 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑏𝑎𝑖𝑙𝑖𝑡𝑖𝑒𝑠
=
286.135
131.039
= 2.13: 1
Total Debt (TDR) 𝑡𝑜𝑡𝑎𝑙 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
𝑡𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡
𝑋100
=
94.629
328.940
𝑋100
= 28.8%
𝑡𝑜𝑡𝑎𝑙 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
𝑡𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡
𝑋100
=
131.039
362.559
𝑋100
= 36.1%
Inventory
Turnover (ITR)
365 ÷ [
𝐶𝑂𝐺𝑆
𝑎𝑣𝑔. 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
]
= 365 ÷ [
568.185
(64.651 + 68.019) ÷ 2
]
= 42.7 days
365÷ [
𝐶𝑂𝐺𝑆
𝑎𝑣𝑔. 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
]
= 365 ÷ [
597341
(84.429 + 66.651) ÷ 2
]
= 46.2 days
Debtor Turnover
(DTR)
365÷ [
𝑐𝑟𝑒𝑑𝑖𝑡 𝑠𝑎𝑙𝑒𝑠
𝑎𝑣𝑔. 𝑑𝑒𝑏𝑡𝑜𝑟𝑠
]
= 365 ÷ [
834.222 ÷ 2
(30.209 + 31.755) ÷ 2
]
= 7.1 days
365÷ [
𝑐𝑟𝑒𝑑𝑖𝑡 𝑠𝑎𝑙𝑒𝑠
𝑎𝑣𝑔. 𝑑𝑒𝑏𝑡𝑜𝑟𝑠
]
= 365 ÷ [
855.804 ÷ 2
(28.434 + 30.269) ÷ 2
]
= 25.0 days
Interest Coverage
(ICR) - -

7. 6
Interpretation
Profitability Ratios
Profitability Ratios 2013 2014 Interpretation
Return on Equity
(ROE)
47.2% 42.8%
During the 2013-2014 periods, the
ROE has decreased from 47.2% to
42.8%. This means that the owner is
getting less return on his/her capital
compare to last year.
Net Profit Margin
(NPM)
13.1% 11.7%
During the 2013-2014 periods, the
NPM has decreased from 13.1% to
11.7%. This means that the business
is getting worse in controlling its
expenses compare to last year.
Gross Profit Margin
(GPM)
31.9% 30.1%
During the 2013-2014 periods, the
GPM has decreased from 31.9% to
30.1%. This means the business is
getting worse in controlling the
COGS expenses compare to last year.
Selling Expense
Ratio (SER)
5.0% 5.3%
During the 2013-2014 periods, the
SER has increased from 5.0% to
5.3%. This means that the business
has getting worse in controlling its
selling expenses compare to last year.
General Expense
Ratio (GER)
5.0% 5.3%
During the 2013-2014 periods, the
GER has increased from 5.0% to
5.3%.This means that the business is
getting worse in controlling its
general expenses compare to last
year.
Financial Expense
Ratio (FER)
13.2% 9.1%
During the 2013-2014 periods, the
FER has decreased from 13.2% to
9.1%. This means that the business is
getting better in controlling its
financial expense This means that the
business is getting worse in
controlling its general expenses
compare to last year.

8. 7
Stability Ratios
Stability Ratios 2013 2014 Interpretation
Working Capital
2.62 : 1 2.13: 1
During the 2013-2014 periods, the
Working Capital decreased from
2.62: 1 to 2.13: 1. This means that the
business ability to pay off its current
liabilities is getting worse. In
addition, it satisfies the minimum 2: 1
ratio.
Total Debt
28.8% 36.1%
During the 2013-2014 periods, the
Total Debt has increased from 28.8%
to 36.1%. This means that the
business total debt has increased.
However, it does not exceed the
maximum 50% limit.
Stock Turnover
42.7 days 46.2 days
During the 2013-2014 periods, the
Stock Turnover has increased from
42.7 days to 46.2 days. This means
that the business is selling its stock
slower.
Debtor Turnover
27.1 days 25.0 days
During the 2013-2014 periods, the
Debtor Turnover has decreased from
27.1 days to 25 day. This means that
the business is using less time to
collect debt.
Interest Coverage There are no interest expenses in the
company.

9. 8
P/E Ratio
Price/Earning or P/E Ratio
=
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑠ℎ𝑎𝑟𝑒 𝑝𝑟𝑖𝑐𝑒
𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒
=
10.86
0.68
= 15.97
The Price Earnings Ratio (P/E Ratio) for Amway (Malaysia) Holdings Berhad as of 2nd June
2015 is 15.97. This means that an investor who bought a share of Amway Malaysia needs to
wait for 15.97 years to recoup his investment.
*figure obtained from http://data.cnbc.com/quotes/AMWA-MY at 2 June 2015

10. 9
Investment Recommendation
a) Profitability
Based on the ratio analysis, Amway (Malaysia) Holdings Berhad does not demonstrate
a good profitability from the period 2013 to 2014. The return on equity has decreased for
4.4%. This means that the owner is getting less return on his/her capital compare to last year.
Next, the company is getting worse at controlling its overall expense compare to last year as
their net profit margin decreased for 1.4%. Besides, the business’s gross profit margin has
decreased for 1.8% which means the business is getting worst in controlling the COGS
expenses compare to last year. Moreover, the business is getting worse in controlling its
selling expenses and general expenses compare to last year as it has increased for 0.3%.
Lastly, the business is getting worse in controlling its general expenses compare to last year
as it has decreased for 4.1%.
b) Stability
Based on the ratio analysis, Amway (Malaysia) Holdings Berhad does not have strong
financial stability from the period 2013 to 2014. The working capital of the company has
decreased which means the business ability to pay off its current liabilities is getting worse.
However, it satisfy the minimum 2 : 1 ratio. Besides, the total debt of the company has
increased for 7.3%. However, it does not exceed the maximum 50% limit. Moreover, the
company is selling its stock slower compare to last year as their stock turnover has increased
3.5 days. On the other hands, the company is using less time to collect debt as their debtor
turnover has decreased 2.1 days. Lastly, the company has no interest expenses.
c) Share price
The Price Earning Ratio (P/E Ratio) for Amway (Malaysia) Holding Berhad as of 2nd
June 2015 is 15.97. This means that an investor who bought a share of Amway Malaysia
needs to wait for 15.97 years to recoup his investment. However, it is higher than what a
conservative investor would pay, which is below 15 years.

11. 10
Conclusion
In conclusion, Amway (Malaysia) Holdings Berhad’s shares are not suitable for
investment because the company does not demonstrate a good profitability and strong
financial stability from the period 2013 to 2014. Besides, the company’s shares are quite
expensive as it takes 15.97 years for the investor to recoup his investment. It takes a longer
time than a conservative investor would wait, which is below 15 years.

12. 11
Appendices
Appendix 1 : Balance Sheet

13. 12

14. 13
Appendix 2 : P&L Statement

15. 14

16. 15
Appendix 3 : Share Price

17. 16
Reference
1. CRADOR NETWORK. (n.d.). Retrieved May 31, 2015, from
http://cradorglobal.blogspot.com/2011/09/amway-history-and-its-business.html
2. Arveena M. (2010, January 22). Amway Malaysia officially opens its new HQ. Retrieved
June 3, 2015, from http://www.theborneopost.com/2010/01/23/amway-malaysia-
officially-opens-its-new-hq/
3. Amway (Malaysia) Holdings Bhd (AMWA-MY :). (n.d.). Retrieved June 1, 2015, from
http://data.cnbc.com/quotes/AMWA-MY
4. AMWAY Malaysia. (n.d.). Retrieved June 1, 2015, from http://www.amway.my/about-
amway/our-company/amway-malaysia
5. AMWAY Malaysia. (n.d.). Retrieved June 3, 2015, from http://www.amway.my/about-
amway/our-company/amway-malaysia
6. AMWAY Malaysia. (n.d.). Retrieved June 1, 2015, from http://www.amway.my/about-
amway/our-company/amway-malaysia
7. Amway (Malaysia) Holdings Bhd (AMWA-MY :). (n.d.). Retrieved June 2, 2015, from
http://data.cnbc.com/quotes/AMWA-MY