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BWFF3023 CREDIT MANAGEMENT Table of Contents 1.0 INTRODUCTION 2 1.1 COMPANY PROFILE 2 1.2 QUALITY AND STANDARDS: 2 2.0 BALANCE SHEET OF APOLLO FOOD HOLDINGS BERHAD 2010 TO 2012 4 2.1 APOLLO FOOD HOLDINGS BERHAD BALANCE SHEET OF COMMON SIZE 2010 TO 2012 5 2.2 APOLLO FOOD HOLDINGS BERHAD INCOME STATEMENT 2010 TO 2012 6 2.3 APOLLO FOOD HOLDINGS BERHAD COMMON SIZE OF INCOME STATEMENT 2010 TO 2012 6 2.4 APOLLO FOOD HOLDINGS BERHAD CASH FLOW STATEMENT 2010 TO 2012 7 3.0 FINANCIAL RATIOS OF APOLLO FOOD HOLDINGS BERHAD 2011 TO 2012 8 4.0 APOLLO FOOD HOLDINGS BERHAD KEY RATIOS FOR CREDIT ASSESSMENT 9 4.1.0 LIQUIDITY RATIO 10 4.1.1 ACTIVITY RATIO 12 4.1.2 LEVERAGE RATIO 14 4.1.3 PROFITABILITY RATIO 15 5.0 CREDIT SCORING 17 6.0 CONCLUSION 20 REFERENCE: 21 1
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APOLLO FOOD HOLDINGS BERHAD

Feb 21, 2023

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Page 1: APOLLO FOOD HOLDINGS BERHAD

BWFF3023 CREDIT MANAGEMENT

Table of Contents

1.0 INTRODUCTION 2

1.1 COMPANY PROFILE 2

1.2 QUALITY AND STANDARDS: 2 2.0 BALANCE SHEET OF APOLLO FOOD HOLDINGS BERHAD 2010 TO 2012 42.1 APOLLO FOOD HOLDINGS BERHAD BALANCE SHEET OF COMMON SIZE 2010 TO 2012 52.2 APOLLO FOOD HOLDINGS BERHAD INCOME STATEMENT 2010 TO 2012 62.3 APOLLO FOOD HOLDINGS BERHAD COMMON SIZE OF INCOME STATEMENT 2010 TO 2012 62.4 APOLLO FOOD HOLDINGS BERHAD CASH FLOW STATEMENT 2010 TO 2012 73.0 FINANCIAL RATIOS OF APOLLO FOOD HOLDINGS BERHAD 2011 TO 2012 84.0 APOLLO FOOD HOLDINGS BERHAD KEY RATIOS FOR CREDIT ASSESSMENT 94.1.0 LIQUIDITY RATIO 104.1.1 ACTIVITY RATIO 124.1.2 LEVERAGE RATIO 144.1.3 PROFITABILITY RATIO 155.0 CREDIT SCORING 176.0 CONCLUSION 20REFERENCE: 21

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1.0 Introduction

This assignment is dedicated to analyse the industry

based on the past three (3) years report between 2010 to

2012. However, the report will include the Profit &

Loss, Balance Sheet and Cash Flow Statement which all can

help us to do the critical research on the company’s

credit assessment whether the company is capable to offer

a credit facility to a particular company. Moreover, we

start by introducing the company background, its industry

nature, and the distribution of products to overseas

markets.

1.1 Company Profile

The principal activities of APOLLO are investment holding

and provision of management services to subsidiaries. The

principal activities of the subsidiaries are manufacture

of and trading in compound chocolates and chocolate

confectionery products and cakes. Apollo Food Holdings

Bhd (APOLLO) was incorporated on 5th March 1994 as a

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private limited company under the name Apollo Food

Holdings Sdn Bhd. It subsequently converted into a public

company on 8th September 1994 and changed its name to

present

Apollo Food Industries Sdn Bhd, The Company that is

manufacturing compound chocolate confectionery products

and layer cakes based in Malaysia. Apollo’s product

mainly divided into two main categories, which are:

• Chocolate Wafer products

• Layer cake, Chocolate Layer Cake and Swiss roll products

As a leading manufacturer of the Chocolate Confectionery

Products and Layer Cake industry in Malaysia, the Apollo

products are distributed in Malaysia and other overseas

market, which are Singapore, Indonesia, Thailand,

Philippines, Vietnam, China, Hong Kong, Taiwan, Japan,

India, Middle East, Mauritius, and Maldives.

1.2 Quality and Standards:

Quality and innovation are one of the Apollo’s strengths.

The organization constantly strives to determine and

provide the resources needed

a) Implement and maintain the quality management system

and continually improve its effectiveness.

b) Produce the products with top quality of raw &

packaging materials

c) Using world class wafer and layer cake-manufacturing

machinery from Europe and constantly upgrade and

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improve to remain competitively.

d) Enhance customer satisfaction by meeting customer

requirements.

e) Recognize our customers’ needs by introduce

independence packaging.

f) Ensure the quality assurance procedures, the company

had accredited with HALAL.

Our AIM

To always fulfilled the customer needs and requirement by

using the latest equipment and technology.

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2.0 BALANCE SHEET OF APOLLO FOOD HOLDINGS BERHAD 2010to 2012

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BALANCE SHEET OF APOLLO FOOD HOLDINGS BHD 2010 to 2012DESCRIPTION 2010 2011 2012ASSETSNon Current AssetsProperty, plant, and equipment 98,972,511 113,958,

080118,105,5

58Investment Properties 13,206,429 14,165,2

2413,952,84

1Leasehold land use rights 11,648,849 5079204 2,399,690Available-for-sale investments 971,688 899820 2,835,298Deferred tax assets 6,600 36000 93,400Total non current assets 124,806,07

7134,138,

328137,386,7

87Current AssetsInventories 14,569,823 14,569,8

2317,221,36

3Trade Receivables 20,472,957 23,152,1

0826,221,65

4Other receivables, deposits and prepayments

1,846,001 1,058,136

2,642,793

Tax recoverable 2,953,003 1,205,418

383,986

Cash and cash equivalents 62,503,691 55,350,629

56,591,062

Total current assets 102,345,475

99,633,147

103,060,858

TOTAL ASSETS 227,151,552

233,771,475

240,447,645

EQUITY AND LIABILITIESShareholders’ EquityEquity attributable to equity holders of the companyShare capital 80,000,000 80,000,0

0080,000,00

0Reserves 123,176,46

5124,478,

300135,133,3

53Total Equity 203,176,46

5208,478,

300215,133,3

53Non current LiabilitiesRetirement benefits obligations 1,205,585 1,308,16

81,411,747

Deferred tax liabilities 14,760,035 15,894,465

16,290,795

Total non current liabilities 15,965,620 17,202,633

17,702,542

Current LiabilitiesTrade Payables 3,144,648 4,290,53

93,703,319

Other payables and accruals 3,217,520 3,538,628

3,594,711

Retirement benefits obligations 689,563 66,743 51,673Current tax liabilities 957,736 194,632 262,047Total current liabilities 8,009,467 8,090,54

27,611,750

Total liabilities 23,975,087 25,293,1 25,314,29

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2.1 APOLLO FOOD HOLDINGS BERHAD BALANCE SHEET OF COMMON SIZE 2010 to 2012

DESCRIPTION 2010 2011 2012ASSETSNon Current AssetsProperty, plant, and equipment

43.57% 48.75% 49.12%

Investment Properties 5.81% 6.06% 5.80%Leasehold land use rights 5.13% 2.17% 1.00%Available-for-sale investments

0.43% 0.38% 1.18%

Deferred tax assets 0.00% 0.02% 0.04%Total non current assets 54.94% 57.38% 57.14%Current AssetsInventories 6.41% 6.23% 7.16%Trade Receivables 9.01% 9.90% 10.91%Other receivables, deposits and prepayments

0.81% 0.45% 1.10%

Tax recoverable 1.30% 0.52% 0.16%Cash and cash equivalents 27.52% 23.68% 23.54%Total current assets 45.06% 42.62% 42.86%TOTAL ASSETS 100.00% 100.00% 100.00%EQUITY AND LIABILITIESShareholders’ EquityEquity attributable to equity holders of the companyShare capital 35.22% 34.22% 33.27%Reserves 54.23% 53.25% 56.20%Total Equity 89.45% 89.18% 89.47%Non current LiabilitiesRetirement benefits obligations

0.53% 0.56% 0.59%

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Deferred tax liabilities 6.50% 6.80% 6.78%Total non current liabilities

7.03% 7.36% 7.36%

Current LiabilitiesTrade Payables 1.38% 1.84% 1.54%Other payables and accruals

1.42% 1.51% 1.50%

Retirement benefits obligations

0.30% 0.03% 0.02%

Current tax liabilities 0.42% 0.08% 0.11%Total current liabilities 3.53% 3.46% 3.17%Total liabilities 10.55% 10.82% 10.53%TOTAL EQUITY AND LIABILITIES

100.00% 100.00% 100.00%

2.2 APOLLO FOOD HOLDINGS BERHAD INCOME STATEMENT 2010to 2012

DESCRIPTION 2010 2011 2012

DATE OF FISCAL YEAR END 4/30/10 4/30/11 4/30/12REVENUE 159,531,2

55176,291,9

85200,548,4

62COST OF SALES 114,034,4

44136,036,3

06155,455,4

66GROSS PROFIT 45,496,81

140,255,67

945,092,99

6OTHER INCOME 6,315,337 2,228,062 2,870,847ADMINISTRATIVE EXPENSES 10,818,40

611,335,98

811,013,65

8SELLING AND DISTRIVUTION EXPENSES 6,652,111 6,171,497 8,356,522OTHER OPERATING EXPENSES 2,093,865 2,399,332 -PROFIT BEFORE TAX 32,247,76

622,576,92

428,593,66

3INCOME TAX EXPENSES 7,570,774 4,722,703 6,852,338PROFIT FOR THE YEAR 24,676,99

2 17,854,

22121,741,32

5ATTRIBUTABLE TO: EQUITY HOLDERS OF THE COMPANY

24,676,992

17,854,221

21,741,325

EARNINGS PER SHARE ATTRIBUTABLE TO EQUITY HOLDERS

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Basic, for profit for the year 30.85 22.32 27.18Diluted 30.85 22.32 NADividend Per Share 20 25 20

DESCRIPTION 2010 2011 2012

DATE OF FISCAL YEAR ENDREVENUE 100.00

%100.00

%100.00

%COST OF SALES 71.48% 77.17% 77.52%GROSS PROFIT 28.52% 22.83% 22.48%OTHER INCOME 3.96% 1.26% 1.43%ADMINISTRATIVE EXPENSES 6.78% 6.43% 5.49%SELLING AND DISTRIVUTION EXPENSES 4.17% 3.50% 4.17%OTHER OPERATING EXPENSES 1.31% 1.36%PROFIT BEFORE TAX 20.21% 12.81% 14.26%INCOME TAX EXPENSES 4.75% 2.68% 3.42%PROFIT FOR THE YEAR 15.47% 10.13% 10.84%ATTRIBUTABLE TO: EQUITY HOLDERS OF THE COMPANY 15.47% 10.13% 10.84%

2.3 APOLLO FOOD HOLDINGS BERHAD COMMON SIZE OF INCOMESTATEMENT 2010 to 2012

2.4 APOLLO FOOD HOLDINGS BERHAD CASH FLOW STATEMENT 2010 to 2012

APOLLO FOOD HOLDINGSDESCRIPTION 2010 2011 2012

DETAILED

DETAILED

DETAILED

DATE OF FISCAL YEAR END 4/30/10 4/30/11 4/30/12CASH FLOWS FROM OPERATING ACTIVITIESPROFIT BEFORE TAX 32,247,

76622,576,

92428,593,

663Adjustment for:

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Depreciation of property, plant an equipment

8,491,033

8,724,462

9,290,859

Depreciation of investment properties

128,498 212,383 212,383

Amortisation of leasehold land use rights

616,905 283,355 163,842

Unrealised loss/(gain) on foreign currency translations

274,877 803,911 121,152

Provision for retirement benefits 240,525 169,193 160,992Property, plant and equipment written off

402 220 20

Inventories written off 95,341 111,947 219,398Bad debts written off 90,935 1,013 35,945Gain on disposal of investments 4,199,6

04217,010 212,424

Interest Income 1,212,449

1,304,210

1,579,998

Rental income from investment properties

315,400 320,700 314,400

Dividend income 141,369 23,364 106,881Loss/gain on disposal of property, plant and equipment

1,850 6,999 7,550

Reversal of/allowance for diminutionin value of investments

161,726 -

Operating profit before working capital changes

36,157,584

31,011,125

36,347,797

Changes in working capitalInventories 2,456,3

864,408,9

801,426,0

95Receivables 190,788 2,021,9

994,648,6

27Payables 665,717 1,466,9

99531,137

Cash generated from operations 34,176,127

26,047,145

32,594,128

Interest received 1,134,545

1,385,662

1,591,745

Income tax refunded 2,078,032

Taxes paid 3,182,129

5,580,438

6,014,744

Payment of retirement benefits 16,358 689,430 72,483Net cash generated from operating activities

32,112,185

23,240,971

28,098,646

CASH FLOWS FROM INVESTING ACTIVITIES

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Purchase of available-for-sale investments

2,454,906

Proceeds from disposal of investments

16,760,231

527,851 807,859

Rental received from investment properties

315,400 320,700 314,400

Dividend received 109,647 23,031 106,881Purchase of property, plant and equipment

14,341,284

14,066,592

9,703,331

Purchase of investmentPurchase of leasehold land use rights

3,100,000

1,050,000

-

Proceeds from diposal of plant equipment

400 7,000 3,000

Net cash used in financing activities

255,606 14,238,370

10,926,097

CASH FLOWS FROM FINANCING ACTIVITIESDividends paid 12,000,

00015,400,

00016,000,

000Net cash used in financing activities

12,000,000

15,400,000

16,000,000

NET INCREASE IN CASH AND CASH EQUIVALENTS

19,856,579

6,397,399

1,172,549

Currency translation differences 210,803 755,663 67,884CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

42,857,915

62,503,691

55,350,629

CASH AND CASH EQUIVALENTS AT END OF YEAR

62,503,691

55,350,629

56,591,062

3.0 FINANCIAL RATIOS OF APOLLO FOOD HOLDINGS BERHAD 2011 TO 2012

Liquidity ratio

Liquidity Ratios 2010 2011 2012

1) Current ratio = Current assets/Current liabilities 12.78 12.31 13.54

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2) Quick ratio = Current assets-inventory & other current assets/Current liabilities 10.96 10.51 11.28

3) Cash ratio = Cash and equivalents/current liabilities 7.80 6.84 7.43

4) Receivable turnover = Revenue/Average receivable (times) 7 7 8

5) Average receivable collection period = 365 days/Receivable turnover (day) 50 51 48

Operating Efficiency Ratios 2010 2011 2012

1) Total asset turnover = net sales/total net assets(times) 0.70 0.75 0.83

2) Net fixed asset turnover = net sales/ total fixedassets (times) 1.28 1.30 1.46

3) Inventory turnover = COGS/Average inventory (times) 7.83 8.56

9.034) Account receivables turnover = Sales/Receivables (times) 7.79 7.61 7.65

Leverage ratio 2010 2011 2012

1) Debt ratio = Total debt/total assets 10.55 10.82 10.532) Debt to equity ratio = Total debt/total equity

11.80 12.13 11.77

Operating Profitability Ratios

2010 2011 2012

1) Gross profit margin = gross profit/net sales (%) 28.52 22.83 22.48

2) Operating profit margin = operating profit/net sales (%) 20.21 12.81 14.26

3) Net profit margin = net income/net 15.47 10.13 10.84

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sales (%)4) Return on assets (ROA) = net income/total assets (%) 10.86 7.64 9.04

5) Return on equity (ROE) = net income/total equity (%) 12.15 8.56 10.11

Earning Per Share(EPS)= net income/common stock 9.52 9.99 7.39

4.0 Apollo Food Holdings Berhad Key Ratios For CreditAssessment

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Ratio AnalysisCustomer: Apoollo Holdings Berhad

2012 2011 2010 CommentsLIQUIDITY1 Current ratio (times)

13.54 12.31 12.78 Improved

2 Quick ratio (times) 11.28 10.51 10.96 Improved

ACTIVITY3 Inventory turnover (days) 9.03 8.56 7.83 Efficient

4 Average collection 48 51 50 Moderate5 Total asset turnover

0.83 0.75 0.70 Least moderate

6 Fixed assets turnover

1.46 1.30 1.23 Well Managed

7 Account receivable turnover

7.65 7.61 7.69 Faster Cash

DEBT Debt ratio ratio (%) 10.53% 10.82% 10.55% Debt to equity ratio(%)

11.77% 12.13% 11.80%

PROFIT AND GROWTH Gross profit margin 22.48 % 22.83% 28.52% Operating margin (%) 14.26% 12.81% 20.21% Net margin (%) 10.84% 10.13% 15.47%

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Credit assessment of the company based on the key ratios

plays an important role to determine and avoid from the

further disputes between counterparties. Therefore, I

have selected the key ratios to analyse the company from

the above tables. These selected ratios can help me to

get the clear picture of the company credit worthiness by

comparing to its average industry ratios. Obviously

speaking, whether the company is worth to get a credit

loan or not. However, there are a lot of ratios given in

the tables above and it does not mean, unselected ratios

will not mean anything but in the case of giving a credit

to the company, I, myself, meticulously decided to use

the pivotal financial ratios in order to reach a

destination and get a clear picture of the company. As

you can see from the above table, financial ratios have

been divided into particular groups that specify the key

roles of the company in terms of liquidity, leverage,

activity, and profitability.

4.1.0 Liquidity ratio

Liquidity – is concerned with the firm’s ability to meet its

day to day operating expenses and satisfy its short-term

obligations as they come due. Of major concern is whether

a company has adequate cash and other liquid assets on

hand to service its debt and operating needs in a prompt

and timely fashion. Subdivided groups of liquidity are

current ratio, acid ratio

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Current ratio tells you about the company’s ability to meet

debts from assets becoming cash in the short-term.

Current can be defined by dividing the currents assets

over current liabilities. Current ratio 2010 2011 2012LBH 0.72 0.94 0.58OFI 3.79 2.96 2.64AFH 12.78 12.31 13.54Average 5.76 5.40 5.59

Time Series Analysis

London Biscuits Berhad’s current ratio is at the above

table over the given years. For their current ratio in

2010 was 0.72. The coming next year, in 2011increased to

0.94, about 0.22 difference. In 2012, suddenly its

decreased to 0.58 from the past year.

For Oriental Food Industries Berhad’s current ratio is

3.79 in 2010. The coming next years, it dropped about

0.83 which is 2.96. In 2012, the company’s current ratio

fell down slightly to 2.64

For Apollo Food Holdings Berhad’s current ratio were

12.78 in 2010. At the next year, its decreased ratio was

12.31, which was the difference 0.47. The company’s

current ratio increased back in 2012, becomes 13.54.

Cross Sectional

However, as you can see the average industry ratio in

2010 was 5.76. In the next following years, 2011, 2012

5.40 and 5.59 respectively. The companies’ current ratio

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was less than the average industry except Apollo Food

Holdings Berhad so that Apollo’s current ratio is greater

than the average industry current ratio and it indicates

that Apollo Food Holdings Berhad can able to meet their

short-term obligations successfully. In other terms, the

company’s ability to meet its debt from assets is quite

good.

Quick ratio or Acid ratio – the more available cover for debts

after excluding stocks or inventory. A company should be

able to meet most of its debts without selling more

stocks. Quick ratio 2010 2011 2012LBH 0.51 0.80 0.45OFI 2.75 2.24 1.94AFH 10.96 10.51 11.28Average 4.74 4.52 4.56

London Biscuits Berhad’s quick ratio for 2010 was 0.51.

After that, it has increased by 0.80, in 2011. However,

in 2012 its quick ratio decreased to 0.45.

Oriental Food Industries Berhad’s quick ratio started by

2.75, in 2010. Although, in 2011, decreasing about 0.51,

by 2.24. Then, it has dramatically decreased to 1.94 in

2012, which was less than the previous years.

Apollo Food Holdings Berhad, however, the company started

its quick ratio by 10.96. Although, its decreasing the

difference at the next years was 0.45, by 10.51. But it

had a positive increase in 2012, which set the quick

ratio by 11.28

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Thus, as you can see from the above table both companies

London Biscuits and Oriental Food Industries which can

indicate the inability to meet its short term obligations

without their inventories being liquidated.

Cross Sectional

On the other hand, Apollo Food Holdings Berhad, has a

higher quick ratio than the average industry for three

years. The average industry ratios were 4.74, 4.52, and

4.56 respectively. It merely indicates that the company

has an ability to meet its short-term obligations without

its inventories being liquidated.

4.1.1 Activity ratio

Activity ratio - that tells you the comparison of the

company’s sales to various asset categories in order to

measure how well the company is utilizing its assets. I

have compiled the inventory turnover, fixed asset

turnover, and total asset turnover.

Inventory turnover indicates a huge amount of attention over

its management. More importantly, controlling the

inventory is important to the well being of a company and

is commonly assessed with the inventory turnover measure.Inventory Turnover 2010 2011 2012LBH 7.08 6.87 9.45OFI 8.96 9.87 10.13AFH 7.83 8.56 9.03Average 7.96 8.43 9.54

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Average industrial inventory turnover for 2010, 2011 and

2012 were 7.96 8.43, and 29.54 respectively. However,

Apollo Food Holdings Berhad has shown its improvement

over three years by 7.83, 8.56, and 9.03 respectively but

its turnover rate in 2010 was slightly less than its

average industrial rate at the same year, 2010, which

could indicate that the company was not effective in

changes inventory to sales. However, at the next

following year, Apollo’s inventory turnover rate has made

a dramatic increase by 8.56 which is greater than average

rate, 8.43 that would indicate the company was effective

in changes inventory to sales. In 2012, although, it has

suddenly dropped again from the industry average ratio by

5.03 from the average industry ratio 9.54, that would be

said that the company was not effective in 2012

On the other hand, total asset turnover shows how efficiently

assets being use to support sales. Average CollectionPeriod 2010 2011 2012

LBH 42.97 71.26 84.49OFI 47.73 55.75 47.90AFH 50.00 51.00 48.00Average 46.90 59.34 60.13

Days sales outstanding for London Biscuits Berhad show

that continues to increase, from 2010 to 2012, by 42.97,

71.26, and 84.49 respectively.

For the Oriental Food Industries company show that

changes are not consistent. In 2010, was 47.73 and the

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next year it had increased to 55.75 but in 2012, its days

sales outstanding decreased to 47.90

For Apollo, in 2010, is days sales outstanding was 50 and

increased slightly at the following year. In 2012, its

days sales outstanding decreased to 48. As comparison to

its average industry, LB is not effective to collect its

account receivables. However, OFI has shown good

performance in 2010 and 2012 but 2011 its days increased.

Apollo’s collection period started by 50 in 2010, which

means that greater than average in that year, 2010. In

2011, the company has done well in collecting its

receivables because the collection period was less than

the average industry period. However, in 2012, the

company has done again well comparing to the previous

years by 48 days which is good than the average period.

Obviously, comparison to the industry average rate was

effective except 2010 because it might have taken the

company to collect its account receivables slower than

other companies.

The last of the activity ratio is fixed assets. A financial

ratio of net sales to fixed assets. The fixed-asset

turnover ratio measures a company's ability to generate

net sales from fixed-asset investments - specifically

property, plant and equipment (PP&E) - net of

depreciation. A higher fixed-asset turnover ratio shows

that the company has been more effective in using the

investment in fixed assets to generate revenues

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Fixed assets 2010 2011 2012LBH 0.57 0.62 0.51OFI 1.47 1.80 2.27AFH 1.23 1.30 1.46Average 1.09 1.24 1.41

Average industry fixed asset turnover ratio in 2010, was

1.09 and in the following year, 2011 was 1.24 and 1.41

respectively in 2012. If you see the above table all

three LBH was not effective the to manage its fixed

assets however, it was the worst company among other two

companies and the rest of two companies OFI and AFH are

quite well to manage their fixed assets in contrast to

its average industry fixed asset turnover rate. For

instance, Apollo Food Holdings, fixed asset turnover

ratio was 1.23 in 2010 and it was good than its average

ratio in the same year, by 1.09. At the next year, 2011,

the company’s ratio has been increased by 1.30, which was

greater by the difference 0.06, 1.24. In 2012, the

Apollo’s fixed asset ratio was 1.4 and it was greater

also from the average industry ratio.

Total asset turnover - the amount of sales generated for

every dollar’s worth of assets. It is calculated by

dividing sales in ringgit by assets in ringgit. Total asset turnover 2010 2011 2012LBH 0.45 0.39 0.41OFI 0.92 1.03 1.23AFH 0.70 0.75 0.83Average 0.69 0.72 0.82

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Two companies are effective because its average industry

ratios were less than each company’s ratios. AFH has

0.70, 0.75 and 0.83 over three years, 2010, 2011, and

2012 respectively. The companies were effective or in

other terms corporate resources were being well managed

that the firm would be able to realize a high level of

sales and ultimately, profits from its asset investments.

4.1.2 Leverage ratio

Leverage measures - which can composite of debt ratio and

debt equity ratio. A ratio indicates what proportion of

debt a company has relative to its assets. The measure

gives an idea to the leverage of the company along with

the potential risks the company faces in terms of its

debt-load. Debt ratio can be defined by dividing the

total debt over the company’s total assets. Debt ratio 2010 2011 2012LBH 0.50 0.52 0.46OFI 0.17 0.20 0.21AFH 0.10 0.10 0.10Average 0.26 0.27 0.26

Two companies were doing the good job to manage on their

debt except London Biscuit because had a ratio of 0.50 in

2010, at the next coming year; it has increased to 0.52

slightly. However, the company’s debt ratio decreased to

0.46. The company has not been managing its debt over

three years in comparison to its industry average ratio

and it was greater than the average industrial ratio.

However, OFI, the company also did the good job in

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comparing the previous company and it is relatively low

as you can see from the above table. The company 0.17,

0.20 and 21 over three years respectively. However, the

best company to manage its debt in a low ratio is Apollo

Food Holdings, the company has done the outstanding job

in contrast to both previous companies as well as average

industry ratio. The company’s debt ratio for year 2010,

2011, 2012 are 0.10. Its average industry ratio 0.26,

0.27 and 0.26, which were good for Apollo. It has become

constant for the year continuously.

Debt to equity ratio – A measure of a company’s financial

leverage calculated by dividing its total liabilities by

stockholder’s equity. It indicates what proportion of

equity and debt the company is using to finance its

assets.

Debt to equity ratio 2010 2011 2012LBH 1.27 1.48 1.02OFI 0.20 0.24 0.27AFH 0.12 0.12 0.12Average 0.53 0.61 0.47

In year 2010, the debt/equity ratio for LBH is 1.27. For

the next year, which is in 2011, it becomes increased to

1.48. Although, in 2012, the company’s debt/equity ratio

decreased sharply to 1.02 comparing to the previous

years.

The OFI debt/equity ratio for 2010 is 0.20. It has been

increased in year 2011, from 0.20 to 0.24. In year 2012,

the company has set the ratio to 0.27

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Apollo’s debt/equity ratio is constant over three years,

which is started constantly by 0.12, in 2010 until 2012.

Two companies were good on their debt/equity ratio, which

was less than its average industry ratio. However, the

most preferable company is Apollo, which has a relatively

low debt/equity ratio in contrast to its counterparties.

4.1.3 Profitability ratio

Gross profit - The gross profit margin ratio is used as

one indicator of a business's financial health. It shows

how efficiently a business is using its materials and

labour in the production process and gives an indication

of the pricing, cost structure, and production efficiency

of your business. The higher the gross profit margin

ratio the better.

Gross Profit 2010 2011 2012LBH 0.24 0.23 0.23OFI 0.29 0.26 0.22AFH 0.29 0.23 0.22Average 0.27 0.24 0.22Apollo has less gross profit margin over three years in

comparison to its average industry ratio. However, Apollo

has a ratio of 0.29, 0.23 and 0.22. In comparison to its

average industry ratio, in 2010, Apollo has done well

because its gross profit margin was 0.29 comparing to

industry average. In the next year, 2011, the company’s

gross profit margin declined to 0.23 by showing the 2011,

company’s gross profit margin was less than the average

industry ratio. In 2012, however, Apollo’s gross profit

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margin dropped slightly by the difference 0.01 and

equaled to the average ratio. During two years, company’s

gross profit margin was stable except in 2010.

Operating income margin is a measurement of what

proportion of a company's revenue is left over after

paying for variable costs of production such as wages,

raw materials, etc. A healthy operating margin is

required for a company to be able to pay for its fixed

costs, such as interest on debt.Operating Income 2010 2011 2012LBH 0.01 0.03 0.03OFI 0.02 0.00 0.01AFH 0.20 0.13 0.14Average 0.08 0.05 0.06

As you can see from the above table, 0.20 started

Apollo’s operating income in 2010. Although its

decreasing ratio in the next year, 2011, by 0.13. In

2012, operating income has started to make a slight

improvement by 0.14. Thus, operating margin of Apollo has

done quite well in comparison to its average industrial

ratio. For instance, in 2010, the average industry ratio

was 0.08, which less than the company by 0.12, at the

following years, the industry average ratio declined to

0.05 and comparing to the company’s ratio 0.13, the

average industry ratio looked less by 0.07.

In 2012, the average industry ratio was 0.06, which was

less than the company-operating margin by the difference

0.09.

Net profit margin - The net profit margin ratio is the

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net profit as a proportion of sales. The net profit

margin ratio shows the proportion of every dollar of

sales that is left after all expenses have been paid, and

remains as net profit.

Net profit is used to pay for interest, tax and

distribution to the owners. The higher the net profit

margin ratio the better.

Net profit margin 2010 2011 2012LBH 0.08 0.07 0.05OFI 0.10 0.06 0.07AFH 0.15 0.10 0.11Average 0.11 0.08 0.08

Net profit margin of Apollo has in three years are

neither constant nor improved, however, it has fluctuated

three by decreasing and the next following by a slight

increase. Apollo’s net profit margin was greater than the

industrial average ratio in 2010, by 0.15. It could show

us that Apollo might have been dealt well with the

interest and tax expenses. At the next following year,

although, it’s fallen to 0.10, by the difference 0.05 but

the ratio was still greater than the average industry

ratio and it had done quite well. In 2012, it has

increased back to 0.11 by the difference 0.01 from the

previous year, although the industrial average ratio was

less than Apollo’s net profit margin. Therefore, Apollo

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Food Holdings Berhad profitability was good and it has

improved over three years.

However, Apollo has done well if you compare to its

competitors during the three years. Apollo has started by

0.15 in 2010. In the next following year, it has dropped

by 0.10, the difference 0.05. In 2012, the net profit

margin has slightly increased back by 0.11. Hence, the

ratios of two companies over three years are less than

the average industrial ratios, which can indicate the

company is not effective.

** LBH – London Biscuits Holdings (Bhd)

** OFI - Oriental Food Industries (Bhd)

** AFH – Apollo Food Holdings (Bhd)

5.0 Credit Scoring

The objective of the system may reduce bias. In practice,

credit scoring, which is now computerised, is practical

when the number of applicant is large. Otherwise, it

would be too costly to develop the system. Computation of

scores can be delegated and response time can be reduced.

Credit scoring is an important part of evaluating the

company’s risk. The Altman Z-Score remains the foundation

of corporate scoring principles. Altman defined the

variables for both private and publicly quoted companies.

Current Assets (CA)

Total Assets (TA)

Interest (IN)

Current Liabilities (CL)

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Market Value of Equity (VE)

Earnings Before Taxes (ET)

Retained Earnings

Using the above variables, Altman devised five major

components for the Z-Score formula.

1. X1 Working Capital/Total Assets (or CA – CL) divided

by TA.

2. X2 Retained Earnings/Total Assets

3. X3 Earnings before Tax + Interest/Total Assets

4. X4 Market Value of Equity/Total Liabilities

5. X5 Net Sales/Total Assets

The Z-Score calculation in effect combines the above

ratio factors, with each ratio assigned a different

weighting, and calculate a score, which itself then is

the indicator of likely failure or continued success. The

formula devised by Altman is:

Z2010 = 0.012X1 + 0.014X2 + 0.033X3 + 0.006X4 + 0.999X5

X1 = 102,345,475 – 8,009,467/227,151,552 = 41.5 %

X2 = Retained Earnings/Total Assets

= 113,800,000/227,151,552

= 50.1%

X3 = Earnings Before Tax + Interest/Total Assets

= 32, 247, 766/227,151,552 = 14.2%

X4 = Market Value of Equity/ Total Liabilities

= 80,000,000/23,975,087 = 333.6 %

X5 = Net Sales/Total Assets

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= 159,531,255/227151,552 = 0.70

Z2011 = 0.012X1 + 0.014X2 + 0.033X3 + 0.006X4 + 0.999X5

X1 = 99,633,147 – 8,090,542/233,771,475 = 39.2 %

X2 = Retained Earnings/Total Assets

= 116,000,000.8/227,151,552

= 49.6%

X3 = Earnings Before Tax + Interest/Total Assets

= 22, 576, 924/233,771,475 = 9.65 %

X4 = Market Value of Equity/ Total Liabilities

= 80,000,000/25,293,175 = 316.0

X5 = Net Sales/Total Assets

= 159,531,255/233,771,475 = 0.75

Z2012 = 0.012X1 + 0.014X2 + 0.033X3 + 0.006X4 + 0.999X5

X1 = 103,060,858 – 7,611,750/240,447,645 = 39.6 %

X2 = Retained Earnings/Total Assets

= 129,000,000.6/240,447,645

= 7.37

X3 = Earnings Before Tax + Interest/Total Assets

= 28,593,663/240,447,645 = 11.8 %

X4 = Market Value of Equity/ Total Liabilities

= 80,000,000/25,314,292 = 316.02

X5 = Net Sales/Total Assets

= 200,548,462/240,447,645= 0.83

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FYI: For publicly quoted companies, equity is deemed to

be the market value of all outstanding common and

preference stock.

Now, we put the derived values into formula below table

and get the scores in each year.

Z – Score

Summary2010 2011 2012

Z= 0.012X1 + 0.014X2 + 0.033X3 +0.006X4 + 0.999X5

4.4 4.1 3.7

Interpretations vary between analysts, and there can be

influencing factors in differing industries, but broadly

speaking, the following can be deduced from final scores.

3.0 or more – the most likely to survive

2.7 to 3.0 - should survive, but bordering on a grey

area, and certainly below the line for more definite

chances of survival

1.8 to 2.7 – could well be heading for insolvency

within two years. If the total doubtful area is

taken as 1.8 to 3.0, then this is more doubtful in

order to be sure of survival a company with this

score may well have to take serious action

FYI: For publicly quoted companies, equity is deemed to

be the market value of all outstanding common and

preference stock.

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6.0 Conclusion

To conclude, Apollo Food Holdings Berhad is financially

healthy and safe company to give a credit based on the

above scoring data as well as the company’s financial

ratios and statements. As a credit manager, there would

not be further disputes over bad debts because the

factual data is showing us about the company’s financial

health to be safe.

Reference:

http://www.securities.com/Public/company-profile/MY/

Apollo_Food_Holdings_Berhad_en_1660206.html

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